NorthWesternFinancialReview.com Blog

I am fascinated by the process by which healthy banks work through the FDIC to purchase banks that have been closed by the OCC or their state regulator. In our January edition of NorthWestern Financial Review, we write about Central Bank of Stillwater, Minn., acquiring four failed banks in 2009.

The subcommittee hearing last week in Washington D.C. hosted by U.S. Rep. Luis Gutierrez gave us insight into the details of U.S. Bank’s acquisition of nine failed banks that made up the FBOP Corp.Rep. Gutierrez of Illinois heads the subcommittee on financial institutions and consumer credit. The Jan. 21 hearing focused on the Oct. 30, 2009 failure of FBOP Corp., a $19 billion holding company based in Oak Park, Ill., just outside of Chicago.

Richard C. Hartnack, vice chairman in charge of consumer and small business banking at U.S. Bank, testified offering the following synopsis of the events that constituted the acquisition:

We had previously registered our interest in reviewing franchise sales with the FDIC. As is typical, our Director of Corporate Development received an email, that presumably was sent simultaneously to other interested parties, informing us that this institution was potentially going to be sold by the FDIC.

The process then proceeds along these lines. We are presented and execute a confidentiality agreement covering the potential transaction. We are given access to a “data room” on a secured web site where a limited number of registered users from our company are able to perform the typical acquisition “due diligence” process. Following that we are granted a limited and tightly controlled opportunity to visit with management of the subject bank. We then perform a valuation exercise that leads to our developing a bid that conforms to the specific bidding conditions on the property in question.

The bid is submitted to the FDIC. Once the final decision is reached by the regulator of record to take control of the failed institution, the FDIC is named receiver and then the receiver completes the sale to the winning bidder.

We have actively engage in the bidding process on seven occasions. We have declined to bid on numerous other occasions because our investigation suggested that the offered franchise was not a good fit with our organization. We have been the successful bidder on 4 of the 7 occasions on which we bid.

Read about the factors that led to FBOP Corp’s closure in our Feb. 1 edition of NorthWestern Financial Review.