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Fortress syndicate to inject $450m in Florida lender

Fortress, Lightyear Capital and Crestview Partners comprise the latest private equity consortium to purchase equity stakes in a US government-backed bank.

First Southern Bank is set to become the second Florida-based bank majority-owned by a group of financial services-focused private equity firms. The “agreement in principle” comes as the Obama administration is reportedly reviewing the US’ fragmented banking regulatory system with the aim to create a single regulator.

The small Boca Raton-based bank, whose $400 million or so of assets are made up largely of commercial real estate loans, agreed a deal with Fortress Investment Group, Lightyear Captial and Crestview Partners whereby each firm will invest up to $150 million in exchange for common and convertible preferred stock.

First Southern said the deal allows it to grow organically and via add-on acquisitions; the 22-year-old bank is expected to grow its assets by as much as $5 billion, according to media reports.

Like the BankUnited deal agreed less than two weeks ago, none of the private equity firms’ individual stakes in First Southern represent a majority, in compliance with Federal Reserve rules prohibiting non-bank entitites from holding stakes greater than 24.9 percent. The Federal Deposit Insurance Corp., which insures First Southern’s and BankUnited’s deposits, has said it will soon issue its own guidance on private equity ownership of banks.

Consolidation of the banking sector will be sizeable and yield signficant opportunities.

Wes Edens

A US bank’s charter determines which of the many regulatory agencies govern it, though the Wall Street Journal recently reported senior Obama administration officials are close to unveling a plan that would overhaul the system and see the creation of one single regulator.

In February, First Southern was the recipient of roughly $11 million from the Troubled Asset Relief Program. The govenrment received preferred shares, while First Southern has five years to repay the loan at an annual interest rate of 5 percent. The rate goes up to 9 percent after five years.

Fortress chief executive Wes Edens said during an earnings call in March that the firm is bullish on US efforts to shore up the financial system. Discussing the US government’s troubled assets relief fund, or TALF, Edens said Fortress has had “very active dialogue” with the government on a number of levels.

“I do believe that TALF can play a very material role in both stabilising asset prices as well as restarting primary levels of finance,” said Edens, who added the financial sector is likely to produce significant opportunities.

“If this is the great recession of our lifetimes, then surely what will follow is the great liquidation,” he said. “Consolidation of the banking sector will be sizeable and yield significant opportunities.”