Comments on: When private equity funds try to get around bank-ownership rules http://blogs.reuters.com/felix-salmon/2009/05/08/when-private-equity-funds-try-to-get-around-bank-ownership-rules/ A slice of lime in the soda Thu, 23 May 2013 23:51:59 +0000 hourly 1 http://wordpress.org/?v=3.4.2 By: Matt http://blogs.reuters.com/felix-salmon/2009/05/08/when-private-equity-funds-try-to-get-around-bank-ownership-rules/comment-page-1/#comment-1539 Matt Mon, 11 May 2009 22:57:45 +0000 http://blogs.reuters.com/felix-salmon/2009/05/08/when-private-equity-funds-try-to-get-around-bank-ownership-rules/#comment-1539 Regarding your fraction-of-a-townhouse calculation for how much Flowers paid for his bank: Note that of the $4.2 million book value, it appears that $2.6 million was new paid-in capital from Flowers himself (per the FDIC link, that's the amount of equity attributable to "business combinations"; it was zero in '07). Applying your 2x book estimate to the remainder, in all likelihood he paid only around $3 million -- excuse me, I mean one-eighteenth of a townhouse -- for his bank. Regarding your fraction-of-a-townhouse calculation for how much Flowers paid for his bank: Note that of the $4.2 million book value, it appears that $2.6 million was new paid-in capital from Flowers himself (per the FDIC link, that’s the amount of equity attributable to “business combinations”; it was zero in ’07). Applying your 2x book estimate to the remainder, in all likelihood he paid only around $3 million — excuse me, I mean one-eighteenth of a townhouse — for his bank.

]]> By: CB http://blogs.reuters.com/felix-salmon/2009/05/08/when-private-equity-funds-try-to-get-around-bank-ownership-rules/comment-page-1/#comment-1517 CB Mon, 11 May 2009 01:14:56 +0000 http://blogs.reuters.com/felix-salmon/2009/05/08/when-private-equity-funds-try-to-get-around-bank-ownership-rules/#comment-1517 that's like trading a bedroom for a bank. that’s like trading a bedroom for a bank.

]]> By: Mark http://blogs.reuters.com/felix-salmon/2009/05/08/when-private-equity-funds-try-to-get-around-bank-ownership-rules/comment-page-1/#comment-1513 Mark Sun, 10 May 2009 15:40:12 +0000 http://blogs.reuters.com/felix-salmon/2009/05/08/when-private-equity-funds-try-to-get-around-bank-ownership-rules/#comment-1513 What is not clear in this piece is why private equity or other investors want to avoid breaching the 24.9% ownership line. To do so requires that they apply to the Fed to become a bank holding company (BHC). At that point they are subject to the "source of strength" rules which in effect put 100% of the investor's assets at risk. These rules have kept significant private capital from being invested in the banking industry at exactly the time they most need it. The problem is especially acute within the smaller community bank arena. It is my understanding that with Flagstar the regulators actively sought a workout that would wall off Matlin's other assets beyond the $250 million they committed to the deal. There is not a truly healthy bank in Southern Michigan and absent some loss limit agreed to in advance by the regulators, recapitalizing these institutions with non-public funds will be extremely unlikely. What is not clear in this piece is why private equity or other investors want to avoid breaching the 24.9% ownership line. To do so requires that they apply to the Fed to become a bank holding company (BHC). At that point they are subject to the “source of strength” rules which in effect put 100% of the investor’s assets at risk. These rules have kept significant private capital from being invested in the banking industry at exactly the time they most need it. The problem is especially acute within the smaller community bank arena. It is my understanding that with Flagstar the regulators actively sought a workout that would wall off Matlin’s other assets beyond the $250 million they committed to the deal. There is not a truly healthy bank in Southern Michigan and absent some loss limit agreed to in advance by the regulators, recapitalizing these institutions with non-public funds will be extremely unlikely.

]]> By: Felix http://blogs.reuters.com/felix-salmon/2009/05/08/when-private-equity-funds-try-to-get-around-bank-ownership-rules/comment-page-1/#comment-1500 Felix Sat, 09 May 2009 16:26:24 +0000 http://blogs.reuters.com/felix-salmon/2009/05/08/when-private-equity-funds-try-to-get-around-bank-ownership-rules/#comment-1500 Jay, that's the whole point. Beal and the Rothschilds clearly want to personally own banks, and under a principles-based approach they'd be allowed to do so. But when Flowers personally buys a bank just to get around rules banning his fund from doing so, you can crack down on that. Jay, that’s the whole point. Beal and the Rothschilds clearly want to personally own banks, and under a principles-based approach they’d be allowed to do so. But when Flowers personally buys a bank just to get around rules banning his fund from doing so, you can crack down on that.

]]> By: Jay http://blogs.reuters.com/felix-salmon/2009/05/08/when-private-equity-funds-try-to-get-around-bank-ownership-rules/comment-page-1/#comment-1488 Jay Sat, 09 May 2009 06:18:26 +0000 http://blogs.reuters.com/felix-salmon/2009/05/08/when-private-equity-funds-try-to-get-around-bank-ownership-rules/#comment-1488 I don't follow, Felix...do you oppose private ownership of banks in general, then? Should Beal Bank go public? Not to mention the Rothschilds? I don't get why JC Flowers can't invest a small amount of his substantial fortune in a bank... I don’t follow, Felix…do you oppose private ownership of banks in general, then? Should Beal Bank go public? Not to mention the Rothschilds? I don’t get why JC Flowers can’t invest a small amount of his substantial fortune in a bank…

]]> By: Jacob http://blogs.reuters.com/felix-salmon/2009/05/08/when-private-equity-funds-try-to-get-around-bank-ownership-rules/comment-page-1/#comment-1479 Jacob Fri, 08 May 2009 22:52:43 +0000 http://blogs.reuters.com/felix-salmon/2009/05/08/when-private-equity-funds-try-to-get-around-bank-ownership-rules/#comment-1479 As not-okay as this kind of rule-bending ought to be, I rather like the idea of someone investing money in an old-fashioned bank these days. In particular, the nutcases throwing $8 billion at Wells Fargo might perhaps be better served using that money to capitalize a new bank, no? Rather than recapitalize the institutions that have failed so miserably, investors with that kind of money to burn should really be replacing them. As not-okay as this kind of rule-bending ought to be, I rather like the idea of someone investing money in an old-fashioned bank these days.

In particular, the nutcases throwing $8 billion at Wells Fargo might perhaps be better served using that money to capitalize a new bank, no?

Rather than recapitalize the institutions that have failed so miserably, investors with that kind of money to burn should really be replacing them.

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