Tue, Apr 21, 2015
A A A
Welcome Guest
Free Trial RSS
Get FREE trial access to our award winning publications
Private Equity Strategies

Movers & Shakers: Private Capital Lines Up Behind Community Banks

Wednesday, June 11, 2014

Community banks across the world are facing a barrage of changes as new regulations come into force. However, those regulations weren't originally aimed at them, they were aimed at the too big to fail multinational banks. For community banks, which by their nature have smaller resources meeting compliance requirements, cleaning up toxic assets and managing non-performing loans is a daunting task. Observers of the industry have also noted other factors including a wave of retirement from top management of many of these banks, and growing consolidation.

Taken together, it may well look like we could be facing a world without community banks. But new financial firms are stepping in to line up private capital behind community banks in a variety of ways. These companies are buying portfolios of non-performing loans, acquiring community banks as management retires, and setting up joint ventures to help manage the load.

Signature Group Investments is one such firm, it recently purchased a pool of non-performing and performing loans from a New York City based community bank. When firms like Signature step in, community banks can remove portfolios of business that could keep them from being in compliance with new financial regulations or could just be a drag on the overall profile of the bank. In turn, firms like Signature can use their expertise to deal with the non-performing loans and rebuild returns. In this purchase, Signature joined with a private equity firm to complete the transaction. In other cases Signature has directly partnered with community banks. And most recently, Signature decided to secure more permanent funding from family offices and high net worth individuals by engaging the GrowthCap team to manage its capital raise on the GrowthCap platform.

Deals like this are likely to become more common as private capital providers like private equity and hedge fund firms, along with specialty finance shops step in to provide capital where the big banks won't. As new regulations like Dodd-Frank, and Basel III have come into force worldwide, making small loans is no longer economical for the big banks and the compliance burden for community banks means resources are tight for them as well. The advent of this reality prompted some industry sources to note that there is a greater incentive for community banks to just close up shop in the face of new regulations, especially if retirement was already imminent for top management.

Capital and margin requirements for banks also forced an early sell off of certain loan types that banks used to lend to each other, and non-performing parts of bank balance sheets have readily come up for sale. For private capital firms, they've capitalized on the opportunity to provide capacity and buy up that paper.

Now, regulatory relief for community banks may be on the horizon. New Fed Chief Janet Yellen said earlier this month that there should be a tiered regulatory structure in place that takes into account the size and loan profile common to a community bank. The Independent Community Bankers Association (ICBA) has been pushing for changes to the rules to reflect a more realistic picture of banking since Dodd-Frank was passed. So far, the ICBA has been successful at getting community banks exempted from the Volcker Rule and setting up differing tiers of compliance could be another victory for the organization.

"Community bankers know we can't rest on our laurels. We have to strike while the iron is hot – whether it is a loan to a local small business or grass roots outreach on important legislation," ICBA President and Chief Executive Officer Cameron Fine wrote in a blog post on April 11. The add-on investment went to Towncare Dental which is now part of the Dental Care Alliance, another Quad-C company. "DCA has been growing by acquisition and Towncare represents a significant addition there," Burns adds. So is it the end for community banks? Not yet. But, times are tight and community banks may look wholly different when the dust settles. Watch this space.

 
This article was published in Opalesque's Private Equity Strategies our monthly research update on the global private equity landscape including all sectors and market caps.
Private Equity Strategies
Private Equity Strategies
Private Equity Strategies
Private Equity Strategies


Today's Exclusives Today's Other Voices More Exclusives
Previous Opalesque Exclusives                                  
More Other Voices
Previous Other Voices                                               
Access Alternative Market Briefing


  • Top Forwarded
  • Top Tracked
  • Top Searched
  1. Studies - Fund managers bullish on equities, alternative asset classes, Hedge funds starting to spurn emerging markets, Insurance companies take aggressive approach to hedge funds despite restricted exposure[more]

    Fund managers bullish on equities, alternative asset classes From Benefitnews.co: Asset allocation and risk continue to be the top issues for institutional investors in 2015 and, while nobody is sure what the economy will do in 2015, investment fund managers remain positive about investm

  2. Investing - New hedge fund strategy: Dispute the patent, short the stock, David Einhorn bets on AerCap as leasing company avoids turbulence, Top hedge funds reveal these best investing ideas, Hedge funds bet big on PetSmart price bump, Victory Park Capital increases investment in upstart to $500m[more]

    New hedge fund strategy: Dispute the patent, short the stock From WSJ.com: A well-known hedge-fund manager is taking a novel approach to making money: filing and publicizing patent challenges against pharmaceutical companies while also betting against their shares. Kyle Bass, head of Hay

  3. Tiger Global falls 2.9% in March, down 5.3% in Q1[more]

    From Reuters.com: Investment firm Tiger Global Management, one of the hedge fund industry's most closely watched players, told clients that its hedge fund lost 5.3 percent during the first quarter, an investor said on Wednesday. Much of the decline came in March when the fund lost 2.9 percent,

  4. It’s not just hedge funds—IMF study finds stability risks from ‘vanilla’ funds[more]

    From MarketWatch.com: Leveraged hedge funds and banklike money-market funds are the parts of the asset-management industry most associated with risks to financial stability. But a report from the International Monetary Fund suggests that “plain-vanilla” mutual funds and exchange-traded funds also ca

  5. Hedge funds gain 2.4% in Q1 driven by currency and commodity markets[more]

    Komfie Manalo, Opalesque Asia: Hedge funds posted positive results last March to conclude a strong first quarter, with performance driven by strong macro trends in currency and commodity markets, complemented by broad-based gains and positioning in event driven, equity hedge and fixed income-b

banner