Calculated Risk: Entering Into A “Loss Share” Agreement With The FDIC

The recent financial collapse has provided a strategic opportunity for healthy financial institutions, and non-traditional investors, to capitalize on the misfortune of failing banks. The FDIC is accelerating this process by revamping its loss share program. This program gives prospective buyers of failing institutions billions of dollars in government guarantees for risking the purchase of a failing bank, inclusive of all “toxic” assets. By agreeing to absorb 80% of the acquiring banks immediate losses, the FDIC entices the healthy investor to take on limited risk in anticipation of future reward. After the initial purchasing stage, the FDIC will assume up to 80% of additional losses in connection with the acquired loan portfolio.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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