It turns out that my initial read on this transaction was likely incorrect. I failed to account for the loss to bond holders in the capital structure. So, although the securities weren’t sold as part of the bank, it appears more likely to me that the losses were included in the calculation of loss to the FDIC.

• The sale announcement contains several interesting revelations.
• The loan book was sold at a 23% discount AND with loss share. (I thought this was just a liquidity problem?)
• The FDIC is understating the true cost of the failure. By withholding the bank’s securities portfolio from the sale, the FDIC is burying an unrealized loss. The haircut on the loan book cost the FDIC $16.5 billion. How, then, could the total failure have cost only $20 billion? The unrealized loss on securities was itself almost $16 billion. Since the securities have a readily determinable market value, why didn’t the FDIC sell the securities at this value and include the mark in its cost of failure? Total loss closer to $33 billion.
• Plus, don’t forget that banks will be paying to make the uninsured depositors whole.