Jump to content
House Price Crash Forum
eric pebble

Scandal Of Southern Cross: " - Property Only Goes Up - "

Recommended Posts

Sharks who made a killing out of 'care': How City predators destroyed firm caring for 31,000 old people.

Read more: http://www.dailymail.co.uk/news/article-1393294/Southern-Cross-Healthcare-destroyed-Stephen-Schwarzmans-private-equity-firm-Blackstone.html#ixzz1O7pJAiVY

Just like the banks which fell before it, the fortunes of Southern Cross were founded on a mountain of debt and the flimsy assumption that property values were a one-way ticket to wealth.

To understand the plight of the frail occupants of its homes, it is necessary to enter a very different world – the secretive gilded realm of the private-equity barons who, before the financial crisis, lorded it over London’s financial scene.

Read more - 3/5ths of the way down: http://www.dailymail.co.uk/news/article-1393294/Southern-Cross-Healthcare-destroyed-Stephen-Schwarzmans-private-equity-firm-Blackstone.html#ixzz1O7htUvI4

Edited by eric pebble

Share this post


Link to post
Share on other sites

Private equity giants filled their boots and walked away

Fat cat in chief: Stephen Schwarzmann is the head of Blackstone which bought Southern Cross in order to make quick money

Just like the banks which fell before it, the fortunes of Southern Cross were founded on a mountain of debt and the flimsy assumption that property values were a one-way ticket to wealth.

To understand the plight of the frail occupants of its homes, it is necessary to enter a very different world – the secretive gilded realm of the private-equity barons who, before the financial crisis, lorded it over London’s financial scene.

The seeds of the problems at Southern Cross were sown during its time under the ownership of the leading private equity firm Blackstone, whose London offices nestle in an exclusive Mayfair enclave.

Back in the euphoric days before the credit crunch, clever financiers such as Blackstone’s billionaire boss Stephen Schwarzman realised that as Britons were living longer, more of us would be in need of residential care.

Elderly people, seen through their eyes, were not well-loved grandparents so much as ‘marketable beds’ – as care-home places are described in the Southern Cross annual report.

The private equity princelings who strutted around the capital were hungry for deals, and no target seemed out of bounds.

Some of the UK’s best-known names, including Boots the Chemist, Debenhams and the AA fell into their hands. Blackstone was one of the firms to spot the money to be made out of elderly folk.

In 2004, the company, which also acquired a string of other investments including the London Eye and the Alton Towers theme park, bought Southern Cross from another private equity operator for £162million. It also acquired another care-home company, NHP.

Private equity firms and other investors were enabled to become involved by legislation in 1990 allowing local authorities to farm out the care of the elderly to private-sector providers.

The theory was to bring the efficiency and cost-control of the business world into social care.

Having made its purchases, Blackstone set about organising the two care-home firms so that Southern Cross acted as an ‘operating company’ carrying out the actual business of care. NHP was left as a pure property company which owned leaseholds to the homes.

Southern Cross expanded rapidly by borrowing hundreds of millions of pounds from banks, using the money to buy homes. The strategy was to sell them on to new landlords including NHP at a profit, and use the proceeds to fund the care of the residents.

Elderly people were not well-loved grandparents so much as ‘marketable beds’ – as care-home places are described in the Southern Cross annual report.

All was well while the financial boom lasted. In 2006, Blackstone floated Southern Cross on the stock market in a listing which valued the company at £425million, an increase of more than 150 per cent in two years.

It also sold off NHP to an investment fund, Three Delta, owned by Qatari investors.

A year later, when Blackstone sold out its remaining holding in Southern Cross, the company’s value had almost doubled again to £770million. In total, Blackstone is reckoned to have quadrupled its investment in just three years.

When the credit crunch hit, Southern Cross was left with large debts and a crippling rent bill, currently running at £250million a year, because it no longer owns the homes.

From a peak value of £1billion, the company’s estimated value yesterday was £12.2million. For Blackstone, which has taken its profits and moved on, this is of academic interest.

The major shareholders now are investment banks and other financial institutions – Credit Suisse, JO Hambro, Deutsche Bank, UBS, and Wintrust (Guernsey), a Channel Islands investment trust.

