Market Thinking

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Fools and their Money

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With all the excitement of Covid, US Elections, Robinhood traders and now Bond Markets, it’s been easy to forget our friends over at SoftBank, the company that thinks it’s a bank, or a hedge fund or a Venture Capitalist. Or something. For many though, it is a SoftTouch and its adventures in Won’tWork, Wirecard and Gamma Manipulation have certainly kept us entertained all year – thanks largely to the ambitions and machinations of its happy band of former Deutsche Bank derivative traders. They are back on the radar today though thanks to reports that Greensill Bank, the reverse factoring outfit, supported by SoftTouch and the almost as ubiquitous Credit Suisse (who also seem to be found at the bottom of every ruck), looks set to go bust after Credit Suisse suspended $10bn worth of funds linked to Greensill on Monday.

a sad jester in red suit slumped in a chair. a fool and his money example.

As the expression goes, “More red flags than a Soviet May Day Parade”

We looked at this last June as an accident waiting to happen, as reverse factoring in this format is simply a form of securitised lending for working capital, ie it’s not even secured on finished goods. Such is the alarming practice of ‘teaching to the test’ that products are being created to fit regulatory requirements of being uncorrelated to equity indices or of low volatility (due to a lack of liquidity) while ignoring the actual risks being taken – here most obviously credit risk. The fact that the biggest client was Sanjeev Gupta of GFG Alliance should have been a huge warning signal. As we pointed out in June last year (paging Michael Lewis) Gupta had precipitated an earlier scandal at Swiss Asset Manger GAM in 2018 when one of its ‘star’ managers was forced to resign over a whitsleblower scandal involving a similar set of Credit Suisse reverse factoring funds that failed thanks to a default by Gupta. If we needed any more red flag warning signals, we noted that Lex Greensill himself had been awarded Australian Entrepreneur of the year, had employed former UK Prime Minister David Cameron as an ‘advisor’ and had bought himself not one, but four private jets.

The good news is though that presumably the assets of Greensill can likely be purchased by the former CEO of Credit Suisse, Tidjane Thiam, under whose oversight this all took place. After all, he is launching a SPAC….

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One Reply to “Fools and their Money”

  • Nicely put. I did like the CS statement as quoted in the FT as to why they froze the money.
    ‘Credit Suisse said it had “suspended the redemptions and subscriptions” in the funds “to protect the interests of all investors”, adding: “A certain part of the [funds’] assets is currently subject to considerable uncertainties with respect to their accurate valuation.”
    Its concerns over the funds came to a head because insurance policies covering defaults in part of its assets lapsed over the weekend.’
    There was also news last week about Softbank coming to terms with the WeWork founder “Softbank has announced it has reached a $1.6bn settlement to a lawsuit brought against it by ex-WeWork chief executive Adam Neumann and the special committee of the board of WeWork. Softbank said it would pay out $1.6bn to settle the lawsuit, but said the payment was not an admission of liability.”
    It’s more to do with being able to repackage WeWork; To quote Reuters “The settlement is also expected to clear the decks for WeWork as it reportedly pursues a public listing by merging with a special purpose acquisition company (SPAC).’

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