Greensill’s Covid loan debacle 'could have been avoided'by
The British Business Bank could have avoided Greensill Capital allegedly breaching the Covid loan rules had it applied a less streamlined and more sceptical accreditation process, the National Audit Office (NAO) has concluded.
A new report released this week by the NAO has probed the British Business Bank’s streamlined accreditation of Greensill Capital as a lender under the Covid-19 business support schemes.
The NAO found that this lack of due diligence failed to identify the risks that materialised less than a year later when Greensill entered administration.
Streamlined accreditation under fire
The British Business Bank (BBB) used a streamlined approach in order to provide prompt access to finance for businesses that saw their cashflow disrupted as a result of the Covid-19 pandemic. The speeded up process put greater reliance on audit checks after it accredited lenders rather than due diligence before.
Greensill became an accredited lender under the Coronavirus Business Interruption Loan Scheme (CBILS) and Coronavirus Large Business Interruption Loans Scheme (CLBILS). By October 2020, the collapsed financial service company had loaned the maximum £400m it could under CLBLS, with each loan at the maximum £50m. This made Greensill the fifth-largest CLBLs lender by value. In addition, Greensill loaned £18.5m under CBILS.
The £50m loans dished out by Greensill dwarfed the alarming £50,000 Covid support loans that have been debated on Any Answers, and have led some accountants to have frank conversations with some clients.
However, the government guarantees 80% of the value of loans made through the schemes, meaning that if Greensill’s loans are not repaid by the borrowing companies, the government could lose almost £335m.
Greensill was one of three non-bank lenders out of the 27 CLBILS accredited lenders, with the rest being established banks.
While the report does not delve into the wider concerns around Greensill's relationship with the government, it did reveal that the Department for Business, Energy and Industrial Strategy (BEIS) took an “unusual” interest in Greensill’s accreditation.
Since Liberty Steel was a major customer of Greensill, BEIS repeatedly requested updates on the lender’s accreditation knowing that it could provide support to the steel manufacturer. BEIS wanted the BBB to prioritise the Greensill accreditation decision so it could make alternative support arrangements for Liberty Steel, who had asked the department for around £160m - £180m in financial support. The BBB, however, rejected the BEIS’s requests, which the NAO recognised as demonstrating independence in its decision-making.
Greensill’s lending became a concern in October 2020, after the financial service company made seven loans to Gupta Family Group Alliance borrowers totalling £350m. The BBB had told Greensill in May 2020 during its CLBLS accreditation that “it is not a £50 million facility limit per subsidiary”.
Concerned that these loans may have contravened scheme rules on lending to groups, which Greensill denied, the BBB opened an investigation and suspended their government guarantees.
Greensill through its administrators contested the BBB’s conclusions that loans were made outside the scheme rules and also argued that the timeframe to collate the necessary information to respond to the BBB’s allegations was procedurally unfair.
Greensill also sought access to other government support, including a £500m loan supported by an Export Development Guarantee from UK Export Finance (UKEF) through its own lender. But this was rejected.
The BBB’s investigation continues and guarantees are suspended to Greensill’s CLBILS loans, which means the government is not obliged to pay Greensill in the event of borrower default.
‘Could have been avoided’
The British Business Bank’s streamlined accreditation took most of the flak in the NAO report. “This process did not identify the risks that materialised less than a year later when Greensill entered administration,” said Gareth Davies, the head of the NAO.
While it acknowledged that the approach was needed to deliver money at a pace, the example of Greensill fuels the argument that a more sceptical accreditation process could have avoided this situation and would have led to questions of Greensill’s statements, the report concluded.
By applying a less streamlined process, the NAO asserted that the BBB could have probed Greensill’s loan default rates; exposure to specific borrowers and product types; and its business model and ethical standards.
“It is to the BBB’s credit that it quickly picked up the loans allegedly in breach of the scheme rules, but had it applied a different accreditation process it is possible that this situation could have been avoided,” concluded Davies.
British Business Bank's response
The BBB's CEO Catherine Lewis La Torre has responded to the report acknowledging that a less streamlined process might have led to further question Greensill’s application, but added: "A less streamlined accreditation process would, however, have been lengthier, meaning that fewer lenders may have been accredited, and fewer businesses would have received the critical finance they needed.
"Between March 2020 and March 2021, the British Business Bank was tasked with running the government’s delegated Coronavirus business loan schemes to achieve the policy direction of delivering access to finance at pace and at scale, through a diverse range of lenders. The Bank made over 170 lender accreditations across BBLS, CBILS and CLBILS, through which it delivered more than £75bn of essential financial support to over 1.6m businesses – more than 25% of the UK business population."
The NAO report centred strictly on Greensill’s accreditation as a Covid business support lender, but it does give a snapshot of the drama circling the failed supply chain finance company.
Aside from the NAO, the finances of Greensill Capital is facing further scrutiny from the accountancy watchdog. Last month the FRC confirmed that it is investigating Saffery Champness over its audit of Greensill, and it also opened a separate investigation into PwC for its audit of the Sanjeev Gupta-owned Wyelands Bank.
The collapse of Greensill has put the future of Liberty Steel at risk and has been at the centre of a cash for access Westminster scandal involving former Prime Minister David Cameron. The former PM lobbied Chancellor Rishi Sunak to support Greensill Capital through the government's Covid Corporate Financing Facility.