US investors in Europe finish what the Fed starts

Last week the Federal Reserve released data on its bailout activity. Not surprisingly, the Fed was revealed as the central bank for the world. The Fed appears to relish the role, considering the rate of jubilant buying and selling of swaps with sovereign banks, especially in cases where those countries could create some sort of solution on their own. And while the American public may currently detest all things banking, the Fed activities have won the hearts and minds of Europe’s banks, thereby opening the floodgates of opportunity. A research report from the Bank of International Settlements in Switzerland compares the latest financial crisis to the Great Depression. During the Great Depression, liquidity shortages at banks destroyed the international monetary system. Perhaps learning from this error, central bank liquidity (via the Fed) this time around was provided much more freely. The BIS estimates the 2008 to 2009 liquidity provision was 5.5 to 7.5 times more than in 1931, “in some cases setting no upper limit to the amount that could be borrowed,” writes BIS research Richhild Moessner, with William Allen of the Cass Business School. Sadly, all good things must come to an end. But Europe is by no means going to suffer greatly as a result. Firms left holding huge amounts of devaluing assets need only to look at the private market investors of America for salvation. U.K. construction company Taylor Wimpey, is looking to offload its U.S. operations, according to a wealth manger in London. The firm can no longer support its stateside operations, called Taylor Morrison, and doesn’t want to get pulled under, the manager said. And who will they get to help with the sale? JP Morgan. Hypo Real Estate, one of the largest benefactors of the German Central Bank bailout, is also looking to offload its U.S. servicing operations. Frontrunners for the winning bids include private equity firms Apollo Management, J.C. Flowers and Lone Star Funds. But a source based in Germany tells me, “for the next few years Apollo, J.C. Flowers and Lone Star will always be mentioned as potential bidders on these kinds of deals.” Virgin Money also recently shuttered its U.S. operations in order to focus on its Eurozone activity. In April, Virgin Money owner Sir Richard Branson sold a stake to billionaire investor Wilbur Ross. It’s working out well. Ross tells me that some of the best investments are in banks struggling in Ireland or in cases in the U.K. were banks are de-nationalizing. “We are part of a syndicate bidding on one of the largest banks in Ireland, EBS Savings,” Ross said in an recent interview with HousingWire. “This is one that needed government assistance. We are one of two competitive bids.” Admittedly these opportunities were not there before, often for political reasons. I reported this week that the federal regulator in the U.K., the FSA found nothing devious in the poor decisions made at the Royal Bank of Scotland in the run up to the crash. At the same time, former Prime Minister Gordon Brown claims he was deceived by the bank into supporting its bailout. It’s hard to believe, because the U.K. government at the time was also keen to control the fate of its failing banks. “Before the government took over Northern Rock, we led the syndicate, backed it with Virgin Money, but the government decided to nationalize,” Ross said. But today, thanks to Fed intervention and a new political gratitude in Europe, the environment is different, and one where U.S. firms can capitalize. “We are an investor with Virgin Money,” Ross said, adding they are currently, “gearing up to buy some U.K. banks as they re-privatize.” In 2007, banks stepping up to the central bank deposit window faced a level of reputational risk. Working with Reuters in London at that time, my sources all called the attitude temporary; once one financial institution steps up to the window, others will follow. And based on an enlightened pursuit of the United States’ interests abroad, the Federal Reserve appears to have turned that deposit window into a window of opportunity for private U.S. firms. Jacob Gaffney is the editor of HousingWire. Write to him.

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