Finance

I don’t wish to be rude here

How much do looks matter? How much should they?

Here we have the latest outsider attempting to storm the bastions of capitalism.

That he looks like an ocker too dim to avoid the pub with no beer should have been a clue? Or not?

Har har har har

Documents seen by The Sunday Times show that Liberty Steel Newport in south Wales used a circular trading scheme whereby it sold steel to a company with close links to the tycoon, which another Gupta business was then to buy back.

That £2.5 million sale allowed Liberty to borrow from Greensill via invoice discounting. Liberty was then free to sell the same steel again, this time to a different customer, and raise more cash from Greensill against that second sale.

Proving Adam Smith right once again.

New methods of lending money aren’t quite the point. The shortage is of people worth lending money to.

They might also be missing a trick here:

The documents show that Liberty Steel Newport sold £2.5 million of coils and tubes to VS International (VSI), a metals trading business with links to GFG. VSI was established in 2015 by Vikrant Sharma — who was until recently described as the president of Gupta’s Liberty Steel Holdings USA.

Liberty was then able to raise cash from Greensill, which provided finance against the invoice from VSI. Typically, Greensill lent Liberty 80 per cent of an invoice’s value, suggesting that it handed Liberty £2 million, to be repaid more than 100 days later.

Documents show that VSI would then sell that steel to Gupta’s CS Management Services, which in turn would sell the steel back to Liberty Steel Newport. That same steel was then to be sold for a second time, to a third party, with Greensill again providing cash against that invoice.

Don’t forget that Greensill did reverse factoring as well. So that sale from VSI to Gupta might also have been financed…..the reverse part means to factor invoices from suppliers, not just customers.

Snigger

When SoftBank Group Corp. made a last ditch-infusion of $440 million into Greensill Capital last November, the money was earmarked to pay off investors in Credit Suisse Group AG investment funds, according to people familiar with the deal.

But the cash never made it to the Swiss bank. Greensill put the money into its own German banking unit instead, according to a report released Thursday from the bankruptcy administrators for Greensill’s Australian parent company and some of the people familiar with the deal.

Both Credit Suisse and Softbank are supposed to be the adults here…..

Ah, no, that’s not how Madoff worked

At the exchange rates prevailing at the time, it seemed that Madoff had made off with £33 billion of private and professional investors’ money. It was a sum roughly equivalent to the total spent by the British government on defence in that year.

It was a Ponzi scheme. That means that the people who made off with the money were the early investors at the expense of the later ones. Madoff took a cut, sure, but the vast majority of the losses were paid out to investors.

Which is, of course, why the administrator went after those early investors and made them pay back their earnings….

Association with Madoff made hedge funds appear prone to the lowest forms of witless foolishness, instead of being staffed by brilliantly intuitive experts as had been widely assumed.

That’s good tho’.

A very slightly weird calculation

Star stock picker Terry Smith stood to earn up to £125m last year

Oh aye?

The Mauritian entity charged Fundsmith £156 million for its services, up from £115.8 million in 2019, according to the UK partnership’s accounts.

The Mauritian group’s accounts are not disclosed, so its costs and earnings are unknown. However, given that Smith is thought to be entitled to the same proportion of its earnings as he received from Fundsmith, he could have received as much as £95.7 million from the Mauritian business if its costs had been nil. That would have lifted his total to approximately £125 million in 2020 before taxes.

Nil costs is a realistic assumption, isn’t it?

This is seriously bad banking from Credit Suisse

Credit Suisse Group AG ’s effort to recover $10 billion invested in loans from Greensill Capital faces roadblocks because of a complicated structure that makes it difficult for the parties to agree on who owns the loans, according to people familiar with the matter.

A “double trust” structure means that investors in Credit Suisse’s funds have rights to cash flows from the loans held in one trust, but rights to the underlying loans are held in a separate trust, people familiar with the trusts say. These include loans to Greensill’s biggest borrower, GFG Alliance, the metals empire controlled by British-Indian tycoon Sanjeev Gupta.

Well, if this is actually a problem then it’s seriously bad banking. Who actually owns the cash or the debt being rather an important part of making a loan, no?

Oh dear me, seriously peoples

The implosion of Bill Hwang’s trading empire could trigger $10bn (£7.3bn) of losses across the financial system, analysts warned, as watchdogs around the world launched an investigation into how banks handled the controversial fund.

There is no net loss here at all.

This is speculation. Speculation is a zero sum game. $10 billion of losses in one place means $10 billion of profits in another.

Sure, certain parts of the system could be looking at great gaping holes. But by definition others will be climbing new mountains of cash.

This was all going on with swaps and the like – it’s zero sum speculation.

We don’t know the details yet but……

Morgan Stanley and Goldman Sachs Group Inc., along with other major banks, forced the liquidation of more than $20 billion of holdings for Hwang’s New York-based Archegos Capital Management on Friday, according to people familiar with the transactions.

Looks like someone got their trading book very wrong indeed and got liquidated.

Which does talk to that P³ and Piketty idea that r is greater than g, that the rich just pile on the cash year after year. Because they might indeed gain higher returns but only by taking on more risk. Something that doesn’t always work – risk, d’ye see?

