FDIC seeks more commitment from buyers of failed banks
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The Federal Deposit Insurance Corp. wants to tighten rules on private-equity firms that buy failed banks, seeking to reduce the risk that the firms could be seen as getting sweetheart deals.
The agency’s proposals, issued today for public comment, already have sparked a backlash from private-equity players who say the FDIC will just make life more difficult for itself as bank failures mount.
From Bloomberg News:
The FDIC said private-equity firms acquiring failed banks should hold them for three years, double the time imposed in the latest transaction, to prevent “flipping” them for short-term profit. The proposal was among a half-dozen announced today by the FDIC as buyout firms such as Blackstone Group and Carlyle Group seek a bigger role in the banking industry.
Pasadena-based IndyMac Bancorp (now OneWest) was acquired by private-equity buyers in January. BankUnited Financial Corp. of Florida was sold in May to a group including Blackstone and Carlyle.
FDIC Chairwoman Sheila Bair said that she was ‘troubled by the opacity of some of the ownership structures that we have seen in our bidding process, though these have not been winning bids. We have seen bids where it has been difficult to determine actual ownership. We have seen bidders who have wanted permission to immediately flip ownership interests.
‘So based on the experiences we have gathered, I think it is prudent to put some generic policies in place which tell non-traditional investors that we welcome their participation, but only if we have essential safeguards to assure that they will approach banking in a way that is transparent, long term, and prudently managed,’ Bair said.
Secrecy on the part of private-equity firms? The FDIC can’t really be shocked by that.
The agency’s proposals also include provisions that would require a greater commitment of capital from private-equity firms to the banks they buy. . . .
From Bloomberg:
The FDIC said investor groups would be expected to be a source of strength for “subsidiary depository institutions.” Private-equity firms had expressed concern that expanding the so-called source of strength provision, which requires owners to support ailing banks, might impose obligations on minority investors. The plans would bar investment by so-called silo structures, in which a controlling investment would be isolated from a private-equity firm’s other holdings.
In a terse statement, the Private Equity Council said the proposed changes ‘would deter future private investments in banks that need fresh capital.’
‘We hope that the comment period yields changes that facilitate the flow of private capital into the banking system, consistent with the administration’s other efforts to address the financial crisis,’ the group said.
-- Tom Petruno