On Monday, peHUB reported that there are at least three private equity firms capable of taking control stakes in banks, because they’re structured as bank holding companies. One of them, Castle Creek Capital, happens to be in fund-raising mode.
I’ve learned that the firm is seeking $500 million for its fourth effort. Fund-raising launched in June, and its first close is scheduled “by the end of the year,” a source said. With its distressed/turnaround focus, and strict financial services sector mandate, Castle Creek could not be better positioned to take advantage of the current environment. A position that, I argued on Monday, could afford it opportunities to partner with some larger PE firms. The idea is the PE firms may want to buy into distressed financial companies, but are stuck in the minority stake ghetto because of federal regulations.
However, yesterday I learned that Castle Creek does not have a history of partnering with private equity firms and isn’t likely to embrace the strategy now. So follow my thinking here: There are only a small number of PE firms that can take control stakes in the growing pile distressed banks. Not many PE firms want to take minority stakes in banks, because (A) Look what happened to TPG, and (B) Who wants a minority stake in a turnaround anyway? You may as well play the stock market. And finally, PE firms are basically the only guys in finance right now with a ton of money and not a ton of places to put it. So, if Castle Creek isn’t so hot on partnering with PE firms to try and help out a few struggling banks, what’s a firm to do? Methinks $500 million is not going to cover the many regional banks and thrifts in need of help out there anyways. Furthermore, Castle Creek invests in asset managers with between $100 million and $5 billion under management.
By the way, Castle Creek has been around since the late 90s, when it raised its first two funds. Those were wound down right before the buyout boom launched, when, a source said, “the world started to change.” So Castle Creek headed back out to market. Well, the world is certainly changing again, so maybe Castle Creek will evolve with it.
There’s also Belvedere Capital, another bank holding company PE firm. I’ve gathered that Belvedere is more open to partnering with PE firms to take over financial services companies. Unfortunately, Belevedere’s focus is not explicitly turnaround/distressed. Belvedere has just launched its own fund-raising efforts, with a $500 million target for its fifth fund.