The FDIC’s bid documents historically have laid bare the inside workings of government-assisted transactions in the bank and thrift space. They do not offer the detailed narratives found in the deal background sections of proxy statements but instead stick to the facts, such as who is making the offer and the terms.
With 140 failures in 2009, a complete record of every bidding war that took place would certainly shed light on who is gunning for embattled institutions and what they are willing to pay. However, the FDIC in mid-2009 began paring down its disclosure to just the winning bid.
FDIC Supervisory Counsel Fred Fisch told SNL that the agency plans to resume disclosing nonwinning bids and the names of the other bidders, but it will no longer make it clear which bid was made by whom. In addition, it will only reveal the terms of the second-best bid a year after the fact. Fisch said the FDIC could not provide a timeline as to when the missing 2009 bid information will be backfilled.
The May 21, 2009, failure of Coral Gables, Fla.-based BankUnited FSB is the most recent government-assisted deal with publicly available runner-up bid information, and it is also the most controversial. The bidding war over BankUnited involved three parties: a consortium led by former North Fork Bancorp CEO John Kanas that included Invesco Ltd. unit WL Ross & Co. LLC, Blackstone Group LP and Carlyle Group; TD Bank NA; and Flowers BankUnited FSB, an investment vehicle headed up by former Goldman Sachs Group Inc. banker J. Christopher Flowers.
A bid for a failed bank specifies whether the bidder wants the whole bank or just the deposits. A bid on deposits is expressed as either a positive or negative percentage of deposits being assumed. Bidders have the option of bidding on all deposits or only insured deposits. Whole-bank bids also include an asset premium or discount, which is expressed in dollars.
The Kanas-led group took home the deal with a whole-bank offer that included no premium on deposits and a $3.00 billion asset discount. But Flowers had offered more, bidding a 1% deposit premium and only a $2.80 billion discount on assets. This resulted in some controversy, as the FDIC is mandated by Congress to select the lowest cost resolution for each bank failure.
The FDIC’s methods for determining the least costly bid, however, can go beyond sticker price, according to international law firm Gibson Dunn & Crutcher LLP.
The decision came down to Flowers’ request to be able to transfer BankUnited assets without FDIC approval. "A review of the bid forms and comments from parties familiar with the FDIC process suggests that the J.C. Flowers bid was rejected because regulators were concerned about how to evaluate future losses under the loss-share agreement to be entered into between the FDIC and the successful bidding group," the law firm said in a July 1, 2009, press release.
The FDIC in July 2009 proposed guidelines for private equity investments in failed banks that aimed to block private equity groups from flipping failed banks as opposed to nurturing them back to health. The private equity industry balked at the rules, which mandated capital levels and forbade silo structures. Some observers said the cost of resolving failures would increase due to the guidelines, as there would be a reduction in the number of potential buyers at the negotiating table.
It is hard to say what effect the rules have had on the number of bids, though, as ever since the BankUnited deal, the only bid documents to emerge speak solely of the winner.
To view a chart of multiple-bid transactions illuminated by FDIC documents, click here.
