So which US bank was Martin Hughes going to get taken over by Spain’s Santander, which would then have stepped up with a rescue deal for Washington Mutual, before the US authorities went and spoilt everything?
We ask because the matter is referred to in the latest monthly report to shareholders in Mr Hughes’ hedge fund, Tosca – a disturbing and fantastical tome that is now being brandished by anger investors.
Tosca was a big holder of WaMu, of course – a bet that joins a growing list of Tosca howlers over the past 12 months. Since January the fund is down 57 per cent.
The report states:
The shares we held in Washington Mutual were restricted and therefore unable to be disposed of to protect the value of our fund. The banking cash and liquidity problem sank our preferred merger solution. The fact that market to market assets on a hold to maturity loan portfolio is an accounting anomaly added to the problem. This current climate and the large loss on Washington Mutual is a distressing and unpleasant experience. For the record our preferred solution was the involvement of Santander by way of a reverse takeover of another U.S. bank. There may have been less need for acquisition write-offs and capital could have been raised against the value of synergies and a strong minority shareholder. We clearly agree with other shareholders on the matter of surprise with the speed that regulators would not allow the time to consider alternative plans.
And what does this refer to?
We have been working towards corporate activity to maximise the value of a number of strategic stakes that we hold. One of these was about to come to fruition when the cash and credit crisis in the U.S. involved the loss of the main backer due to emergency rescue requests being made in the U.S. The loss for now of this long term project at the very last moment adds to the dreadful feelings.
Defying grammar further:
The investment error in developed markets was to use as a long position deep value financial franchises that would benefit from mergers and sell ups. That second phase did not evolve in a normalised fashion, due to extreme panic, zero liquidity and overly cautious regulator actions. At some stage we would like to follow the third phase to recover the value from the enlarged entities that have been created.
Strewth! No wonder Tosca has been hit by a wave of redemptions.
The plan now is to slice Tosca in two, with two new classes of shares offered to existing holders – one for those ready to give Mr Hughes and his team the time to recover the losses and another that will (hopefully) unwind assets in an orderly fashion.
Related links:
Dear Team Tosca – full pdf file at Dealbreaker.
Tosca seeks to restructure largest fund – FT story