Sen. Reed Pushes to Regulate PE Bank Deals

A short time ago, Sen. Jack Reed (D-RI) told Bloomberg that he would like to see the FDIC and other financial regulators to come up with rules for private equity firms that want to buy beleaguered U.S. banks.

I suppose the mantra here should be, “Better late than never.”

Reed, who chairs the Senate subcommittee charged with overseeing Wall Street activities, clearly sees a need to make it easier for PE firms to buy banks. And with plenty more financial institutions likely to fail before the economy turns around, PE firms should have more and more chances to scoop up a failed bank.

Reed’s informal proposal comes on the heels of BankUnited failing earlier this month. U.S. bank regulators seized the Florida bank and sold it to an investment group that included WL Ross & Co., The Carlyle Group, The Blackstone Group and Centerbridge Partners. The investment group is putting up $900 million to buy BankUnited, the largest bank to fail this year and which will cost the FDIC an estimated $4.9 billion.

Indeed, after a disastrous foray into banking early last year, the PE industry is making a comeback with deals such as the BankUnited takeover. A group of PE firms and hedge fund investors bought the assets of failed U.S. mortgage lender IndyMac. In the next year or two, several U.S. regional lenders could end up in the hands of buyout funds, some banking analysts have said.

“I can’t picture a 5,000-branch bank coming out of this. But could I see 300-, 400-, 500-branch networks stitched together? I think so,” said Seamus McMahon, CEO of bank consulting firm McMahon Advisory, recently told Reuters. “Private equity firms are going to have a lot of influence [over how the banking industry will look in the future].”