SNL Report: Recapping bank recaps, 2010 to 2012

 By Obaid Farooqi and Maria Tor, SNL Financial staff writers

SNL finds the number and total flow of recapitalizations has fallen from jump in 2010.

In early 2008, an Amy Winehouse-inspired headline on SNL Financial summed it up: "Banks wanna go for recaps; investors say no, no, no."

At that point, there had only been a handful of bank failures in 2007. The industry had yet to see the collapses of Bear Stearns Cos. LLC and IndyMac Bancorp Inc.

But some banks already knew they were going to need capital, and sought injections from investors. As SNL reported, investment banks were beginning to see financial institutions show interest in recapitalizations (as defined below), but distressed-asset investors were not ready to call the bottom and preferred to wait and see how bad it would get before putting their money at risk.

Fast-forward to 2010, when bank failures had become ubiquitous. Bank recaps began to flow as well, and 33 bank recapitalizations were announced during the year, according to SNL's tally. (The total does not include recapitalization announcements that were subsequently terminated, as of Feb. 12.) As bank failures declined in 2011, so did recaps, falling to 13 announcements. Thirteen were also announced in 2012. So far in 2013, none has been announced.

SNL calculates that investors infused $6.5 billion in capital into live institutions under recapitalization transactions announced since 2010.

Notes on methodology

SNL defines a recapitalization as a bank or thrift M&A transaction that includes a capital infusion in addition to any deal value and features a buyer that is either an investor group or a newly formed company created by an investor group. Management-led buyouts and FDIC-assisted transactions are excluded. Additionally, SNL's list of recaps only includes transactions classified by SNL as M&A deals. An M&A deal is any merger or acquisition where there is a change of control, or a purchase of any or all of a company's shares outstanding that results in new ownership of at least 50% of the target.

The data excludes announced transactions that were subsequently terminated.

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A review of specific deals, and 2012 evolution

The largest bank recap since the beginning of 2010 was the $730 million investment in Sterling Financial Corp. by a group of investors led by Thomas H. Lee Partners LP and Warburg Pincus LLC. The transaction closed in 2010 and appears to be going well for the investors. Sterling Financial booked $385.7 million of net income in 2012, which included an income tax benefit of $292.0 million associated with the release of a deferred tax asset valuation allowance. In the bank's pre-crisis years, it earned $93.3 million in 2007 and $73.9 million in 2006.

Another large, successful recap was Gerald Ford's $500 million investment in Pacific Capital Bancorp. The entity Ford Financial Fund LP closed the acquisition of Pacific Capital in August 2010. Two years later, Mitsubishi UFJ Financial Group Inc. bought Pacific Capital for $1.5 billion, almost twice tangible book value.

The recaps of 2012 have been smaller, with the largest recap taking the form of a sale under Section 363 of the U.S. Bankruptcy Code. Talmer Bancorp Inc., which is backed by WL Ross & Co. LLC, acquired Warren, Ohio-based First Place Bank from bankrupt First Place Financial Corp., contributing $205.0 million in capital to First Place Bank.

Since Jan. 1, 2010, Florida has been the most active state for bank and thrift recapitalizations, with seven deals, followed by North Carolina, which saw five deals.

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