Inside the world in business
Low-life grave dancers keen on banks again
LOW-LIFE GRAVE dancers are keen on Irish banks again and are prowling in the cemetery, eyeing up tombs.
US buyout firm JC Flowers, founded by former Goldman Sachs banker Christopher Flowers, has said it is interested in investing in AIB and Bank of Ireland – or even in EBS – but that it would be more appealing to buy loans or assets in the short term.
The reason for the rekindling of Flowers’s interest in the Irish banks is clear. Under the EU-IMF rescue plan, some €2 billion initially – and billions of euro more to go – will be used to pay for guarantees on loans and assets to be sold off to shrink the banks.
Flowers, who famously predicted that “low-life grave dancers like me” would make a fortune from the financial crisis, will lead a growing band of bargain hunters attracted by this plan to flog bank assets.
Carving up the banks and selling off parts of them with guarantees and loss-sharing measures is key to shrinking the banks to instil market confident again.
Flowers was part of the Mallabraca consortium which circled Bank of Ireland late in 2008 and later was involved with many of the same players in the consortium led by Irish private equity firm Cardinal which eyed EBS before going solo with its own bid.
His firm is understood to have proposed that the Government would take the first €1 billion losses at EBS.
The Cardinal consortium – which is competing with Irish Life and Permanent for EBS – is offering to take losses upfront and share further losses with the State.
Flowers has not had a good crisis – his €1.1 billion investment in German bank Hypo Real Estate blew up.
He has been much more cautious since. He invested £50 million (€59 million) in UK building society Kent Reliance allowing him to expand in Britain, but got cold feet on a €450 million interest in Spanish caja, or savings bank, Banca Civica.
While Ireland is attractive, he admits that any investor would have to be “pretty brave”. A deal sharing risk with the taxpayer would certainly attract Flowers and other “vulture” funds, making them that bit more courageous.
What could possibly go wrong?
THEY MAY not be terribly well insulated from the conflicts that blow up around their borders, but Russia and Turkey are better insulated from Europe’s sovereign debt woes than “peripheral” nations such as the Republic.
And banks are falling over themselves to get into both countries and are offering knock-down interest rates to borrowers.
A report from Bloomberg yesterday said that “OAO MDM Bank, Russia’s second biggest non-state lender, is seeking to cut the interest margin on a new loan to 220 basis points (2.2 per cent) more than benchmark rates, compared with a margin of 400 basis points last year”.
Turkiye Garanti Bankasi AS, a Turkish bank part-owned by General Electric, recently arranged a $1 billion (€750 million) loan at a 1.2 per cent margin.
The Bloomberg report also quotes David Pepper, head of Central and Eastern Europe, Middle East and Africa loan syndications at WestLB AG in London, as saying that there are more banks seeking to do top-tier Russian and Turkish loans than there are borrowers to take them up. The volume of syndicated loans is up 88 per cent at $32.5 billion this year.
Syndicated loans in Turkey rose 500 per cent to $21.2 billion.
Meanwhile, interest rates on loans to both countries are plummeting. The reason? Their economic growth is outstripping the euro zone and they are removed from the sovereign debt crisis that is continuing to dog the western half of the continent.
If you think that the sight of banks falling over themselves to throw cheap money at a rapidly growing economy is familiar, you’d be right: it’s not so long since it happened here. It was the very behaviour that helped to blow up an investment bubble that has burst with dire consequences.
And given those consequences, it’s no wonder that international banks have a big appetite for tier-one deals, because apparently countries will beggar themselves rather than allow banks to default on those loans. They are as copperbottomed as you can get.
Perhaps somebody should warn the Russians and the Turks . . .
TODAY
All eyes will be on the Dáil as Minister for Finance Brian Lenihan takes to his feet at 3:45 this afternoon to unveil Budget 2011.
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