As reported on Footnoted.org last week, on May 21, 2009, BankUnited FSB was closed upon the order of The Office of Thrift Supervision, leading to a Chapter 11 bankruptcy filing by parent company BankUnited Financial Corp. Regulators seized the failed bank and transferred assets to a private investment group, led by John Kanas, who are investing $900 million into the new BankUnited and ending a four-month auction process by the FDIC. According to the Wall Street Journal, taxpayers will still bear the brunt of the bank’s rebuilding process however, as the FDIC is assuming the vast majority of billions of dollars in potential losses still on the books. The emerging bank will be well funded, and the potential for growth could be enormous over the next few years, but Mr. Kanas and company would be well served to avoid some of the potential corporate governance pitfalls that have begotten BankUnited in the past.
The Corporate Library issued an analyst alert in the summer of 2008 citing numerous ways in which the corporate governance revolution appeared to bypass BankUnited. Purchase our company governance profile for BankUnited for US$50 (down from $US850) to see how The Corporate Library rated them for governance risk. As of 2008, BankUnited Financial Corporation was more than 42 percent owned by the Camner family, with Alfred R. Camner serving as the rather extended CEO of the company. In addition to serving as the Chairman and CEO of BankUnited Financial AND BankUnited, FSB, he also served as head of Camner, Lipsitz and Poller, P.A. (“CLP”), where his daughter Errin served as a Managing Director. Between 1998 and 2008, BankUnited Financial Corporation and BankUnited paid more than $30 million in retainer fees to the firm as General Counsel, including $4.9 million in 2007 alone. Another of Alfred’s daughters, Lauren Camner, served as a Senior Vice President and director of both BankUnited Financial Corp and BankUnited FSB. The Camner family also owned Series B Preferred Stock at the former Bank United Financial Corp., which had 25 times the voting power of its publicly-tradeable common stock. Other concerns included a classified board and plurality voting for directors, which make it difficult for shareholders to remove or replace under-performing directors as they did not come up for election every year and did not require a majority vote for election. CEO pay was also wrought with governance blunders. Mr. Camner was eligible for quarterly bonuses of up to $800,000 in 2008, despite having strategic responsibilities that should not be focused on such short term performance. Additionally, this quarterly bonus was based on the same set of performance metrics as his annual cash bonus and performance-restricted stock award, ostensibly rewarding him three times for the completion of the same short-term achievements. The CEO also received super-voting stock options, generous perquisites, and even director fees for serving on the board of the company subsidiary. The former BankUnited was a family firm and in the end, the interests of the family were misaligned with those of its shareholders. It will be up to Mr. Kanas and others who bring the new BankUnited to light to avoid such non-shareholder friendly practices in the future. The partnership between the government and private equity must also have room for a clear voice from the shareholders, and for the interests of all three parties to be aligned. Greg Ruel—Research Associate
