Private-equity titan Wilbur Ross hates new rules for buying banks
Ross, who runs WL Ross & Co., joined with a handful of other big private-equity investors to buy the remains of Florida's BankUnited after it was seized by regulators in May. But if the new rules pass, "I assure you that my firm will never again bid if the proposed policy statement is adopted in its present form," he reportedly wrote in a letter to the Federal Deposit Insurance Corp.
Bloomberg News reported on the content of Ross's letter, which isn't available yet on the FDIC's website.
The FDIC wants to impose tougher standards on banks owned by loosely regulated private-equity firms and hedge funds. Investors would have to hold onto the banks for three years and maintain higher capital ratios to buffer against potential losses than are required for other banks.
And Ross is not the first big-time private-equity investor to balk at the rules. John Paulson, president of Paulson & Co., one of the firms that bought IndyMac Federal Bank in January, is also on the record as opposing the proposed rules as they stand now. Like Ross, Paulson said his hedge-fund firm would probably shy away from buying failed-banks' assets if the rules passed.
"Although Paulson wants to invest more in failed banks, as the complexity, capital requirements, risk and limitations of such transactions increase, we have to consider other potential investments," Paulson wrote to the FDIC (PDF).
Opposition from investors like Paulson and Ross is significant, because private investors have emerged as key buyers for failed medium-size banks. IndyMac, which Paulson & Co. bought with J.C. Flowers and Dune Capital, had $32 billion when it failed in July 2008. BankUnited, taken over by W.L. Ross, Carlyle Group, and Blackstone Group, among others, in May, had $12.8 billion in assets.
Another of the nine letters regarding the proposed changes that's available on the FDIC's website put the challenge of finding buyers for failed banks in stark terms.
When Horizon Bank, a Minnesota bank with $87 million in assets, failed last month, "the FDIC contacted 547 potential bidders and just a single bid was received," wrote Judy Thorpe (PDF), senior vice president of American Marine Bank in Bainbridge Island, Washington.