Regulators may be more open to selling failed banks to nontraditional owners — or maybe there are just fewer buyers.
Bond Street Bank's purchase of the $350 million-asset Premier America Bank in Miami on Friday "could signal one of two things, which are both interesting," said Dan Bass, the managing director in the Houston office of Carson Medlin Co.
"Either private equity is bidding more or there are fewer bidders at the table," he said.
More than a year after the Office of the Comptroller of the Currency granted it a shelf charter, a private-equity group — Bond Street Bank is a wholly owned subsidiary of Bond Street Holdings LLC — completed the first purchase of a failed bank using such a charter. Four other shelf charters have been granted, but none has successfully been awarded to a failed bank.
"What's happening here is an education process where private equity and the FDIC and the other bank regulatory agencies are learning about each other and learning how to accommodate each other's needs," said Tom Vartanian, a partner at Fried, Frank, Harris, Shriver & Jacobson LLP.
"Getting a deal like this done where there are private-equity investors and a shelf charter involved will do more for loosening up the environment and making more capital available to the FDIC than anything else," he said.
Private-equity firms have struggled to get regulatory approvals for shelf charters, which require an approval process similar to that for a typical charter. Private-equity buyers either did not want to, or could not, meet higher capital ratios (they wanted higher returns), or were outbid because of their lack of infrastructure.
In August the Federal Deposit Insurance Corp. completed guidelines requiring private-equity purchasers of banks to maintain a 10% Tier 1 leverage ratio. Private-equity bidders have said that the rule is a handicap, preventing them from earning the same returns as other bank investors.
At this time, the FDIC is not disclosing what Bond Street, which was the only bidder, paid in the deal.
In Bond Street's case, it is possible that the organizers tried to get around the rule by organizing the company through a "blind pool," but it is unlikely that this structure would evade the FDIC's requirement, industry watchers said.
Bond Street raised $440 million in capital through a private placement with 65 investors, according to a report from Ralph "Chip" MacDonald, a partner in the Jones Day law firm in Atlanta.
Among the requirements for an OCC shelf charter is experienced management. At Bond Street, Daniel Healy is the chairman and chief executive officer. And he was the chief financial officer of North Fork Bancorp. in New York until its sale to Capital One Financial Corp. in 2006. Other executive team members are Vincent Tese, Les Lieberman, Stuart Oran, Elizabeth Varley Camp, Christopher McDermott and Phillip DeLeonardis, MacDonald's report said.
With that much capital, Bond Street is likely to seek more deals.
"You've got to put that capital to use," MacDonald said. "I am sure they are going to be looking for more. The question is how fast will the FDIC let them start looking for a bank."
An OCC shelf charter is not the only way for investors to buy failed banks without first owning a bank. The Office of Thrift Supervision preclears bidders, and one of these successful bidders is also a North Fork alum.
John Kanas, who was North Fork's chief executive officer, completed a private-equity deal for BankUnited in Florida using the OTS preclearance. IndyMac in Pasadena, Calif., was also acquired by an investor group with OTS preclearance. But after these deals the FDIC laid out guidelines for private-equity investors, which seemed to curtail much of the activity from nonbank bidders.
Observers said the Bond Street deal may be a game changer.
"It's a major indication for the future that they're going to allow basically nonbank players to participate in assisted transaction[s]," said Kip Weissman, a partner at Luse Gorman, a Washington law firm. "That wasn't the case before. I would characterize the earlier deals — like BankUnited and IndyMac — as one-off, ad hoc transactions."
Sanford "Sandy" Brown, a lawyer at Bracewell and Giuliani, said he believes it is an example of regulators' opening the industry to more private-equity money. "It shows a continued thawing of the regulators' — both the Fed and the FDIC — attitudes toward private equity," he said, and this will "bring capital to the industry."
"For all the folks interested in helping resolve this crisis, Friday's deal was good news," Brown said.
Bass said he has heard of shelf charters bidding on failed banks but not bidding high enough to win. It is likely, as more banks win failed banks and digest them, that shelf charters and private-equity players will get their opportunity to come off the sidelines, he said.
He also noted that groups with the resources to pursue more than one deal might be increasing their bids just to get on the scoreboard.