Banking Law

TPG Capital?s David Bonderman isn?t exactly a loquacious guy when it comes to public utterances, so when he drops a hot opinion in a public forum, it tends to be noticed. Today at a University of North Carolina conference, he told his audience that he thinks that the FDIC is blowing it by driving away private equity from acquiring failed banks from the FDIC.

The Federal Deposit Insurance Corp, concerned about equity funds exploiting the depressed assets of troubled banks by quickly selling them off, has limited the percentage of ownership and control by outside investors.

But Bonderman said firms that specialize in turning around failing enterprises are precisely the medicine such banks need.

Bonderman, speaking at a University of North Carolina conference here, pointed particularly to FDIC polices as aggravating the problem.

"The FDIC has taken the view that they are terrified of private equity guys -- or anybody else for that matter -- getting control of a financial institution," he said.

"Well, if you can't do that, you can't fix it. So the reason you are seeing so many announced bank failures and no equity coming in is because of misguided policies by the U.S. government

As many readers may recall, TPG lost over $1.3 billionwhen Washington Mutual failed in 2008. The fact that TPG wants in on FDIC-assisted failed bank transactions after suffering that loss shows you the upside potential in FDIC failed bank transactions. It also shows you one of the reasons that the FDIC is gun-shy of private equity: risk-takers might actually make money and then the FDIC might be criticized by mouth-breathing politicians and private sector pundits who resent the fact that other people make money.

For example, look at all the heat being generated by the recently announced financial results for OneWest Bank, the private equity-funded takeover vehicle for the assets and deposits of IndyMac. That hefty profit caused professional sound bite dispenser Bert Ely to ejaculate the following gem: "It makes you wonder whether the [FDIC] loss is due to the acquirer getting too sweet a deal." Well, if that?s the case, then the FDIC broke the law, which requires the FDIC to select the least-costly alternative, which the FDIC assures us that it did. As everyone knows, government officials never fudge the truth, so you can take the FDIC assurances to the bank.

You begin to comprehend the FDIC?s political dilemma, though, don?t you? They don?t sell to a private investor and they?re criticized by folks like Bonderman (and other private equity heavyweights) for taking a heavier loss than they otherwise would have had to have taken. They bring in a private investor, lower their loss, but?god forbid?the private investor makes money, and guys like Bert Ely opine that the deal might be ?too sweet.? The next thing you know, pajama-clad bloggers are nipping at your heels, then all hell breaks loose.

On the bright side (for PE investors, at any rate), Bonderman thinks that the PE freeze-out by the FDIC might be thawing.

Sooner or later the Feds will get the idea that the way you get capital into the system is to attract it, not to repel it, and make rules that reward capital and not the other way around," he said.

Maybe, maybe not. According to ?experts? quoted in a Reuters article today, the FDIC private equity guidelines don?t appear to be changing.

Executives told Reuters that they did not expect the FDIC to make any major changes to the rules.

I don?t expect the rules to be changed either in the near future (although I yearn to be pleasantly surprised). On the other hand, I expect that the days of treating private equity like the plague are over. We?ll see more private equity deals over the next year, as the pressure on the FDIC fund continues to grow.