He Sold Us Short

at

Wilbur Ross

“We like Ireland very much because, unlike the Club Med countries, it doesn’t need structural reform of the economy All it really needs is to get through the financial crisis that was caused when its banks went berserk. But Ireland’s fundamentals are still there…Ireland will once again become the Celtic Tiger.”

Financier Wilbur Ross in 2011 after taking a 35 per cent stake in Bank of Ireland.

Now US Commerce Secretary, Wilbur Ross with Simon Coveney in Washington DC last October

The accusation is quite simple. Ross, through his investment firm WL Ross & Co., took a near 35% stake in the Bank of Ireland in 2011, during the depths of the crisis. In 2012, he joined the company’s board of directors, but by 2014 he was selling his stake.

He made 500 million euros ($682 million), selling his shares at 26 to 33 euro cents a share over a few months. Ross stepped down from WL Ross & Co. – which is currently being sued by former employees for fee gouging – when he joined the Trump administration.

That would all be fine if it weren’t for the fact that it was later found that the Bank of Ireland was using deceptive accounting to make its balance sheet appear healthier than it was. Without that, Ross would not have been able to sell his shares at such a premium.

This alleged deception was discovered in 2015, shortly after Ross sold his stake, and of course the bank’s stock price suffered as a result. Ross, who as a board member, should have been familiar with the going-ons at the company, especially after doing due diligence and selling at the top.

And, if in the course of doing due diligence, he found out that there was something wrong with the bank’s accounting, he had a duty to report that to shareholders. If he didn’t, and he sold with that knowledge, as the report points out, that is a violation of insider trading laws.

European Parliament Report Accuses Wilbur Ross of Insider Trading (Mother Jones)

More incredibly embarrassing, possibly criminal, news about our Commerce Secretar (Business Insider)

Pics: Getty/Rollingnews

45 thoughts on “He Sold Us Short

  1. Owen C

    I’ve read this report. It is both confused and confusing. It alleges Wilbur Ross knew about apparent fraudulent accounting at BOI, this being learned via his due diligence of the bank. He then used this knowledge to buy at the bottom. He also used this knowledge to sell at the top. Not really sure how he can use the same negative news to both buy low and sell high, it really has to be one or the other, but not both.

    Its also curious how he used this apparently very negative knowledge, which had been around since 2006, and was later revealed, even though the negativity of it never seems to have actually impacted BOI (the share price fall between 2014 and 2017 can be explained by many other actual reported factors). Basically the negative news pre-dated any actual negative events (ie the Irish property collapse), was used to both buy low and sell high, and then even though it was revealed later on it never actually did anything. The whole thing is curious in the sense that it took someone 70 pages to explain on something which never seems to have actually happened?

    1. Johnny Keenan

      Fair play to you for reading the report Owen C.
      As an American banker Ross seemed to have got a similar deal to what NAMA gave to American Vulture Capitalists. In the case of AVC’s they got knocked down prices on property and land. They are now the problem for the housing crisis in Dublin. They are dictating rent and property prices.
      Ross seemed to have inside information on Bank Of Ireland so he could buy a lot of shares when they were low in price. Due to more insider trading and exaggerating paper work he was able to manipulate the price of the shares and sold the same shares ( he had previously bought for little or nothing) at a massive profit.
      So what are we missing. Please explain it clearly and simply, as if I’m stupid.
      Thanks!

        1. Johnny Keenan

          GAW
          Your missing my point. I don’t have any answered, yet!
          I am genuinely confused. I’m just asking people in the know to explain the complex situation that a report doesn’t seem to clarify.
          I like most of the country thought the Irish tax payer bailed out the banks to the sum of €64 Billion.
          I didn’t realise it was Wilbur Ross and other American business/political interest in Ireland we should be thanking.

          1. Go A Way

            Thanks Johnny

            It’s actually fairly clear though I do have additional personal knowledge of the matter

            Ross bought loan books that were falsely stated

            Then he sold his shares with the books still falsely stated. So the shares were overvalued when Ross sold them according to this report.

