Wednesday, November 26, 2008

FDIC Looks to PEU's to Buy Failed Banks?

Bloomberg reported an FDIC decision could open the door for private equity underwriters (PEU's) to buy failed banks. NYT's Dealbook stated:

The Federal Deposit Insurance Corporation is widening its search for buyers of failed banks.

The agency said Wednesday that it would allow qualified parties without bank charters make offers to acquire the deposits and assets of failing institutions. The decision comes a day after the F.D.I.C. reported that bank failures rose 46 percent in the third quarter, to 171.

“The F.D.I.C. is responsible for ensuring that failing institutions are resolved in a manner that will result in the least cost to the Deposit Insurance Fund and minimal disruption to the financial system,” the agency said in a statement.

“In order to achieve this result, the F.D.I.C. markets the deposits and assets of a failing institution to known, qualified and interested potential bidders,” it said. “The F.D.I.C. recognizes that investors not organized as an F.D.I.C.-insured depository institution or holding company may potentially be interested in bidding to purchase a failing institution.

Sean Ryan, an analyst at Sterne, Agee & Leach, told Bloomberg that the rule change could encourage private equity firms to buy banks.

The Carlyle Group has a $14 billion fund nearing close. With $1 billion in TARP money, Carlyle could put $15 billion to work buying those banks. Aren't there ownership percentage restrictions? They were recently increased from 28% to 40%. Have they gone higher in all the rescue machinations?