Smaller companies are facing another hurdle as they seek to grow by buying failed banks.
Just ask Dennis S. Hudson 3rd, the chairman and chief executive of the $2.2 billion-asset Seacoast Banking Corp. of Florida in Stuart.
He tried to buy the $3.4 billion-asset Riverside National Bank in nearby Fort Pierce last Friday, but the Federal Deposit Insurance Corp. sold it with two unrelated community banks to TD Bank, a unit of Toronto-Dominion Bank.
"The FDIC paired Riverside with two smaller banks in less desirable areas," Hudson said. "Undoubtedly, that allowed them to have much improved results" than if they had sold the banks separately.
"We are disappointed, but it was a brilliant move on the part of the FDIC," he said.
Though smaller companies may still bid on individual failed banks, they may have to enlarge their bids — perhaps significantly — to compete with package buyers.
More package deals are expected as the FDIC staffs up and develops more methodical approaches to resolutions. That could hurt the chances of community banks to win failed-bank deals.
"With linked bids, larger regional banks can see it as a quick way to build critical mass sooner in a given market, and they can play with the bid because there is a larger credit portfolio to spread the risk across," said Christopher J. Zinski, a partner at Schiff Hardin LLP in Chicago. "From that standpoint, it puts the smaller community banks at a competitive disadvantage."
Linked bids may ultimately benefit the Deposit Insurance Fund if the FDIC receives higher bids for less-desirable franchises, but the sheer size of such packages would preclude many community banks from bidding. Regulators have imposed limits on how much a failed-bank deal can increase a buyer's size.
An FDIC spokesman said in an e-mail comment that the agency will consider linked bids when it makes sense.
"The FDIC always seeks to minimize the impact to the Deposit Insurance Fund by marketing through various transaction structures," Andrew Gray, a spokesman for the FDIC, said in the e-mail. "There are often cases where providing the opportunity to link bids has proven to be beneficial in accomplishing a number of strategic objectives."
Bundles are more likely to be created in areas like Chicago where a backlog of smaller banks is headed toward failure.
Data from Loan Workout Advisers showed that 32 banks in the Chicago area had Texas ratios above 100% as of Dec. 31. (This ratio measures nonperforming assets against capital and reserves; a bank with a ratio above 100% is viewed as at risk of failing.)
The FDIC has not sold a bank in that market since George Washington Savings Bank in February, and sources said the agency has been beefing up its staff there to handle another wave of failures.
"The FDIC has let the problem banks sit for a considerable amount of time as they were gearing up their new staff," said Justin A. Barr, the managing principal of Loan Workout Advisers, referring to the regulator's new, 500-person field office in suburban Chicago. "What I anticipate is the acceleration in their ability to not only take down banks but [also] their willingness to take them down in groups."
Several sources said the FDIC has been shopping a "super bid" package of seven Chicago-area banks, which hold nearly $6 billion of assets. Several sources said that Amcore Bank in Rockford, Ill., is anchoring the package. The $3.8 billion-asset bank has been struggling for months to get its arms around a credit portfolio made up largely of residential construction and development loans.
The sources said another bank in the package is Broadway Bank, a $1.1 billion-asset institution owned by the family of Alexi Giannoulias, a Democratic candidate for the U.S. Senate. Giannoulias has told the local press that his family's bank will probably fail.
Calls to both banks were not returned.
Barr said he is skeptical that all seven banks would ultimately be acquired as a group. Rather, he expects the FDIC to sell the seven in several clusters.
The five smaller banks said to be in the package are New Century Bank with $509 million in assets; Wheatland Bank with $437 million; Lincoln Park Savings Bank with $204 million; Peotone Bank and Trust Co. with $136 million; and Citizens Bank and Trust Co. with $77 million.
There have been a handful of linked-bid deals beyond TD Bank's including Iberiabank's takeover of Orion Bank and Century Bank FSB in November.