US moves to spur bank buy-outs
By Henny Sender and Francesco Guerrera in New York
Published: June 12 2009 23:30 | Last updated: June 12 2009 23:30
US financial regulators are drawing up new rules to facilitate private equity acquisitions of troubled banks in an effort to unlock tens of billions of dollars that could be deployed to recapitalise ailing lenders.
People close to the situation said the plan, which has yet to be finalised and could still change, might require private equity companies to inject substantial capital into troubled lenders and agree not to sell them for at least two years.
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Buy-out funds wanting to buy a troubled bank would have to reveal their performance measures and marketing materials to allay fears that they might use the banks to subsidise other companies in their portfolio.
Regulators are looking for “a long-term financial commitment to banks and not just a quick flip”, said a person familiar with the thinking in Washington.
Buy-out executives say private equity companies are one of the few sources of capital for troubled banks, with some analysts calculating that as much as $50bn could come from these investment companies to recapitalise banks.
Private equity groups have long sought to invest in banks, especially failed ones that can be acquired from regulators at a cut price, often with financial help from the state. But the authorities have traditionally preferred selling troubled financial groups to other banks because of concerns over conflicts of interest created by buy-out funds’ ownership of banks. The Federal Reserve has limited private equity groups to bank stakes of less than 25 per cent.
But the latest crisis has prompted regulators to take a softer stance. The authorities have been concerned that the widespread problems among banks would cause a shortage of buyers for expected failures among regional lenders.
People familiar with the situation said the Federal Deposit Insurance Corporation, the regulator charged with taking over failed lenders, was taking the lead in drawing up the new rules. The FDIC board, which also includes representatives from other banking regulators, is expected to discuss the matter in the next few weeks.
In the banking crisis of the 1980s and early 1990s, regional banks were active acquirers of troubled peers. But in this cycle, plagued by the same problems as smaller rivals, they are more likely to be prey than predator.
Private equity companies’ appetite for investments in the financial sector has been augmented by the credit crunch and the general lack of attractive investment opportunities in other sectors.
There have been two deals where a consortium of funds combined to buy either a bank (Florida’s BankUnited) or the assets of a bank (California’s IndyMac) from the FDIC. But those deals were struck under the old rules and required the participation of several groups to comply with Fed rules.
Meanwhile, some private equity companies, such as Fortress Investment Group, have bought small banks that are relatively healthy rather than try to buy a bank from either the FDIC or the Office of Thrift Supervision, another regulator. |
