For Hans Morris, now's a prime time for private-equity investment in financial services — though not necessarily in banks, or in the U.S.
Morris, who joined General Atlantic LLC as a special adviser on financial services investments Tuesday, is one of several longtime industry executives whom private-equity firms have recruited lately.
But unlike many of those veterans, he isn't particularly interested in scooping up failed banks with the help of the Federal Deposit Insurance Corp.
"You can buy capital in a bank, or you can invest capital in a payments company … in a stock exchange, market maker, broker-dealer, insurance companies," he said. "None of those are affected by FDIC's regulation."
Morris, 51, was most recently the president of Visa Inc. from 2007 to last year, a period when it restructured and went public.
He made his name during a 27-year career as an investment banker at Citigroup Inc. and its predecessors. He spent much of that time brokering sales of financial institutions and assets like credit card portfolios.
General Atlantic's focus on emerging markets attracted him to the firm, he said.
"When you go to these other countries, you realize that there's just much more growth and latent demand" for financial services. "The United States is going to grow more slowly." Specifically, Morris said he has his eye on China, Brazil and Europe.
None of this is to say that Morris will be spending all of his time overseas, or with nonbanks. He acknowledged the part that the U.S. banking crisis has played in private equity's interest in the sector.
"Capital is needed in the industry," he said. "You had a tremendous convulsion of balance sheets, regulatory regime changes, failures, recapitalizations and mergers."
But instead of scouting for failures, "one very good opportunity is working with management teams at banks that are refining their existing portfolio of assets, so they need to divest or change their businesses," he said.
A deal that General Atlantic made before his arrival, to buy First Republic Bank from Bank of America Corp. for more than $1 billion, clearly fits that description.
The $2.3 trillion-asset company early on saw overlap between First Republic, a former Merrill Lynch & Co. unit, and U.S. Trust, a private bank B of A bought in 2006.
Ken Lewis, Bank of America's former chief executive, said during a May conference call that First Republic was an example of "pure duplication" in confirming plans to sell the bank.
"We don't need it because we already have a world-class private bank," Lewis said.
B of A announced the deal to sell the private bank five months later. (By that time, B of A had another impetus: to raise capital under the government's stress test.) First Republic's management team and another private-equity firm, Colony Capital LLC, are General Atlantic's partners in the deal, which is expected to close in the first half of the year.
General Atlantic, of Greenwich, Conn., invests $1 billion to $2 billion a year.
Over the past five years, financial services made up 30% of the firm's holdings. (Its other specialties are energy, technology, media and health-care companies.)
The firm owns businesses based in 12 different countries.
Other ex-bankers now working at private-equity firms include John A. Kanas, a former CEO of North Fork Bancorp; the former Wachovia Corp. CEO G. Kennedy Thompson; a former Citi chief financial officer, Gary Crittenden; and B of A veterans David Coulter, Eugene Taylor and James H. Hance Jr.
Despite his openness to investing in nondepositories, Morris said he has been struck by how much the crisis has disadvantaged such institutions.
"Liquidity is coming back, but it's still very hard to fund any financial assets without a deposit base," he said.
"If you're never going to be able to fund assets without deposits, that's a pretty profound change" from the past.
The change has underscored the benefits of a diversified funding model, Morris said.
"That continues to be powerful and one could argue that it's more powerful than it was 10 years ago," he said.
Morris said he expects more big changes for the industry, many of which will be dictated by the ongoing overhaul in Washington.
"What's the regulatory structure going to look like?" he asked. "That is the most important thing in the U.S."
Although the "supermarket" bank model epitomized by Citigroup has been widely criticized for contributing to the crisis — even Sanford Weill, who built Citi through a series of deals, recently expressed regrets to The New York Times — Morris said he still sees a place for a universal bank.
"When it's well executed, it's pretty powerful," he said. JPMorgan Chase & Co. "is a good example of it being well executed."
Visa's initial public offering in March 2008 raised $20 billion, the most in U.S. history. Morris said that experience showed him there was an opportunity for huge amounts of capital to become available when the right company came along.
"What was pretty impressive was how so many investors around the world focused on the importance of payments and how payments work," he said.