Lovell Minnick Partners LLC has been investing in asset managers and brokerages for more than a decade, but the downturn widened its horizons.
For the first time in its history, the El Segundo private equity firm took stakes in bank holding companies.
Indeed, the notoriously tightly regulated industry has been mostly off-limits to private equity investors in the past. But that’s starting to change.
“The relaxation of the regulatory environment is enabling private equity firms to make more meaningful investments in banks,” said Jeff Lovell, who co-founded the firm in 1999. “The activity is certainly being driven by firms that traditionally have not been involved in the financial services sector.”
A number of private equity firms began sniffing around banks at the first signs of trouble.
Private equity was behind one of the largest failed bank acquisitions when a team that included John Paulson and J. Christopher Flowers established a bank holding company and bought IndyMac Bank in 2009.
Now, some of the largest local firms, including Leonard Green & Partners, are taking direct stakes in sizable banks. A change in federal regulations since the financial crisis allows the firms to take larger minority stakes of up to 25 percent without having to establish holding companies.
Lovell Minnick, which is sitting on about $300 million of capital in a fund closed last year, made its first such investment when it put $15 million into Seaside National Bank & Trust during the recession.
A subsidiary of Three Shores Bancorporation Inc., Seaside was founded in 2006 to provide commercial banking and wealthy management services to the greater Orlando, Fla., market. But it started up on the eve of the recession and never turned a profit, according to data from Bloomberg News. It needed to be recapitalized and accepted more than $40 million from a team of private equity investors, including Lovell Minnick. Lovell said he expects more deals in the future.
Still, the industry is very unsettled, as Lovell Minnick learned recently. In October, the firm committed $47 million to Denver’s United Western Bancorp for a roughly 24 percent stake. The investment was part of a capital-raising effort by the savings and loan.
But on Jan. 21, regulators seized United Western despite receiving commitments for $149 million in new capital, prompting the thrift’s former officers to file a lawsuit against the Federal Deposit Insurance Corp. over the action. While Lovell Minnick did not lose money and is not part of the lawsuit, Lovell sees a missed opportunity.
“We were all quite surprised and disappointed,” he said. “The bank wasn’t far from the goal line.”
Lovell Minnick Partners LLC
BUSINESS: Private equity investing in financial companies.
LATEST ACQUISITION: Took minority stake in Seaside National Bank & Trust in November 2009.
AMOUNT: $15 million
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