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BankUnited Fails, Gets Auctioned Off to Private Equity Consortium

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By Kevin Fayle on May 22, 2009 3:30 PM

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.

All of 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 clients.

See Also:

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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