While most of the press focused on the FDIC's use of the cross-guaranty provisions of FIRREA, a couple of other interesting tidbits floated to the surface near the shipwreck that occurred last Friday when the OCC sank, and FDIC took control of, nine banks owned by FBOP. One of those tidbits was the fact that earlier last Friday, Tim Geithner, who had flown to Chicgo, announced that the FBOP's community banking arm, Park National Bank Initiatives, had been awarded $50 million in tax credits. No one told Tim that the bank was being closed later that day. While the FDIC keeps the closing information a state secret, I had several interested observers break into hearty guffaws at the thought that Sheila Bair had stuck it to a guy who once cursed her (and other bank regulators) out for not being a team player (meaning that she should stop thinking for herself and become part of the "Yes, We Can" hive). The Treasury Department assured everyone that (A) there was nothing unusual about the FDIC (or the OCC, the lead federal regulator of the banks, and another target of Geithner's previous F-bomb barrage) not communicating the pending seizure to Treasury, (B) no tax credits were "lost" when the bank went down, because they'll go to the acquirer of all of the failed banks, US Bank, and (C) blah, blah, blah, yadda-yadda-yadda.
My secret inside sources assure me that Sheila and her staff broke into a late-day giggle-fest behind closed doors over the picture of Geithner's empurpled face clouding with rage when he realized, late in the day, that he'd been goosed by his arch nemesis. They also assured me that Geithner responded with a veritable carpet F-bombing of all within earshot, causing a passing sparrow to fall dead from the sky. You have to give this bureaucratic "gotcha" to Sheila.
Another interesting tidbit was that the failed banks were fatally hit by the collapse of FNMA and FNMA, which rendered worthless $855 million in preferred stock owned by the banks. Those investments were considered gold not so many years ago, and banks thought of that preferred stock as a safe haven that yielded nice dividends. Although one expert criticized the "business plan" of the banks, it's hard to see how holding hundreds of millions of dollars in GSE preferred stock was anything other than a no-brainer until everything went to hell in a hand basket in a hurry. Who knew Fannie and Freddie were going to be as broke as Bernie Madoff? Other than know-it-all bloggers and anonymous commenters on the internet, that is.
A final interesting facet is that the regulators apparently stymied the holding company's attempt to raise $750 million in private equity. One analyst was quoted as saying that the FDIC wouldn't approve that infusion of capital because it might have had to come back and take over the bank anyway at a later date. Huh? As long as you don't let the bank use the new capital to grow its way out of the problem, my preference would have been to let the bank burn through the $750 million in private money before it ever got to the insurance fund. Then again, I'm merely a tool of private enterprise and not a free thinker with a big picture view like those in D.C.
Another Bank Fail Friday approaches. More fun is likely to ensue.
NOTE TO SELF: Even though you barely have time to bang out these daily screeds, do yourself and all the rest of the readers a favor: proofread BEFORE you post. Thank you.
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