FDIC leaves 2008 Memories with few bidders
On Monday, October 27, 2008, traders work on the New York Stock Exchange floor in New York, U.S.A. Monday, October 27, 2008: Traders work on the floor of the New York Stock Exchange in New York, U.S.A. The acquisition of a failing bank by a larger institution is usually the best solution. Thomas Vartanian is a former regulator and banking lawyer. He said that potential suitors for Signature Bank and Silicon Valley Bank are hesitant about signing deals because some of the 2008 buyers later regretted their decisions. He said that many of the banks, including JPMorgan [Chase] and Bank of America, felt they were being abused in the crisis. “JPMorgan acquired Bear Stearns [Washington Mutual], Bank of America acquired Merrill [Lynch], and then the government sued them for the transgressions committed by the companies they purchased. “In 2012, four-years after JPMorgan Chase bought Bear Stearns investment bank, the New York Attorney General accused the bank of fraud and then sued. Jamie Dimon, CEO of JPMorgan Chase, claimed JPMorgan had lost billions of dollars. He also claimed that his firm was penalized for doing what he described as a favor to FDIC in buying Bear Stearns. The agency has a discrete 90-day process to sell the bank. Law requires the agency to accept the cheapest arrangement to the insurance fund. This involves estimating asset value and assessing which bank’s deposits are insured. The receivership is set up to manage any balance sheet items. John Bovenzi, cofounder of The Bovenzi Group, was a former FDIC official. “I don’t believe that the FDIC received any credible bids. Bovenzi stated that if they had, they would have accepted them. “Bidders couldn’t accurately estimate the value of the loan portfolio due to the rapid pace at which everything developed,” Bovenzi said. To minimize their risk, bidders would need to make very low bids. The FDIC took over IndyMac back in 2008. “The speed of the events left regulators with few options. On Monday, the agency established a Bridge Bank. This arrangement was unprecedented since then. “The speed of events left regulators with fewer options, and as a last resort, the agency established a bridge bank on Monday, an arrangement not seen since the FDIC took over IndyMac in 2008. Fine wrote in an email that the 2008 financial crisis left a bad taste for banks that made deals with government officials, only to have them change the terms later to the disadvantage of the buyer bank. “Agencies must move quickly when there’s crisis like you saw — they were there in a flash in order to put in a bank bridge — but the rest will move much slower now. John Popeo, principal of The Gallatin Group, who was involved in bank-failure deals for the FDIC during the financial crisis, believes it’s possible that several banks will bid together for a portion of the bank failures. Popeo said in an email that he could see an “alliance bid” that would involve several regional banks or smaller institutions to purchase different assets and liabilities. He also noted that the business models of the two banks that failed could have divergent prospects for their acquisition. Popeo stated that while both Signature and SVB are tech-oriented banks the business models of the two banks were very different. Signature was a partner in the San Francisco tech community and Signature focuses more on crypto and commercial real estate. Given the different business models of each bank, prospects for each institution will be different. Bovenzi stated that although no bank has yet emerged as a buyer, that doesn’t necessarily mean that no bank will ever. He said that separating the bank in bankruptcy expands the pool of buyers beyond other banks. Bovenzi stated that they can reach a wider audience, which includes entities that don’t have a bank charter but may have expertise in certain types of loans. They may also offer the entire failed banks. If interested banks have had a chance to analyze the loans of failed banks, the FDIC could receive better bids.