In August, the FDIC passed a stringent set of rules aimed at making it easier for buyout firms to take control of banks. The end result, however, was so restrictive that many private equity firms basically abandoned the idea altogether. Notably, FDIC chief Sheila Bair promised to review the policy six months down the road.
The PEC has called the policy counterproductive, unnecessary, and a deterrent to deal-doing. Representatives of Blackstone Group, Carlyle Group and Centerbridge Partners said the policy “retains several requirements that may make it less likely that private investors will participate in acquisitions of failed depository institutions, or that will cause them to submit lower bids than they otherwise would have submitted.”
And they were both right. Since then, zero bank buyouts have occurred, according to Thomson Reuters. In 2009, we saw four major bank deals in the first half of the year: J.C. Flowers & Co’s takeover of Indymac; WL Ross & Co, Carlyle Group, Blackstone Group and Centerbridge Partners’ takeover of BankUnited; Advent International’s majority stake in Fifth Third Bank; and Fortress Investment Group, Crestview Partners and Lightyear Capital’s investment in First Southern.
The only bank deal I can find that happened within the confines of the FDIC’s new rules is TPG’ and Starwood Capital Group’s October buyout of Corus Bank (a deal which Thomson Reuters isn’t including for some reason).
When the FDIC policy was announced, buyout pros were optimistic about the door that Bair smartly left open. She said the policy would go in effect on a trial basis, to be reviewed again in six months.
Well, the six months are up, so I called the FDIC to find out if a review is slated to occur. I got this:
“The FDIC is considering whether any action is appropriate. No decisions have been made to this point.”
So they’re deciding whether to make a decision on whether the rules achieved the desired effect. Given the increase in populist anger at financial types, including President Obama’s own attacks on the alternative assets, private equity may be stuck with the bank-buying hand its been dealt.