A staple of the Saturday matinee TV movie in my youth was a particularly dreadful vehicle for perennial college kid Mickey Rooney. I have no idea how old he was when he finally stopped play post-pubescent leads, but I think he must have been well into his 30’s….
[Bonus points for any reader that can tell us how old Mickey was when he last played a cute college kid.]
Anyway, all of these low-budget grinders were fashioned on the formula that had Mickey exclaim early in the show
“I’ve got a swell idea! Let’s put on a play!”
What followed was a far-fetched fantasy like a kid today who thinks he’ll just start out being a DJ at parties and become the head of media and fashion empire (oops, that really does happen).
In the B movies with Mickey, the college play becomes a Broadway smash, and loyal Mickey wins back the girl after first losing her to the fast-talking fast-money sharpies that try to horn in on the fortune the play is sure to make.
My version is a variation on the theme, started by the post yesterday on the carry trade. The calls and e-mails are all along the lines of “Let’s start a bank”, or “Let’s set up an amREIT.”
Call me a silly romantic, but I think it could work.
Before I get too far, let me acknowledge that Mickey wasn’t always a college kid living the impossible Broadway dream. Sometimes he was the groom at the track who saved the lame horse from the glue factory and goes on to win the Triple Crown.
Anyway, back to the idea of setting up a bank. After all, as David pointed out in his questions about the carry trade, it seems like ordinary people with the willingness to work and the opportunity to make money if they had some working capital just can’t get in on the free money sweepstakes being run out of Washington.
The rate he got quoted to do something as pedestrian as scoop up and sell the sand and gravel on his land was simply breath-taking. Right up there with the new higher cash advance rates most of are being told about by our credit card lenders.
Are they kidding, or what?
After 25 years of stellar payment history, one of my banks recently informed me they were simply forced to raise my rate to Prime + 12.50%, if I should be so stupid as to leave a balance outstanding. I think we all know that Prime itself is a healthy spread over cost of funds, but far be it from me to tell mega-monster-bank how to treat its customers.
I especially love the part about how they are giving me more “choice” in this competitive market, given the fact that my account is with them because they swallowed up four other banks over the years that had me as a customer.
Reminds me of my Freddy Kruger credit line with them — because of the mergers, I ended up with no less than six credit accounts, all at the same bank! One of the accounts, after being cancelled, proceeded to come back to life on its anniversary date for several years because it had its own overdraft credit line, which it would draw upon to pay its annual membership fee, and then draw on itself to pay the late fees and penalties for non-payment that were being mailed to a place I no longer lived.
But, I digress.
If we want to set up a bank, we need to get a charter. The shortest path to a charter is to buy an existing bank. The price is the issue. Small healthy banks know how great it is to be a bank these days, and the people running them naturally want to reap the benefits. To get them to sell, you have to pay them more than they think they will make for quite a stretch of time into the future. Naturally everyone in business is an optimist about their own business, so what they think they will make in the future is probably more than you and I think we would make in the same position. If not, we better check our numbers, because we’re probably being too optimistic.
The next best option is buying a bank from the FDIC. They seem to have a few for sale every Friday. This is dicier. Typically they want the buyer to take the whole bank, or they sell what is easy (the deposits) to an existing bank, and then go looking for group to put up good money at risk for the opportunity to work out all the bad loans that put the bank under in the first place.
It’s only the last month or two that the FDIC has finally come up with a way to help buyers in this situation, putting together deals that provide access to some funding, with profit/loss sharing at the back end of the workouts. This has some potential, but that doesn’t mean you can show up with the requisite talent and no money. You need to show you’ve got some depth to your pockets, and it won’t hurt if you happened to have been at a couple of the right $2,000 a plate fund-raisers, too.
So, to repeat what I said in a couple of the phone calls and e-mail correspondence the last post triggered, if we can’t show up with at least $10 million in investable cash, we probably won’t get the meeting.
If we do buy a bank, bear in mind that it will most likely be stripped of deposits and retail customers before we get it, so we better have a plan to get those customers sooner rather than later.
Maybe we should just forget the hassle shooting for the ultimate in free money (banking) and look into setting up an amREIT. Getting the right talent together won’t be that easy, but not that hard, either. Making a plan that will make money and appeal to institutional investors to get the ball rolling is also within reach. The one thing we’d really need is timing.
I hate that. Timing is something you can’t control, given the lead time to launch. Last year, a window opened for a couple of months for new amREITs to succeed as IPO’s. HTS and AGNC hit the window just right (April/May 2008), launching their stocks in the relative calm that followed the collapse of Bear Stearns, but before the Lehman debacle. Walters Investment (WAC) took over a small existing REIT, Hanover Capital.
Cyprus Sharpridge missed the window in 2008, and hung on until June this year to go public. It’s headed by a well-known Wall Street mortgage analyst who moved over to Fidelity and ran bond funds at Fidelity from the mid-90’s until leaving for a retirement package in the beginning of 2005. A quick look at the history of CYS shows that Kevin actually started the firm at the beginning of 2006, so take heed, all you Mickey Rooneys out there — it was three and a half years as a private company before public stock got issued.
I heard at one time that there were several more amREITs in the queue when it snapped shut in the late summer of 2008, and I haven’t seen them back, but rumor has it that a few “road shows” did go on this spring and summer with meetings set up for major equity investors.
Did I mention that lame two-year-olds with grooms as owners don’t go on to win the Triple Crown? We’ll still need enough of our own money to make money (or at least cover expenses) running an amREIT without issuing stock to outside investors.