Read more - and weep: http://www.dailymail.co.uk/news/article-1393294/Southern-Cross-Healthcare-destroyed-Stephen-Schwarzmans-private-equity-firm-Blackstone.html#ixzz1O7pdySYo

Share this post


Link to post
Share on other sites

The problem with you, Eric, is that you have no grasp of Hi Finance whatsoever.

Indeed, you could be a banker yourself.

Share this post


Link to post
Share on other sites

Private equity giants filled their boots and walked away

But, of course, introducing 'market efficiency' to (for example) the NHS would never cause such problems..

And we should be glad that we have such wonderful wealth creators. None of this silly, old fashioned 'making a product' or 'providing a service'. You take a loan and palm off the repayments on.. someone else. THAT's real 'wealth creation'.

Share this post


Link to post
Share on other sites

If the government made an example here, and seized all the assets of southern cross, and defaulted on the loans, that would end this nonsense. No bank would ever forward enough money to lever up a business like this ever again.

Now it might be against the law, so perhaps the government need to change the law. But I say do it anyway, and we will find out what the law is in court.

If banks know that they are going to lose the security against their loans if they assist Private Equity in these 'Blackmail the Government' type schemes (for that is what it is), then they wont lend the money, and these disasters wont happen excepting in the cases where the owners have lost all their own money as well.

Moral hazard, bring it back.

Share this post


Link to post
Share on other sites

The problem with you, Eric, is that you have no grasp of Hi Finance whatsoever.

Indeed, you could be a banker yourself.

Nah - he's a serving wench @ the Punch & Judy for the 'veiled' Elites of Covent Garden!

At 6pm he does a regular can_can spot for the tourists 'off the balcony' exposing his 'orrible 'airy shins :P

Back-ground to first post - surprised?

There is an article in the magazine called "Talk of the Town." It tells the story of the intense rivalry between two of the most powerful men on Wall Street, Henry Kravis and Stephen Schwarzman. Both, as you may have guessed, are Jews.

Both are at the very top of the private equity world, which is where the financial action is these days. Both control tens of billions of dollars worth of assets. The first thing that struck me about the story is what jerks both are, each trying to top the other, destroy the other, outdo the other. Not to mention the abominable way that each treats their employees. Each acts in ways that are not very much in keeping with the teachings and values of Judaism"Historically, private-equity moguls have been publicity shy, and wisely so. The fees and returns earned by outfits like Kohl-berg (German/Frank links CABbage KOHL-Rabi), Kravis & Roberts and the Carlyle Group are closely guarded secrets."

"According to the study, the world's wealthiest 0.1 percent-those with $5 million or more in financial assets-now owns 17.5 percent of global wealth"

Meanwhile, Schwarzman allowed reporters a peek behind the curtain into his private life. A brilliant article by Henny Sender and Monica Langley in last week's Wall Street Journal

($ required) depicted him as a titan of self-indulgence.

Among the priceless anecdotes:

Employees in his 11,000-square-foot Palm Beach residence must avoid rubber-soled shoes lest the squeaking sounds they make impinge upon his poolside bliss. And his personal jus jus chef "often spends $3,000 for a weekend of food for Mr. Schwarzman and his wife, including stone crabs that cost $400, or $40 per claw." Apres moi, le IPO.

So he claws_back cash out of robbing pensioners etc

That's cos they is Mongol Moguls - with Mongol genes (pillage, kill, destroy, invade and expert 'steppes' horsemen!)

Faux-Jews!

I merely posted the page link to below site cos I found extra info on Schwarzman - I do not support the site if it has extremist views on other pages of any kind.

http://www.rense.com...jewishpower.htm

Edited by erranta

Share this post


Link to post
Share on other sites

If the government made an example here, and seized all the assets of southern cross, and defaulted on the loans, that would end this nonsense. No bank would ever forward enough money to lever up a business like this ever again.

How would that help?

As of now, Southern Cross limps on. Maybe it can revive its fortunes: I don't expect it to, but we don't know yet.

If it were to go under, the normal course of events would be for the liquidator to take charge of the assets and use them to meet the liabilities in order of priority. In the case of a care home I'd expect the inmates to come first and everyone else to lose out, unless there really is enough money to go round (in which case it wasn't really broke).

Now it might be against the law, so perhaps the government need to change the law. But I say do it anyway, and we will find out what the law is in court.

Substitute a liquidator for "the government" and it's not merely legal, it's normal.

