Dramatic Irony? The FT “Nods”

Those oft are stratagems which errors seem,

Nor is it Homer nods, but we that dream

 

If you read this blog, you generally detect a strong admiration for the FT.

But like Homer sometimes the FT nods.

Today’s (17 September) Lex had this bon mot to lead off its column.

China’s recent push to regulate the country’s fastest growing sectors begs the question of whether the market is still investable.

“Still investable”????

Given the legal and political issues with investments in the PRC—e.g., Peking University Founder Group bonds, Evergrande Group, and stock investments via VIEs-- I’d argue there is a strong case that the PRC market was never “investable” if that term is used in a normative rather than descriptive sense.

September 13 the FT ran an article today about the crackdown of South Korea’s Financial Services Commission on digital currency exchanges in the RoK. Some US$2.6 billion in losses were expected for wise investors in this imagined asset class.

Industry data showed that digital coins other than bitcoin made up about 90 per cent of South Korean crypto trading, highlighting the market’s highly speculative nature.

Isn’t investing in sh*tcoins highly speculative regardless of their provenance?

Or in other words is jumping from the top floor of the Lotte World Tower more deadly than jumping from the top floor of the Parc 1?

I hold that statistically the results are likely to be the same.

She Just Can't Get Any Respect

At Least She Got a Seat in Istanbul
Not Even a Mention in the FT

 

Robert Armstrong had an absolutely brilliant article in Saturday’s FT: Rumpled Boris, Macron's mistake and other G7 sartorial missteps.

But one very glaring flaw.

He failed to mention one of the nine leaders at the summit.

At least President Erdogan had a seat for Ms. Von Leyden, albeit not in the front row.

But a seat nonetheless.

Ransomware Prioritize Prevention Then Pursue Prosecution – Part 1

 

Noted Internet Security Expert, B. Franklin
Interesting Fact: 
Colonial Pipeline Earlier Management Ignored His Advice

Alex Younger, former head of the Secret Intelligence Service, penned an opinion piece in Saturday’s FT Ransomware attacks have to be stopped — here’s how.

Some 898 words long. Lots of good advice and interesting points.

However, he had but these 37 words (4%) on what I consider to be one of the key steps to resolving the problem.

It follows that governments can and should do more but not to the point of absolving individuals and firms of their own responsibilities. A surprisingly large amount of this is about getting the cyber security basics right.

The last sentence “names the issue exactly”.

I think this is the major problem.

By way of analogy, let’s assume a town where no one locks their doors, where people leave valuables in plain sight, where it’s common to leave the keys to one’s Maybach in the ignition, and the car in the driveway..

Now we could crackdown on those who buy stolen goods even those in other cities.

We could station a policeman by each house to keep guard.

Or, we could get as many citizens as possible to lock their doors and secure their property.

What this latter step hopefully would do is lessen the opportunity for crime.

And the amount of crime that takes place.

It also lessens the number vulnerable targets that one has to guard.

If we can take the above steps, then resources can be more focused.

Also and perhaps more importantly, with national security issues, one would I hope prefer to prevent an attack over  a successful response to the attack.

Is this the case with ransomware? That doors are unlocked, valuables unsecured?

First, some macro examples from an earlier post.

Two quotes from the FT. Italics mine.

1. Just a quarter of companies in traditional infrastructure businesses, including oil and gas, utilities and healthcare, were properly braced for an attack, estimated Matias Katz, chief executive of the cyber security group Byos.

2. The oil and gas sector has been criticised for lax cyber security regulation.

The above points are estimates not facts.

But it should be not only an “overdue wake up call” but also a “sobering fact” even if these are overestimates by a factor of two.

The companies making these estimates are companies selling security products and so may have a profit dog in the fight.

So let’s turn to recent comments by US Secretary of Energy. She is reported to have said that “hackers” could shut down the US energy grid.

Second, some individual examples.

Colonial Pipeline was penetrated through a VPN which was “not intended to be used” but not turned off. That system had single factor authentication.

