Saunders' great deal: West LB loses £300m, while Granada and Nomura pocket £651m

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The Independent Online

Granada and Nomura made £651m out of a deal that lost German bank WestLB £300m, prompted a regulatory investigation and has left star banker Robin Saunders in hot water.

The German regulator BAFin has launched a probe into deals made by Ms Saunders' principal finance team, as has WestLB after it was forced to take a €500m (£350m) provision to cover losses in the business.

Almost all those losses are understood to relate to an £860m loan made to Boxclever, the group formed by the merger of Granada's TV rental business and Thorn Rentals, which is owned by Japanese bank Nomura. WestLB then refinanced this deal with a £750m bond issue.

Boxclever's disappointing performance, allied to the need to invest £20m in its fast- growing service subsidiary Endeva, has meant it is unable to meet debt repayments and is having to restructure its finances. This is leading to a write-off for WestLB of around £300m.

However, The Independent on Sunday has learnt that while WestLB is losing out, Boxclever's shareholders are making hay. Granada, which owns 60 per cent of the company, has taken £511m in cash out of the business thanks to the deal it struck with WestLB on Boxclever.

And Nomura, whose principal finance group was the model for Ms Saunders' business, made £140m profit from the Boxclever transaction.

"WestLB was very aggressive and made some pretty aggressive assumptions," said a source close to the deal.

Ms Saunders has said the transaction was not her responsibility, blaming two bankers who have since left WestLB. But a recent PR statement cites Boxclever as one of her successful transactions.

The Thing Is: Robin Saunders and Guy Hands

The City's two most celebrated rainmakers are experiencing a dry patch. Hyped for their deal daring and ability to wring millions of pounds out of stodgy old businesses, both Robin Saunders and Guy Hands are this weekend sweating over plans to save their reputations and their deals.

Ms Saunders is head of German bank WestLB's principal finance division, where she has earned a reputation for taking on high-profile and often difficult deals, such as the rescue of Bernie Ecclestone's Formula One bond and Philip Green's acquisition of Bhs. But her profile, and the many millions she has made for herself and her team of 35 bankers, has rattled the top brass at WestLB, which is owned by the state of North Rhine-Westphalia. Ms Saunders is reputed to earn more than £1m a year, which is said to cause friction among German bank managers, who tend to earn no more than around €100,000 (£71,000) a year.

On Friday WestLB admitted it had launched an internal investigation into Ms Saunders' activities after the bank reported a pre-tax loss of €1.67bn. The German regulator is also investigating.

Asked on Friday about Ms Saunders, WestLB chief executive Juergen Sengera, did little to dampen speculation. "You asked [about my] support for Robin Saunders," he said. "There I think we should be fair to all and we should also wait for the result of the investigation."

Most of the problems stem from Boxclever, the company created by the merger of Thorn Rentals – owned by Nomura – and Granada Rentals. WestLB financed the merger and then refinanced the business in early 2002, lending some £860m in a securitisation (raising debt secured on future revenues).

To try to develop income flow, Boxclever spun off its service side into a new company, Endeva. This has been winning business and needs to invest £20m in new vans, staff, offices etc, but because Boxclever is not so clever, there is no spare cash to go to Endeva. The resulting cashflow crisis has led to renegotiations with WestLB. The bank will next week agree to accept lower annual payments from Boxclever.

The debt market is starting to gossip about WestLB's strategy. Its gung-ho deals work only if the risk of taking on both equity and debt is spread via securitisation with other investors. But it still hasn't securitised revenues generated by Kyndal, a whisky distiller, which it bought in 2001.

WestLB also intends to securitise the revenues from Odeon, the cinema chain it bought in March for £431m. But there is speculation that it may not be able to raise as much through this route as it had originally hoped.

WestLB had to increase its risk provision to €1.9m last year from €566m the year before. The leap was partly caused by Ms Saunders' deals, a fact that won't be lost on the managers in Germany trying to clip her wings.

Mr Hands was also involved in the original Boxclever deal, when he ran Nomura's principal finance group. At the Japanese bank he pulled off a number of high-profile acquisitions, such as that of the William Hill betting chain. Seen as the pioneer of structured finance, he used his reputation to create his own fund, Terra Firma. He had originally hoped to raise €3bn, but has had to settle for €2bn.

However, foremost in his mind at present is Le Meridien, the international hotel chain. In 2001 Mr Hands bought it in a £1.9bn deal. Since then the bottom has fallen out of the luxury hotel sector and Le Meridien is in trouble. Mr Hands is due to meet its lenders – led by CIBC, Merrill Lynch and Lehman Brothers – in the next few weeks to thrash out a rescue plan. This could include the sale of some of Le Meridien's prized assets, such as the Waldorf and Grosvenor House hotels in London.

Mr Hands and Ms Saunders are also interested in water. Mr Hands, who once tried to buy Hyder, is understood to have cast an eye over WestLB's water assets, and Ms Saunders wants to buy Anglian water company AWG – appropriately for a pair of rainmakers currently in the middle of a drought.

Clayton Hirst and Heather Tomlinson

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