Blank before Brown

Sir Victor Blank, whose close relationship with Labour leaders including Gordon Brown at the time of a speculative and ultimately catastrophic bank merger was queried, had already pulled off a financial coup under the Major government. The background was the haphazard way in which our railways were privatised. The Independent commented:

at Charterhouse Bank [...] a handful of senior executives have made more than £30m in eight months out of Porterbrook, the train-leasing company taken over by Stagecoach last month.

Porterbrook is already notorious for producing a profit of £80m for its directors and staff. The service Charterhouse provided to these winners of the privatisation lottery was to put together the management buyout that enabled them to make their fortunes. Four of Charterhouse's executives, led by the genial Victor Blank, plainly decided the opportunity was too good to miss and helped themselves to a share of the action.

This would not normally raise eyebrows in the venture capital industry, where it is common and accepted practice for executives to invest in the firms they are promoting, sharing the risk with their clients. But this one was different, not least in its exceptionally debt-geared nature. The company, sold by the Government for £534m early this year, had only £2.5m of core equity, which became worth almost £400m at the bid price.

Thus the Charterhouse executives were able to turn an initial investment of just £89,000 into £12.7m. On top, they make a cool pounds 20m from their personal share of the profits made by the Charterhouse venture capital fund, which also invested in Porterbrook. It hardly needs saying that all of them faced negligible risk - for well-paid merchant bankers - of, at worst, £89,000 of their own money. The real downside, if the company had turned out to be a dud, was born by the providers of bank finance and preference shares. Just a question of the luck of being in the right place at the right time? For some reason it doesn't look quite that way.