In February 2020, CISA (Cybersecurity and Infrastructure Security Agency) published an alert on a ransomware attack on an unnamed US pipeline.

That alert mentions some of the same security failures as with Colonial Pipeline.

Lessons learned?

Wake-up calls unanswered?

Sobering facts insufficiently “sobering” to overcome the state of intoxication?

As well, you will note that many of the other failures mentioned in that alert are “basic cybersecurity”. The PC equivalent of locking doors, securing valuables, etc.

You will see this pattern of “rookie” mistakes in many of their alerts

Another study that ranks cybersecurity by country seems to confirm the above.

The US ranks 46^th out of 75 countries.

Some caveats:

1. This isn’t an apples to apples comparison. Rather it is an overall ranking across a broad gauge of metrics not just for ransomware. It includes attack attempts, infection rates on personal devices, etc.

2. But despite that drawback it does highlight the Willy Sutton Principle: One would expect the USA to be of more interest to hackers than many of the other countries on the list. And so more targeted. And so more in need of defense.

In Part 2, we’ll look at some other issues, not all of which relate directly to Mr. Younger's opinion piece.

The “Big Boys” Market – Ransomware Insurance

 

The Underwriter's New Suit

In the 3 June FT, Ian Smith had an article Cyber Premiums Jump in Face of Acute Threats.

Two quotes from the article and my reactions.

Surge in attacks prompts vigilant insurers to question clients closely about culture, attitude to security and training.

And 

Nor are insurers simply jacking up prices. They are also becoming more vigilant about controls at the companies to which they sell cover.

A big “shout out” for the use of “vigilant”.

The clear implication is that many, perhaps most, have been asleep at the switch.

If you’ve been following my “Big Boy” series of posts, you know I like to puncture the unwarranted myth of the imaginary “sophisticated” investor.

In that vein let’s reflect on Ian’s article using my own personal experience.

When I went to take out an insurance policy on Chez Arqala, my insurance company asked a raft of questions.

• About smoke detectors, their locations, and presence of fire extinguishers and other such equipment.

• I was also asked if we have a home security system, whether in addition to intrusion detection it also had a fire detection capability. Was it set to ring up the authorities? Who were the providers of the home security system?

• Did it have a back-up battery in case of power disruption?

• How far we were from the nearest fire station?

• Whether we stored any flammable or dangerous materials in the house.

• Other than the little people who live with Madame Arqala and me we were clean on that score.

No questions about culture, though. 

I guess he could tell just by looking at me. Or perhaps at Madame Arqala.

The decision to “write” the policy and the premium depended on our answers to those questions as well as our post code.

It boggles the mind that insurance companies writing cover multiples of that provided our house wouldn’t be asking similar questions for cyber cover.

And come to think of it, quite a lot more.

Apparently, they were not doing this.

Now to be fair, the general “take” on insurance underwriting standards is that only life insurance consistently makes a profit.

With other “lines” irrational exuberance and shoddy standards lead to highly cyclical swings in profits.

So much for the “big boys” of insurance. 

At least they are not an outlier among the "big boys"

FT Exposes the “Dirty Secrets” on Infrastructure Cybersecurity

By Day Keeps the Free Market Working
By Night Redeems Children's Teeth for Cash

In this weekend’s FT Myles McCormick and Hannah Murphy wrote: “Pipeline ransom attack exposes vulnerability of American infrastructure to cyber threats”

At first glance this seemed to be “Sun rises in the East, sets in the West” article as the vulnerability of American infrastructure to cyber threats has been repeatedly “exposed”.

The Colonial Pipeline incident is not the first cyberattack rodeo in the USA as the authors note:

Since 2019, US critical infrastructure targets have suffered about 700 ransomware attacks, including 100 this year, according to data from Temple University in Philadelphia.

As I read on, it seemed more properly that the article exposed two key reasons why incidents like these occur and, thus, why infrastructure is insecure. 

Key reasons outlined below in bold. Quotes from the article in the list below each “point”.

