IndyMac deal may be a thing of the past

Proposed government regulations of private equity ownership of commercial banks will stifle investment in the sector and prevent another transaction like the buyout of IndyMac, according to Sander Levy, founding partner of Vestar Capital Partners.

“Did you ever get invited to a really hot party where you weren’t really wanted? That’s a lot like what’s going on,” said Levy, who was speaking at Columbia University’s 16th annual private equity and venture capital conference in New York Friday. Financial services is one area of Vestar's focus.

“There’s been massive dislocation in the depository space. We thought [private equity] would be part of an attractive solution … we were surprised at the backlash that has gone on,” Levy said.

Sander Levy

The acquisition of failed bank IndyMac by a group of private equity firms last spring is an example of a successful investment in the space, Levy said. In January 2009, a consortium of buyout firms including JC Flowers, Stone Point Capital, MSD Capital and Dune Capital bought failed American mortgage lender IndyMac for $13.9 billion.

Last spring, another private equity group consisting of The Blackstone Group, The Carlyle Group, Centerbridge Partners and WL Ross joined institutional co-investors like UK-based charity The Wellcome Trust in backing the $900 million buyout of BankUnited.

The acquisitions took place before the main US banking regulator, the Federal Deposit Insurance Corporation, set stricter standards for private equity ownership of banks. The rules took effect last August. One main provision of the rules is that private equity firms are required to keep their banks better capitalised than other kinds of owners, at a leverage ratio of 10 percent. Also, firms have a required holding period of three years for banks to prevent so-called “quick flips”.

“I would be surprised if you see another IndyMac,” Levy said.