Byline Bank seeks first Chicago bank IPO in 15 years – Finance News

on Jun20

19 June 2017 | 5:00 pm

The parent of Byline Bank is planning the first initial public offering by a Chicago-area bank in 15 years. The Chicago-based lender, previously called Metropolitan Bank Group and raised from the dead four years ago through a $207 million recapitalization, is taking advantage of a strong market for bank stocks.

At $3.3 billion in assets, Byline Bank is on the small side for the up to $82 million offering it’s planning, according to a Securities & Exchange Commission filing today. But the bank’s leadership, Chairman Roberto Herencia and CEO Alberto Paracchini, see a place in the Chicago banking scene for a publicly traded bank Byline’s size, as locally based banks like Wintrust Financial and MB Financial that used to occupy that niche have grown to $19 billion or more.

The last Chicago bank IPO took place in 2002 when the parent of Cole Taylor Bank raised $46 million from the public markets. MB Financial acquired Taylor Capital Group in 2014.

PROPELLED BY OPTIMISM

Rising interest rates and optimism about economic growth are propelling bank stocks. “It’s just a very good time to be raising capital,” says Stephen Nelson, managing director with investment banking firm D.A. Davidson in Chicago.

For Herencia, a well-known banker in Chicago for decades and former CEO of the North American arm of Puerto Rico’s Banco Popular, the IPO will enable Byline to be a more active acquirer of smaller banks. Byline last year purchased the parent of suburban Milwaukee-based Ridgestone Bank, the largest Small Business Administration lender in Illinois.

Herencia and Paracchini, another Banco Popular veteran, have spent the last three years repairing a Chicago banking franchise that nearly ran aground in the Great Recession. Formerly owned by the Fasseas family, founders of Chicago’s Paws animal shelter, the banking group once had close to 100 branches. Byline dramatically pruned, reducing an 87-branch network in two years to 56 branches; most of those are in the city. The bank eked out a pre-tax profit last year after losing money is 2015 and 2014 as the new team dug out of the old bank’s problems.

Herencia and Paracchini decline to comment, citing legal limitations in advance of an IPO.

In the first quarter of 2017, Byline posted $6.6 million in net income, a 6.8 percent return on equity.

Herencia recruited an investment group made up mainly of prominent, wealthy Mexicans to recapitalize Metropolitan Bank Group. The lead shareholder, a group led by Antonio del Valle Perochena, chairman of petrochemical giant Mexichem, holds 47 percent of the bank’s parent. After the offering, that group, which won’t sell shares in the IPO, will own about 39 percent.

One of the smaller Mexican investors plans to cash out in the IPO, according to the filing. Overall, existing shareholders are selling 1.9 million shares while the bank is raising equity through the sale of up to 4.7 million shares.

The deal is expected to price next week. The midpoint of the price range is $20 per share. If investment bankers exercise their total over-allotment, the market value of Byline Bancorp will be about $584 million at that price.

WHO WILL FOLLOW?

The fallow period for Chicago-area bank IPOs coincided with plummeting bank fortunes during the housing bust and Great Recession and the slow recovery since. Bank stocks spiked after the election of Donald Trump ushered in hopes of corporate tax cuts and deregulation. Still, there aren’t expectations that many local banks will follow Byline’s lead.

Chicago remains home to more than its share of privately held banks with more than $1 billion in assets. But aging shareholder bases of many of those lenders have tended to opt for outright sales rather than IPOs to cash out. One exception, Oak Brook-based Inland Bank & Trust, is mulling an IPO some time in the future. But at just $1.1 billion in assets, it’s arguably not large enough yet.

Given the relatively modest IPO, there’s a surprisingly large number of investment banks getting pieces of the action. Leading the offering are Bank of America Merrill Lynch and Keefe Bruyette & Woods. Co-managers are Sandler & O’Neill, Piper Jaffray and Stephens. It likely is as much a testament to Herencia’s many connections in the market and to the investment banking world as it is to the fees the deal will generate.

In a somewhat unusual arrangement, the $800,000 in cash Byline paid Herencia as chairman last year exceeded the $677,056 in cash, bonus and perks that CEO Paracchini received, according to the filing.



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