Private-equity firms are finally getting comfortable buying banks -- just as long as the government is there to sweeten the pot.

On Thursday, a group of buyout firms -- including Blackstone Group LP, Carlyle Group, and WL Ross & Co. -- purchased Florida's failed BankUnited FSB, injecting $900 million to recapitalize the Coral Gables company.
Government regulators billed the transaction as a welcome partnership between private investors and public funds. But it is clear the public will bear most of the burden of rebuilding BankUnited, showing just how fraught investors remain about the financial sector.
The government will share in any future loan losses on $10.7 billion of the bank's $12.8 billion in assets. The Federal Deposit Insurance Corp. will assume 80% of the first $4 billion in losses and 95% of any remaining losses, according to people familiar with the deal. That effectively gives the new owners a clean balance sheet from which to operate the bank's 85 branches and expand the franchise.
The public face of the deal is John Kanas, the former chief executive of North Fork Bank, which grew from its roots on Long Island into a larger regional player in the New York area by focusing on professionals and business owners.
Mr. Kanas, who is investing $23.5 million of his own money, is part of the investor group and will run the new BankUnited. He said he and his partners wouldn't have acquired the Florida bank without government backing.
Mr. Kanas aims to replicate his experience with North Fork by buying smaller players. Such a bank doesn't yet exist in Florida in BankUnited's size, which is dominated by big out-of-state banks and very small community banks. Review the details on the banks that have been shut down by federal regulators since the start of 2008.
And such a “roll-up” player hasn't emerged from the handful of failed institutions recently acquired by buyout shops, which are generally focused on profitably winding down damaged mortgage portfolios.
BankUnited might become something like the old Barnett Banks Inc., which was once Florida's largest bank with $33 billion deposits and nearly 20% market share. It was gobbled up by what is today Bank of America Corp. in 1997. “Barnett was really on the road to become a powerhouse. Somebody is going to create it,” Mr. Kanas said. His BankUnited deal “is an important step towards what Barnett might have become” had it not been sold.
BankUnited, with $8.6 billion in deposits, remains a long way from that size. Still, Florida's 400 banks should consolidate mightily over the next few years, said Frank S. Knautz, a community-bank consultant in Florida. Mr. Kanas has already said he will be a buyer of any of the 100 or so banks he expects to collapse over the next two years.
A reinvigorated BankUnited comes on the heels of two other large private-equity bank deals -- IndyMac Federal Bank and Flagstar Bancorp -- that required substantial government aid. That means that some of the largest banks in California, Michigan and Florida are in private hands.
“As banks head toward insolvency or failure, potential acquirers are less likely to take on unpredictable and unknown amounts of credit risk without some sort of government assistance,” said Chip MacDonald, a banking lawyer at Jones Day in Atlanta.
Private equity has plenty of reason to be wary. It was just a year ago that buyout firm TPG invested $1.35 billion in Washington Mutual.
(Source: The WSJ)