Banker sees U.S. failed bank tally hitting 1,000

WASHINGTON (Reuters) - About 1,000 U.S. banks could fail as a result of the recent banking crisis that saddled financial institutions with large portfolios of bad loans, a leading investment banking executive said on Thursday.

James Dunne, senior managing principal of Sandler O’Neill, said 300 to 400 banks could be seized this year, especially as institutions start to deal with deteriorating commercial real estate loans.

“This is going to be a very slow recovery,” Dunne said in an interview with Reuters.

Regulators have seized 185 banks since January 2008. The Federal Deposit Insurance Corp has said the pace of failures is expected to peak this year.

The agency said earlier this week that its “problem” bank list jumped 27 percent during the fourth quarter to 702.

Historically, less than 15 percent of the banks on that list end up failing.

Dunne said the FDIC was doing everything it could to attract responsible investors for troubled banks, including private equity groups.

Dunne said he disagreed with David Bonderman, co-founder of giant private equity firm TPG TPG.UL, who said earlier on Thursday that the FDIC's rules on private equity investment in troubled banks was scaring off potential investors.

Bonderman, speaking at a conference in North Carolina, said the FDIC was “terrified of private equity guys” and that its rules were accelerating the pace of bank failures.

Dunne, whose firm undertakes capital-raisings and advises banks on FDIC-related transactions, said FDIC Chairman Sheila Bair welcomed investment as long as it came with a solid management team for the bank and deep funding.

“I’ve met personally with the FDIC chairman three times in the last several months. She is open, interested and very well informed in looking for any methodology to raise capital,” Dunne said.

Dunne said the FDIC was also being creative. It was not just looking at private equity groups but also at pension funds as sources of investment for troubled banks, he said.

Dunne said concerns about ownership limits that restricted private equity investments were more related to the Federal Reserve, which requires that institutions holding more than a certain percentage of a bank’s voting shares be subject to stiff bank holding company regulations.

In August, the FDIC imposed new rules on private equity investment in troubled banks.

They were softened from an original proposal that investors said would scare the industry away from failed bank assets.

The rules, which include high capital requirements and long-term investments, are designed to ensure that private equity groups are interested in nursing the banks back to health and not just taking advantage of their assets.

The FDIC has been having ongoing discussions with private equity groups since putting the rules in place and has said it is considering whether any further actions are appropriate.

Reporting by Karey Wutkowski; Editing by Ted Kerr