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Southern Cross links exposed with Qatar, RBS & Goldman Sachs

The story behind Southern Cross that is slowly being exposed gets worse by the hour. We now know from research by the GMB, which represents nearly 11,000 staff employed by Southern Cross, that up to half of the properties at the 753 care homes were acquired by a company called NHP, of which the ultimate parent company is Delta Commercial Property. This is a company owned by the Qatar Investment Authority (QIA) and is registered in the Isle of Man. The financial returns for this company are consolidated within Libra No.2 Ltd, incorporated and registered in the Cayman Islands. Other corporate shareholders over the last decade have as their ultimate holding company RBS, Bank of New York, Barclays, JP Morgan Chase, Citigroup, Goldman Sachs, HSBC, Lloyds, Bank of America, Morgan Stanley, and Royal Bank of Canada – a rollcall of many of the world’s biggest banks.

When Blackstone floated Southern Cross in 2006 and sold its remaining share in early 2007, it made a profit of at least £600m, though The Times claims it made a total £2bn out of the deal. The float also enabled senior executives in Southern Cross personally to hit the jackpot and become instant millionaires. The chief executive pocketed nearly £13m, the group operations director £12m, and the group finance director £9m.

After private equity and the top management had cleaned up on the assets of the company when the share price hit its peak of £6.06 in November 2007, the share value shortly after fell off a cliff in the next 6 months down to 78p, from which it has never recovered (it is now just 6.3p). This collapse has been made worse by the sky-high rents charged by 80 landlords who own the freeholds – GMB estimates they are at least £100m more per year than market-clearing levels. Moreover there is continuing tax avoidance on the income from those rents as the funds are channelled to off-shore tax havens. Thus the public funds intended to pay for the care of 31,000 frail and elderly residents in Southern Cross care homes are in fact being used to pay the interest on the £1.1bn bonds raised by the Qatar Investment Authority when they bought the care home buildings from the private equity company in 2006.

Now the financial engineers have cleaned up and the greedy and gullible investors who followed them have been panned, the residents, many in their 90s, are left insecure and helpless as market forces play out. There could not be a more telling demonstration of why the market, and in particular private equity, is totally unfitted to social care as well as health and other vital services. And what has the government done about this since the warnings of impending collapse first appeared 3 months ago? Nothing. If government can afford over £700bn bailing out the banks, it can certainly afford a miniscule proportion of that sum funding local authorities to take over and run any failed Southern Cross homes. That is the issue at the heart of this matter: are the workings of the market paramount or the safety and seuvival of 31,000 helpless old people?

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