Bank Buyout Boom Stalls Before It Starts

NEW YORK (TheStreet) -- In January, when the Federal Deposit Insurance Corp. announced it had sold IndyMac Bancorp to a group of buyout firms, it looked like it could be the start of something big.

"The government has all the downside and we have all the upside," said J. Christopher Flowers, one of the investors in the deal, at an industry conference a few days later.

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In May, some of the biggest names in private equity, including The Blackstone Group (BX Quote), The Carlyle Group and W.L. Ross & Co., got into the act, teaming up on a similar bid for BankUnited in Florida, which is to be run by former North Fork boss John Kanas .

Now, however, things appear considerably more difficult for the buyout firms. A private equity-led deal to buy another failed Florida bank, First Southern Bancorp, now appears dead in the face of regulatory resistance, according to a report in TheDeal.com. The buyout shops involved in the planned deal, including Fortress Investment Group (FIG Quote), Crestview Partners and Lightyear Capital, all either declined comment or did not return calls.

Blackstone, whose president and COO Hamilton Tony James, had told reporters in May that "we like that play a lot," referring to buying failed banks from the FDIC, now appears to be rethinking things.

"Still looking at this issue internally. Not really ready to talk right now," wrote spokesman Peter Rose via email, in response to an interview request.

One big reason for the diminished interest is new rules from the FDIC, announced in August. The rules subject private buyers of banks to strict capital requirements and lengthy holding periods.