            Incidentally BOI avoided total takeover by the Irish government by claiming the books were better than they were. That way then existing management in the c suite were largely able to ride out being fired or replaced until time to collect their bonuses. It was a ponzi scheme part funded by our money to benefit a few. Ross’ role in it was really just to recognize fellow lizards and roll along accordingly- they still needed to find additional capital from the likes of him because of changes to the Basel liquidity rules.

            Yes the alternative was to wind it up or take it over anyway. That’s why I asked you if you had any better ideas, hope that helps

          2. Johnny Keenan

            Not really GAW. But that says more about me. I had to google some of the terms you used. Thanks for taking the time to inform me.

          3. Owen C

            “Ross bought loan books that were falsely stated

            Then he sold his shares with the books still falsely stated. ”

            Are they still falsely stated? For clarity, the report suggests the loan books were falsely stated in 2006 (even before the crash, so the false statement pre-dates the thing which would cause them to be falsely stated), in 2011 (when Wilbur et al bought in), in 2014 (when Wilbur sold out). So they are either still falsely stated (perhaps forever, even after people have repaid all their loans? Remarkable), or they have been correctly restated and BOI took some big losses?

      1. Owen C

        “Ross seemed to have inside information on Bank Of Ireland so he could buy a lot of shares when they were low in price. Due to more insider trading and exaggerating paper work he was able to manipulate the price of the shares and sold the same shares ( he had previously bought for little or nothing) at a massive profit.”

        The thing is, none of this really makes any sense logically, or has any evidence.

        “Ross seemed to have inside information” – he looked at the books. Its what new investors are entitled to do in the event of new capital being raised. There’s weird mentions of IAS39 (an entirely normal and widely used accounting policy) and how Ross knew IAS39 was “hiding losses”. This doesn’t really stack up, but lets say its true (really this is about marking-to-market vs through the cycle approach to mortgage valuation – BOI was just doing what every bank in the world does), Ross now knows that BOI is “hiding losses”, so this is why he buys into the company?? That makes no sense! It would be a reason for him NOT to buy into the company. For all the talk of him “buying at the lows”, the share price fell by 33% over the following year!

        “Due to more insider trading and exaggerating paper work he was able to manipulate the price of the shares and sold the same shares” – the suggestion is now that Ross knew the “inside information” he held about the “hidden losses” would come out, so sold his shares at the highs. Firstly, he sold a good chunk of his shares well below the highs, at prices not too far from where they are today. Secondly, if he “knew about hidden losses that were going to come out”, then why did they never come out? There has never been any hidden losses and the bank is doing quite fine, its been a mixture of Brexit, an expensive employee pension fund, and rising technology costs which has seen the share price underperform, nothing to do with “hidden losses”. Where is the insider trading and “manipulating the share price” alleged to have actually occurred (ie the evidence which actually supports this assertion)?

          1. Owen C

            The level of impaired losses was probably understated at every Irish bank and probably most European banks. That’s why the share prices collapsed and BOI traded at a significant discount to book value. That’s not inside information or “hiding losses”, its literally just how banks account for things – they assume the position today will regularize over the cycle, even though the market may be concerned that it won’t.

            Think about it this way – in 2011, the bottom of the property market, the vast majority of BOI’s property lending (including mortgages) would have been in negative equity. But the vast majority (> 85%) of BOI’s borrowers kept paying their mortgage every month. So should you (a) mark to market the loans to be in line with the 60% falls in property values or should you (b) assume that most people keep repaying their loans regardless of the value of their home? The answer is (b) by the way, but this report seems to imply that (a) is the better option. Bonkers stuff.

          2. Go A Way

            No – it was a concerted and deliberate campaign to underplay the losses at BOI as directed by senior management – we are talking about BOI here Owen not any other bank, I have no information on other banks, good boy, try to stay with me here

          3. b

            you’re proudly displaying your ignorance here

            “I have no information on other banks”

            the point is every bank including BOI was underplaying losses, some of it deliberate, some of it due to the difficulty in forecasting and accounting rules. This is why the entire banks sector was trading at 0.3 times its book value in 2011, its not some earth shattering revelation that BOI was understating losses

            Love the way you’re accusing owen of struggling to keep up, seems you’d prefer to debate this with a professional bank analyst more on your level?

