Say you have a bank (BANESCO) in a country with three different foreign exchange rates (Venezuela):
- the first ($1 = 6.3 BsF) available only to businesses dealing with "critical" imports (i.e. food, medicine, etc.);
- the second ($1 = 12 BsF) available to businesses in not so "critical" sectors;
- and the third fluctuating, the highest one, at $1 = 177 BsF, for everyone else.
|Clever operator Mr Escotet|
European bureaucrats and media outlets aren't concerned by such details of course, so Mr Escotet found out about a distressed bank for sale (Abanca) that had gotten more than €16 billion worth of aid from European and Spanish funds, and decided to put a €1 billion bid for it. Placing a bid is not the same as having to fork out the full amount, right? Having won the bid to acquire 88.33% of Abanca, Mr Escotet negotiated payment with Spanish authorites: 40% upfront and five years to clear remaining balance. With that in his pocket, Mr Escotet set out to raise the required €400 million to close the deal, which he did, eventually.
Abanca, formerly know as NCG Banco, had assets worth €71 billion in 2011 according to the European Commission. BANESCO, the Venezuelan bank of which Mr Escotet controls an estimated 58%, is worth less than $2 billion, but that was never going to stop Mr Escotet, was it?
So the deal, quite brilliant I must admit, went thus:
- put a bid on a distressed bank from a country whose authorities / media don't get the half of it;
- inflate true net worth by capitalising on ignorance of three-tier exchange rate;
- promise that no jobs will be lost should the deal be approved;
- upon deal approval, negotiate favourable payment terms and raise first installment;
- upon gaining control of distressed bank, set up a fire sale to recoup initial payment and then some.
Mr Escotet, whose net worth was recently put in some obscure Chinese report at $2.3 billion, has definitely entered the big leagues. His 58% of BANESCO doesn't quite get to $1 billion, but BANESCO's 88.33% share of Abanca's €71 billion does. Chapeau Mr Escotet.