Woefully and Criminally Unprepared

1. Just a quarter of companies in traditional infrastructure businesses, including oil and gas, utilities and healthcare, were properly braced for an attack, estimated Matias Katz, chief executive of the cyber security group Byos.

2. The oil and gas sector has been criticised for lax cyber security regulation.

Governments have responsibility for being asleep at the switch on regulation. 

Though as Milton Friedman would tell you, if he could, there is no need for government regulation as the “Free” Market solves problems like this all on its own.

It’s all about the Benjamins.

1. But reconfiguring traditional security systems to account for the ever-changing nature of cyber threats is costly.

2. Pipeline infrastructure is largely operated by private capital, so there is often a drive to cut costs where possible.

Or, in small words, private companies avoid spending the money. 

As evidenced in the first point above, an estimated 75% of infrastructure operators. 

So it’s not the case of a few cases proving the rule about the magical prowess of the “Free” Market correct.  

But rather the overwhelming majority proving Dr. Friedman "dead" wrong.

Two further thoughts.

When the going gets tough, our national rough and tumble highly competitive private companies go running to Uncle Sugar for a handout.

1. You know them. They’re the guys who complain about welfare and how $300 a week unemployment benefits “sap the willingness of the precariat to work”.

2. While extolling how the “free” market delivers the best solutions to problems.

3. Now I’m not adverse to giving aid to those who are truly struggling.

4. Colonial Pipeline’s 2018 FYE audited report shows net profit of some US$ 470 million on total revenues of US $ 1,397 million (a very nice 33.7% net margin) and interim financials for 1Q2019 US$ 137 million in net profit (36% net margin).

5. It’s not possible to calculate a return on equity as CP has negative equity. Perhaps, due in part to a generous dividend program coupled with an earlier decapitalization (Treasury stock purchases in prior years). CP paid US $670 million dividends in 2018!

6. In light of those statistics, I think Uncle Sugar shouldn’t give them more than $299 a week lest we encourage them to slack off.

7. As you’ll note from the dearth of public information on its financials after 1Q19, CP is pretty good with keeping their financial information secure. So it’s pretty clear where their security focus is.

As to the problem being “old operational technology systems, some of which predate the internet,” having “outdated security and being difficult to upgrade”.

1. Old operational systems which predate the internet probably aren’t connected to the internet.

2. Thus, it would seem less likely to be vulnerable to hacking and capture unless miscreants were on the premises to infiltrate PLCs.

3. Analogy: If you only send snail mail, it’s unlikely that hackers are reading your correspondence.

4. In some cases if your “internet” technology or programs are “old” enough, they may be extremely difficult to hack/capture.

This is not intended as a recommendation for a Luddite return to manual or outdated systems. But rather as a counter to the “old systems” defense.

It is to repeat myself “all about the Benjamins”. 

It is a "tried and true" method to motivate folks who focus on money by "threatening" them with large fines and loss of their license to conduct business.

Market Commentary: Manifest Absurdity

 

Greensill

Today’s FT reported on Lex Greensill’s testimony to Parliament’s “Treasury Committee” as follows:

He insisted that his company’s lending was supported by real assets, although he admitted that up to 20 per cent of the group’s lending last year was based on “future receivables”.

If you’re like me, you probably had to stifle a guffaw on the conflation of “future receivables” with “real assets”.

But if you think a bit more, perhaps in the current environment it’s not so far fetched.

Even sober financial analysts and commentators, including some at the FT, have identified crypto currencies as a new “investable asset class”.

In terms of “real assets” are future receivables any less real than Bitcoin, Dogecoin, or their like? 

I think not.

If that isn’t a sign of irrational exuberance, I’m not sure if there is any sign.

Fairness impels me--note the choice of that verb—to mention that today Jemima Kelly did opine in those very same salmon-colored pages that crypto currencies were a “joke” and shouldn’t be taken “seriously”.

Ark Innovation – Springs a Leak

The FT reported that Ark had lost one-third of its value since its February “high”.

