Some ex-bank execs want into FDIC auctions

NEW YORK Wed Nov 18, 2009 5:35pm EST

NEW YORK (Reuters) - Unemployed U.S. bank executives, eager to get back into the business, are raising pools of private capital for a potential wave of bids for failed U.S. banks, FBR Capital Markets leading analyst said on Wednesday.

Former senior bank executives "untainted by the crisis" are forming "blind pools" of cash with the hopes of being able to buy failing U.S. banks, said Paul Miller, FBR Capital Markets analyst at Reuters Global Finance Summit.

Miller's firm FBR has done two such deals, and Goldman Sachs (GS.N) is reportedly getting into the business as well, as bankers are hoping the continuing failures force regulators to consider other bidders to absorb the lenders and their losses.

Generally, private equity groups have won few deals in the current bank failure crisis, because regulators have been hesitant to allow widespread private equity bidders for failed banks.

"There's just not enough good banks to take over all the bad banks," he said. "We're going to see more of these groups bid right alongside other banks."

While Miller said the number of bidders will grow as regulators become more comfortable with the idea of private equity groups bidding for failed banks, its unclear how many will ultimately take over those institutions.

TAKING NOTICE

The Federal Deposit Insurance Corp this summer released guidelines for private equity bidders and investors in failed banks.

The agency softened its finalized guidance after potential investors balked at the strict capital requirements and other tough provisions in the original proposal.

FBR Capital Markets has raised two funds for bank management teams bidding on failed banks, including the first one in the United States.

The group, based in Atlanta, raised $300 million to buy Macon, Georgia-based Security Bank Corp, which failed on July 24.

The deal allowed the bank, with $2.8 billion in total assets, to continue operations with the private equity capital infusion, and $1.7 billion in loss guarantees from the Federal Deposit Insurance Corp.

Miller's firm also completed raising $1.2 billion for the former management team of Philadelphia-based Citizens Financial Corp, as they look to do a similar deal.

Other firms are taking notice.

In late October, various media reports said Goldman Sachs Group Inc was raising a $1 billion blind pool for a management team led by former Downey Financial Corp CEO Charles Rinehart.

And Miller said rumors persist that former Washington Mutual Chief Executive Kerry Killinger is raising a fund. Washington Mutual was the nation's largest thrift, but failed in 2008 as the biggest U.S. bank collapse in history after betting heavily on subprime mortgage lending.

But widespread private equity buyouts may continue to be a rarity, with only three high profile private equity buyouts of failed banks so far.

Even if the blind pools don't emerge as a big contender for failed banks, Miller said the return of some of these former executives to the industry is inevitable.

"All these guys losing jobs today will come back in some form three years from now," Miller said. "Bankers don't go away. They just morph themselves into something else because it's all they know how to do."

(Reporting by Joe Rauch; Editing by Phil Berlowitz)