RHJF - RHJ International

[phil_Buffett]

RHJ International SA, together with its subsidiaries, provides financial services in Europe, North America, the United Kingdom, Ireland, and Asia. The company primarily offers wealth management, asset management, and merchant banking services. It also provides trust and fiduciary, fund administration, custody, corporate advisory, fixed income brokerage, fund origination and management, consumer products, and ICT consulting services. In addition, it offers private banking services, including asset support, asset management, and portfolio consulting; investment banking, such as the preparation and completion of capital market transactions; and business process outsourcing services, which develops professional and individual outsourcing solutions. The company serves institutional investors, such as pension funds, sub-advisory investors, foundations, and endowments. RHJ International SA was founded in 1786 and is headquartered in Brussels, Belgium.

 

they bought Kleinwort Benson a private bank from Commerzbank as they were in big distress in the financial crisis. so they bought a very good asset from a distressed seller.

 

Kleinwort Benson is a very high regarded private bank. wealthy Clients. very good Name in the market. Tier 1 19% capital Ratio. very low Ratio of loans. they are very consverative.

 

they bought BHF Bank in Germany now finally after a 3 year waiting period from Deutsche Bank. also for a very good Price. deutsche bank wanted to sell BHF to RHJ as quick as possible. they get a very distressed Price for it. in the end RHJ with a consortium pays 340mio for BHF. very low Price.

 

their purchase Price of both big Banks in comparison to NAV is 0,7

 

after the Merger RHJ owns 65% of Kleinwort Benson and 68% of BHF bank. the market Cap of RHJ is 320mio € and the Book Value is around 6,3€. stock Price is now 3,5€

 

Tim McElvaine is here invested as well. He owns around 2,96% of the Company. he is big in the red. bought his stake around 5-6€ a few years ago. he likes the Company. i put a few articles of him to read his Thesis.

 

alone Kleinwort Benson could be worth 1-2book value with this high wealthy customers. BHF as well. the Company trading very very low, because the approval of the BHF deal was consuming so much time. now the have what they want and can create the new Company.

 

http://www.rhji.com/

http://www.rhji.com/01/MyDocuments/RHJI_2013_Prelims_Presentation_FINAL.pdf

http://wertartcapital.com/2013/10/10/rhj-international/

http://www.bengrahaminvesting.ca/Resources/Video_Presentations/PPT/2011_McElvaine.pdf

http://www.rttnews.com/2292918/rhj-international-fy-loss-narrows-completes-acquisition-of-bhf-bank.aspx

http://www.beyondproxy.com/rhji/

http://mcelvaine.com/wp-content/uploads/2010/03/2012-Transcript-Partners-Conference-website-version.pdf

http://mcelvaine.com/wp-content/uploads/2010/03/2013-Partners-Confererence-Transcript.pdf

http://mcelvaine.com/wp-content/uploads/2010/03/2012-Annual-Report.pdf

 

would be interesting to hear your thoughts  :)

 

disclosure: iam Long RHJ

 

[phil_Buffett]

http://www.bengrahaminvesting.ca/Resources/Video_Presentations/PPT/2011_McElvaine.pdf

 

also here the presantation from tim. at page 34

[yadayada]

right away one big red flag. They dont make a profit? General and admin expenses are more then what they make? This is not even counting the goodwill impairments etc. They would have to cut alot of costs to actually start making a profit. Seems like you buy book value that will slowly deteriorate over the years.

[phil_Buffett]

right away one big red flag. They dont make a profit? General and admin expenses are more then what they make? This is not even counting the goodwill impairments etc. They would have to cut alot of costs to actually start making a profit. Seems like you buy book value that will slowly deteriorate over the years.

 

you are right with the costs. they have to cut it. but the Chance is in my opinion to create something good with this to Banks. they can achieve it.

[yadayada]

well that can take years, and investing based on hope is never a good idea i think.

[phil_Buffett]

well that can take years, and investing based on hope is never a good idea i think.

 

well i think it is not hope here. they have the Fundament with two private Banks with are very well known. and with bhf now, they have big scale effect. they only have to work this Thing out. cut costs, cross sell more products, maybe make more loans, wealth Management and so on.

 

i think it is nothing to do with hope.

[yadayada]

aah ok i thought that was in the 6month 2013 statements already for some reason. What would it look like after the merger?

