Bank M&A May Not Aid Small Investors

NEW YORK (TheStreet) -- Given the composition of bidders for failed and troubled banks, it appears that ordinary investors won't have the same opportunity to reap benefits of the recovery the way they did in the 1990s.

The last giant wave of bank failures came with the savings and loan crisis that kicked off in the late 1980s. Between 1989 and 1995, a huge number of banks failed as a result of poor lending practices that caused losses to pile up high. The Federal Deposit Insurance Corp. estimates $95 billion in losses from 1,432 failed banks over that period.

Both private and public bank investors were allowed to pick at the failed institutions' skeletons. Some transactions received FDIC assistance, while others took advantage of the Resolution Trust Corp., a structure for investors to acquire failed bank assets.

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Private-equity investors like J. Christopher Flowers garnered a reputation for locking in huge profits as a result of the S&L crisis. They had plenty of capital, and the federal government was providing assistance on losses, while offering assets for a steal just to get the problem off its hands.

But "regular" banks -- and their investors -- also did well.

For instance, Bank of America(BAC Quote) picked up quite a few small S&L gems through the 1990s in its former life as a regional southern bank called both North Carolina National Bank and NationsBank. Of course NationsBank became the behemoth it is today from buying much healthier commercial banks like C&S/Sovran, Boatmen's Bancshares, BankAmerica, FleetBoston and LaSalle, and then moved into other territory with the MBNA, U.S. Trust, Countrywide and Merrill deals. Today, BofA is the largest bank in the nation, touting business relationships with one of every two U.S. households.