Squeezed by difficult financial markets, a proposed Charlotte-based community bank is returning investors' money after it was unable to raise its required goal of $26.6 million in capital.
Former Wachovia Corp. investment banker Al Bush had planned to launch Legacy Bank since setting out on his own in spring 2005. The startup raised $17 million from its shareholders. But this week a couple of big investors got “skittish” and didn't hand over the additional money needed to reach Legacy's fundraising target, Bush said.
“You see what's going on in the financial services area,” he said in an interview. “Unfortunately, it spilled over to us as a startup.”
After a meeting Wednesday, Legacy's board decided to give back the money, but its leaders haven't decided on the bank's future. The board plans to meet again next month to determine its plans, which could include another stab at forming the bank, Bush said.
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Officials have informed investors this week and have been heartened by many shareholders' continued commitment to the project, said board chairperson Bridget-Anne Hampden. While Legacy proposed a traditional community bank based on local, personalized service, it also focused on building a culturally diverse board and customer base.
“People are very disappointed,” said Hampden, a retired Wachovia executive. “We're pretty overwhelmed by the support we've gotten from the community.”
Legacy is the latest Charlotte community bank to stumble as investors become more wary of putting money into banks.
Earlier this year, Colony Signature Bank withdrew its charter application. Instead of going it alone, the founders of the proposed United Partners Bank decided to become the Southeast regional office of San Francisco-based Pacific Coast Bankers' Bank. The slowdown follows a boom that saw six new community banks open in the Charlotte area since 2005.
“It's a difficult time,” said Ray Grace, the N.C. Banking Commission's director of bank applications. “Equity for banks has just dried up.”
Even for existing banks, it's tough to raise capital at a reasonable price, Grace said. That's why some of the state's banks, he said, may take advantage of a federal government program that is injecting capital directly into banks, including large institutions such as Charlotte's Bank of America Corp.
Of about 30 banks that have been in contact with the commission, about half are considering the capital infusions, Grace said. The program's goal is to get banks lending more freely to customers as well as each other.
The banking commission approved Legacy's charter in May, pending completion of its capital raising. The bank had extended its deadline for collecting money from July 31 until Sept. 30, but decided it couldn't wait any longer, Bush said. The bank had more than 300 investors, including Charlotte-based Wachovia, he said. Investors should get their money back, without interest, in the next two weeks, he said.
Legacy has about nine employees and leased space in the SouthPark area. At the meeting next month, board members will decide what steps to take next. One possibility could be to seek an investor willing to take a large stake in the bank, Bush said.
Amid increased consolidation in the banking industry, Charlotte needs a more diverse array of banks now more than ever, he said.
“We still think it's a tremendous opportunity,” he said. “The fact that we were able to raise $17 million speaks to our vision.”