NEW YORK (
) -- The
Federal Deposit Insurance Corp.
is apparently tiring of getting taken to the cleaners when it sells failed banks.
The pop in the stock prices of banks that acquire failed competitors from the FDIC has been extraordinary to watch over the past year. The standout was
East West Bancorp
, which has practically doubled since it bought
United Commercial Bank
from the FDIC in November.
Several other banks, however, have seen benefits after picking up failed banks from the FDIC, ranging from giants like
to tiny players that trade over the counter, such as
(SWBC:OTC) in Tustin, Calif. Sunwest has bought two failed banks from the FDIC since September, and its stock was up more than 80% since then through Tuesday.
It is small wonder that
executives remain bitter at the FDIC for awarding Wachovia to
But now the FDIC looks like it will finally start getting some of the upside, according to a report in the
Wall Street Journal
on Wednesday. The report says the FDIC has struck a deal with
New York Community Bancorp
to allow the regulator to participate in some of the gains that followed after it bought
earlier this month. The article says the FDIC will now look to arrange similar deals with other acquirers.
The article says the FDIC made $23 million on the AmTrust sale which is better than nothing, but a pretty small fraction of the roughly $800 million gain in New York Community Bancorp's market cap.
Still, it is a good thing that the FDIC is working to get some of this money back for taxpayers. What's troubling, however, is that it was actually New York Community Bancorp that proposed the arrangement, according to the article. Why should officials at the FDIC care, after all, since they are motivated merely by a vague fear of political repercussions if they strike a bad deal, while the executives at New York Community Bancorp have the profit motive working in their favor?
Also troubling is that the FDIC will only participate in the upside when the acquirers are "sizeable buyers that are publicly traded," the article states. Many of the buyers of these failed institutions are private, such as
, the former IndyMac, which is owned by a group that includes vehicles run by hedge fund wizard George Soros and
founder, Chairman and CEO Michael Dell, among others. As I noted in an earlier article, these folks are presumably doing pretty well with their purchases. It is hard to believe the FDIC is driving as hard a bargain as it should with buyers of this stripe.
Written by Dan Freed in New York