A team of seasoned, well-regarded New England bankers has raised a formidable $1.15 billion to build a community banking operation through acquisition, and it says the whole country is fair game.
NBH Holdings Corp. in Boston said it aims to amass $12 billion in assets. It could apply for a shelf charter, which would let it bid on failed banks that have been taken over by regulators, or it could buy healthy institutions.
"At this stage, we are exploring all the opportunities where we can get the best return in the banking industry," said James G. Connolly, NBH's president and chief executive officer.
Industry watchers said the amount of capital it raised has instantly made NBH a group to watch.
"There is no doubt, that is a whole lot of money," said Dan Bass, the managing director in the Houston office of the Carson Medlin Co. investment bank.
Connolly was most recently the president of Citizens Financial Group Inc. in Providence, R.I., and most of NBH's other executives are veterans of that $153 billion-asset subsidiary of Royal Bank of Scotland Group PLC.
"Jim is an outstanding strategic thinker. If any group could be successful in the arena they are trying to enter, it is these guys," said Joe MarcAurele, who until six weeks ago worked at Citizens as the head of its Rhode Island and Connecticut region.
NBH's chairman, Frank V. Cahouet, is renowned for having rescued Mellon Financial Corp. from ruin and turning it into a force in banking as the Pittsburgh company's chairman and CEO in the 1980s and 1990s. (It is now a part of Bank of New York Mellon Corp.)
MarcAurele, who is now the president and chief operating officer of the $3 billion-asset Washington Trust Co. in Westerly, R.I., said that since Citizens' network stretched from Indiana to Massachusetts, the NBH team could do well anywhere in the country.
"I think they are well positioned to understand the banking landscape nationwide," he said.
More than 70 institutional investors bought shares in NBH's $1.15 billion private placement this week.
"We thought that the equity market was deep enough for that amount, based on the level of credentials of our team," Connolly said. "The market responded enthusiastically, and the amount makes us relevant."
Importantly, no investor owns more than 9.9% of NBH. This ensures that none of the 70 participants in the capital raising will be subject to the regulatory requirements for bank holding companies.
Observers said the group still has plenty of work to do.
"It will be interesting to see how well they are able to deploy that capital from an acquisition or de novo standpoint," said Suzanne Moot, the principal of M&M Associates, a consulting firm in Milton, Mass. "These kinds of things often turn out to be harder than you thought they were going to be."
Industry watchers pointed out that NBH will have competition from other groups looking to buy banks.
For example, the billionaire Gerald J. Ford's Flexpoint Ford LLC has raised $1.3 billion and obtained a shelf charter from the Office of the Comptroller of Currency and a similar approval to bid on failed banks from the Office of Thrift Supervision. Flexpoint has not used either option yet.
"Lots of firms are raising money to do the same kind of thing," said Mark Fitzgibbon, the director of research at Sandler O'Neill & Partners LP. "There is increasing competition for those failed-bank deals."
But Bass, the Houston investment banker, said NBH can take its time to look for the right deal.
"I am assuming he has the $1 billion set aside, but he doesn't have to call it until he needs it," Bass said. "So they aren't under pressure to do something right away."
Still, with such a wide geography to look at initially, the company should be strategic, not just opportunistic, industry watchers said.
Bass said the best strategy for deploying the capital is to pick a market where a fairly sizable, healthy bank can be acquired and failures are expected.
"I would focus on a platform bank to start with — a healthy bank, with a good infrastructure that you can leverage on," he said. "Geographically, you want to concentrate on somewhere where there will be opportunities to buy banks cheaply."
Moot said one key to building a banking company on the scale of $12 billion of assets is having someone to focus on the deposit side of the balance sheet.
"One of the things a lot of the people in and around banking focus on is the loans," she said. "It is my experience that it is a lot harder to leverage the capital by generating deposits that are good, solid core deposits than to put money to work on the lending side. Bankers seem to always worry about the asset side and forget there is this thing on the other side that supports it."
Moot said a typical bank's branch network yields roughly $50 million in deposits per branch. Extrapolating from that, a $10 billion- to $12 billion-asset company would need 200 to 250 branches.
"They are going to have to be good at retail banking," she said.
NBH's core group of organizers does not have a retail specialist. Still, the group has plenty of experience, and more hirings are expected as it formulates a plan.
Coming from Citizens, besides Connolly, are James B. Fitzgerald, who is the chief financial officer of NBH. Fitzgerald was the CFO at Citizens from 2001 to March of this year.
Thomas Metzger is NBH's chief risk officer. He held that title at Citizens from July 2007 to April.
Donald Gaiter is NBH's chief of acquisitions and strategy. He was the executive vice president of global markets at Citizens from 2004 to May 2008.
Though Connolly said the possibilities for NBH are wide open, Moot said that the company would need to focus its resources in order to do well.
"You want something that comes close to a cohesive branch network," she said. "You don't want 10 branches in Boston, 15 in Chicago and 20 in Florida. You don't want to spread it all over the place because branch networks are more successful when they are cohesive and cover contiguous markets. Customers get the idea that no matter where they are, the bank is convenient for them."
Though the team has extensive experience and contacts in the Northeast, some observers said it may make the most sense to leverage the capital in the Sun Belt.
Sandler's Fitzgibbon said the group would have a hard time finding enough failed banks in the Northeast. "There are likely to be lots of opportunities in the Sun Belt states," he said.
"There have been lots of failures and probably will be many more. It may be more fertile ground than [a] place like where Citizens was. … There will be very few failed banks in the Northeast. So they are going to have to look to new geographies."