LONDON — The courthouse should have already been closed for the day.
At a hearing that began at 5 p.m. on March 1, lawyers for Greensill Capital desperately argued before a judge in Sydney, Australia, that the firm’s insurers should be ordered to extend policies set to expire at midnight. Greensill Capital needed the insurance to back $4.6 billion it was owed by businesses around the world, and without it 50,000 jobs would be in jeopardy, they said.
The judge said no; the company had waited too long to bring the matter to court. A week later, Greensill Capital — valued at $3.5 billion less than two years ago — filed for bankruptcy in London. An international firm with 16 offices around the world, from Singapore to London to Bogotá, was insolvent.
Greensill’s dazzlingly fast failure is one of the most spectacular collapses of a global finance firm in over a decade. It has entangled SoftBank and Credit Suisse and threatens the business empire of the British steel tycoon, Sanjeev Gupta, who employs 35,000 workers throughout the world. Greensill’s problems extend to the United States, where the governor of West Virginia and his coal mining company have sued Greensill Capital for “a continuous and profitable fraud” over $850 million in loans.
At the center of it is Lex Greensill, an Australian farmer-turned-banker, who in 2011 founded his company in London as a solution to a problem: Companies want to wait as long as possible before paying for their supplies, while the companies making the supplies need their cash as soon as possible.
To Mr. Greensill, 44, it was personal. He recalled watching his parents, who had a sugar cane and melon farm, struggle financially because of long waits for payments for their produce. He said it bothered him that banks would offer loans only to large firms and their suppliers, leaving small and midsize companies in the lurch.
It was “the thing that frustrated me to extremes,” Mr. Greensill said in October 2011, speaking at Manchester Business School, his alma mater.
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…
Read More: Greensill Capital: The Collapse of a Company Built on Debt