I’d make the same comment I did regarding Tesla’s loss of value.

More accurately, the price is down by one-third.

Value is intrinsic. Price is a market phenomenon.

Also a shout out to Lex, for noting that:

Data from Morningstar illustrate the pitfalls. More than two-thirds of thematic funds outperformed the broad MSCI ACWI index in the year to end March. But go back five years and that drops to below a third. One-fifth of thematic funds did not even survive. Over a decade, just 4 per cent outperformed. As themes go, this one does not inspire much confidence.

Middle Eastern Democracy – Kurdistan Style

Today’s FT “Long Read”--as its actual length discloses it is apparently designed for those with ADD--discussed authoritarianism in Kurdistan.

Not only was I was surprised and deeply shocked to learn that Jeffersonian democracy was not flourishing in Kurdistan. 

But also that corruption was rampant indeed.

Who would ever have thought?

As pointed out in the article, much of the silence on these two topics has to do with geopolitical “considerations”.

So much for making the world safe for democracy or fighting corruption.

At least I suppose one can take comfort that no one has proposed Kuridstan for NATO membership. 

 At least not yet!

GFG's "Tiny" Auditor = Rather "Large" Credit Red Flags

Even He Probably Couldn't Perform
Audits on 60 Companies

An introductory note to what follows.

Credit “red flags” in themselves do not conclusively prove there is a problem with an entity. Rather they identify areas for enhanced due diligence to determine if there is a problem.

According to research by the FT, one apparently very small English Chartered Accountancy firm, King & King, audited over 60 companies in Mr. Gupta’s Group. Companies with a combined Sterling 2.5 billion in revenues!

It is one of the long standing—but often ignored—rules of due diligence to scrutinize not only audited financial reports but also the auditor.

1. Is it a known firm? What is its reputation and track record?

2. Does it have the skills and resources to conduct an audit of the particular company? Horses for courses.

3. Is there an imbalance in the relationship between the company and the auditor that might make the auditor subject to undue influence on its work?

For example, if the auditor is dependent on the company for the bulk of its revenues, it might well find it hard to say “no” to the company.

I’d hasten to add that this is not a conclusive test.

There are more than a few cases where the “biggest” auditing firms appear to have failed in conducting sufficiently probing audits.

After reading the FT’s excellent article, I decided to do a bit of digging myself.

What better place to start than an electronic visit to the UK’s Companies House?

There I searched for the name King & King and the address 273-287 Regent St, London W1B 2HA, United Kingdom. This search returned three entities that appear directly related:

1. KING & KING LTD Company number 04871854. Listed as dormant. Last Financial Statements 20 August 2019. Net assets GBP 1.

2. KING & KING (ACCOUNTING & ADVISORY) LTD Company number 07597296. Listed as dormant. Last Financial Statements 30 April 2019. Net assets GBP 1.

3. KING & KING WILLS LTD Company number 07533423 Last Financial Statements 28 February 2020. Net assets GBP 685.

There is no doubt a reasonable explanation for what would appear at face value to be a discrepancy here. How could a dormant firm with so modest financials audit 60 companies.

However, what that explanation is eludes me.

I suppose it may be that the firm that does the audits is registered under another name. 

I did take the obvious step of using Companies House to search on the names of officers and directors at the above companies on the assumption that one or more of these might be at the firm with "with another name".  

However, I came up with a blank.

To make sure I covered as many bases as possible,  I then searched Companies House for the address alone.

To my surprise there were 20 pages of entities.

Companies House told me to refine my search as there were many many more.

So it may be that I missed that new name.

No results for K&K’s Middlesex Office at Companies House using both its name and the address.

But using Google, I quickly turned up at least 51 companies at the Middlesex address.

I did however find a related company at that address which shares a director with King & King.

RELANS LIMITED Company number 07317670. Latest Financial Statements 30 April 2020. GBP 127,284 in total equity.

