Unemployed U.S. bank executives, eager to get back into the business, are raising pools of private capital for a potential wave of bids to buy failed U.S. banks, according to Paul Miller, an analyst at the investment bank
Former senior bank executives “untainted by the crisis” are forming blind pools of cash with the hopes of being able to buy failing U.S. banks, Miller said at Reuters Global Finance Summit last week.
In fact, FBR Capital Markets has worked on two such deals for clients, and Goldman Sachs is reportedly getting into the act to help broker deals, too, as bankers are hoping that the continuing failures of banking companies nationwide force regulators to consider other bidders to absorb the lenders and their losses.
Generally, private equity firms have won just a handful of deals in the current bank failure crisis, because regulators have been hesitant to allow widespread private equity bidders for failed banks.
The most notable of deals includes the purchase of BankUnited, a failed Florida bank, by a consortium of buyout shops that included The
“There’s just not enough good [buyers] to take over all the bad banks,” Miller said. “We’re going to see more of these groups [of ex-bankers] bid right alongside other banks.”
While Miller said the number of bidders will grow as regulators become more comfortable with the idea of private equity groups bidding for failed banks, it’s unclear how many will ultimately take over those institutions.
The FDIC this summer released guidelines for private equity bidders and investors in failed banks. The agency softened its stance after potential investment firms balked at the strict capital requirements and other tough provisions in the original proposal.
Still, many private equity firms say they remain attracted to the sector, seeing the opportunity to turn around troubled institutions at profit.
For its part, FBR Capital Markets says that it has raised two funds for bank management teams bidding on failed banks. The group, based in Atlanta, raised $300 million to buy Macon, Georgia-based Security Bank Corp, which failed on July 24.
The deal allowed the bank, with $2.8 billion in total assets, to continue operations with the private equity capital infusion, and $1.7 billion in loss guarantees from the FDIC.
FBR Capital Markets also completed raising $1.2 billion for the former management team of Philadelphia-based Citizens Financial Corp, as they look to do a similar deal.
Other firms are taking notice.
In late October, various media reports said Goldman Sachs was raising a $1 billion blind pool for a management team led by former Downey Financial Corp CEO Charles Rinehart.
And Miller said rumors persist that former Washington Mutual Chief Executive Kerry Killinger is raising a fund. Washington Mutual (WaMu) was the nation’s largest thrift, but failed in 2008 as the largest U.S. bank collapse in history after betting heavily on subprime mortgage lending.
In late 2008, JPMorgan Chase & Co. acquired much of the assets and liabilities of WaMu from the FDIC for $1.9 billion. The disintegration of WaMu is a big blow for private equity firm
Even if the blind pools raised by former banking executives don’t emerge as a big contender for failed banks, Miller said that the return of some of these bankers to the industry is inevitable.
“All these guys losing jobs today will come back in some form three years from now,” Miller said. ‚Bankers don’t go away. They just morph themselves into something else because it’s all they know how to do.”
Alastair Goldfisher of PE Week contributed to this article.