Re: Ripplewood Holdings (stems from Chi. Tribune on Enron)
What does Ripplewood know about running a credit bank in Japan? Pt 1 The Ripplewood plan is simple actually: use high equity valuations and inflated asset prices in the US and an ability to operate as largely unregulated capital worldwide to buy up and profit from distressed Asia (Asia post 1997) The real beauty in the strategy is this: quite literally by becoming a holding company for banks in Asia, Ripplewood can use Asian savings (bank liabilities) to buy up Asia's own assets (loans, distressed assets such as failed companies that are not very leveraged but can't make loan payments , real estate, etc) Carlyle Group has made a similar move into Korea, and the others giants of privately held capital are circling the drain Softbank got involved in a similar set up with the failed Japan Credit Bank, but it looks now more and more like the JCB will end up in the hands of a French capital group because Softbank, always dependent on high stock valuations, has none This is a new twist on disintermediation: take over an Asian bank in order to invest Asian depositor's money in distressed Asian assets and keep all the profits Quite literally, trust banks have become investment banks for privately held capital The problem is the nature of the bank Ripplewood acquired First, it had big connections with the Japanese economy and MofF Second, what Ripplewood did was supposed to be a 'showpiece' for financial reform and liberalization But third, they took over a credit bank, a bank that is given tax breaks but a special mission--that mission is to make more loans to small and medium sized businesses than even credit unions or savings and loans would think of It's a huge nationwide entity with a huge amount of deposits Therefore, considering what Shinsei Bank (was Long Term Credit Bank) is supposed to be doing and what it is actually doing, and considering the huge amounts of breaks that Ripplewood got in launching Shinsei, people are angry with how it's actually turned out US advice to the Ripplewood people is for them to get better at lying about what they are actually doing Here is the background, starting from 1999 http://eeklypostcom/990927/990927chtm#popular LTCB Acquired by US Investment House Japan Long-Term Credit Bank (LTCB) has been under the management of the Japanese government since it has created about $26 billion debt [Note from Jannuzi: this is tiny actually compared to its deposits] in last October Now, it was decided that LTCB was going to be acquired by Ripplewood Holdings, the US investment house The acquisition will have a major effect on LTCB's major clients such as Daiei, a supermarket giant, Sezon Group, Sogo Department Store, Kumagai Construction Co and Hazama Construction Co [Note from Jannuzi: this list is a bankruptcy hall of shame now] These Japanese companies have huge loans from LTCB Financial specialists are now predicting that Ripplewood request for repayment of these loans and these Japanese companies will have to go to bankrupt More than 200,000 employees will be involved in their bankrupt and layoffs will cause panic in Japan [Jannuzi: and delight for vulture capital] Posted by Charles Jannuzi
Re: Ripplewood Holdings (stems from Chi. Tribune on Enron)
Ripplewood Pt 2 I would say that the difference this time is that most Japanese investments in the US turned out very bad for them, while the private equity groups like Carlyle and Ripplewood know how to make a buck It's the same way GE Capital makes money too They aren't in Japan to re-tool the automobile industry The idea is buy up and keep what makes a lot of money and sell off the rest in packages at prices far more than what the stuff cost during the bankruptcy firesale http://wwwnightlybusinessorg/trnscrpt/2001/trnscrpt122601htm#STORY3 12/26/01: Why US Businesses Are Bargain Hunting In Japan SUSIE GHARIB: During the SL crisis in the US, investors all around the world bought up American assets, paving the way for an eventual improvement in the market Now, history seems to be repeating itself in Japan As Lucy Craft explains in the first of a two-part series, Americans could now be the catalyst for a turnaround in Japan's economy LUCY CRAFT, NIGHTLY BUSINESS REPORT CORRESPONDENT: Forty-five-year-old buyout specialist Timothy Collins professes an aversion to the limelight, preferring a discreet low profile for himself and his New York-based private equity firm But in Japan, his Ripplewood Holdings is anything but obscure Collins is the most aggressive of a handful of foreign investors who are acquiring bankrupt Japanese companies at fire-sale prices ROBERT FELDMAN, ECONOMIST, MORGAN STANLEY: I think a lot of foreigners will be coming here looking for good deals Whether it turns into a flood depends in part on the ability of the Japanese to stand up to the plate and say, no, I want it first, which many of them may want to do But I do expect foreigners to come in and have a very active and constructive role in getting the Japanese economy back on track CRAFT: Ripplewood signed its first deal here in 1999, picking up this prestigious but failed former industrial bank; a car parts company [Jannuzi's note here: this helped