Buyout shops eye U.S. banks but wary of regulators

By Paritosh Bansal

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: Quote, Profile, Research, Stock Buzz) and National City Corp (NCC.N: Quote, Profile, Research, Stock Buzz) 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.