US banks attract record $5.5bn private equity investment

Despite a difficult credit market and unprecedented volatility in the US financial services sector, private equity firms poured nearly $6bn in US banks in the first half of the year and are on track to invest more.

Private equity investment in the US banking sector in the first half of the year hit a record $5.5 billion (€3.7 billion) as a result of six deals (see chart below).

According to a report from boutique investment bank Freeman & Company, private equity investment in US banks in the first half of the year totaled nearly $5.5 billion, a figure that already tops annual totals for the past three years and “already translates to a record yearly deal value”.

Freeman’s figures exclude investment activity by sovereign wealth funds and private equity firms incorporated as bank holding companies, both of which have been very active in the sector and would significantly increase that figure, according to analysts who compiled the data.

The banking and broker-dealer segment was one of only two sectors in Freeman’s financial services universe that saw an increase in deal-making activity in the first half of the year. The other sector that saw an increase in deals was asset management. 

The strength in dealmaking comes despite record write-downs of $317.2 billion in the banking sector since June 2007, according to data from Bloomberg. As a result, many US banks have become historically undercapitalised and have begun to trade at record low price-to-book ratios.

The US Federal Reserve acted this week to relax long-standing limitations on how large of an interest non-banking investors, including private equity firms, can acquire in banks before they have to register as bank holding companies.

The previous threshold, set by the 1956 US Bank Holding Company Act at 25 percent of nonvoting stock, has been moved up to 33 percent. The new threshold applies as long as the investor does not own more than 15 percent of any class of voting stock.

Private equity firms have traditionally sought to avoid tripping the thresholds since doing so subjects them to capital requirements, minimum leverage ratios and other regulations imposed on banks. The more relaxed guidelines could spur even more private equity investment in the sector.

Peter Majar, a managing director at Freeman, told PEO that the change was “certainly a positive development” and that “looking at the next 12 months, it would encourage us to think that it [private equity investment] will be more robust than we would have expected a month ago.”

Top six private equity bank investments, year to date

Private Equity Firm

Portfolio Company Date




 Washington Mutual 8 Apr.


 2  JC Flowers  Shinsei Bank Limited  17 Jan.


 3  Corsair Capital  National City  2 May


 4  JC Flowers  Sinsei Bank Limited  4 Feb.


 5  Cerberus  Aozora Bank  3 Mar.


 6  FPK, JC Flowers  InvesTorgBank  26 Jun.


Source: Freeman & Co.