Stormy Days for a Rainmaker

WestLB's Saunders finds her biggest deal may be in trouble

When American financier Robin Saunders clinched a $1.2 billion deal last June to refinance debt held by British TV and video rental firm Boxclever, the European banking world was bowled over by her audacity. And that was just one of a string of financings she pulled together as head of principal finance -- the bank equivalent of private equity -- at Westdeutsche Landesbank. Since being recruited by the state-controlled German bank in 1998, Saunders, working from London, has masterminded more than 35 transactions worth almost $25 billion. "No deal is too big or too daunting for Robin," Boxclever Chief Executive Roger Mavity said this year.

But suddenly, Saunders is losing her sparkle. On May 16, WestLB announced it needed to set aside $2.2 billion against nonperforming loans, nearly twice as much as forecast in February. One of the biggest culprits: $500 million in Boxclever junk bonds that WestLB is holding on its own balance sheet. The bank is afraid that the rental company may soon have trouble paying back. Bank officials are pointing the finger at Saunders, hinting that her team may have taken too many risks. She told reporters on May 16 that WestLB's board signed off on the Boxclever refinancing and subsequent purchase of its debt. Saunders could not be reached to comment for this article.

This extraordinary public battle is more than a falling out among business partners. The stakes are high both for Saunders, whose reputation is at risk, and the bank, whose standing could take a hit. Partly as a result of WestLB's announcement, rating agency Moody's Investors Service says it may downgrade the bank's "financial strength" rating from D to E, the lowest possible. (Because it is state controlled, WestLB's actual debt rating is AA+.) Says Moody's analyst Michael Dawson-Kropf: "We are increasingly concerned about WestLB's ambitious international strategy, especially in the area of project and corporate finance and equity investments."

Problems began for WestLB and its star financier Saunders in early May. That's when it became clear that Boxclever, owned by Japanese broker Nomura Securities International Inc. and British TV company Granada PLC, was generating less cash than expected. Concern spread that Bedford-based Boxclever might face difficulties making its $190 million in annual interest payments on its bonds. Bondholders like WestLB, which retained a chunk of the debt after striking the refinancing accord, face large losses if Boxclever cannot keep payments up. Boxclever has admitted it's having difficulties, but so far continues to service its debt. Meanwhile, the bank has launched an internal probe into Saunders' unit to determine if other deals are sound. German regulators also are investigating some of the bank's transactions.

To the press, Saunders defends the Boxclever deal, saying it's not too late to turn it around. Colleagues say she thinks the problems could be resolved by reshuffling management. Irked by what she feels is unfair criticism from WestLB's Düsseldorf headquarters, she demanded on May 17 that the bank publicly back her or let her buy out her unit.

Few question that the 41-year-old North Carolina native is one of Europe's most dynamic dealmakers. Her handiwork ranges from refinancing Bernie Ecclestone's Formula One car-racing business with a $1.4 billion bond issue in May, 1999, to lending $680 million to fund the rebuilding of England's national soccer ground at Wembley, North London, in December last year. Indeed, Saunders has generated more than half of WestLB's total pretax profits in some recent years. "She was a star who reported straight to the board," says a senior executive. "They loved the money she brought in."

That's why the group, 43.2% owned by the state of North Rhine-Westphalia, rejected Saunders' bid to take her operation private last October. Instead, WestLB CEO Jürgen Sengera said he would give Saunders a $3.5 billion war chest to fund deals across Europe. Now, Sengera is distancing himself from the ace financier. Asked at a May 16 press conference whether he still supported her, he said: "We should wait for the result of the investigation."

Saunders quickly rose on Wall Street, then in London. Her flamboyant style and energetic personality have long irritated some of the more sober bankers who hold sway at WestLB. But as long as she was making big profits, they were in no position to try to criticize her. Now their chance has come. It may only be a matter of time before Saunders and the bank part ways. But the public fight has already been a big blow to the reputations of both.

By David Fairlamb in Frankfurt

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