Magazine article American Banker

New Ways to Raise Capital for Your Bank

Magazine article American Banker

New Ways to Raise Capital for Your Bank

Article excerpt

Byline: Dave Lindorff

Raising capital has been tough for community banks ever since the financial crisis, especially the smallest ones.

But a few investment firms have developed structured products that offer community banks a chance to band together to raise needed Tier 1 capital at relatively low cost.

These products - called collateralized debt obligations - also avoid some of the issues that caused regulators to frown on such financing in the past.

StoneCastle Financial Corp. in New York completed one such deal in October, raising about $205 million for a group of 35 community and regional banks in 24 states. EJF Capital in Arlington, Va., did a similar deal around the same time on behalf of 23 banks, mostly in California and Texas.

Michel Iannaccone, a managing director at Finpro, says he expects to see more.

"From the bank side, there are very few sources of capital available," Iannaccone says. "And from the investor side, there is clearly interest -- though how long it'll last will depend on how the economy and the market does."

Josh Siegel, StoneCastle's chairman and chief executive, also predicts more to come. His company is eager to do another deal just as soon as it can line up enough banks.

StoneCastle is targeting tiny, privately held banks that otherwise would not have access to the capital markets.

Its pioneering deal was used to fund 10-year subordinate loans to the banks. Though the loans count as Tier 2 capital, if a bank holding company uses the proceeds to purchase stock in its underlying depositary institution, the depository can treat the new capital as Tier 1 common equity, Siegel says. …

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