SoftBank-backed Greensill Capital is on the brink. 50k jobs could be at risk | Hacker News Reader

SoftBank-backed Greensill Capital is on the brink. 50k jobs could be at risk

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75 pointsmschuster9139 comments

>The future of Greensill Capital, a UK financial startup backed by SoftBank (SFTBF), has been thrown into doubt after German regulators shuttered a bank it operates, the latest twist in an unfolding corporate collapse that could put 50,000 jobs at risk.

How does anyone know what is going on / manage risk / assess anything at SoftBank if they're funding a startup ... that owns a bank... that gives loans to suppliers... that is then reliant on some fund out there that this other bank relies on to back their loans, that can be tanked by two fund managers?

The amount of disconnect and even just potential randomness due to a fund manager's whims seems unmanageable.

It seems like it's impossible to be sure of anything, and just some unrelated events that would impact those fund manager's decisions are impossible to account for / could bring a lot down with it...

> How does anyone know what is going on / manage risk / assess anything at SoftBank

SoftBank has been chasing all kinds of bets over the last years, some of which make even r/wsb sound wise in comparison.

That's the problem when there is way too much "dumb money" floating around to be invested for even the most minuscule returns - it will inevitably flow towards high-interest, high-risk stuff. And SoftBank in particular was propped up by a lot of Saudi-Arabian oil money (or, given their dismembering of Khashoggi, I prefer blood money).

I'm conflicted on being happy that the Saudis are losing the money, and being sad that it's being wasted on trash like Juciero.

Masayoshi Son is a pro is losing money in investment.

> According to Forbes, Son's estimated net worth is US$30 billion, making him the second richest man in Japan,[1] despite having the distinction of losing the most money in history (approximately $70bn during the dot com crash of 2000).[3]

https://en.wikipedia.org/wiki/Masayoshi_Son

"That's the problem when there is way too much "dumb money" floating around to be invested for even the most minuscule returns - it will inevitably flow towards high-interest, high-risk stuff."

And that's by law: https://en.wikipedia.org/wiki/Gresham%27s_law

In an environment dominated by information asymmetry, the "bad investments" drive out the good ones. When we say, "dumb money," we're describing information asymmetry. The dumb money isn't as knowledgeable about the value of investments as the so-called "smart money."

But the net effect of a market being dominated by dumb money is that good investments either vanish, or get turned into bad investments to compete with the other bad investments for money.

Unlikely that this is just random.

These credit facilities all have covenants and reporting requirements. When these things get frozen or wound down, almost assuredly some sort of risk covenant or similar was breached, which gives the fund manager the option of freezing or winding down the facility.

So how does an investor manage the risk? They vet the company (Greensill), and trust that its risk department / capital markets team can manage their credit facilities. In this case, it turns out that bet might've been off, but thats what happens in fintech investment sometimes.

Yup, my first question on seeing the headline - how does some specialty bank I've barely heard of end up putting at risk 50K jobs?

Leverage.

Which is also the answer to the question: "What causes most collapses of both individual investors and entire economies?"

I think the more likely answer is "We've counted every single employee of every single company we have any relationship with despite there being no real prospect of the vast majority of them being impacted by us"

>Yup, my first question on seeing the headline - how does some specialty bank I've barely heard of end up putting at risk 50K jobs?

Great question, and the answer is likely: they don't. I'd guess they just counted every last person they could (and probably some twice) to inflate the number of jobs at risk to try to get the mythical "too big to fail" tag. The 50k jobs was stated by lawyers in court with seemingly 0 documentation to back it up.

>Lawyers for Greensill on Monday told a court in Australia, where the company has been fighting to retain credit insurance, that trouble at the company could cause clients to default on their debts and jeopardize 50,000 jobs.

Quite interesting that this story has a German angle as well. I wasn't aware, but aparently a lot of Greensill's liquidity came from its bank in Bremen / Germany.

Well, at least all the deposits re covered, up to 100k € by law and up to 75 million per client because Greensil is member of a dedicated fund run by private banks in Germany. Still, that would be the highest sum this fund has to pay, if Greensill goes under, since Lehman Brother's bancrupcy. And it would force banks to replenish the fund, most likely by raising banking fees.

