When it comes to the crunch it's time to send for Sandler

Published on Friday 25 September 2009 21:28

WHEN it comes to those deemed both capable and untainted enough to save financial companies from the brink of ruin, the pool of talent is small and shallow. Ron Sandler, who was recruited by Gordon Brown to investigate the looming pensions and savings crisis in 2002, is one.

When the Treasury named Sandler last year as the man to chair disaster-prone Northern Rock after the government took it into public ownership – snubbing Sir Richard Branson's Virgin Money – it was thought: here is a good man in a crisis.

"I enjoy the complexities and the adrenaline rush of these sorts of emergencies," said Sandler.

A veteran of the battle to subdue the Lloyd's "Names" along with the former Lloyd's of London chairman Sir David Rowland, Sandler later made a valiant last stand, also with Rowland, at NatWest before the barbarians from the north, the Royal Bank of Scotland, took it over. If it had not been for his non-domiciled status – Sandler was born in Zimbabwe and holds a German passport – he might have been seconded to become chairman of Lloyds Banking Group. Sir Win Bischoff was roped in instead.

Last week, the City watchdog set Sandler a new task, after he was named as the chairman of "zombie" insurance group, Pearl. The company hailed the appointment of a heavyweight in UK insurance that would help it give its rival, Clive Cowdery's Resolution (Mark 2), a bloody nose in the battle for closed life fund consolidation. But the more likely rationale behind his new job is that the Financial Services Authority (FSA) insisted he join, as part of the deal to lift a stringent form of control the FSA slapped on Pearl last year.

Sources close to Pearl deny Sandler's appointment as chairman had anything to do with the FSA, but others disagree. What is clear is that at the same time the group announced Sandler as chairman, it also revealed that it had escaped the clutches of an "Own Initiative Variations of Permission", or OIVOP, which the FSA imposed last November.

An OIVOP is a tool used by the regulator to deal with "serious failings" at firms. Pearl ran into trouble after its 5 billion acquisition of closed life firm Resolution (mark one), which led to it breaching solvency tests last year.

In the heady days of the end of 2007, the battle for Resolution (Mark 1) – also owned by Cowdery – was hot. Pearl, led by its founder Hugh Osmond, beat out rival insurance giant Standard Life to win the prize.

But with chill winds starting to cool the flames of debt-fuelled takeover activity – this was about the time of RBS's disastrous acquisition of ANB Amro – Standard Life's chief executive Sandy Crombie cooled his heels. He preferred not to get "carried away" and withdrew from the race.

Osmond won, but it saddled the group with 3bn of debt from lenders including RBS and HBOS. Then the cataclysm struck global financial markets, eroding the value of the group's assets under management and putting the group at risk of defaulting on its debt payments.

In May, Pearl enraged bondholders, snubbing a 33m payment on a 500m bond. Although it stressed it could pay if it wanted to, the action did not inspire confidence.

In June, Osmond found a saviour in Nicolas Berggruen, dubbed the "homeless billionaire", whose Euronext-listed acquisition vehicle, Liberty International, invested 500m in Pearl. This staved off the wolves at both the bond markets and the FSA. The price Osmond had to pay was to move aside. While Osmond, with his diluted 30 per cent stake in the group remains vice-chairman, Sandler, with his Treasury-backed pedigree and his safe pair of hands, becomes Pearl's new confidence-inspiring face.

Yet that means Sandler is not just chairman of Pearl – a part-time job, the group insists – but Northern Rock is absolutely insistent he will remain its chairman, too. Sandler is also the chairman of Paternoster, a closed life pension insurance company.

Analysts do not rule out that Sandler's links to both the pension insurance company and the pension consolidator is the start of a cunning plan to merge them. Sources at Pearl say that despite its renewed appetite for acquisition targets, it has yet to make a choice from the menu. Paternoster was unable to comment.

The other question is how long does Sandler care to stay at Northern Rock? "As long as it takes," was his answer last year. As long as it takes, at least, until the Rock goes back into private ownership.

This may be sooner rather than later. Although the path of bringing Northern back to the private sector hit the quagmire of the European Commission's review of state aid, Treasury insiders expect the EC to give the nod to a 3.4bn bail-out in the next few weeks. The government funds will enable Sandler's plan to split the Rock into a "good bank" – to be sold – and a "bad bank", that will come under the management of the government's bank investment manager, UKFI.

Selling Northern Rock – for a good return to taxpayer – would be a job well done for Sandler.

BACKGROUND

&#149 BORN in South Africa but grew up in Bulawayo, Zimbabwe, son of a German Jew who escaped Berlin in 1939 and a South African doctor.

&#149 Studied engineering at Cambridge then completed an MBA at Stanford.

&#149 He joined the Boston Consulting Group in Los Angeles. In 1984, Sandler returned to the UK to run consultancy firm Booz Allen.

&#149 In 1996 he became chief executive of Lloyd's of London. Three years later he was briefly chief operating officer at NatWest, where he played a key role during takeover talks with RBS.

&#149 In February 2008, Sandler became chairman of Northern Rock.