FDIC Falls Short of Its Disclosure Pledge on Failed-Bank Bids

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Nearly a year after the Federal Deposit Insurance Corp. said it would resume revealing the losing bids for failed banks, bankers and others in the industry find its disclosures wanting.

The FDIC has published lists of unsuccessful bids for only about one-quarter of the 147 banks that have failed since Nov. 12, when the agency announced its current policy, according to American Banker research.

The information is considered valuable for several reasons. Banks like to know which out-of-area competitors are looking to invade their turf. Advisers clamor for the lists to help their clients shape bids for the next failed bank that becomes available. And some say making the losing bids public is just good public policy.

"We need to know who the potential bidders are. We need to know who is active in our state and who wants into our state," said Ken Thomas, an independent banking consultant in Florida, the state with the largest number of bank failures this year. "They are diluting their effectiveness by delaying these disclosures."

The FDIC used to provide a list of all those who bid for a failed bank, and how much each of them bid, on request. In May 2009, it imposed a moratorium on such disclosures, prompting outrage. Six months later, it announced the current policy: The FDIC would post on its website most of the bidders and most of the bids but would not say who bid how much, and the second-place bid — known as the cover bid — would be withheld for a year.

This was fair in the eyes of many. But critics say the FDIC is dragging its feet on even the partial disclosures it promised.

"There appears to be no rhyme or reason as to why it is taking them so long to do it," said Randy Dennis, the president of DD&F Consulting, a Little Rock firm that advises failed-bank bidders and closely studies failures. "I don't understand why they are so slow."

The FDIC said it is working to make public the bids, though the sheer volume of information has been daunting.

"We continue to work as expeditiously as possible to post online the bid information for losing bidders from failed-bank transactions that were completed after May 2009," the agency said in an e-mail Tuesday. "Due to the volume of failed-bank transactions, the FDIC must balance the need for expediency with the necessary time that it takes to process the legal documents to ensure that confidential information is protected."

Yet some of the more active bidders said the disclosures would be more useful in helping them shape future bids if the FDIC first released the most recent information and then worked its way back. This is because the bidding process is not the same as it was last year — competition has increased and loss-sharing agreements are being structured differently.

"The bidding process had changed so much," said Ray Davis, the chief executive of the $10 billion-asset Umpqua Bank in Roseburg, Ore., which has picked up two failed banks this year. "To compare a bid made in 2009 to one now wouldn't mean much. Even a bid six months ago would be different." Davis said his company would like to see more disclosure, though the trickle of information has not diminished Umpqua's appetite for failed banks.

"The point is: Why not? I say put it out there. Who cares?" Davis said. "It can't hurt. Transparency is always good. It is good for spotting trends."

Of the bidding summaries that have been disclosed, several only list the winning bid.

Yet other disclosures show interesting patterns or reveal surprise bidders. For instance, the failure of Midwest Bank and Trust Co. in Melrose Park, Ill., shed light on large community bank failures in Chicago, an epicenter for bank failures in recent years. The FDIC had 17 bids for the $3.2 billion-asset company, which failed in May. Among the bidders were FirstMerit Bank in Akron, Ohio; Harris Bank in Chicago (a unit of Bank of Montreal); Hinsdale Bank and Trust Co. in Hinsdale, Ill., and U.S. Bancorp.

Also included in the list of bidders were the private-equity group Ford Financial Fund LP in Dallas and the bank holding companies NBH Holdings Corp. in Boston and North American Financial Holdings in Charlotte.

Some observers, including Thomas, have speculated that the FDIC halted the disclosures at the behest of such groups, which tend to be particularly tight-lipped. The FDIC imposed the moratorium after the failure of the $11 billion-asset BankUnited in Coral Gables, Fla., which was sold to a consortium of private-equity groups.

Gerald J. Ford, the head of Ford Financial, said some private-equity groups might have called for such discretion, though he was not among them. Disclosure, in fact, has shaped his approach, he said.

With a shelf charter, Ford said, his group has bid on as many as eight banks in the past year or so. The summaries crystallized the disparity between the group's losing bids and the successful ones.

"You get to see by how far you've missed, how you assessed the assets compared to others, the return you were expecting versus others. It shows you the competitive landscape," Ford said in an interview Monday. "We were losing by such wide margins that we reduced our participation."

Ford said he is still looking at failed-bank deals, yet his firm has made recapitalizations a priority.

Other investment groups have also realized the challenge they face in competing with existing banks, the so-called strategic buyers, for failed banks. As a result, some have opted to pour capital into struggling banks or small healthy ones.

In the case of Midwest, a strategic buyer that had long sought a major presence in Chicago prevailed. The $14 billion-asset FirstMerit won, paying a 0.40% premium on Midwest's deposits and, in a highly unusual move, a 2.7% premium on assets. All of the other disclosed bids called for asset discounts.

FirstMerit had fallen short a month earlier in bidding for the $3.8 billion-asset Amcore Bank in Rockford, Ill., which ultimately went to Harris. The bid summary shows that the FDIC got 15 bids from four companies for that bank.

"That's why the bid summaries are important," said DD&F Consulting's Dennis. "A frustrated bidder can become a dangerous bidder. Yesterday's losers are today's winners."

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