Thursday, May 28, 2009

Purchase Accounting Impact Points to More PEU Bank Buying

Uncle Sam provides tax advantages to companies buying distressed banks. Purchase accounting rules transform bad loans (acquired in the deal) into income.

John Kanas, the CEO of BankUnited, was on CNBC this morning. Larry Kudlow mentioned private equity investors, but not powerhouse Blackstone or The Carlyle Group, two part owners of BankUnited. Kanas bragged how $4.9 billion in FDIC subsidy was non-TARP, i.e. comes with little to no federal requirements. He expects many private equity underwriter (PEU) bank deals like Bank United.

PEU's win from credit spreads favorable to bank profits, FDIC's massive subsidy, and purchase accounting rules that turn junk into income. The FDIC's selling of distressed banks to PEU's provides a larger market for Tim Geithner's PPIP plan. Assets will be marked down enough to profit from an auction sale. The PEU boys will be on both sides of the PPIP, as owners of banks and investment buyers of junk debt.

Socialize the losses, privatize the gains. Obama sponsored corporafornication continues.

(HT-Economic Policy Journal)