Forced out as chairman and chief executive of Sovereign Bancorp Inc. two years ago, Jay S. Sidhu is back in the banking business with a new title: white knight.
Mr. Sidhu, through an investment fund he controls, has signed a letter of intent to invest $30 million in Federal Trust Corp., a struggling Sanford, Fla., thrift that has been ordered by its regulator to raise capital by Sept. 30 or find a buyer.
The $640 million-asset Federal Trust is glad to have him.
"We're pleased that he has an interest in our company," Dennis T. Ward, its president and CEO, said in an interview Tuesday.
The investment would give Mr. Sidhu a controlling stake in Federal Trust, but Mr. Ward said the management team is expected to remain as it is.
It is "premature" to say to what extent Mr. Sidhu might get involved in the business, Mr. Ward said.
"There's been no real thought given to how that might work out," he said.
Specifics such as how many shares he would receive and the price he would pay for each share are still being finalized, Gregory E. Smith, Federal Trust's chief financial officer, said in an interview.
The company expects to complete a definitive agreement by Aug. 25, he said. If the deal works out, Federal Trust would not go through with a previously announced public offering, because Mr. Sidhu's investment would be enough to restore it to well-capitalized status, Mr. Smith said. "We feel that would be sufficient at this time to get the bank on stable ground."
This is believed to be Mr. Sidhu's first investment in a bank since leaving Sovereign. He did not return calls by press time.
Mr. Sidhu created Sidhu Capital Partners, a private-equity firm targeting the banking industry, in September, and he has organized a blank-check company, Sidhu Special Purpose Capital Corp., that plans to buy banks and thrifts, fix troubled ones, and use them as a base for further acquisitions. The Federal Trust investment is being made through Sidhu Advisors FDT LLC.
Neither Mr. Ward nor Mr. Smith could say whether Mr. Sidhu hoped to use Federal Trust as a base to roll up other companies.
Federal Trust noted in its press release that under Mr. Sidhu's leadership Sovereign grew from about $600 million of assets in 1991 to about $90 billion in 2006.
But some investors and analysts criticized his acquisitive strategy, especially after he engineered a controversial deal to sell a stake in Sovereign to Banco Santander Central Hispano SA and use the proceeds to buy Independence Community Bank Corp. of Brooklyn, N.Y. He was at the center of a brutal proxy fight with shareholders furious over the way he handled the complicated deal. He ultimately resigned under pressure from the board in late 2006.
Richard D. Weiss, an analyst at Janney Montgomery Scott who follows Sovereign, said Mr. Sidhu, though controversial, comes with extensive experience. "He's an intelligent guy and knows the business," Mr. Weiss said.
One Federal Trust investor, who asked not to be named, said he is disappointed about the deal with Mr. Sidhu, mostly because of the potential dilution.
He said Mr. Sidhu would be getting "somewhere between a bargain and a super bargain" depending on the number of shares issued. "Stockholders have really gotten hosed in this thing," the investor said. "The guess would be that anyone with $30 million can arrange to buy the place on the cheap."
Still, Federal Trust, awash in nonperforming loans, had little choice about raising capital.
The Office of Thrift Supervision initially gave it a July 15 deadline to raise $30 million to $35 million or sell itself. Then last month it extended the deadline to Sept. 30, after a proposed rights offering started to look shaky.
A preliminary prospectus filed with the Securities and Exchange Commission said Federal Trust had intended to sell common shares for 95 cents each in the rights offering. The company's shares dropped below that price a month ago; they closed at 75 cents Tuesday, up 41% from a day earlier.
Federal Trust also announced late Monday that it intends to triple the net loss it previously reported for the first half, to $15.8 million. The company said it needs to add a $9.1 million allowance, because it does not expect to realize a deferred tax asset.
Mr. Ward, who has been assigned to lead the turnaround effort at Federal Trust since September, is a former Regions Bank executive. He joined Federal Trust as chief operating officer in February 2007 from Regions, where he was the central Florida market president. He was promoted to president and CEO when James V. Suskiewich was let go after 14 years with the company.
