NEW YORK (Reuters) - Billionaire investor Wilbur Ross plans to invest further in banks, but new capital requirements for private equity investment in the sector are still too tight, he said on Thursday.
The Federal Deposit Insurance Corp decision on Wednesday to set new private equity capital requirements for bank takeovers will suppress how much he is willing to pay for the assets of failed banks, Ross said in an interview with Reuters Television.
The FDIC decided to set a Tier 1 common equity ratio at 10 percent rather than the 15 percent previously proposed. Ross would have preferred a ratio of 7.5 percent.
“We will now be able to be a bidder, whereas at the 15 percent capital level it would have been ridiculous ... We’ll be in the game, but not as aggressively as we had been,” Ross said.
He said an equity ratio of 7.5 percent would still be 50 percent more than a typical bank must have to be well capitalized, and would reduce the capital required to buy a bank while also improving returns. At 10 percent, returns are about one-third less than at 7.5 percent, he said.
Ross said he is particularly interested in the Sun Belt states, including Florida, Arizona, Texas and potentially Nevada, where retail deposits are strong.
“A bank with real customers, that’s what we want. And a lot of those happen to be in the Sun Belt states,” he said.
Ross, who runs WL Ross & Co, said that of the $450 billion in unused funds held by private equity investors, “potentially a major portion of $100 billion” may to go toward the banking sector.
Later, Ross told Reuters that lender CIT Group, which has raised cash in recent months but has warned it may have to file for bankruptcy, has a number of attractive operations for potential buyers.
For instance, CIT’s “factoring” business is strong, he said. Factoring is a type of lending to smaller companies who need credit related to shipping goods.
Asked about the possibility of GE Capital being spun off as a bank, as some analysts have suggested, Ross said it would take a consortium to buy it due to its size and complexity. GE Capital is the financing unit of General Electric Co.
In the Reuters Television interview, Ross said the commercial real estate market is the next area for distressed investing. WL Ross is part of the Public-Private Investment Program that has been designated by the government for that sector, and it plans to invest there, he said..
“That’s going to be the next time bomb that puts a lot of people under,” he said.
Commercial real estate will probably not bottom out until at least 2011, he said, adding that the market has not fully appreciated the crisis in that sector.
“You have a combination of less cash flow and a lower multiple being put on cash flow. That all adds up to a collapse,” he said.
Ross is known for restructuring failed companies, particularly in the steel industry, where he negotiated a deal with the unions that many said saved the International Steel Group. He established his investment firm, WL Ross & Co, in 2000.
The video interview is available here
Reporting by Dan Burns and Caroline Humer; editing by John Wallace