A wave of bank failures this year is expected to create a feeding frenzy among would-be buyers, with private-equity firms likely edged out as relatively healthy banks like JPMorgan Chase swoop in to pick the bones of their battered, smaller brethren.
While the Federal Deposit Insurance Corp. has a list of more than 300 so-called problem banks, Phil Colaco, a managing director at investment banking firm McColl Partners, estimates there are as many as 780 mostly small banks that are in jeopardy of going under over the next 24 months thanks to souring loans eating into their meager deposit bases.
Already, about 36 banks have failed this year – 10 more than last year and 33 more than in 2007.
While many of the bank failures from this year have been soaked up by private-equity firms like The Blackstone Group and Fortress Investment Group, sources said bank regulators and the FDIC have expressed concern about letting private-equity firms gobble up too many pieces of this vital part of the banking system.
With that in mind, the FDIC, which is typically appointed to oversee liquidations of banks and thrifts, is considering encouraging healthier banks to purchase part or all of a troubled institution’s deposits and bank branches.
“We think there might be some amazing opportunities for banks,” Colaco noted.
To be sure, many large institutions continue to struggle to keep their financial house in order. But for a select few, the economic pain sweeping through the banking sector may present a unique opportunity to establish beachheads in markets in which they previously didn’t have a presence.
Indeed, expanding in underrepresented markets such as the Southeast is exactly what Jamie Dimon’s JPMorgan may look to do even after having acquired Seattle-based Washington Mutual’s deposits and branches last year and investment bank Bear Stearns. Colaco noted that Southeastern banks show significant signs of weakness. He estimates that there are 101 troubled banks in Georgia and 91 in Florida on the brink.
Ultimately, the biggest beneficiaries of fallen savings and thrifts may be healthier mid-tier banks such as Wayne, NJ-based Valley National Bank, Winston-Salem, NC-based BB&T and Waterbury, Conn.-based Webster Financial, which Colaco believes are all in a strong position to boost their deposits and branches by making acquisitions.
Bank failures this year have so far cost the FDIC $6.2 billion, including $4.9 billion for Florida-based BankUnited.