Moelis, Carlyle Target Live Banks As FDIC Deters Duds
June 24, 2010 | businessweek.com
TargeT live Banks as
FDiC DeTers DuDs
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-
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
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