Overview
Action Items
Revisit the advantages and risks of a holding company structure.
Why Dissolve a Holding Company?
The recent announcement that Bank of the Ozarks in Little Rock, Arkansas, has made plans to dissolve its holding company has caught the interest of numerous clients. For many organizations this action may not be a practical option, but for certain organizations, it may be worth exploring further.
The primary question is why would a bank want to get rid of its parent corporation? This question echoes the discussions of the 1970's and 80's when holding company formations were a dominant topic of discussion for bankers. While the advantages of holding companies (e.g., greater access to capital, more diversity of capital instruments for issuance, greater ability to borrow and consolidation of administrative services for subsidiary banks) are well documented, many still question the increasing costs and burdens associated with holding company regulation.
Regulatory Efficiency
For Bank of the Ozarks, published analysis mostly points to cost-cutting as the primary motivation. More specifically, this interesting maneuver appears to be a quest for regulatory efficiency as the bank, an active acquirer, continues to grow through acquisitions of other banks.
As many of our clients are aware, dealing with the Federal Reserve in any capacity can be difficult even when the holding company at issue is healthy and well-run. Particularly in this growing cycle of mergers and acquisitions, the timing for processing applications for holding company transactions can be inconveniently long, especially when seemingly insignificant peripheral issues can bog down the process. Getting even simple matters resolved through the Federal Reserve's cumbersome bureaucracy can derail transactions and cause significant legal and regulatory costs to a transaction. In our clients' experience, getting the Federal Reserve's ultimate approval of a deal can trail the bank's primary regulatory agency approvals by months. That said, many deals can be structured to avoid the requirement of Federal Reserve approval.
We Can Help You
All this potential anxiety notwithstanding, is abandoning your current holding company structure something you should consider? The many practical considerations, such as moving sub-debt and other obligations to the bank must be considered in the process. We would be pleased to discuss these matters with you at any time. The balancing of advantages and disadvantages is a complex endeavor, but the analysis could prove beneficial even if your organization decides to do nothing.