Bank Lawyer's Blog

Community Bank Consolidation: Over-Hyped?

I've been traveling on business this week and have missed posting the past couple of days, but I couldn't let the week end without commenting on a story in yesterday's American Banker, the tone, and much of the substance, of which, was that bank merger activity is stagnant and is not likely to improve in the near term. I'm not as gloomy.

Aside from the fact that our boutique firm is currently involved in a half-dozen deals, I attended a banking conference last Friday in Dallas (actually, the Four Seasons Resort in Las Colinas) hosted by Commerce Street Capital, in which that firm's head of M&A, former OTS Western Regional Director C.K. Lee, circulated some interesting statistics. One was that the total number of M&A transactions last year nation-wide was 230, the highest since 286 in 2007, before the crash. 39 of those were in the Southwest. In the first quarter of this year, there were 44 transactions, 8 of them in the Southwest. I was in Denver the last few days, and had lunch yesterday with an investment banker whose firm is heavily involved in M&A activity in Colorado and surrounding states, and he's also currently juggling a handful of deals at the moment.

While all of this is not exactly a raging inferno of M&A, it's not as depressing as the folks the American Banker interviewed made it out to be. There's no question that potential buyers who feasted on FDIC loss-sharing and the cheap prices they paid for failed banks are not enamored of sellers who want an actual premium over tangible book value. It's also true that, in some areas of the country, the bid/asked gap between sellers and buyers is wide. However, in some areas of the country, deals are getting done and there are more in the hopper.

Therefore, while I agree that the predictions of some pundits that there would be a "tsunami" of community bank consolidation this year will not prove to be true, I also think that as agencies like the CFPB continue to work their magic on the psyches of community bank owners, directors, and senior managers, and as the ownership of many closely-held community banking organizations continues to age, there will be more mice who decide that they no longer want the cheese, they just want out of the trap.

Then again, as Dennis Miller would put it, that's just my opinion. I could be wrong.

M&A Litigation's Logical Consequences

Last week, we discussed a recent study that had shown that nearly every merger or acquisition transaction involving a publicly traded company last year had resulted in a lawsuit by class action attorneys aggrieved shareholders. Yesterday, the American Banker (paid subscription required) ran a story about one of the consequences of this litigation-by-the-numbers: increased underwriting scrutiny from D&O insurance carriers.

"With a pickup in M&A activity, it is the one thing that we are asking about in every meeting," Heather Hill, a regional underwriting officer in Zurich North America's Chicago office, said during a panel discussion in Greensboro, N.C., hosted by the North Carolina Bankers Association last week.

"We'd want to know about the types of banks they want to buy, the condition of those banks and the loan portfolios" that would be acquired, Hill said in an interview following the discussion. "A one-off situation is different from [acquisitions becoming] a strategic way for a client. Transparency is the overarching theme."

For instance, banks owned by private-equity firms can expect "significantly higher requirements" for liability coverage, Eric Marshall, the managing director for financial institutions at Travelers, said during the panel discussion.

Other consequences include higher deductibles and higher premiums.

This increased scrutiny and expense comes on top of increases caused by FDIC claims against former shareholders and directors of failed banks.

Bankers have endured several years of increased premiums to insure directors and officers because of the financial crisis and a high rate of bank failures in 2009 and 2010. A heightened risk of litigation from the Federal Deposit Insurance Corp., which has a three-year window to pursue claims against managers of failed institutions, has continued to drive rates higher, panelists said.

I suppose this is looked at as simply another cost of doing business by those banks that are aggressive acquirers. For more conservative potential acquirers, it’s another potential downside to doing a deal.

M&A Is A Goldmine For More Than The Dealmakers

While the community banking business acts like the incredible shrinking man, there is a growth industry in America and Kevin LaCroix has been focused on it: securities litigation over mergers and acquisitions of public companies.

In a recent post on LaCroix’s blog D&O Diary, Kevin dissects a report by Cornerstone Research that concerns the amount of such litigation in 2012. In the most litigious society since ancient Rome, the fact that trial lawyers are stirring up lawsuits over any plausible cause of action they can concoct should come as no surprise. On the other hand, the analysis of the Cornerstone Report should make any reasonably happy privately owned bank think twice about the potential brain damage involved with going public.

Among the report’s gems that LaCroix uncovers:

• Plaintiff law firms filed lawsuits on behalf of shareholders in 96 percent of M&A deals valued over $500 million and 93 percent of transactions valued over $100 million.
• 58% of cases filed in 2012 have settled, 64% of those by settlement.
• In only one case did the settlement result in a higher sale price to the shareholders. Instead, 81% of the settlements involved only additional disclosures.
• The deal termination fee was reduced in four cases and the parties reached agreement about appraisal rights in six cases.

