Wilbur Ross Says He'll Consider Buying Large Banks

So Wilbur Ross bought a bank next week. From Bloomberg:

"Ross Buys Florida Bank, Paving Way for Acquisitions (Update3)
By Jonathan Keehner and Jamie McGee

Jan. 16 (Bloomberg) -- Wilbur L. Ross, the investor who made billions turning around distressed steel and textile companies, will buy a majority stake in First Bank and Trust Co., giving him a platform to purchase more banking assets.

The agreement allows Ross, who previously said he was targeting regional lenders, to acquire 68.1 percent of the shares in the Indiantown, Florida-based community bank, subject to regulatory approval, Ross said today in a statement.

The bank has “good opportunities” to expand, Ross said in a Bloomberg Television interview today. “We view the whole financial services sector as a very interesting one.”

Ross joins J. Christopher Flowers, founder of private-equity firm J.C. Flowers & Co., in purchasing lenders personally, rather than through their firms. Buyout funds are wary of becoming bank holding companies, a status that may trigger restrictions on non- banking activities and the amount of debt they can take on.

Ross, who heads the WL Ross & Co. buyout firm, has a pattern of acquiring one company in a struggling industry and augmenting it by buying similar firms.

He was drawn to First Bank and Trust because of its growth prospects, Ross said. Florida Power & Light Co., a utility company based in Miami, broke ground in December on a solar energy plant in Indiantown, according to the company’s Web site.

“That’s stimulating the economy there,” Ross said. “The expansion of business opportunities by the Seminole tribe is also helpful to that area.”

First Bank and Trust has $83.5 million in total assets as of Sept. 30, and the bank is ranked 252nd of 309 Florida banks in total assets as of Jan. 15, according to the Federal Deposit Insurance Corp. Web site.

Coal, Loan Servicing

In textiles, Ross began with Burlington Industries Inc. and Cone Mills Corp., both based in Greensboro, North Carolina, creating International Textile Group Inc. Then he expanded with joint ventures in places such as Turkey and India.

He bought into the coal industry in 2005, assembling International Coal Group Inc. from the mines of bankrupt Anker Coal Group Inc. of Morgantown, West Virginia, and Coalquest Development LLC of Ashland, Kentucky. He paid $275 million in stock and then raised about $250 million in an initial public offering.

Ross also won an Oct. 5 auction for the home-loan servicing unit of Melville, New York-based American Home Mortgage Investment Corp.

The lender has branches in Lakeport, Okeechobee and Palm City. Linda Post, whose family founded the bank in 1959, will retain a 23 percent stake, according to Ross’s statement. Terms weren’t disclosed.

Ross said he will focus on regulatory approval for the First Bank and Trust purchase before looking into other acquisitions.

Banks Possible

“We’d look at all the banks that are offering themselves up,” Ross said. “What we think will now happen is some of the institutions that already got TARP money will need more. The question will be, will TARP continue to provide the money on very inexpensive terms or will they need to look to private equity?”( WHY NOT MAKE AN OFFER? HAS HE HEARD OF BARCLAYS? )

The U.S. Senate voted yesterday to allow the use of $350 billion in financial rescue funds as a part of the Troubled Asset Relief Program.

Flowers was approved personally in August by regulators to acquire the First National Bank of Cainesville in Missouri, a move that may allow him to buy other lenders. He may use the bank, which had assets of about $14 million, as a platform to buy failed institutions( IF THEY ARE BANKS, THIS NEEDS TO BE DONE BY THE FDIC I BELIEVE. ), according to a person close to Flowers, who asked not to be identified because the plans are private.

The Flowers firm agreed earlier this month to take a minority stake in IndyMac Bank as part of a group of investors.

To contact the reporter on this story: Jonathan Keehner in New York at jkeehner@bloomberg.net"

Wilbur Ross Says He'll Consider Buying Large Banks

Listen to this as well. It's interesting. He just bought a bank without toxic assets. How's he going to buy one with them? In other words, he's buying banks that are solvent, but are cheap to acquire in this general downturn. That's what he means by "good banks" and "bad banks". It's possible that he could have bought a TARP recipient without TARP money. Who knows? It just sounds like he's irked because he wants to buy banks and TARP didn't allow that to happen. But why should we wait for him? He's not guaranteeing he'll buy one at all.

By the way, if TARP is so good a deal, why didn't he buy a bank to get in on it, as others did?

"so the insurer can be eligible for the Treasury rescue program."

This is going too far. From Alphaville:

"Bloomberg:

Nov. 14 (Bloomberg) — Hartford Financial Services Group Inc. said it’s buying a Florida bank [Federal Trust Bank] for $10 million so the insurer can be eligible for the Treasury rescue program.

Hartford, based in the Connecticut city of the same name, expects to qualify for $1.1 billion to $3.4 billion under Treasury guidelines, the company said in a statement distributed today by Business Wire.

