Aug. 18--Minnesota's strapped community banks have been turning to their existing shareholders to pony up more money to weather the economic maelstrom -- a sort of pass-the-hat strategy, as one industry player said. But now outside investors, including wealthy individuals, private equity firms and investment groups, are buying in.

The nascent interest in local banks comes after national mega-deals to rescue insolvent banks earlier this year. Private equity groups bought Miami's BankUnited Financial Corp. in May, and Pasadena, Calif.-based IndyMac Bancorp in January, after the Federal Deposit Insurance Corp. (FDIC), struggling with a wave of bank failures, opened the door last fall for nonbank buyers to bid for the failed banks.

"There is a great deal of interest to replicate that here," said Karen Grandstrand, head of Minneapolis-based Fredrikson & Byron's 25-member banking team, whose clients include community banks.

Two Minnesota banks have failed since the current banking crisis: First Integrity in Staples and Horizon Bank in Pine City. Other banks purchased both.

That pattern may soon change. Private investors view the bank industry as undervalued now, Grandstrand said.

She said she's handling a half-dozen equity deals where outside private investors -- not existing bank shareholders -- are taking minority or controlling stakes in local community banks and, in at least one deal, are planning to buy the bank outright. Grandstrand won't name names, but she said the deals range from $200,000 to $25 million and involve local and out-of-town investors.

"Equity has been sitting on sidelines waiting until they have a good sense that the economy has bottomed out so they can time their entry," she said.

Grandstrand said she's noticed a change in confidence just in the past few weeks, with investors buoyed by better-than-expected jobs numbers.

A quick survey of Twin Cities' private equity firms suggests that very few have the appetite or experience to enter the banking game.

George Hicks, co-founder of Bloomington-based Varde Partners, which buys distressed debt, said Varde has participated in some of the loan auctions the FDIC holds several months after a failed bank closes. Buying banks outright, he said, isn't really their business. Still, he's keeping his eye on the situation, he said.

So is an independent investment group called the Opportunity Partners. The real estate investment group, formerly called the Condominium Opportunity Partners, has more than a dozen investors.