Nissan report profits since they paid a huge chunk of cash for a car parts division of Nissan that Ghosn and Renault figured they no longer needed] , resort, and Japan's oldest recording company were added to Ripplewood's portfolio this year With a war chest of over $1 billion, Collins is still shopping for bargains in the chemicals, hotels, and electronics fields Other potential investors look at Japan and they say, this is a basket case You look at it, when you're looking at the distressed assets here what do you see? TIMOTHY COLLINS, FOUNDER CEO, RIPPLEWOOD HOLDINGS: Well, we don't really look at distressed assets We look industry by industry, and what we see is a country that's got the most powerful industrial infrastructure in the world It's got fabulous engineers, great technology, and a hangover from a disastrous bubble in the financial system, frankly not unlike - although elongated and exacerbated by the long length of time - not unlike some of the problems that the US is facing today So when we look at investments, we fundamentally first on the industry and second on the competitive position of the underlying enterprises And what happens on a macroeconomic basis is often a lot less relevant CRAFT: But while fans call Ripplewood visionary, detractors call the firm a vulture Hostile popular reaction to Ripplewood's headline-generating acquisitions has been reminiscent of anti-Japanese hysteria in the US, when Japanese snapped up Rockefeller Center and other trophy properties in the 1980s EDWIN MERNER, PRESIDENT, ATLANTIS INVESTMENT RESEARCH CORPORATION: People are worried that they're asset strippers So more or less they're going to come in, they're going to then sell off the pieces at a higher price than the parts are worth as a group, and then they're just going to pack their bags, put their money in their bags, and leave I think that's the fear, that they're not really serious long- term players; they're just guys who want to make quick buck and be on their way CRAFT: Collins, who has specialized in turnarounds for over 10 years in the US, calls such charges unfounded And admirers say his strategy of scouring Japan for gems in the rough, competitive but debt- saddled companies, is sound FELDMAN: I think he's perfectly right about that I did a calculation once based on a sample of about 2,500 companies A quarter of the companies, interestingly enough, have poor return on assets but also very low leverage And that's a group of companies, a quarter of this entire sample, where if you can just get some management focused on raising the return on assets, then they could bloom into very, very good companies So I think Tim is entirely right about that Lucy Craft, NIGHTLY BUSINESS REPORT, Tokyo Nightly Business Report transcripts are available on-line post broadcast The program is transcribed by eMediaMillWorks Updates may be posted at a later date The views of our guests and commentators are their own and do not
Re: Ripplewood Holdings (stems from Chi. Tribune on Enron)
Ripplewood Pt 3 And as things become totally bizarre and muddled (mostly because Koizumi deregulation and liberalization are going to have immediate postive effects), we find Ripplewood/Shinsei and its good friends, Goldman Sachs, mixed up in it all A lot of it, by the way, has to do with what is and what is not a 'bad' loan and what is and what is not an acceptable capital adequacy ratios Do credit unions and savings and loans really have to operate at international standards? http://eeklypostcom/09/09ahtm The Weekly Post Special 1: Premier Koizumi Seems to be Failing in Reviving Japanese Economy Japan's Financial Services Agency (FSA) and the Bank of Japan (BOJ) appear to be concealing the fact that a major Japanese bank is in serious financial trouble The bank is in an alarming situation The FSA and BOJ do not have any concrete plan to deal with the possibility of a run on the bank by depositors Even worse, the close cooperation that existed between the Prime Minister's Office, the FSA Minister and FSA executives in handling the nation's financial problems has started to disintegrate The three coalition government parties who have been deciding Japan's financial policies are now fighting with one another The major reason for this infighting stems from Prime Minister Koizumi's failure to set goals and policies for resuscitating Japan's ailing economy Staff members from government bodies have been swayed by their own differences in opinions as well as by the suggestions of scholars Another matter is a sex scandal involving a high-ranking FSA official, which seems to have been spread by the governing Liberal Democratic Party (LDP) The aim of the LDP's covert scandal plot seems to be to blame the mishandling of financial problems on the FSA Minister and then have him dismissed The government and LDP are blaming each other for the grave economic problems facing Japan This is not a proper response to the request for financial stability coming from the international financial community 1 Scandal In the middle of November, bank stocks were sold off heavily and the prices of Asahi Bank and Daiwa Bank stock fell below the 100-yen benchmark Japan's financial crisis worsened Under such