Spokane bank goes back to hedge funds and institutional investors to raise more money under orders of federal regulators.
The parent company of Sterling Savings Bank announced Friday it had raised $730 million from private equity and institutional investors, a milestone that helps the state’s second-largest bank avoid being seized by regulators and sold to the highest bidder.
In a regulatory filing, Spokane-based Sterling Financial said it had reached agreements with 30 investors for $388 million through a private placement.
Thomas H. Lee Partners and Warburg Pincus Private Equity X also increased their investments in Sterling Financial to $170 million each in exchange for stock and warrants. Each firm will control 22.6 percent of the company’s common stock and get a seat on Sterling’s board. The transaction is expected to close Thursday, when it will become the largest recapitalization of a Washington state bank since the financial crisis began in 2008.
“It dramatically increases their chances of survival,” said Jeff Rulis, a banking analyst for D.A. Davidson in Lake Oswego, Ore. “Coming from the edge of the abyss, I’d imagine they’d be prudent with extending that credit.”
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Sterling Financial has been operating under increased regulatory scrutiny for the last year. In the first six months of this year, its net loss was $138.1 million.
Shares of Sterling stock closed unchanged Friday at 64 cents. It has traded as high as $2.98 a share in the last year.
Friday’s announcement ends the bank’s quest to reel in enough capital to meet regulatory requirements. The Treasury Department had committed to convert its $303 million investment of preferred stock through the TARP program into common shares, contingent on Sterling finding more investors. Essentially, Treasury is accepting 20 cents on the dollar for its investment in Sterling, Rulis said.
The upshot: Sterling said it will issue 4.2 billion shares of common stock, up from 52 million shares outstanding.
Les Biller, former vice chairman and chief operating officer of Wells Fargo, will become chairman of the board, and Managing Director David Coulter of Warburg Pincus and Managing Director Scott Jaeckel of Lee Partners will become directors.
Sterling, with $9.74 billion in assets, absorbed its subsidiary Golf Savings Bank earlier this month. Golf Savings was the third-largest mortgage originator in Washington state.
Going forward, Sterling will limit its construction and real-estate lending, and focus on consumer banking and lending to small and medium businesses, said Ezra Eckhardt, president and chief operating officer of Sterling Savings Bank.
“Our organization will be able to return to a position of strength and be able to grow and meet the needs and expectations of customers,” Eckhardt said.
Regulators on Friday shut down two Florida banks and one in Virginia, lifting to 113 the number of U.S. bank failures this year. Eight banks in Washington state have failed this year.
Sanjay Bhatt: 206-464-3103 or firstname.lastname@example.org