          4. Owen C

            “it was a concerted and deliberate campaign to underplay the losses at BOI as directed by senior management”

            Bank of Ireland impairment charge
            FY09 €4.1bn
            FY10 €4.36bn
            H1-11 €842m (before Ross bought in)
            H1-11 €1.1bn (this is the point Ross bought in)
            FY12 €1.7bn (this is actually the year the shares bottomed)
            FY13 €1.7bn (Ross sells some shares)
            FY14 €542m (this is the year Ross sold out the last bit of his shares)
            FY15 €296m
            FY16 €176m
            H1-17 €59m

            So BOI announces €9.3bn in impairment provisions (expected losses) in the two and a half years preceding Ross’s arrival, and announces around €5bn in impairment provisions (expected losses) during the 3 year period Ross actually owned his shares. So €14.5bn or so in losses that he cannot “gain” from (preceded him or arrived during his time there).

            After he leaves, in the following two and a half years it announces just under €525m in cumulative impairment provisions (expected losses). But yes, its the 3% in additionally revealed losses which are clearly the issue here. Congrats to all for participating in this clown show.

          5. Go A Way

            We are not talking about any other banks b, I have no information on them. That should have been fairly clear to someone even with the iq of a fence post or garden gnome or other form of inanimate stooge as you seem to be.

        1. Donal

          I have not read the report, only know what the excerpt Broadsheet have printed above says. To me the important part of that is how he joined the Board and later sold shares. Is his behaviour from the point he joined the Board not the only relevant point in time for which his behaviour can be scrutinised? Being on the Board creates a new level of responsibility and it is a failure to match this new level of responsibility that the report goes on to discuss?

          1. Owen C

            It says he used insider dealing to get in low and get out high. Only one of those can really be right, but it doesn’t even seem to provide firm evidence as to how this occurred. Its just “he conducted due diligence, he bought low, he sold high, he must have had insider info that helped both of these situations, because back in 2006 people in the bank knew they were not provisioning enough, so Ross must have also found out about this and used this info”. But again, its vague and confused. He knew the bank was in trouble so he invested in it (why?) so he could pump it up (how?) and get out before the real news came out (it was neither unknown or accurate), causing it to collapse (which it never really did)?

  2. b

    So he did due diligence in 2011 when buying shares and found out bad accounting practices, but still bought shares and then sold them in 2014 before the practice was disclosed in 2015 and stock price was still higher again? The report is absolute wibble and full of contradictions, i read it yesterday. The bad accounting practices are completely over egged, every bank in Europe had difficulty valuing how bad their loan book was, which is why they all traded at well below their book values.

    I’m no fan of Wilbur Ross’ politics but he put hard cash into BOI when others wouldn’t touch it, saving the state money and improving the value of other investors money. Loads of investors lost money investing in banks in 2011, it wasn’t a risk free bet

    1. Go A Way

      There was dodgy books kept in BOI for years the dogs on the street knew that

      At the same time they weren’t as greedy for risk as other so called pillar banks during the boom so the overall risks were not as great for Ross IMHO

      1. Owen C

        “the dogs in the street knew that”

        Presumably you mean before 2007? And yet the entire market never knew that, or else the share price would have fallen earlier? Do you see how this “oh everyone knew” nonsense fails to take into account observable evidence.

        1. Go A Way

          NO I don’t because I’m not a contrarian idiot like you Owen. My sources come from direct within the bank itself

          1. Owen C

            “My sources come from direct within the bank itself”. So how could the dogs on the street know about it? You actually seem in possession of more inside information than Wilburr.

          2. Owen C

            Ok, so everyone knows about it. People within the bank are telling people who wouldn’t ordinarily expect to receive such information (ie you). And yet we have to wait til 2017 for a 70 page report with questionable assumptions to “break” the story without really nailing it all that well. Every newspaper and politician turned it down til now presumably, even though its quasi common knowledge. There’s a great movie to be made out of this: “The Conspiracy Everyone Knew About Except The Press And The Markets And Mick Wallace”.

