The vultures are circling around Midwest Banc Holdings Inc., and it's a scene that could become increasingly common as competition for failed banks intensifies nationwide.
As many as 10 companies are preparing bids to take over the assets of the company's deeply troubled Midwest Bank & Trust Co. unit, sources said. Midwest, with $3.4 billion of assets, is nearing the end of a 45-day deadline regulators gave it to bring in more equity or face seizure.
The Melrose Park, Ill., company has yet to announce any such savior deal, despite spending months realigning its capital structure to entice investors.
"There could definitely be a fistfight to get this franchise," said Daniel Cardenas, an analyst at Howe Barnes Hoefer & Arnett Inc. "I think the ring could get pretty crowded."
Bankers acknowledge that corporate tugs-of-war are breaking out over failed banks in attractive markets. With Midwest's large size and Chicago focus, observers said it could engender an intense battle should it ultimately fail.
Midwest's long road to the brink started in September 2008 when its equity was nearly wiped out by $67 million of writedowns on Fannie Mae and Freddie Mac securities after the government-sponsored enterprises were taken into conservatorship. An $84.8 million infusion from the Treasury Department's Troubled Asset Relief Program filled that hole yet did not serve as the buffer against problem credits that it did for other Tarp recipients.
In an attempt to save the company, Roberto Herencia was brought on board last May as president and chief executive. He said in an e-mail statement that Midwest is still trying to stay afloat: "We are executing our plan and exercising all options to ensure Midwest Bank's future."
Midwest unveiled a strategic capital plan in July that aimed to turn existing stakeholders into common-equity shareholders in the hope of attracting outside investors. Though fresh capital has eluded it, the plucky management team persuaded preferred shareholders and the Treasury Department to make such conversions.
"Midwest has done everything to try to fix itself. It changed management, it got stakeholders on board. It is just about out of time, though," said Justin A. Barr, the managing principal at Loan Workout Advisers in Chicago, who is not advising Midwest. "If there was ever an example of a company that should be cut some slack and given more time, it is them."
Herencia's valiant efforts have gained notice as well — especially from bankers who have expressed a desire to expand in Chicago.
"Herencia is a good, solid banker. His objective was to fix the bank, and he has largely gotten his arms around the problems," Edward J. Wehmer, the president and chief executive of Wintrust Financial Corp. in Lake Forest, Ill, said in an interview last month.
Wehmer would not go so far as to say that Wintrust plans to bid on Midwest should it fail, but such a deal is certainly on his company's radar because its goal is to expand in the city of Chicago.
"It is a solid franchise," Wehmer said. "It is the most attractive large bank out there having issues."
Michael Iannaccone, the president of MDI Investments Inc., said Midwest's lure as a failed-bank pick-up does not translate into a deal without help from the Federal Deposit Insurance Corp.
"It isn't a desirable mix. For example, they're in the right neighborhoods — like Wicker Park and Wrigleyville — but not in the right branches," Iannaccone said. "That builds in fear. But with an FDIC deal, it becomes easier to look past those things."
Some observers theorized that, because of the competition, Midwest could end up getting its lifeline in a straight acquisition play made to ensure one bidder's success. Barr, the workout adviser, said this is unlikely, however.
"Those sorts of deals just can't compete with the FDIC," he said.
Local media reports also said that Midwest is seeking open-bank assistance from the FDIC, which would allow a new investor to buy the bank without it actually failing. Experts said that while Midwest's track record of pulling off difficult tasks certainly bodes well for them, open-bank assistance is unlikely since the FDIC is prohibited by law from using that resolution method since it wouldn't wipe out existing shareholders.
Though there is no shortage of troubled banks in Illinois, where 31 banks have failed in the past two years, observers said that Midwest's size drives its attractiveness.
Other large community banks have failed recently in Chicago, most notably Corus Bank, but the latter had more of a nationwide lending focus. Midwest has 26 branches in the Chicago area and has focused its lending there.
Its asset size could be of particular interest to out-of-state companies like FirstMerit Corp. in Akron, Ohio. The $12.1 billion-asset company has been bullish on Chicago recently, buying branches from struggling banks.
In February it picked up the failed George Washington Savings Bank from the FDIC. It now has 28 branches in suburban Chicago. During a conference call this week, Paul Greig, FirstMerit's chairman and chief executive, reiterated the company's plans to go after failed banks in Chicago.
"We have been on a number of institutions and expect more resolution opportunities to materialize," Greig said in the call, adding that the competition has heated up. "I think the bidding certainly has become competitive."