Fortress to take first step into retail banking

Date: Thursday, May 28, 2009
Author: Henny Sender in New York, FT.com

Fortress Investment Group, a listed private equity and hedge fund company with $26.5bn in assets, is nearing an agreement that would mark the first step in a push into US retail banking, according to people familiar with the transaction.

Under a deal that could be announced as early as Thursday, Fortress and other investors – including private equity firms Crestview Partners and Lightyear Capital – will inject $800m in fresh capital into a small Florida bank called First Southern.

The bank has less than $400m in assets, but is seen as having a relatively clean balance sheet, making it a good vehicle for future banking acquisitions, the people familiar with the deal said. The founders of Fortress, Wes Edens and Pete Briger, are veterans of the government auctions that followed the collapse of the US Savings & Loan system in the 1980s and early 1990s.

The Fortress deal comes days after four private equity firms won BankUnited, another Florida bank, in an auction conducted by government regulators, and nearly five months after a group of private equity and hedge fund investors bought the assets of IndyMac from the Federal Deposit Insurance Corporation.

The Fortress move represents another sign that companies formerly considered part of the “shadow” banking system, such as private equity firms and hedge funds, are seeking opportunities in the regulated banking world.

The Federal Deposit Insurance Corp is in the process of creating guidelines for private equity firms concerning their role when investing in troubled banks.

Fortress shares have gone up in recent weeks amid expectations that it could make money by investing in troubled banks and distressed financial assets.

The First Southern deal does not involve any government support, although it will require regulatory approval.

The investors in BankUnited have a loss-sharing agreement with the US federal government.

BankUnited, which has $13bn in assets, will receive a capital injection of $945m from investors including Blackstone, Carlyle, Centerbridge, WL Ross and the Florida bank’s newly installed chief executive, John Kanas, former chief executive of New York’s North Fork Bank.

“Regulators now have two well-capitalised banks to help them deal with other troubled banks in Florida,” said one person familiar with the Fortress deal.

The Fortress group plans to install Gene Taylor, a former vice-chairman of Bank of America, as chief executive.