Silverton And FDIC Bids

Silverton And FDIC BidsThe bids are due in about 30 days on the Silverton portfolio. It is mainly hotel loans, and it is only a portion of the hotel portfolio. It consists of whole loans and loans participated out to small community banks. The whole loans are probably reasonable properties with mostly decent borrowers. There are supposedly 65 bidders for everything from the entire portfolio of $416 million face amount of which $254 million is participated loans, down to individual borrowers bidding for their own loan.  It is highly likely the winner will be a bidder for the whole portfolio, but politics will possibly interfere with the bid process, and they may sell some loans to the borrowers.  FDIC will retain a 60% interest in the buying entity, so it will have substantial control rights over how the workouts are handled. The confi required was so onerous some potential bidders backed away.Here is one major issue. The participating loans are held by tiny banks who have essentially no capital if their assets were written to true value. Whoever buys the loans from Silverton will be faced with the FDIC likely interfering with normal restructures so that the little banks do not take the hit to capital. This is very bad policy and will not allow borrowers to get the restructures they need. It also means many bidders will not bid this part of the portfolio, and those who do, will way underbid due to the FDIC interference. FDIC is likely to require more extend and pretend, and a lot of little banks who do not deserve to exist, will be kept alive by FDIC only to die another day.Now we have already seen a whole host of people involved with these banks screaming that it is unfair to recognize truth and the FDIC is already under huge pressure to lie about the true value of these loans. If reality would be permitted, then we could have a true arms length bid for these assets which would set the market value in a proper way. Then all banks would be forced to recognize reality and the bad loans would be forced to come to market. That would start the loan sales which we have all been waiting for and begin the healing of the banking sector by closing all the small, poorly run banks across the country that should never have been allowed to exist in the first place. They made real estate loans they were not qualified to underwrite, and they have no idea even now what these assets are worth.The politicians and media love to blast the big banks who made many bad decisions as well, but the real problem today lies at the regional and small bank level where all of these small loans still reside, and will continue to reside for several more years so long as FDIC insists on hiding the truth. The Silverton auction is not going to reveal true market values due to this misdirected politicized policy.