A bank acquired by the metals magnate Sanjeev Gupta has extensive links with his family’s wider business empire, a Financial Times investigation has found, raising questions over how the lender is deploying savers’ deposits.
Wyelands Bank is a member of the GFG Alliance, a loose collection of Gupta family investments that has expanded rapidly over the past few years buying up factories, smelters and mines round the world.
Mr Gupta’s acquisition spree has turned what was a commodities trading house into an industrial behemoth with $20bn in annual revenues and 30,000 employees, but it has also led to questions around GFG’s funding.
Wyelands, acquired by Mr Gupta in 2016, is among a flock of UK “challenger” banks seeking to win over retail customers. Its website offers annual savings rates of up to 1.9 per cent on a 24-month fixed term account with a minimum deposit of £5,000.
The bank says it operates independently of the businessman, although its most recent annual report acknowledges that Mr Gupta’s broader interests within GFG have been “an important source of business introductions”.
The accounts show that some 23 per cent of the overall amount that Wyelands made from charging interest, £3.9m, came from related parties, which it defined as “members of GFG”.
While large companies such as car manufacturers sometimes own banks that provide finance to consumers to buy their products, in Britain it is unusual for a bank to lend to entities within a wider group.
“Banks lending to related parties or their customers is not common in the UK, though it is in some other countries like Germany and is very common in Asia,” said Professor Dalvinder Singh at the University of Warwick’s School of Law.
Under UK financial regulations, banks are permitted to lend to related parties, which includes affiliated companies or individuals, up to a limit of 25 per cent of the bank’s core capital — as long as the terms are not more favourable than those for non-related parties.
If certain conditions are met, the Prudential Regulation Authority, a banking watchdog, allows exposure to related parties above this level. The PRA declined to comment.
The FT also reviewed public documents from Companies House, the official UK corporate register, in early June 2019. These showed that most of the security interests registered as collateral by Wyelands at that time were held against assets of companies that were either part of or closely linked to GFG.
Four-fifths of the 34 entities over which Wyelands had security, in the form of a registered charge, listed one of three individuals with key roles in the GFG Alliance as signatory in the charge documents.
A charge gives a lender security over the assets of a borrower or debtor and is typically used by banks as collateral for loans or finance facilities.
Of the 83 charges in favour of Wyelands, 54 showed a link to GFG. Forty-one named as signatory PK Gupta, Mr Gupta’s father and founder of Simec Group, one of the main groupings of companies within GFG Alliance. Twelve named Rajeev Gandhi, chief financial officer at Simec, while Mr Gupta himself is a signatory on one of the documents. Two of the charges have since been “satisfied in full”, the filings show.
A number of the companies subject to the charges are renewable power generators in Scotland.
The FT asked Wyelands if it loaned money to entities within GFG Alliance, and if so, whether it makes this clear to depositors. The bank said that it could not discuss clients because of confidentiality.
However, Wyelands referred to its role as a provider of receivables finance. This refers to when a bank buys a company’s unpaid customer bills at a discount.
“All receivables lenders will take charges not against the borrower but the companies which owe money to the borrower,” the bank said.
Wyelands added: “All the bank’s lending is determined by its risk appetite which is agreed by the board and in line with the business plan which has been agreed by the regulators. All our lending is consistent with our regulatory approvals.”
Most of the charge filings analysed by the FT do not reveal amounts loaned, so it is unclear what proportion of the bank’s overall credit exposure is to entities within GFG.
Wyelands declined to disclose this, but suggested the Companies House filings did not give a representative view of its overall business.
“We take security in a number of jurisdictions and to take a security register from one jurisdiction alone gives a distorted picture, as it would with any lender. In addition, security and actual exposures cannot be precisely correlated,” it said.
A lender may also hold unregistered security interests in the UK for the financing of items such as receivables or inventory. These do not appear at the corporate registry.
Wyelands said most of its exposures were not secured and that charges were not applied in all circumstances, but could be as additional security.
It added: “Having good credit risk mitigation should not be confused with actual exposures. Prudent credit risk mitigation involves having multiple exit routes irrespective of where the underlying credit risk sits.
“Drawing conclusions from the mitigation doesn’t give an accurate impression of the actual underlying risks.”
GFG said: “It is a matter of disclosed fact that GFG Alliance businesses transact with Wyelands.”
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