Jim Armitage: Co-op Bank no match for US hedge fund
Jim Armitage is the City editor of The Independent and London Evening Standard group of newspapers. He has been a reporter and editor for more than 20 years and was recently shortlisted for the Press Gazette financial journalist of the year and The Society of Editors financial journalist of the year awards. He contributes news, investigative reports and comment to the Independent titles plus a daily column in the Evening Standard.
Thursday 24 October 2013
Outlook A further salutary lesson, if one were needed, of the modus operandi of the US vulture funds which now own around 10 per cent each of the Co-op Bank.
Silver Point was set up by Goldman Sachs debt-trading tycoons Edward Mule and Robert O'Shea to make money out of troubled companies.
One of their first monster profits came from the way they made money out of the US taxpayer-funded Troubled Assets Relief Program (Tarp) during the financial crisis for the stricken car industry.
As they did later on the banks, vulture funds like Silver Point bet the US government would not allow the nation's beloved car makers to go under.
So when, in 2005, the former General Motors (GM) parts subsidiary Delphi went bankrupt, Messrs Mule and O'Shea tucked into the debt, buying it up for a song. Over the years, and as the financial crisis came to a head, other hedgies tucked in too, watching with delight as Barack Obama formed a taskforce to save the car industry.
Their delight was for good reason: Delphi's parts were so critical to GM that Delphi was too big to fail. With this bargaining position, you can guess what happened next: the vulture funds ordered GM to give them a slice of its Tarp funds.
As taskforce head Steven Rattner recalled of one meeting, the creditors ordered the Treasury and GM to hand over $350m to Delphi immediately, saying: "Because if you don't we'll shut you down."
They got their money. It's not clear what Silver Point's share was but, in total, according to investigative journalist Greg Palast, Delphi got $12.9bn (£7.9bn) of US taxpayer funds, including a takeover of its $5.6bn retiree pensions liabilities.
But it gets better: after snapping up a controlling position in the debt, the hedgies negotiated to take over the business for the equivalent of $3.5bn, or 67 cents a share, according to Mr Palast's calculations. A few years later, they floated Delphi for $22 a share. Last night they were trading at $57.61, or a market capitalisation of $17.9bn. The hedge funds each made hundreds and hundreds of millions of dollars.
Silver Point was never going to lose the battle for the Co-op.
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