Flowers Gets Approval For Takeover of Saddle River Valley Bank

Last week, I reported that PE firms had rekindled their interest in banks. And now we have news that J. Christopher Flowers has gotten approval to buy Saddle River Valley Bank.

Seven funds owned by Flowers are buying Saddle River, according to an Oct. 14 approval letter posted on the Office of Thrift Supervision web site. Terms of the deal were not announced.

The acquisition is the first silo deal by a PE fund manager, which walls off the stake from other investments, a method that the OTS has approved since 2009, Bloomberg reports. Saddle River, with two branches in New Jersey, has $82.8 million in assets.

Saddle River has a charter with the Office of Thrift Supervision. The OTS is viewed as a more-friendly regulator, one buyout exec says.

However, the Saddle River deal also includes FDIC insurance, and the FDIC is not as keen on PE firms buying banks. Last year, the regulator toughened rules for buyout shops acquiring failed bank by requiring them to keep a Tier 1 capital ratio for at least three years. PE investors also must keep their bank stakes for three years, the FDIC said.

Regulators no longer consider the silo structure as an “appropriate” method for buying banks, the buyout exec says. “I’m surprised that [the FDIC] would be as lenient,” the exec says of the Saddle River buy. “All that being said [Flowers] did get it done so clearly the devil is in the details here”

Flowers, a former Goldman Sachs investment banker, is known for his takeover of Long-Term Credit Bank of Japan (now called Shinsei Bank) in 2000. The acquisition is considered the most profitable PE deal ever. Flowers in 2008 also personally acquired the First National Bank of Cainsville in Missouri (now called Flowers National Bank). Last year, his PE firm, JC Flowers & Co., led an investor group to acquire IndyMac Bank in California.

A spokesman for Flowers declined comment because the acquisition of Saddle River is pending. Officials for the OTS couldn’t be reached for comment.