The recent news that the original private equity funds that backed one of the FDIC-assisted broke-back-bank deals of the latest banking "crisis" are finally, after five years, cashing out the last of their remaining ownership may fill the FDIC with even more "seller's remorse" than it allegedly experienced previously when it decided that it had been way too generous with the buyers of BankUnited. As I discussed four years ago, some wags complained that the assistance deal was too lucrative for the acquirers, due, the wags surmised, because the crafty Wilbur Ross and his fellow PE all-stars "outfoxed" their FDIC counterparts.
I don't think that the FDIC was "outfoxed." Rather, Ross and his compatriots (led on the management side by John Kanas, who will remain at the helm of the the bank after the original investors leave the stage) were into the game early, when the risks were high, the rules flexible, and the FDIC uncertain as to where the sweet spot might be between giving away just enough to entice buyers to buy, but not so much that critics in the peanut gallery would do what the FDIC does to officers and directors of the failed banks: second-guess them with the benefit of hindsight. As a result, Ross and his fellow investors negotiated better terms than those who came later. As the FDIC became more comfortable with its understanding of the field of potential bidders and what they would or would not accept, the deal terms negotiated became less lucrative for the acquirers.
An unfortunate consequence of this criticism of the FDIC, as well as of public bragging by some notable PE investors who also got into the game at the beginning (not Ross) about the sweet deals they'd swung, was that the FDIC decided to clamp down on private equity bidders for failed banks, making the conditions on PE bidders onerous enough that Ross and others simply opted out of the process and turned their attention to other investments. That eliminated competition for other assisted transactions and may have ended up costing the FDIC money in the long run. That's pure speculation, but not unreasonable speculation.
There will be some who will sneer at the fact that Ross and company are making more from the deal than they originally expected. As I said four years ago,
Of course, we appear to be living in an era where a number of people think it ought to be illegal for capitalists to prosper, especially in the banking system, and even more especially where the downside risk is covered by the FDIC. I understand the reasons for that sentiment. I simply don't share it.
I still don't share it. Risk takers recapitalized a broken bank, turned it from a high-flying outlier into a solid franchise, saved the jobs of many workers who otherwise would have been hitting the pavement, and performed in accordance with the deal they cut with the government. The FDIC experienced a substantially lower loss than it would have if it had not done the deal. The investors made out well. So, let's all criticize both parties for not doing a deal that wouldn't have been done at the time it was done. That makes sense.
My only regret is that the FDIC didn't do more BankUnited-like deals. Then again, as I've said before on this blog, I sustain myself not by eating solid food, but by taking a straw and sucking the sweat from the brow of the proletariat. Of course I'd feel that way.