A Good Bank/Bad Bank Deal Is Hard To Find

BankAtlantic Bancorp is just the latest Florida lender to learn that selling only the good parts of a damaged franchise is easier said than done.

A judge on Monday blocked the Fort Lauderdale company's agreement to sell its thrift — minus $600 million of problem loans — to BB&T Corp. Two other carve-out deals have run into trouble.

First Guaranty Bank & Trust Corp.'s agreement in November to sell its trust unit and seven of its eight Jacksonville branches to CertusBank NA in Greenville, S.C., unraveled in January, when First Guaranty was closed by regulators and sold to CenterState Bank of Florida NA.

The third deal has been in limbo for more than a year. Prosperity Banking Co. of St. Augustine in September 2010 agreed to raise $80 million by selling a majority stake in its 18-branch operating unit, Prosperity Bank, to Patriot Financial Partners LP. The Federal Reserve Bank of Atlanta, which has to sign off on it, has not yet received an application, an Atlanta Fed spokeswoman said. Prosperity Chief Executive Eddie Creamer did not return a call for comment, and neither did executives with the private equity firm.

All three transactions are a variation of the so-called good bank/bad bank approach, which involves separating the healthy and toxic parts of a franchise. The junk is quarantined at the bad bank, and then all or part of the clean bank is sold to new investors. The Depression-era concept works, even though these three deals may not have, experts say.

"Those are very difficult deals to get done," said Ben Bishop, chairman of Allen C. Ewing & Co., a Jacksonville investment bank that specializes in bank transactions. "The creativity is out there, and people should continue to try and come up with something that will work."

There is at least one good bank/bad bank deal in the marketplace that is still proceeding without a hitch, experts say. Sterling Financial Corp. in Spokane, Wash., agreed in November to pay as much as $25 million for First Independent Investment Group's savings bank in Vancouver, Wash.

First Independent — tightly controlled by a single family — does not have the regulatory or ownership issues plaguing the other deals, experts say. It also is not a private equity deal, which regulators are notoriously slow and reluctant to green-light.

BankAtlantic has a stakeholder problem. Its deal fell apart because bondholders said BB&T is obligated to assume its debts as well as its deposits and branches. The Delaware Court of Chancery agreed and blocked the transaction.

First Guaranty had regulatory trouble. It wanted to keep its bank charter and sell most of its assets and branches while it worked through what remained on its balance sheet.

Its branch deal with CertusBank was pending before the Office of the Comptroller of the Currency when state banking regulators — worried about its low capital — decided to place it into receivership, said Rajid Das, CEO of Lexington Park Group, First Guaranty's financial advisor in the CertusBank deal.

He credits the failure of the deal to regulatory jitters over the uncertain future Florida real estate.

"No one can really bet that Florida markets are going to improve next year," he said. "It should, but no one wants to take that bet. …So I think that fear is echoed in the halls of Washington as well in the marketplace."