Shared-Loss Capabilities

FDIC Shared-Loss Agreement

In 2009, more than 60% of failed bank resolutions involved an FDIC Shared-Loss Agreement. In 2010, we expect that percentage will increase to as high as 75% or greater.

The Shared-Loss transaction provides strong banks with a lower risk strategic growth opportunity thanks in large part to the "guarantee" the FDIC offers buyers. Typically, the agency reimburses the acquiring bank 80% of losses incurred in a covered portfolio up to a predetermined threshold at which time the reimbursement increases to 95%. In addition, the FDIC reimburses the acquiring bank for its direct expenses related to the covered portfolio. In turn, bank management must aggressively pursue recoveries which they share with the FDIC.

Though these deals are attractive strategically and economically, they are also very complex. Our work with banks and private-equity players points to five key elements that must be addressed in order to structure and manage a transaction appropriately:

Several key principles for managing a Shared-Loss Agreement emerge from our experience:

• Separate and Centralize Shared-Loss Assets. FDIC reporting requirements require loans to be "flagged" as share-loss assets, and access to loans should not be "bank wide".


• Create a Dedicated Team. The specific requirements related to managing Shared-Loss loans in compliance with the Agreement underscore the need for a specialized group of experts. Failure to dedicate "Shared-Loss experts" may cause errors that preclude loans from future submission


• Engage Key Internal Constituencies. The Shared-Loss process requires the involvement of Workout, Finance, Accounting, IT, Audit, and other areas. Creating a knowledgeable and engaged Shared-Loss working team is critical


• View Shared-Loss as a Line of Business, Not a One-Off Transaction. The upfront investment to manage a Shared-Loss transaction can only be justified if the bank maximizes cash flow and, ideally, builds a portfolio of transactions


• Operate With a Sense of Urgency.  Optimizing cash flow from the transaction and ensuring that acquired customers are handled efficiently and effectively underscores  the need to prioritize activities related to Shared-Loss.

FIC's Shared-Loss Capabilities Provide a Turnkey Client Solution

Areas of expertise include:

• Acquisition and Due Diligence Support
• Accounting and Valuation Services
• Portfolio Support (Commercial and Residential)
• FDIC Submissions (Commercial and Residential)

Click here to view or download a document detailing our activities within each of these areas.