Thus, there was a boatload of litigation for fairly modest (in many cases, no) financial reward for the shareholders. If the plaintiffs are making money, why is this type of litigation so popular?

Yes, you guessed it.

The average agreed-upon attorneys’ fee for the 2012 settlements was $725,000, The average fee in a disclosure only settlement was $540,000, down from $570,000 in 2011 and $710,000 in 2010.

That’s a decent piece of change for the average fee, even if the average amount is slightly down with the relative improvement of the economy (“relative” being the operative word when comparing the economy to previous years). Most of us would like to take down more than a half of a million dollars in return for making a seller disclose more to buyers who will buy the stock anyway.

All of which makes Kevin’s concluding sentence no surprise.

The report notes that “as the 2013 proxy season approaches, this litigation may expand.”

Ya’ think?

I was talking to a couple of deal lawyers today about community bank mergers and acquisition trends in different areas of the country, and we concluded that in some areas, the trend will be increasing, while in others, it may take some time. None of us was focused on the fact that for our brethren in the bar who litigate for a living, M%A looks like a growth business 24/7/365.

Community Banks: Thank You Dodd-Frank. May I Have Another?

Columnist Timothy Carney offered a chilling column last week. Well, it was chilling to those of us who prefer a competitive banking environment in this country. To fans of the Canadian model, Carney’s column was as welcome as a six-pack of Molson and a plate full of Beaver Tails.

Carney’s theme was that Dodd-Frank “will cause more consolidation in the financial sector, possibly leading to more instability.” He quotes extensively from a recent Bloomberg article that echoed the same tune, including this passage:

Small banks will seek mergers because their management teams are aging and new regulations are too costly to bear, [investor Joshua Siegel] says.

“If you need one major overriding theme of the industry in the next three, five, seven, 10 years: massive consolidation, thousands of banks,” says Siegel, whose firm managed $5.1 billion as of the end of last year and invests in small banks. In the U.S., “I do see probably anywhere from 2,000 to 4,000 banks being swallowed up, and what you’ll see then is a more-concentrated system.”

He also cites (and links to) other sources with the same depressing view. They include Jamie Dimon, who thinks the regulatory burdens imposed on small banks will make it tougher for them to compete with giants like Dimon’s Chase, will help giant banks win market share from small banks, and will end up “widening the moat” around the castle keeps of Wall Street.

Carney ends with insights on the many ways in which Dodd-Frank will ensure that the big get bigger and the little dry up and blow away.

How does Dodd-Frank tilt the playing field towards the big guys? Partly through the crushing costs of regulation, which fall disproportionately on the small guys. Partly because the big guys can hire up the government officials who wrote the law ... and thus they have an inside track to tweak the law to their benefit. Partly because the big guys have the flexibility to get around the law.

Sometimes being a cynic means you’re prescient. I fear that this is one of those cases.

The Trendline

As community bankers and their running dog lackeys run pell-mell into a new year, dodging bricks thrown by bank bashers from many quarters of the peanut gallery, it's always good for them to keep in mind that they may soon be able to petition the EPA to add them to the endangered species list, right next to the Cloud Forest Rice Rat and the Pygmy Hog Sucking Louse. Why would community bankers merit such favored status? I'm glad you asked.

Since the mid-1980s there has been a tremendous consolidation in the U.S. banking industry.

The number of banks fell from 19,017 in 1984 to 7,357 in 2011, according to the Federal Deposit Insurance Corp. And the percentage of assets held by community banks fell from 38 percent to 14 percent.

In other words, the big banks got bigger.

The FDIC pays lip service to apple pie, motherhood, and community banks, by noting that the little guys supply a majority of bank branches in rural counties (20% of all US counties have only community bank offices), and that community banks make 46% of all loans to small businesses and farms. Nevertheless, don't put any serious money down on a bet that the incredibly shrinking small bank base will cause the FDIC to reverse its "unofficial" moratorium on de novo bank charters or to make it any easier for private equity "players" to make a difference by buying and recapitalizing community banks. The likelihood of the FDIC having an epiphany, slapping its forehead, and crying out "We were wrong about there being too many banks in this country; let us now help the banking biz be fruitful and multiply by granting a boatload of new bank charters, easing our foot off the regulatory burden accelerator, and generally worrying less about the tensile strength of the coverings of our own buttocks and more about the survival of little guys," is akin to the likelihood of Charlie Sheen joining The Monastery of Christ in the Desert or of Lindsay Lohan not busting parole.

