Four Wachovia Corp. veterans plan to build a major regional bank in the Carolinas and Virginia, and are putting a twist on the strategy similar groups are using.
Rather than seeking private-equity funds to buy failed banks, the Wachovia group — which includes Leslie M. "Bud" Baker Jr. — is eyeing an initial public stock offering to finance the acquisition of operating institutions.
"That is very different from the model most of the start-ups have been focusing on," said Steven Reider, the president of Bancography, a bank consulting firm in Birmingham, Ala.
The group is partnering with the $475 million-asset Park Sterling Bank in Charlotte, and plans to raise $400 million from the IPO. They will use that capital to buy banks in North Carolina, South Carolina and Virginia that are healthy but that may have suffered with the economy and be stretched for capital. The goal: an $8 billion to $10 billion-asset bank over the next five years. But even as the bank grows, the strategy is to provide community bank-style customer service.
"In times of change there are usually great opportunities," James C. Cherry, a former regional chief executive officer with Wachovia, said in an interview. "There are a number of banks trying to figure out what their future may look like that might be excited about building a bank centered around those values. I can't think of a better time than a time when many are trying to figure that out and we can provide a solution."
If they win regulatory approval and raise the capital, Cherry would become Park Sterling's CEO. Baker, who retired as chairman of Wachovia in 2003, would become chairman of the board. The two other Wachovia veterans are David L. Gaines, who would be the chief financial officer, and Leonard R. Robinett Jr., who would head corporate development.
Several investor groups recently have announced plans to buy a small bank, add capital and use it as a platform to buy failed banks.
One Main Street LLC, an investment fund led by veteran bankers, agreed to acquire the $15 million-asset Liberty Bank in Salt Lake City, and has targeted its initial capitalization at $300 million. And former executives of Hibernia Bank, which was acquired by Capital One Financial Corp., are leading an investor group to raise $400 million to expand First Southern Bancorp in Boca Raton, Fla.
Park Sterling's plans to raise capital through a public offering are unusual. There have been few bank IPOs since mid-2007. Most recently, First Interstate BancSystem Inc. in Billings, Mont., raised $145 million through an IPO.
Besides creating a more diverse shareholder base, raising the capital through a public offering will provide more ammunition for buying open banks, said Bryan F. Kennedy 3rd, Park Sterling's president and CEO.
"If everything goes well, it should be a more liquid stock than what most of them have," he said.
Kennedy, who would remain the bank's president after the capital-raising effort, said that, because the Federal Deposit Insurance Corp. considers Park Sterling a start-up bank, the company must receive approval to change its business plan.
Last year the FDIC extended the length of time a new bank must adhere to more extensive regulations. Banks are now considered start-ups until their seventh year.
Park Sterling opened in 2006 with $45 million of capital, making it the largest start-up in North Carolina history.
Kennedy has previous experience building banks. He was the head of North Carolina for Regions Financial Corp.'s subsidiary bank after another company he helped form, Park Meridian Bank, was sold to Regions in 2001. At Regions, the North Carolina franchise expanded from $300 million to $1.7 billion in assets through organic growth, Kennedy said.
Cherry said Kennedy's experience building a bank was among the reasons Park Sterling was chosen as its base. "They shared our vision," Cherry said. "They had unusually strong talent. We saw people who would fit in with what we were trying to accomplish."
Park Sterling's location in Charlotte was another draw, Cherry said. Besides ready access to displaced talent in the area, the company also stands a good chance of unearthing acquisition opportunities there.
Gray Medlin, a managing director in the Raleigh office of Carson Medlin Co., said that putting together a plan and the capital to buy banks now could pay off over the next several years as more community banks look to sell.
"It is going to be increasingly difficult for small banks to make returns on equity without increasing size," he said. "Some will want to consolidate with larger institutions to get a better return on the investment in their small bank."
Still, Medlin said he does not think community bankers will be beating down Park Sterling's door to sell.
"For the time being they will probably not find too many sellers," he said. "They are getting ready for something that isn't going to happen immediately, but more something over the next few years as the bank cycle runs its course."
Bancography's Reider had a different view, saying there will likely be plenty of banks in Park Sterling's target states that seek a partner. The rising cost of doing business, fewer opportunities for growth and disheartened bankers will lead some to exit, he said.
Reider also said that buying open banks today is a safer proposition than it was two years ago.
"If you are buying right now and getting surprised, then you just aren't doing your homework," he said. "The majority of banks today should be aggressively reserved and have a good handle on what their portfolio is going to do going forward."