- The Washington Times - Tuesday, May 19, 2009

The Office of Thrift Supervision is opening a door the Federal Reserve had closed by allowing leveraged buyout firms to take control of banks amid the worst financial crisis since the Great Depression.

The OTS, which oversees about $1 trillion of assets at U.S. thrifts, approved MatlinPatterson Global Advisers LLC’s purchase of Flagstar Bancorp Inc. in Troy, Mich., and may allow similar takeovers. That puts the agency at odds with the Fed, which has told private-equity companies it won’t permit a firm that isn’t regulated as a bank to own a majority stake in a lender, even if it walls off its investment in a so-called silo deal, according to a Fed lawyer who declined to be identified.

“This may give buyout firms the opportunity to make controlling investments that the Fed has denied,” said Patricia McCoy, who teaches banking and securities regulation at the University of Connecticut School of Law in Hartford. “The OTS has an interest in keeping remaining thrifts alive with fresh capital, and private equity is one of the only options available.”

Blackstone Group LP and Carlyle Group, the world’s two biggest leveraged buyout (LBO) firms, are among those eager to snap up banks on the cheap after global losses tied to the credit crisis topped $1.4 trillion and slashed the valuations of lenders.

While the Fed has set out guidelines that allow private-equity investors to increase their minority stakes in lenders it regulates, it has taken the position that conflicts exist when an LBO firm owns a bank and nonbanking interests, said two people with knowledge of the matter.



The Fed oversees national banks chartered by the government. The OTS is an office of the Department of Treasury that regulated 818 thrift institutions, including savings and loans and credit unions, as of the end of 2008.

The OTS is open to more acquisitions, like the Flagstar takeover announced in December, said Grovetta Gardineer, the agency’s managing director for corporate and international activities.

“Flagstar is an indication that we’re entertaining these types of deals,” Ms. Gardineer said. “We scrutinize them closely, and every one will present a new and unique set of circumstances. We have had a significant amount of interest from private-equity firms who come in and meet with us.”

While thrift-industry assets at banks regulated by the OTS dropped 25 percent last year after three collapsed, including Seattle-based Washington Mutual Inc., the largest U.S. bank to fail, Ms. Gardineer said the agency isn’t approving private-equity proposals to stem the decline. Fees from assessments on regulated institutions accounted for 92 percent of the agency’s funds last year, according to its annual report.

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