Banking Law

Last August, when the proposed IPO of BankUnited was first announced, and there was a rush to judgment about the private equity players "cashing out" of that deal instead of sticking with it, the boo birds were squawking.

"Caw! Caw! Cashing Out! Cashing Out!" they screamed.

My attitude at the time was that it was too early to tell.

To me, it's too early to tell whether this is a "cash out" or whether this is an opportunity to raise additional capital in the public markets to take advantage of buying opportunities and at the same time create a liquid market for the bank's stock so that an exit can be made when the time is right.

Well, last week the IPO occurred and I think that the actions of the private equity investors and senior management gave fodder for both critics and supporters of private equity to chew on. Reuters, which invariably lists to the left, was full of barely-concealed anger that John Kanas was going to make a pretty penny on his initial investment.

Veteran banker John Kanas gets to cash in big time on one of the most profitable bank buyouts in years when BankUnited goes public on Thursday.

But the Federal Deposit Insurance Corp, which estimates it lost $5.7 billion in selling the failed Florida lender to the Kanas-led private equity consortium, faces awkward questions about whether it should sell assets in a fire sale.

Kanas invested $23.5 million in BankUnited as part of a consortium of private equity interests who bought the Miami Lakes, Florida bank from the FDIC for about $900 million after it failed in May 2009. He was named the CEO.

After the IPO, the stake he will control will likely be worth more than $130 million, or more than five times his initial investment. In addition, he will recoup the $23.5 million through the sale of some shares in the IPO.

And his returns could get even bigger if the shares rise after the offering and as the bank grows.

There you have it, folks, the "rich" private investors got "richer" and the FDIC got poorer, so what else is new when the "Guh-mint" does "bid-ness" with "Fat-Cat-Wall-Street-Sharpies."

"At the height of a financial crisis do you want to be selling a lot of stuff really cheap? My opinion all along was, no," said Campbell Harvey, finance professor at Duke University.

You tell 'em, "finance professor" with your first and last names reversed. When PE needs "real men of genius," they don't comb the hallways of Goldman Sachs, they comb the bowels of the bargain basements of business schools, looking for that special academic alchemy to help them parse the nuances of high banking finance and separate the sheep from the goats.

Hear me know and understand me later, folks, even if you forget everything else about this deal: for Kanas and company, this was "easy money."

One has to wonder why have we set this up in such a way that if you're rich enough to be able to buy a bank it will be so easy for you to make all this money," said Eileen Appelbaum, senior economist at the Center for Economic and Policy Research, a liberal think tank in Washington, though she did stress that the investors had played by the rules of the game.

Who is this "one who wonders" that it is "so easy to make all this money?" Naturally, Kanas and his senior management team did nothing pre-or-post-acquisition other than sit on their keisters in Cabo soaking up sun and clipping coupons e-mailed by those dolts at the FDIC, who were obviously "pantsed" by the slicksters from New Yawk City.

Although consultant Ken Thomas calls the deal a bad one for the FDIC and South Florida (since, apparently, BankUnited intends to lend in places other than Disney World), the Miami Herald uncovered aspects of the transaction that Reuters missed.

Now, reborn, and bolstered by its initial public offering, the Miami Lakes-based bank plans to expand in Florida, make acquisitions of smaller banks in the state and the southeastern region -- and expand to New York in the summer of 2012.

"We believe the growth opportunities for BankUnited in the Florida market and beyond are substantial, and we think the next part of the story is over the next three to five years," said BankUnited Chairman and Chief Executive John Kanas, after ringing the opening bell on the New York Stock Exchange Friday.

Wait a minute: did Kanas say that BankUnited would use the capital raised to support growth? I thought this was a dastardly cash out? I thought these boys were taking their money and running for the hills? What is "one" to think of this inconvenient truth, and where is "one" hiding when "the other" wants to kick her in the shins?

Kanas, a longtime New York banker, was part of the group of investors who purchased the assets of the failed Bank-United with a $900 million private equity investment. Overall, they sold 20 percent of their investment through the IPO for about $650 million -- 2.7 times their original investment.

After cashing out more than $35 million himself, Kanas said he still remains the bank's largest individual stockholder. But his ownership has dropped from 6 percent to 4 percent, retaining about $135 million worth of stock. The bank's management team overall, including Kanas, now holds about a 7 percent ownership.

The FDIC, subjected to accusations that it made Kanas & Co. rich at the FDIC's expense, thinks this deal worked out well for all concerned, including the FDIC.

For the FDIC's part, spokesman Andrew Gray said the agency stands to receive $25 million from the IPO, due to an equity warrant. He emphasized that the 2009 sale to the private equity group was "far and away the best deal" the FDIC could get at the time.

"The BankUnited IPO will result in more capital for the institution and a more diverse group of owners," Gray said. "In terms of the ability of the group to conduct an IPO, it's indicative of a change in market conditions."

Since its takeover, BankUnited has transformed itself from a savings and loan that primarily made mortgages and funded them with high-priced time deposits, to a bank focused on commercial banking to small and medium-sized businesses.

With about $11.5 billion in assets, the bank currently has 81 branches and 1,200 employees.

So, risk capital locks in a decent return on its initial investment, but leaves the lion's share of the proceeds of the IPO in the institution to support growth of a phoenix that has arisen from the ashes of the burnt husk of a colossal failure, costing the FDIC less than its other alternatives at the time and making payroll for 1200 people. Yeah, I can see why the critics are steamed. The deal actually worked.

Next time a crisis like this hits, let's listen to Blue State Bubble Babies passing themselves off as "journos," professors of poppycock, and think-tank tuna who have a much better grip on how to marry broke back banks and the men who love them than people who actually sell and buy busted banks for a living. That way, we won't let facts interfere with a picture perfect ideology.

The only thing dumber than listening to college professors, anyone who works for a "think tank," or consultants, is listening to lawyers.

Yes, I know: this was another five minutes of your life that you can never get back.