FDIC Is Clearing Away Toxic Assets

There’s plenty of talk about the pent-up demand for distressed commercial assets, though few deals are trading. But the one place where there’s action-and a lot more expected-is at the Federal Deposit Insurance Corp. So far this year, about 100 banks have failed and their assets have reverted to the agency’s books. The FDIC has been steadily divesting those holdings through various means and deal structures. In its largest transaction to date, the agency agreed to sell a 40% stake in a group of Corus Bank’s troubled loans for $4.5 billion to a venture led by Starwood Capital Group last month.

The deal marks only the second legacy loan transaction for the FDIC, following the March disposition of assets from the failed Franklin Bank S.S.B. out of Houston. So the agency is just starting to test the waters with these larger sales. Both the Corus and Franklin transactions were structured deals, with the FDIC selling a stake of the loan portfolio and providing the debt for the deal in exchange for the new equity.