The story of Michel Lowy, the Belgian who heads his own investment bank
29 April 2019
Born in Brussels, he is 48 years old and lives in Hong Kong with his family. Ten years ago, he co-founded a specialist banking firm. Today, SC Lowy operates in the Asian and European corporate debt markets where it rivals the big international banks. This is the story of a singular journey.
A modest Belgian who heads an international investment bank that he co-founded himself is not someone you meet every day. But if you cross paths with Michel Lowy, you will have met just such a person.
This good-natured Brussels native graduated as a commercial engineer from Solvay Business School and has subsequently forged a path in which apparent obstacles have been transformed into golden opportunities. This extraordinary journey encompasses the creation of global banking group SC Lowy in 2009. Today, the group manages a billion dollars of assets, trades about 25 billion of fixed income investments each year and has recently taken over two regional deposit-taking banks in South Korea and Italy.
Michel Lowy’s adventure began in 1993 when he graduated from Solvay and started his career at the audit firm Arthur Andersen in Brussels. He spent three years there: “It is an excellent school,” he says, “a kind of post-graduate university.” He then moved to the American food giant Cargill in 1996 and was posted to London, where he joined the ranks of traders in the Financial Markets Department managing funds generated by the group’s traditional market activities. His remit was to identify good investment opportunities in Europe.
The click: the Asian crisis
The key numbers
- 25 billion €
The volume of corporate debt transacted in 2018
- 1 billion €
Assets under management
- 250 people
SC Lowy’s workforce includes 60 people in the Korean bank, 130 in the Italian bank and 60 in its core business in Hong Kong, London, Milan, New York, Sydney, Mumbai and Seoul.
In 1997, the Asian financial crisis started, emerging from Thailand where the Thai baht collapsed, triggering a round of regional currency devaluations. This marked for Michel Lowy the first concrete exercise during his professional life of “see opportunity in the obstacle,” which has applied throughout his career.
“Cargill Value Investment Group sent me to Asia to pick up bargains,” he says, “we were an opportunistic fund and we were doing the opposite of what everyone else was doing.”
In the midst of the market turmoil, Cargill targeted distressed assets in the Far East markets and Michel took part in the opportunistic buying. His employers obviously appreciated his work as the company soon entrusted him with the responsibility of building his own Asian team, based initially in Japan and subsequently in Singapore.
From this move emerged a life-changing encounter. While preparing for a big transaction from a portfolio of Korean assets, he found himself stymied by a translation problem – most of the documents to be consulted were written in Korean.
He inquired about a translator available from Cargill and was sent to Soo Cheon Lee, a young trainee analyst working at the firm. “I explained to him briefly what we were doing, then I went on vacation, and when I came back I saw that he had done a great job. I wanted to keep him with me, and he became my partner. In the name SC Lowy, the initials refer to his name.”
Deutsche Bank or Lehman?
The like-minded duo was formed, but they had not yet totally proven themselves. The next opportunity came in 1999, when several banking giants were interested in hiring Michel Lowy. ” I was close to signing up at Lehman Brothers, when Deutsche Bank entered the dance with a hell of an offer, and I signed with the German bank, with a mission to lead strategic investment activities in Asia. At the start, working from Singapore I was alone. Then Soo Cheon joined me, and we grew the team to more than 60 people in ten years, with investments spread over Japan, Indonesia, Malaysia, Korea and Australia … We became as big there as the rival departments of JPMorgan or HSBC, and we dealt with complicated cases of corporate restructuring. We also developed trading activities with commercial banks, to which we brought solutions for raising capital in syndicated lending, etc. “
In addition to Asia, Deutsche Bank soon entrusted the team with Latin America. An office in New York was required, and visits to the Mexican, Argentinean or Brazilian trading centers were added to his regular travel roster. In 2005, Michel moved his Singapore headquarters to Hong Kong, to take a more central position in Asia and focus more on China.
A wise wife’s counsel
A new obstacle emerged in 2008-09, in the form of the Global Financial Crisis. Here was another crisis, this time with more bounce and much riskier and more spectacular … “Lee and I thought that being part of a big banking group at that time was not the smartest thing to do, nor the most fun thing anymore either.”
As the crisis began to ferment, there came the most pleasant of proposals: the management of Deutsche Bank invited him to London in early 2009, with the hope that he could “spread his DNA to the rest of the bank.” All the bank’s fixed income activities for Asia as well as in European territory would possibly be his for the taking. “They flattered my ego,” he notes, “and it was obviously an appealing proposal. ”
But he had his doubts and voiced these at the time to his wife; he had kept in mind a project, vaguely sketched out with Lee, to create his own business. She gave him advice: take time to reflect on his banker reflex – always consider the worst. “You hate politics in big firms,” she told him, “is it your dream to become a leader at Deutsche Bank or to start your business the way you want it? Make your decision, whatever it is, I will support you.”
