Distressed Investor Wilbur Ross Readies to Buy European Banks with New Investment Vehicle
Ross holds a 9.7 percent stake in Bank of Ireland (IRE). Initially, he and several other investors, including Prem Watsa’s Fairfax Financial Holdings (FRFHF), injected $1.6 billion into the bank in July 2011.
According to Prem Watsa’s 2012 shareholder letter, the investors paid 10 cents per share for the stock, which it purchased from the Irish government. The price had tumbled over 90 percent since it traded for more than 18 euros per share in 2007 before the financial crisis.
The stock touched a high of 15 cents per share in February of 2012, before declining in mid-year and surging in November and December to close for 12 cents on Thursday.
Ross said one factor that assured him about the bank was that the Irish government was working to secure the economy and the banks. His optimism for the Irish economy’s recovery rested primarily on its young, growing population, minimal corporate tax rates and favorable trade balance.
In June, both Ross and Watsa became non-executive directors of the bank.
“This complements the Board team for the next phase of Bank of Ireland's recovery from the banking crisis,” Ross said in a statement. “The first phase was identification and quantification of the problems inherent in the Bank's loan portfolio. The second phase was creating a capital structure that could survive extremely stressed conditions. The present phase is developing strategy and tactics for achieving near term profitability and long term growth. As we enter this third phase the combination of skills on the present Board with the expertise of the new additions will provide support and counsel that will help Richie Boucher and his management team accomplish this final phase of the turnaround. I am proud to be part of it."
The bank continues its road to recovery and recapitalization. On Dec. 12, Bank of Ireland raised 250 million euros by issuing 10-year subordinated bonds, which carry a 10 percent coupon.
"Today's trade is a significant vote of confidence by international bond investors in Bank of Ireland and Ireland. This further reflects the material progress made by the group and the economy," the bank said in a statement.
The continued capitalization, it hopes, will help it gain normalized access to capital markets.
At last update in November, Bank of Ireland’s focus on deleveraging targets enabled it to reduce its loan to deposit ratio from 136% in June 2012 to less than 130% in November 2012. Its Core Tier 1 ratio stood at 13.9 percent at the end of October 2012.
Ross has also called the investment, a “play on the recovery of Ireland.” In August, he told Fox Business that he had recently traveled to Greece but still believed it was too early to take any action there.
“I think Greece is in pretty bad shape. But at some point it could be a Greece or a Spain that would be a pretty good place to go into,” he said in the interview.
Now, Ross could be preparing to take on one of the numerous phone calls he said he receives from banks there daily through a new investment vehicle, NBNK Investments. NBNK Investments, a shell company, announced yesterday that it would defer its winding down plans and instead allow existing shareholders to sell between 29.9 percent and 37.8 percent of the company’s shares to Ross at 39 pence per share, for a total cost of 8.3 million pounds.
Before Ross entered the picture, NBNK was originally set up to launch a new, more customer-oriented bank, beginning with a large acquisition. When it failed to win several acquisitions and its talks to acquire Lloyds Banking Group’s Project Verde assets reached an impasse, it decided to wind down.
The enterprise was founded by Lord Levene and several other business figures, with backing from a group of shareholders, in the UK.
Ross will become chairman of the company, rearrange management somewhat and appears to want to use the company as a base for investing in Europe. “It is understood that the new Board intends, in consultation with Shareholders, to review its investment policy including investment in Continental Europe,” NBNK said in a statement.
Ross elaborated on his plans for the company in an interview with Reuters. "Given the turmoil in financial services, very few companies can get access to public capital markets so we feel a company like NBNK that is listed and has supportive shareholders will be attractive for a number of companies," he told Reuters on Thursday.
As of March 31, the largest banks in Europe are Germany’s Deutsche Bank (NYSE:DB), whose shares are down 67 percent over the past five years; the UK’s HSBC Holdings (HBC), whose shares are down 41 percent over the past five years; and France’s BNP Paribas SA (BNP), whose shares are down 44.5 percent over the past five years.
On Saturday, the European Central Bank’s vice president, Vitor Constancio, said at a press conference following a central bankers’ meeting in Santiago he believed the euro zone economy would shrink in 2013 before returning to growth in 2014, with better and earlier prospects for core countries.
"The recovery will be more significant for core countries because the countries under stress will continue next year their adjustment policies. These adjustment policies are working. For 2014 the situation will be different because we expect that all countries will enjoy some growth,” he added, according to Reuters.
See more about Wilbur Ross and his portfolio of investments here. Also check out the undervalued stocks, top growth companies and high yield stocks of Wilbur Ross.