JC Flowers Seeks Sallie Mae Control
08.06.2007 21:54
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- Source: Forbes
An investment group led by JC Flowers & Co. asked the Federal Deposit Insurance Corp. not to place any conditions on its attempt to acquire Sallie Mae and its subsidiary banking arm, Sallie Mae Bank. The request was contained in a change in control application released publicly Friday afternoon. The consortium of investors also said it would provide $228 billion in credit facilities to Sallie Mae to make sure it has "ample liquidity" once the transaction is completed. The consortium of investors also said they had no plans to sell or liquidate the bank, change the bank's business plan, or seek any representation on the bank's board. On April 15, a team led by JC Flowers, Bank of America Corp., and JPMorgan Chase & Co., reached a deal to buy the giant student lending company for $25.3 billion. Under terms of the agreement, JC Flowers, an investment group led by Wall Street veteran J. Christopher Flowers, would control 50.2 percent of Sallie Mae, with Bank of America and JPMorgan each owning 24.9 percent of the company. Sallie Mae Bank, based in Utah, had $692 million in assets and $518 million in deposits, as of March 31. Sallie Mae uses its banking arm to originate loans, and money paid from customers can be held in escrow accounts at the bank. Because these accounts have federal deposit insurance, the consortium needs permission from the FDIC before it can take control of the bank. The FDIC insures roughly 60 state-chartered industrial banks. These banking charters are controversial, however, because they are the only kind that can be owned by a nonfinancial company, and the FDIC recently proposed new restrictions on how industrial banks can be owned and managed. The FDIC also has agreed not to consider any applications from nonfinancial companies until at least Jan. 31. The application from the consortium, though, argues that it should be exempt from the moratorium and any other conditions because of the unique parent company structure that has been designed to run Sallie Mae and its subsidiary bank. The consortium "respectfully submit that the structure proposed by the investors to accomplish the transaction is consistent with the moratorium and the FDIC's proposed rules, and that this notice should be approved without special conditions." According to the FDIC's proposal, any industrial bank that would be owned by a parent company which isn't regulated by a federal regulator such as the Federal Reserve would be subject to special conditions. The JC Flowers consortium argued in their application that they shouldn't face any conditions for several reasons. First, they said that the "ultimate controlling person of Sallie Mae Bank is an individual, Mr. Flowers." Individuals aren't subject to the moratorium, they said. Second, Bank of America and JPMorgan are already supervised by federal banking agencies, so they shouldn't require additional conditions, the consortium said. The change in control application was filed May 31. Much of it is withheld from the public because it contains proprietary information, but the FDIC released portions of the application on Friday. Copyright 2007 Associated Press. All rights reserved. This material may not be published broadcast, rewritten, or redistributed
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