Germany’s financial watchdog has filed a criminal complaint against Greensill Bank’s management for suspected balance sheet manipulation, according to people briefed on the matter.
The complaint, filed with criminal prosecutors in Bremen where the bank is based, comes as its parent company, Greensill, prepares to file for insolvency protection in the UK but transfer viable parts of the business to Apollo Global Management.
A deal with Apollo would be likely to wipe out Greensill’s shareholders such as SoftBank’s Vision Fund. The Japanese conglomerate’s $100bn technology fund poured $1.5bn into the business in 2019, but has already substantially written down the value of its stake.
The move by German officials on Wednesday complicates efforts to salvage parts of the Greensill empire, a once high-flying supply-chain finance group backed by SoftBank and advised by former British prime minister David Cameron.
The complaint relates to the interim findings of a forensic probe of Greensill Bank’s balance sheet that audit firm KPMG began at BaFin’s behest late last year. Balance sheet manipulation can be punished with up to three years in jail under German law.
BaFin, Germany’s financial watchdog, also imposed a moratorium on the bank’s business on Wednesday afternoon, effectively freezing its operations. In one of the next steps, the lender will be wound down.
“There is an imminent risk that the bank will become over-indebted,” BaFin said in a statement, adding that the bank was “closed for business with customers” and would be banned from accepting payments.
About 85 per cent of the lender’s €3.5bn of deposits are from retail investors and insured by Germany’s public deposit insurance scheme, but institutional depositors are poised to take a €500m hit.
The KPMG audit raised concerns over the level of the bank’s exposure to companies linked to metals magnate Sanjeev Gupta, who is not a subject of the complaint and has not been accused of wrongdoing.
Greensill Bank said it had received “extensive advice” from German and UK law firms about classifying receivable assets, and auditors had reviewed and approved the classification.
“For the avoidance of doubt, Greensill Bank has at all times been transparent with its regulators and auditors about its approach to classifying assets and the methodologies for determining such classifications,” it said, adding that BaFin had made “no mention of criminal charges” when it imposed the moratorium.
Gupta’s GFG Alliance declined to comment. A spokesman for Bremen prosecutors confirmed that the complaint had been received. KPMG declined to comment.
BaFin also has concerns about the lender’s auditor Ebner Stolz, a medium-sized partnership based in Stuttgart. The watchdog will report Ebner Stolz to Germany’s audit watchdog Apas, a person briefed on the matter told the FT.
Ebner Stolz said that, because of confidentiality obligations, it did not comment on ongoing audit mandates. “We will immediately contact the authorities to offer our co-operation in clarifying the facts within the scope of our legal possibilities,” said Holger Jenzen, partner at Ebner Stolz.
KPMG’s investigation focused on “receivables” finance facilities the bank provided to Gupta’s companies, according to people familiar with the probe, which are designed to be repaid by a group’s customers.
This allowed the bank to classify the risk as split between a number of different companies, rather than one large exposure to Gupta’s businesses, which might have breached rules.
During its probe, KPMG struggled to verify the existence of some of these invoices, according to several people familiar with the investigation. It also determined that “advanced receivables” facilities, whereby debt would be repaid by hypothetical future invoices, could be construed as an unsecured loan to Gupta’s companies.
Gupta has a close relationship with Lex Greensill, the 44-year-old Australian banker who founded the finance company, and previously held a stake in Greensill Capital.
The lender was founded in 1927 in Bremen as Nordfinanz Bank AG and renamed Greensill in 2014, when it was acquired by Greensill Capital. Subsequently, the balance sheet of the tiny regional lender grew rapidly.
BaFin stressed in a statement that Greensill Bank was “not systemically important” and that “the institution’s distress poses no threat to financial stability”.
Greensill Bank’s loan book is around €3.5bn in size, according to people directly familiar with its balance sheet, and more than €2bn relates to receivables financing connected to Gupta’s businesses.
In addition, the bank holds UK government-backed loans to entities connected to Gupta, the Indian-born businessman, which the Financial Times revealed last year had been provided by Greensill. German officials are concerned that the UK government could rescind these guarantees.
German regulators’ worries over Greensill Bank were first sparked by an FT investigation into Gupta’s finances published a year ago, according to people familiar with the matter.
The FT investigation flagged the amount of financing that the British industrialist’s businesses had drawn from the Bremen-based bank, while revealing that Gupta’s own UK lender — Wyelands Bank — had funded his wider business empire through a network of shell companies.
Wyelands — which is named after a Welsh country estate that Gupta owns with his wife — said on Wednesday that it would repay its own retail depositors in full after a £75m injection from Gupta.