Greensill collapse reverberates through Germany
The collapse of Greensill Bank has sent shockwaves through German communities as the scale and breadth of the crisis is realised.
According to reports, German municipalities held an estimated $600m with the lender that wasn’t covered by deposit insurance or subject to ECB-imposed negative interest rates.
Greensill’s German municipal depositors include the Hesse state capital of Wiesbaden, the university town of Giessen, the Cologne opera, and the sewage plant of a suburb of Hannover.
In anticipation of the crisis, the German financial watchdog BaFin, froze the operations of the Bremen-based bank last week. BaFin also filed a criminal complaint citing suspected balance sheet manipulation just days before Greensill Capital, filed for insolvency.
Reports suggest that the expensive rescue of municipalities that had banked with other fallen lenders including Leham Brothers and Maple Bank is to blame. The move resulted in public sector clients of Germany's private sector banks no longer being covered by the country’s deposit insurance scheme in 2017.
But banking experts have heavily criticised the move which now sees municipalities on the brink of losing vast amounts.
Deputy head of the German association of cities and towns, Verena Göppert, called the decision “a mistake as it cannot be properly justified.”
The German Ministry of Finance is also unlikely to provide a safety net for the losses. When asked about the crisis, the government body reportedly pointed to the current regulatory framework, citing the fact that many of the afflicted municipalities are already financially challenged. A spokesman said that German cities are already under huge financial pressures from the Covid-19 pandemic, with falling tax revenue and rising expenditures.
The administration of Greensill is already threatening thousands of jobs across Europe, the UK and Australia as GFG Alliance, which defaulted on its loans to Greensill following a 60% downturn in demand from its steel operations because of the COVID-19 pandemic.
Greensill, which was backed by SoftBank, specialised in supply chain finance. The fintech filed for insolvency on March 8th after Credit Suisse Group suspended $10bn in funding to the bank.
The demise of Greensill Capital has sent shockwaves through the network of financial and industrial institutions that were dependent on its supply chain funding and the investment opportunities it provided.
Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown in London, explained, “For companies reliant on its factoring service, the great scramble has begun to find other ways of covering the looming cavern in their finances. Those investors who had bought the debt sold on the market are now staring at potentially big losses.”
Apollo Global Management’s $59.5m offer for Greensill’s IT systems and intellectual property. However, the equity firm halted talks following an escalating stand-off with a critical technology provider to the once high-flying supply chain finance group, the FT reported.
Downing Street has also expressed concern, with Boris Johnson’s spokesman issuing a statement saying the situation was “'very worrying. We continue to follow developments closely."
Meanwhile, Greensill Capital issued a public statement via its website saying, "Joint administrators are in continued discussion with an interested party in relation to the purchase of certain Greensill assets. As these remain ongoing, it would be inappropriate to comment at this time."
Zafin: Banking is now in the era of the tech ecosystem
The development of tech ecosystems is placing the future of post-COVID banking in jeopardy. At a time when Big Tech can replicate the functions of traditional financial institutions, what can banks do to retain a grip on the market?
John Smith, EVP Ecosystem at Zafin, has a few ideas. A SaaS cloud-native product and pricing platform for financial institutions, Zafin is preparing the next generation of banks to cope with this precise challenge.
Smith is responsible for the strategic and tactical management of the company’s ecosystem, including the creation of new business models to support growth and differentiation. We asked him four questions:
Q. Have the events of the pandemic caused an irreversible shift in the digitalisation of banks? If so, is COVID the sole cause or are there other factors?
It’s a great question and one that I am asked a lot. Without a doubt, the COVID-19 pandemic has driven a significant shift in the acceleration of digital. In fact, I’ve seen some estimates show there to have been as much as four to six years of digital adoption growth since the initial lockdown started.
While the pandemic may be the primary reason for this growth, two other drivers include fintech disruption and the high costs of operating a traditional retail bank. Both of these factors have caught the attention of banking executives as they set their minds on accelerating digital transformation with a focus on high return, low risk.
Q. Some commentators believe banks must learn from Big Tech in order to survive. Do you agree? Please expand.
I agree completely; we’re living in the era of the ‘ecosystem’. All the seismic shifts we’re seeing in technology, be it aggregation, embedded finance, DeFi or hyper-personalisation are all enabled by the foundation of an ecosystem.
When financial institutions work with a strategic partner like Zafin, which has made the strategic investments in a best-in-class ecosystem, they’re able to capitalise on opportunities more quickly and safely, and will be better positioned for growth now and at the other side of the pandemic.
Q. What are currently the obstacles to adopting Open Banking? Is it more likely to 'take off' in some regions rather than others?
I would argue that Open Banking has been in the US for some time and will only continue to grow there. By definition, Open Banking is about the secure sharing of financial information that customers are aware of and have authorised. Under that definition, we’re seeing aspects of this well underway even though its full potential remains to be seen.
Third-Party Providers are a natural outcome of Open Banking, whereby they can create propositions beyond what a bank normally does to enable banking functions such as payments, borrowing, saving and so on. Once again, some of these are already present through industry-led initiatives, whereas regions such as the EU have taken the pathway of regulation such as PSD2.
The industry-led initiatives we’ve seen in the US have also had the added advantage of guard-rails that regulatory bodies like FFIEC and CFPB provide. There are also other technology-led initiatives such as API definitions that are set out through the FS-ISAC.
I would argue the future of Open Banking in North America will be through the natural evolution of the guidelines and API definitions that have been published, as well as the natural progression of industry initiatives.
Q. Are there any other bank tech trends you'd like to discuss?
Coreless banking. Zafin has been pioneering some of the work around externalising functions out of the legacy core to drive a more ‘fintech nimble’ bank, while not having to deliver a ‘heart and lungs’ core bank replacement.
Real life examples of this include moving some of the core functions of a banking system, such as product and pricing to a platform like Zafin. Origination, onboarding, KYC, risk, and compliance are all other examples of externalising banking functions for added agility.