Guy Hands: 'Securitisation is the crack cocaine of financial services'

Former owner of EMI pioneered the use of securitised debt to finance acquisitions on this side of the Atlantic

Guy Hands, the multimillionaire who was today forced to cede control of his EMI music empire to bankers Citigroup, developed a high-profile reputation in the City as a deal-hungry financier during a 20-year career that began with troubled school days in Berkshire.

A grammar school boy, Hands, left, eventually won a place at Mansfield College, Oxford, where he shared a house with foreign secretary William Hague. His entrepreneurial spirit quickly shone through between lectures, Hands convinced fellow students to sell artwork door to door

His career began in the early 1980s at Goldman Sachs where he learned about a new form of financial alchemy sweeping corporate America known as securitisation, which involves long-term bonds being issued, backed by cashflows from company assets.

Moving to the London offices of Japanese bank Nomura in 1994, Hands pioneered the use of securitised debt to finance acquisitions on this side of the Atlantic.

His most lucrative deals included Annington Homes, former army housing stock bought from the Ministry of Defence; Angel Trains some of the privatised leasing stock once owned by British Rail; and a series of pub deals that eight years ago transformed Nomura into Britain's biggest pub landlord.

He had a voracious appetite for deals, though a prize he failed to get his hands on was the Millennium Dome. The one disappointing deal was hotel chain Le Mridien, a business where trading was plunged into crisis in the wake of the 9/11 attacks in New York.

He set up Terra Firma in 2002 after raising 2bn from outside investors. The business still manages the investments made with Nomura's cash, but is also making fresh investments.

According to one of his close advisers he coined the phrase, possibly as early as 2003, that securitisation "is the crack cocaine of the financial services industry". By 2005 he told a! private equity conference: "Philosophically, I am less enamoured with securitisation than I was."

However, his apparent concern about the recklessness of many private equity deals was not enough to stop him chasing some of the biggest deals in the sector.

Terra Firma came within a whisker of acquiring Alliance Boots with a consortium-based 10.8bn bid, only to be outbid in April 2007 by US rival KKR. The 12.1bn price tag made Alliance Boots Europe's largest private equity deal.

Four months later, Hands had secured the 4bn takeover of EMI in a deal financed with 2.6bn of debt from Citigroup. Within weeks, however, the credit crunch arrived which stopped Citigroup from selling on any of these loans, sowing the seeds for the dramatic events that took place today.


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