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Kai Ryssdal: As long as we’re on foreclosures, we told you Friday about a Miami-area bank that failed after it offered too many adjustable rate mortgages. BankUnited was taken over by the Federal Deposit Insurance Corporation a couple of years ago. Then the FDIC sold BankUnited to a private-equity group, and they have now decided to take it public.
And it could turn out to be a pretty good deal. Some new documents filed with the SEC include revealing nuggets about just how good a deal those private equity investors got from the FDIC, and how prospective shareholders might win out as well.
Marketplace’s Janet Babin reports.
Janet Babin: When a bank dies, it can take an expert to parse the meaning snuck into deal terms, like the one private investors got for BankUnited. Its government filings state the bank’s “covered loans and real estate were purchased for 76.5 percent of their” value.
Christopher Whalen: Translate that into English, there was not a lot of downside risk here. You know, BankUnited paid pennies on the dollar for the assets that they bought.
That’s Christopher Whalen with Institutional Risk Analytics. He says dead bank deals have to be attractive to entice investors, and get the bank assets back into private hands. And attractive terms may be what’ll lure new investors to BankUnited’s proposed public offering.
Especially the loss sharing agreement the bank brokered with the government. Those assets it bought for 76 cents on the dollar? The bank says it’ll earn 90 cents on the dollar even if they all go bad.
The Federal Deposit Insurance Corporation agreed to cover 80 percent of BankUnited’s losses on mortgage loans, up to $4 billion. Any higher than that, and the government assumes even more of the loss. So far, it’s reimbursed BankUnited some $860 million.
Independent bank consultant Ken Thomas says the deal motivates the bank to foreclose.
Ken Thomas: So when a problem loan occurs, they don’t call you up and to try to work it out, they call their lawyers, throw it into foreclosure, because they want meet the minimum, once they meet that level, the 80 percent coverage goes to 95 percent coverage.
The FDIC also gets a cut from BankUnited’s turnaround: the deal guarantees the government a minimum take of $25 million when it goes public. Not much compared to the bank’s profit in the first half of this year, but better than nothing.
With so much upside for investors, BankUnited’s IPO is likely to attract a crowd.
I’m Janet Babin for Marketplace.
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