May 27 2009 Emmanuel Olaoye
Private equity groups that are looking to buy failed banks are likely to face tougher requirements on capital from the Federal Deposit Insurance Corporation, according to a former FDIC official.
"Many private equity funds take time between the notice of funds and when [the funds are] delivered. The FDIC will want to ensure that capital is immediately available," said John Douglas, former FDIC General Counsel and partner at Paul, Hastings, Janofski & Walker LLP.
The warning comes after the failure of BankUnited prompted the FDIC to announce on Friday that it was considering the guidelines for private equity investors. BankUnited, which had approximately $13bn in assets and $8.6bn in deposits, is the second bank to be acquired by private equity investors after IndyMac was sold by the FDIC in March.
Michael Bleier, partner at Reed Smith LLP, agreed the firms will have to demonstrate that they have capital readily available to support the ongoing needs of a bank. The FDIC "will want to make sure there is capital and financial strength when such institutions take over," he said.
Douglas added the FDIC is likely to scrutinise the business plans of potential investors for "risky activities." It is unlikely to approve a firm that plans to use banks as a vehicle for buying "problem assets," he said.
Douglas also said the FDIC will want to ensure the firms meet the holding company requirements of the OTS and that "the Fed is comfortable with all the bank holding company issues."
The FDIC said it will release a policy guidance in the near future to address the interest of private equity firms that want to buy banks that are in receivership.
