Equity firm CEO plans to start banking institution

October 5, 2009

Patriarch Partners CEO Lynn Tilton said she plans to use her own money to create a banking institution specializing in lending to smaller companies, which employ most of the nation’s work force.

“I think there is a gaping hole in our economy where there is no lending going on to small and midsized companies,” Tilton said. “What we have is companies walking the plank toward death and destruction and liquidation.”

Tilton said her bank would focus on companies with fewer than 500 employees and with revenues ranging from $1 million to $1 billion. Companies in this range employ about 80% of American workers.

Patriarch Partners is a New York-based equity firm that specializes in standing up companies on the verge of ruin. Locally, Patriarch Partners owns American LaFrance and Motored Armored Vehicles, formerly Protected Vehicles Inc. The firetruck maker and combat vehicle manufacturer share a 500,000-square-foot manufacturing facility in Summerville. Both were purchased in bankruptcy court.

Tilton said her bank will focus on “relationship business lending” secured by assets.

“We’re working on our charter and looking at smaller banks to buy to build a company,” Tilton said.

Tilton said she will spend a “substantial amount” of her own money starting the bank, though she declined to say how much. The upstart funds will be separate from her private equity operation, Tilton said. She also was not specific about where this bank or banks would be located. Tilton said she eventually hopes to expand into a variety of markets. She said it was too soon to say if South Carolina would be one of them.

“We’ll wait for the opportunity,” Tilton said. Her goal is to have a bank open for operation within six months or, ideally, sooner.

Tilton said she will likely start the institution by purchasing a healthy community or regional bank. However, she expects to eventually look at securing troubled institutions as well, parlaying her expertise of rebuilding unstable companies into the banking world. Tilton calls it the “dust to diamonds” business model, which is also the name of her blog on Patriarch Partners’ Web site.

Financial experts predict the next wave of destruction to hit the financial community will come in the next few years as commercial real estate loans come due. This is expected to hit community and regional banks particularly hard.

“When and if we buy banks and they hold commercial real estate assets, we would have an eye toward restructuring and recovering on those real estate assets,” Tilton said. “But that’s not the reason we are building the bank holding company. That’s not what we’re doing here.”

Tilton said her primary goal is to put her personal money into something she believes can help address a huge structural problem in the American economy. That problem is the growing rate of unemployment exacerbated by the fact that small and midsized companies are crumbling because their lines of credit have significantly diminished or evaporated.