While the income statement was not included, comparative figures would suggest it was a good year indeed for Relans as its retained earnings increased approximately GBP 120,000 year on year. Quite a remarkable change from previous years!

As to the numerous parties at both of K&K’s listed addresses, at first glance it would appear that both buildings are “rather large”.

Or perhaps more likely the address is that of virtual office or a corporate registration service.

Perhaps, K&K are “working from home” as part of a Covid inspired remote work initiative.

Turning back to the FT article, the FT asked chartered accountants at other firms what K&K’s reputation was. The answer they received seems to be “who?”.

According to the FT, K&K is registered at the ICAEW as having one CA and one professional staff.

On its face, that might make some question the “depth of its bench” in terms of ability to perform audits of large firms.

It would also suggest that GFG was the “father of the feast” at K&K. Loss of this relationship would be likely to dramatically reduce revenues.

Typically, scrutiny is focused on the auditor of the obligor or the counterparty to a transaction.

And that absent guarantees or other support from related parties, focus on those parties’ auditors would be minimal at best.

However, even with a limited one company focus, there are enough red flags to suggest weakness. That would include the questions posed by my Companies House search.

And those threads when pulled might well have revealed other issues. Or resulted in a clean bill of health for K&K.

For those with exposure to GFGroup, a wider focus would be appropriate.

Discovering that one very small CA firm was auditing a large number of GFG companies should have been a gigantic red flag, prompting further investigation..

It’s not just the three questions above, but the fact that K&K was auditing 60 companies but it had a staff of one CA and one other professional. Companies with Sterling 2.5 billion in revenues.

If we assume that one-quarter of these firms had their fiscal year at each quarter’s end as opposed to all at 31 December, it boggles the mind to think that K&K would be able to do the intensive work required for an audit even on “just” 15 firms.

The ability to repeat this intensive process quarter on quarter would have required probably more than a singe Stakhanovite.

More importantly one might reasonably struggle to understand how a firm this size could perform a proper audit on even one company each quarter.

If, as is more likely, 31 December was the FYE for all or the majority of the 60 companies,, then the improbable becomes the impossible.

One caveat K&K notes on their website they are affiliated with IRGlobal a network of accountancy, advisory, and tax firms and so would appear to have access to additional knowledge resources.

Somehow the extent of K&K’s audit work (and prowess) was missed.

The FT was able to discover this interesting issue apparently without undue or time-consuming exertion.

Admittedly, they benefited from hindsight: GFG’s woes were public knowledge

Also admittedly, the FT has a cadre of very savvy financial reporters who have been responsible for uncovering financial frauds. By their own skill, not just via whistleblower tips.

Bondhack and Cynthia O’Murchu made a significant pre-crash discovery regarding the weak state of NMC’s finances by the clever use of credit bureau information.

One-at least this one-would expect that financial institutions with money at stake would have at least as competent staff.

And perhaps because they were doing this for a living, or were supposed to be doing this, would have additional resources and experience.

Sadly, hope is not necessarily accompanied by change. 

Or so I have been told.

“Foreign Investors Face Critical Test Over Chinese Bonds” Part 2

I bought US$10 Million in PUFG Bonds
And all I actually got back was this cheap T-shirt

Part 2:  More on the "Critical Test" facing PUFG bondholders. 

I’ll take a close look at the transaction structure quoting chapter and verse from the Offering Circular (prospectus).

I’ll break with what is sadly usual investment process by actually referring to the most important but usually least read section of the prospectus: Risk Factors. 

And in so doing “force” you to read along as well.

In this “exercise” I’m going to focus on structural/legal factors to the exclusion of other risk factors.

Why?

Because if the transaction structure is weak or the market has fundamental legal problems, you need to walk away.

Page 44 

It may be difficult to enforce any judgments obtained from non-PRC courts against the Group or its directors and senior management who reside in the PRC.

Page 48 

Additional procedures may be required to be taken to bring English law governed matters or disputes to the Hong Kong courts and the Bondholders would need to be subject to the exclusive jurisdiction of the Hong Kong courts. There is also no assurance that the PRC courts will recognise and enforce judgments of the Hong Kong courts in respect of English law governed matters or disputes.

