WASHINGTON Though it was not exactly eBay for banks, the Federal Deposit Insurance Corp. yes, the federal government has broken new ground in electronic commerce.
In the first transaction of its kind, the FDIC used the Internet to sell the deposits and assets of the failed First Alliance Bank and Trust Co. in Manchester, N.H., on Friday. State regulators said it closed the $18.4 million-asset company because its higher-than-expected expenses and insufficient earnings had left it perilously undercapitalized.
Southern New Hampshire Bank and Trust Co. in Salem purchased First Alliances deposits and most of its assets for face value plus a premium of $150,000, and reopened its sole branch on Monday.
The process was superb, said Robert N. Wheeler, president and chief executive officer of $152.6 million-asset Southern New Hampshire. I prefer doing it over the Internet. I could get the information on my schedule If I needed something at night, I could just go log onto the site and look it up.
The process marked a significant departure from the FDICs normal procedure for selling the assets of a failed bank. Typically the agency contacts hundreds of area banking companies to tell them an unidentified institution is available for purchase, and further information is given only to those that attend an introductory bidders meeting. About 10% of the contacted companies usually attend.
For the First Alliance sale, though, bidders avoided a trip to Boston where the meeting would have been held by pointing and clicking their way to the FDICs online presentation. Forty-seven companies signed a confidentiality agreement and were given an identification number and a password to log onto a secured Web site.
The site included a detailed PowerPoint presentation on the condition and quality of the company, including a voice-over introduction. Users could download information on its vital statistics, including assets, liabilities, and a detailed description of its loan portfolio, and could contact the agency with questions.
Participants were notified by e-mail when new information about First Alliances condition was added to the site.
That kind of quick access to information was a switch from the bidders meetings, where participants were not even aware of the banks name before attending. Though the First Alliance auction drew about the same percentage of bidders as offline sales, the FDIC says it hopes that easier access will draw more interest in future auctions.
It is a much easier way to provide the initial information to bidders, said Herb Held, assistant director of the FDICs division of resolution and receiverships. It is faster and much less burdensome, for us and the bidders. It also gets more people involved in the transaction.
The agency plans to use this process instead of offline auctions from now on, unless participants report problems, Mr. Held said.
After the initial download, interested bidders were allowed to look at First Alliance and its files before submitting a bid. The FDIC said that five institutions made final bids for the company.
Mr. Wheeler said that Southern New Hampshire first signed on to the site in December, and was notified two weeks ago that its bid was accepted.
As with any high-tech innovation, there are drawbacks, he said. The only problem was that you didnt see who the other faces at the bidders meeting were. You didnt see who the competitors were.
Bert Ely, an independent consultant in Alexandria, Va., said that the process could prove to be very useful, but there is the potential for problems.
First Alliance probably represents a good bank to take a first crack at it, he said. It is a relatively small bank, with a simple asset structure. The question is how well would this work for a larger, more complex bank? What if this were the First National Bank of Keystone up for sale?
The West Virginia institution failed in 1999 amid fraud allegations, when regulators discovered that nearly half of its $1.1 billion of assets were missing. The failure cost the Bank Insurance Fund more than $750 million.
The FDIC estimated that First Alliance, the first institution to fail this year, would cost the fund approximately $119,000. The agency resolved seven bank and thrift failures last year.
In a press statement issued Friday, the New Hampshire State Banking Department said that First Alliances circumstances were peculiar to that institution and in no way reflect the performance and condition of either the banking industry or the economy in New Hampshire."