> this story has a German angle as well

There is a running joke in finance about a bubble or scheme never being over until a German bank loses its shirt.

The German banking system, in particular its Landesbanken [1], have been notorious for reaching beyond their circle of competence since at least the 1980s. They are lightly regulated, furiously defended as national champions and reliably capitalized with loyal deposits.

[1] https://en.wikipedia.org/wiki/Landesbank

Stupid German money never ceases to be a thing it seems. In that case, so, it seems that BaFin intervened not because he Greensill bank is unstable or anything, but rather its risk of over exposure to Greensill's other activities is too high. No idea if that's the case, I am by no means an expert on finance things.

> Well, at least all the deposits re covered

Not all. The deposits of German countys are distinctly not covered by the Einlagensicherungsfonds - Monheim (NRW) stands to lose about 38 million € of taxpayer money, which is... quite ironic given that they've been the "Ireland of NRW" - they attracted a lot of company HQs by tax dumping and got a lot of taxes in return.

I didn't know that. Interesting bit of information.

The article makes it sound like Gupta defrauded Greensill, which figured out they had been defrauded and then covered it up. But they dont come out and say that, just mention names and throw in a picture of Wework. Frustrating reporting!

I don't read it that way at all. The article says BaFin is concerned Greensill presents "imminent risk that the bank will become over-indebted" so I think it's more likely that Greensill is overstating the value of some assets in order to juice the denominator and make the balance sheet appear more sound. If the assets they're overvaluing relate to Gupta's company (and from the article, it sounds like they do) it's possible Gupta's company is in on it but it's also possible the company is entirely unaware.

If your bank is carrying your mortgage on their books at x10 it's actual value you wouldn't have any idea, would you? This is one of the reasons that financial audits typically include a letter sent to random customers asking to confirm whether the balance of their account or loan matches the value recorded in the bank's system.

As another comment pointed out, FT has been covering the issue much more in depth. They've been covering Greensill and GPG since 2018. The two seem to have a... special... relationship.

As far as I'm aware, it's more along the line of your bank giving you a mortgage for x10 your appraisal, which is definitely going to put you in the hot seat when the bank gets put under the spotlight.

>This is one of the reasons that financial audits typically include a letter sent to random customers asking to confirm whether the balance of their account or loan matches the value recorded in the bank's system.

Interesting to point this out in the context of multi-billion dollar Wirecard fraud, which FT also covered. EY was their auditor, and apparently never took this basic step.

The FT has some better reporting on this, e.g.

https://www.ft.com/content/44c47737-5d8b-4aca-8ff3-dbcc8349b...

The main issue seems that Greensill has a (very) large exposure to the collective 'network' of Gupta's companies, and regulators / counterparties decided this was too risky. Supply chain financing has a bit of a record for being used to prop up failing companies in their dying days by disguising borrowings.

I don't know a huge amount about SoftBank - but what have they backed that's successful / working / making a profit? They seemed to be attached to (at least in my 'bubble') a lot of stories about failing or troubled companies and I rarely see a "SoftBank backed XYZ does amazing things!" (although I appreciate there's a journalistic angle here).

Edit: Thanks replies! Definitely seems like a bias in reporting here :-)

Alibaba

The founder was an early backer of Alibaba.

This had a phenomenal ROI but has a sample size of 1.

They paid a high price to purchase ARM, which has since been very successful.

I would be interested in an ROI breakdown for different time windows. I agree they have backed several high profile implosions.

Well... ARM has been very successful for the last 20 years.

But SoftBank hasn’t owned it for 20 years.

That's what I'm saying. SoftBank has nothing to do with ARMs success. Nor was buying ARM a particularly inspired buy.

Right now Bytedance (TikTok) is their top winner. Their stock just doubled last year, so they are not as bad as their reputation. It looks just biased media to me at this point.

To be fair, a lot of stocks have doubled in the last year and softbank as a company does more than investing.

There is a lot of data out there given they are publicly traded, although I don't like their presentations: [0]

13 IPOs for Vision Funds I and II

Fair Value of both funds: $116.7b

Investment Gains: $27.6b

Dry Powder: $19.5b

Distribution to LPs: $15.2b

'SoftBank backed does amazing things' is always relative especially because the failures are much more media-friendly.

