A £1-share with a $50-billion plan

by Sven Lorenz

It takes a magnifying glass to locate the Isle of Man on a map; however, in the financial industry at least, the tiny speck of land in the Irish Sea is proving to be an increasingly serious contender. Last year, this island of 80,000 inhabitants achieved 10% GDP growth, mostly on the back of its burgeoning financial industry. Finance companies have to pay a flat 10% tax on profits, and thanks to its semi-independent status, the Isle of Man does not fall under the scope of bureaucratic European finance legislation.

Virtually at the heart of this island sits a tiny bank with ambitious plans. Conister Trust was, until recently, the equivalent of the local savings and loan bank. It had a mere $100 million in deposits from a clientele that consisted mostly of local retirees, and its car insurance division had virtually no growth prospects on the limited landmass of the island.

Enter two British finance entrepreneurs who acquired de facto control of the company. As boring as Conister Trust’s existing business may have been, the company was in possession of a prized banking license. Setting up a new bank in the Isle of Man is virtually impossible nowadays, which is why the company was a valuable platform for anyone with entrepreneurial plans to create a new banking company. Why make the effort to get a banking license if you can buy an existing one?

A new CEO who had previously worked for a much larger bank was put at the helm of the company, additional capital was injected, and a business plan outlining the expansion was presented. The share price had previously been flat on the ground for two decades, but investor interest soon picked up, and the price started to move upward.

It’s bound to rise much further, if speculation about an impending involvement of mega-wealthy Arab investors turns out to be true. In early November, a Geneva-based asset management company, Helvetica, bought a 16% stake in the bank. It did so by injecting additional equity into the company, which in turn means it actually did a deal with the management rather than buying shares on the open market.

Helvetica claims to have “strong ties to the government of Qatar,” a gas-rich state that recently made headlines for several large-scale investment deals. Qatar has stashed away $50 billion in a sovereign wealth fund (essentially, a government piggy bank for future generations of Qataris), making it one of the 10 largest such state funds in the world.

A few months earlier, the government of Qatar signed a deal with the government of the Isle of Man. With the aim of creating its own finance industry, Qatar has founded the Qatar Financial Centre (QFC). In order to attract business to Qatar, an agreement was made to link Qatari finance institutions with institutions on the Isle of Man.

It’s unusual for a major player like Helvetica to accept a minority stake in a company. With 16% of the votes, Helvetica is far from being able to control Conister Trust. The only explanation is that the Swiss firm is on such good terms with the bank’s management that they are planning joint projects.

For existing shareholders of Conister Trust, such an arrangement could have tremendous implications. The company is currently worth a meager $110 million, of which nearly $30 million is covered by the debt-free company’s cash reserves. If the government of Qatar were to outsource the management of just a tiny part of its vast assets to Conister Trust, the bank’s profits could go through the roof.

Helvetica paid 85 pence (sterling) for its stake. At last count, the share price was trading at £1. With Conister Trust apparently having received the indirect backing of one of the world’s largest state investors, it seems only a matter of time before more specific information about large-scale new projects leaks out onto the market. The current price should then turn out to have been a bargain-basement opportunity.

Conister Trust

Share price: £1

ISIN GB0002160678
London AIM, “CTU“

Outstanding shares: $50.4 million