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, Juan Carlos Escotet.|
"He claimed New York financial analysts were "naive" in their generally optimistic assessments of Venezuela's ability and commitment to pay its debt, claiming that using a more realistic exchange rate made Venezuela's debt to GDP ratio far worse than it initially appeared using the official exchange rate."
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 €72 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 Venezuela's 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 instalment;
- 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.