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Moelis, Carlyle Target Live Banks As FDIC Deters Duds

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  • 1. June 24, 2010 | businessweek.com Moelis, Carlyle TargeT live Banks as FDiC DeTers DuDs B uyout firms thwarted by regulators and forgo fees they charge for managing management revamp from taking over failed banks have and selling assets. The investments could found a solution: Acquire lenders also defray costs to the FDIC insurance One advantage of funneling initial invest- that are still in business. fund, making it less likely the agency ments into open banks is that quality Moelis Capital Partners LLC, Thomas would have to increase its levy on banks managers remain while poor manage- H. Lee Partners LP and the Carlyle Group or draw on the U.S. Treasury Depart- ment teams are removed, Michael Krim- are among firms that agreed to buy ment’s $500 billion credit line. In the past minger, a special adviser for policy at the stakes in at least five U.S. banks since 13 months, the FDIC has levied a special FDIC, said in a June 11 interview. April. While most are small, with assets of assessment and asked banks to prepay “The FDIC doesn’t have to worry about less than $1 billion, their status as banks three years worth of fees. whether an open bank can hit the ground means they can buy more distressed running,” Patricia McCoy, who teaches lenders that can be merged and sold later Bonderman erased banking and securities regulation at the — a tactic that made some private-equity University of Connecticut Law School in investors billionaires in the 1990s. Buyout firms got a warning about the Hartford. Buyout firms are changing targets in risks of taking stakes in operating banks Among recent transactions, Angelo part because the Federal Deposit Insur- after David Bonderman’s TPG invested Gordon & Co., the New York-based firm ance Corp. is reluctant to let them control in Washington Mutual Inc. in 2008, only that raised $1.1 billion to invest in dis- collapsed banks on concern they’ll take to get wiped out, losing $1.3 billion, five tressed firms, asked regulators for on too much risk with insured deposits. months later in the biggest banking permission to invest in Georgia’s Hamil- Even as banks failed this year at the fast- failure in U.S. history. WaMu was later ton State Bancshares Inc. Hamilton, with est pace since 1992, the agency awarded acquired by JPMorgan Chase & Co. After deposits of $227 million at six branches, private investors just two of the 83 lend- that, the buyout firms tried to buy failed plans to use a portion of the private- eq- ers that it shuttered. The rest were sold lenders and persuade the FDIC to share uity money to buy “failed or distressed to banks that already had charters and losses on loans, something the agency depository institutions,” according to a track records. has agreed to do in acquisitions by banks. statement. “Private-equity firms are interested in Sheila Bair’s FDIC did allow a group in- At Patriot Financial Partners, a Phil- open-bank deals out of frustration,” said cluding Carlyle and the Blackstone Group adelphia-based firm scouting for open Konrad Alt, a San Francisco-based con- LP to buy the failed BankUnited Financial banks, the aim is “to find good manage- sultant at Promontory Financial Group Corp. last May and inject $900 million. ment teams in markets where they can who was a regulator at the Office of the The regulator deterred more purchases grow,” managing partner Kirk Wycoff said Comptroller of the Currency from 1993 by requiring private-equity firms to main- in a June 11 interview. through 1996. “They are anxious about tain higher capital ratios and prohibiting missing their opportunity.” sales of banks for at least three years. gerald Ford’s Investment Bank deals offer a chance for private- The only private investor that navigated equity firms that must spend about $500 the process this year was Bond Street “By providing banks with additional billion in unused capital or risk being Holdings LLC, which bought two failed private capital, we can help them resolve forced to return the funds to investors Florida banks in January. loans and take advantage of consolida-
  • 2. tion opportunities,” said Wycoff, whose $134.7 million for a stake in Sterling The operating-bank transactions mean firm is backed by Philadelphia real estate Financial Corp., a Spokane, Washington- “there is less reliance on the loss-sharing investor Ira Lubert. based lender. Funds backed by Carlyle arrangements from the FDIC,” said Jay After bidding unsuccessfully on several and Anchorage Advisors LLC agreed last Langan, who leads Deloitte & Touche lenders seized by the FDIC, billionaire month to buy about 46 percent of Nor- LLP’s financial services merger & acquisi- investor Gerald J. Ford decided in April folk, Virginia- based Hampton Roads. tion group. to invest $500 million in Pacific Capital Regulators are less likely to oppose Bancorp, a money- losing lender with treasury approval investor windfalls as long as government 48 branches based in Santa Barbara, asset guarantees aren’t involved, said California. In at least three cases, the shift in tactics Steven Kaplan, a finance professor at the Moelis Capital Partners LLC, the requires approval from the Treasury, University of Chicago’s Booth School of private-equity arm of Kenneth Moelis’s which owns stakes in small banks Business. “It’s much less likely to be politi- boutique investment bank, applied to through its injection of U.S. bailout funds. cally perilous,” he said. buy a stake in Opportunity Bank, a Texas Capital infusions for Pacific Capital, lender with assets of $64 million, accord- Hampton Roads and Sterling are all con- ing to the Federal Reserve’s website. tingent on the government writing down By Dakin Campbell and In May, THL Partners agreed to pay its investment. Jonathan Keehner Posted from Bloomberg Businessweek, June 24, 2010, copyright by Bloomberg L.P. with all rights reserved. This reprint implies no endorsement, either tacit or expressed, of any company, product, service or investment opportunity. #1-27847073 Managed by The YGS Group, 717.505.9701. For more information visit www.theYGSgroup.com/reprints.