Deals on Failed Banks Losing Their Luster

Some failed banks are in such bad shape that financial institutions looking for bargain acquisitions wouldn't take them if the FDIC paid them to do so. Oh wait. The FDIC is kind of helping out the buyers, aren't they? But even this incentive still is not enough, as far as some financial institutions are concerned.According to The Wall Street Journal, buyers won't touch some of the seized banks at any price due to the poor condition of their books. Even if the government agrees to eat losses on the failed bank's bad loans, said the Journal, buying banks are still not convinced these are worthwhile investments. Add to that the fact that many of these failed banks operate in areas with sluggish growth prospects, are relatively small and are "loaded with expensive deposits gathered through brokers that are likely to leave when the acquiring bank reins in interest rates," and one can really see why buying one of these banks isn't quite so appealing.

The Journal spoke with the CEOs of some of the banks looking to acquire failed institutions with some potential. Philip Sherringham, CEO of People's United in Connecticut, told the Journal "it is getting harder to find the dream deal that bank officials hoped to hatch from a wrecked bank. The supply of ideal targets-sensible deposit-gatherers that fatally 'overextended' their loan portfolio-is slim and the competition fierce.

Fifth Third Bank's (Cincinnati) CEO Kevin Kabat was quoted as complaining at an investor conference that "relative quality...of available FDIC transactions have really not been very attractive from our perspective."

One attorney said an option the FDIC might be forced to take would be bundling some small banks together to lure buyers.

For the entire article, see Buyers Take a Pass on Some Failed Banks.