A pair of buyout funds, WL Ross & Co. LLC and The Yucaipa Companies, have made commitments to invest $50 million apiece in Amalgamated Bank, a $4.4 billion asset bank in New York that primarily serves labor unions. The bank announced this week that after regulatory approvals, expected in the fourth quarter, the firms will each own about a 20% stake.
Taken with Warren Buffett’s recent $4 billion investment in Bank of America, the moves could be seen as a renewal of a binge of deals that occurred in 2010 when a series of buyout firms took stakes in commercial banks as the financial crisis eased.
Not too likely, according to a pair of sources.
For one thing, many of the banks that needed to raise capital have already done so, said an attorney who follows the financial industry. “People are digesting what they bought last year,” he said.
In addition, bank regulators continue to view buyout firms warily, limiting them to holdings of less than 25 percent. Regulators likewise are keeping a lid on M&A, which prevents the banks from growing through acquisition. And the Dodd-Frank financial reform law, with its “living will” provision, could increase the likelihood that a troubled institution would be shut down, wiping out investors’ stakes.
Finally, record low interest rates are crushing banks’ interest margins, making the industry overall less profitable than others might be.
The recent examples had unique characteristics that make them unrepresentative of the broader banking market. Buffett rather famously dreamed up the B of A investment in the bathtub, then called CEO Brian Moynahan to inform him of his decision.
That was simply a case of the stock being too cheap to pass up, an investment banker noted. “It’s the best franchise in America,” with an extensive network of branches and Merrill Lynch storefronts. The stock closed Friday at $6.12.
Amalgamated was somewhat closer to the profile of a troubled institution looking for a cash infusion. The bank, with a debt-to-equity ratio of 6.21%, was ordered by the state of New York on Aug. 31 to raise that ratio to 7% within a year and to 8% in two years, according to the Associated Press.
Wilbur Ross, the head of the eponymous firm, has made a career of buying into industries that are out of favor, and he has invested in banks before. The firm, alongside The Carlyle Group, Blackstone Group and Centerbridge Partners, bought the assets of failed BankUnited FSB in May 2009 from the Federal Deposit Insurance Corp., and put $900 million into it. The revived bank went public in January in an IPO that exceeded expectations. “It was a terrific deal,” the lawyer said.
Still, the recent deals are best viewed in isolation, rather than as part of a larger trend, the banker said. “Is it over? No, it’s not over, because I don’t think it ever really got started.”
Steve Bills is a senior editor at Buyouts Magazine. Any opinions expressed here are entirely his own. Follow him on Twitter @Steve_Bills. Follow Buyouts tweets @Buyouts. For information on how to subscribe, contact Greg Winterton at email@example.com.