Look at it this way: if the trend continues, community banks may be able to halt big bank expansion by arguing that any new big bank initiative requires a "community banking environmental impact statement."

Bair Bares Her Big Bear Claws

While I often enjoy Larry Doyle's Sense on Cents blog, I think he got it wrong yesterday when he speculated that the lambasting Sheila Bair gave Vikram Pandit in her recently released book "Bull by the Horns" was the precipitating cause for Pandit's recent ouster by the board of Citigroup. The only "bull" in that book is the prairie-load of cow pies dropped by Ms. Bair in every page. Most bankers hold Sheila Bair in the same high esteem that they accord Liz ("Spouting Bull") Warren. Her consistent Pandit-bashing over the last few years hasn't done anything to influence commercial bankers to do more than grab the Tums every time they hear her yap.

The Wall Street Journal seems to have nailed the story more accurately.

Mr. Pandit's resignation came after a series of missteps this year left some directors feeling that the company wasn't being managed effectively and that the board wasn't kept adequately informed, according to the people. Citigroup shares dropped 89% over Mr. Pandit's tenure, and the company was hit this year by a shareholder revolt over executive pay, by the Federal Reserve's rejection of its plan to buy back stock and by a $2.9 billion write-down of a brokerage joint venture with Morgan Stanley.

Then again, The WSJ is relying on knowledgeable sources with actual banking expertise. That's more than can be said of Bair.

Bair's screeds against Pandit started years ago. As we noted at the time that Pandit cussed her out in a 2:00 am telephone conference call in the fall of 2008, when the FDIC double-crossed Citi and sold Wachovia to Wells Fargo, Sheila was acting like a child who got her feelings hurt.

No wonder Ms. Bair and her coven are looking to stir up a witches brew of payback and whoop-ass on Pandit and his crew. They were mean to Sheila and then, after a lot of time went by, they begged for forgiveness and asked Sheila to take them back. Anyone who's ever witnessed puppy love gone sour knows that the girl will NEVER take the boy back until she makes him suffer like the gnarly, cruel, hateful, and really, like, SPASTIC bully he is. Or until he apologizes sweetly, buys her a Kobe Bryant-like 6-carat rock for her ring finger, and, like, promises never to do it again, cross his heart and hope to die.

What we have here is not simply a failure to communicate. What we have here is the federal government run by a bunch of high school kids.

Even usually sympathetic sorts like Felix Salmon find Bair's book a bit much.

Bair has always come across as someone with a bit of a persecution complex: she has a tendency to think of herself as the sole defender of what is good and true, even as the rest of the government allows itself to get captured by the rapacious financial services industry. And of course there’s some truth to that: she’s absolutely right that the OCC, in particular, was an utterly toothless regulator which could always be relied upon to do whatever was wanted by the banks it was supposed to be regulating.

But it’s really not helpful, let alone accurate, to ascribe malign intent to any and every public servant you disagree with. Bair had a relatively narrow job — to make sure that banks didn’t fail, leaving her FDIC on the hook for untold billions of dollars in deposit guarantees. She fought her corner aggressively. But other people, including Ben Bernanke and Tim Geithner, had different jobs, and looked at the decisions being made, especially during the crisis, in different ways.

John Talton of The Seattle Times has even less patience with Ms. Bair's petty penchant for payback.

I want to read her chapter on Washington Mutual. It was Bair who most insisted on closing the 119-year-old institution and handing its substantial good assets and branch network over to Jamie Dimon of JPMorgan Chase. Bair and the other bigs in D.C. were curiously uncurious about the rumors and short-selling the brought on a bank run at WaMu and make its rescue much more problematic.

For somebody who casts apparently casts herself as the foe of big banks, she helped the biggest get bigger still. An opportunity was lost to preserve the "good" WaMu as an independent institution and prevent further consolidation. The charitable answer is that Bair was only looking out to keep the FDIC fund safe. Even so, bad call. She could be a scab official in the NFL.

I still receive occasional emails from bitter WAMU holding company shareholders who wax vitriolic about Bair (and Jamie Dimon, to boot). Many in the Pacific Northwest are not Bair fans. Talton's last line is a keeper, by the way.

The most damning indication that the Care Bair is not the sort of pundit to influence a bank's board is the news today that Bair has endorsed 1/32nd Cherokee Princess Elizabeth Warren for the US Senate.

