Another PE Firm Sniffing Around Troubled Banks

A couple of days ago, the FDIC approved the acquisition of Bank United by a private equity consortium. At that time I wrote a post noting that the agency was making policy without debate. It now appears that the signals were plain enough. Another group is circling around an ailing Florida bank.

From the WSJ:

A trio of private-equity firms is close to acquiring First Southern Bank, a small bank in Boca Raton, Fla., according to people familiar with the situation.

New York-based private-equity firms Lightyear Capital LLC, Crestview Partners LP and Fortress Investment Group LLC are leading a group that would inject $800 million in fresh capital into the bank, which has about $400 million in assets. The investment is expected to give First Southern, which has a relatively clean balance sheet, a capital base from which to make acquisitions of ailing Florida financial institutions.

The group is expected to name as chief executive Gene Taylor, a former vice chairman of Bank of America Corp. who joined Fortress last year.

The three main buyers would invest $450 million in equal amounts, with no stake exceeding 24.9%, the federal limit on private ownership of banks. Investment bank KBW Inc., which is advising on the sale, is raising another $350 million from outside investors, according to people familiar with the deal.

At the time of the Bank United acquisition a lot of the commentary centered around the idea that PE was buying with an intent to cash in when the industry recovered. I disagreed and continue to do so. PE looks at these investments as their entree to cheap financing (refer to the previous post). 

I will repeat my previous objection to this course of action. If the government wants to go against decades of policy that rightly (in my opinion) placed banking off-limits to commercial enterprises then they should publically make their case for doing so. There were valid reasons for not doing this in the past. Step forward and tell us why it’s a good idea now.

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