That vote of confidence certainly helped him say to Deutsche’s management:” Thanks but no thanks.” Disappointed by this refusal to take up their offer, the bank boss then slammed the door in his face. His record? Over the past decade in the service of Deutsche Bank, he estimates he generated about one billion dollars in profits.
Michel then waited six months because of a non-compete agreement with his former employer, then left with Lee and a few other collaborators to register their new company, SC Lowy, in Hong Kong on October 1, 2009. They injected everything they owned into this startup and kicked off in Asia, specializing in the trading and restructuring of non-performing loans.
SC Lowy approaches commercial banks by offering to help them get rid of problem credits, valuing these credits and then participating themselves as co-investors. “Our strengths were that we had ten years of experience in this business, that we knew the right price at which to syndicate deals, and that we could guarantee absolute confidentiality to our partners, a condition which is a sine qua non in this business.” Confidentiality was key: everything must be done to prevent the market from knowing that loans are up for sale.
Paradoxically, the timing was good for SC Lowy because during the financial crisis, the big traditional banks saw communication and compliance obligations surge, which handicapped their ability to lend – not only to big companies in difficulty but mainly to medium-sized ones. The young company also had the advantage of being relatively small scale, meaning that few people get to know about each transaction, and that there is little risk of conflict of interest.
Lack of means
The business got up and running, but the company quickly ran up against a problem of means. It was easily able to capture customer business, but it lacked capital. This problem was solved in 2010 with the sale of 40% of SC Lowy to two private equity funds. Eventually five years later, Michel Lowy, Soo Cheon Lee and some other employees were able to buy back this stake. Then at the end of 2017, they received a fresh block of 20% from a group of investors led by the South African bank Investec, with whom they have previously collaborated on several issues.
After Asia, SC Lowy was also interested in European markets, but voluntarily abandoned the North American markets. “The United States is a large, uniform market, with one regulator and one accounting landscape,” said Michel Lowy ” We make an effort to understand each local market, its rules and culture, and that’s how we create value. ” An ability to respond to very different situations is something he thinks he has inherited from his Belgian roots: “Having been educated in two languages and two different cultural environments is a great asset.”
Becoming a deposit taker
In parallel with the roll-out of the corporate lending business, SC Lowy acquired a conventional regional deposit-taking bank in 2013, via the purchase of the small Korean bank Choeun Savings Bank. Meanwhile in 2017, SC Lowy expanded its European footprint by taking control of Credito di Romagna (renamed Solution) in the Emilia Romagna region of Italy. It reorganized the two institutions by recapitalizing them and modifying their management teams. Why this dual strategy? “In London and Hong Kong, we had a license as a financial institution,” says Michel Lowy, ” but to be able to grow and be a true business partner, having a banking license and a lower cost of financing is crucial. “Following the acquisition of Credito di Romagna, SC Lowy holds a banking license for Italy and has applied to benefit from the European financial passport, which the company hopes to receive soon.
Banks are the losers
The Global Financial Crisis fundamentally changed the banking landscape and created opportunities for a company such as SC Lowy. “In markets that work very well, where about twenty well-funded banks provide loans and properly serve local businesses, we do not need to exist,” explains Michel Lowy. “Unfortunately, since the financial crisis, new banking regulations have forced banks to merge and increased their financing costs along the way. This put them under pressure to take less risk. However, these banks are no longer serving medium-sized companies, and this has created opportunities for smaller financial institutions, with lower fixed costs, which can continue to address the needs of local and medium-sized enterprises in the way the big banks no longer do.”
Today, SC Lowy employs 250 people. It trades around 25 billion dollars in loans and bonds annually with a network of 1,200 institutional investors on three continents (Europe, Asia and The Americas). The company has also developed an asset management line, still sitting within its core business, namely involving debt to companies encountering debt service difficulties or to large SMEs. And in addition, SC Lowy operates the two regional deposit banks, and awaits receiving the European financial passport.
Is it always plain sailing? ”Not always of course, but we have a failure rate which is about half that of the competition.“What is your recipe for success? “When you are interested in a new company, you always analyse three aspects in advance: what is its role, and does it have a reason to exist? Who are its managers, who do we deal with and what is its legal environment? At the end of the day it’s just common sense.