Private equity firms to invest in First Southern

CHICAGO, May 30 (Reuters) - Three private equity firms have agreed to invest up to $450 million in First Southern Bancorp Inc, giving them control of a small Florida lender that could be used to acquire more banks.

The agreement in principle with affiliates of Fortress Investment Group LLC (FIG.N: Quote, Profile, Research), Crestview Partners LP and Lightyear Capital calls for each firm to invest up to $150 million in exchange for common and convertible preferred stock, giving each a significant non-controlling stake.

A definitive agreement is expected within 60 days, Boca Raton-based First Southern said in a statement late on Friday.

The investment marks another step by private equity firms into a U.S. banking system battered by soaring credit losses and depleted capital.

Last week, a group of investors led by WL Ross & Co, Carlyle Group CYL.UL, Blackstone Group LP (BX.N: Quote, Profile, Research) and Centerbridge Partners acquired assets of the failed BankUnited Financial Corp BKUNA.O, Florida's biggest independent bank, in a sale arranged by the Federal Deposit Insurance Corp.

Five months ago, private investors bought the assets of failed bank IndyMac Bancorp from the FDIC. The agency is crafting guidance for private equity investments in troubled lenders, FDIC Chairman Sheila Bair said this week.

First Southern said the proposed investment would allow it to substantially expand through organic growth and acquisitions. People familiar with the deal previously told Reuters they expect the bank to grow to at least $5 billion in assets, up from less than $400 million now. The bank has five branches in Florida's Palm Beach and Broward counties.

Gene Taylor, a former vice chairman at Bank of America Corp (BAC.N: Quote, Profile, Research), will be First Southern's chairman and chief executive when the deal closes, First Southern said. Brian Scherr, the current chairman and co-founder of First Southern, will become vice chairman, the bank said.

Taylor worked for Bank of America and its predecessors for 38 years, and as a longtime lieutenant to chief executives Hugh McColl and Kenneth Lewis oversaw the integration of dozens of banks, especially in the southeastern United States.