Client Alert

Because of the rapidly changing conditions in the financial markets, we have established this special series of Client Alerts to advise you of the newest economic and legal developments and their wide-ranging business implications.

On November 25, 2008, the Office of the Comptroller of Currency (the “OCC”) released an approval letter to establish a new national bank “shelf charter.” The shelf charter provides private equity firms an avenue by which they may actively invest in the assets of a failed financial institution or an entire failed institution. This action should expand the number of potential buyers able to purchase troubled institutions and assets. Click here for a copy of the Release.

The shelf charter remains inactive until a private equity investor group is in a position to acquire a troubled institution or its assets. The conditional bank charter is a wholly-owned subsidiary of a corporation organized to become a bank holding company. In its preliminary approval letter, the OCC noted that both private and public companies could invest in the holding company thereby indirectly owning the Bank shelf charter.

Further, the OCC notes in its approval letter that the shelf charter would be used primarily for the purpose of assuming liabilities and purchasing assets from the Federal Deposit Insurance Corporation (the “FDIC”) acting as the receiver of a failed depository institution. Likewise, the organizers of the shelf charter anticipate that the group’s first transaction would be an assumption of liabilities and purchase of assets from the FDIC as receiver of a failed institution. The OCC notes that the organizers and proposed directors of the Bank and other individuals associated with the investors should have experience in operating depository institutions.

The OCC adds in its approval letter that the Bank would not commence operations until its bid for a particular institution is accepted by the FDIC and that the specific activities of the Bank will not be determined until it acquires the business or assets of a failed institution from the FDIC. As such, the organizers did not need to include a comprehensive business plan in the charter application before preliminary approval.

It is anticipated that the OCC will grant final approval for the Bank and approve a purchase and assumption transaction under the Bank Merger Act the first time that the Bank's bid to acquire a failed institution is accepted by the FDIC. Final approval and authorization for the proposed Bank to open will not be granted until all standard pre-opening requirements are met. In connection with a final approval and the Bank’s commencing business, the OCC will require the Bank to enter a written operating agreement with the OCC. The operating agreement will require the Bank to submit a business plan acceptable to the OCC. The plan must detail the proposed business and operations of the Bank, and the Bank must obtain the OCC’s written supervisory non-objection to the plan.

Finally, the shelf charter is subject to a litany of conditions, including items that must be satisfied before, during, and after any acquisition of a failed institution. If the Bank receives final OCC approval for an acquisition, the Bank must enter into a written agreement with the OCC within one (1) business day after receiving final OCC approval, commencing business, and consummating the initial acquisition.

As always, if you have any questions about this or another banking matter, please contact a member of the Banking and Financial Institutions Team at Womble Carlyle Sandridge & Rice, PLLC. Readers are urged to consult with their regular contacts at Womble Carlyle or Steve Dunlevie at 404-888-7401, Betty Temple at 864-255-5415, Richard Hills at 404-888-7475, David Adams at 404-879-2492, or Robert Ralls at 404-879-2481.