Flexibility Is The New Key To Winning Failed Banks
For the FDIC, sifting through dozens of alternative bids is a small price to pay for increasing the aggregate amount it receives. But for banks eyeing FDIC assets, it takes smarter structuring and creative thinking.
At the same time it has allowed bundling, the FDIC has cut back on its loss-sharing protections to reflect the stabilizing economy. In the early stages of the crisis, it typically agreed to absorb 80% of the losses on a seized bank’s assets, and usually assumed 95% of losses over a specified threshold.
The 95% loss-share inducement is no longer an option, and bidders may have to offer less advantageous splits to prevail in some auctions. Sharing the upside with the agency can help a bid, too.
TD, for instance, proposed a 50-50 loss share agreement to win the Florida banks. New York’s Valley National Bank , which beat out three other banks in its pursuit of New York’s Park Avenue Bank , had an equity appreciation clause in its successful bid, which beat out a rival offer with a smaller asset discount, but no upside for the FDIC.
