-
Former top executives at LaSalle Bank are looking to start a bank that would acquire the assets and deposits of failed banks in and around Chicago.
August 18 -
Mercantile Bancorp once believed that its bank in sleepy Quincy, Ill. was not enough. Now, that bank might hold the key to the company's survival.
August 16
The Windy City's banking market is already crowded, but that hasn't deterred some savvy local operators from diving in.
A group of veteran local bankers have banded together to start Front Street Bank, a de novo shop looking to buy failed banks from the Federal Deposit Insurance Corp., according a charter application filed with the Illinois Department of Financial and Professional Regulation.
The execs hail from LaSalle Bank (which was sold to Bank of America Corp. in 2007) and its affiliates. They include: Harrison Tempest, former chief executive of LaSalle parent ABN Amro North America; Louis Rosenthal, former LaSalle chief operating officer; R. Patricia Kelley, a former LaSalle commercial real estate loan executive listed as Front Street's chief credit officer; Kathleen Puffer, former head of LaSalle's retail branch network; and Susan Gordy, former head of government affairs at LaSalle, who is expected to become chief legal and risk officer for the new bank.
The group said in its application that its investor list is yet to be determined and declined comment through its attorney.
Chicago investment bankers opined that Tempest and his partners will find a receptive market for raising capital.
"Harry was the guy who oversaw the buildup of LaSalle. He has tremendous credibility in the industry," says Terry Keating, a former LaSalle executive who is now a managing partner at Amherst Partners. Front Street "should have no problem getting a lot of traction in raising equity," he said.
Strategies like Front Street's have been a driving force in failed-bank resolutions across the country but have been notably absent in Chicago, where existing banks have absorbed the city's failures.
"Private-equity deals have mostly been in markets where there's been a dearth of strategic buyers, like Florida and Georgia," says J. Brennan Ryan, an attorney at Nelson Mullins Riley & Scarborough LLP in Atlanta. "In Chicago, a lot of midsize banks have been willing and able to step up."
Chicago is a competitive market and a failure hub by dint of its sheer size. As one of the last states to adopt branch banking, Illinois had 587 banks at the end of the second quarter, including 199 in metropolitan Chicago. Florida, by comparison, had 235 banks statewide and Georgia 249.
Competition for failed Illinois banks reached a fever pitch in the second quarter of 2010, with failures of the $3.2 billion-asset Midwest Bank and Trust Co. and the $3.8 billion-asset Amcore Bank in Rockford, Ill. Each received more than a dozen bids from local and out-of-state banks and investor groups. The field of buyers has contracted more recently.
"A lot of the banks that have been the usual suspects have filled their plates or are facing challenges themselves," says Lori Buerger, an attorney at Schiff Hardin LP in Chicago. "The FDIC wants interested parties to jump into this water."
The pool of likely bank failures is now also filled with relatively small banks that existing institutions might not regard as worth the time and expense of taking over. "Banks need to see the economies of scale to make it work," Buerger says. "A differently situated bidder might perceive value in a complete separate way."
Since 2008, more than 50 banks have failed in Illinois, the vast majority in the Chicago metro market. Justin Barr, president of Loan Workout Advisors in Chicago, sees at least 30 more Chicago banks at risk of failure. Trepp LLC, which tracks banks nationwide, has 55 banks on its watch list. Both companies consider capital ratios, nonperforming assets and profitability in making their predictions.
"The bottom line is that there is still a sizable segment of our market at risk for failure," Barr says.
