Financier J. Christopher Flowers won U.S. approval to buy a two-branch bank in New Jersey, in a rare bank takeover by a private equity fund manager that might revive a debate about such investors' role in the banking system, according to Bloomberg.
The U.S. Office of Thrift Supervision cleared the purchase of the Saddle River Valley Bank by seven funds set up for that purpose by Mr. Flowers, according to an Oct. 14 approval letter on the OTS website. The bank has $82.8 million of assets. Terms of the deal weren't disclosed.
Federal regulators restrict private equity investments in banks, arguing that such owners might put depositors' money at risk. The OTS' decision last year to allow a similar takeover in Michigan sparked criticism from Congress and tighter regulation by the Federal Deposit Insurance Corp.
“For private equity firms, there may still be some flexibility in the thrift charter for them to invest in banks,” said Ralph “Chip” MacDonald, an Atlanta-based banking lawyer at Jones Day.
The Saddle River bank transaction is the first so-called silo deal by a private equity fund manager, which walls off the stake from other investments, that the OTS has approved since 2009, according to William Ruberry, a spokesman for the agency. He declined to comment further.
“We can't comment on a pending transaction,” said John Bianchi, a spokesman for buyout firm J.C. Flowers & Co.
Last year, J.C. Flowers & Co., helped lead a group of private equity and hedge fund managers to pump $1.55 billion into the collapsed IndyMac Bank in California. That transaction avoided restrictions on private equity investments in banks by distributing ownership among enough partners that no fund manager has control.