If banks know that they are going to lose the security against their loans if they assist Private Equity in these 'Blackmail the Government' type schemes (for that is what it is), then they wont lend the money, and these disasters wont happen excepting in the cases where the owners have lost all their own money as well.

Moral hazard, bring it back.

There may be moral hazard here, but one thing's for sure: the only way Southern Cross's bankers will get their loans repaid is if the company survives. They may very well already have written the value of those loans down to zero.

Share this post


Link to post
Share on other sites

How would that help?

As of now, Southern Cross limps on. Maybe it can revive its fortunes: I don't expect it to, but we don't know yet.

If it were to go under, the normal course of events would be for the liquidator to take charge of the assets and use them to meet the liabilities in order of priority. In the case of a care home I'd expect the inmates to come first and everyone else to lose out, unless there really is enough money to go round (in which case it wasn't really broke).

Substitute a liquidator for "the government" and it's not merely legal, it's normal.

There may be moral hazard here, but one thing's for sure: the only way Southern Cross's bankers will get their loans repaid is if the company survives. They may very well already have written the value of those loans down to zero.

Porca,

it helps because the problem here is the company is loaded up with debt. That is why it is in trouble. If a company were to fold, the bankers would be able to get all those assets it has used to secure the debt, and that is why they were happy to lend the money. If the company didnt have this debt, it would no doubt be viable.

If you have a government that takes this security, so that the banks dont have it any more, and the company fails, it is the banks who take a mega hit. Knowing this, in future they wont be willing to lend huge amounts of money to care facilities in the future, stopping this from happening again.

Share this post


Link to post
Share on other sites

If the government made an example here, and seized all the assets of southern cross, and defaulted on the loans, that would end this nonsense. No bank would ever forward enough money to lever up a business like this ever again.

Now it might be against the law, so perhaps the government need to change the law. But I say do it anyway, and we will find out what the law is in court.

If banks know that they are going to lose the security against their loans if they assist Private Equity in these 'Blackmail the Government' type schemes (for that is what it is), then they wont lend the money, and these disasters wont happen excepting in the cases where the owners have lost all their own money as well.

Moral hazard, bring it back.

I think that is what is needed, but lets add in a retrospective statutory transfer of debt liability back to the private equity firm and removal the limited liability status from the equity partners.

Share this post


Link to post
Share on other sites

A lot of people now work for companies that have had this kind of treatment- loaded up with debt by the city boys who were not ungenerous when it came to 'compensate' themselves for their efforts.

So we could see a lot more of this kind of thing in the future- one estimate I read said about 3 million jobs could be involved.

Share this post


Link to post
Share on other sites

I think that is what is needed, but lets add in a retrospective statutory transfer of debt liability back to the private equity firm and removal the limited liability status from the equity partners.

Ouch, thats gotta hurt.

I like the cut of your gib. Make it mandatory that all care home owners are named individuals, domicile in the UK, and that their assets are not beyond the reach of liquidators. That would cut out a lot of this nonsense.

And this is a very serious issue too. This really is blackmail, pay up or watch these people die on the streets. It must not be allowed to stand.

Share this post


Link to post
Share on other sites

Ouch, thats gotta hurt.

I like the cut of your gib. Make it mandatory that all care home owners are named individuals, domicile in the UK, and that their assets are not beyond the reach of liquidators. That would cut out a lot of this nonsense.

And this is a very serious issue too. This really is blackmail, pay up or watch these people die on the streets. It must not be allowed to stand.

here here.

Share this post


Link to post
Share on other sites

But, of course, introducing 'market efficiency' to (for example) the NHS would never cause such problems..

And we should be glad that we have such wonderful wealth creators. None of this silly, old fashioned 'making a product' or 'providing a service'. You take a loan and palm off the repayments on.. someone else. THAT's real 'wealth creation'.

+1

Share this post


Link to post
Share on other sites

I see that the Daily Mail is complaining that "Just like the banks which fell before it, the fortunes of Southern Cross were founded on a mountain of debt and the flimsy assumption that property values were a one-way ticket to wealth."

A concept frequently publicised & promoted by...wait for it...the Daily Mail.

Share this post


Link to post
Share on other sites

Read an article yesterday, one of the unions picked on on a solution (well to help stop this sort of thing happening again). Take away the tax benefits of loading a company up with debt that allowed pirate equity to borrow their way into controlling positions and then destroy companies with that debt / obligations whilst extracting any value for themselves.

