NEW YORK (Reuters) – Investor Wilbur Ross, who made a fortune snapping up distressed companies, announced on Friday the first of what is expected to be a series of bank acquisitions across the United States.
Ross personally agreed to buy more than 68 percent of First Bank & Trust Co, a Indiantown community bank with a handful of branches and $83 million in assets and $8 million equity, from Linda Post, widow of the bank’s former chairman. It is a tiny deal, but the first of more takeovers by an investor known for getting in before sectors rebound.
“We continue to look for other deals, but I don’t think we’d buy little banks. We want to buy a big bank in distress,” Ross told Reuters in a telephone interview.
Ross has wanted to buy financial stocks hammered by the credit crisis, but the U.S. Treasury’s plan last fall to inject $350 billion into banks through the troubled asset relief program (TARP) delayed his efforts for months.
But banks continue to generate losses, which may trigger yet another round of capital raising.
“My guess is the original TARP was not enough,” Ross said. “The question is will TARP continue to fund them on very generous terms, or will the government leave it to the private equity market?”
TARP RELIEF ONLY TEMPORARY
Ross became a billionaire over the years by snapping up assets in beaten down industries — from coal miners and auto parts makers to steel and textile mills — consolidating businesses and then reaping profits as sectors recovered.
Right now financial institutions are on sale at deep discounts thanks to a two-year-long credit crisis that shows no signs of slowing.
Banks, brokers and insurers have soaked up hundreds of billions of dollars in fresh capital from the U.S. government and, to a lesser extent, from private equity firms such as Ross’ WL Ross & Co and foreign government funds.
Going forward, Ross said private equity could play a bigger role in filling capital gaps created by mounting loan losses and writedowns.
“Banks got a temporary reprieve from TARP, as we are seeing in the context of Citi (C.N) and Bank of America (BAC.N),” Ross said.
Earlier on Friday, Citi and BofA, both seeking second rounds of government capital after initial TARP investments proved insufficient, reported massive fourth-quarter losses.
“The original TARP money may not be remotely enough for the banks,” he said. “Consequently, there will be opportunities to come around again.”
Ross noted the Treasury provided capital at attractive terms and has remained a passive investor. By contrast, private funds usually seek common stock, which dilutes existing shareholders and install leaders to revamp companies.
“Many banks need management changes,” he said.
About one year ago, WL Ross recruited former North Fork Bancorp CEO John Kanas to help identify, restructure and manage distressed financial services institutions.
In the past year, WL Ross has acquired H&R Block Inc’s (HRB.N) subprime mortgage servicing operations for $1.3 billion and bankrupt American Home Mortgage Investment Corp. Last February, he poured $250 million into Assured Guaranty Ltd (AGO.N), but the bond insurer’s market value has been nearly cut in half since then.
First Bank represents a slightly different strategy. The family owned bank, located an hour from Ross’ Palm Beach residence, avoided the lending problems that gripped most Florida banks. Post, the seller, will remain a director and retain a 23 percent interest.
The Indiantown area is also expected to benefit from plans by a Florida utility to develop solar energy systems there and by its proximity to the Seminole reservation, which has become a major business force with its casino investments.
“Because it is a clean bank, it could very well be in position to do deals with other small clean banks and/or with some troubled banks,” Ross said.
“There are too many banks in this country. We have about 8,000 and only a small handful has half the deposits,” Ross said. “I think you will see consolidation within the industry. It is both inevitable and desirable.”
WL Ross, formed by Ross in 2000, has been apart of fund manager Invesco Ltd (IVZ.N) since 2006.
By Joseph A. Giannone
(Editing by Andre Grenon)