A brief-selling hedge fund supervisor raised issues with Australia’s monetary regulator about Greensill Capital three months earlier than the London-based monetary group warned it might implode.
John Hempton of Bronte Capital stated he wrote to the Australian Prudential Regulation Authority in November to flag Sydney-based Insurance coverage Australia Group’s publicity to Greensill.
Greensill, a now-teetering supply chain finance specialist, which lends companies cash to pay their suppliers, depends on insurance coverage to guard it in opposition to shopper defaults.
Hempton, recognized for his bets in opposition to firms similar to Valeant Prescription drugs and Wirecard, raised issues concerning the degree of insurance coverage prolonged to Greensill by IAG, calling it “probably a solvency threat” for the group, in his letter to APRA.
Hempton additionally cited the chance held by Japan’s Tokio Marine, which in 2019 acquired IAG’s 50 per cent stake in commerce credit score underwriter BCC, which had been the principle underwriter to Greensill. Each firms could possibly be in a “world of ache”, he stated.
On Monday, Hempton shared the letter in a blog post, noting that the regulator had handled him “professionally”. He added: “They requested me a number of exact questions however gave me no indication as to whether or not they took these points significantly or what they have been considering.”
Hempton stated he was “initially not quick any firm talked about, however I didn’t need to limit my skill to commerce”.
The matter got here to a head in a dramatic legal showdown final week as Greensill tried to pressure Tokio Marine and IAG to increase two insurance policies overlaying $4.6bn of working capital financing.
The courtroom paperwork revealed that Tokio Marine notified Greensill of its determination to cease protection in July, after it found that an underwriter at BCC had exceeded his threat limits, insuring quantities that added as much as greater than A$10bn (US$7.7bn). The underwriter was dismissed.
Failure to proceed its insurance coverage cowl could be “catastrophic” for Greensill, placing at risk 50,000 jobs amongst its shoppers, its legal professionals stated. However the decide denied the injunction, citing Greensill’s determination to convey the matter to courtroom on the eleventh hour, when it had recognized of the underwriters’ determination to not prolong the quilt for the reason that center of final yr. The lack of insurance coverage triggered a sequence of occasions which have pushed Greensill to the brink of insolvency.
APRA stated it had “no touch upon these issues”.
In Monday’s weblog publish, Hempton stated IAG’s publicity might not grow to be massive, given the BCC stake sale — except it was compelled in any future authorized proceedings to resume the quilt. Credit Suisse could possibly be left “holding the bag”, he prompt.
Final week, the Swiss financial institution stated it could wind down $10bn of supply-chain finance funds linked to Greensill, citing “the diminished availability of insurance coverage protection for brand spanking new investments” as one of many causes for its transfer.
An individual briefed on Credit score Suisse’s stance stated the financial institution was “working underneath the speculation” that the insurance coverage insurance policies would pay out within the occasion of a default, as they’d performed within the case of NMC Well being, the previous FTSE firm that collapsed final yr. However they added: “This is among the large questions excellent.”
Credit score Suisse declined to remark.
An IAG spokesperson highlighted the sale of its BCC stake as “a part of IAG’s determination to deal with core basic insurance coverage, which meant the exit from numerous companies which bought area of interest insurance coverage merchandise”.
An individual acquainted with the matter stated that IAG’s publicity to Greensill had been raised between it and the regulator as a part of common discussions, and the publicity was not regarded as materials.
Tokio Marine has declined to touch upon its remaining publicity to Greensill.