Texas billionaire Gerald J. Ford plans to purchase the majority ownership in Little Rock-based Metropolitan National Bank, according to a bank announcement late Friday (July 5).
CEO Lunsford Bridges said the transaction will strengthen the bank’s balance sheet and restore its compliance with regulatory capital requirements. This deal comes on the heels of the largest in-state bank merger in history – Home Bancshares’ recent acquisition of Liberty Bank.
Ford Financial Fund II, a Dallas-based private equity firm specializing in financial services companies and co-managed by Gerald J. Ford and Carl B. Webb, will make the investment through its wholly owned subsidiary, LR Acquisition Company, according to the release.
Ford Financial Fund II has raised $750 million to invest in U.S. banks, and their first investment will be used to re-capitalize Metropolitan National Bank, Bridges said.
The bank’s name and management will remain the same under the new ownership, according to the release.
At the end of March Metropolitan National Bank had roughly $65 million in equity capital. A bank with about $1 billion in assets like Metropolitan should have equity capital of $100 million, according to local independent banking consultants.
Rogers Bancshares, the majority owner of Metropolitan National Bank, will file Chapter 11 bankruptcy in order to complete the sale of the bank, according to Bridges. Consistent with the Court’s procedure under Section 363 of the Code, the Court will supervise a competitive bidding process for the purchase of the Bank’s common stock.
The Chapter 11 filing affects only the holding company and does not affect Metropolitan.
“It is important for our customers, employees and the community to know that Metropolitan National Bank, which operates separately from the holding company, is not a part of the Chapter 11 process,” Bridges said. “It will be business as usual at the bank and all customer deposits remain safe and insured to the fullest extent possible by the FDIC.”
Garland Binns, a banking consultant and legal counselor with Dover Dixon & Horne, said the reason a holding company would file bankruptcy to facilitate a sale is because the holding company does not have any assets to offset its liabilities.
“It would be difficult to get the creditors of the holding company, the Treasury Department and others who have issued Trust Deferred Securities to settle for less money than they are owed. By filing bankruptcy, the court will take the $16 million bid and then divide it up between the creditors,” Binns said.
He said using bankruptcy allows for other bidders to make offers, and the court will take the highest bidder so more of the creditors can be fully repaid.
“Mr. Ford has a track record of purchasing banks in need of capital and turning them into money makers. This could be an excellent transaction for Metropolitan and the buyers” Binns said.
Rogers Banchshares still owes the government the $25 million in took in TARP money in 2009 and $5.1 million in unpaid dividends as of May 2013. It is ninth largest institution in the U.S. that still has not fully repaid it’s obligation. Metropolitan has missed 16 quarters of dividend payments as of May, according to the Treasury Department website.
Insiders said federal regulators had to approve this proposed acquisition and given the bank has been under enforcement for several years, this is likely to best scenario for the bank.
As of May, the Treasury Department had recovered $15.73 billion more than it spent on TARP contributions to banks, even though 151 banks have not repaid the money.
Ford has been buying and selling banks through the years and began purchasing distressed banks last year through another of his company’s Hilltop Holdings.
Metropolitan National Bank was labeled a distressed shortly after the failure of ANB Financial in May 2008. Since that time the bank has operated under multiple enforcement actions as management worked to get capital ratios back in compliance.
Efforts to find a buyer for the bank were stepped up after the recent death of the majority owner Doyle Rogers. He died in February at age 94. Rogers reportedly paid $60 million for Metropolitan National in 1983.
“We have been working diligently for several years to secure a strategic partner with a shared vision and commitment to move forward Metropolitan’s unique brand of Nearby & Neighborly banking,” said Bridges. “The capital investment will be the final step in achieving full compliance with the regulatory order we’ve been operating under since May 2008, and will provide substantial capital to facilitate lending and business development in the communities we serve. Ford Financial Fund II is an ideal fit and the best choice for the bank’s customers, employees and for continued growth and progress in the state.”
Metropolitan faced major capital erosion as it wrote the value of nearly $500 million in real estate loans made in Northwest Arkansas between 2005 and 2008. Between 2009 and 2012, Metropolitan National posted cumulative losses in excess of $98.93 million. The bank’s capital fell from $142.9 million at the end of 2008 to $65.7 million as March 31, 2013. The $65.7 million includes the $25 million the bank got in TARP money.
The past two quarters Metropolitan National has returned positive results, even though it has not been able to get its capital ratios back in compliance. This deal, if completed will allow the bank to shake its enforcement actions — once it is re-capitalized.
“We were attracted to Metropolitan based on the strength of their leadership team and brand,” said Gerald J. Ford, Co-Managing Member of Ford Financial Fund II. “We are career bankers and recognize quality banking. Metropolitan is an outstanding community bank with a solid footprint and reputation in Arkansas. Our combined resources and expertise will result in long-term success and growth.”