New guidance for private equity investors is contained in the Final Statement of Policy on Qualification for Failed Bank Acquisitions (the “Final Policy Statement”) issued by the FDIC on August 26, 2009. The Final Policy Statement includes significant changes in response to numerous comments concerning the FDIC’s initial proposal published on July 9, 2009. The changes incorporated into the Final Policy Statement will make transactions involving failed banks somewhat more attractive to private equity investors, although not all of the proposed restrictions on private equity investors were eliminated. FDIC Chairman Sheila Bair said that the Final Policy Statement “strikes a thoughtful balance” between the policy objectives of attracting non-traditional investors and maintaining necessary safeguards to protect the interests of taxpayers.
The need to attract additional investors seems clear. There were 416 banks on the FDIC’s problem bank list at the end of June with combined assets of approximately $300 billion. At that date the FDIC’s deposit insurance fund had a remaining balance of $10.4 billion.
Set forth below is a partial list of restrictions contained in the initial proposal that were reduced or eliminated in the Final Policy Statement:
- Provisions for retroactive effect of the Final Policy Statement were eliminated
- Restrictions will not apply to investors holding certain minority interests
- The 15% Tier 1 leverage ratio was changed to a 10% Tier 1 common equity ratio
- The higher capital commitment can no longer be extended beyond 3 years
- The requirement that investors serve as a source of strength was eliminated
- A cross guarantee would be required only when there is common 80% ownership
- A 30-day ownership provision was added to restrictions on affiliate transactions
- A provision for protection of confidential business information was added
Set forth below is a partial list of restrictions applicable to private equity investors that are contained in the Final Policy Statement:
- A 10% Tier 1 common equity ratio must be maintained for 3 years
- Common 80% ownership would require a cross-guarantee
- Transactions with affiliates owned for more that 30 days would be restricted
- Ownership structures must meet the FDIC’s disclosure standards
- Investors from bank secrecy jurisdictions would be ineligible
- Investors must maintain continuity of ownership for three years after acquisition
If you have questions, please contact Arthur Owens at 515-246-4515 or aowens@dickinsonlaw.com.
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