Monday, July 26, 2010

Apollo exploits loophole to create new bank

By Henny Sender in New York

ft.com

Published: July 25 2010 22:36 | Last updated: July 25 2010 22:36

Private equity group Apollo Management will establish a new bank under an obscure provision buried in the US financial regulations signed into law last week.

Apollo is to take advantage of a change that allows banks to operate in multiple US states without a national charter, lawyers say.

The company, which has about $55bn under management, has hired a team from Countrywide Financial to run the bank, and is awaiting regulatory approval. Apollo plans to get round ownership restrictions which can force a private equity group to be considered a bank holding company by asking its investors to put money alongside it in the new bank, to be called Ares. The bank will have a separate board and operate independently of Apollo. However, it is not currently clear how ambitious Apollo’s plans for the bank will prove, people familiar with the matter say.

Apollo’s move reflects a back-to-basics thesis that bank lending will become more important as capital markets decrease in importance in coming years – at least as long as the securitisation market remains frozen.

The group, which plans to list on the New York Stock Exchange soon, declined to comment.

The Countrywide team came from the banking side of the lender, not the mortgage operation that came under scrutiny following the collapse of the US housing market. It is headed by James Furash, who founded the banking side and built up its retail deposits, and Mark Suter, another senior executive, people familiar with the matter said.

Apollo’s new template comes as most private equity groups have abandoned efforts to create banks and given up hope that Federal Deposit Insurance Corp sales of troubled banks would be a source of lucrative deals.

In numerous FDIC auctions, regulators have made it clear they prefer strategic buyers, putting private equity groups at a disadvantage. “There is only downside for regulators in selling banks to private equity firms,” said the person in charge of financial investments for one private equity group.

For example, on the Blackstone earnings call last week, Tony James, president, said the company had “changed focus from assisted bank deals”. This month, Wilbur Ross, the turnround specialist bought a minority stake in publicly listed Sun Bancorp of New Jersey.