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Midwest Bank attempting little-used gambit to escape seizure

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smilingdevil   Thursday, 05/06/10 09:12:12 AM
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Midwest Bank attempting little-used gambit to escape seizure

My first post: Seems v bullish for the equity. We'll see.



Midwest Bank attempting little-used gambit to escape seizure

(Source: Chicago Tribune)By Becky Yerak, Chicago Tribune
May 6--Midwest Bank, a $3.2 billion-asset lender in danger of being seized soon by the government, has mounted a long-shot effort to remain independent by filing an application for "open-bank assistance" with U.S. banking regulators, say people familiar with the situation.

Open-bank assistance hasn't been used widely since the late 1980s by the Federal Deposit Insurance Corp., which in recent years has built a large infrastructure to put troubled banks into receivership and sell their assets to healthy banks.

With open-bank assistance, the FDIC provides financial assistance to a lender to keep it from failing. It can be structured in many ways, but generally the FDIC requires new management, which Midwest got about a year ago, and an assurance that past shareholders will not benefit.

Midwest, owned by Melrose Park-based Midwest Banc, has an interested investor lined up to inject capital on the condition that the regulators approve its open-bank assistance effort, a source says.

The group is trying to convince the regulator that open-bank assistance would be a less-costly option, by at least a couple hundred-million dollars, than shutting down Midwest, putting it into receivership and selling its assets and deposits to another buyer.

While the open-bank assistance request is likely to have only a small chance of succeeding, sources say, it shows that Roberto Herencia, who a year ago was recruited for the top Midwest job, has left no stone unturned to try to save the bank. Midwest is trying to raise $125 million to $250 million in capital.

An FDIC seizure remains the likeliest outcome, and interest is intense. At least 10 parties, both strategic and financial buyers, have submitted bids for Midwest to the FDIC, a person familiar with the process said. Midwest's deposits, branch network and some employees are considered more desirable than many other teetering banks.

Financial investors that have looked at Midwest include Flexpoint, Lone Star, Starboard, Pritzker Group and Madison Dearborn. Goldman Sachs also did due diligence on Midwest but is unlikely to bid, according to mergers and acquisitions news service DealReporter.

Potential strategic buyers include FirstMerit, Wintrust, First Midwest, MB Financial, U.S. Bank and Harris.

While a deal brokered by the FDIC is by far the likeliest outcome, a request for open-bank assistance is pending with the FDIC.

Midwest recently got shareholders to agree to boost the number of common shares from 64 million to 4 billion, which could be conveyed to a new funding source, the Treasury or other entity that provides capital. The move would greatly dilute existing investors' stake and could blunt criticism that they are being bailed out.

One of the most recent banks to receive something akin to open-bank assistance from the government is Citibank, whose potential failure was said to have posed a systemic risk to the financial system.

byerak@tribune.com

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To see more of the Chicago Tribune, or to subscribe to the newspaper, go to http://www.chicagotribune.com.



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