HOW TO BUY A TROUBLED BANK IN THE UNITED STATES? by MergersCorp

HOW TO BUY A TROUBLED BANK IN THE UNITED STATES? W W W. M E R G E R S C O R P. C O M

At MergersCorp M&A International we help our clients confidentially buy and sell privately held businesses, aligning the interests of all parties for mutual success and satisfaction. It is our goal to make the process of either buying a new business or selling your current business as smooth and efficient as possible. We know how important confidentiality is to our sellers and we treat it with the utmost importance.

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HOW TO BUY A TROUBLED BANK IN THE UNITED STATES?

W W W. M E R G E R S C O R P. C O M

How To Buy A Troubled Bank In The United States? You may think that you need to be a billionaire to buy a bank in the United States. In fact it may be easier than you think, particularly in the case of banks that are failing. Remember, though, that banks cannot go bankrupt - it is specifically disallowed in the US bankruptcy code to protect members' deposits. When a bank does become insolvent, its state or federal charter authority requires it to go into receivership with the FDIC, which seizes control of its assets and liabilities (including deposits and outstanding loans and their payments). If you are asking 'How to buy a bank?' you might also ask the question, 'Where can I buy bank details from?'. A good place to start is with the Federal Deposit Insurance Corporation or FDIC. In fact, the FDIC maintains a list of failing banks that it markets to institutions for the possibility of investment, though it does not publish them or sell them. To attract investment capital for the banking sector the FDIC encourages investors, large or small, to buy banks and banking assets. There are, however, certain rules and conditions that you'll need to keep in mind.

Often the FDIC will seek to find investors for banks that are struggling before they are required to seize control. As an investor, you may believe that a bank's troubles are not as severe as they seem or decide that its assets are undervalued. In these cases you might want to invest equity capital into the bank and wait for market conditions to improve. If you take this view as an investor you are referred to as a 'covered investor' by the FDIC and there are specific conditions that you must satisfy before you are eligible to buy a bank for sale in this way: â&#x20AC;˘ A covered investor must keep at least 10% of the bank's assets in liquid capital reserves and the bank must maintain adequate capital for as long as it is owned by a covered investor. â&#x20AC;˘ You must hold the bank for a minimum three year holding period and disclose the full chain of ownership, not engage in insider lending and may need to meet other conditions on the way that your financing is structured. The rules are intended to make it crystal clear who owns the bank (complicated legal structures and nested holding companies are frowned upon).

â&#x20AC;˘ The FDIC also requires you, as a private investor, to limit your involvement with the bank to 'passive investing'. The aim here is to avoid you being regarded as a 'holding company' for the bank which brings with it stricter FDIC supervision and regulation requirements as well as more onerous capital requirements. Since the FDIC does not publish its list of troubled banking institutions, you'll need to do a little homework to find a bank for sale. One way to find such stressed institutions is to use what is called the 'Texas ratio' metric which has been found accurate in predicting bank failures over 90% of the time. The Texas ratio looks at a bank's assets that are not performing and divides them by the sum of the bank's equity and loan reserves. A ratio of more than 100 means that failing assets are greater than the resources the bank has to service them and that it is in potential trouble.

Our M&A Process TARGET APPRAISAL

APPROACH

DUE DILIGENCE

NEGOTIATION & CLOSE

POST MERGER INTEGRATION (PMI)

 Revisit indicative valuation & prepare detailed valuation based on due diligence findings;  SPA negotiations with the seller;  Development of final structure (share/asset deal) and final valuation;  Approvals;  Signing of SPA & Close.

 Consider the extent of integration;  Development of 100 Day PMI Plan;  Consider short & long term objectives;  Estimate requirements to capture synergies;  Determine resource needs & optimal allocation.

 Company general counsel;  Lawyers;  Senior management.

 Company general counsel;  Lawyers;  Senior management/HR.

Key Areas  Target & market analysis;  Initial assessment of synergies & value drivers;  Indicative valuation;  Go or No-Go decision;  Preparation of transaction documents (NDA – Nondisclosure Agreement/LOILetter of Intent);  Select Transaction team;  Appoint advisors;  Consider funding ability.

 Initial approach letter;  Signing of NDA;  Prepare & share initial information requests;  Formulation of LOI (Letter of Intent) & possible negotiations;  Initial meeting and Q&A;  Circulate information on the Target to the Transaction team.

 Set scope of due diligence;  Set up VDR (virtual data room);  Coordinating of due diligence, further meetings and Q&A sessions;  Consider points relevant to the Post-Merger (PMI) phase;

Parties Involved  CFO;  Head of M&A;  Accountants;  Corporate finance advisors;  Consultants.

 Senior management;  CEO, CFO, CTO;  Strategy director;  Head of M&A;  Head of Business Development;  Consultants.

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LOOKING TO BUY A BANK? C O N TA C T U S NO W F O R M O RE I N F O R M AT I O N

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