December 1, 2008

FDIC Allows Non-Banks to Bid for Troubled Institutions

Last week, the FDIC announced a modified bidder qualification process that allows non-banks to bid on failed financial institutions. This new process is important given that the number of failed banks is likely to skyrocket, as noted recently in the “D&O Diary” Blog. We have posted memos on this development in our “Bank M&A” Practice Area.

OCC Announces Conditional Approval of First National Bank “Shelf Charter”

From Latham & Watkins: Recently, the Office of the Comptroller of the Currency announced the conditional approval of the first National Bank “shelf charter.” This first shelf charter was conditionally approved for Ford Group Bank, National Association. Significantly, the Ford Group Bank application apparently stated that the business plan was to acquire assets and assume liabilities from the FDIC acting as Receiver of a depository institution. The investors behind this application were well known to the bank regulators and experienced in acquiring assets and deposits from the FDIC as well as in operating banks. In this specific first example, the approval noted that the bank will have to apply for membership in the Federal Reserve and that certain of the owners would have to apply to the Federal Reserve System to become bank holding companies.

In effect, the shelf charter creates a new, optional, two-step process for obtaining national bank charters in certain circumstances.­­

1. Apply for a national bank charter and develop a business plan detailing a) the management; b) sources and amount of capital to be committed to the ultimate bank; and c) how the bank is to be operated and what its business is to be. Successful applications will receive preliminary approval from the OCC to charter a national bank. Once approved for such a charter, the charter remains “on the shelf” for 18 months from the date of approval.

2. Become a bidder for purchasing the assets and assuming the liabilities of a bank in FDIC Receivership. If that bid is successful, the shelf charter holders must return to the OCC with the details of the “bank” or assets and liabilities it is acquiring from the FDIC, comply with all the pre-opening requirements of the OCC, and execute a written Operating Agreement with the OCC. The OCC also will require the bank to submit a Comprehensive Business Plan. Written non-objection to the Plan will be essential to the receipt of final approval.

The OCC announced that it believes the shelf charter option will make it easier for investors to bid for and acquire troubled institutions or to purchase assets and assume deposits from the FDIC as Receiver by permitting them to be included in lists of bidders able to review such proposed transactions. With this new approach, the OCC has signaled a willingness to encourage the chartering of shelf institutions which can be used to take advantage of such opportunities.