As a longtime executive at Wachovia Corp. and its predecessor, First Union Corp., Kent Ellert was instrumental in helping the Charlotte company integrate its Florida acquisitions. Now he wants to use his market knowledge and his connections to build his own banking company.
Mr. Ellert's vehicle for getting there is Southeast Acquisition Corp., a Coconut Grove, Fla., holding company formed this month for the purpose of rolling up banks in the southern part of the state that have hit on hard times. His partners in the venture include Juan Castro and Jim Baiter, two other longtime area bankers, and Ezra Katz, a real estate executive whose firm, Aztec Group, has brokered $10 billion worth of deals in Florida.
In an interview last week, Mr. Ellert said his group is looking to scoop up banks at bargain prices. His company has raised $30 million for acquisitions, and he said that investors are willing to pony up more if opportunities arise.
"Our vision is to take advantage of what we see as a temporary dislocation in the financial community," he said.
The real estate crash has hit Florida banks particularly hard. At June 30, the ratio of noncurrent loans to total loans in Florida-based banks was 3.64%, compared to the national average of 2.04%, according to data from the Federal Deposit Insurance Corp. (At press time Friday, industry data for the third quarter was not available.) Last year at June 30, the ratio was 1.10% for Florida banks and 0.91% for banks elsewhere.
With unpaid loans piling up, many banks are in the red for the year, and their values have fallen sharply as a result. The stock values of publicly traded banks in the state are down 40% collectively so far this year, according to Carson Medlin Co., and it is believed the values of many privately held banks have fallen even more.
This is not to say that these banks are shopping themselves; industry observers said that many bankers will opt to ride out the crisis rather than sell at rock-bottom prices.
Southeast Acquisition is not the only investment group scouting Florida for bargains either.
"A lot of folks are going to be opportunistic as it relates to Florida," said Bill Hickey, the co-head of investment banking at Sandler O'Neill & Partners LP.
Mr. Hickey said he expects acquisition activity in the state to pick up because, despite its problems, Florida is still viewed as an attractive market.
"The state of Florida isn't going to fall into the Gulf of Mexico," he said. "People are still going to want to move there, and the no-income-tax is a big deal."
Mr. Ellert said his company is eyeing banks that were formed between the beginning of 2005 and the end of 2007 in Palm Beach, Broward, and Dade counties. FDIC data indicates 11 banks were opened in those counties during that period.
These banks, though still struggling to become profitable, are more attractive to his investment group because they have not been around long enough to accumulate piles of bad loans, Mr. Ellert said.
And if it cannot find suitable banks in southeastern Florida, he said, he would look in southwestern Florida.
Florida has been a hotbed for start-up banks in recent years, and many of them were formed with the intention of selling themselves within five years.
Paula Johannsen, the managing director in the Tampa office of Carson Medlin Co., said that she has heard of several groups sniffing around the Florida markets for start-ups to buy, but that would-be sellers are put off by the low-ball offers.
"They are getting offered discounted prices to what they initially put into the investment, and they don't want to go forward," with selling, she said. "The days of building something quickly and flipping it are gone. So you better have a good plan that requires you to be in business for some time."
Mr. Ellert said Southeast Acquisition does not have a set number of deals in mind that it wants to do nor has it set a target asset size. Its investors would look to cash out in about 10 years, he said.
Southeast Acquisition is doing due diligence on one deal candidate and is in talks with others. Mr. Ellert said he expects to have completed a purchase by the middle of next year.