Investment Banks, Venture Capitalists due for ’04 Comeback
By ANDREW SIMONS
Orange County’s banks and thrifts are looking at a mixed picture for next year, while venture capitalists and investment bankers are set for a bounce.
After three years of big deposit gains and a surge in home loans, local and national banks and savings and loans operating here stand to see a slower 2004 with higher mortgage rates and the flow of money back to Wall Street.
The upside for banks is a pickup in business lending with a rebound in the economy.
“We’re seeing businesses ask for more loans,” said Marshall Laitsch, chief executive for Tustin-based Sunwest Bancorp.
But higher interest rates could be a mixed bag for banks. They’re looking at paying more in interest on deposits as lucrative mortgage lending tapers off, though interest earned on corporate loans stand to rise as rates rise.
2004 could bring more startup banks. The county’s banking sector could accommodate a dozen more banks, according to Ed Carpenter, chief executive of Irvine-based Carpenter & Co., an investment bank that specializes in tracking and advising community banks.
“OC is very under-banked by national standards,” Carpenter said.
Startup banks had a big run raising money in 2003. Commercial Bank of California, which opened in the former Imperial Bank office in Costa Mesa office, closed a $27 million offering. Another startup, Buena Park-based Uniti Bank Corp., plans to close a second round totaling $6 million.
Commercial Bank’s offering,along with Uniti’s and others in OC,made 2003 a record year for bank money raising.
Investment banks are due for their best year in a while. With Wall Street on a solid rebound, investment banks could be looking at more public offerings and mergers and acquisition activity.
Meanwhile, stock brokerages likely will hire more brokers to handle greater stock trading. Employment at OC’s largest stock brokerages fell 4% to 2,072 in the past year, according to this year’s Business Journal list in October, which ranked brokerages by number of OC employees.
At the same time, the number of registered representatives,stockbrokers,fell by 2% to 1,429 in the past year. Meanwhile, the S & P; 500 index has climbed 20% in the past 12 months, with the Dow Jones Industrial Average posting a 16% gain and Nasdaq rising 41%.
Will it continue?
“We do see the market rebound continuing,” said Steve Nielander, a director with Deutsche Bank Private Wealth Management in Costa Mesa. “Our view is that the economy is expanding and that corporate earnings are leveraged for a move up with revenue expansion, as there has been a considerable level of expense reduction that has taken place.”
Venture capital should rekindle in 2004. Among the predictions: Healthcare companies will continue to draw venture funding, while tech companies will start drawing money again.
“The venture market is making a very strong recovery,” said Randy Lunn, a partner in the Irvine office of Santa Monica’s Palomar Ventures. “The entrepreneurs are better, the opportunities are clearer.”
In particular, look for communications technology and software companies to raise money next year.
And, after three dry years, OC could see some tech public offerings. In particular, watch Avamar Technologies Inc., which is in its final stages of venture funding. So far, the company has raised $35.5 million. A likely stock debut: Jazz Semiconductor Inc., the Newport Beach chipmaker that used to be part of Conexant Systems Inc.
COMPANY to watch: BLACKSTONE GROUP
Blackstone Group LP isn’t based here.
But the New York private equity firm could shake things up more than any homegrown investor in 2004.
With partner Providence Equity Partners Inc. of Rhode Island, Blackstone is in the process of buying out disgruntled family shareholders of Irvine-based Freedom Communications Inc., publisher of the Orange County Register in Santa Ana.
Up to now, Blackstone largely has been known as an Orange County real estate investor.
Last year, it paid $200 million for Park Place in Irvine.
Now Blackstone and Providence are expected to end up with about 50% of Freedom and four board seats, equal to that of family members.
(Independent directors and Freedom’s chief executive will make up the rest of the 13-member board.)
Under the deal, Freedom family members are set retain voting control, even if Freedom and Providence wind up with more than 50% of the company’s shares.
Even so, those familiar with the deal and Blackstone expect the firm to push for its interest, including a sale or public offering in a few years time.
Some foresee board showdowns over further cutting at the Register and other Freedom holdings.
Blackstone and Providence reportedly could take voting control if family members sell as much as 73% of their shares, though sources say that’s unlikely in the near term.
,Andrew Simons
Person to watch: KIM BURDICK
Filling big shoes always is a tall order.
Kim Burdick took over the Orange County operations of Charlotte, N.C.-based Bank of America Corp. from Tara Balfour, who left in October after 18 years at the bank.
Burdick had headed up Bank of America’s Southland premier banking (accounts larger than $100,000) from Newport Beach. He’s kept that role since becoming OC president.
Burdick steps into intense competition for OC deposits between Bank of America and other big banks and thrifts here.
He’ll also be navigating changing waters. Deposits at banks in OC grew during the stock downturn as investors shifted money to safe havens, such as certificates of deposit and savings accounts.
Now that Wall Street is hot again, deposits could suffer. Revenue growth also could be harder to come by amid higher interest rates. Since mortgage rates bottomed in June, refinancing,a big source of bank profits,has slowed. Bank of America and others still get fees from loans made during the boom.
And Bank of America could be looking to cut costs in the run up to acquiring FleetBoston Financial Corp., a deal expected to close next year.
The bank already has made some changes in OC, closing a Brea check and ATM processing unit and combining the operations with similar ones in Ontario and Los Angeles. About 185 jobs were affected.
,Andrew Simons
