BankUnited Deal May Signal New PE Push

Last week, the Office of Thrift Supervision's approved MatlinPatterson Global Advisors' intended acquisition of Flagstar Bancorp (FBC). Flagstar is a regional bank in Troy, Mich., which is struggling under escalating losses. While Flagstar holds $16.8 billion in assets -- $6.2 billion in retail deposits alone -- its market cap was just over $125 million on Monday, trading around $1.40 per share. A year ago the stock was more than three times higher, and two years ago more than 10 times higher.

Siegel, whose firm has invested $2.3 billion in over 200 banks over the past several years, says deals are attractive today because banks have not been at current discounts for about 25 years. However, he predicts that just a small portion of failed banks will fall into the hands of private equity. He calls banking the "biggest exclusive club in America," because of the difficulties involved in acquiring and operating one.

"It is still very difficult to consummate a deal, not because regulators are being difficult, but because the rules are difficult," says Siegel. "Regulators turn down potential large investors with frequency -- whether it's their personal character, their background, their business plan. Just because you have the money doesn't mean the regulators will allow you to buy the bank."

According to those who have participated in negotiations, regulators are seeking specific details of the investor base, managing partners and PE firm's history, in part to avoid any proverbial egg on the face. Kaplan notes the instance of the financial firm Bank of Credit and Commerce International, which ran a huge scam in the 1980s to deceive auditors, investors and depositors alike, but had slipped under the regulatory radar.

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