SC Lowy, a Hong Kong asset manager with a focus on private credit, in particular towards companies in special situations, founded in 2009 by the Belgian Michel Lowy and the Korean Soo Cheon Lee, has big plans for the Italian subsidiary Solution Bank, which closed on 2023 with excellent performances but which only with organic growth SC Lowy wants to lead to assets of between 2 and 3 billion euros, from the current 1.4 billion. An objective it wants to achieve by expanding its financing activity for SMEs to leasing and factoring. All with the aim of reaching a size sufficient to even think about an ipo. Meanwhile, the asset manager is contemplating the launch of a new European private debt fund with a core focus on Italy. Telling the news to BeBeez Magazine directly is Lowy himslef, whose background demonstrates that he is a very experienced finance entrepreneur, capable of doing what he sets out to do.
The friendship between Lowy and his partner Soo Cheon Lee dates back to 1996, when they both worked as analysts at the US group Cargill. Three years later they moved to Deutsche Bank, to coordinate investments in the Asian area in products linked to distressed credit, at the Singapore and Hong Kong branches of the German banking giant. Ten years later the two decided that the time had come to put their experiences to good use. They then founded SC Lowy, of which they now hold, with the management, 75% of the capital, while the rest belongs to a group of investors led by Investec, Universal Partners and Fine Partners and also including some family offices.
SC Lowy is founded on two operating branches: banking and asset management, both focused on lending to companies that are difficult for normal banks to finance. In fact, in addition to raising and managing a fund that invests in private and distressed credit, in 2013 it acquired Choeun Savings Bank based in Korea, together with the private equity company Yuil PE, whose share was acquired by SC Lowy itself in 2018. The latter opened its headquarters and business in London in 2013, and the same year SC Lowy landed in Europe.
In 2018 SC Lowy acquired 90% of the small Italian retail bank, Credito di Romagna, investing 105 million dollars in 99,9% of capital to focus on the same business, i.e. financing companies that are not able to borrow from the large ones traditional banks.
Five years later, under the banner of Solution Bank and after a profound remodeling of the structure, the bank produced excellent results in 2023 (see the story on BeBeez.it), such as an annualized ROE of 15.7% and at the same time a CET1 ratio by 16.3%. After the arrival of SC Lowy, Solution Bank managed to conclude over 50 financing operations of this type, most recently the 10 million loan granted last October to Officine Maccaferri (see the story on BeBeez.it), the Italian group building materials just out of the renovation and relaunch phase.
However, the group, which today has over 3 billion dollars in assets managed, as mentioned, is not resting on its laurels and has further developments in mind, both for its Italian bank and for its European business. Here are the ones.
Q: Fist of all, how come that a Hong Kong-based investor decided to buy a bank in Italy?
A: Our business rests on two synergistic activities: banking and credit-related asset management. The reason for being active on both is that these tow businesses are very complementary. Credit funds lend under certain circumstances, such as the funding of investments or acquisitions, that are different from those triggering traditional bank credit. That is why our funds today yield between 10 and 20% while our bank is lending between 7 and 12%. Since the combination proved successful in the Far East, in 2015 we decided to replicate that model in Europe.
Q: Why in Italy?
A: Because in that country many banks had on their books a lot of npe, our reference asset class at that time, but the skills needed to buy and manage those assets were not so widespread. So, Italy was a very promising marketplace, where we started searching for a small credit institution, suitable for operating improvements, where we could bring our management skills, and bringing many opportuities to find new business even for our private debt funds. We found in Credito di Romagna, now Solution bank, a perfect fit for our plans.
Q: However, the Italian npl market almost dried up. Now portfolios are traded mostly on the secondary market. Which kind of businesses do you plan to strengthen?
A: Indeed, the Italian npe market turned very expensive, and related regulations are now quite demanding, particularly in terms of rwa for banks . So, now we aim at strengthening loans to mid sized solid Italian companies, particularly in the Emilia region. That includes companies that exited the turnaround phase asin the case of Officine Maccaferri, and always on a single name base. That fits perfectly Solution Bank’s model. For purposes of that, we are also trying to strengthen our main funding channel, i.e. depositors, by expanding our branch network, at present consisting of nine outlets, all of them in Romagna.
Q: How many new openings do you plan, and where?
A: We think to open up around 2 to 5 branches, but not in Italy’s main cities, like Milan and Rome, because they are already very crowded markets. Instead we will maintain an opportunistic attitude, paying attention to mid-sized towns where banks’ presence is not excessive.
Q: As regards to funding, have you ever thought about bond issues?
A: We do not rule out that option. In the future we may think about it, but at present our depositors’ base is sufficient to meet our funding needs.
Q: I saw also that online deposits are increasing quickly. In 2022 they grew 50% over the previous year. What are you plans for the digital component of Solution Banks business? More in general, which role might fintech play in the bank’s strategy?
A: Fintech is playing an important role as we cemented partnerships that help us to do small loans electronically and we have developed an increased offering in house as well.
Q: Solution Bank closed 2023 with Eur 1,4 billion total assets. Which size do you want to attain?
A: We do not look at size primarily, we care more about profitability. Having said that, we hope to reach between Eur 2 and 3 billion total assets within the next two or three years.
Q: That’s a significant leap forward. How will you hit that target? New branches might not prove sufficient. Do you plan any acquisitions?
A: No, we don’t. We want to achieve that threshold essentially by organic growth, mainly through the reinvestment of our profits.
Q: You mentioned profitability. Solution Bank already scored a significant results, with Eur 23 million pre-tax profit, more than twice the 2022 figure. Are you looking for further improvements?
A: We want to improve on efficiency. In 2023 our cost/income ratio was 44,8%. We want to it to be 40% which is the average for the best in class. And organic growth should continue to drive further profits as well as more investments in new products as well as technology
Q: In order to achieve your targets, do you think an ipo could be an effective option for Solution Bank?
A: It is something we might look at in the future, but the banks needs to be bigger, even from a profitability standpoint. In 2023 we made a net profit of Eur 15 million, which is too small. Also, we need the right market conditions. Once those requirements are met, we will study a listing.
Q: Is Solution looking at additional businesses that might complement its product range?
A: We recently started with leasing, and we are also evaluating entering the factoring market. But we are still at a very early stage.
Q: Aside from Solution Bank, how do you plan to expand your European business?
A: On the banking side, our license allows us to be present in other European countries, so we will look opportunistically at opportunities that might emerge on the market, but at present we do not see any need for that. We are instead focusing on the development of private credit opportunities within our asset management platform. One such initiative is the potential launch of a new European private debt fund with a core focus on Italy that will be managed from our London and Milan offices. One of our predecessor funds, launched in 2018 and now in its harvest period, had great success investing in Asia and Europe, and we will look to replicate that for a new Europe-only focused closed-end fund. Thus far we invested around 275 million dollars in Europe over the past 10 years, achieving a 40% average IRR.
Q: Any precise destination?
A: It’s not specified. However, we will focus on well-performing industrial companies as well as real estate.
