Wilbur Ross
Jr., CEO and chairman of WL Ross & Co. and connoisseur of
verge-of-death investment opportunities, has been drawn recently
to the carnage in Europe. His first foray, into Bank of Ireland,
has thus far been profitable. A purchase of a shell company, NBNK
Investments Plc (
NBNK
), suggests he may hope for more of the same around the fragile
European financial sector.
Ireland
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.
Europe
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 (
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.
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