Frontier Financial, revisited

Frontier was finally put out of their misery. The regional bank with the clout to take them over was Union. The cost to the deposit insurance fund comes to 36% ($1.37bn). That's worse than even the first takeovers in 2008 cost. As anticipated, the over at 20% was a clear winner.

Apparently the spike in volume and price was due to takeover rumors. As I mentioned at the time, I thought it made no sense for a non-bank entity to attempt a buyout. With the price running to near $6 a short was in order. Unfortunately, my broker (Scottrade) as usual, was unable to locate shares to borrow. FTBK is currently trading at $.55 on the pink sheets.

By shedding FTBK the FDIC has done a great job of whittling down the dollar amount of the problem banks in Washington. At $3.7bn, Frontier was the 2nd largest bank on the list. Homestreet at $3.2 is now the 2nd biggest problem. Sterling, at $11.3bn is still tops on the list.

Sterling will be a fascinating case study. If Union Bank is one of the 20th largest banks in the USA, who is left to takeover Sterling? Answer...no one. There is no reason BB&T, Fifth Third or any other eastern regional to expand in the Northwest when they can consolidate on their home turf. So what is left? It appears Sterling is in play with Private Equity. I have not seen any mention of Govt involvement but, the only way a deal like this makes sense is if the FDIC steps in a takes a hit. I'll put the over/under for the FDIC stepping and absorbing losses on this one at $3bn, and, I'm taking the over.

Once Sterling & Homestreet are resolved, it will cost the Govt a mere pittance to clean up the balance of the problem banks in Washington. If the over is hit on Sterling, it will be game on for investors to swoop in on the remaining problem Banks in Washington.