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Doral Financial Corporation Message Board

  • yes_free_will yes_free_will Mar 16, 2013 4:27 PM Flag

    Good Bank. Bad Bank

    Management announced they are creating a good bank: Doral Growth. They are also creating a bad bank (a legally separate entity) to handle their toxic assets. They put a ring-fence around the Insurance subsidary (LLC). What is the path going forward?
    a. Spin off the bad bank to shareholders?
    b. Sell the bad bank to some distressed assets outfit?
    c. Let it get as far as it can go. If it goes BK, it is legally separated from the 'good bank' and holding company?
    d. Merge it into some other bank somewhere good or bad?
    Obviously, they are trying to get rid of the toxic assets. Not sure if they have a plan on how that works going forward.

    SortNewest  |  Oldest  |  Most Replied Expand all replies
    • Good bank will run a profit. Bad bank will run a loss. Tax assets were realized as a gain when the small profitable insurance business was setup as a separate unit. Tax assets will therefore be realized when the profitable good bank reports profits. The company will therefore report a profit in 2013 as they did in Q4. Capital levels will increase.

      Will the bad bank go bankrupt? No!!!! The assets are already marked down by more than 40%. It will slowly liquidate assets and generate higher capital levels in that way to offset any losses.

      The company is responsible for the bad back and it can't go bankrupt. Banks are not like other companies. If you own a bank you are responsible for losses. The purpose is to utilize tax assets - not limit liability.

 
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