By Matthew Goldstein
NEW YORK (Reuters) - Jason Ader, a former hot-shot casino industry analyst turned wealthy hedge fund manager, is rolling the dice, hoping to become a community banker in Las Vegas.
But federal bank regulators haven't seemed very inclined to grant him his wish. And their reluctance underlines an unusual conundrum at the centre of the U.S. financial system today.
Hundreds of small banks across the country are struggling to keep their doors open, but the industry's overseers in Washington, D.C. are more wary than ever about the breed of high-rollers that inhabit Wall Street, who come bearing bags of cash and the promise of an easy fix.
The fear is that financiers like Ader are looking to make a killing off of distressed community banks. But he and other new bankers are determined to show regulators that they have them all wrong. To hear Ader tell it, he simply wants to help.
Still, the standoff continues.
Seven months ago, Western Liberty Bancorp, a publicly-traded shell company managed by Ader, submitted applications to the Federal Reserve of San Francisco and the Federal Deposit Insurance Corp to acquire Service 1st Bank of Nevada, a small community bank in Las Vegas with just $210 million (137.7 million pounds) in assets. The applications to approve the deal, which the companies first announced last September, are still pending.
The approval process has dragged on so long that Western Liberty upped the amount of new capital it plans to sink into the four-year-old bank from $15 million to $25 million. Shares of New York-based Western Liberty recently were bounced from the NYSE Amex Stock Exchange, after the company with $86 million in cash but no active operations to speak of, failed to meet the exchange's minimum listing requirements.
The 42-year-old Ader, who sits on the board of the Las Vegas Sands resort and casino company, hasn't given up on his wager that he can turn Service 1st, which operates a single branch located just minutes from the Vegas Strip, into a local commercial lender for the gaming industry. A married father of four children and a fixture in the Hamptons, Long Island social scene, Ader is confident the deal will eventually get done.
"Our goal in this transaction is to strengthen an existing Nevada community bank, while generally infusing more capital into the Nevada banking system and local economy," Ader said in a recent interview at the midtown New York offices of Hayground Cove Asset Management, the $550 million hedge fund that he also manages. "Our plan is to relist (the shares) after the deal is completed and approved. The NYSE has told us they want us to relist."
Ader's this-will-help-the-economy sales pitch may be his best bargaining chip with regulators. And it's something they are hearing more and more these days from money managers itching to break into the banking business.
To some degree, it's a strategy born of necessity. While regulators remain wary of Wall Street's new bankers, they recognise the pressing need for community banks to raise billions in new capital to avoid shuttering up.
FEAR OF EASY MONEY
The stalemate comes as a surprise to some. At the outset of the financial crisis the conventional wisdom was that private equity firms and hedge funds would emerge as the main buyers at government auctions of banks seized by regulators.
The experts said private investors would trip over one another for the right to buy a failed bank. After all, the deals still look like easy money -- all upside if the economy recovers and little downside risk because the FDIC often agrees to share in the losses and keep some of the worst assets.
But to date, fewer than two dozen of the more than 236 banks shut by the FDIC since January 2009 have been sold at auction to investment groups sponsored by private equity firms, hedge funds and wealthy financiers. A handful of investor-backed groups have bought bank-owned real estate taken on by the FDIC. Maybe the most successful private deal so far was the FDIC's March 2009 sale of IndyMac to a group led by a bunch of hedge funds and private equity firms.
Even investment vehicles officially sanctioned by bank regulators to do deals with the FDIC have largely remained on the sidelines.
SJB National Bank, a $1 billion acquisition company led by billionaire investor and real estate developer Stephen Ross, has yet to ink a deal for a failed bank.
Also still in standby mode is an investment vehicle called Stone Bank, in which private equity giant Blackstone Group Inc is a major partner. Led by Brad Oates, the former president of Bluebonnet Savings Bank, a defunct Dallas thrift, the Texas-based investment company is waiting final regulatory approval to begin hunting for a struggling or failed bank to buy.
Then there is distressed investment shop Lone Star Funds. Last summer it opened an office in Washington, D.C., to be closer to regulators as the firm acquired failed banks, but it has yet to complete a single transaction.
Some of the lack of activity is no doubt the result of financiers reassessing their options after the FDIC adopted new rules last summer. One of them requires investment groups looking to buy failed banks to pony up more capital than more traditional financial buyers like TD Bank and US Bancorp. Another forces them to hold on to their bounty for at least three years before cashing out. The more stringent terms have led some private investors to conclude that regulators have made it too difficult to make a quick buck off an investment in a failed bank.
To be fair, regulators have long preferred doing business with either an existing bank, or a management team with a proven record of success in running a financial institution. But in the wake of the financial crisis they are more cautious than ever that some money managers and financiers -- many of whom are unfamiliar faces in the world of community banking -- are simply looking to snap up struggling lenders on the cheap but have no long-term commitment to lending to businesses and consumers.
