Financier aims to buy struggling small banks

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: Wilbur L Ross Jr, the billionaire financier known for buying companies cheaply, has compiled a shopping list of small struggling banks that may be good investments.

Ross plans to buy stakes in a handful of those regional banks to combine them with some mortgage-related companies that his investment firm, WL Ross & Co, has already purchased. And he said that he believed investors and government funds in the Middle East might join him on his buying binge.

“I believe there will be 1,000 or more depository institutions that need money,” Ross said. “They’re of interest to me and of interest to my fund, and I believe they will be of interest to investors in general.”

Several Middle Eastern individuals and government funds are already investors with Ross’ firm, he said. Next week, he plans to travel to Abu Dhabi and discuss with investors there the 100 to 200 small banks that he deems promising.

Analysts expect dozens of small banks, savings and loans and credit unions to fail as they cope with mounting losses related to the credit crisis. During the savings and loans debacle of the 1980s, more than 1,000 small banks were sold.

So-called sovereign wealth funds in Middle Eastern countries have invested in large American banks like Merrill Lynch and Citigroup in recent months. But those investments have yet to turn profits. The fund that manages roughly $800 billion for Abu Dhabi, for example, paid $7.6 billion for a stake in Citigroup in November, and then watched that bank’s stock fall 30%.

Ross said the smaller banks would fare better.

Sovereign wealth funds have come under increased scrutiny because of questions about whether they would exert undue influence on the operations of the banks they invest in. These foreign funds manage more than $2 trillion in assets and are expected to manage more than $12 trillion by 2015. They are increasingly shifting away from buying American and European treasury bills toward investments that may have higher returns.