New York vultures swoop in on failed Florida bank
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| Wilbur Ross, canary in a coal mine |
A flock of New York vultures (the leveraged-buyout sector) swooped in to snatch BankUnited, and this morning's Wall Street Journal called it "a stark reminder of how fragile many banks in the country remain."
BankUnited's collapse is the second-biggest of the crisis, topped only by IndyMac's failure last July. The severely undercapitalized FDIC, on the hook for $4.9 billion, sold the bank to private-equity chaps led by John Kanas (formerly of North Fork Bank) and including Wilbur Ross, a Palm Beach socialite by night but a well-known New York-based bottom-feeder on failing companies by day. (Mark Reutter, author of Making Steel, says, "Wilbur Ross is Charles Schwab without the charisma.")
Ross, once known as the "king of bankruptcy" and formerly Mayor Rudy Giuliani's privatization advisor, is like the canary in the coal mine: Where he goes is a sure sign of danger in that particular industry. Sometimes, it's actually the mining industry, as I noted in January 2006 ("Vulture in a Coal Mine"). Sometimes it's steel or other industries. Now it's banks. That's fine, but the current entry of vultures into bank-buying is not exactly a free-market or privatization thing; it's more like corporate welfare, because taxpayers are practically guaranteeing success for the new owners. As the story notes:
But investors were willing to pump money into BankUnited only after regulators seized it and agreed to protect investors against most losses on the bank's troubled loans. That doesn't bode well for other troubled banks looking to lure outside capital.
This could be the start of a new phase of the current crisis: one in which many medium-sized or small banks will fail, and the hedge funds will finally start turning loose of the money they've been sitting on — but only after the government hedges their bets.
OK, so maybe it's not entirely a new idea for the vulture sector. Anyway, the WSJ story notes:
It's the first bank investment for Blackstone, the New York private-equity giant led by Stephen Schwarzman. The new owners hope to use BankUnited as an acquisition vehicle when other Florida-based banks go under, according to a person familiar with the group's thinking.
Expect to see more of this, in other words: The big money remains frozen solid on the sidelines until a failure is declared, and then, only then, do the private-equity boys start pumping money back into the economy.
Meanwhile, BankUnited didn't fail as a result of the crisis as much as it failed because its execs got too greedy and made bad decisions:
Some investors questioned BankUnited's emphasis on such loans, which primarily went to people in Latin America who wanted a Florida home for vacation or investment purposes. Skeptics argued the loans were riskier than mortgages to U.S. residents because the loans didn't finance borrowers' primary residences. When the Florida real-estate market eroded, some borrowers became delinquent or defaulted on their loans.
1 comment(s)
This post illustrates the biggest problem with the VV. It's the New York perspective. If you had writers from say, Oklahoma, or somewhere like that, your views would be less elite.
Posted On: Saturday, May. 23 2009 @ 12:17PM