Wilbur Ross is moving on to the construction phase of his buy-and-build strategy in the U.S.
Though he struck two deals stateside last week, his primary focus will be Europe, he says in an interview with ASR sister publication American Banker. Executives at his domestic investments, meanwhile, will seek to build on the foundation he has helped establish for them.
"The more attractive opportunities near-term are probably going to be in Europe for the most part than here," says Ross, chairman of New York investment firm WL Ross & Co., which has made huge profits through the years rolling up auto parts, mining and other distressed businesses. "Since the banks in which we're invested are in several [U.S.] regions … there is plenty to do within those."
However, he does not rule out more U.S. investments if they are "unique situations" like the two his firm and fellow investors announced Sept. 26: an agreement to help spin off Deutsche Bank's apartment lending arm, and a $100 million recapitalization of union-owned Amalgamated Bank of New York.
WL Ross is partnering with Ranieri Real Estate Partners LP to buy Deutsche's Berkshire Mortgage, and Yucaipa Cos. is its co-investor in the $4.4 billion-asset Amalgamated.
Ross has been among the earliest and most active private equity investors in banking since the housing bubble burst: his firm acquired American Home Mortgage Servicing Inc. of Coppell, Texas, out of bankruptcy in 2008 and has taken minority stakes in a handful of acquisitive community banks since then, including: Sun Bancorp of Vineland, N.J.; Cascade Bancorp of Bend, Ore.; and BankUnited Inc. of Miami Lakes, Fla.
Ross is bullish on the acquisition opportunities for those banks. The smallest banks are under increasing stress to sell in the face of mounting regulatory costs and narrowing profits.
"I think there will be mergers forced simply because the very little banks can't afford it," Ross says. "A lot of them are kind of throwing their hands up, saying, 'This is a losing game — I'm not going to be making any earnings any more.' "
The banks his firm backs have enough scale to withstand the stress that is squeezing smaller rivals, he says. But they are not so big as to face the intense scrutiny of deals or higher capital requirements burdening large banks.
Ross says Amalgamated has a unique business opportunity given its union focus. About 10% of the U.S. work force is unionized, and unions tend to be heavily involved in finance, from issuing credit cards to investing their members' savings.
The $100 million recap is intended to boost its capital ratios and lending. With its "capital solidified," Amalgamated can offer a "much wider range of products" to union customers, he says. WL Ross and Yucaipa have deep union relationships because of their long history of investing in troubled manufacturers.
Berkshire complements and expands upon the real estate play that began with WL Ross's investment in American Home, he says. WL Ross understands the mortgage servicing industry already, he says. Also, apartment lending is on the rise because young people without the money or desire to buy a home are opting to rent.