Share this post


Link to post
Share on other sites

But, of course, introducing 'market efficiency' to (for example) the NHS would never cause such problems..

And we should be glad that we have such wonderful wealth creators. None of this silly, old fashioned 'making a product' or 'providing a service'. You take a loan and palm off the repayments on.. someone else. THAT's real 'wealth creation'.

You seem to have defined Govt to a tee

Share this post


Link to post
Share on other sites

Read an article yesterday, one of the unions picked on on a solution (well to help stop this sort of thing happening again). Take away the tax benefits of loading a company up with debt that allowed pirate equity to borrow their way into controlling positions and then destroy companies with that debt / obligations whilst extracting any value for themselves.

wow, that would really shag the borrow to let market.....

Share this post


Link to post
Share on other sites

Read an article yesterday, one of the unions picked on on a solution (well to help stop this sort of thing happening again). Take away the tax benefits of loading a company up with debt that allowed pirate equity to borrow their way into controlling positions and then destroy companies with that debt / obligations whilst extracting any value for themselves.

Not going to happen I'm afraid. I nice cash donation to Dave or Ed (as usual) will suffice.

Share this post


Link to post
Share on other sites

http://www.dailymail.co.uk/news/article-1394118/Southern-Cross-predators-Blackstone-sold-300-care-homes-RBS.html?ito=feeds-newsxml

The full extent of U.S. private equity firm Blackstone’s profiteering at the expense of the elderly and the vulnerable is laid bare today.

It was already known that the firm made around £640million through the float of the Southern Cross care home business on the stock market in summer 2006.

But the Mail has now discovered that just three months earlier Blackstone pocketed £1billion from selling 294 Southern Cross care homes to the Royal Bank of Scotland*. RBS itself sold the homes on mere months later to Qatari investors.

*That Fred Goodwin yet again is at the heart of all our miseries eh! We'll probably find out one day he's behind the lost Shergar too!

Sale and rent back. Update - Private equity did it's job well. You have to admire how they extracted the wealth from SC like locusts. Put profits before people.

Southern Cross shareprice chart - look at the gap downs in price as the illusion vapourised, a beautiful chart of destruction in motion: http://bigcharts.marketwatch.com/charts/big.chart?nosettings=1&symb=uk%3asche&uf=0&type=2&size=2&sid=2366048&style=320&freq=2&time=20&rand=610536174&compidx=aaaaa%3a0&ma=1&maval=30&lf=1&lf2=2&lf3=0&height=444&width=579&mocktick=1

article-1394118-0C5D4BF400000578-753_306x666.jpg

Shark: Stephen Schwarzman's U.S. private equity firm Blackstone bought out Southern Cross Healthcare in 2004

Lets hope his mother isn't living in a SC care home eh?

Edited by Money Spinner

Share this post


Link to post
Share on other sites

heres a message from the ADVFN board

bobsidian - 4 Jun'11 - 07:35 - 7966 of 7967

"...No one knew what was going to happen [in 2006]. No one has seen a financial crisis like we have. It has taken everyone by surprise. It [the Southern Cross structure] was a model not equipped to withstand it.”

A ridiculous cop-out comment. Symptomatic of many who thought that debt could be accumulated and its ultimate repayment deferred ad infinitum and without consequence. The moment short term financial considerations took hold so the beginning of the end was sewn. You can be sure that senior management have been handsomely rewarded for their "endeavours". And the very presence of goodwill on the balance sheet reflects the overpayment for businesses and assets relative to their underlying values.

Not the only business haunted by debt accumulated during the "good" times. And any business with a modicum of a financial buffer against the uncertainties of life has and continues to be seized by asset strippers to leave that business constantly operating on a financial knife-edge and fated to be held hostage by short term considerations. All too often the financial and legal professionals advise the owners and managers of businesses to take every penny earned and generated and more out of the business and leave all of the the risk with the creditors and financiers. Is this really the best that capitalism has to offer ? Creative destruction is all good and well, but we are talking here about a business directly affecting the lives of people.

Shocking and shameful but sadly unsurprising.

Share this post


Link to post
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

Loading...

  • Recently Browsing   0 members

    No registered users viewing this page.

  • 311 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



×
×
  • Create New...

Important Information

We have placed cookies on your device to help make this website better. You can adjust your cookie settings, otherwise we'll assume you're okay to continue.