          3. Warden of the Snort

            You don’t seem to be the brightest star in the firmament there Owen, I find your style of argument not to be even remotely persuasive. Why would the suppression of such information automatically imply a conspiracy? Maybe the average journalist isn’t smart enough to ask the right questions, or have the sources Go A Way appears to have?

          4. Owen C

            “If I know it a dog would know it owen”

            vs

            “Maybe the average journalist isn’t smart enough to ask the right questions, or have the sources Go A Way appears to have?”

            Did no one know it or did everyone know it. Make up your minds. Have a huddle and sort it out.

          5. Go A Way

            NO – you brought the press into it and implied a vast conspiracy- which is gibberish. If there’s a conspiracy it only needs a small number of people to orchestrate it- then a whole cabal of useless journalists to just not report it and fearful staff to not blow the whistle lest they never get another job in the teeth of the world worst recession for years in a notoriously incestuous industry in a country with a lower than average appetite for whistleblowers

            It’s ok though – we all realized you’re a paid for stooge long ago Owen.

      1. b

        i’m only a contrarian on here

        elsewhere i’m just quite contrary

        usual commentary on here anyway, seems a few people have read the report, the rest just telling us what they’ve always known, whether is right or not

        1. Go A Way

          You notice I don’t bother even replying to your posts generally b, right? Because what would be the point?

  3. johnny

    Vincent Gigante aka “The Chin”,the Gambino boss of bosses,feigned insanity for many years to avoid prosecution,he wandered around the village in his bathrobe mumbling,appears Ross is a fan…

    “His security people lost him in the Hamptons,” an area regular told Page Six of Ross. “They went into the Golden Pear in Southampton and said, ‘Has anyone seen him?’ ” The source added, “They said they had lost him and asked anyone who spotted him to call them. They gave out cards that said ‘Commerce Department security’ — and told the owner, ‘If you see him, will you call us immediately?’ ”

    Rumors even spread that the agents “were combing Southampton on Friday looking for Wilbur Ross.” The same source said, “He was found later that day, but they were in a panic.”

    https://pagesix.com/2017/12/13/security-detail-loses-wilbur-ross-in-hamptons-takeout-joint/

    Was he’s alleged to have done is a crime in US/UK but is it in Ireland ?

  4. Andy

    The report is an absolute load of rubbish.

    1. Somehow equating due diligence with insider information although not providing a scintilla or evidence that the Bank disclosed non-public information.
    2. Somehow managing to claim that Ross learned of “dodgy accounting” and then bought the stock. If someone learns of “dodgy accounting” they don’t buy the stock, the short it. As you couldn’t short Irish Bank shares at the time, you just walk away.
    3. The ECB ownership of collateral conspiracy theory is hilarious. Did anyone actually read it. The ECB owns the collateral so nothing could be transferred to NAMA or sold to vulture funds etc so everything must be returned……….The ECB apparently owns the Collateral because the Banks were insolvent according to these guys. Unfortunately for them, the Banks never actually went insolvent because the state kept pumping buckets of money into them anytime they needed it. They completely misunderstand how repo & ABS markets work.

    The Butler guy seems like a smart guy.
    The Heaphy guy’s bio is a little vague. He collaborated with Bill Black on nama cases? What cases has Bill Black ever taken against Nama? Huh?

  5. Harry Molloy

    This is the most stupid thread I’ve read here in a while. Well done Owen for doing what most people wouldn’t even be bothered to do, I envy your energy.

    Simple exercise for everyone – look at the price of the shares when they were bought and then their price when the accounting issue was discovered.

    When you buy shares that low, and are confident the company won’t collapse and will grow in value, then it’s all gravy.

    Never forget a recession is the best time to make money. Save your pennies and wait for the next one :-)

    1. Sheik Yahbouti

      Exactly. Purchased at ten cents a share, and sold in tranches at thirty cents and twenty six cents respectively = a handsome profit.

    2. Go A Way

      You’d be even more confident about your investment if you had the sense to cash in before the false accounting was uncovered

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