June 19 (Bloomberg) -- The world’s two biggest leveraged buyout firms, poised to acquire their second bank in as many months, may have cracked the code to purchase U.S. lenders as President Barack Obama retools the financial regulatory system.

Blackstone Group LP and Carlyle Group, along with David Bonderman’s TPG Capital, are attempting to buy First Republic Bank, according to people familiar with the matter. With each firm seeking a minority stake, the takeover would resemble last month’s agreement by New York-based Blackstone and Carlyle in Washington to purchase BankUnited Financial Corp.

The deals show how private-equity firms, working with regulators including the Federal Reserve and Treasury, are abandoning attempts to purchase lenders on their own and instead investing in groups of minority stakeholders. The change comes as the Obama administration proposes to eliminate the Office of Thrift Supervision, which earlier this year allowed a private- equity firm to buy majority control of a bank.

“The log jam may be broken,” said Lawrence Kaplan, an attorney at Paul Hastings Janofsky & Walker LLP in Washington who formerly worked as a lawyer with the OTS. “There’s clearly a need for more capital, and there’s a lot of people who want to do these deals.”

Mounting Pressure

Pressure is mounting from the administration and Congress to replace taxpayer funds with private money at banks crippled by more than $1.4 trillion in losses since the credit crisis began in 2007. Billionaire investor Wilbur Ross, whose WL Ross & Co. was also part of the buyout of Coral Gables, Florida-based BankUnited, has said that 1,000 banks may fail or be taken over. So far this year, 37 U.S. lenders have failed, a 15-year high.

Regulators are trying to balance the industry’s need for fresh capital against concern that private-equity firms that aren’t regulated as banks won’t prove suitable overseers for lenders. Buyout firms used borrowed money to make $1.2 trillion of purchases in 2006 and 2007 that ranged from restaurant chain Dunkin Brands Inc. to TXU Corp., the Texas utility. Announced deals dropped by more than 60 percent last year, according to data compiled by Bloomberg.

Lawmakers and regulators may “fear that PE firms could use bank control to aid their commercial interests and that unless they become a bank holding company, they would have no obligation to provide fresh capital,” said Sean West, a policy analyst in Washington at Eurasia Group.

WaMu Investment

Bonderman knows the cost of failure: TPG, his Fort Worth, Texas-based buyout firm, spent $1.3 billion last year for a minority stake in Seattle-based savings and loan Washington Mutual Inc. That investment, made through public markets, vanished when the bank plummeted in value five months later.

In the case of BankUnited, the investors were able to take over a lender along with like-minded firms and also to pick a chief executive officer, former North Fork Bancorp CEO John Kanas.

“In many cases, public investors will not feel they can truly evaluate a bank’s position,” said Randal Quarles, a former undersecretary of the Treasury who’s now a managing director at Carlyle. “Private capital can dig into a situation.”

Private-equity firms still are awaiting guidance from regulators, including the Federal Deposit Insurance Corp., which said last month it would clarify its stance on bank buyouts. In addition, concern remains that rules limiting compensation and approval of deals, dubbed “political risk” by buyout managers, may change.

‘Fluid Situation’

“Any private investor that deploys capital has to be very conscious that they’re putting capital into a very fluid situation,” said Mani Sadeghi, managing partner of Equifin Capital Partners, a New York-based private-equity firm specializing in financial services deals. “Some of the economics and regulation of the business are going to change around them.”

The OTS’s decision in January to allow MatlinPatterson Global Advisors LLC to buy control of Flagstar Bancorp Inc., an ailing Michigan lender, sparked grumbling by lawmakers. The deal smacked of “regulatory arbitrage,” according to Senator Jack Reed, a Rhode Island Democrat.

Reed, who leads a banking subcommittee that oversees the securities industry, said in an interview yesterday that the elimination of the OTS under Obama’s plan would help “avoid the regulatory shopping that had been identified as a problem.”

National Bank Supervisor

Under the Obama proposal, a regulator known as the National Bank Supervisor would watch over federally chartered lenders, assuming the duties of the OTS and Office of the Comptroller of the Currency.

The possible takeover of San Francisco-based First Republic, now part of Bank of America Corp., is in its early stages, said people familiar with the matter, who declined to be identified because the talks are private. Billionaire Gerald J. Ford, who sold his California thrift to Citigroup Inc. in 2002, also joined the group, a person familiar with the matter said today.

Officials at Blackstone, Carlyle and TPG declined to comment on the potential deal and a message left for Ford wasn’t returned. The minority-only structure would resemble an investment in First Southern Bancorp last month by a group that includes Fortress Investment Group LLC and Lightyear Capital LLC.

While private-equity managers said they’re looking at dozens of potential acquisitions, hurdles remain. Some firms aren’t ready to abandon having control.

Joining the Club

“Private equity firms are still looking at a silo approach, but many are focusing on the club structure,” said William Sweet, a partner at Skadden, Arps, Slate, Meagher & Flom law firm in Washington. “For a firm that only wants to make controlling investments, the club deal approach may not work.”

Would-be buyers also remain wary of paying too much.

“It’s like going into a shopping mall during a major sale,” said Joseph Vitale, a partner at New York-based law firm Schulte Roth & Zabel LLP, who advises buyout firms on investments in financial institutions. “The trick is to distinguish between what’s really a bargain, as opposed to what was marked up before being marked down.”

To contact the reporters on this story: Jason Kelly in New York at jkelly14@bloomberg.net; Jonathan Keehner in New York at jkeehner@bloomberg.net.

Last Updated: June 19, 2009 14:41 EDT