J.C. Flowers Grabs Bank Stake For $1.6B

In its continuing sale of non-core assets, German bank WestLB signed a deal selling its share in HSH Nordbank to five institutional investors led by J.C. Flowers & Co. The purchase price was $1.6 billion (€1.25 billion).

The sale gives the J.C. Flowers-led group a 24.1% stake in the German bank and almost 26.6% of the voting rights. The firm reportedly beat out competing bids from the likes of Cerberus Capital, Corsair Capital and Hellman & Friedman.

Other owners of HSH Nordbank include the City of Hamburg, the German State of Schleswig-Holstein and the Savings Banks Association for Schleswig-Holstein. These groups, which hold a 73.14% stake in the bank, have the right to trump the J.C. Flowers bid and purchase WestLB’s shares, but are reportedly not planning to exercise their option. The legacy investors agreed in March of 2003 to retain a majority stake in the bank until the end of 2013.

New York-based J.C. Flowers & Co. is currently raising its second private equity fund, J.C. Flowers II, which has a target of $6 billion. It held a first close on the fund in July with more than $3.5 billion. Credit Suisse, Tokyo-based Shinsei Securities and The Hague-based NIBC Bank are acting as placement agents for the fund.

The firm specializes in buying assets in the financial services sector. It was formerly an investor in Shinsei Bank alongside Ripplewood Holdings, a deal that earned both firms acclaim. In July, J.C. Flowers completed its acquisition of Fox-Pitt Kelton, the former financial services group of Swiss Reinsurance and last year it bought Marsh’s Crump Group for a reported price of $200 million. J.C. Flowers also raised its profile last year when it was among the early bidders for Refco following the futures broker’s collapse.

The investment in HSH Nordbank by J.C. Flowers is likely a first step by the bank as it gears to float itself on the public market. It has said it wants to be able to exercise the option of having an IPO by the end of next year. The strong interest in the HSH stake came in part from the bank’s robust performance. Its operating income rose by 13% for the first half of the year, with operating profits up 20% to $897 million (€700 million). The bank also logged a 61% jump in net income.

From WestLB’s perspective, the sale of its stake was just the latest divestiture for the firm in recent years. The Dusseldorf -based WestLB has been slowly shedding its private equity holdings in order to focus on client banking services. Earlier this year West Private Equity broke away from its parent with the help of AlpInvest Partners and AXA Private Equity. AlpInvest and AXA purchased the investments, future commitments and LP shares of West Private Equity Fund 2000 (WPE 2000) in a more than €100 million deal. West Private Equity was renamed Lyceum Capital.

In 2005, WestLB also unloaded its stake in West STEAG Partners, a joint venture of WestLB and STEAG Electronic Systems designed to fund startups in the analytics, electronics, optics and IT sectors. —M.S.