-
Weak community banks will have to give in and start selling in greater numbers next year, two executives of acquisitive banks predict.
November 30 -
Three banking industry veterans are launching a hedge fund that will invest in small and mid-sized banks that are ripe for consolidation.
November 30 -
Though executives at many private-equity firms continue to raise capital and scout opportunities, few have emerged victorious in the bidding for failed institutions in recent months.
June 23
Some people see just what they want to see, and that includes the growing list of ex-bankers with ties to buyout funds.
In their case, they are hoping for a rebound in private-equity-led bank acquisitions, never mind that the avalanche expected this year never materialized.
Following the line of thinking that smaller institutions are under increasing pressure to sell, several former bank executives have joined or formed funds looking to invest heavily in community banks.
Philip Sherringham, the former chief executive of People's United Financial Inc. in Bridgeport, Conn., is the latest to jump on the bandwagon. Sherringham, who was forced out at the $27.2 billion-asset company in April 2010, said he considered management opportunities at other banks but thought an investment fund offered more opportunity for growth.
"The banking sector has been so maligned, and nothing stays down forever," Sherringham said in an interview Friday. "At some point it will turn up."
Sherringham has teamed up with Mark B. Cohen, formerly of Stifel, Nicolaus & Co., and longtime bank investor Anton Schutz to launch the New Ground Capital fund to invest specifically in smaller banks.
"If the Europeans finally get their act together and come up with a solution, that will at least appease the market," Sherringham said. "Combined with the fact that a double dip is not likely to be realized, suddenly, you could have a complete change in tone and the equity markets could rally" next year, he said.
A number of industry observers are more circumspect. Conditions are not ideal for private-equity funds to make a splash in banking, said Damon DelMonte, an analyst at KBW Inc.'s Keefe, Bruyette & Woods. "Sellers still have too lofty of expectations and buyers' valuations are depressed as well," he said.
Several reasons could delay a rebound in bank consolidation, ranging from a reluctance by regulators to approve private-equity investment to sellers having unrealistic price expectations.
Further, the terms for buying failed banks through the Federal Deposit Insurance Corp. have become less favorable, making such an option less appealing for value-minded investment funds.
"The private-equity slant was, you had a unique opportunity with FDIC failures where you could buy a troubled institution on the cheap," DelMonte said. "That unique investment opportunity has come and gone."
Other factors point to the banking sector being ripe for consolidation, Sherringham said, and he predicts there will be thousands fewer banks within five years.
"Everyone recognizes that this is going to happen. The question is, how can you take advantage of it as an investor?" said Sherringham, who was born in Paris, spent most of his life in California and lives in Fairfield, Conn.
Other bankers agree. Very low interest rates and skyrocketing regulatory costs are taking their toll on smaller banks, making a sale more appealing, said J. Gregory Seibly, the CEO at Sterling Financial Corp. in Spokane, Wash., during an investor conference last week hosted by FBR & Co.
The market has not been completely void of private-equity investments in bank. Corsair Capital LLC in March invested $380 million in the $7.2 billion-asset United Community Banks Inc. of Blairsville, Ga. The same month, Prairie Capital LP participated in a $25 million investment in the $4.5 billion-asset Taylor Capital Group Inc. of Chicago.
That so many former bankers are now associated with investment funds with stakes in community banks suggests that more investments are on the way.
Ken Thompson, ousted as the chairman and CEO of Wachovia Corp. in early 2008, is an advisor to Aquiline Capital Partners LLC, which owns a stake in $2.2 billion-asset BNC Bancorp of High Point, N.C. Thompson is also a BNC director.
Jim Hance, a former chief financial officer at Bank of America Corp., is a senior advisor at Carlyle Group, which owns stakes in several banks, including the $2.4 billion-asset Hampton Roads Bankshares Inc. in Norfolk, Va.
James Lockhart, a former director of Federal Housing Finance Agency, is vice chairman of WL Ross & Co., which has minority stakes in Sun Bancorp in Vineland, N.J.; Cascade Bancorp in Bend, Ore.; and BankUnited Inc. of Miami Lakes, Fla. John Kanas, a former chairman and CEO of North Fork Bancorp., is BankUnited's CEO.
David Coulter, another former bank CEO, is associated with Warburg Pincus LLC, an investor in National Penn Bancshares Inc. in Boyertown, Pa., and Sterling Financial.
