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Sheila Bair gets it right

FDIC Chairman Sheila Bair last month told a US Senator her agency would “get it right,” in coming up with a set of rules to govern private equity investments in failed banks. And it appears that’s what Bair has done.

The FDIC’s new proposed guidelines on PE investments in failed banks are tough and smart. The new regulation should discourage the worst of the PE crowd only interested in making a quick buck by taking on the deposits and assets of a failed bank.

Most notably, the proposal would require PE firms to well capitalize the banks they control. The new banks would have to maintain a Tier 1 capital ratio of 15% for at least 3 years. That’s a very high regulatory capital ratio–given that most banks maintain Tier 1 ratios between 6% and 10%.

The FDIC also would bar the PE buyers from selling or transferring their ownership interests for at least 3 years. That’s intended to prevent PE firms from getting bank assets on the cheap and then flipping them.

PE bank rules–now that’s news

Glad to hear the FDIC is getting close to issuing tough rules for allowing private equity firms to buy the assets of lenders taken over by the regulator. The Wall Street Journal reports on the development today.

Then again, none of this is really news to readers of this blog. Back on June 18, I reported that FDIC Chairman Sheila Bair had sent a letter to Rhode Island Sen. Jack Reed saying the regulator was in the process of developing “applicable policy guidance” for prospective investors. (A hat tip goes out again to Freedom of Information Act requester extraordinaire Ken Thomas for unearthing the Bair letter).

Bair on PE bank deals: “We will get this right.”

The idea of the strip-and-flip crowd a/k/a private equity firms buying distressed banks out of government receivership raises a lot of dicey issues. But with federal regulators approving three such transactions this year and more bank failures on the way, get used to the idea of PE banking.

Last month Rhode Island Sen. Jack Reed, a member of the Senate Banking Committee, sent a letter to regulators in which he raised some concerns about these deals. Now at least one regulator, FDIC Chairman Sheila Bair has responded.

Kanas is the main man

It was never a secret that former North Fork CEO John Kanas was the prime mover behind a group of private equity firms that recently acquired the assets and banking operations of Florida-based BankUnited, a failed lender that the regulators had to takeover. But bid documents submitted by the investor group reveal just how central Kanas was to putting the team of private equity buyers together.

The formal bid for BankUnited came from a company called JAK Holdings, LLC, an entity that listed Kanas as its sole member, according to bid documents submitted to the Federal Deposit Insurance Corp. It appears JAK Holdings is the entity through which private equity firms such as, WL Ross, Carlyle Group, Blackstone and other invested. Technically, JAK Holdings submitted its bid on behalf of the new BankUnited. 

The Top Secret PE Exit Strategy

The problem with being a private equity investor is that you’re subject to long lockups for withdrawing money–sometimes up to 5 years.

That wasn’t much of an issue back in the halcyon days for PE firms–say three or four years ago–when investors could regularly look forward to high double-digit rates of returns. But today those long lockups are feeling like balls-and-chains, with PE firms having to take writedowns on their portfolio investments and investors seeing returns sag. 

from Margaret Doyle:

Candover prices in disaster

Shares in Candover Investments appear to be pricing in Armageddon.The shares are trading at around 200p, against a net asset value of 1026p at the end of December.

Candover share price 2008 to June 3, 2009

Candover share price 2008 to June 3, 2009

The shares had a bit of a shock yesterday, thanks to the Financial Times. That reminded investors about covenants on the 198 million pounds worth of bonds outstanding- they restrict debt to 40 percent of the net assets. Journalist Martin Arnold also said that French investment house, Eurazeo, is no longer interested in buying the group of any of its portfolio companies.