Germany’s financial watchdog BaFin has filed a criminal complaint against Greensill Bank’s management for suspected balance sheet manipulation, according to people directly familiar with the matter.
The complaint was filed on Wednesday with criminal prosecutors in Bremen, where the bank’s headquarters are based. It relates to interim findings of an ongoing forensic probe of the lender’s balance sheet that audit firm KPMG began at BaFin’s behest late last year.
Balance sheet manipulation can be punished with up to three years in jail under German law.
The move by German officials risks complicating efforts to salvage parts of the Greensill empire, once high-flying finance businesses backed by SoftBank and advised by former British prime minister David Cameron.
The bank’s parent company Greensill Capital is planning to file for insolvency in the UK but transfer viable parts of the business to Apollo Global Management.
The KPMG audit raised concerns over the level of the bank’s exposure to companies linked to the metals magnate Sanjeev Gupta, who is not a subject of the complaint and has not been accused of wrongdoing.
Greensill Capital and Gupta’s GFG Alliance declined to comment. A spokesman for Bremen prosecutors confirmed the complaint had been received. KPMG declined to comment.
BaFin also has concerns about the lender’s auditor Ebner Stolz, a medium-sized partnership based in Stuttgart. The watchdog will report Ebner Stolz to Germany’s audit watchdog Apas, a person with first-hand knowledge of the matter told the FT.
Ebner Stolz said due to confidentiality obligations, it does not comment on ongoing audit mandates. “We will immediately contact the authorities to offer our cooperation in clarifying the facts within the scope of our legal possibilities,” a spokeperson said.
KPMG’s investigation focused on “receivables” finance facilities the bank provided to Gupta’s companies, according to people familiar with the probe, which are designed to be repaid by a group’s customers.
This allowed the bank to classify the risk as split among a number of different companies, rather than one large exposure to Gupta’s businesses, which might have breached rules.
During its probe, KPMG struggled to verify the existence of some of these invoices, according to several people familiar with the investigation. It also determined that “advanced receivables” facilities, whereby debt would be repaid by hypothetical future invoices, could be construed as an unsecured loan to Gupta’s companies.
Gupta has a close relationship with Lex Greensill, the 44-year-old Australian banker who founded the finance company, and previously held a stake in Greensill Capital.
Greensill Bank was founded in 1927 in Bremen and traded as Nordfinanz Bank AG until 2014, when it was acquired by Greensill Capital. Subsequently, the balance sheet of the tiny regional lender grew rapidly.
Greensill Bank’s loan book is around €3.5bn in size, according to people directly familiar with its balance sheet, and more than €2bn relates to receivables financing connected to Gupta’s businesses. A further amount comprises UK-government backed loans to entities connected to the Indian-born businessman, which the Financial Times revealed last year had been provided by Greensill.
German officials are concerned that the UK government could rescind these guarantees, however.
German regulators’ concerns over Greensill Bank were first sparked by an FT investigation into Gupta’s finances published a year ago, according to people familiar with the matter.
The FT investigation flagged the amount of financing the British industrialist’s businesses had drawn from the Bremen-based bank, while revealing that Gupta’s own UK lender — Wyelands Bank — had funded his wider business empire through a network of shell companies.
Wyelands — which is named after a Welsh country estate Gupta owns with his wife — said on Wednesday that it would repay its own retail depositors in full after a £75m injection from Gupta.