Wilbur Ross: Buying Garbage Quality Banks

NEW YORK, Oct 20 — Foreclosed homes, failed banks, and toxic assets produced during the current recession might look like a mountain of garbage to most people.

But to billionaire investor Wilbur Ross, they are “a once-in-a-lifetime opportunity.”

This year, Ross has emerged as one of the government’s closest allies in mopping up the mess resulting from the financial crisis.

Earlier this month, his firm WL Ross partnered with a consortium of investors and paid US$554 million (RM1.86 billion) to buy a pool of bad loans from failed Chicago bank Corus.

And last May, he was part of a group that bought BankUnited, a failed Florida bank, for US$900 million.

Ross (picture) also was an early participant in a federal programme in which the government provided part of the financing to investors willing to buy securities backed by credit card debt and auto loans.

The goal: get credit flowing again in those moribund markets.

Ross bought around US$400 million of those loans. Now, he has raised US$1 billion to buy toxic assets from banks, in partnership with the government. Bank failures have reached 99 this year, vs. 25 in all of 2008, draining the Federal Deposit Insurance Corp.’s resources. The government has no option but to turn to deep-pocketed private-equity investors such as Ross for help.

No wonder Ross says that he is preparing to buy more banks.

“There will be another 500 banks that will fail before we get through with this crisis,” says the soft-spoken financier during an interview from his glass-walled offices in Midtown Manhattan.

Ross exudes an almost Zen-like personality, a trait that has brought him respect in a world that is dominated by big personalities.

“Private-equity guys tend to be huge egomaniacs, hyper-speed people like Gordon Gekko,” says Bob Profusek, head of mergers and acquisitions at law firm Jones Day, who has worked with Ross on several deals.

Gekko is the brash character played by actor Michael Douglas in the movie Wall Street. “But Wilbur is calm. With him. you learn that you don’t have to pound the table to make a point.”

It is probably Ross’ contrarian nature that has allowed him to zag when others zig and why he has managed to avoid some of the large losses suffered by some of his private-equity competitors.

For instance, the once-vaunted private-equity firm Cerberus gobbled up such companies as Chrysler and GMAC in recent years, and then had to disgorge part of them when their losses mounted. Chrysler filed for bankruptcy-court protection, and GMAC was bailed out by the government last year.

Other private-equity firms, which make big, privately transacted investments in companies, have also suffered massive losses the past year — making many of them gun-shy about entering into new deals.

That isn’t a good situation for the government, which is desperately looking for private business to jump-start the economy with programs, such as the Public Private Partnership Investment Program, through which the Treasur will sell US$50 billion in bad loans.

Another federal programme, offering investors an incentive to buy up debt issued by financial institutions looking to raise capital, guaranteed that debt. Major financial institutions, from Citigroup to GE Capital, have raised more than US$300 billion that way.

Treasury Secretary Timothy Geithner said these were necessary steps “to get credit flowing again, to restore confidence in our markets, and restore the faith of the American people.”

However, the success of Geithner’s programs depended on private investors participating. “Government investment … should be replaced with private capital as soon as possible,” he said.

Ross’ private-equity firm, along with just a handful of others, took advantage of those incentives and bought government-backed securities, helping restore the market’s confidence within months.

“This was a brilliant move on Secretary Geithner’s part and really helped revive the markets much quicker than anybody anticipated,” Ross says.

The ultimate contrarian investor, Ross built his reputation after the Sept 11, 2001, attacks and the resulting economic downturn that pushed dying companies into bankruptcy in the steel, coal and textile industries.

His most famous transaction was making a US$325 million investment in bankrupt steelmaker LTV in 2002 and turning it into a US$4.5 billion sale in 2004. Ross even outmaneuvered the world’s most famous investor, Warren Buffett, when he wrested away bankrupt North Carolina textile manufacturer Burlington from Buffett’s Berkshire Hathaway in 2003.

Ross is somewhat of a late bloomer. The son of a lawyer and a school teacher, he grew up in North Bergen in New Jersey before attending Yale and Harvard Business School. While at Yale, Ross wanted to be a creative writer but gave up that dream early on. “Three weeks into the programme, I ran out of material to write,” he says.

For 26 years, Ross quietly built a reputation as a bankruptcy expert at the Rothschild family’s US business operations. On April 1, 2000, he branched out on his own and formed WL Ross with US$200 million in capital. He was 62.

Since then, Ross has surprised the world with contrarian deals totaling more than US$8 billion. Today, he also manages private capital and government-related investments for Invesco, to whom he sold his firm in 2006 for about US$375 million.

Ross continues to run his firm and make all investing decisions, while Invesco’s deeper pockets help him fish for bigger deals.

Ross married socialite Hilary Geary in 2004. They have a home in Palm Beach, and a pied-á-terre in New York — a penthouse with views of Central Park and Carnegie Hall. Ross and his wife like to entertain, and they have been featured on websites, such as New York Social Diary, which chronicle the party scene of the city’s elite.

At his home, Ross is known to drop his bland financier personality and let his impish side take hold.

“At work, he is an astute buyer of distressed assets, but at his home he’s a little bit of a prankster who likes to tell a joke at the table,” says real estate mogul Richard LeFrak, who joined Ross in purchasing bad assets from failed bank Corus.

LeFrak says he recently attended a birthday party for Ross at his home in Palm Beach, where guests were asked to wear masks. When guests arrived and found Wilbur Ross masks lying around, many of them donned those instead.

Clearly, Ross’ surprises aren’t limited to investments. — USAToday