By Tom Sims and Tom Bergin
FRANKFURT/LONDON (Reuters) - Germany's financial watchdog warned of "an imminent risk" that Greensill Bank would become over-indebted on Wednesday as it imposed a moratorium on the lender making disposals or payments.
BaFin's move is another blow to the bank's owner, Greensill Capital, which said on Tuesday it is in talks to sell large parts of its business after the loss of backing from two Swiss asset managers which underpinned key parts of its supply chain financing model.
Greensill, which was founded in 2011 by former Citigroup banker Lex Greensill, helps companies spread out the time they have to pay their bills. The loans, which typically have maturities of up to 90 days, are securitized and sold to investors, allowing Greensill to make new loans.
Greensill's primary source of funding came to an abrupt halt this week when Credit Suisse and asset manager GAM Holdings AG suspended redemptions from funds which held most of their around $10 billion in assets in Greensill notes, over concerns about being able to accurately value them.
Two sources told Reuters on Wednesday that SoftBank-backed Greensill Capital is preparing to file for insolvency, adding that the sale talks were with U.S. private equity firm Apollo.
Greensill and Apollo did not immediately respond to requests for comment on Greensill's insolvency preparations, which were earlier reported by the Financial Times, or on the sale talks.
Japan's SoftBank, which has invested $1.5 billion in recent years in Greensill, also declined to comment.
BaFin said an audit found that Greensill Bank could not provide evidence of receivables on its balance sheet purchased from mining tycoon Sanjeev Gupta's GFG Alliance. GFG did not respond to a Reuters request for comment on BaFin's findings.
"The moratorium had to be ordered to secure the assets in an orderly procedure," BaFin said in a statement, adding that the Bremen-based bank would be closed for business with customers. It declined to elaborate.
Greensill Capital said in a statement that Greensill Bank always "seeks external legal and audit advice before booking any new asset."
Greensill Bank had loans outstanding of 2.8 billion euros and deposits of 3.3 billion euros at the end of 2019, rating agency Scope said in an October report, which did not detail the bank's exposure to GFG.
The bank is a member of the Compensation Scheme of German Banks which means deposits up to 100,000 euros ($120,740) are protected. The German regulator said withdrawals were not currently possible, but gave no further detail in a statement.
Prosecutors in Bremen said earlier they had received a criminal complaint from BaFin regarding Greensill Bank, but did not provide further details on it.
In Britain, meanwhile the financial regulator took action against GFG's own trade finance arm Wyelands Bank. The Bank of England's Prudential Regulation Authority said it had ordered Wyelands to repay all its depositors. It said in a statement that it had been engaging closely with Wyelands, but did not say why it had taken the action.
GFG said Wyelands, which had over 700 million pounds ($979 million) of deposits according to its latest annual report, would repay deposits and planned to "focus solely on business advisory and connected finance".
A GFG spokesman declined to comment on the BoE statement.
Credit Suisse said on Wednesday it is looking to return cash from its suspended funds dedicated to supply chain finance, which is a method by which companies can get cash from banks and funds such as Greensill Capital to pay their suppliers without having to dip into their working capital.
"Given the significant amount of cash (and cash equivalents) in the funds, we are exploring mechanisms for distributing excess cash to investors," Credit Suisse said in a note to investors on its website.
Credit Suisse said that more than 1,000 institutional or professional investors were invested across its funds.
($1 = 0.8282 euros)
($1 = 0.7153 pounds)
(Reporting by Tom Sims and Patricia Uhlig in FRANKFURT and Tom Bergin in LONDON; Additional reporting by Brenna Hughes Neghaiwi and Oliver Hirt in ZURICH; Editing by Alexander Smith)