UPDATE: BankUnited's Kanas: Confident Herald Deal Will Proceed

BankUnited Inc. (BKU) Chairman and Chief Executive John Kanas said Tuesday he is confident the Florida bank's acquisition of Herald National Bank (HNB) of New York will prevail.

The acquisition was challenged by Capital One Financial Corp. (COF). The McLean, Va., bank filed suit in federal court in Virginia earlier this month, alleging Kanas and John Bohlsen, BankUnited's chief lending officer, violated a noncompete agreement. Both had been executives with Capital One before joining BankUnited.

At issue, people familiar with the lawsuit say, is a noncompete clause in the separation agreement Kanas and Bohlsen signed in mid-2007. The agreement, which was made public in the lawsuit, states the two shall not compete with Capital One as director, stockholder, investor, employee, or any other capacity in New York, New Jersey and Connecticut. The noncompete clause would expire in August 2012.

The agreement also states that "ownership for investment purposes" of less than 10% won't constitute a breach of the noncompete agreement, nor will employment if the executive "is not providing services to the portion of the business of which is directly engaged" in competition with Capital One.

Kanas owns 5.3% of BankUnited, according FactSet Research, and Herald will be run as a separate entity after the deal closes, according to people familiar with the acquisition.

Bohlsen and Kanas "have been fully compliant" with the obligations set forth in the separation agreement, Kanas said in his statement Tuesday. "The Herald transaction has been structured to fall squarely within an explicit exception to the non-compete provisions in our agreements."

"We are very confident...we will prevail in this lawsuit and that our proposed transaction with Herald and our expansion strategy in the Northeast will proceed as planned," Kanas said.

A spokeswoman for Capital One said earlier this month when the bank filed its suit, "We fully support legitimate competition in the banking industry, but we expect non-compete agreements negotiated in good faith to be honored in full." On Tuesday, the bank declined to comment further.

Kanas was previously chairman and chief executive of North Fork Bancorp; Bohlsen was also an executive at North Fork. Capital One bought North Fork in 2006 and the two initially stayed with their new employer.

Kanas led a group of private-equity investors who bought BankUnited in 2009, after it failed and was auctioned off by the Federal Deposit Insurance Corp.

-By Matthias Rieker, Dow Jones Newswires; 212-416-2471; matthias.rieker@dowjones.com

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