There’s a good chance you’ve hit the rocks if Wilbur Ross comes calling. The 73 year-old has made his multi-billion dollar fortune because he’s prepared to buy things that few others will.
Sometimes it’s companies. Sometimes it’s entire industries. He netted a fortune when he sold International Steel Group, a US steel producer welded together from two bankrupt companies, to Indian tycoon Lakshmi Mittal for $4.5bn (£2.8bn) in 2004.
Ross is one of the biggest players in the world of distressed investing, or “vulture investing” as it’s also known. If it’s battered and failing, it may twinkle enough to catch the eye of Ross and his team of more than 50 who work out of the firm’s office in midtown Manhattan.
In the past 18 months, the UK and Irish banking sector has certainly offered some opportunities. In April 2010, Ross stumped up £100m for a 21pc stake in Sir Richard Branson’s Virgin Money.
This week that stake more than doubled to 44pc after Ross paid about ÂŁ250m more to help Virgin Money buy Northern Rock, beating a rival bid from an investment vehicle led by Lord Levene, the former boss of Lloyds.
The origins of the deal, Ross explains, date back to Northern Rock’s collapse in September 2007. He was prepared then to help Virgin Money bid for the distressed mortgage lender until Alistair Darling, the then Chancellor, decided to nationalise it in early 2008.
“Through that we got to understand just how powerful the Virgin name is. It has virtually 100pc name recognition in the UK, and if you look at its customer base more than 90pc say they’re very happy with their relationship with Virgin,” Ross says, speaking in his corner office on the 25th floor that has a clear view up Sixth Avenue to Central Park.
“Whereas if you do the same poll of the depositors with the high-street banks, 80pc say they are dissatisfied. We thought that’s a very interesting phenomenon.”
It’s not just evidence that the British don’t really like their banks that lured Ross. There is, he says, a “macro 40,000-foot level framework”, that’s got him interested in banks in the UK, Ireland and the US after a career spent investing largely in steel, textiles, coal and telecommunications.
It can be distilled in two words: the internet and regulation. “The internet is changing the meaning of physical location – it’s much less important than it used to be,” argues Ross, who speaks with a deliberateness that may have been cultivated during the near quarter of a century he spent at investment firm Rothschild advising firms facing bankruptcy or already in it.
“Many of the banks have far too much money tied up in these large branch networks to be able to truly turn a profit from the internet. Whereas the smaller institutions we’re dealing with, the internet can have a huge impact.”
Ross also believes that the world’s biggest banks won’t be able to escape tough choices on which activities they pursue following the wave of new regulations set out in the Basel III agreement, the Dodd-Frank Act in the US and the “ring-fencing” of a bank’s retail operations recommended by the UK’s Independent Commission on Banking in September.
Banks won’t be allowed to get into “all of these super-sophisticated financial engineering things that really got them in trouble”, he says. “We think there will be a kind of a reversion in banking.”
Having started life on Wall Street straight from Yale University – he abandoned an early ambition of being a writer – Ross has been a witness to the dramatic expansion of financial services in the US over the past 30 years.
The repeal in 1999 of the Glass-Steagall Act, which President Franklin Roosevelt passed in 1933 during the Great Depression to ensure a bank’s retail and investment arms are kept separate, did much to fuel that growth. For Ross, it’s proved a major mistake.
“I frankly think that the repeal of Glass-Steagall was a huge error because it creates the temptation for big banks to use their balance sheets instead of brains,” he says. “And it’s easier to get merger and acquisition fees if you’re going to make aggressive loans to fund acquisitions.”
Virgin Money isn’t Ross’s only investment in the UK. Ten days ago he agreed to pay up to $62.5m for a 19pc stake in Navigator, a London-based shipping line that moves liquefied natural gas across the world. Will there be more deals? “For sure, sure. We will make more investments,” says Ross, without giving specifics.
The firm already had some manufacturing plants in Britain through International Automotive Components Group, a car-parts supplier that he amassed through 14 takeovers.
Link to entire article: http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/8900968/Wilbur-Ross-eyes-a-profit-from-British-anger-at-banks.html
