FDIC Seeks Stock Profits From Playing Match Maker

The Federal Deposit Insurance Corp. will seek to profit from failed banks that were auctioned off to other financial institutions if the deal is well-received by the buyer's shareholders.

The FDIC collected $23.3 million from New York Community Bancorp Inc. (NYSE: NYB) earlier this month after the bank acquired failed Cleveland-based AmTrust Bank.

Provisions made in the acquisition allowed the FDIC to see the gains from the rally in the stock price for New York Community following the purchase. Shares for the bank rallied 16 percent in the two weeks following the deal for AmTrust.

The FDIC is now looking to receive a cut from other banks that have seen benefits stock prices following acquisitions of failed banks from the government. The agency sees this provision as a way to sure up its financial position after being wiped out following the impact from the financial crisis.

"We feel that the FDIC should participate in that increase in value," associate director for the agency, Herbert Held said.

The agency now plans to provide this provision in the auction of failed banks to the buyers that it selects. The FDIC takes into account multiple factor when choosing a winning bidder for a government seized failed bank.

In 2009 the agency has seized 140 banks and the number is expected to keep rising in the coming year. Banks are becoming increasingly interested in acquiring failed banks in recent months, as they are encouraged by the agency sharing in the losses associated with the closed institution.

The details for how the FDIC will handle the provisions are still being worked out, but the inclusion of an agency benefit is expected early next year.

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