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Distressed Liquidity Spigot Is Turning Off in Europe

By Irene García Pérez and Luca Casiraghi

An era of plentiful liquidity for large companies categorized as stressed or distressed in Europe is coming to an end, Michel Lowy, co-founder of private banking group SC Lowy, says

Established in Hong Kong in 2009, the firm is expanding in Europe and may next branch into Latin America, Lowy says. Lowy spoke with Irene Garcia Perez and Luca Casiraghi on Aug. 27. Comments have been edited and condensed.

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How are you finding expanding in Europe?

We were surprised in some ways at how quickly and rapidly we were successful in Europe when we started in 2013. But the last 18 months have not been easy because there has been so much liquidity for traditional, large stressed and distressed investment. We believe that the tide is turning again, and we’ll see a lot more opportunities. On the other hand, we’ve seen a lot of interesting transactions because liquidity is not there for small and medium enterprises, which is much more the focus of our banking platforms.

Where in Europe do you see opportunities?

In Italy, we are in the middle of the cycle. There are still plenty of new opportunities arising. In France and Germany, which are entering into more recessionary environments, we think we’re going to have more to do there too, but it’s a very early stage. In the U.K., Brexit creates more uncertainty, and it’s sort of our DNA to navigate well when there’s uncertainty.

Why are you diving into areas where the sellside is retreating?

We’re neither a large, traditional investment bank, nor a broker, nor a buyside firm, so we try to get the best of both worlds. We’re not regulated as a banking institution in our securities division and that allows us to have different capital requirements and different ways that we can compensate our staff. By being a private company that is still reasonably small, you’re able to keep confidentiality and information about transactions very tight, which is also critical to our commercial banking partners.

What’s your advantage with respect to the buyside at trading?

The buyside has realized they don’t have access to the product. They don’t have that network of thousands of relationships with commercial banking institutions or collateralized loan obligations that are looking to sell assets.

Why are you focused outside the U.S.?

It’s a question of market opportunities and our expertise. The senior partners of the firm have been investors in credit, primarily in stressed credit, in Europe, Asia and Latin America for the past 25 years. Those are markets that are smaller, where you have higher barriers to entry than in the U.S., and where you’re not going to be successful unless you have on-the-ground presence, legal experience and a relationship with people in the region. We have a presence in New York but only for sales and trading purposes of non-U.S. assets.

 

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