This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Cramer's Action Alerts PLUS - See his portfolio and get alerts BEFORE every trade. Learn more NOW!

FDIC 'Falling Flat' on Busted Bank Tax Claims: Street Whispers

NEW YORK ( TheStreet) --The Federal Deposit Insurance Corp. has been striking out in its efforts to lay claim to tax refunds from failed banks, and at least one analyst who has been following the cases believes the regulator is doomed to failure in these efforts.

When the FDIC takes over a failed bank, the entity it takes over is the operating company. The legal corporate entity--known as the holding company--files for bankruptcy. In many instances the only asset it retains is a claim to a tax refund from the Internal Revenue Service.

CRT Capital Group analyst Kevin Starke writes for an audience of investors in distressed debt securities who want to know the likelihood the refund will be paid out to the banks' creditors. According to Starke, the FDIC's efforts to step in front of creditors and lay claim to the refund, while dogged, are "falling flat in case after case."

The FDIC doesn't discuss active litigation, according to a spokesman.

The key to the FDIC's arguments are the tax sharing agreements between the legal entities that make up the company.

The FDIC has tried to claim that the holding company is merely a conduit through which assets automatically get passed on to the operating company. While such a "principal-agent" relationship isn't specifically laid out in the vast majority of the tax sharing agreements, neither do they state that such a relationship doesn't exist. As a result, the FDIC has been arguing, a principal-agent relationship should be accepted as the default.

But bankruptcy courts don't work that way, according to Starke.

"Bankruptcy courts look at your rights as a creditor typically more in line with the minimum protection that you're entitled to rather than the maximum protection that you're entitled to. You have to prove that you're entitled to something more, not assume that you're entitled to something more and then simply prove that you're not entitled to less. The FDIC's trying to go that latter route--they're trying to say its obvious that we're entitled to something more and you had to prove that we're entitled to less. That's not working at all," Starke says.

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Try it NOW
Only $9.95
Try it NOW
14-Days Free
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
AAPL $128.74 -0.48%
FB $79.98 0.48%
GOOG $570.02 -0.63%
TSLA $197.37 -1.10%
YHOO $42.83 0.49%


DOW 18,039.07 -164.30 -0.90%
S&P 500 2,089.62 -18.16 -0.86%
NASDAQ 4,942.7670 -37.1340 -0.75%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs