Corsair leads $985m equity infusion in US regional bank

The JPMorgan spin-out has partnered with Ontario Teachers’ and the founder of Dell Computers to rescue the subprime-hammered bank National City.

A consortium led by New York-based Corsair Capital, in addition to another undisclosed private equity firm, has agreed to purchase a $985 million (€619 million) stake in National City bank. It is the latest example of a private-equity led bailout of a US savings and loan, as earlier this month a TPG-led consortium purchased a $7 billion stake in Seattle-based Washington Mutual.

As part of National City’s efforts to raise $7 billion in fresh capital, Corsair, the Ontario Teachers’ Pension Plan, and other investors will purchase just less than $800 million in National City stock at $5 per share, a 40 percent discount from the bank’s closing share price last week of $8.33. Teachers’ and Corsair declined to give more specific details as to investment size.

MS Dell, the personal asset manager of Dell Computers founder Michael Dell, supplied an additional investment of roughly $200 million. The bank’s institutional shareholders will purchase $6 billion in common stock, according to a statement from the regional bank.

“National City has historically had an extremely strong presence in its core franchise markets,” Ignacio Jayanti, Corsair president and co-founder, told PEO. “They’ve had a very good relationship with their customer base, and we felt the strategy of going back to basics and focussing the company as a whole on that core was a fundamentally sound strategy.”  

Corsair is investing from its third fund, Corsair III Financial Services Capital Partners, which has a target of $1 billion, according to data services provider Capital Watch.  Corsair declined to confirm the fund’s target.

Founded in 1993 as a private equity affiliate of JPMorgan Chase, Ignacio and fellow co-founder Nicholas Paumgarten spun out Corsair from the banking giant in 2006.

Named after JPMorgan’s yacht, Corsair focuses exclusively on financial services investing, with a particular emphasis on distressed financial institutions.

The firm has traditionally focussed on investments abroad, teaming with JC Flowers in 2006 to purchase a 24 percent stake in HSH Nordbank from German bank WestLB for $1.6 billion. Its other international portfolio companies include Banco Hipotecario Nacional, an Argentine bank specialising in mortgage lending, and Bank Handlowy, a Polish foreign trade bank.

Although Corsair has several US portfolio companies, National City represents the firm’s largest and highest-profile US deal.

“The current environment in the US is a relatively attractive environment to be investing in. We expect that environment to continue, certainly for this year and into the next,” said Jayanti.

News of the Corsair deal came as National City, reeling from loan write-downs and other losses stemming from its exposure to the mortgage meltdown, posted a $171 million loss for the first quarter of 2008. In the last quarter of 2007, National City reported a loss of $319 million.  

As a condition of the equity infusion, Corsair vice chairman and former Credit Suisse executive Richard Thornburgh will join National City’s board of directors.

National City is based in Cleveland, Ohio and has branches throughout the Midwest.