It must be curious being a taxpayer in the German state of NorthRhine-Westphalia. Not only are you asked to contribute for basicamenities such as healthcare, education and law and order; you alsohelp finance a bank. Not just any old bank.
WestLB is one of the largest financial institutions in Europe,with assets of over pounds 556bn. Taxpayers have been handing outmore than DM1.6bn (pounds 511m) in illegal subsidies to the bank,which the European Commission has just ruled must be repaid. Thissetback will not dent WestLB's global ambitions. With the help ofthese cheap state loans it has struggled for years to establish apresence in London and New York. The process has cost it millions.Every few years a new management team comes, full of enthusiasm andfresh ideas, only to disappoint the Westphalians who instead of newstreet lights, contribute to pay-offs for London bankers.
The latest casualty was West Merchant Bank. It specialised inemerging markets. This was bad news in 1997 and 1998. WestLB is notrevealing the extent of the financial fallout, but the merchant bankhas been absorbed by its parent, along with the losses.
Now it is having another go at establishing an equity investmentbank in London. The new name is WestLB Panmure, a bank with two HQs -London and Dusseldorf. The organisation will not be lacking inleadership: to complicate the issue further it has hired two peopleto run it, who live in neither Lon- don nor Dusseldorf but Zurich.
Mark Ebert and Peter Weber are refugees from the 1998 Swissbanking shake- out, which saw the takeover of UBS by SBC. They hadbeen planning to set up their own financial boutique when headhuntersfrom WestLB approached them. "We kept saying we weren't interestedbut they kept coming back with better offers," says Ebert, who headsthe investment banking division. His partner Weber, in charge ofequities, joins the discussion via a speakerphone from Dusseldorf.
The pair are convinced that they have identified a gap in themarket. They are focusing on European growth companies, in sectorssuch as media, communication, technology, transportation and lifesciences. "European growth companies were not being well served byequity houses," says Ebert. "Obviously, it has been a huge market inthe United States, but firms such as Robertson Stephens say whyshould it travel to Europe when there is more than enough businesswithin driving distance of San Francisco?"
Why indeed. Where WestLB Panmure is striving to be different fromUS bulge-bracket rivals is by targeting the smaller companies. "Weare trying to move from no focus to growth focus. The trick is tothink like an entrepreneur," says Ebert. "We have to understand theirbusinesses, such as how to value an internet company with 24employees and no profits."
Easier said than done. Ebert insists that when valuing companies,cash is king. This in-volves looking at how much cash they generateor how much money they could be worth if sold. He agrees that quotednet funds are overvalued, but thinks this is because of a shortage ofsupply in the market. "This is still a once-in-a-hundred-yearsopportunity," he says. "We are preparing to offer every conceivablething that a growth company needs - but nothing more."
Ebert's focus on growth companies is based on the premise that ifyou have 10 clients with hyper growth, you don't need much more. Whenasked to give an example of one of their growth companies, Ebertlooks a bit vague. "There is EM.TV," he says. "It is now worth $8.8bn[pounds 5.5bn]. What else is there Peter?" There is a shuffling ofpaper down the phone line "Infobank? Have a look in the brochure."The website reveals a list of deals, including advising on theacquisition of Wessex Water by Enron. Hardly a growth story: WessexWater is struggling to stay afloat. However, Ebert's latest deal forEM.TV, a $400m convertible bond, has been a blow- out. "EM.TV is thehottest media company in Germany," says Ebert. "Germany is the placeto be this year, but we are also seeing a lot of British companieswanting to do a listing."
One company that is growing in Europe, at least in the number ofemployees, is WestLB Panmure. It already employs 700 but is lookingto hire another 150 in London, Dusseldorf and New York this year.
WestLB has another investment banking operation in London headedby Robin Saunders, an American banker. Her group specialises in fixedincome and acquisition finance. She put together a $1.3bn bond dealfor 50 per cent of Formula One last year. There has been speculationthat WestLB has been left with a large amount of the bond issue onits books.
Saunders will not reveal the level of the bank's exposure, butsays "we are very happy with the position". Her group works"seamlessly" with WestLB Panmure, acting "almost as its marketingdepartment".
By chance, EM.TV has suddenly emerged as a possible buyer ofFormula One, which was supposed to have been sold to rival Germanbank Deutsche. But Deutsche refused to take up an option to buy 75per cent of Bernie Ecclestone's business. If EM.TV does take thestake the funding is almost certain to come from WestLB. "It's justcoming out of one pot to go into another," said a senior banker.
Ebert and Weber are already 19 months into what they say is a four-year plan. They claim their business is already generating cash,unlike its parent, which boasts a poor return on equity. In thefuture, WestLB Panmure may be so successful that it can be floatedoff as a stand-alone entity. Or Ebert and Weber will have moved on totheir next growth business, leaving WestLB to pick up the pieces andthe ratepayers of Dusseldorf picking up the bill.
One German who has decided not to stay around is Dieter Falke, whohad been in charge of WestLB Panmure before the arrival of the twoSwiss. According to a terse press release, he is leaving to set uphis own company "to continue the entrepreneurial tradition of hisfamily". At the age of 47, some might say he has left it a bit late.But the beauty of working for a German financial institution inLondon is that you never know when you will need to call on yourfamily's entrepreneurial streak to replace the entrepreneurshipfunded by German taxpayers.
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