Buyout shops eye U.S. banks but wary of regulators
NEW YORK (Reuters) - Private equity firms are searching for ways to invest in U.S. banks and thrifts while avoiding restrictions that bar owners of these institutions from other businesses.
As bank stocks sink and leveraged buyouts deals dry up amid the global credit crunch, private equity firms are eyeing investments in the financial sector. Financial institutions globally have raised more than $250 billion of capital to offset massive credit losses and are likely to need more.
Last month, Washington Mutual Inc WM.N and National City Corp NCC.N each raised $7 billion, including minority investments from buyout firms.
But big investments from private equity have been few. A controlling stake in a bank or thrift brings with it regulatory oversight, capital requirements and restrictions on the nature and scope of businesses activities.
Loath to give in to such oversight but attracted to the sector, private equity shops are exploring various deal structures that would allow them to make larger investments in banks and thrifts -- and even own some -- without the whole firm coming under regulatory purview.
"The issue they are dealing with is making sure they can get a large enough investment, have influence on the company, but work within the construct of the regulatory regime," said Brian Sterling, co-head of the investment banking group of Sandler O'Neill. "It's hard to do."
EXPLORING OPTIONS
Private equity firms are looking at buying stakes in banks and thrifts, although they are also talking about working together to buy these institutions in their entirety, said Neil Carragher, a managing director at Credit Suisse.
"Really, the last time private equity firms looked at banks seriously was at the last major credit crunch," Carragher said, referring to the savings-and-loan meltdown of the late 1980s and early 1990s. "A lot of them see this as an opportunity to do it again."
The KBW Bank Index .BKX is down roughly 36 percent since the beginning of 2007.
Castle Creek Capital, a private equity firm that became a bank holding company in 1995, has been approached by other buyout shops looking to invest in banks, as well as institutions looking to raise funds.
"We have had numerous discussions with most of the high-profile private equity firms in the country on how we might work in partnership," said co-founder William Ruh. "So Castle Creek can be the bank holding company and they can be investors alongside of us."
"We do have some ability to potentially structure investments that are permissible by the Federal Reserve and also something that would still allow the private equity firm to have a voice in the outcome of their investment," Ruh said.
Private equity firms typically look to take majority control of their investments so they can decide how to exit.
Castle Creek primarily invests in U.S. banks with assets between $100 million to $5 billion, and an expert said private equity is likely to become more active in that area. Continued...
