Friday, 13 April 2012

NBNK, who are they?

Lately I have had a number of people (and trust me on my blog any number is considered ‘many’) coming from Google with search words such as ‘NBNK’, ‘Gary Hoffman’, ‘Co-op and NBNK’. I can’t recall ever having written anything about NBNK or Hoffman, but in order not to disappoint my next guests, I have decided to dedicate a post.

So to start from the beginning. Banks lent to a bunch of low grade private and commercial customers who couldn’t pay them back, had overvalued the collateral and suddenly the whole world was in the shit. The governments around the world got very busy intervening in different ways. In some countries they put up giant guarantees, in some they lent (freshly printed) money to banks, and in some they bought their shares and therefore partly or fully nationalising them.

A particularly crappy UK bank was Northern Rock, famed for is extremely aggressive lending policy, they were the first to sink and marked the beginning of the UK financial crisis of 2008. After failing to find buyers for it, the government had to take it into public ownership. Gary Hoffman was given the dubious honour as new CEO, tasked with getting the most out of a very poor situation. It was clear from the start that the governments plan for Northern Rock was to sort of clean it up, separate the good bits from the bad and then sell what they could get rid of.

Next up was HBOS, Lloyds offered to rescue HBOS by merging with it, regulatory approvals were rushed through and they formed a new banking giant. Shortly thereafter Lloyds announced that they now were in trouble, the balance sheet of HBOS was worse off than previously thought and they now needed a bailout, so the government essentially nationalised them too by taking a majority stake. However EU was looking at what was going on and said ‘wait a minute’ (should be read with a French intonation) that sale of HBOS, indirectly subsidized by the UK government and against all common sense, constitute many breaches of merger rules and you must therefore divest a large part of Lloyds (more than 600 branches and billions of savings, loans etc.) again. That asset sale, which is by no means concluded yet, is what is known as the Verde project. Apparently what could be bought over a few days and subsequently quickly integrated into the core business, is now so difficult to separate that it require several years and several hundred people to do. Bizarre. It didn’t improve matters much that Antonio Osorio, Lloyds newly appointed superstar CEO, suffered a mental meltdown and was rushed to a celebrity rehab centre, leaving mess to people that had either just arrived (parachuted in by Antonio) or didn’t really want to be there. There were other banks and building societies too, RBS for example, but they are irrelevant for this story so I’ll just keep it at Northern Rock and Lloyds.

Many senior people in the banking industry were looking at what was going on and knew that naturally somebody has to buy these assets and there must be some opportunities here. Companies from other industries, private equity firms etc. considered getting into banking and some investment vehicles were formed with the unilateral purpose of bidding for the banking assets. One of the companies was NBNK. Established by Lord Peter Levene and Sir David Walker, some formidable characters. NBNK then went on to hire Gary Hoffman, the former CEO of Northern Rock.

NBNK, it seemed, was particularly interested in scale and it was widely expected that they would bid and win the sale of both Northern Rock (why they had hired their former CEO) and Verde. NBNK hired a number of other heavy hitters and seemed very confident they would win. Then the first disaster struck, Virgin was picked over NBNK to buy Northern Rock. Undeterred NBNK shifted focus on Verde which after all is the much bigger fish. However it wasn’t long till NBNK suffered a second and much more devastating blow. Lloyds announced that they had selected Co-op as the preferred bidder for Verde. Looking at the press releases following the decision it was hard to tell who was more surprised Co-op or NBNK. The former issued a very lukewarm statement saying along the lines if “thanks, now let’s see if we can agree terms” and NBNK were pretty discontent (probably also a bit embarrassed that the only thing they had achieved for their investors was to pay themselves some generous salaries).

Anyway over the last few months, the Co-op bid has become ever shakier. The regulator has expressed strong concerns over Co-op boards ability to credibly lead a major bank and just about everyone (including Co-op's own CEO) are asking ‘do they have the money’, So a few days ago NBNK launched a PR shock and awe campaign, registering a fresh bid for Verde, even though that’s probably against the bidding process (remember a preferred bidder has already been chosen) but as the Co-op might not be able to conclude the deal what NBNK is trying to achieve is to make sure that Lloyds won’t have an excuse to spin-off the Verde assets in an IPO.

One key point though is that by all accounts NBNK’s plan is to run Verde pretty much as is, they don’t seem to have any radical plans for it and given the choice it is difficult to understand why investors (remember NBNK have to attract a couple of billon pounds to fund the purchase) would want to give their money to NBNK if they could wait for the IPO, buy the shares directly and get it cheaper (I’m assuming that NBNK would also want to be paid). NBNK are however offering existing Lloyds shareholders, including the government, shares in the new bank and claim that they are able to wholly-fund the demerger which will sound very appealing to Lloyds (slightly complicated to explain but because of imbalances in asset/liabilities in Verde, Lloyds could end up lending a large amount of money to the purchaser). Very interesting to follow and I suspect we haven’t seen the end of the soap opera.

1 comment:

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