February, 22, 2010

In the banking industry these days, failure can be good news.Being taken over by the Federal Deposit Insurance Corporation, or FDIC, is never good for a failed bank. It can be excellent news for the bank chosen by the FDIC to acquire its prey.In November, East West Bancorp (EWBC) in Pasadena, Calif., won the bidding to take over failed San Francisco-based United Commercial Bank, its $9.9 billion in assets, and $6.5 billion in deposits. Over the next five days, East West's stock jumped 55.7%.

FDIC-facilitated buyouts of failed banks have become a major factor driving bank stocks. According to an analysis that SNL Financial conducted for Bloomberg BusinessWeek, there have been 24 government-assisted buyouts of banks with more than $500 million in deposits since July. Eight produced double-digit stock gains in the five days of trading that followed the announcements. In 10 further cases, the acquirers' stocks beat a broad, SNL-developed index of banks and thrifts.

.

.