The Federal Deposit Insurance Corp. does not always enlist a financial adviser on failed-bank deals, but it did so in each of the three recent large failures due to the unique challenges they presented.
Piper Sandler Cos. advised the FDIC on the sale of Silicon Valley Bridge Bank NA and Signature Bridge Bank NA in March, while Guggenheim Securities LLC assisted the regulator in running the auction for First Republic Bank, which was sold in May. The assignments entailed working through three of the largest US bank failures and out-of-the-ordinary situations.
In the resolutions of the failed Silicon Valley Bank and Signature Bank, the FDIC used the uncommon structure of bridge banks. Bridge banks allowed the banks to operate as usual so that the FDIC would have more time to search for the best offer, with the hopes of giving the market more confidence, knowing that the agency was handling the situation.
One challenge with this approach was that the financials of the bridge banks were a moving target, as deposit outflows were ongoing. The FDIC would update balance sheets of both bridge banks on a daily basis during weekdays and distribute them through virtual data rooms to interested parties, a source familiar with the deal told S&P Global Market Intelligence. Since both deals were finalized over weekends, the FDIC used information from the most recent Friday when writing the deal agreements, the source added.
First Republic sale follows more traditional course
In comparison, the sale of First Republic took the more common failed-bank route, where the FDIC secured JPMorgan Chase & Co. as the buyer, and then the California Department of Financial Protection and Innovation seized First Republic and appointed the FDIC as the receiver. However, the process still faced challenges. First Republic had been reportedly exploring strategic options for nearly two months, as it faced funding and stock-price pressure before its failure.
Guggenheim started engaging with the FDIC after the fallout of Silicon Valley Bank in mid-March, a source familiar with the situation told Market Intelligence. This was before Guggenheim was mandated to help the FDIC find a buyer for First Republic.
The efforts were led by veteran advisers of government-assisted M&A deals, Jim Millstein, Guggenheim's co-chairman, and Jim Wigand, a senior adviser at the firm, the source said. Millstein was previously the chief restructuring officer at the US Department of the Treasury. During his tenure, Millstein supervised the restructuring and recapitalization of finance and insurance company American International Group Inc., which was completed in January 2011. Wigand previously served at the FDIC as a director of the Office of Complex Financial Institutions.
Guggenheim does not appear on a list of contractors posted on the FDIC's website, dated May 2022. The list of contractors contains only a small portion of vendors that tend to have a long-term period of performance, according to an FDIC spokesperson. The list typically remains unchanged until the listed awards expire, or new long-term agreements are awarded, they wrote in an email.
Piper Sandler is on the list and does have some history of advising the regulator. Piper Sandler advised the FDIC on the sale of Doral Bank, a Puerto Rico-based failed bank, in 2015 to Banco Popular de Puerto Rico.
Aside from advising on the auctions, the recent failed banks have also created other advisory and underwriting assignments from the FDIC.
BlackRock Financial Management Inc, an investment management unit of BlackRock Inc., assisted the FDIC with the liquidation of approximately $27 billion of securities of the former Signature Bank and $87 billion of securities of the former Silicon Valley Bank.
Barclays Capital Inc. was the sole bookrunner that assisted the FDIC with a secondary offering of 39.03 million shares of New York Community Bancorp Inc. on May 19. New York Community Bancorp unit Flagstar Bank NA agreed to take over substantially all deposits and certain loan books of Signature Bridge Bank. New York Community Bancorp used an equity appreciation instrument to share with the FDIC the gains in its share price after the announcement of winning the bid to acquire Signature.
The FDIC's rolodex also includes other investment banks for service in matters related to receiverships or involving complex securities. CastleOak Securities LP, Cantor Fitzgerald & Co., Houlihan Lokey Inc. and Rothschild & Co. SCA are among the investment banks listed as contractors with long-term agreements.