(Reuters) – U.S. bank regulators seized troubled Florida lender BankUnited FSB and sold it to some of the most powerful private equity firms in the world.
Firms including Wilbur Ross’s WL Ross & Co, Carlyle Group [CYL.UL], Blackstone Group (BX.N), and Centerbridge Partners are putting up $900 million of capital to rescue the bank, the biggest independent bank in Florida.
The failure is the largest this year, and will cost the Federal Deposit Insurance Corp (FDIC) an estimated $4.9 billion.
The FDIC said on Thursday it is close to providing more guidance for how private equity firms can invest in failing banks. The government is looking for ways to better tap the $1 trillion of total uninvested private equity capital as bank failures accelerate.
John Kanas, a veteran of the banking industry and former head of North Fork Bank, will manage BankUnited.
Kanas must fix a bank that failed after making risky loans known as “option adjustable rate mortgages,” which allow borrowers to choose how much principal to repay every month. These have proven some of the most toxic mortgages during the housing crisis, and the bank’s Florida base is one of the epicenters of that crisis.
But the state still offers opportunity, Ross told Reuters.
“Florida has a very good long-term outlook, not just because of its weather, but also because of its tax policies,” Ross said.
“As states in the Northeast grapple with budget problems, people will migrate to lower tax areas like Florida,” he added.
Kanas said on a media conference call that his group expects to see more distressed banks in the state, and will consider bidding on them.
Bank United FSB, the regulated bank that failed, had $12.8 billion of assets, and $8.6 billion of deposits. Its parent company was BankUnited Financial Corp. (BKUNA.O).
The new BankUnited will take $12.7 billion of the bank’s assets and $8.3 billion of its deposits. The new bank will share losses on the assets with the FDIC, which called the deal the “least costly” of the possible resolutions. The Wall Street Journal reported that the government will take most of the expected losses.
The FDIC has set aside $22 billion to cover bank losses this year, of which it has used up about about $10 billion, a spokesman said.
The regulator and deposit insurer is burning through its available funds quickly, which is why legislators have boosted its line of credit with the U.S. Treasury Department to $100 billion. President Barack Obama signed the law that more than tripled that credit line into law on Wednesday as part of a mortgage bill
The FDIC will provide an update next week on the state of the fund during its quarterly briefing on bank industry earnings.
BankUnited’s 86 offices will open on Friday during normal business hours, the FDIC said. The doors of BankUnited, FSB’s Miami headquarters, a 15-story glass and concrete building located in the Coral Gables district, were closed late on Thursday.
Inside, behind closed doors, a number of employees could be seen talking. Kanas said on a conference call that the group expects to close some of the bank’s branches.
Bank failures have accelerated in 2009. The 34 bank seizures so far compare to 25 in 2008 and just 3 in 2007.
BankUnited is the largest failure since California-based Downey Savings & Loan was closed in November with $12.8 billion in assets.
The Florida bank is hardly the first to be bought by private investors. Private equity and hedge fund investors bought the assets of failed U.S. mortgage lender IndyMac earlier this year, for example.
The FDIC said selling the bank to the consortium was the least costly option and noted that “in the near future” it will provide general guidelines for how private equity investors can make investments in banks.
“Due to the interest of private equity firms in the purchase of depository institutions in receivership, the FDIC has been evaluating the appropriate terms for such investments,” the FDIC said in a statement.
Joseph Vitale, a bank regulatory partner at law firm Schulte Roth & Zabel, said he doubts the FDIC will be opening up new ground in terms of deal structures with their guidance.
“I would imagine that what they are coming out with may further indicate how financially attractive these deals would be,” he said, adding that the FDIC will not likely revamp the way these deals are put together.
Banc of America Merrill Lynch Securities (BAC.N) advised the consortium and Skadden, Arps, Slate, Meagher & Flom acted as legal advisor. Law firm Simpson Thacher & Bartlett advised Blackstone, Carlyle and Centerbridge Partners. Wachtell, Lipton, Rosen & Katz advised WL Ross & Co. (Additional reporting by Paritosh Bansal and Elinor Comlay in NEW YORK, Jon Stempel in CHICAGO and Carlos Barria in MIAMI; Editing by Bernard Orr & Ian Geoghegan)