OCC Changes Policy to Facilitate New Equity Investments in Troubled Banks
With the credit crisis showing no signs of slowing, the Office of the Comptroller of the Currency (the “OCC”) publicly released its first ever conditional preliminary approval of an application to establish a national bank to facilitate new equity investments in troubled banks. In its announcement the OCC emphasized that it was attempting to “expand the pool of potential buyers available to buy troubled institutions, and in particular the new equity capital available to bid on troubled institutions through the Federal Deposit Insurance Corporation’s bid process.” The OCC’s change in policy seems to be based upon its view that the pool of available purchasers of failed banks would be greater if inactive or “on the shelf” banks were permitted to bid on the purchase of failed banks. Deviating from its normal lengthy and robust process, the OCC signaled that during the credit crisis with respect to these types of applications, it will use an expedited and abbreviated review process, which will include an evaluation of the qualifications of the proposed management team, the sources and amount of capital that will be available, and a streamlined business plan that describes how the acquired bank will be operated.
Ford Group Bank, National Association
The OCC’s approval was disclosed on November 21, with its conditional preliminary approval dated November 17, 2008 of an application to establish Ford Group Bank, National Association (the “Bank”). Among other things, the approval was conditioned upon the Bank becoming a member of the Federal Reserve System and obtaining FDIC insurance. The Bank will be a wholly owned subsidiary of a Texas bank holding company (the “Holding Company”), which holding company must register with the Board of Governors of the Federal Reserve System. The approval anticipates that the Holding Company and the Bank will be capitalized by up to $700 million by a public company, up to $480 million by a private equity fund, up to $140 million by another private equity fund and up to $67.5 million by yet another private equity fund. These amounts, aggregating $1.38 billion, are substantially larger both singularly and in the aggregate than the normal amount the OCC would require for a new charter.
The main purpose of the Bank will be to assume liabilities and purchase assets from the FDIC, when the FDIC is acting as a receiver of a failed bank. The OCC’s approval was not clear on how much experience the OCC will require management and the board of directors of the Bank to have; the OCC merely asserted that the organizers, the proposed board or directors and other individuals associated with the investors have experience in operating depository institutions. The public record suggests very strongly that the OCC was greatly influenced by the $1.38 billion of capital which will be made available. The approval also noted that the OCC had not completed its background checks of the proposed executive officers, directors or organizers. While the OCC granted conditional preliminary approval, the Bank must provide notice to the OCC when it identifies an opportunity to bid on a failed bank or otherwise purchase assets of a failed bank from the FDIC.
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