Maxwell Victimized Many Foreign Firms : Securities: British companies knew him--and were leery. U.S. companies with exposure include Goldman Sachs, Salomon, Lehman Bros.
There are no winners in the collapse of Robert Maxwell’s publishing empire, unless you count the bankruptcy lawyers and accountants who are earning million-dollar fees for putting the rubble in order.
From humble retired printing press operators--whose pension fund was looted--to the world’s most prestigious banks--whose loans will be repaid only in part--the victims of Maxwell’s excessive borrowing and allegedly crooked deals include just about everybody who did business with him, investigators say.
But it is becoming clear, as details emerge about the financial meltdown, that the losers among Maxwell’s bankers and brokerage firms fall in two very different camps.
Those who have suffered the most are those lenders and investment companies--particularly foreign ones--whose greed or lack of experience in the London business scene led them to ignore the many signs that Maxwell was not a reliable partner.
On the other side, several banks and investment houses managed to contain their losses because they were so wary of Maxwell that they limited their dealings with him and were careful to hedge their bets by getting decent collateral for their loans.
Since Maxwell’s body was found floating some distance from his yacht near the Canary Islands on Nov. 5, most of his holdings have been placed in bankruptcy proceedings. His debts exceed $4 billion, and investigators have found that his companies and their pension funds had been drained of more than $1.5 billion in suspicious transfers this year.
Such a debacle inevitably tarnishes everyone involved. In a public admission of error, Midland Bank’s chief executive, Brian Pearse, said last week that the Maxwell affair was “possibly the worst thing that ever happened to the banks. . . . It lays us open to the criticism that we lost money backing unsuitable entrepreneurs rather than more deserving businesses.”
Midland may have lost as much as $90 million in bad loans to Maxwell, and analysts said it was one of the biggest losers among British banks. In general, however, foreign-based commercial banks tended to have demanded the lowest-quality collateral from Maxwell, and hence are likely to lose the most.
French banking giant Credit Lyonnais, widely described as the biggest loser, is believed to be owed more than $250 million and has minimal collateral. Several Swiss banks, including Swiss Bank Corp. and Union Bank of Switzerland, also are stuck with significant losses as a result of Maxwell’s dealings in the months before he died.
In contrast, Britain’s two largest banks, Barclays Bank and National Westminster Bank, each of which lent Maxwell more than $250 million, demanded collateral in property, printing equipment or stock in healthy companies such as Mirror Group Newspapers. As a result, their losses will be only a fraction of what they lent, and National Westminster may come out even, according to bank executives and industry analysts.
“The British banks got away remarkably lightly. They have been wary of Maxwell for quite some time and have been quite selective about which parts of Maxwell’s various interests they would lend to,” said Christopher Ellerton, a banking analyst at S. G. Warburg Securities Ltd.
Ellerton and other experts said foreign banks frequently suffer the most in such collapses, in Britain and elsewhere. Foreign institutions are often more aggressive in lending money in the hope of establishing themselves in a market and are less likely to have a feel for the risks involved.
The contrast is even more stark between British and U.S. investment banks and securities firms, which advanced money to Maxwell in return for stock collateral or as part of foreign exchange deals.
The American investment banks did much more of this type of risky business with Maxwell than the British firms, and the list of those with big exposure includes such prestigious names as Goldman Sachs & Co., Bankers Trust New York Corp., Salomon Bros. and Lehman Bros. Inc.
One explanation advanced by the American firms for their large exposure is that they had more experience than their British rivals in doing the very high-volume trading in stocks and foreign exchange that Maxwell liked. Analysts said another reason was the Americans’ aggressive campaign to win market share in London.
“If you’re not established in a market, then you’re willing to pay a bit of an entry fee in the shape of dealing with people who are not considered top-drawer, and by accepting lower returns and higher risks,” said Derek Terrington, a media analyst and authority on Maxwell at Kleinwort Benson Securities.
“Boy, did they (the Americans) pick the wrong guy,” he added.
By contrast, S. G. Warburg, one of Britain’s leading securities firms, had a policy of doing as little business as possible with Maxwell. Senior executives at Warburg have “never hidden their distaste for Maxwell, whom they dubbed a despot, and would have preferred to have no dealings with him whatsoever,” author Tom Bower wrote in his biography “Maxwell, the Outsider.”
Apart from his overborrowing, which made him a risky partner, Maxwell had long been suspected in London of involvement in questionable business deals. A British regulatory body declared him unfit to head a public company in 1971.
Goldman Sachs, which actively cultivated a broad-based relationship with Maxwell, is estimated to have lost more than $80 million in the Maxwell collapse. Bankers Trust’s exposure has been described as large, although company officials are not commenting on how big it was. Salomon Bros. is owed $24 million from a foreign exchange contract on which Maxwell reneged.
