Alert February 02, 2010

OCC Approves First Use of “Shelf Charter” to Acquire a Failed Bank

The OCC approved the first use of a “shelf charter,” a new mechanism that makes it easier for nonbank investors to buy failed banks without first owning a bank.

The shelf charter program, which was established by the OCC in November 2008, enables private equity firms to obtain conditional preliminary approval of a national bank shelf charter.  The OCC stated that the approval process for a shelf process can be just as demanding as the approval process for a regular charter.  During its initial review, the OCC evaluates “the qualifications of the proposed management team, the sources and amount of capital that would be available to the bank, and a streamlined business plan that describes how the acquired bank will be operated.”  If the OCC gives its conditional preliminary approval of the shelf charter, the shelf charter remains inactive until the private equity firm is ready to acquire a troubled banking institution.  The private equity firm then must meet certain conditions specified in the OCC’s conditional preliminary approval, be cleared to view the FDIC’s list of troubled institutions and to bid for those institutions, and have its bid for such an institution approved by the FDIC.  Since the beginning of the shelf charter program, the OCC has granted only four shelf charters, and prior to January 22, 2010, no shelf charter has been used to successfully bid for a failed bank.

On October 23, 2009, the OCC granted preliminary conditional approval to Roxbury Capital Group LLC’s shelf charter for Bond Street Bank, National Association (“Bond Street Bank”), a subsidiary of Bond Street Holdings LLC (“Holdings LLC”).  In the conditional approval, the OCC noted that Bond Street Bank must apply for Federal Reserve membership and obtain FDIC deposit insurance.  The OCC granted its conditional approval even though Bond Street Bank “would not commence operations until after its bid for a particular institution is accepted by the FDIC,” and conditioned its final approval upon its receipt of an acceptable Comprehensive Business Plan from Bond Street Bank, among other things.

On January 22, 2010, the OCC granted its final conditional approval, Approval #936, for Holdings LLC to establish Premier American Bank, National Association (the “Bank”) for the purposes of acquiring the failed Premier American Bank, Miami, Florida from the FDIC in a purchase and assumption transaction, which was consummated on January 22, 2010.  The final conditional approval was subject to various conditions to ensure the safe and sound operation of the Bank.