SC Lowy spies gains from Credito di Romagna takeover
Boutique investment bank SC Lowy signalled the potential it sees in the Italian banking sector through its acquisition of Credito di Romagna this week. Michel Löwy, CEO of the firm, also views it as a way to expand the firm’s European leveraged finance operations.
Credito di Romagna is based in the Emilia Romagna region of Italy. Its total customer business — loans and deposits — is in excess of €1.2bn and its total assets stand at €650m.
On Tuesday SC Lowy announced it had injected €50m of capital and other common equity tier one instruments into the bank, leaving it with an overall stake of more than 90%.
SC Lowy specialises in fixed income. Its headquarters are in Hong Kong but it also has offices in London, Milan and Seoul. It was set up in 2009 by Michel Löwy and Soo Cheon Lee, former bankers at Deutsche Bank.
Löwy, who is chief executive, told GlobalCapital last year that he was looking for a small bank to buy in Europe. He told us this week that the firm decided Italy was the country in which to find one.
“Italy is a very fragmented banking market where there are a lot of rather small banks that are undercapitalised, and we felt at the time that we should be able to find a candidate that fits,” Löwy said.
Löwy also sees fellow lenders in Italy as better targets for competitive pressure: “I do think that the potential to grow a quality institution is greater than in other markets because you don’t have as much quality competition as in other markets.”
Credito di Romagna is of the right size for SC Lowy and is in an economically strong region. It is able to access a large network of mid-sized successful corporates, according to Löwy.
“While Credito di Romagna was a bank that was undercapitalised, actually [it] was not a bank suffering from a high NPL ratio,” he said. “It had suffered from poor management but many of the pieces in place were very positive. Quality staff, good network, decent history, good location — so all of that really worked.”
Synergies with lev finance ops
SC Lowy sees the acquisition of Credito di Romagna as a launchpad into European markets. It mirrors a previous acquisition, that of Cheon Savings Bank in South Korea.
Cheon was acquired in 2013 and on Thursday SC Lowy announced it had bought a further stake in the bank, taking its total holdings to 99.8%. Since 2013 Cheon has increased the size of its balance sheet from $100m to $300m.
“That was a very important part of the strategy,” said Löwy. “When we looked at our business in Europe about 12 months ago… we had a good loan trading business [and] we had a good high yield bond and distressed bond trading business, but it wasn’t the dominating platform like we have in Asia, and we came to the conclusion that a financial institution next to that would complement our private offering and would strengthen the businesses.”
Löwy envisages that the newly acquired bank work with his company’s existing European operations.
“If we are successful in bringing all of the additional business line and services that we can offer with our expertise in corporate credit and our credit skills that we can offer to the customer, we can build a high quality organisation that should develop significant synergies with our offices in Milan and London,” he said.
“We are an active trader in European leveraged finance deals,” he added. “The bank could easily become a customer of our business in London and get access to that European secondary leveraged finance market by quality performing loans.”
The plans also include looking at non-performing assets.
“We plan to rely on the local expertise of the bank when we pursue portfolios of NPLs so that we can benefit from their expertise, as well, and then we’ll easily find partners to invest with the bank in some of those deals, since that’s what we do in London,” Löwy said.
The group’s desires to expand its European operations could see it making another acquisition, but not in the short-term, according to Löwy. It also wants to expand Credito di Romagna organically, which could include a regional expansion of the bank’s operations.
“We have a very aggressive vision long term of what we want to build throughout Europe with our group and we certainly expect that our European business will become significantly larger than our Asian business at some point,” Löwy said.
“But at the same time it is critical for us to keep the Italian base, the Italian DNA, the Emilia Romgna DNA of the business and to focus on basics before we can look at grander plans.”
- By Jasper Cox
- 19 Apr 2018