Has Guy Hands lost the Midas touch?

Le Méridien setback has tarnished his image, but former golden boy is philosophic

For years he was the City's golden boy, the man with the Midas touch. Every deal was a winner, every year saw another multimillion pound pay packet. Guy Hands was the whizz-kid whose use of clever financial engineering at Nomura International helped the Japanese bank snap up lowly rated assets including the William Hill betting chain and Annington Homes, the owner of thousands of former Ministry of Defence houses.

A year ago he branched out on his own, setting up Terra Firma Capital Partners. This included a deal to manage the transactions he had undertaken at Nomura while also seeking to raise fresh funds for new ventures. By then even his wife had got in on the act. Julia Hands had become chairman and chief executive of Hand Picked Hotels, a group of 15 country house hotels bought with the couple's own money.

Now though a question is being asked that would have been unthinkable only a few years ago. Has Guy Hands lost that Midas touch?

The reason is the financial crisis threatening to engulf Le Méridien, the upmarket hotels chain for which Mr Hands paid £1.9bn two years ago when still at Nomura. The 140-strong group, which includes The Grosvenor House and The Waldorf in central London, has been hit hard by the international downturn caused by 11 September, the war with Iraq and now the severe acute respiratory syndrome (Sars) virus. Nomura has now written off the £213m it invested while the stakes taken by Alchemy Partners, Royal Bank of Scotland and Abbey National have also been written down to zero.

It isn't just Méridien that is giving Mr Hands a headache. The downturn in equity markets has forced Terra Firma to cut its fundraising from €3bn (£2.1bn) to €2bn. Hand Picked Hotels has been involved in a bust-up with some of its timeshare customers. And a Hands-backed venture to supply internet services to pubs collapsed earlier this year.

And just as Mr Hands' star appears to fade, so that of rival financier Robin Saunders at WestLB continues to rise. While Mr Hands has barely struck a deal in the past year, the glamorous Ms Saunders has become the most talked about private equity operator in the City with a high-profile deal on Wembley Stadium and an indicative bid for the utility operator AWG.

But if Mr Hands is irritated he doesn't show it. His advisers point out than in the past 12 months, Terra Firma's portfolio has lost only 2 per cent of its value. It is now worth just over £2bn with many investments seeing rises of about 10 per cent in that year. Méridien may have been a disaster but Mr Hands made a 528 per cent total return on Nomura's investment in the Angel Trains leasing business, turning a £127m stake into £578m. Annington Homes has been another success story with Nomura making a multiple of its original stake.

Mr Hands' average annual return on investments he has sold out of completely is 59 per cent, though this figure is only to April 2002. Not bad for someone supposedly losing their touch.

Mr Hands is certainly philosophical about his perceived "plight". He says: "I think Warren Buffet had it about right when he said that anyone who believes they can take risk and make money without losing any is either a charlatan or a fool."

He hints that his first major failure may turn out to be no bad thing. "Some investors have found it a problem that the track record was too perfect. And you could say that you only find out how good a group is when they have to manage something difficult."

He adds: "Would I prefer it (the failure) to have been something a little quieter and smaller than Méridien? The answer is yes. But Méridien is a high-profile brand."

The Méridien business has been devastated by the slump in international business travel. Room occupancy levels stand at 55 per cent compared with more than 70 per cent a year ago. Before the Sars epidemic the group was on track to make pre-interest profits of £65m in the year to June but that figure will now be significantly lower. It compares with profits of £160m when Nomura bought it. After interest payments on debts of £1bn, the group may record a loss this year.

What will Mr Hands do? "We're working with the company to develop a proposal attractive enough to get new equity investors in," he says. Reports suggest £400m might be needed but Mr Hands will not confirm this. He does admit that existing investors are unlikely to stump up more cash unless the banks agree to share more of the pain.

Mr Hands says he does not want to sell any of the hotels. "Every time you do that you destroy a little bit of the brand," he explains. Sales and leasebacks are also unlikely, he says.

The Méridien deal was clearly dogged by bad luck, being completed just months before 11 September. But it could also be argued that the deal saw Mr Hands reach further than he had done previously. Most of Nomura's previous deals had been domestic enterprises in "old economy" sectors such as pubs, property and utilities.

Méridien, by contrast, was an international business competing with other global hotel brands. It therefore carried a greater degree of risk. The deal also included a wide range of other investors, making decision-making more difficult. But Mr Hands says he "ticked all the boxes" with the deal in order to ensure it was successful, buying a global brand and bringing in a top manager (Juergen Bartels) to run it. Mr Bartels also invested £10m of his own money. The decision to bring in other investors was a way of spreading the risk, Mr Hands says.

Hand Picked Hotels may also have suffered in the downturn but Mr Hands claims he doesn't know how it's doing. "You'd have to ask my wife about that," he says. "We have a simple rule at home in that I don't ask her about her businesses and she doesn't ask me about mine. Otherwise we'd never do anything else. We have managed to have four kids along the way."

Mr Hands is even relaxed enough to pay a compliment to Robin Saunders, who, some would say, has assumed his mantle as the most high profile banker around. "I think it's a great advantage not being linked to everything," he says. "Robin's also a great deal better looking than me."

If a wounded beast is the most dangerous animal in the jungle, then Mr Hands' chastening experience with Méridien will make him even more keen to prove his doubters wrong. Terra Firma has already raised €1.5bn of the €3bn target with €500m of interest expressed. Mr Hands is also close to a big deal with due diligence on an expected £336m offer for Waste Recycling Group expected to be completed soon. It seems unlikely he will stop there.