July 7, 2010
By JULIE CRESWELL, New York Times
Wilbur L. Ross Jr., the financier who amassed his fortune by snapping up out-of-favor coal, steel and auto parts companies, is adding to his collection of banks.
Mr. Ross is expected to announce on Thursday that his private equity firm, W. L. Ross & Company, will buy a stake in Sun Bancorp, a small publicly traded bank based in Vineland, N.J., with $3.5 billion in assets.
Mr. Ross, who has predicted that hundreds of the nation’s troubled banks will fail and has said that the industry is in the midst of consolidation, has already acquired banks in Florida and Michigan. He said in an interview on Wednesday that Sun Bancorp could be the first of many banks he acquires in New Jersey.
“The next 18 banks in size after this one, together, have around $5 billion in deposits, and there’s another 100-some-odd banks that, in total, have $40 billion in deposits,” Mr. Ross said. “That’s just way too many banks for one state to have.”
A deal for Sun Bancorp would be the latest in a string of bank acquisitions by private equity companies.
Moelis Capital Partners, Thomas H. Lee Partners, the Carlyle Group and the billionaire investor Gerald J. Ford, who made his fortune buying distressed lenders during the savings-and-loan crisis, have all agreed to invest in banks across the country in recent months.
At first, the buyout companies hoped to acquire failed banks that had been taken over by the Federal Deposit Insurance Corporation, the government agency that insures bank deposits. But after the agency added capital requirements and other restrictions for private equity firms, many of the buyout companies shifted their attention to banks that were still operating.
W. L. Ross & Company was among a group of buyers who injected $900 million into the failed Florida BankUnited Financial Corporation last year.
And this spring, the company invested in First Michigan Bancorp in Troy. That money went to buy a failed bank from the F.D.I.C., which agreed to share some of the potential losses on bad loans.
In his latest deal, Mr. Ross’s company will invest $50 million in Sun Bancorp for a 24.9 percent stake in the bank. An additional $50 million will come from members of the Brown family, which owns a significant stake in the bank, as well as other investors, Mr. Ross said.
Mr. Ross, who said he had examined 200 banks in the last couple of years, said he would like to add a bank in the Northwest and one in the Southwest or on the West Coast to his portfolio.
Some financial industry specialists say that while the banks may look cheap, such investments could be risky because of the new financial regulations being written in Washington.
“Private equity buyers can research loan portfolios, do good due diligence on what’s going to be paid and what’s not, but how can they get a handle on what the costs associated with the new financial regulations are going to be when many of the big banks don’t really know?” asked David Stowell, a finance professor at the Kellogg School of Management Business, Northwestern University.
Mr. Ross says his biggest worry is not new regulations; it is the unsteady pace of economic recovery.
“The biggest risk is a double-dip recession,” he said. “That would be a problem because more loans would go bad than you expected, and it would also make it more tricky to find creditworthy borrowers.”