Shareholders In Bank Bailout Retain a Stake
WASHINGTON - The Federal Deposit Insurance Corp. bailed out a bank in Kansas last week - and in an unusual move allowed shareholders to retain 33% ownership.
Douglass Bank, a black-owned Bancorp., contributed $2.3 million, of which $1.8 million was a below-market-rate loan from five charitable groups. Douglass Bank was founded in 1983 and had $32 million in assets.
Considered Best Option
The open-bank assistance package was the cheapest regulatory option, according to Harrison Young, the FDIC's director of resolutions.
Besides, Douglass Bank is a minority owned institution, and "we do think it is appropriate to put in some extra effort to preserve a minority bank," Mr. Young said.
The FDIC has had a long-standing practice of wiping out shareholders before pumping in any cash.
Denial of a Precedent
Mr. Young said the rare concession to Douglass Bank's owners "is in no way precedent-setting. This is not the kickoff of some new campaign where we're going to do wonderful things for shareholders of failing banks."
And Mr. Young said the stockholders did not get a great deal. They will not collect dividends until the loans and the FDIC's investment are repaid. That will take at least 15 years.
"Their economic interest in the overall enterprise is much smaller than it would appear because they aren't going to get anything until a great deal of debt and assistance is repaid," he said.