What blatant abuse. From the statement:

“We are taking these actions as a strong and well-capitalized financial institution looking for maximum flexibility and stability,” said Ramani Ayer, The Hartford’s chairman and chief executive officer. “Securing capital at the terms available through the Capital Purchase Program could be a prudent course in this market environment and would allow us to further supplement our existing capital resources.”

(Translation: Pay $10m, get $3.4bn of funding? Where do we sign?)"

So, today we have cities applying, possibly foreign banks like UBS, and this.

Remember the Fact/Parody Jinx? I'm sorry, but Alphaville is partly to blame for this madness. Never defy the gods.

"Can I have myself declared to be a bank? ": Redux

This must be a worldwide movement. Robert Peston on the BBC:

"For me, the most interesting story of the past 24 hours is that VW, the stressed German carmaker, is trying to raise €2.8bn (£2.2bn) from the European Central Bank.

It plans to raise cash from the ECB in exchange for €2.8bn of securities backed by car loans.

In effect, the ECB - and ultimately taxpayers in the eurozone - would be financing purchases of automobiles.

Crikey, is all that comes to mind.

What next?

Perhaps Marks & Spencer will be able to dump its unsold jumpers and knickers on the Bank of England, in exchange for a bit of useful short-term credit (the contraction in retail sales for October reported today by the British Retail Consortium is the first fall that the trade body has ever reported that wasn't caused by special factors, such as the timing of public holidays).

Or perhaps the Bank of England will allow Taylor Wimpey - which reported pretty dire results again today - to swap its unsold houses and land for some Treasury bills via a re-worked special liquidity scheme."

Or how about this from Yves Smith:

"Does Everybody Get To Be a Bank? Now Amex Joins the Club

James Carville said that when he died, he wanted to come back as the bond market, that way he could intimidate everybody. If asked today, i suspect he'd ask to come back as a bank. They get all the bennies.

Seriously, Amex becoming a bank? This is patently ludicrous. Amex poses no systemic risk, so they don't have a case for needing access to the Fed window. They once owned a bank in connection with their wealth management business, but that is a thing of the past.

The process has now become ludicrous. Amex gets to become a bank to help with its credit card business, which in case you have not been paying attention, has been cutting credit lines to existing customers en masse (I have heard of a case with eight figure net worth, infrequent user, impeccable credit score, who nevertheless had his credit line cut by 50%).

And since no credit card bonds were sold last month, the purpose of this exercise is so that Amex can borrow against its credit card receivables at the Fed window at preferred rates. I am not making this up.

Willem Buiter once said that US regs permitted the Fed to lend against any collateral, including a dead dog. We are getting perilously close to that.

America needs to get its consumption down, but apparently the powers that be are going to use any trick possible to try to keep the American shop-a-holic habit going.

From Bloomberg:

American Express Co. won Federal Reserve approval to convert to a commercial bank."

Now, here's my post from a while back:

Wednesday, October 22, 2008
"Quite frankly, it is a very attractively priced alternative,"

It doesn't get much clearer than this that our credit stimulus plan without a stimulus was negotiated by the government with far too generous a deal. From the Washington Post:

"When the Treasury's program was announced last week, some bank executives said they didn't need the money and resented the federal intrusion. But in a number of earnings calls and interviews in recent days, several bank executives were more receptive.

The federal deal is relatively sweet in financial terms -- it requires banks to pay 5 percent interest annually on the investment over the first five years -- and some bankers said they would not pass it up.

A number of local banks are strongly considering applying for the Treasury program.

Virginia Commerce Bank, which has 26 branches and $2.2 billion in deposits, said it is looking to add $25 million to its capital base by the end of the year. In the past, the company said it was considering issuing stock to raise that capital, but the bank said yesterday that it may apply to the Treasury's program.

"Quite frankly, it is a very attractively priced alternative," chief executive Peter A. Converse told analysts."

How about this, from the NY Times:

"Only a week after the government announced $250 billion in capital for banks, some investors are getting creative in their suggestions on who should qualify.

David Bullock, managing director of Advent Capital Management, wrote a letter to the chief financial officer of GMAC on Tuesday, suggesting that the former General Motors financing arm turn itself into a bank holding company so that it can grab some of the cash.

In Europe, Mr. Bullock pointed out, parts of the auto industry are benefiting from bank rescue.plans. So why not in the United States?."

I'm not making this up. Here's my comment ( For more on GMAC, go here ):

“Only a week after the government announced $250 billion in capital for banks, some investors are getting creative in their suggestions on who should qualify.

David Bullock, a hedge fund manager in New York, wrote a letter to the chief financial officer of GMAC on Tuesday, suggesting that the former General Motors financing arm turn itself into a bank holding company so that it can grab some of the cash.”

Come on ! How onerous can the terms of TARP be that people who don’t need it are starting to line up to receive it? What more proof do we need that the government negotiated a terrible deal for the taxpayer?

The next thing we know, Google and Apple will be turning themselves into banks. Can I have myself declared to be a bank?

— Posted by Don the libertarian Democrat