The Work

October 27, 2010 6:23 PM

OTS Approves Private Equity Buy of New Jersey Bank

Posted by Brian Baxter

New York-based private equity firm J.C. Flowers & Company has received approval from the U.S. Office of Thrift Supervision (OTS) to acquire Saddle River Valley Bank, Bloomberg reports. The bank, which has two branches in New Jersey, has $82.8 million in assets.

While terms of the deal were not disclosed, it marks that latest in a series of transactions that blend the interests of banks, private equity firms, and government regulators. The Am Law Daily has previously reported on several of those deals and on the activity by private equity firms buying stakes in banks or entering into joint ventures with the Federal Deposit Insurance Corporation (FDIC).

Last year the FDIC revised its rules governing private equity investment in failed banks after several Am Law 100 firms submitted letters urging the regulator to back off on tougher restrictions. But the changes still required private equity investors to put more capital into their new acquisitions and prevented them from cashing out for at least three years.

The Saddle River deal will see the bank taken over by seven funds set up by J.C. Flowers. Bloomberg reports this is the first "silo deal" by a private equity manager walling off its stake from other investments to be approved by OTS since 2009. (Click here for the October 14 approval letter by OTS, courtesy of The New York Times's Dealbook.)

Grovetta Gardineer, OTS's managing director for corporate and international activities, did not respond to a request for the names of lawyers working on the deal for the government.

Sally Rocker, a managing director at J.C. Flowers who once worked at Skadden, Arps, Slate, Meagher & Flom, did not respond to a request for the private equity firm's outside lawyers. (Saddle River's president and CEO, William Arnold, also did not return a call asking for the Saddle River, N.J.-based bank's legal advisers.)

In the past, J.C. Flowers has turned to Sullivan & Cromwell for work on such deals. Corporate partner Mitchell Eitel advised J.C. Flowers when it joined a coalition of investors buying failed IndyMac Bank in a $13.9 billion deal in January 2009. Eitel, who previously advised the private equity firm on its scuttled takeover of Sallie Mae in early 2008, did not immediately respond to a request for comment on whether S&C advised on the Saddle River transaction.

Eitel and S&C are one firm that has carved out a niche in the banking-regulatory-private equity arena, having previously advised private equity firm MatlinPatterson Global Advisers on its December 2008 acquisition of a $250 million stake in Troy, Mich.-based Flagstar Bancorp, once the largest publicly traded bank in the state. OTS approved the silo fund used by MatlinPatterson to complete that deal.

Last week Boston-based private equity firm NBH Holdings announced that it had purchased $1.54 billion in deposits from failed Overland Park, Kan.-based Hillcrest Bank through a newly chartered bank of the same name, Bloomberg reports.

Wachtell, Lipton, Rosen & Katz corporate partners Richard Kim and David Shapiro, employee benefits partner Jeannemarie O'Brien, and corporate counsel Jeffrey Watiker advised NBH on the deal.


Related Stories:

Cleary, Simpson, S&C on IndyMac Deal, 1/5/09

Skadden, Simpson Lead Ground-Breaking BankUnited Deal, 5/22/09

Orrick, Greenberg Lead on FDIC Sale of Loan Portfolio, 7/14/10

Big Firms Line Up Against FDIC Private Equity Rules, 8/20/10

FDIC Heeds Am Law Firms, Loosens PE Regulations for Failed Bank Deals, 8/26/10 

The Private Equity-Bank-Government Nexus Continues To Be On Fire, 10/7/10

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