Regulators have rejected a small Florida bank's agreement to sell most of its operations to two private equity firms — a transaction that inspired BankAtlantic Bancorp's stalled carve-out deal with BB&T Corp.
The Federal Deposit Insurance Corp. opposed Prosperity Bank Co.'s sale of 90% of its 16-branch banking unit to Patriot Financial Partners LP and Castle Creek Capital LLC, sources said Thursday. The $780 million-asset Prosperity, in St. Augustine, Fla., may now seek to raise money through a simpler transaction, one of the sources said.
The $81 million deal had been in limbo for more than a year.
It is unclear why the FDIC was opposed, or if Patriot and Castle Creek still want to invest in Prosperity. An FDIC spokeswoman said the application was withdrawn Feb. 21, but she declined to give further details.
Prosperity has operated since June 2010 under a consent order with the FDIC to raise capital.
Officials at Prosperity, Patriot and Castle Creek did not return calls for comment.
Prosperity's transaction served as a blueprint for BankAtlantic's agreement in November to sell most of its Fort Lauderdale franchise to BB&T, sources said. A Delaware judge nullified that deal in February on the grounds that it violated the rights of bondholders of BankAtlantic's holding company.
Both transactions were variations of a so-called "good bank/bad bank" deal. The Depression-era concept involves separating a bank from its worst assets. Both deals would have had Federal Reserve-regulated bank holding companies spinning out their FDIC-insured operating franchises.
The franchises would have had new investors and clean balance sheets. Their former parents aimed to decertify as holding companies and wind down big batches of bad construction, residential and other types of loans formally held by their subsidiaries.
Both deals were partially orchestrated by Sandler O'Neill & Partners LP, which advised Prosperity and served as a co-adviser to BankAtlantic.
A spokesman for Sandler declined to comment.
Prosperity may now seek to do a more straightforward recapitalization with either private equity or institutional investors because it is healthier than it was in September 2010, when it announced the private equity deal, one of the sources said. That could involve selling equity at the bank holding company level.
Prosperity reported a loss in 2011, but it ended the year with more capital and fewer overdue loans than it had a year earlier. It is also one of the largest independent banks in the well-to-do coastal area south of Jacksonville, an area with short-term real estate woes but good long-term prospects as a retirement destination.