PE Bidders Not Allowed For Guaranty Financial Ahead Of Monday Deadline
The Financial Times is reporting that even as the FDIC probably managed to avert disaster by pushing off Colonial on to BB&T's lap on Friday, its troubles keep escalating. Sheila Bair is trying hard to sell Texas' Guaranty Financial ahead of a Monday deadline, however it may have used up its jokers on Colonial, which was supposed to be the "easy sell."
Guaranty’s fate has become intertwined in recent weeks with that of
Colonial Bank, an Alabama-based bank that was forcibly closed on Friday
and largely sold to BB&T, another regional bank, in an FDIC-backed
The FDIC, which is juggling failing banks around the US in an effort to
minimise the fallout to consumers, had initially wanted to resolve
Guaranty’s problems before Colonial’s by arranging a sale of Guaranty,
which is struggling under the weight of burgeoning losses on
homebuilder loans and mortgage-backed securities.
But regulators’ concerns over Colonial’s instability recently overtook
their worries about Guaranty, because of Colonial’s deteriorating
credit quality and its role in two federal investigations, so
regulators contacted bidders and asked for offers for Colonial last
Regulators have been hoping that three banks that had bid for Colonial – Canada’s Toronto Dominion, JPMorgan and Spain’s BBVA – would step in instead as bidders for Guaranty.
Ironically, Sheila is doing as much as it can to prevent PE interest in the failed bank, effectively giving all the leverage in the hands of the banks, which are able to submit lowball bids, in the absence of other, truly interested parties:
At least one private equity consortium, which includes Blackstone, Carlyle, Oak Hill Capital, TPG and Gerald Ford, is considering a bid for Guaranty.
The FDIC, however, has long made clear that it prefers other banks
as buyers of troubled financial institutions rather than private equity
Heading into the weekend, the private equity firms had not been given access to Guaranty’s confidential financial data.
One wonders why the artificial barrier, but then one remembers that other BHC's have access to the Fed's discount window, and if the artificially inflated loans on Guaranty's balance sheet actually have to get repriced to par, the banks will have much better access to capital than some mere, capitalist entities such as private equity firms. As to whether the ensuing loss-sharing arrangement which will be so optimistic as to be laughable, but nonetheless will result in at least a $2 billion in loss to the FDIC, would not have a lower impact on the DIF if a truly transparent auction process would be allowed to occur. Then again, with a financial system that is draped in a cloak of pervasive opacity, can one expect anything less from the authorities that need to make sure your dollar is in the ATM machine when you wish to withdraw it tomorrow?