Guaranty had taken a goodwill-impairment charge of $242.2 million in 2007. It had also boosted its provision for loan losses by $20.4 million.
Eggemeyer is active in each of the five bank groups in Castle Creek’s portfolio. He has been praised for being both a banker and bank investor. I asked Davis if Eggemeyer might be spreading himself too thin. “There is a point where even smart guys are spread too thin and begin guessing at choices,” says Davis. When one strong person is active in several companies, “others defer to him, and he then has a problem judging the performance of the individual banks and management.” However, Davis doesn’t know that this is true of Eggemeyer.
Davis does say that banks can grow too fast. “Whether you acquire quickly or grow quickly, you are exposed to a sudden change in the market. They used to say, ‘Small volume, small problems. Big volume, big problems.’ ”
Eggemeyer, however, sees the ailments among small community banks as an opportunity for Castle Creek. “Going back over 18 years, we have stepped in to recapitalize and help restructure banks having difficulty. We haven’t had a lot of banks in that category since the early part of the 1990s,” he says. Now there are more banks needing help, “and we are excited about that. We may buy some more. The current environment is unparalleled in my 40-year banking career.” Prices of banks are much lower, but those lower prices reflect problems.
He says that “market-oriented investors” have been dumping small-bank stocks in the past year, but sophisticated players, such as private equity investors, may see “enormous opportunity.” Castle Creek may well raise more money and go fishing.
But Castle Creek may have to prove its mettle with its crown jewel, PacWest. The company has enough capital “to make it through the present situation,” says Davis, “but there could be a long delay before it brings the $60 a share the market valued it at just a short time ago.”