The Florida-based bank was acquired last year by private equity firms and this is perhaps more of an expansion strategy rather than a private equity exit strategy.  Poor real estate loans and poor operations brought on the collapse and Wilbur Ross acquired the bank from the Federal Deposit Insurance Corp. in a pre-approved ‘restructuring’ package via WL Ross & Co.  Other investors are Blackstone Group LP (NYSE: BX), Carlyle Group, and Centerbridge Partners.

Underwriters are Morgan Stanley, BofA/Merrill Lynch, Deutsche Bank, and Goldman Sachs.

If Wilbur Ross and friends now want to make acquisitions, the bank has a currency in the form of stock that could be used rather than cash.  While it is not said what percentage will be sold by the holders, our understanding is that the current investors will unload only a fraction of their stake here rather than several other private equity post-M&A IPOs that look more like an exodus after they picked the carcass, leveraged the books, and took a huge dividend.

BankUnited had $11.2 billion of assets and was profitable during the first half of the year.  The bank had almost 80 branches as of June 30 with a focus on small and medium-sized businesses and consumers.

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JON C. OGG

BankUnited (NASDAQ: BKUNA) was the runner-up in the race for the most expensive seizure in recent years, and it was a private equity consortium including Wilbur Ross, Carlyle, and others which won the bid for the remaining assets in the bank.  IndyMac was also taken over by J.C. Flowers. What is interesting is that regulation over control and ownership allowances by private equity firms remain cloudy when you consider the hundreds of troubled banks, the jurisdictions and regions in which they operate, and which agencies are in charge of them.  A recent report from the FDIC noted that more than 300 banks could still fail in the near-term and the FDIC has a board meeting today on certain regulations that prevent banks from past practices in aiding to their own destruction at the expense of the FDIC.

From all the data we have seen, there are many overlaps and contradictions among guidelines from the FDIC, the Federal Reserve, and the Office of Thrift Supervision.  This makes a nightmare scenario for doing research and due diligence for private equity and local investor groups which might be interested in acquiring troubled local banks.  Throw in the Comptroller of Currency guidelines and local laws and local taxation districts, and suddenly you need a team of lawyers specializing in the laws of each body to determine what rules and regulations exist for private equity ownership and private equity investment into troubled banks.  Consolidation of regulatory bodies may help, but how long does it take to consolidate and then integrate branches and agencies under the Federal Government?  And what about each state and local government?

It seems that Sheila Bair has a goal of getting some unified rules that could become generic throughout each agency, but banks differ wildly on a case by case basis when you consider the national footprint of some versus a single-state chartered bank and then simple community banks.  Does this mean that the goal can be reached?

Private equity firms and buyout groups from vulture funds to local wealthy investor groups have a unique ability to remedy some of the banking troubles that exist today.  Not all, but some.  Troubled local banks can be taken over by local businessmen that are well respected and are well entrenched.  But they might not invest only passively or for a smaller stake where there is no control.  If they want that sort of investment, they could just invest in regional bank funds.

Additional changes and exceptions to the current 25% ownership cap that is currently allowed is a start.  Kicking out management or jettisoning bad assets may be too difficult if each decision has to be run by committees.  Private equity investors have enjoyed being able to act quickly, decisively, and without endless meetings and lines of red tape.  It seems a stretch that the 25% hurdle will be changed any time soon as it would require changes to law.  But certain “exemptions” and “exceptions” could be granted.  This will run up against the rules of “precedent” for case law, so don’t expect a sweeping change here.

Investors and acquirers have little incentive to buy these troubled banks before they go into receivership.  After the FDIC takes control, there becomes a loss-sharing model that in a sense subsidizes losses for the new investors.  And the FDIC, the Fed, the Treasury and others are probably not going to protect existing investors if the notion of systematic risk is not present.

Unless there are some new private equity exceptions, then this list of 300+ troubled banks is likely to see many more failures and FDIC-seizures followed by acquisitions by private equity groups and investor consortiums.  Wilbur Ross and other private equity players would probably like to be sole-owners of some of these banks.  That does not seem possible under the existing rules.  Changing those very rules could also bring about additional risks down the road.

