More banks are finding new life in bankruptcy court, and more buyers are lining up to be their saviors.
The auctions of Mile High Banks in Longmont, Colo., and Premier Bank in Tallahassee, Fla., were completed this month, and the auction of First Place Bank in Warren, Ohio, is expected to take place Dec. 14.
There has been plenty of buzz about banks' use of bankruptcy to solve their problems, but success stories were rare.
AmericanWest Bank in Spokane, Wash., has been the beacon of hope. It was sold to SKBHC Holdings in late 2010 and has since emerged as serial acquirer on the West Coast. One of the advisors in that deal wonders what took so long for more to happen.
"We expected more activity right after AmericanWest than we saw, but there is definitely more now," says Van C. Durrer 2nd, a partner at Skadden, Arps, Slate, Meagher & Flom.
As the method, which allows a bank to be separated from its debt-addled holding company, gains popularity, the auction process will become more competitive, Durrer says.
"I predict that as it becomes more well-known, more sophisticated parties will get involved, and it will be harder to pick these off cheap," Durrer says. "Initially some of the regional banks would just sit back and wait and were maybe waiting for failures. But I think they are paying more attention."
The Mile High Banks sale, in that regard, may be a harbinger.
The initial bidder, and ultimate buyer, was Strategic Growth Bancorp, a bank roll-up group from El Paso, Texas.
However, observers in the Denver area predicted in October that other bidders would emerge given the appeal of the market. One did; court documents from the bankruptcy of Big Sandy Holding, the parent of Mile High, show an unnamed party placed a bid. Several sources say the bidder was a larger community bank in the Midwest but declined to share its name.
Strategic Growth's initial bid was $5.5 million for the $840 million-asset Mile High Banks and its final bid was $1.5 million up front, with the creditors expected to get as much as $6 million from an income-tax refund due to the bank. Strategic is also expected to inject $90 million into the ailing bank, which is significantly undercapitalized.
Strategic Growth officials declined to comment. Meanwhile, the company also announced last week it would acquire the $755 million-asset New Mexico Banquest in Santa Fe.
Multiple bids can make the bankruptcy process smoother. Holders of trust-preferred securities tried to delay the AmericanWest proceedings in 2010 because they wanted to see if SKBHC's $6.5 million bid could be bested.
Last month the Treasury Department tried to delay the auction of First Place Bank to allow more time for other bidders. The bank's parent, First Place Financial (FPFCQ), issued $73 million of equity to Treasury as part of the Troubled Asset Relief Program in 2009. The judge denied the request to push back the sale, but Talmer Bancorp in Troy, Mich., restructured its stalking-horse bid from $45 million to roughly $60 million. Treasury declined to comment for this story.
Capitol Bancorp, in Lansing, Mich., is also in the midst of a recapitalization through bankruptcy. Its deal, however, does not involve the sale of any banks, but rather the restructuring of its capital to allow new investors to enter. It has blamed regulators for a delay in its proceedings; a crucial hearing in its case is expected next month.