 

it says operating revenues, is that the same as total operating income? That will be 111 million in 2013? Their new purchase adds 220 million in operating income then? That is 340 and over 400 million of costs. Can they just fire alot of these people to cut costs because of synergy?

 

And why is income dropping so much?

 

With the merger NAV is 8.2 euro per share right? And why cant they make a profit on that now?

 

I mean you could say the same about JCpenney, if only the sell more stuff then it will all be ok! But i rather buy it cheap when it is making money already.

[phil_Buffett]

i think you are right that the expenses are a big Topic. but i think they now can adress it and will adress it. alone in wealth Management they said the can achieve savings of 20mio€+

 

they have so low loan to deposit ratios (24%-28%) and high tier1 capital ratios. so know with the new structure they can start and for example give more and more loans out. to make Money. cut costs, fire People as well, cross selling products to there new big scale and i think they will Change the actually Situation and make Money. they can alone create so much loans with this low loan to deposit Ratio.

 

the book value or nav is around 6,3€ for RHJ. 8,2€ i think is for the whole Company, but they dont own all of KBH and BHF.

 

yeah i think operating income is operating Revenue. bhf adds another 209mio in 2013 but they dont make Money because the expenses were to high. at kleinwort in my opinion they make not enough Business to create all lot of Money. they were waiting for the Merger of bhf, now they can execute their plan and Combine the two, cut costs, cross sell products, make more loans and then it will be a lot better.

 

you are right that it is not good to loss Money, but you cant compare RHJ to JCP. RHJ owns two big private Banks with high wealth clientel. rich People and historic Banks. in comparison to jcp a lousy retailer with the only rich asset the real estate. for rhj you find for sure a buyer if there will some Event and the dont have debt. that is the most important Thing here. jcp is debt overloaded. RHJ not.

 

i cant believe that Tim McElvaine which is for me a great Investor, invest so much Money into RHJ  and it is a lousy Business. i believe he thinks it is a good Thing to own.

[yadayada]

well to be honest, his track record isnt that great, barely beat the market and is still down since 2007 (from the 2013 presentation). I agree that JCP is not comparable, but i think for this to pay off they need to start making some money. There are some papers laying around on cost synergies with smaller banks if you google it. Maybe could look there. Dont have time now tho.

 

Also look what they will make when they make the remaining loans? I assume it wont cost that much more in G&A costs to make those loans, so there is some leverage? And Isnt the thing that counts most how much money they can actually make off their net asset value?

[phil_Buffett]

yeah the Thing is cut costs, sell more products, more Clients, and make more loans. you are right. their could be a good leverage factor if they make more loans.

 

they could be a nice Company with two high regarded private Banks with wealthy clientel and they could make Money if they achieve the factors above. i think this is their Goal. therefore i invest in it around the current Price. i think you have a margin of safety, because alone kleinwort benson is so well regarded private bank and with bhf you would get alone 6€ or more in Liquidation if the Business plan doesnt work. so iam safe.

[peter1234]

You are spot on regarding costs. I have been following this for years. It has been a long transformation. They finally divested the legacy Japan assets. Finally closed the bank purchase. While getting paid very generously. Very nice London offices... also very expensive. There is just so much overhead. They might get to breakeven or profits at some point. Just don't see it happening fast enough.

 

;D

[phil_Buffett]

tim mcelvaine talks about RHJ at the AGM.

 

http://www.cornerofberkshireandfairfax.ca/forum/general-discussion/2013-annual-report-tim-mcelvaine/

 

at page 51.

 

.... This is the more interesting thing. Under Kleinwort Benson, which you can see over on the far left, the asset management under AUM goes from $12 billion to $51 billion. That is a huge increase. Tier one capital, which is the amount of leverage the bank has, still remains relatively low. And then you can see the revenue.

 

My valuation, this is really back of the envelope. I revalued the whole group to basically what they paid. That’s how you get this four Euros a share for the total financial services business. I think the businesses could easily be worth more—say twice book or more. This valuation is 70% of book.

Adding in the cash and everything else, the result is you come up with 5 Euros and change a share. The stock trades for about three fifty. I’m tossing a whole bunch of numbers at you, but basically with Kleinwort Benson valued at 70% of book and you get five Euros, and we’re trading at about 70% of that today. So 70% times 70%, we’re trading about $0.50 on the dollar, so to speak, because of the double discount. Plus I think that valuation can grow over time, but it’s very much execution related. So a cheap stock, a good balance sheet, revitalized management and we’ll see where it goes. But it’s been a long wait.