LONDON (Reuters) – Buyout firm JC Flowers on Tuesday outlined an innovative plan to invest in building society Kent Reliance, and said it was likely to clinch similar deals with other mutually-owned British lenders.
“It’s fair to say we wouldn’t be surprised if in time other societies had an interest in a similiar partnership,” JC Flowers’ Europe and Asia Pacific head David Morgan told reporters, adding the group was looking “very actively” for more investments in the UK, Ireland and Spain.
JC Flowers’ deal with Kent Reliance allows the lender to raise 50 million pounds ($79 million) of fresh capital by selling a stake to the buyout firm while retaining its mutual status.
Under the plan, Kent Reliance would be folded into a new bank, trading as Kent Reliance Banking Services (KRBS), which would sell shares to JC Flowers in return for a 50 million pounds capital injection.
KRBS would become a subsidiary of the Kent Reliance Provident Society, a newly created mutual organisation which current Kent Reliance building society members would be entitled to join.
The plan still requires the backing of Kent Reliance’s customers as well as the approval of the Financial Services Authority.
Building societies left facing a capital shortfall in the wake of the financial crisis have found it more difficult than publicly quoted banks to raise fresh capital, as their ownerhip structure makes raising equity capital impossible.
Funding pressures have driven a round of consolidation in Britain’s mutual banking industry, with sector leader Nationwide snapping up ailing rivals the Cheshire, Derbyshire and Dunfermline building societies over the last three years.
JC Flowers, a buyout firm focused on the financial sector, is best known in the UK for making an unsuccessful attempt to buy Northern Rock shortly before the stricken mortgage lender was nationalised in Feb. 2008
Earlier this month, JC Flowers said it would buy 450 million euros of convertible bonds issued by Spain’s Banca Civica, as the lender — one of seven to fail Europe-wide stress tests — became the first Spanish savings bank to use a new law allowing the sector to access private capital.
Kent Reliance said last month that it was in talks with JC Flowers about creating a new joint venture which would allow the buyout firm to invest in it.
(Reporting by Myles Neligan; Editing by Mike Nesbit)