Case in point: There are only 7 posts on Guardant Health on HN. What they are doing in liquid biopsy for cancer treatment is remarkable, and yet we never comment on that.

[0] https://group.softbank/system/files/pdf/ir/presentations/202...

>13 IPOs for Vision Funds I and II

An IPO, in-and-of-itself, isn't a "success". In fact, I'd fathom that at least half the time it's insiders dumping garbage on the public.

Actually in the case of GP and GGP comment, this is EXACTLY what represents a financial success. If Softbank was able to exit their position through IPO and the company delivered great returns then Softbank's investment was a success.

Your sentiment is very broad and repeatedly echoed across HN, but in this comment chain it doesn't make any sense because they are asking about "making a profit"

> I'd fathom that at least half the time it's insiders dumping garbage on the public

What is the data you have to back this?

Goldman Sachs analyzed 4,481 U.S. IPOs over the past 25 years and this is one of their conclusions:

"Since 2010, IPOs with annual sales growth greater than 20% have been more likely to outperform Russell 3000 over three years than a comparable, slower-growing IPO"

Jay Ritter, professor at University of Florida, has a great table [1] that shows that companies with $100m in ARR who IPOed from 1980-2018 (n=3,299) have an average of 40.8% in returns on a buy and hold strategy 3 years after IPO, compared to 0.8% from the market.

More data here:

[0] https://www.barrons.com/articles/money-losing-ipo-stocks-can...

[1] https://site.warrington.ufl.edu/ritter/files/IPO-Statistics....

https://www.goldmansachs.com/insights/pages/top-of-mind/the-...

https://site.warrington.ufl.edu/ritter/files/2015/06/Why-Has...

Softbank made an interesting playbook. They made a bet that given their fund size (magnitude order larger then VC funding at the time) they could find large scale opportunities fund those companies and outlast longer and out muscle the competition based largely on size of capital alone. I.e. hold on to losses before the competitors ran out of gas and then take market share. As a result competition has had to up the amount of funding sizes so that they can compete with Softbank investments or risk not being able to keep marketshare.

Also creates some really perverse incentives in that you can sustain an unsustainable business model much longer driving out other businesses/competition at the same time then VC traditional could. It is a pretty big bet and has lots of capital in the mix - founder of Softbank has a history of high risk bets (not always going well either I would add).

> can sustain an unsustainable business model much longer

What is the data you have to back that any of these business are unsustainable: Uber, Guardant Health, Doordash, 10X Genomics, Slack, Opendoor, Seer, Beike?

I don't and the broader market neither. If you do, shorting is a great strategy to give you an outsize payoff

Unsustainable was the wrong word. Correction -->. "can sustain a higher cash burn for longer before getting to revenue positive"

Last I checked, Uber, DoorDash and Slack weren’t profitable (and I don’t know about the others).

Doesn’t that mean there’s some truth to that comment?

When I see "start-up" and "50,000 jobs" in the same article, I'm a little shocked. If your company's only goal was to hire people, I still imagine you would have to graduate beyond "start-up" level to manage to hire so many people, at least legally.

https://trashfuturepodcast.podbean.com/e/greensill-2-green-h...

50k jobs? Where?

I'm guessing it includes all the indirect jobs (eg. the companies they funded plus their suppliers)

This was literally crony capitalism at its worst.

> In other words, Greensill exclusively brokers the assets of Credit Suisse’s supply chain business. Then, by some shocking coincidence, many of those assets end up financing companies funded by Greensill’s biggest investor, SoftBank’s Vision Fund — which already booked a $16.7-billion loss for its fiscal year ended March 31. Among the companies receiving the funds are car financing business Fair Financial, hotel chain OYO Hospitality, window manufacturer View and auto sales company Guazi. [1]

This was from 2020 but the bailouts of Softbank companies by Greensill continued with their Katerra bailout this year! [2]

[1] https://wolfstreet.com/2020/05/07/another-softbank-unicorn-g...

[2] https://www.archpaper.com/2021/01/softbank-bails-out-katerra...

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