This seems perfectly acceptable

Credit Suisse marketed $10 billion of supply chain funds backed by the bankrupt Greensill Capital as its safest possible investment class, raising questions about the due diligence that the wealth manager undertook.

As long as the invoices were insured by Tokio Marine that was true. And when they were no longer so insured then the fund closed. So?

The Davy Case

The case involves the sale of bonds in the then defunct Anglo Irish Bank back in 2014. When an investor buys a bond in a company, they’re effectively lending to that company, and are paid interest on this loan.

The broker was approached by a client, Northern property developer Patrick Kearney, to sell these on his behalf.

But rather than sell them into the market, the firm put together a consortium – the O’Connell Partnership comprising 16 Davy staff members – to acquire the bonds.

In effect, the senior staff at the broker sold the bonds to themselves, and did so without notifying the compliance function in Davy, something which is not allowed in stockbroking under EU rules.

Jeez. What set of gombeen men thought they could get away with that?

It’s entirely possible to buy the bonds yourself. It’s an employee owned company – sorta, sorta, a partnership – and they’re allowed to buy for their own book. But you must disclose. Disclose to the client as well as to the other partners in the firm.

“I’ll buy that!” is fine. “No one is to know” isn’t.

Idiots

Ministers could save billions of pounds and boost savers’ pensions by a switch to how the Government pays for the pandemic rescue package, according to research.

Consultant LCP claimed that the UK was “missing a trick” on how it financed borrowing plans by relying heavily on fixed-rate gilts, rather than opting for inflation-linked debt.

Next year, around 90pc of the expected £300bn of gilts will be fixed-rate, meaning investors are guaranteed a set return. For the remaining 10pc, payouts will vary depending on inflation – which is so low at present that the amount due is far less.

Which way do we think inflation is going to go? Not down, right? So the rational borrower would be cramming on the fixed rate debt and retiring as much as possible of the inflation linked….

Sigh, no

Greensill specialised in a form of supply chain finance called invoice discounting,

Greensill did reverse invoice financing.

In invoice financing you contract to speed up payment of your sales ledger. In the reverse form you contract to speed up payment of your purchase ledger – while, obviously, delaying you having to actually pay it. It’s about money out, not money in.

The danger is that an invoice discounting operation spreads the credit risk across all those different buyers. A reverse book concentrates the risk into the purchase ledger of just the one company, the client.

The finance firm turned invoices from Gupta’s businesses into hard cash. When a customer bought from his Liberty Steel, the invoice was forwarded to Greensill. That IOU was classed as a receivable with a value close to cash. The finance firm assumed responsibility for the debt and handed the cash to Liberty — instead of making the steel-maker wait for anything from 30 to 180 days, as would normally be the case for payment from buyers.

No, that’s invoice discounting, Greensill specialised in reverse invoice discounting. When Liberty bought something Greensill advanced payment for it and waited to collect from Liberty.

Greensill provided Gupta with huge sums to buy assets from companies including Tata, Arcelor Mittal and Rio via invoice discounting, where it advanced cash to Gupta and took on its customers’ IOUs.

Sigh.

Horrors, eh?

Hedge fund chaired by GB News investor shorting ITV
Marshall Wace has taken a 0.68pc short position on the broadcaster which has suffered from the pandemic-induced downturn

So, at worst this is bloke who thinks it worth competing with ITV thinks ITV will suffer from being competed with.

But it’s possible to use the boogieman phrase “short seller” so why not umm, say summat or other?

Pump and dump isn’t actually illegal

The latest charges were filed in the Manhattan federal court in New York. The pair are accused of buying the cryptocurrency assets before promoting them on Twitter, where Mr McAfee has more than one million followers.

They would then sell the assets as soon as Mr McAfee’s endorsements saw prices rise, according to the US justice department and the Commodity Futures Trading Commission.

Might be nasty and all that but buying something, talking about it then selling just isn’t illegal.

It might even be against the rules of certain recognised exchanges and so on but that’s private, not general, law. However:

They allegedly made a further $11m (£8m) in payments from cryptocurrency start-ups for promoting their assets on Twitter, payments which were not disclosed to investors who bought them.

Now that however…..and this explains a lot:

McAfee was born in Cinderford, in the Forest of Dean, Gloucestershire, United Kingdom….

All that weirdness now makes sense.

No he bloody won’t

How a food-obsessed banker became one of Britain’s richest tech chiefs
Will Shu, the 41-year-old founder of Deliveroo, is set to net £540m when his company goes public

Apparently financial literacy has abandoned the Telegraph.

Shu has about a 7% stake. Shu is not going to sell his entire stake at the IPO. Shu’s stake may well be worth £540 million when the IPO happens or has happened. But he’s not going to net that amount.

It’s like the story a couple of days back claiming that the folks running an engineering business are to “make” by selling it. No, they’ll crystalise the value perhaps but they made it over the 50 years.

Oooops!

In a statement, the regulator said: “BaFin found that Greensill Bank AG was unable to provide evidence of the existence of receivables in its balance sheet that it had purchased from the GFG Alliance Group. For this reason, BaFin has already taken extensive measures to secure the bank’s liquidity and to limit risks for Greensill Bank AG and has appointed a special representative for the bank.”