Dan Healy and his old friend John Kanas have covered a lot of common ground since their North Fork Bank in Long Island, N.Y., became part of Capital One a few years ago.
Both jumped into Florida banking by matching private equity dollars with fizzling banks. Kanas' group bought the failed BankUnited last year and recapitalized what's currently the largest bank based in Florida. Healy's group, Bond Street Holdings, has bought three failed Florida banks so far and envisions building a coast-to-coast branch network that he thinks could rival his friend's as the biggest headquartered in the state.
They are not alone in seizing the moment.
Just this year, 22 Florida banks have failed, pushing the state past Georgia to No.1 in that undesired category. Nationally, more than one in 10 banks are on the FDIC's latest troubled banks' list; in Florida, some bank analysts put the number closer to one in three.
The great purge of problem banks has given rise to a new breed of Florida banker: the private equity investor.
They go by names like North American Financial Holdings and BSE Management. They're headed by ex-regulators and former big bankers, such as Bank of America's Gene Taylor, who once ran his company's Tampa-based Florida operation. And they have hundreds of millions, if not billions, of dollars at their disposal to cut deals with regulators for assuming troubled institutions.
SNL Financial counts at least 15 government-assisted deals nationwide since 2006 in which private equity investors have bought banks worth about $60 billion, with the acquisition of the $13 billion-asset BankUnited in South Florida second only to the IndyMac deal.
"We've become the private equity bank capital for the U.S. in Florida in addition to being the bank failure capital of the country," said Ken Thomas, an independent bank consultant and economist based in Miami. "The two are tied together."
Without singling out any bank, Thomas says he's no fan of "carpetbagger" investors that enter Florida buying a troubled bank and then cash out after making minimal investments in the community and minimal attempts to jump-start loans to the state's flagging real estate market.
He's also been a longtime opponent of out-of-state megabanks buying Florida's community banks. But at least the megabanks, he said, are subject to regulatory and political pressures when it comes to community reinvestment and working through troubled loans.
Equity players, especially those with a short-term horizon, don't have the same pressures.
"My concern is how much are they really helping the communities when we have communities that are distressed and have double-digit unemployment," Thomas said.
Healy, a part-time resident of Jupiter, insists he has a long-term goal to grow his collection of small banks into a potential $10 billion institution. "We're not a flipper," he said. "Flipping is for IHOP."
Nonetheless, he's on a mission to make a quick return for investors by going public next year with a target of raising at least $100 million in capital. He said his old friend Kanas told him during a recent dinner of a similar goal to take BankUnited public by the end of this year or early next.
Richard Bove, a banking analyst with Rochdale Securities who has long watched Florida's banking evolution, takes a clinical view of the process.
"People who think the private equity people have come to Florida because they're enamored with the state or the long-term potential here … just don't understand what a private equity company does," Bove said. "They want to be in an investment they can walk away from in two to three years with a big profit."
But in defense of the equity players, Bove points out they have served a purpose at a crucial time. They came up with money that others either didn't have or didn't want to risk. They rose up to stabilize the state's banking market.
Did it work? "Well, BankUnited is still here," Bove points out.
Barnett Banks, once based in Jacksonville, was the last of the truly large commercial banks to be based in Florida. It was sold to NationsBank (now Bank of America) in 1997. Since then, Florida has been reshaped into a banking colony dominated by out-of-state giants like Bank of America, SunTrust and Wachovia, now part of Wells Fargo. More recently, international banks such as Canada's TD Bank have moved aggressively into the state.
Community banks have accounted for a minority of deposits and often have become acquisition targets whenever they grew too big.
Thomas frets that the latest phase, the equity era, wouldn't have happened in healthier times when the Federal Deposit Insurance Corp. tried to match up failed banks with healthy banks, not private investors.
"Now (FDIC Chairwoman) Sheila Bair has decided this grand experiment," he said. "We're going to let them come in, and Florida has become the petri dish for this grand experiment."
So far, the experiment is working out just fine for Kanas and his fellow investors in BankUnited. As part of the May 2009 deal, the FDIC agreed to cover 80 percent of the loan-related losses on the assets that were acquired; for its part, BankUnited injected $875 million in capital into the bank.
The bank's new business model — light on real estate loans and heavy on commercial business loans — has put it on a quick path to profitability. In the first six months of this year, the bank made about $310 million.
Since the acquisition, the BankUnited group has already recouped more than 35 percent of its $875 million investment. Looking ahead, one of its target growth markets is the Tampa Bay region; a branch now under construction in St. Petersburg will give it five locations in the bay area.
"We're going to continue to grow," said Harlan Parrish, who, as BankUnited's senior executive vice president of retail banking, oversees a 78-branch network spread across 13 counties. "The old BankUnited was a CD shop and focused on real estate loans. … We have more of a commercial branch slant — mid-market business and small-business lending opportunities."
BankUnited has repeatedly declined to discuss plans to go public, except to say it could pursue that option any time after a moratorium expires in November.
No matter what happens, Parrish said, the bank will stay devoted to the communities it serves. "I joined the company three months ago after 26 years with another institution (BB&T/Colonial Bank), and I would not have made the jump if I thought this was going to be a short-term flip."
A third player in the market, North American Financial, is scouring the same territory. The group, led by former Bank of America executive Gene Taylor, had a particularly aggressive summer, buying TIB Financial in Naples in June and three other failed Florida banks in July.
But the dealmaking window for all of them appears to be shutting fast.
In the wake of BankUnited, regulators adopted new rules — requiring higher capital requirements and heightened disclosure, among other changes — that have dampened enthusiasm of some private investors.
One group of former Wachovia and First Union bankers withdrew their application for a federal bank charter two weeks ago. The group, called Union National, had intended to raise $2 billion from private investors to buy failed bank assets.
Another group, BSE Management LLC, lost steam even before getting out the gate. BSE had promised to be a force. Led by William Isaac, a former FDIC chairman who lives part time in Sarasota, promoters talked of creating a $2 billion fund that would be highly selective in buying failed banks in the Southeast. George Koehn, a retired CEO of SunTrust Banks' Florida bank operation, would reportedly play a key role. But by May, Isaac was out after being tapped as chairman of Fifth Third Bank, and Bloomberg Business News reported the group was considering disbanding amid the departure of the head of its investment group.
In a report this summer, SNL Financial senior industry editor Nathan Stovall predicted the pace of FDIC-assisted transactions among investor groups would slow as terms become less appealing.
Either way, look for some of the people calling the shots in Florida to change — both at the community bank level as more bankers desperate for cash turn to equity investors and at the higher tier as big banks like JPMorgan Chase and BB&T angle for more of the state's rich deposits.
"The banking landscape (in Florida) has changed substantially over the last several years and there's more to come," said Parrish of BankUnited. "The weak are going to be cast aside, and the strong are going to survive and do well."
Jeff Harrington can be reached at email@example.com or (727) 893-8242. Follow him on Twitter at twitter.com/jeffmharrington.