How Heritage Community Bank came undone, and why its buyer is protected

[Robbien]

Source: Chicago Trib

<snip>

MB Financial explained that in some past FDIC deals, the acquiring bank was responsible for taking a hit on the first losses from toxic loans it assumed.

But, in MB Financial's deal for Heritage, loss-sharing starts from dollar one. On loan charge-offs up to $51.8 million, the FDIC reimburses the bank for 80 percent of the losses. And on charge-offs exceeding $51.8 million, the FDIC reimburses MB Financial for 95 percent of the losses.

. . .

The FDIC said MB Financial, which has $8.8 billion in assets, purchased $230.5 million in Heritage assets at a $14.5 million discount, or $216 million for loans, cash, securities and real estate.

Of those assets, about $170 million are loans, most of which are secured by real estate, with about half of those construction loans.

However, MB Financial's maximum potential loan-loss exposure on the $170 million loan portfolio will be less than $2 million, according to analyst projections confirmed by the company.

Read more: http://www.chicagotribune.com/business/chi-sun-dead-bank-heritage-mb-mar15,0,6560769.story

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MB financial gets $230.5M in assets, paid $216M for them and highest possible loss would be $2m. Sounds like a sure gain of $12M just from the purchase. What a deal! FDIC picks up almost all losses while the buyer then gets all depositor accounts which they can use to play in the leverage casino.

[dkf]

1. Well maybe the FDIC didn't want to stretch the acquiring bank

further.

Then they would have 2 banks to bail out.

[Robbien]

3. stretch? They got a profit from the purchase of twelve million

That is opposite of a stretch.

That's a gift. A bailout. Money falling from the sky. Money for doing nothing.

And the acquiring bank gets fresh spanking new depositor accounts which they can leverage up at least ten times.

This is so far from a stretch.

[dkf]

4. Kind of makes you wonder, doesn't it?

Citigroup wanted help from the FDIC to acquire Wachovia after all.

[TheWatcher]

2. Heritage Bank Should have had their CEO wirte a Memo announcing their Profitiablity Just Before They

Went Under.

Then this probably wouldn't have happened.