Those big investment banking firms also have private equity arms of their own, and they may finally get in on the action despite being poor acquirers so far.  They might not.  For now, we think private equity groups will continue banding together to make banking acquisitions.

Jon C. Ogg
May 29, 2009

Bank Stock (Ticker)                     Close    (drop and %)       Volume
Downey Financial Corp. (DSL)      $2.03 (-$1.87; -47.95%)   3,663,566   
FirstFed Financial Corp. (FED)     $10.04 (-$8.21; -44.99%) 1,972,956
Corus Bankshares Inc. (CORS)    $3.75 (-$1.05; -21.88%)    993,442
Bank of Granite (GRAN)               $4.50 (-$1.58; -25.99%)    65,354
National City Corporation (NCC)    $3.71 (-$1.28; -25.65%)    326,015,615
BankUnited Financial (BKUNA)     $0.79 (-$0.21; -21.00%)   1,200,562
Vineyard National Bancorp (VNBC)$1.10 (-$0.28; -20.29%)   81,173 

There were also several REIT and other non-bank financial stocks that performed worse than some of these, but these were the banking related names that tanked after WaMu became Shamu.

Jon C. Ogg
September 27, 2008

• Exponent (EXPO) Started as Buy at SunTrust.
• eHealth (EHTH) Started as Buy at Merriman Curhan Ford.
• Incyte (INCY) Started as Buy at Citigroup.
• Rigel (RIGL) Started as Buy at Citigroup.
• Wimm-Bill-Dann Foods (WBD) Raised to Buy at UBS.
• AMR (AMR) Cut to Sell at Citigroup.
• Amylin Pharma (AMLN) Cut to Neutral at Baird.
• BankUnited (BKUNA) Cut To Sell at Stifel Nicolaus.
• National Grid (NGG) Cut to Equal Weight at Lehman.

Jon C. Ogg
August 27, 2008

• Ahold (NYSE: AHO) raised to Overweight at JPMorgan.
• BankUnited Financial (NASDAQ: BKUNA) downgraded to Market Perform at Wachovia.
• Chartered Semiconductor (NASDAQ: CHRT) raised to Neutral from Underweight at JPMorgan.
• FMC Tech (NYSE: FTI) downgraded to Neutral at JPMorgan.
• Hansen Natural (NASDAQ: HANS) raised to Overweight at JPMorgan.
• Micron Tech (NYSE: MU) raised to Overweight at Thomas Weisel.
• Sigma Designs (NASDAQ: SIGM) downgraded to Neutral from Outperform at Robert W. Baird.
• UBS (NYSE: UBS) downgraded to Peer Perform at Bear Stearns.
• US Steel (NYSE: X) raised to Buy from Neutral at UBS.
• Wyeth (NYSE: WYE) raised to Overweight at Morgan Stanley. 

Jon C. Ogg
February 19, 2008

BankUnited already lowered guidance earlier this month.  Unfortunately it is the ties to the Florida consumer and Florida real estate market that are an issue.  Its lending activities comprise one-to-four-family residential mortgage loans, consumer loans, commercial real estate and multi-family loans, real estate construction loans, land loans, commercial loans, mortgage loans, and mortgage-backed securities.  Earlier this year the lender said a Wall Street Journal article left the impression that it was involved in sub-prime mortgage lending, which it denied.  It seems the damage may have been done and that Florida had more speculation and inflated values.

As of its latest stat sheet it listed 75 branches in 11 counties in Florida.  These 52-week lows are actually 5-year lows.  At its earnings warning the company gave guidance of $0.41 to $0.46, and that compares to $0.63 last year.  Non-performing assets were listed as $210 million, or about 1.4% of assets, and the loan loss provision was put at $8 to $10 million for the quarter.

BankUnited repurchased approximately 315,000 shares of common stock during the quarter, less than originally anticipated, and noted that it would repurchase shares under its current authorization as appropriate.  Each new day at 5-year lows might mark "an appropriate" time.

Jon C. Ogg
October 12, 2007

Jon Ogg produces the 24/7 Wall St. Special Situation Investing Newsletter; he does not own securities in the companies he covers.