Monday, November 1, 2010

Exit Strategy: BankUnited IPO

BankUnited's IPO likely to attract investors

A BankUnited branch
BankUnited had to be saved by the FDIC a few years ago, only to later be bought out by private investors. As of last week, the company announced it is set to go public again, and the numbers are looking good for those looking to invest. Janet Babin reports.
A BankUnited branch (halbachdietz.com)
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  • BankUnited to go public
    We could soon see the second coming of a poster child for the mortgage mess. Miami-based BankUnited went belly up after filling up on risky adjustable rate mortgages. Then the government swooped in and sold BankUnited to a group of private equity firms. Now those investors have announced they're ready to take the bank public. Janet Babin reports.

TEXT OF STORY

KAI RYSSDAL: Speaking of foreclosures, we told you Friday about a Miami-area bank that failed after it offered too many adjustable rate mortgages. BankUnited was taken over by the Federal Deposit Insurance Corporation a couple of years ago. Last spring the FDIC sold BankUnited to a private-equity group.
They've decided to take it public. And it could turn out to be a pretty good deal. Some new documents filed with the SEC include revealing nuggets about just how good a deal those private equity investors got from the FDIC, and how prospective shareholders might win out as well.
Marketplace's Janet Babin reports.

JANET BABIN: When a bank dies, it can take an expert to parse the meaning snuck into deal terms, like the one private investors got for BankUnited. Its government filings state the bank's "covered loans and real estate were purchased for 76.5 percent of their" value.
CHRISTOPHER WHALEN: Translate that into English, there was not a lot of downside risk here. You know, BankUnited paid pennies on the dollar for the assets that they bought.
That's Christopher Whalen with Institutional Risk Analytics. He says dead bank deals have to be attractive to entice investors, and get the bank assets back into private hands. And attractive terms may be what'll lure new investors to BankUnited's proposed public offering.
Especially the loss sharing agreement the bank brokered with the government. Those assets it bought for 76 cents on the dollar? The bank says it'll earn 90 cents on the dollar even if they all go bad.
The Federal Deposit Insurance Corporation agreed to cover 80 percent of BankUnited's losses on mortgage loans, up to $4 billion. Any higher than that, and the government assumes even more of the loss. So far, it's reimbursed BankUnited some $860 million.
Independent bank consultant Ken Thomas says the deal motivates the bank to foreclose.
KEN THOMAS: So when a problem loan occurs, they don't call you up and to try to work it out, they call their lawyers, throw it into foreclosure, because they want meet the minimum, once they meet that level, the 80 percent coverage goes to 95 percent coverage.
The FDIC also gets a cut from BankUnited's turnaround: the deal guarantees the government a minimum take of $25 million when it goes public. Not much compared to the bank's profit in the first half of this year, but better than nothing.
With so much upside for investors, the IPO is likely to attract a crowd.
I'm Janet Babin for Marketplace.