Billionaire financier Wilbur L. Ross Jr., who made his fortune turning around distressed steel and textile companies, plans to seek about $4 billion from investors, including Arab sovereign funds, to buy U.S. depositary banks.
Ross, 70, will talk with Persian Gulf investors in Abu Dhabi next week about 100 to 200 so-called thrift banks, he said in a telephone interview from New York yesterday. He said some of the lenders are good investments, even after a mortgage-market slump led to $245 billion of asset write-downs and credit losses at the world's biggest banks.
Regional depositary banks have "more narrowly defined" problems and "a more stable base of deposits" than cross-border lenders such as Citigroup Inc. and UBS AG, Ross said. He plans to package U.S. thrift bank acquisitions "as a finished product" to sovereign wealth funds, he said.
Flush with cash from record oil income, gulf funds are among investors that committed at least $59 billion in the past year to shore up banks, including Citigroup and Merrill Lynch & Co. Abu Dhabi's sovereign fund, the world's richest with estimated assets of $875 billion, agreed to invest $7.5 billion in Citigroup in November. Qatar's fund will spend as much as $15 billion on bank stakes, the gulf state's prime minister said in February.
Thrifts are "particularly vulnerable because their portfolios tend to be so real estate-oriented," and so can be bought "at a very attractive price," Ross said. Acquired banks could be combined with a mortgage business to provide stable funding for home loans that are "essential" to the U.S. economy even if "singularly unprofitable" now.
Depositary banks are regulated by the Federal Deposit Insurance Corp. and can accept consumer deposits. The FDIC insures deposits at 8,534 banks and savings associations in the U.S., more than 90 percent of which are community-based banks. Thrifts can be savings and loans, credit unions or savings banks.
Each thrift acquisition would probably be valued at around $500 million, Ross said. His buyout company, WL Ross & Co., may invest about $2 billion of its own money in the acquisitions. The firm has "relations and existing investments" with some gulf sovereign wealth funds, he said, without providing names.
Citigroup stock has slumped 24 percent since it announced Abu Dhabi's investment Nov. 26. Merrill Lynch is down 16 percent since Kuwait's fund said it bought $2 billion of convertible securities Jan. 15.
"Some of the initial forays have been less than satisfactory, at least on a temporary trading basis, so there is obviously a degree of caution" by gulf funds, Ross said.
Ross is already betting on the mortgage-servicing industry, which processes loan payments and forecloses on bad mortgages. Servicing companies can gain value during housing slumps because borrowers are less likely to move or refinance, making the stream of fees paid by a mortgage owner last longer.
Ross is seeking to acquire H&R Block Inc.'s mortgage-servicing unit for $1.1 billion.
This week, his AH Mortgage Acquisition Co. closed its purchase of an American Home Mortgage Investment Corp. subsidiary. That transaction was valued at about $500 million last year.