BankUnited Fails, Gets Auctioned Off to Private Equity Consortium
Federal regulators have taken over Florida's BankUnited and sold it to a consortium of private equity companies, making it the biggest banking institution to fail this year. The initial estimates place the cost of the failure to the Federal Deposit Insurance Corporation at $4.9 billion, making it the second costliest failure of the current economic crisis, behind the collapse last year of California-based IndyMac.
The story underlying the story is that the government has decided to sell the bank to a group of private equity companies, led by the Blackstone Group and the Carlyle Group. Historically, federal regulations have prevented private equity groups from owning any more that 24.9 percent of a bank under the theory that private equity groups operate with a higher degree of risk than is appropriate for a bank.
The FDIC stuck to these limits with the sale of BankUnited, but
announced that it will release new guidelines for private investors who
want to buy banks in the near future. In return for relaxing the
standards for private equity bank ownership, the FDIC will most likely
want assurances that the private investors will step in with capital
reserves should the banks begin looking undercapitalized, according to Professor Patricia McCoy of the University of Connecticut School of Law in Hartford.
which means that in-house counsel for private equity firms might want
to start looking around for some good outside counsel to handle future
banking buyouts and the resulting regulatory compliance. Skadden Arps
Slate Meagher and Flom, Simpson Thacher and Bartlett, and Wachtell
Lipton Rosen and Katz all worked on this deal for their respective
F.D.I.C. to Issue Guidelines for Equity Firms on Bank Deals (NYTimes
Skadden, Simpson Lead Ground-Breaking BankUnited Deal (The AmLaw Daily
Florida's BankUnited fails, will cost FDIC $4.9B (AP
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