Credit Suisse’s internal evaluation of Greensill Capital’s collapse points the finger at Marsh & McLennan, the world’s largest insurance broker, according to people familiar with the case.
Financial institutions from Sydney and Tokyo to Zurich and London are preparing for a lengthy legal battle over who will absorb the losses associated with Greensill, the supply chain finance group that filed for administration this month.
Greensill lent money to corporate clients, including Sanjeev Gupta’s GFG Alliance, and securitized the debt in banknotes that were put into funds at Credit Suisse and sold to investors.
The mechanism froze on March 1 when some of the insurance covering the credit expired and Credit Suisse suspended the funds. The Swiss bank is now liquidating them and has warned it expects serious reputational damage, investor lawsuits and possibly a material financial hit. It has repaid $ 3.1 billion of its $ 10 billion to investors, but says there is “significant uncertainty” about the rest.
As Credit Suisse continues its review, executives have highlighted Marsh’s role, people familiar with the case said, noting that the broker was responsible for ensuring that any security in Greensill funds had adequate insurance coverage.
Marsh was Greensill’s commercial insurance broker, responsible for finding financial group coverage against non-payment by its borrowers.
Insurers including Tokio Marine of Japan and Insurance Australia Group were involved in providing coverage. Tokio Marine has said the insurance may not have been valid and is “ready to protect its interests in court as required”. IAG has said it has no “net insurance exposure”.
When Credit Suisse provided a $ 140 million bridge loan to Greensill last October pending corporate listing, the bank contacted Marsh as part of its due diligence on the loan, two people aware of the discussions said.
During two separate phone conversations between Credit Suisse executives and Marsh’s directors in October and December, the bank’s representatives asked a series of questions about the insurance policies underwriting the funds’ assets. These related to the durability and duration of the insurance, the pricing of the coverage and the default rate.
One of the calls also included a potential investor in Greensill’s debt.
During the calls, Marsh’s CEOs gave no indication of the issues surrounding the insurance renewal, people familiar with the calls said.
“They did not identify red flags, even when questioned,” one person said. “The only comment they made was that Covid would increase insurance costs.”
At that time, however, there were already some issues with insurance coverage.
The broker was forced to scramble in September after Sydney-based insurer Bond & Credit Co – acquired by Tokio Marine in 2019 – was formally notified of a policy backing more than $ 4 billion in working capital loans.
BCC had informed Marsh and Greensill in August that it had fired an underwriter after finding that he had exceeded his risk limits with coverage for Greensill, and that the company was investigating its employee’s “ transactions ” with the lender.
In the following months, when Greensill failed to renegotiate coverage with Tokio Marine, the owner of BCC, it also engaged Marsh to “ obtain quotes for alternative credit insurance policies ” to replace the expired coverage, they said. Greensill’s lawyers held an Australian hearing in March. The efforts were unsuccessful, the court heard.
Testimonials since then made to the UK Supreme Court by Lex Greensill, the founder of the financial group, revealed the full degree of confidence that Greensill had built on BCC: $ 10.2 billion in coverage for 11 policy documents.
Credit Suisse released a statement last week saying that on Feb. 22, Greensill only notified Lara Warner, the lender’s chief risk and compliance officer, that the insurance would not be renewed – a week before the bank withdrew the money.
Credit Suisse declined to comment. Marsh said in a statement late Monday that the company “had been hired by Greensill as its insurance broker,” adding that his role was “not an insurer, banker, or credit analyst.”
“As a Greensill broker, Marsh Ltd. sought coverage from insurers, who made their own decisions about the risks to cover,” said Marsh. “The two policies that were bound in February 2019 expired on March 1, 2021 and remained in effect for their entire term.”