Private-Equity Investors Take Profits on Bank Stakes; Buyout Shops Cash In on Purchases Made During Financial Crisis
A handful of private-equity investors who poured money into banks during the financial crisis are cashing out, reaping billions of dollars in profits--in some cases doubling their money--even as many small lenders continue to struggle.</br></br>Their success stands in contrast to dozens of other big investors who scooped up failed institutions but are still stuck with far less profitable holdings.</br></br>The different outcomes show that, during banking crises, the lowest price doesn't necessarily make for the best deal. The investors who do better "are the ones who bought good franchises cheap, not distressed franchises very cheap," said Joshua Siegel, managing principal and chief executive of StoneCastle Partners LLC, a New York firm formed in 2003 to invest in banks.</br></br>Private investors pumped billions of dollars into more than 60 financial institutions from 2008 to 2012, according to data provider Dealogic. Those figures account only for deals for which public data are available. Many bank deals during the period were private and details weren't disclosed.</br></br>Regulators limit private-equity firms to a 24.9% stake in banks. Buyout firms lobbied to raise the limit during the financial crisis, but the Federal Reserve and Federal Deposit Insurance Corp., concerned the investors were interested in making a quick buck without regard for the bank's health, decided against changing the rule.