FDIC Nixed Private Equity Bid for Banks

The Federal Deposit Insurance Corp. turned down a private equity firm's informal bid to buy First National Bank of Nevada and First Heritage Bank days before the federal agency took control of the failed institutions.

Belvedere Capital, a San Francisco-based private equity firm, was prepared to buy the banks, which were seized by federal authorities July 25, according to a person involved in the negotiations. However, Belvedere wanted the FDIC to give it downside protection in case the loan losses reached a certain threshold.

The person declined to give specifics on the terms of the deal, but he said it would potentially have cost the FDIC less than the $862 million it lost in deciding to hold onto most of the loans and sell the $3.23 billion worth of deposits to Mutual of Omaha Bank. The source says Belvedere did not make a formal bid because the FDIC expressed no interest in a loss sharing deal, saying it didn't have time to analyze the loans.

FDIC spokesman David Barr says he cannot disclose the identity of unsuccessful bidders. "All I can say is the Mutual of Omaha bid was determined to be the least costly," he says.

Barr, however, does not contradict the source's characterization of why the FDIC wasn't interested in a loss-sharing deal with a private equity firm. "You can't guarantee losses when you don't even know what the losses are going to be on the portfolio," he says. Barr says he isn't sure how the FDIC arrived at the $862 million loss estimate cited in its press release. "Sometimes it is based on modeling, not on the valuation of the assets," he says.