Tuesday, February 16, 2010

Former Bank of America and Wachovia Executives Raising Money to Scoop Up Failed Banks

February 15th, 2010

US Banking News

In an attempt to buy up the growing number of failed banks, executives who used to work for Bank of America (NYSE:BAC) and Wachovia are trying o raise $1 billion to acquire them from the Federal Deposit Insurance Corp. (FDIC), according to the application.

The new entity will be called Blue Ridge Bank N.A., and will be headed up by Milton Jones Jr., ex-Georgia market president of the company, who will be chief executive office of Blue Ridge Bank, if its application to the FDIC and Office of the Comptroller of the Currency is accepted.

Other former Bank of America and Wachovia executives working to get the new company going are Walter Davis from Wachovia, who was the executive vice president of retail credit and direct lending there; past president of corporate and investment banking at Bank of America, Edward Brown III; and Charles Williams, who used to work as chief administrative officer of Bank of America’s capital markets division.

Heading the Board of Directors would be Edward Brown III, with other possible directors including Robert Brown, who was a board member at Wachovia, as well as a current director for Aflac Inc., Robert Wright.

This is by far from the first group of investors putting together capital to ready themselves for what should eventually become a difficult position for the FDIC to hold as far as continuing to ask fairly top dollar for the failed banks.

With an estimated 200 banks expected to fail in 2010, and a total of 552 banks listed on the FDIC of troubled banks, the assets of $345 billion held by those banks alone is enough to get a lot of new players in the game, and with the FDIC fighting to not have to tap the $500 billion credit line available form the Treasury, and the Deposit Insurance Fund basically in the red, there will growing pressure to sell assets at bargain prices, and these companies will be there for when that happens.

Projections from the FDIC is the Deposit Insurance Fund will be hit with at least $100 billion in losses by the end of 2013.

Still, even at some of the discounted but still decent prices being won by the FDIC, some of the banking assets are still a good base for any bank holding company to launch a new company with, as the failed assets are gotten rid of and the best assets used as a foundation to build on.

So far private equity firms had struggled for the most part to acquire the failed lenders, as their business model of turning a quick profit flies in the face of what the FDIC is attempting to do with the assets of these banks, which they prefer to be taken up by existing banks.

The problem for banks, as seen by some of the major banks which bought other failing big financial institutions, is they can themselves become a drag on the company, and to buy them is without a doubt is a risk; there is a reason the banks failed after all.

A reason you’re starting to see these former bank executives associated with raising money to buy up the failed lenders is to increase the chances of getting approved by the FDIC and Office of the Comptroller of the Currency.

This is obviously what Blue Ridge has done, and a number of others have been gravitating toward to lessen the resistance to their bids and give them a much better chance of successfully winning them.