Friday, January 16, 2009

Let the Bank Takeovers Begin

There are over 8,000 banks, almost 2,000 Savings & Loans and 9,600 credit unions in the United States. That's too many. The largest are too large and the smallest too small. Failures occur at both ends of the spectrum. But the costs appear in different ways. Almost no one notices when small financial institutions fail. The cost of failure at the small institutions means nothing to most consumers. But we begin to panic when the huge financial supermarkets crumble, as Citicorp has done.

Fortunately, some of the huge banks have been led by conservative managements. Wells Fargo, for example. The financial crisis has hit Wells, but it will survive because its management stayed away from the activities that have harmed Citi and other financial institutions that have already disappeared.

However, it takes very little to upset the balance at the smallest banks. They are vulnerable due to their insignificant mass. Thus, the industry, consumers and taxpayers will benefit if small banks merge with their local and regional competitors.

In contrast to the US, Canada has six banks. That's it. Just six. Of course the population of Canada is only 34 million, compared with a US population of 305 million. If the US were to adopt the Canadian model, roughly 60 banks would operate here. That's probably too few for optimal service. But we have 20,000 banking companies, which is clearly too many.


Investor Wilbur L. Ross to Buy Majority Stake in Florida Bank

Jan. 16 (Bloomberg) -- Wilbur L. Ross will buy the majority shares of First Bank and Trust Co. of Indiantown, Florida.

The agreement allows Ross to acquire 68.1 percent of the shares in the community bank, subject to regulatory approval, Ross said today in a PR Newswire statement.

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3 Comments:

Blogger no_slappz said...

Wilbur Ross to Buy a Majority Stake Florida Bank (Update1)

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 personally purchasing a lender. Buyout firms are wary of becoming bank holding companies, a status that may triggers 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.

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.

Coal, Loan Servicing

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.

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, 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.

10:56 AM  
Blogger Torrance Stephens - All-Mi-T said...

what will be next - one world nationalized bank?

11:44 AM  
Blogger no_slappz said...

torrance,

No. New banks pop up all the time.

There have always been thousands of them, and there is no reason to think the number will shrink to Canadian proportions -- Canada has six.

On another note, your site has so many links and other stuff connected to it that it takes forever to load into my browser. You should cut back on all the connections.

11:50 AM  

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