Fed frees Flagstar from crisis-era regulatory order

Flagstar Bancorp in Troy, Mich., can finally lay its tumultuous past to rest.

The Federal Reserve terminated a 2010 supervisory agreement Thursday, freeing the $18 billion-asset company from a crisis-era order that required it to obtain regulators’ permission for a wide range of corporate functions, including paying dividends, incurring debt and senior-level hiring and compensation.

The termination also scales back government oversight over merger-and-acquisition activity, a fact President and CEO Alessandro DiNello noted in a press release.

"This is a major milestone for our company, representing the last major regulatory issue with the old Flagstar," DiNello said. “The lifting of the agreement ushers in a new era for our holding company, providing more flexibility in entering into strategic transactions.”

Even with the agreement in place, Flagstar managed to participate in M&A.

In June, it agreed to buy 52 branches in Indiana, Michigan, Wisconsin and Ohio from Wells Fargo. The transaction includes $2.3 billion in deposits and $130 million in loans, with Flagstar agreeing to pay Wells a 7% deposit premium.

Flagstar agreed last November to buy eight Southern California branches from East West Bancorp in Pasadena, Calif.

“Clearly this team has impressed the regulators since the get-go,” John Donnelly, managing partner for financial institutions at Donnelly Penman & Partners in Detroit, said in an interview. The termination is “official validation of something that’s been evolving for a while, though it might have taken a little longer than [Flagstar] would have liked.”

Donnelly likened Flagstar to a "playoff caliber" football team that is finally eligible for the postseason.

Flagstar has been reinventing itself since the crisis, moving away from a nationwide mortgage strategy to become more commercially focused.

Flagstar, which lost more than $1.4 billion from 2007 to 2011, has returned to consistent profitability in recent years.