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Private equity fixed Pacific Capital and has agreed to sell it to UnionBanCal for a healthy price in a slow M&A market. There could have been more deals like this had regulators embraced PE.
March 12 -
The community banking sector is starving for capital, and yet debate is dominated by complaints about regulatory burden. Instead, banks need to push regulators to let private equity investors assist small institutions.
December 14 -
Private equity investor Wilbur Ross will zero in on Europe for big deals. Meanwhile, the U.S. banks he has invested in will be busy buying small banks in their regions, he says.
October 2
Washington is squeezing small banks and chasing off the private equity investors who could help them, financier Wilbur Ross says.
"Bureaucrats fear private equity players as slippery, clever sharpies and are far more comfortable regulating commercial bankers," he said Monday at American Banker's M&A Symposium in New York. Federal banking regulators "clearly restrict private equity more than other owners of banks."
As a result Ross, 74, whose WL Ross & Co. bought large stakes in a handful of U.S. banks after the financial meltdown, has cast his attention to Europe. Regulators there are more welcoming than their U.S. counterparts to buyout specialists interested in bank deals, he says.
Though BankUnited (BKU), Sun Bancorp (SNBC) and other U.S. lenders his firm owns stakes in
Ross called out three U.S. regulators by name, saying the Federal Reserve Board, the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp. have imposed too many unfair restrictions on bank investments by firms such as his. Private equity funds raise money from pension funds and institutional investors to buy companies and sell them at a profit years later.
He gave seven examples of limits that, he says, discriminate against firms like his. Among them: private equity investors have to hold their bank investments for three years, provide more capital (10% of Tier 1 capital) than start-ups
As a private equity investor, Ross says, he cannot take out a loan from BankUnited and is not allowed to deposit more than $500,000 there even though typical bank board members face no such restrictions.
"What justifies these draconian rules?" Ross asked. Critics argue that private equity investors will prompt banks to take more risks, sell their stakes in a few years and lack banking expertise, he says. He challenged those notions, arguing that a bank's capital will remain after its investors are gone and that career bankers caused the financial crisis.
"There is no objective basis for these constraints," he says.
Private equity-investment in banks so far in 2012 has fallen more than 80% year over year, to about $200 million, Ross says.
As private investors once eager to bankroll the sector have fled, banking reforms will make unprofitable many of the 6,700 U.S. banks with $1 billion of assets or fewer -- about 91% of the country's banks, Ross says. A lot of banks that will be forced to sell for cheap.
"Gone are the days when such institutions sold at premiums" to their equity, Ross says.
Europe's banking industry lacks many of the restrictions to private equity that the U.S. has but it is not free of complications for investors, Ross says.
European banks rely on much more short-term funding than U.S. banks in part because their comparatively outsized shares of their local economies mean they cannot rely solely on depositors. European bankers' tendency to stay at one company for the bulk of their careers also makes it difficult to find good talent to staff acquired banks, he says.
WL Ross has been talking for 18 months with various Spanish banks, Ross says.
The financial crisis there may not reach its apex for another year, as massive amounts of homes built for tourists plummet in value when people there realize that foreign buyers are not coming back and most natives cannot afford all those homes, he says.