"For the life of me, I do not understand why they vilify her so," Bair said. "I've never seen her as that far out there on financial issues. I don't see that at all. She understands the bank business model. She wants to protect the consumer—what's wrong with that? I think this fear of her is misplaced."

"For the life of you," I do understand why "they" (bankers) vilify Warren, Sheila. It's for the same reason they vilify you. You're both their mortal enemies, notwithstanding your all your doublespeak to the contrary.

So, Larry, I sincerely doubt that the release of Ms. Bair's rants had much to do with Pandit's departure, notwithstanding the timing of the book's release and Pandit's ouster. You might have as much luck tying Pandit's resignation to Sunday's massive solar flare. On occasion, timing is nothing more than coincidence.

Slowly But Surely

Not long ago, the Wall Street Journal confirmed what those of us in the trenches have been noting (with dismay) for some time: the crushing regulatory burden of the past few years, especially, albeit not exclusively, as a the result of the Chris-Barney Act, is motivating many smaller community banks to call it a day.

Edward McKeon, chief executive of Western Reserve Bank in Medina, Ohio, was so fed up with new regulations that he jumped at the chance to sell the two-branch lender when a local rival recently made a lucrative offer.

"When I hand them the keys and walk out, I'm going to be on the beach with a margarita," says Mr. McKeon, who this month announced the sale of Western Reserve to Westfield Bancorp., a unit of Ohio Farmers Insurance Co.

I hope that margarita is frozen, because it looks like it will be a cold day in hell before Ed returns to the banking biz.

Reporter Robin Sidel observes that in addition to the regulatory burden, the difficulty of making money in the current environment is also a factor in motivating small bank owners to cash in their chips.

Small banks received an unexpected blow this month that could drive more transactions. The Federal Reserve approved a proposal ordering even the smallest lenders to comply with comprehensive international capital requirements known as Basel III. Many bankers had expected regulators to exempt some small lenders from the new rules, which are aimed at shoring up the biggest global banks whose troubles fueled the financial crisis.

Banks also are under pressure from new overdraft rules that are eating into profits. And bank executives grumble that regulators are getting tougher about rules that have long been on the books, such as avoiding too much concentration in a particular type of loan.

The potential consequences for communities across the country of this consolidation are disconcerting.

...the flurry of activity is likely to eliminate some small-town banks that have been in communities for decades. That could mean fewer choices for customers and, some bankers say, fewer loans because the buyers might not have deep roots in those communities.

 While investment bankers quoted in the article think the reduction in the total number of banks from around 7500 to 5,000 will take awhile, the trend seems to be inexorable. According to one expert, Mitchell Sacks, community banks realize that the little guy is being squeezed out of the game.

"The smallest banks very much realize that the deck is stacked against them because their ability to earn reasonable rates of return is impaired and that is a permanent impairment," said Mr. Sacks, who has been meeting with executives from community banks.

If someone can find a silver lining in this black cloud, more power to you.

The Worst Deal In History

Last year, when I made an aside about Bank of America's decision to purchase Countrywide as having been, for B of A, "a Pandora's Box, filled with horrors and plenty of pain," a reader wrote to tell disagree, asserting that B of A got plenty of value. I thought the guy was daffy then, and ten months later, I still say he's daffy, and I'm not alone. According to a recent Wall Street Journal article, Countrywide has cost B of A a cool "$40 billion in real-estate losses, legal expenses and settlements with state and federal agencies."

"It is the worst deal in the history of American finance," said Tony Plath, a banking and finance professor at the University of North Carolina at Charlotte. "Hands down."

[...]

The total costs from Countrywide to date, according to people close to the bank, include $34.5 billion chewed up by a combination of consumer real-estate losses since mid-2008 and funds set aside to pay back investors who allege Countrywide wasn't honest about the quality of mortgage-backed securities it issued before the crisis. Additional legal costs from various settlements with federal and state agencies and the initial Countrywide purchase amount push total costs over $40 billion, these people said.

But the tally could go higher. Bank of America has said it could face an additional $5 billion in possible losses, and scores of lawsuits seeking to pin Countrywide's liabilities on Bank of America are pending in courtrooms around the U.S.

In the world of bank acquisitions, as in many other endeavors, such as professional golf, some days you eat the bear and some days the bear eats you. What Bank of America thought was Jack Nicklaus (the "Golden Bear") turned out to be a Grizzly named Old Nick. Better luck next time, B of A.

And to my erstwhile correspondent: Do NOT listen to the voices in your head that compel you to write me about Countrywide.

