Friday, February 5, 2010

Cracking the Code: Finding An FDIC Loss Sharing 'Ninja'

CRE Financial Advisors is not so sure that commercial real estate is very close to turning the corner. The good news is that CRE innovation is emerging from the ashes of commercial finance and transforming a rapidly changing and treacherous landscape.

As of the end of 2009, over 700 U.S. Banks were included in the FDIC’s Problem Bank List. There were 140 bank failures in 2009 and 20 as of the first two months in 2010. By the end of 2009 the FDIC entered into 94 loss sharing agreements covering assets totaling $122 billion. The bulk of failed bank assets have been placed into these structures.

"Loss Sharing" is a public/private partnership between the FDIC and a healthy bank where the FDIC covers an amount of the losses incurred by a bank acquiring failed bank assets in exchange for possible upside to be shared with the FDIC that might result from the acquiring bank's expert asset management and improved economic conditions.

A loss sharing industry sprung up in 2009 as a response to complicated and sensitive set of procedures regarding the FDIC oversight of bank failures. It is our opinion there may be in excess of 200 additional bank failures in 2010 alone and the market for assets under Loss Sharing agreements will exceed $300 billion, cumulatively.