Private equity firms have begun finding their comfort level with regulations on investing in banks.
The biggest recent deal was the July 1 carve-out of First Republic Bank, the San Francisco-based private bank and wealth management firm, from Bank of America Corp., with $1.86 billion in new equity capital from an investor group led by
All told, there were 29 private equity transactions involving financial institutions in the first half of 2010, up slightly from 28 in the first half of 2009, according to the New York investment bank Freeman & Co. The total value of the deals actually fell 11 percent, to $6.5 billion in the first half.
The Federal Deposit Insurance Corp. adopted a policy in August that is largely defining the market today. “It’s not because of a lack of interest,” said Peter Majar, a managing director at Freeman & Co., said of buyout firms. “The FDIC has really made it difficult for them to play.”
Despite the size of the First Republic Bank deal, neither Colony Capital, General Atlantic nor any of “a handful” of other unnamed institutional investors received more than 25 percent ownership of the bank, which would trigger federal bank holding company regulations, a bank spokesman said.
That is shaping up to be the general pattern for private equity investments in banking companies these days, although the “shelf charter,” an approach that seemed to have fallen out of favor with regulators, is showing new signs of life.
Case in point: the June 29 agreement by the struggling TIB Financial Corp. (Nasdaq: TIBB) in Naples, Fla., to sell itself to North American Financial Holdings Inc., for $175 million. NAFH, backed by $900 million from investors including
The $1.7 billion-asset TIB Financial, which has lost money for the past three years amid the collapse of the Florida real estate market, is under a consent order with regulators to raise capital and is facing delisting because its stock price has been below $1 since April. Still, the investors seemed optimistic about the franchise.
“The more we studied TIB, the more impressed we were with its management team, their commitment to their customers and excellent service that has long been a hallmark of the company. TIB has a very solid foundation in its current markets. We intend to build on this platform by expanding the bank’s product line and also through our continued investment in Florida and the greater Southeast,” said R. Eugene Taylor, NAFH’s chairman and chief executive officer, in the press release announcing the agreement.
Taylor, a former vice chairman of Bank of America, is leading a team made up mostly of BofA veterans at NAFH. That banking background is an important consideration to regulators, as is NAFH’s status as a bank holding company. NAFH was chartered last year in Delaware under “shelf charter” rules that gave it BHC status even though it had no actual bank operations. That approach, however, seemed to have fallen out of favor since the FDIC’s policy statement in August.
But then, in another shelf charter deal, the failed Bay National Bank in Baltimore, a $282 million-asset bank that was shuttered by regulators on July 9, reopened as Bay Bank FSB, with backing by
The Hovde Organization, which calls itself an investment banking, asset management and private equity firm focused exclusively on the financial services sector, did not respond by deadline to a request for comment.
Other recent private equity deals for banks have held to the 24.9 percent rule.
The $536.4 million-asset Green Bancorp of Houston, parent of Green Bank N.A., announced June 30 a $100 million capital raise from investors
Manny Mehos, Green Bancorp’s chairman, said that he met with each buyout firm separately, telling peHUB, a sister Web site of Buyouts, that the firms didn’t know of each other’s interest before the deal. They also invested separately. Such conditions were required to satisfy the Federal Reserve, Mehos said. Green Bancorp plans to pursue acquisitions in Austin, where it already has a branch, and in north Texas.
Acquisitions are also on the mind of turnaround legend Wilbur Ross. Sun Bancorp Inc. (Nasdaq: SNBC) of Vineland, N.J., announced July 8 that
Attorney Ralph F. “Chip” MacDonald III, a partner in the financial services practice of law firm Jones Day in Atlanta, said buyout firms have progressively shifted their strategies to try to find ways to invest in banks that will pass muster with regulators.
“There was a lot of focus on failed banks. Now that has shifted to open banks,” MacDonald said. “We’ve seen more public banks get recapped than private banks. That way you can attract the institutional investors that need a liquid security that’s traded.”