From The Mailbag: Gripes About The OCC

An interested reader emailed me and offered a couple of thoughts about the United Western Bank/OCC litigation that was the subject of last night's post. First, he focused on the fact that the OCC's "statement of facts" (which the plaintiff has moved to strike) makes much of the fact that the bank "voluntarily" stipulated to the entry of a Cease and Desist Order against the bank, and that the stipulation contains "findings of fact" that concluded that the bank engaged in unsafe and unsound practices and violations of law. My correspondent found that disingenuous, inasmuch as the third recital to the stipulation provides that the bank does not admit or deny any statements or conclusions in the C&D other than two that relate to jurisdiction. This is typical of many consent orders entered into with the federal banking agencies. The bank does not agree that the stipulations of fact or the conclusions drafted by the OCC are correct. My correspondent thinks that the OCC is attempting to construe such "voluntary consent" into a consent that conditions exist that justify the appointment of a receiver. If so, that will have a negative impact on the willingness of banks to sign such agreements in the future.

I agree that there apears to be an attempt to use the bank's consent to the entry of the C&D as an argument that the facts and conclusions contained in the order, such as that the bank is in an unsafe and unsound condition, are somehow "true" and incontestable. I doubt whether that suggestion will have an impact on the judge. As to the willingness of banks to sign such stipulations in the future, it's too early to tell. However, a few more banks in the future might be inclined to fight a C&D rather than stipulate. As my correspondent also wryly observes, if Maxine Waters has her way, the era of consent orders may be coming to an end in any event. If that's the case, the administrative law judges are going to be awfully busy.

My correspondent also opined that the OCC's motion displays a clear bias against private equity investors. Although he didn't clarify the specific provisions of the motion that supported this contention, I assume they were the provisions that discussed the OCC's rejection of the conditions precedent imposed by the potential investors, including the waiver of certain restrictions of the C&D and other "unacceptable supervisory concessions." To me, this bias has been obvious in not only the OCC, but in the FDIC and the FRB, for the last several years. We've discussed this issue previously. The requests for supervisory concessions were normal (and sane) protections that any knowledgeable private equity group would impose before they infused hundreds of millions of dollars into a bank that had "issues."

PE legend Wilbur Ross told the American Banker last week (paid subscription required) that he's had it with the "Big Three." He's now focused on investing in European banks. From my discussions with private equity investors recently, others are following his lead overseas, even to Eastern Europe. It's a heck of a state of affairs when the Ukraine looks rosier than Utah, but there you have it.

United Western: The OCC Responds

Over the weekend, I had a chance to read the opposing motions for summary judgment filed by United Western Bank and the OCC in the lawsuit filed by the bank to overturn the order of the Acting Director of the OTS to place the bank into an FDIC receivership in 2011. Late last week, the bank filed a motion to strike the OCC's entire statement of facts on the grounds that it was a back-door attempt to circumvent local rules on the length of pleadings in this particular type of case. However, I'm basing my personal bloviations on the entire motion and accompanying statement of facts filed by the OCC.

In my comments on the plaintiff's motion, I stated that I thought that the OCC would have to rebut the facts as alleged by the plaintiffs in some detail , not merely focus on the high bar the law sets to overturn the decision of the OTS. The OCC did that, although we'll see what happens to those "facts" when the judge rules on the plaintiff's motion to strike. Regardless, the judge has access to the entire administrative record and isn't bound by a party's selective inclusions, omissions, and spin. Unfortunately, at this stage, I am.

Given my personal experiences in dealing with the OTS, the FDIC, the FRB, and the OCC over the past five years, and with the OTS in connection with a strikingly similar situation ten years ago, I believe the plaintiff's allegations that there were no serious criticisms of the bank's business plan, which involved a focus on institutional deposits as a major source of low-cost funding that the bank used to invest in mortgage backed securities and other mortgage-related assets, until the economy slowed and then crashed. Although earlier reports of examination (ROEs) may have mentioned the liquidity risk posed by a concentration on such funding sources, I suspect that the ROEs also stated that the bank was aware of and adequately managing that risk. It wasn't until the economy tanked that the senior management and directors of the bank transformed themselves, in the eyes of the OTS, from geniuses to cud-chewing bovines. At that time, the business plan suddenly made no sense, was unsafe and unsound, and had to be changed as quickly as possible in the face of the worst recession since the 1930s. While the bank's management and board was trying to steer the bank in a new direction, you can't turn an aircraft carrier as quickly as you can a cigarette boat, especially when the current is flowing strongly against you and icebergs are bearing down from the windward side.

