PrivateBancorp speeds growth after buying failed bank
PrivateBancorp's purchase of the failed Founders Bank last week gives the lender an expanded roster of commercial customers and a branch network in Chicago's suburbs, where it's aiming to win business.
As the fourth-largest Illinois-based bank, PrivateBancorp previously had three branches in downtown Chicago and six in the Northeast part of the state. Founders adds 11 offices, mostly in Chicago's Southwest suburbs, and bolsters PrivateBancorp's deposits by 11 percent.
"It allows us to enter a market that we were not in historically within the Chicagoland area to expand our middle market and metro-banking business," PrivateBancorp Chief Executive Officer Larry Richman, 57, said yesterday in a phone interview. "We can utilize the base of Founders Bank in order to really build that market share."
Founders was among six Illinois lenders seized by regulators on July 2 because of losses on collateralized-debt obligations at parent company Peotone Bank & Trust Co. PrivateBancorp, which has sold $565 million in stock in less than two years and raised $244 million from the Treasury's bank rescue program, is betting it has enough capital to absorb assets acquired from the failed lender.
PrivateBancorp, based in Chicago, slumped 39 percent this year before today, compared with the 26 percent drop in the Nasdaq Bank Index and 21 percent decline in the KBW Bank Index. The stock fell 12 cents to $19.55 at 11:54 a.m. in Nasdaq Stock Market composite trading.
In raising capital, PrivateBancorp has more than doubled its shares outstanding, diluting the value of existing stakes.
Needs More Cash?
Sandler O'Neill & Partners analyst Daniel Arnold has a "sell" rating on PrivateBancorp, and said he expects the company to need additional cash after acquiring loans from Founders. The bank bought $617 million in assets as part of a loss-sharing agreement with regulators and an additional $271.4 million in assets, according to the Federal Deposit Insurance Corp. The purchase reduces the bank's tangible common equity ratio to 5.6 percent from 6.7 percent, he estimates.
"The more shares you issue the harder it becomes to grow" earnings per share, said Arnold, who's based in New York. "You've got the prospect of additional dilution."
PrivateBancorp spokeswoman Amy Yuhn said in an e-mail that the company is "comfortable with our capital position and TCE even after the acquisition."
CDOs Left Behind
PrivateBancorp isn't assuming the CDOs that led to the collapse of Founders as part of the agreement with the FDIC. Founders was among the seized Peotone-controlled banks that started buying packages of trust preferred securities, which are hybrids of debt and equity, in 2005, the Wall Street Journal reported yesterday.
Lyle Campbell, Peotone's founder, couldn't be reached for comment.
PrivateBancorp was founded in 1989 and sold shares to the public 10 years later. Co-founder and Chairman Ralph Mandell resigned as CEO in 2007 and the board hired Richman, former head of LaSalle Bank, to replace him. Richman was one of 27 executives PrivateBancorp hired from LaSalle, which was bought by Bank of America Corp. as part of a plan to increase its commercial banking market share.
From the end of 2007 through March, assets and deposits at PrivateBancorp more than doubled to $10.4 billion and $7.8 billion, respectively. The only bigger Illinois banks are Northern Trust Corp., Harris Bankcorp Inc. and Wintrust Financial Corp., according to SNL Financial in Charlottesville, Virginia.
LaSalle Veterans
By attracting so many employees from LaSalle, PrivateBancorp "should be able to mine billions more of small- to-middle-market commercial customers" from Bank of America, Sterne Agee & Leach analyst Peyton Green wrote in a report today. He initiated coverage with a "neutral" rating.
PrivateBancorp inherited about 200 employees from Founders, according to Richman, who said he was approached by regulators about the bank two or three weeks before it was seized. Of the 52 failures this year, including 12 in Illinois, Founders is the only one that his bank "took seriously," he said. He didn't count out future FDIC-assisted deals.
"We are not looking for acquisitions but we have always said to the market that if the right opportunity presents itself that strategically fits," the company may pursue it, Richman said. "In this case it fits because it's core deposits within our home markets."