FDIC Nixed Private Equity Bid for Banks

The FDIC now must sell the troubled loan portfolios it took over from the banks. After an estimated $1 billion in writedowns, the portfolios are worth roughly $2.5 billion.

Belvedere had planned to use the banks' deposits to finance its acquisition of the loan portfolios, according to the person involved in the negotiations. Now that the FDIC sold the deposits to Mutual of Omaha, whoever buys the loans will either need to write a check for the entire $2.5 billion, or find a financing source. Since most banks are busy trying to reduce their exposure to the type of construction loans that dominate the FNBA portfolio, it is unclear whether any will be willing to finance such an acquisition.

Another option the FDIC might pursue is to sell a partial stake in the loan portfolio, as it recently did in the case of NetBank, an online bank that failed last year. The FDIC sold a 40% stake of one of Netbank's loan portfolios to an undisclosed investor, who will assume responsibility for servicing the entire portfolio. If the investor recovers an agreed-upon amount, it will be able to claim a 60% stake.

Nautilus Capital Managing Director Laird Minor, who advised the FDIC on the sale of the NetBank unit and is currently working with the agency on the sale of a $1.2 billion portfolio from the now-defunct Arkansas National Bank, believes this transaction will be a model for FDIC sales of loan portfolios from failed banks.

"From the little involvement I've had, I don't get the sense that the [FDIC officials] I'm working with have much interest in the traditional loss-sharing structure. I think they like this shared ownership structure a whole lot better," he says. Minor notes that because the shared ownership structure requires a smaller equity commitment than buying the whole portfolio would, it opens up the bidding process to a larger group of potential buyers.