Billionaire vulture investor Wilbur Ross has announced that he intends to invest as much as $4 billion in small regional and community banks around the United States. Ross has already made large investments in financial institutions during the current credit and financial market turmoil including mortgage servicing companies and bond insurance companies. He made his fortune exploiting similar market sector collapse including the steel and textile industries. Ross is also planning to fly to Abu Dhabi in the near future to pitch the idea to Arab investors including the giant sovereign wealth funds in the region.
Mr. Ross thinks that there are at least 1000 smaller banks that will need additional capital before the crisis is over. He told reporters recently that most US depository institutions were quite overexposed to real estate and would need outside capital. He has apparently compiled a list of between 100 and 200 smaller banks that are of interest to him as potential investments for his hedge fund.
His thinking is in line with my own. Smaller banks should recover much quicker than their larger counterparts. Although they are exposed to real estate, they do not in most cases have exposure to the complex and volatile mortgage backed securities markets. You will not find the alphabet soup of leveraged securities that are on the books fo industry giants like Citigroup ( C) and Bank of America (BAC). Nor do they make corporate buyout loans for highly leveraged transactions. They will be the prime beneficiaries of the recent Fed rate cuts. As the yield curve steepens they will be able to increase earnings form the yield spread. Recent stock market volatility should also make it easier to attract depositors in local institutions.
It is also likely that there will be substantial consiolidation in the industry. One of the easiest ways for larger institutions to grow earnings and repair their balance sheets is to buy smaller, healthy, profitable institutions.

Wilbur Ross has made billions bottom fishing in various industry groups. His intent to move into smaller banks should awaken investors to the profit potential in small regional and community bank stocks