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[Enterprising Investor]

California deal gives Ford new vehicle

Acquisition of Pacific Capital gives investor better access to potential bank deals

Dallas Business Journal - by Chad Eric Watt Staff Writer

Billionaire Gerald J. Ford’s $500 million investment in Pacific Capital Bancorp didn’t unfold the way he and his advisers had planned.

Instead of scooping up the good bits of a failed bank, Ford is paying $500 million for most of a struggling California bank holding company in a discounted stock deal.

The transaction, first reported on April 29 at dallasbusinessjournal.com, is still subject to approval from shareholders and regulators. If it goes through, Ford will be positioned to make more open-market bank acquisitions, and better positioned to bid on failed banks.

He began his business career as a West Texas lawyer turned banker, and built his fortune by developing and selling financial franchises in West Texas and California.

The turnaround artist’s return to banking comes at a time when the industry needs someone with Ford’s skill sets — and his bankroll, said Dory Wiley, president of Commerce Street Capital in Dallas. Nearly all banks could use more capital, and bank executives skilled at integrating acquisitions and navigating choppy economic times are in short supply, Wiley said.

Seeing the opportunity, Ford and his advisers raised $1.28 billion from private equity sources in late 2008 and got special permission from bank regulators to bid on failed banks. But the bidding didn’t go well. In at least three offers for sizable failed banks, operating banks outbid Ford or regulators passed over his bids.

“It’s no secret that he’s looked at a bunch and hasn’t gotten close so far,” said Jacob Thompson, managing director at Samco Capital Markets, a Dallas broker-dealer.

Ford has been at a disadvantage because operating banks can factor in cost savings from job and infrastructure cuts when making their bids, Thompson said. “(The Ford group) needed the bank infrastructure around them to make them a real competitive bidder for some of these deals,” he said.

Picky about who can buy

Many banks need additional money, and most would be happy to gain new investors — at the right terms, according to Commerce Street’s Wiley. But bank regulators are particular picky about who is allowed to buy into banks, he said. “It has to be people that they’re comfortable with in order for them to approve,” Wiley said.

Ford has credibility, but his early attempts to buy a failed bank with private equity backing were not as well received as his bid for Pacific Capital, which came from his own resources, Wiley said. That’s because bank regulators prefer to work with experienced bankers, and are reticent to bring in private equity types who historically rely on leverage to boost their returns.

Pacific Capital (Nasdaq: PCBC) received funding from the Troubled Asset Relief Program. Pacific Capital ceased making payments to the Treasury in June 2009. It lost $79.9 million in the first quarter of 2010, and was in danger of becoming so undercapitalized it faced government seizure.

Faced with a money-losing investment, it’s likely bank regulators were more accepting of non-bank investors stepping in, said Linus Wilson, a finance professor at the University of Louisiana at Lafayette, who is studying the TARP initiative.

“Treasury is trying to work with private equity investors to avoid having these banks seized,” Wilson said.

To accommodate the Ford investment, the Treasury’s stake in Pacific Capital will be changed, basically trading the past-due payments for stock in the bank, albeit at a discount, Wilson said

http://dallas.bizjournals.com/dallas/stories/2010/05/17/story12.html?b=1274068800%5E3348051&s=industry&i=banking_financial_services