Hedge fund ‘warned Australian regulator’ of Greensill

A brief hedge fund supervisor raised issues with Australia’s monetary regulator over Greensill Capital three months earlier than the London-based monetary group warned it may implode.

John Hempton of Bronte Capital stated he wrote to the Australian Prudential Regulation Authority in November to report the Sydney-based Insurance coverage Australia Group publicity to Greensill.

Greensill, a provide chain finance specialist who lends cash to firms to pay their suppliers, depends on insurance coverage to guard it towards buyer failures.

Hempton, recognized for betting towards firms corresponding to Valeant Prescribed drugs and Wirecard, raised issues in regards to the stage of insurance coverage prolonged to Greensill by IAG, calling it a “potential solvency danger” for the group, in its letter. at APRA.

Hempton additionally cited the danger held by Japan’s Tokio Marine, which in 2019 acquired IAG’s 50% stake in business credit score underwriter BCC, which was Greensill’s important underwriter. The 2 firms may very well be in a “world of ache,” he stated.

On Monday, Hempton shared the letter in a weblog submit, noting that the regulator had handled him “professionally”. He added: “They requested me a couple of particular questions however gave me no indication as to whether or not they took these points critically or what they thought.”

Hempton stated there have been no firms listed initially lacking, however I did not need to limit my capability to barter ”.

The case culminated in a dramatic authorized showdown final week as Greensill tried to power Tokio Marine and IAG to increase two insurance policies overlaying $ 4.6 billion in working capital funding.

Court docket paperwork revealed that Tokio Marine notified Greensill of its resolution to finish protection in July, after discovering {that a} BCC underwriter had exceeded their danger limits, insuring quantities in extra of $ 10 billion. Australian {dollars} (7.7 billion US {dollars}). The underwriter was terminated.

Failure to keep up insurance coverage protection can be “catastrophic” for Greensill, jeopardizing 50,000 jobs amongst his shoppers, his legal professionals stated. However the decide dismissed the injunction, citing Greensill’s resolution to take the case to courtroom on the eleventh hour, after he had discovered of the insurers’ resolution to not prolong protection since mid-July. ‘final 12 months. The lack of insurance coverage sparked a collection of occasions that pushed Greensill to the brink of insolvency.

APRA stated it had “no feedback on these points.”

In Monday’s weblog submit, Hempton stated IAG’s publicity could not turn into materials, given the sale of BCC’s stake – until it’s pressured into future authorized proceedings. to resume the duvet. Credit score Suisse may “maintain the bag,” he advised.

Final week, the Swiss financial institution introduced it could lower $ 10 billion in provide chain finance funds linked to Greensill, citing “the lowered availability of insurance coverage protection for brand spanking new investments” because the one of many causes for his transfer.

An individual briefed on Credit score Suisse’s place stated the financial institution “works underneath the belief” that insurance coverage insurance policies pays within the occasion of default, as they did within the case of NMC Well being, the previous firm. FTSE which collapsed final 12 months. . However they added: “This is likely one of the large unanswered questions.”

Credit score Suisse declined to remark.

A spokesperson for IAG pointed to the sale of its stake in BCC as “a part of IAG’s resolution to deal with fundamental normal insurance coverage, which meant the exit of numerous companies. who have been promoting area of interest insurance coverage merchandise ”.

An individual acquainted with the matter stated that IAG’s publicity to Greensill had been raised between her and the regulator in common discussions, and the publicity was not thought-about materials.

Tokio Marine declined to touch upon its remaining publicity to Greensill.