These two items do not sound “promising”.

Page 45 

However, any claim by the Issuer, the Guarantor and/or the Trustee against the Company in relation to the Keepwell Deed or the Deed of Equity Interest Purchase Undertaking will be effectively subordinated to all existing and future obligations of the Company’s subsidiaries (which do not provide a guarantee in respect of the Bonds), particularly the Company’s subsidiaries in the PRC, and all claims by creditors of such subsidiaries in the PRC will have priority to the assets of such entities over the claims of the Issuer, the Guarantor and the Trustee under the Keepwell Deed and the Deed of Equity Interest Purchase Undertaking.

If you’ve read my earlier post about consolidated financials and what they mean, you realize that the holding company’s primary assets are equity in subsidiaries. Absent a guarantee from those operating entities, you’re already effectively in a “junior” position.

And, if by chance, you’re wondering about the PUFG guaranteed bonds, well the guarantee there is by the holding company only. There are no cross guarantees by subsidiaries. So it is limited to the assets of the holding company, which largely consist of stock in the subsidiaries.

Thus, while the PUFG “guarantee” is better than a keepwell deed of equity interest purchase undertaking, it still falls short of the sort of guarantee you would want. Another lesson from the tale of consolidated financials.

Here is the offering circular for the PUFG guaranteed US$250 million 7.875% 24 June 2021 bond if you’d like to check my analysis.

Page 46 

Performance by the Company of its undertaking under the Deed of Equity Interest Purchase Undertaking is subject to approvals of the PRC governmental authorities. (Five are listed)

No approval = legal bar to PUFG’s compliance.

Request for approval will come when the payment crisis has occurred. Not before. That seems a less than ideal situation. You don’t know if the Company is legally bound until default.

Page 47

Performance by the Company of its undertaking under the Deed of Equity Interest Purchase Undertaking may be subject to consent from third-party creditors and shareholders, and may also be restricted if any of the equity interests are secured in favour of third-party creditors.

That’s what we “professional” investors call “cold comfort”.

Page 47 

The Relevant Transferors have limited assets which can be sold to the Company pursuant to the Deed of Equity Interest Purchase Undertaking.

This sounds even less promising. If there’s nothing to purchase, the Company has nothing to buy.

Given all this, there seems little justification for bondholders’ complaints.

Or claiming there was a guarantee when there was not. 

Or even an “impression” of a guarantee as demonstrated by the quotes above.

They were warned in the prospectus.

As well, this isn’t foreign investors’ first “bad” rodeo in the PRC. 

If you’re planning to invest in a country, it’s probably a “smart” move to do a bit of due diligence on how other investors have fared with respect to laws, the legal system, legal structures, etc. 

However, on a positive note, this case does prove my version of the Efficient Markets Hypothesis.

The market is very efficient in separating the financially illiterate, the gullible, or the heedless from their money. And does not discriminate between the retail investor, the professional investor, and institutional investors.

H/T to AA's older wiser august and revered brother, expert in many things Asian, for the quote above as well as the T-Shirt picture.  "If you don't do stupid things, you won't end up in tragedy".

Market Commentary: Greensill -- The Critical Difference between Insurance and a Guarantee and Why It Matters

 

An Unhappy Outcome

Since I haven’t seen anything on this topic in re Greensill, I thought I’d offer a few thoughts on how the fundamental difference between (1) a guarantee of payment and (2) an insurance policy affects the Greensill “situation”. 

And how it might motivate actions by participants in this unhappy event.

The difference between these two instruments is frequently misunderstood, including by supposed finance professionals. Hopefully, this post will fill in any extant knowledge gaps.

A guarantee of payment (as opposed to a guarantee of collection) is a legally binding obligation by the guarantor to make payment to the guaranteed party if the debtor does not make a scheduled payment. Proof of the debtor’s non payment is generally fairly “easy” to make. Usually then the guarantor makes payment without undue delay.

