The growing number of failed banking institutions has created significant opportunity for healthier banks and non-traditional investors to look aggressively at acquiring institutions in transactions assisted by the Federal Deposit Insurance Corp (FDIC). These transactions provide investors and acquirers with benefits such as:
Expanding customer base and geographic footprint.
Significant cost reduction opportunities and synergies.
Loss sharing agreements which provide significant protections to investors and acquirers.
Attractive acquisition pricing.
However, these transactions create significant complexity in valuation, accounting and operational processes.
Why is this issue important to our clients?
FDIC assisted transactions require a significant amount of flexibility and responsiveness. The timeframe for the pre-closing (bidding) process is short and companies need to be prepared to move quickly and they will have limited access to information. Accordingly, bidders must fully understand and consider the purchase accounting, the loss sharing agreement, regulatory and tax implications.
Executed transactions create significant post-closing accounting, reporting, technology and operational challenges. Accounting for impaired loans (SOP 03-3), non-impaired loans (FAS 141R) and the loss sharing agreement typically require an organization to design, build and implement new processes and operations.
In addition, the loss share certification requirements associated with these agreements create new operational and compliance challenges. Fair value determination and application of purchase accounting have proven to be difficult, and the timeframe for reporting in public filings can be very short.
How PwC can help
As a market leader, PwC's financial services professionals have significant experience in assisting our clients with all aspects of a comprehensive approach to analyzing FDIC assisted transactions, including the following:
Due diligence and bidding assistance (pre-closing)
Providing industry landscape information and benchmarking
Project management of process implementation
Technical support for accounting and reporting requirements
Assistance in the development of an ongoing valuation process
Operational and technical support in the area of default management
Operational and technical support in the loss sharing compliance process
Development of validation of accounting, valuation and FDIC required cash flow models
Assistance with tax issues and opportunities unique to these transactions