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Can anyone explain what Greensill Capital did

Can anyone explain what Greensill Capital did

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I feel like I should intuitively know what Greensill did, and what David Cameron was after, but I can't quite see what they were doing.

I understand sales invoice finance, and have used it in previous lives. But supply chain? Where is the security.

In the interest of full discloure, Liberty Steel is one of my customers - fortunately only on the hook for a few k.

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By Hugo Fair
11th Apr 2021 10:25

From the New York Times - https://www.nytimes.com/2021/03/28/business/greensill-capital-collapse.html :

"Mr. Greensill positioned his firm as a middleman that would pay the suppliers faster — minus a small percentage as the cost of getting quick payment — and then allow time for the buyer to pay back the middleman. It’s called supply chain finance, and it’s a traditional form of lending in the business world.

"But Mr. Greensill added an extra layer of complexity. He took the supplier invoices, turned them into short-term assets and put them into funds, similar to money market funds, that investors could buy. The funds were sold through Credit Suisse, the big Swiss lender, and a Swiss asset management firm called GAM. The money from investors helped to pay back suppliers.

"Greensill turned a mundane finance practice into an ultra-lucrative business in part because it was able to shuffle around the risk, pushing some of it onto insurance companies and other financial firms. It has echoes of the asset-backed securitization that was at the heart of the 2008 financial crisis.

"Promoted as a “win-win” for buyers and suppliers, supply chain finance can obscure problems on a company’s balance sheet. The money a buyer owes to the middleman, such as Greensill Capital or a bank, shows up as a “trade payable” or “accounts payable” — that is, money owed to a supplier — rather than as debt. It can be a hidden form of borrowing if it is not disclosed — and there is no accounting rule that requires it to be disclosed."

There's much more if you want to search it out (NYT is but one of many sites) ... and the implications for tightening accounting standards (again) are now awaited!

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By memyself-eye
11th Apr 2021 10:41

it used to be called' invoice discounting' a common method to improve cash flow
Used for fast growing companies with gold plated customers to overcome the 90 plus days taken to pay by large organisations.

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Replying to memyself-eye:
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By Hugo Fair
11th Apr 2021 11:35

Indeed ... but Greensill took it another step when it turned the supplier invoices into short-term assets and put them into funds that investors could buy - with echoes of the asset-backed securitisation that arguably caused the 2008 financial crisis.
When not reserved for "fast growing companies with gold plated customers" it is capable of producing similar results to when 100% mortgages were securitised.

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Replying to Hugo Fair:
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By memyself-eye
11th Apr 2021 16:08

Just so - watch the film 'The Big Short' for a prime example of fiscal manipulation.

The same sh*t product, different wrapper!

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Replying to Hugo Fair:
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By bernard michael
12th Apr 2021 09:38

Hugo Fair wrote:

Indeed ... but Greensill took it another step when it turned the supplier invoices into short-term assets and put them into funds that investors could buy - with echoes of the asset-backed securitisation that arguably caused the 2008 financial crisis.
When not reserved for "fast growing companies with gold plated customers" it is capable of producing similar results to when 100% mortgages were securitised.

I get how it works but what happens to the loan note when the supplier is paid ?? I assume that is also liquidated

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Routemaster image
By tom123
11th Apr 2021 11:43

Thanks for the explanations!

"Lend me some money against some money that I owe someone else" just seemed wrong to me.

But then, this is how come I spend my time above a factory with forklifts and welding bays rather than high finance in London..

It is an interesting story - and has a long way to go yet, I think.

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Replying to tom123:
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By Hugo Fair
11th Apr 2021 11:59

Your foundations are probably stronger ... or at least you have easier access to structural repairs than those in the rarified strata that us mortals don't occupy!

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By frankfx
11th Apr 2021 19:54

Aided and abetted by central government, and self interested cabals it was out to profit from mere citizens.

Banking crisis, and derivatives.

Private finance iniative, to keep Government borrowing off balance sheet!

Covid 19 funding .

Greensill, repackaging borrowing and buck passing, all with the backing of Downing Street..... so it must be safe as houses.

South Sea bubble, 300 years back should have been a lesson learned.

But that is to ignore the toxic mix of entitlement,privilege power and money.

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John Stokdyk, AccountingWEB head of insight
By John Stokdyk
13th Apr 2021 16:58

Don't forget Mark Taylor's summary if you want a look at some of the implications for accountants: https://www.accountingweb.co.uk/business/finance-strategy/greensill-coll...

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Replying to John Stokdyk:
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By tom123
14th Apr 2021 08:39

Thanks, a good article.

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A Putey FACA
By Arthur Putey
14th Apr 2021 11:13

No doubt HMRC will check Mr Cameron's tax return to ensure it has an Employment page, given the claims that his lobbying is allowed because he is an employee of the firm.

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Replying to Arthur Putey:
Stepurhan
By stepurhan
14th Apr 2021 13:47

I am waiting to hear how his "I didn't break any rules" defence stands up. After all, most tax avoidance schemes don't break any rules, and the government comes down hard on them anyway.

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Replying to stepurhan:
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By Hugo Fair
14th Apr 2021 14:41

Yeah, but I suspect they edited down his quote ... which was more likely to have been "I didn't break any rules that apply to me"!

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Replying to Hugo Fair:
Stepurhan
By stepurhan
14th Apr 2021 14:47

Surely that would require him to acknowledge that ANY rules applied to him.

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Replying to stepurhan:
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By Hugo Fair
14th Apr 2021 15:13

But of course he does, he's an Old Etonian. My (subtle) distinction is that only he is competent to judge when a particular rule does/doesn't apply to him - in his mind that is.

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By Hugh Scantlebury
16th Apr 2021 09:33

BBC Radio 4's "File on 4" did a really good summation of the whole thing last Sunday. Worth a listen.

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By Mr J Andrews
16th Apr 2021 09:47

Thought it was something about coining a new phrase .........''On reflection , things could [ should ] have been dealt with better'' rather than say unravel the full extent of what really went on.
Or was it about having a pint with old mates.
Just for the record Hancocks was taken over by Brains in 1999.

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