Analysis: Florida banks pruning branches to stay afloat

BANGALORE (Reuters) - U.S. regional banks with big exposure to Florida will find it tough to attract investors as the Sunshine State faces a cloudy economic future with a battered real estate market and an oil-spill-scarred tourism industry.

Florida has had the most bank failures this year, 20 of the 106 shut by the Federal Deposit Insurance Corp (FDIC), while at least 10 percent of all banks in the state are far from meeting their regulatory capital requirements.

Given their current state of affairs, most banks could find it hard to raise money directly from the equity or debt markets, forcing them to sell assets on the fly to escape the regulator's noose.

"Capital raising in Florida was tough before because of the economy and real estate, the oil spill just made it worse," said Shaun Dalton, a Florida-based investment banker.

Tourism is Florida's largest industry: more than 80 million visitors a year spend $60 billion, bring in more than a fifth of all state sales taxes and help employ nearly 1 million people.

The Gulf oil spill, however, threatens to bring down Florida's tourism industry, triggering more defaults among commercial real estate borrowers, who have seen their incomes plunge due to weak tourist traffic.

At least two banks operating in Florida have already put their assets on the block, and analysts believe more may follow.

In March, Encore Bancshares (EBTX.O), which had last year reported nearly 90 percent of its total charge-offs from Florida, put its operations up for sale, and BankAtlantic Bancorp (BBX.N), the biggest home-bred lender, said this month it would pare back its Florida exposure by selling branches to focus on better performing markets in the region.

"I think these banks will do what they can to raise capital because access to public equity markets is pretty tough at this point," said Raymond James analyst Michael Rose. "One option is definitely to sell assets of the business ... that would include branch sales."

Synovus (SNV.N), which currently has about 8 percent of its non-performing loans in the Florida panhandle, said it would be closely monitoring the rest of its $1.17 billion loan portfolio in the region given the weak economic condition of the state.

BUYERS' MARKET

Most banks in the state are finding it difficult to dispose of assets even at bargain prices as there are not many willing to bet on a possible near-term recovery.

"Florida has got bad unemployment and over-building and that would have been there without the oil spill, but the spill probably accelerated it on the margin," said Jack Micenko, an analyst with Susquehanna.

Micenko, however, sees long-term investors like venture funds and private equity players showing interest in buying distressed assets in the hope that values might creep up in future.

"It's a discount bid. People aren't saying they want to be in Florida, they're saying they want the paper at 25 cents on the dollar, hoping they can get 50 cents down the road," he said.

For some of the stronger banks in the state, a regulator-brokered deal could be a lure to buy distressed assets and bet on the recovery prospects of a state long considered a retirement haven for the rapidly aging baby boomer generation.

The better placed lenders such as Iberiabank Corp IBNK.O, CentreState Banks Inc (CSFL.O), Home Bancshares (HOMB.O) and Canada's TD Bank (TD.TO) are among those who have bought the state's failed banks and are scouting for more.

"Although the economy is bad, it might make sense for some stronger players to lay their hand on these assets and look to gain the most when the economy recovers, whenever that happens," said Bain Slack, analyst at Keefe, Bruyette & Woods.

(Reporting by Jochelle Mendonca and Anurag Kotoky in Bangalore, Editing by Ian Geoghegan)