Hedge Fund Hotshot Banks on M&A Wave

Eventually with just $3 million, Cutler and a colleague launched Florida-based Madison BancShares in 1985. Two years later, they opened Flagship Bank and Trust in Worcester.

While Cutler was excited at the prospect of being in the banking business, he says it was harder than it looked.

"I'm not a banker," he said in an interview with TheStreet.com. "The banking business turned out to be like any other business. There is no free lunch in banking. Over the years it has become extremely competitive."

Cutler and other shareholders agreed in 1996 to sell Flagship to Chittenden(CHZ Quote - Cramer on CHZ - Stock Picks), a $6.6 billion-asset banking company in Burlington, Vt. It still operates under the Flagship name.

Madison was sold to New Orleans-based Whitney Bank(WTNY Quote - Cramer on WTNY - Stock Picks) in 2004 for $66 million in cash and stock.

Whitney bought the four-branch bank in Tampa Bay for 3.6 times book value and 26 times earnings -- a deal that he could not refuse, Cutler says.

Interestingly enough, both Whitney and Chittenden are also considered possible takeout targets. According to Securities and Exchange Commission filings, Cutler Capital owns positions in both.

In fact, some observers say Chittenden's management may be starting to consider a sale.

Chittenden did not return a request for comment. But Winter says that during a roadshow last week with analysts, Chittenden's management spent a lot of time answering questions about a potential sale. He declines to discuss who might be a suitable partner for Chittenden.

"The standard answer was we'll consider anything," he says. "The tone has shifted."

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