FDIC To Review Private Equity Rules on Monday

(Reuters) – U.S. regulators are set to hold a meeting on Monday with private equity executives and advisors as they review rules put in place last year to govern private investment in failed banks, sources familiar with the matter said.

The Federal Deposit Insurance Corp held a similar meeting over the summer before setting tough guidelines in August 2009 for private equity firms looking to invest in banks.

The rules include requirements that private investors hold a higher capital level than bank buyers. This has dampened private equity deals in the sector, investors say.

The guidelines were to be reviewed after six months, and the meeting to be held Monday afternoon is a part of that effort, the sources said.

The list of attendees for the latest conference was not available, but FDIC Chairman Sheila Bair told Reuters earlier this month that it would include bidders, lawyers and accountants.

The agency will issue “additional clarifications” about the rules in the next several weeks, Bair said in the March 2 interview.

The FDIC declined to comment when asked about the date of the meeting.

The FDIC has been talking with the industry about the impact of these rules in the past months, and private equity executives say they do not expect the regulator to make any major changes.

Bair said earlier this month that the rules had “struck a good balance,” noting that private equity groups have still been showing up to bid on failed bank assets.

“There have been some concerns raised in the process during the six-month period and there have been some questions and answers that have been put out to address that,” Comptroller of the Currency John Dugan, who is a voting member of the FDIC board, told reporters on Wednesday on the sidelines of a banking conference in Washington.

“But I look forward to a robust review and seeing whether it’s working as we hoped it would,” Dugan added.

Failed bank deals promise attractive returns and often come with loss-sharing agreements with the FDIC that protect investors’ downside.

Investors have been searching for various ways to get in the door, including through so-called “blind pools” of capital raised by independent management teams and other variations of structures that involve teaming up with other investors.

Private equity giant Blackstone Group (BX.N) is trying to raise a blind pool of up to $1 billion for that purpose, and is working with R. Brad Oates on the project, a source familiar with the matter said, confirming a report published by Dow Jones on Wednesday.

Oates was president and COO of Bluebonnet Savings Bank FSB from 1998-2003. Blackstone declined to comment.

Last year, the FDIC invited a wide range of high-profile executives and advisers from the industry and academia to discuss the guidelines for investments.

They included senior executives from US Bancorp (USB.N), BB&T Corp (BBT.N), Kohlberg Kravis Roberts & Co KKR.UL and Warburg Pincus WP.UL, as well as big name investors such as Wilbur Ross and John Paulson.

(Reporting by Megan Davies and Paritosh Bansal; Additional reporting by Karey Wutkowski in Washington; Editing by Tim Dobbyn and Richard Chang)

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