How to get a bank for free, Juan Carlos Escotet style

While investors and businesses were running for cover, multinationals were unable to repatriate profits, inflation and devaluation killed the Bolivar "Fuerte" (BsF) value, and the Venezuelan economy went to the dogs chavistas, a Boliburgeois banker, Juan Carlos Escotet, managed quite an extraordinary deal. No point denying it, so kudos are in order.

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.
Regardless of which one you are willing to get your USD from, you still need a chavista if you want to exchange, say the entire asset portfolio of a bank.

Clever operator Mr Escotet
If you happen to be Mr Escotet (pictured), you are not going to print in press releases your bank's book value at the highest rate of exchange, but at the lowest, as impossible as it may be to actually justify said value, according to Escotet's own words  (see point 4). So in Mr Escotet's world, and that of the media which reprints without question his every utterance, BANESCO portfolio of assets -whatever the amount in BsF- gets magically converted into USD at the preferential -essential sector only- rate of $1 = 6.3 BsF, thus falsifying true net worth.

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:
  1. put a bid on a distressed bank from a country whose authorities / media don't get the half of it;
  2. inflate true net worth by capitalising on ignorance of three-tier exchange rate;
  3. promise that no jobs will be lost should the deal be approved;
  4. upon deal approval, negotiate favourable payment terms and raise first installment;
  5. upon gaining control of distressed bank, set up a fire sale to recoup initial payment and then some.
It must be said, Mr Escotet managed quite the deal. Without putting a coin, he bought on some else's dime a bank several times larger than his BANESCO. He got a foothold in Europe, increased his net worth many times over, in real terms, and managed to dupe Spanish, European authorities, stakeholders and media long enough to get what he wanted.

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.

1 comment:

Stephanie Rudat said...