circumstances, a memorandum was issued by a central organ of the governing LDP The memorandum leaked information on a paid date between a high-ranking official of the FSA and a woman of the Ministry of Finance The affair allegedly took place when they were working for the Japanese government in the US The memorandum says, If they used the discretionary fund to pay for their trysts, it would be serious The memorandum was aiming at eliminating the official in question The FSA has conducting a special inspection of major banks in order to complete the bailout of non-performing loans that those banks held A bailout involves a decision on what corporations should go bankrupt The corporations in question are in the construction, real estate and retail industries If one major corporation files for bankruptcy, all related companies must go bankrupt as well If this happens, it will push up unemployment The high-ranking official involved in the scandal (call him Mr A for convenience) has been in a position to lead decisions on the issue The Weekly Post has found an interesting fact about the scandal In the second week of November, the FSA, which had been busy dealing with the sharp drop in banking stock prices and a special inspection of major banks, received three phone calls The three calls were made by the Prime Minister's Office, LDP's Secretary General's Office and National LDP Headquarter Office All three offices made the same inquiries about Mr A's behavior while he was working in the US The memorandum was found to reflect such movements by the Prime Minister's and LDP offices 2 Push to Make FSA Director Resign Within the FSA, a conflict between Hakuo Yanagisawa, the Minister of Financial Affairs, and Akiharu Mori, the FSA Director General is surfacing Before the conflict, Mr Yanagisawa and Mr Mori had once been allied in a fierce fight against the policies of Heizo Takenaka, the Minister of Economic and Financial Policy Mr Takenaka's plan was to accelerate the bailout of a huge amount of bad loans held by major banks They claimed, Given the severe recession in Japan, if we force the bailout of bad loans, the economy will fall into a panic Prime Minister Koizumi had not been able to make any decision on the issue His indecisiveness made Japan's financial problems worse Pushed by aggressive movements by foreign hedge funds, he had to instruct the FSA to conduct a special inspection of the major banks This meant the defeat of the alliance between Mr Yanagisawa and Mr Mori That triggered the LDP to move toward removing Mr Mori from the position of FSA Director General Then, it related to the scandal memorandum One source of the Prime Minister Office said, Mr Yanagisawa and Mr Mori may have
Chi. Tribune on Enron
A friend did much of the legwork on this article. Investors lured by Enron's promises Documents show partners enticed by insider profits By Robert Manor, Tribune staff reporter. Tribune staff reporters Laurie Cohen and Flynn McRoberts contributed to this report March 3, 2002 A select group of blue-chip investors was offered big profits based on insider dealing at one of the Enron Corp. partnerships that later brought down the Houston energy company, internal documents show. The investors, the records show, were told that their investments would benefit from a top Enron executive's dual role working for the partnership. The investors, according to partnership-offering documents, would have exclusive opportunities to profit from Enron-oriented investments not available to the public. Among the billion-dollar institutions that bought the sales pitch were Chicago's John D. and Catherine T. MacArthur Foundation, the New York investment bank Merrill Lynch and financial giant J.P. Morgan Chase Co. When Enron chief financial officer Andrew Fastow set up the partnership in late 1999, he talked of profits as high as 5,048 percent. Fastow promised investors that he could use his position at Enron to deliver a stream of moneymaking deals. Fastow disclosed far more financial information about Enron to would-be partners than he did to Enron's shareholders. And for institutional investors he could not entice with astronomical returns, Fastow talked tough, documents and former Enron insiders say, sometimes warning that Wall Street securities firms would lose the chance to do business with Enron unless they joined his partnership. The partnership raises serious questions about conflicts of interest by corporate executives and their legal responsibility to keep all investors equally informed about business matters, experts say. The partnership, named LJM2 after the initials of Fastow's wife and two young children, offered a peculiar asset. Fastow made clear that as the manager of the partnership, and with the help of another Enron executive, he would use his position at Enron to deliver business deals developed by Enron. Investors in the partnership should benefit from Mr. Fastow's and the other principal's dual roles, which will facilitate the partnership's access to Enron deal flow, the LJM2 sales pitch reads. The partnership warned investors that if Fastow lost his job at Enron, the deals would stop. Enron used dubious investments in its dealings with LJM2 to