A hedge fund which helped to trigger the Royal Bank of Scotland’s disastrous purchase of ABN Amro has emerged as an investor in a vehicle designed to profit from the near-collapse of the state-backed bank.
Toscafund, the $1.3bn (£830m) fund chaired by ex-RBS (LSE: RBS.L - news) chairman Sir George Mathewson, has emerged as a backer of Andy Higginson’s W&G Investments, which hopes to buy the Scottish bank’s “Project Rainbow” unit.
W&G Investments is one of three bidders trying to buy the unit — alongside consortiums led by AnaCap and Corsair Capital — which will control 5pc of the SME market and have 2m retail customers.
RBS is being forced to sell the 315-branch arm as a result of European state-aid rules following the Government’s £45bn bail-out — a direct consequence of its 2007 purchase of ABN Amro.
In the spring of 2007, Toscafund was one of the main protagonists, along with fellow hedge fund TCI (Taiwan OTC: 8436.TWO - news) , calling for a break-up of the Dutch bank, in which it owned a 2pc stake. A Telegraph investigation into the collapse of RBS uncovered that in early 2007, ABN chief executive Rijkman Groenink asked Fred Goodwin, his opposite number, to confirm that RBS was not in league with the hedge funds that were circling the bank.
After Barclays withdrew from a bidding war which was in part triggered by the funds’ dissent, a consortium led by RBS bought ABN for €71bn (£60bn), setting the scene for the Scottish bank’s near-collapse a year later.
The London-based hedge fund, which is run by Martin Hughes, has taken a 3.75pc stake in W&G Investments, which hopes to buy the RBS unit for an initial £1.1bn.
Documents filed ahead of W&G Investments’ intended listing on the London Stock Exchange’s Aim market disclose Toscafund as a new name among the 25 investors backing the eventual £1.5bn business. The business is expected to float on Aim as early as Tuesday.
Other new investor names to emerge include Old Mutual (Other OTC: ODMTY - news) , with a 3.445pc stake, and Canada’s CI Investments, with 3pc. The largest backers are Schroders (LSE: SDR.L - news) , Threadneedle, Lansdowne Partners and the Pears family’s Talisman Global Asset Management, controlling 46pc between them.
The vehicle has raised an initial £15m, and its shares will be immediately suspended on listing as a result of the continuing discussions with the three consortiums. Sources indicated that the fundraising, which includes commitments for the full £1.1bn, was oversubscribed and it is the second largest listing of a shell company the London market has seen.
If successful, it plans to reverse the Rainbow business into its listed vehicle. If unsuccessful, it plans to return all money to investors, bar costs.
The documents reveal that if it is chosen as the successful bidder, the W&G vehicle, being led by Mr Higginson, Tesco’s former finance director, will initially be paid £55m a year in interest payments. The proposal stems from a 5pc coupon payment on the £1.1bn for each year between RBS agreeing to sell W&G the business and the deal actually completing.
W&G is being advised on its listing by NM Rothschild and Canaccord Genuity, with Fiske’s Baden Hill division acting as joint bookrunner.
Mr Higginson is set to become non-executive chairman of the unit if successful, with former Tesco Bank chief operating officer Shaun Doherty listed as the only executive director, in addition to two other non-executive directors.
W&G is not the only bidder to line up leadership. The Sunday Telegraph revealed last week that Mike Fairey, Lloyds’ former deputy chief executive, has been appointed to co-run the branch business if Anacap’s bid is successful, alongside former First Direct boss Alan Hughes.
Former United Utilities chief executive Philip Green is leading Corsair’s bid.
Final bids for the unit were received by RBS from all three bidders 10 days ago. It has not said when it expects to announce a victor.