Banking: At last some good news for FDIC

On 20th August, we reported (story) that Corus Bankshares was under threat of de-listing because its reports were overdue.

This was not the first time the bank had been in difficulty: it had entered into a written agreement with regulators in February ( details at BankingInsuranceSecurities Resources )

On 11 September, the bank was closed (story ).

Technically, Corus Bankshares is a holding company and Corus Bank, NA is the operating company. Whilst the August and February actions had been in relation to the holding company, it was the operating company that was closed.

The bank held "assets" of an estimated USD7,000 million as at 30 June 2009. Approx 3,000 million of that, largely in cash and marketable securities, was sold with the deposits to MB Financial Bank, also of Chicago.

FDIC said it was retaining the balance of the assets to sell in a private placement within 30 days. A special purpose vehicle (SPV) was created to hold the assets.

Yesterday, FDIC announced the result of a competitive tender with best and final offers submitted on 30 September 2009.

Eight bidders / consortia submitted proposals to purchase an interest in the SPV. FDIC will transfer into the SPV "a portfolio of predominantly performing and non-performing construction loans and real estate owned (REO) assets with an unpaid principal balance of approximately USD4,500 million."

FDIC will "initially hold a 60% equity in interest" in the SPV.

The winning group is a consortium called Northwest Investments LLC managed by Starwood Capital Group and including TPG Capital Group, Perry Capital and WLR Lefrak. It will take, via another SPV, 40% of the shares in the SPV for USD554.4 million.

But it's the overall valuation that sticks out: taking into account a complex financing structure, the deal values the Corus assets, said to be worth USD4,500 million at just USD2,772 million. In short, the package value has downgraded the asset value by approx 50%.

So, although for FDIC the story looks like good news - it's raised cash at a time that it's going cap in hand to the industry to keep itself afloat - the best deal it had was about half of the value that FDIC said just three weeks earlier was the asset figure for Corus at the end of June.

The conclusion? Even in June, bank assets were seriously over-valued. And that raises deep questions as to the underlying value of many more banks in the USA.