Of course, that wasn't the concern of the OTS. It's concern was the fact that the bank's risk profile had suddenly turned unfavorable because of outside circumstances, and that if it failed, the OTS supervisory personnel responsible for overseeing the bank might be criticized by the Office of the Inspector General of the FDIC for not acting forcefully enough, early enough. Bureaucratic butt-covering trumped all other considerations. From then on, the OTS made sure that it didn't cut the bank any slack. That attitude led to aggressive mandated writedowns in the value of securities and other real estate-related assets, increases to reserves, and hits to capital.

I also accept the plaintiff's allegation that the OTS decided long before the bank actually failed that it was doomed, but allowed the bank's management to go through a Chinese fire drill of ultimately fruitless capital-raising and liquidity-stabilizing efforts in order to give the ultimate dropping of the hammer on the bank's head a patina of inevitability. Although it's not alleged in any of the pleadings, and I have no information from outside sources, I suspect that the OTS personnel with decision-making authority may have decided that they simply didn't "like" the ownership and senior management of the bank, didn't want them in "the business" any longer, and weren't going to approve any recapitalization plan that involved any concessions on the part of the OTS (such as waiving certain conditions of the Cease and Desist Order and agreeing to a non-standard holding company guarantee). I think that if it had desired to do so, the OTS could have worked with the bank to structure a recapitalization plan, including certain waivers of the C&D's terms, but chose not to do so for reasons that may not be expressly revealed by the administrative record.

Even if the above assumptions and outright speculations might be correct, the problem for the plaintiff is that, ultimately, all the OTS has to show in order to prevail is that there was a rational basis for the Acting Director's determination that one of the following three grounds existed for the appointment of a receiver: (1) the bank was in an unsafe and unsound condition to transact business; (2) the bank was likely to be unable to pay its obligations or meet its depositors' demands in the normal course of business; or (3) the bank was undercapitalized and failed to submit a capital restoration plan that was acceptable to the OTS. The court must defer to the opinion of the Acting Director of the OTS on these matters unless the court determines, based solely on the administrative record, that the decisions of the Acting Director were arbitrary or capricious or lacked any rational basis. The plaintiff must overcome the presumption that the decisions of the director were not arbitrary or capricious by a preponderance of the evidence, again as reflected solely in the administrative record. As I've observed previously, this a high hurdle for a plaintiff to jump and is one important reason that few such lawsuits are brought.

All three grounds for the appointment of the FDIC as receiver seem to hinge on the rejection by the OTS of the bank's capital restoration plan, the undercapitalized status of the bank (albeit at a 5% core capital level), and the perceived "instability" of the commitments of the remaining institutional depositors not to withdraw their funds. The OTS articulated seven grounds for the rejection of the capital plan, all of which the plaintiff alleges are without a rational basis. The OCC, on the other hand, articulates in its motion several reasons to support its decision to reject the capital plan (including, for example, disapproval of the acquisition by the bank of a securities clearing business, "excessive" planned growth of the bank, and requirements by investors that certain requirements of the Cease and Desist Order be waived by the OTS). The alleged instability of the institutional depositors is also an issue where the OCC appears to have demonstrated a rational nexus between the facts as shown in the administrative record and the Acting Director's determination that a potential "liquidity crisis" could occur in the near future due to the OTS' rejection of the capital plan. While the plaintiff argues that there was no evidence that the remaining institutional depositors were likely to withdraw their deposits in the near term, the OCC alleges that the administrative record shows that the largest depositor had given the bank until February 15, 2011 to recapitalize, following which date, if recapitalization did not occur, the depositor would withdraw its funds (in an amount which exceeded the entire liquidity of the bank, according to the OCC). 

My concern for the plaintiff's case is that while knowledgeable bankers can conclude that if the OTS was interested in working with the bank's management to reach an accommodation with outside investors that would have addressed their concerns and permitted the bank to be recapitalized and to survive, it could have done so, the OTS can articulate reasons for its decisions not to do so that are based solely on the administrative record to prevent the plaintiff from meeting its burden. This case appears to be a prime example of why it's so tough to overturn a receivership decision. You can think that the OTS made a series of bad judgments, but it's difficult to prove that those judgments were made without a rational basis.

The case is not over. Each side gets another shot at replies. Moreover, I'm not being paid to parse the nuances, so the views expressed in this post are not finely honed. However, at this point, no matter what my heart tells me, my head tells me not to bet against the OCC.