THE COLLAPSE of Greensill Capital, a finance company which acted as a massive lender to companies, has sent shock waves throughout the UK steel industry and now it turns out threatens to cost pension funds millions of pounds.
Greensill operated by buying invoices between companies and their suppliers. Greensill would pay the supplier and then recoup the outlay plus commission from the company.
In practice, Greensill packaged up these invoices into bonds which were then sold on to investors as cast iron assets.
At the High Court on Monday, Greensill admitted that it was bankrupt unable to repay the $140 million debt it owed to its main backer the Credit Suisse bank.
This followed the announcement last week that its main insurer had refused to provide credit insurance for the $4.1 billion debt it had created for its clients.
Without insurance Greensill was unable to repackage any of its debts and sell them on. The biggest client of Greensill was the steel company GFC Alliance owned by Sanjeev Gupta.
According to court documents Gupta’s company started to default on its debts to Greensill, amounting to about £3.6 billion.
GFC Alliance, which includes Liberty Steel UK, the third largest steelmaker in Britain employing around 3,000 workers, is now facing the same fate.
The shockwaves have extended into the heart of the capitalist financial system and represents a massive threat to the pensions of millions of workers.
It is estimated that Greensill distributed over £7.2 billion of its assets (which are now nothing but worthless IOUs), every month last year.
This money came from City financiers who lent this money to Greensill who in turn lent it out for a commission. All this money has now gone with the collapse of Greensill.
According to The Daily Telegraph newspaper, over 50 global banks provided capital from institutional clients to Greensill, including huge amounts from pension funds.
The Telegraph quotes a Greensill source as saying: ‘Trade credit insurers and institutional investors will now have a bun-fight over who pays the loss’ adding: ‘Investors could be left holding the ticket.’
This sums up the attitude of capitalism when all their money-making scams collapse into bankruptcy. They walk away with their millions in pay and bonuses and leave someone else ‘holding the ticket’.
It will be the thousands of steelworkers in the UK who will be left to pay through the destruction of their jobs, while pensioners will pay through seeing their pension funds looted.
The collapse of Greensill threatens carnage throughout the international financial system. Two massive world banks, Credit Suisse and the giant Japanese SoftBank, are up to their necks in bad debts from their billion-dollar financing of what was in essence no different from the sub-prime mortgage crisis of 2007.
Justin Urquhart-Stewart, co-founder of Seven Investment Management, said the collapse of Greensill is reminiscent of the US subprime mortgage crisis of 2007.
Then an equally obscure investment bank, Lehman Brothers, parcelled up US mortgage debts and sold them around the world as assets just as Greensill packaged up debts and packaged them up as assets.
When Lehman Brothers collapsed, it brought down the entire world banking system, a crisis for which the working class internationally was made to pay through austerity to bail-out the banks.
This week, trade union leaders met with Gupta to offer their support in ‘saving’ the steel industry. What is clear is that there can be no saving of any industry under a capitalist system that is crashing into bankruptcy and financial collapse.
The working class will not sit back and see their lives destroyed in order to keep this system staggering on. Workers must demand that the trade union leaders end all collaboration with the bosses or be thrown out and replaced by a leadership prepared to defend the working class by calling a general strike to kick out the Tories and go forward to a workers’ government.
A workers’ government will nationalise the major industries along with the banks and financial companies placing them under the management of the working class, replacing capitalism with a socialist economy based on satisfying the needs of the people.