An insurance contract is a legally binding obligation by the insurance company to pay the policyholder if the policyholder submits a valid claim.

Keep those last two words in mind. 

The insurance company reviews the policy conditions, the insured’s (or policyholder’s) actions, and makes the initial determination of the validity of the claim. Some policyholders have been known to complain that such assessments seem to move at a glacial pace.

As that should imply, the insurance company has more legal defenses against payment than a guarantor. And its payment is not as fast given the time to review the claim.

The insurance policy spells out the conditions for validity.

For example, in obtaining the policy, did the policyholder make a material misrepresentation or fail to disclose material information that would reasonably have caused the insurance company to refuse to write the policy? In such a case the entire policy is invalid.

Did the policyholder fail to take reasonable steps to prevent the loss?

For example, if he left his Maybach unlocked with the key in the ignition and his insurance company knew this fact, they would likely decline the claim for theft.

If she routinely stored gasoline in her villa and filed a claim for fire damage and the insurance company knew this fact, the result would be the same.

Did the policyholder take reasonable steps to mitigate damages?

When the fire broke out, did she call the fire department? Or just let the villa burn down?

If his trade counterparty was in financial difficulty and he should have been aware, did he shorten payment terms, ask for collateral, lower his credit limit for aggregate outstandings?

There may also be other specific policy exclusions: strike, riot, civil commotion, actions of political entities, foreign exchange controls, etc.

We can therefore expect that Tokio Marine and other insurance companies will be carefully reviewing their obligations under any outstanding policies on Greensill related debt. 

I saw in today's FT (23 March) that Tokio Marine had opined that the policies might not be valid. 

Today (2 April) the FT reported that Grant Thorton acting as administrator for Greensill had been unable to verify certain invoices underpinning loans to Liberty Commodities - part of Mr. Gupta's group.  

Actually, the article says that several firms whose names appeared on invoices denied any commercial relationship with Liberty.  You can guess that this means that any "insurance" on these invoices is invalid.

One would of course have to review the actual policies and the respective governing laws to determine the defenses the insurance companies might have.

But I wonder if it’s possible that policies issued in excess of underwriting limits might be one? 

Part of that might turn on whether Mr. Brereton was working for Greensill (as an insurance broker) or for Tokio Marine (as its employed underwriter).

As well one can imagine Credit Suisse fund managers' angst over the difference between insurance and a guarantee as well as potential liabilities that might arise from potential "defects" in disclosures in selling documents vis-a-vis disgruntled clients whose attorneys will be going over said documents carefully.

Keep up to date on developments.  

The FT continues to follow the Greensill saga with an interesting article on Mr. Brereton earlier this week.

Wirecard A Series of Unfortunate Regulatory Incidents

 

"Who are the police?
We need a police to catch the police?"

No sooner had I posted about regulatory lapses by Apas in re Wirecard than the weekend edition of the FT landed at my doorstep.

Was für eine Überraschung! (Quelle surprise!)

Olaf Storbeck had another article on German parliamentary hearings on Wirecard.

This time the head of Apas, Mr. Ralf Bose, gave testimony.

Herr Bose admitted that he purchased an undisclosed number of Wirecard shares in April and sold them at an undisclosed loss in May – while Ba-Fin and Apas were in confidential talks about Wirecard.

Bundesminister für Wirtschaft und Energie Peter Altmaier, reportedly found Herr Bose’s comments “disconcerting” (beunruhigend?)

Ba-Fin fresh from its success supervising Wirecard will investigate Herr Bose’s share trading.

In that regard, I would hasten to note that Herr Bose was “long” not “short” Wirecard shares so the investigation may be able to be concluded quickly.

First time an oversight. Second time a mistake. Third time an unfortunate coincidence?

You may recall a post from some years back in which I ridiculed the idea of the imagined superiority of supervision in the “developed” West when discussing l’affaire Abraaj.

I’d offer the WC saga as re-enforcement of that argument.