conceal debt and falsely book earnings. When the scheme was disclosed late last year, Enron admitted it had earned almost nothing over the previous two years. That set off a cascade of events culminating in Enron's bankruptcy. The plan to profit on Fastow's conflict of interest is a bizarre business proposal, according to lawyers and industry observers. You think `Oh, my God, how are they going to make this work?' said Randal Picker, a professor at the University of Chicago Law School. It makes your eyes bug out. Picker said it is almost impossible to fairly serve two employers, as Fastow and another Enron executive in the partnership, Michael Kopper, proposed to do. And he said it is truly rare for an employer to permit such an arrangement. No red flags raised But the deal was put together by some of the best known names in finance and law. Enron approved of Fastow's conflict of interest. Chicago-based Kirkland Ellis provided legal counsel to the partnership. Merrill Lynch recruited investors. KPMG handled the auditing. And the chance to do business with Enron lured $386 million from some of the world's most sophisticated investors--J.P. Morgan, GE Capital, Credit Suisse First Boston, Aon and others. Among the investors was the MacArthur Foundation. Ray Boyer, spokesman for the foundation, said it had committed up to $15 million in March 2000 and has invested about $9.4 million. At the time, Enron was one of the most innovative companies in the world, with a ton of experience in energy investments. It appeared to be a very good investment, Boyer said. Enron's excellent credit rating, seemingly substantial risk-management business and extensive pipeline operations all made LJM2 appealing, he said. Fastow's promise to funnel insider deals to his partners caused no concern. Certainly we knew the relationship of Enron with the partnership, and at the time we were comfortable it was an acceptable way of setting up the arrangement for that partnership, Boyer said. Boyer said that while it seemed appropriate to invest in LJM2 in the past, it doesn't now. Given what we know today about the manner in which Enron conducted business, we wouldn't have made the investment, he said. The foundation was unaware that Enron allegedly would use LJM2 to artificially inflate profits and conceal debt, Boyer said. He declined to comment on how the investment has fared, citing partnership confidentiality agreements. He did say that we
Re: Chi. Tribune on Enron
There are far more interesting artifacts out there on the internet that just begged to be pieced together to see how Enron really worked. (One interesting source has been doing google searches which return html pages even after the pdf has been taken down.) It would seem that traditional journalism just can't really put the whole story together. I find this more and more--that the genres of journalism really are inadequate for dealing with the ways the world is (so they are no better at information brokering in the Hayekian market place than the investment bankers). I guess this is something the internet, once you get a handle at finding information on it, makes all too apparent. The irony is had Enron, from the 1980s onward, just followed the Carlyle Group model instead of GE and Tyco, it would still be in business offering all those too-wonderful-to- be-true returns to its investors. Carlyle Group (though it is not now merely a holding company for defense in terms of how it makes its profits) really got started because the insiders knew that with the DoD under Cheney under Bush I, consolidations and acquisitions (and insider knowledge about them) were the dynamic driving profits in defense contracting. With Enron it was the global 'liberalization' of power. If you track their power plays on the internet, it's interesting how they converged in their pursuits in the realm of largely unregulated venture capital (but the fact that Enron was still a publicly traded company was their undoing). Now if someone could turn their analytic skills toward those other publicly traded companies' adventures in global venture/vulture capital, we might find out something truly revelatory about the US stock boom. The public side of the bubble still awaits deconstruction. The non-public side of it, such as Carlyle Group, Ripplewood and Lonestar may never be cracked. Charles Jannuzi
Re: Chi. Tribune on Enron
I know nothing of Ripplewood except a short 10 Dec. Business Week article. Charles Jannuzi wrote: The public side of the bubble still awaits deconstruction. The non-public side of it, such as Carlyle Group, Ripplewood and Lonestar may never be cracked. Charles Jannuzi -- Michael Perelman Economics Department California State University Chico, CA 95929 Tel. 530-898-5321 E-Mail [EMAIL PROTECTED]
Re: Chi. Tribune on Enron
I know nothing of Ripplewood except a short 10 Dec. Business Week article. Charles Jannuzi wrote: The public side of the bubble still awaits deconstruction. The non-public side of it, such as Carlyle Group, Ripplewood and Lonestar may never be cracked. Well, complete ignorance would be better than having read a BW article. I'll post a piece about the Ripplewood plan for 'distressed Asia' shortly. Charles Jannuzi
