Financial Services Fund
Overview and Investment Strategy
The KBW Bank Index (BKX) reached $121.06 on February 20, 2007 and has subsequently fallen to $22.66 on February 18th, 2009 -an 81.2% decline in the past 2 years. The average price to tangible book value for regional banks is 91% with some significant geographical skew. The regional banks are also trading on a deposit DISCOUNT instead of a deposit premium of approximately 1.6%.
The Firm believes strongly that the demand for banking services will survive the current recession/depression scenario and those institutions that survive will see higher risk-adjusted returns than they have in the last 17+ years. A three-pronged investment strategy will be applied, seeking predominantly controlling interests in:
“Healthy”bank transactions
- The Fund would look to acquire a controlling stake in a bank that is not being motivated to sell by the regulators but rather motivated by those that (i) have primary shareholders that need or desire liquidity, (ii) have capital constraints or (iii) are simply too “tired” to deal with prolonged recession.
Regulator facilitated transactions
- The FDIC as well as the other regulatory entities have been proactive with institutions that they see as being a risk for failure in the relatively near future. By facilitating a deal they avoid the FDIC taking a hit to its insurance fund.
Transactions involving failed institutions.
- The Fund will try to position itself to be on the radar screen of the FDIC for sales of assets, liabilities and whole institutions.
Differentiating Factors
The Fund has several differentiating factors including:
- A Controlling Position
- Control Size
- Pursue Partnership Opportunities
- Clean Track Record
- Insight drawn from studying the operations of hundreds of banks
Key Team Member Information