They’re coming back. After moving to the sidelines as the financial sector deteriorated last year, private equity firms have been gradually returning to the fray. Last week John Kanas, former chairman and chief executive officer of North Fork Bancorporation (acquired by Capital One Financial in 2006) led a group of investors in taking over the failed BankUnited from the Federal Deposit Insurance Corp., after a four-month auction run by the agency. The investors included funds advised by W.L. Ross & Co., Carlyle Group, Centerbridge Partners, the Lefrak Organization, Wellcome Trust, Greenaap Investments, and the East Rock Endowment Fund.
The group plans to put $900 billion of new capital into Florida’s largest banking company, will retain the BankUnited name, will maintain its headquarters in Coral Gables, and will keep its 86 offices open. Under the deal the investors assumed $12.7 billion of assets and $8.3 billion in deposits; the FDIC will pay brokers some $348 million in brokered deposits. The newly reconstituted bank and the FDIC have entered into a loss-sharing agreement covering losses on around $10.7 billion of assets. The deal will cost the FDIC’s Deposit Insurance Fund an estimated $4.9 billion.
“Due to the interest in private equity firms in the purchase of depository institutions in receivership, the FDIC has been evaluating the appropriate terms for such investments,” according to a statement issued by the agency. It promises to issue “generally applicable policy guidance on eligibility and other terms and conditions” of such deals soon.
Kevin Petrasic, an associate in law firm Paul Hastings’ banking and financial institutions practice, notes that the FDIC and the Office of Thrift Supervision have been moving in “fits and starts” in efforts to reduce obstacles to private equity investment. While there has been some “increased flexibility in structure, and in the number of [board] directors,” PE firms still cannot acquire active control over a depository institution, Petrasic says. The regulators look at deals “on a case-specific basis,” he says, and “there are certain allowances” depending on the PE firm and the institution in play.