Christopher Flowers, chairman and founder of financial services-focused private equity firm JC Flowers, has received approval from US regulators to acquire 100 percent of a small Missouri-based bank, the First National Bank of Cainesville, with about $14 million (€8 million) in total assets.
He will acquire the bank personally and has said that he may use it as a platform for acquisitions of other troubled or failed depository institutions, according to a letter from the US Comptroller of the Currency, the administrator of national charter member banks, dated 27 August.
Additionally, he will infuse $1 million of equity capital into the bank and replace the bank’s board with seven new directors, including himself. He will have six months to consummate the transaction.
The development marks the latest in a wave of controlling private equity investments in banks, which have become highly attractive targets for private equity firms as they struggle due to credit market dislocation. Weakened asset valuations have caused many of these institutions to be badly need capital.
But federal regulations, eased somewhat on Monday, require investors with controlling interests to register as bank holding companies and subject themselves to capital requirements, leverage ratios and restrictions on investments in non-banking businesses. This makes investing in the sector a difficult proposition for diverse private equity funds.
As a consequence, private equity funds cannot set up an affiliate of the main limited partnership for investment purposes but must instead form a separate general partnership in order to avoid impacting the rest of the firm.
In accordance with this, the Financial Times had reported last month that Flowers was launching a new fund in his own name.
Flowers’ firm has been among the most active investors in the sector although it has largely remained limited to minority investments overseas. In addition to upping its stake in Japan’s Shinsei Bank, the firm has also taken stakes in Germany’s Landesbank and Hypo Real Estate.