FDIC Having to Pay More to Make Financial Sausage
February 19th, 2009Does discount mean loss?
Via: Bloomberg:
U.S. regulators are being forced to sell the assets of failed banks at a discount to lure buyers spooked by the likelihood of increased loan losses amid a deepening recession.
The assets of four banks have been sold to healthier rivals at a combined discount of $107 million this year, the Federal Deposit Insurance Corp. said. The FDIC had to offer a discount just once in 2008, when it engineered 25 bank takeovers.
Buyers for banks are in short supply after last year, when regulators closed the most lenders since 50 were shuttered in 1993. RBC Capital Markets analyst Gerard Cassidy predicts as many as 1,000 more will collapse within five years. The result may be a buyer’s market in which the FDIC will lay out even bigger sums to get rid of seized banks.
“There are situations where the government will write you a check to complete a deal,” said Peter Stanton, president of closely held Washington Trust Bank. “There is always value in there if you are willing to go in and work for it.”
Stanton’s bank, based in Spokane, received a discount of $7.6 million from the FDIC on Feb. 13 as it took over Pinnacle Bank of Beaverton, Oregon. Washington Trust, seeking to expand in Oregon, submitted an offer after five days of studying Pinnacle’s loans, Stanton said in a telephone interview. His bank is assuming $72 million in assets and $64 million in deposits.
Last year, the biggest bank failures didn’t include discounts. JPMorgan Chase & Co. paid $1.9 billion in September for the assets of Washington Mutual Bank, the largest U.S. savings and loan.
Compensated for Risk
“The assuming institution isn’t always willing to take on all of the troubled assets of the failed bank, so a discount means they want to be compensated for that risk,” FDIC spokesman David Barr said in an interview.
