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Wilbur Ross Loses Millions in Europe Before Becoming Commerce Secretary

- By Holly LaFon

Before he was named Commerce Secretary, most knew Wilbur Ross (Trades, Portfolio) as an investor in distressed assets. As Europe's financial crisis produced these in abundance, Ross found several in which to ply his strategy. A review of Ross' European portfolio shows that the cabinet member focused on foreign trade had mixed results in the investments.


Bank of Cyprus (BOCH.L)

Ross became involved in one of his most recent investments, the Bank of Cyprus, when he joined a group of financiers to raised $1.04 billion to recapitalize it in 2014. With non-performing loans among the highest in Europe at 47% and high levels of public and private sector debt, the bank remained fragile a year on from the height of Cyprus' financial crisis in first-quarter 2013, when a "bail-in" of about 40% of depositors' personal savings and recapitalization prevented its collapse.

Ross bought Bank of Cyprus shares for 24 cents in the summer that year and became director and vice president of the bank that fall. Upon his confirmation as Treasury Secretary, Ross said he would quit those roles but that the funds of WL Ross & Co. would keep their shareholdings, the company said in a statement.

One reason WL Ross & Co. wanted to keep its 1.6% stake, Bloomberg reported, is the loss on the investment. The bank had declined by one-third from Ross' investment price as of Jan. 9, when its existing shares ceased trading on the Cyprus Stock Exchange and new shares began trading there and on the London Stock Exchange for the first time on Jan. 19.

Bank of Ireland (BKIR.L)

When Ross started investing in Cyprus, he had just finished a profitable investment in the struggling Bank of Ireland. In 2011, he bought 2.9 billion of its shares, or a 9.1% stake, as part of a group of investors who invested 1.1 billion euros for a 35% stake.

Ross made the purchase several months after the bank agreed to an 85 billion-euro EU/IMF bailout and a review by the Central Bank of Ireland detailed its capital needs and stress testing results. As in Cyprus, he invested as the economy showed signs of stabilization several years after the worst of the country's financial crisis, though it still had low domestic investment, weak consumer sentiment and high unemployment rates.

"The population had already proven that they were willing to put up with a lot of problems, a lot of cutbacks, by government without riots, without car bombs, without nationwide strikes," Ross said in a Yale School of Management discussion in 2014. "They had already shown that the sociology of Ireland was clearly different than that of the Mediterranean countries. Those were the big-picture things we looked at."

The shares that Ross purchased for 10 cents had almost tripled by the time he sold half almost half of the stake in March at 33 euro cents per share. He sold the remaining holding at 26.5 euro cents per share in June, giving up the board seat he took over in 2012. Ross made an estimated profit of 500 million euros on his Bank of Ireland investment.

Following his sell, Bank of Ireland rose to as high as 39 euro cents, and has since slumped to 22.6 euro cents in Dublin trading Tuesday.

Eurobank Ergasias SA (EUROB.AT)

Coinciding with his Cyprus play, Ross came to the embattled Eurobank Ergasias' aid in April 2014, buying 37.5 million euros in shares at 30 euro cents each and joining its governance. An investment group that included Ross' contribution raised 1.33 billion euros to help the bank meet a 2.86 billion euro-capital increase requirement put in place by an update to a recapitalization law the Greek parliament approved in March 2014.

Like many Greek banks, Eurobank, the third largest in Greece, needed the money to strengthen its capital position as a financial crisis fractured the foundations of its banking sector, requiring several international bailouts to avoid default.

Up to assumption of his new cabinet position, Ross still held shares of Eurobank Ergasias, at a significant loss. Eurobank shares traded at 56 euro cents per share on the Athens Stock Exchange Tuesday. Adjusted for a December 2015 reverse stock split, Ross has lost more than 98% on the investment.

See Ross' public U.S. portfolio here.

This article first appeared on GuruFocus.