Chicago Tribune By Becky Yerak August 20, 2010
South Side institution billed itself as the leading lender to low- and moderate-income urban areas.
Chicago-based ShoreBank, which for more than three decades made loans to South and West siders who might not have gotten financing elsewhere to buy homes, apartment buildings and start businesses, failed Friday. It had struggled for months to raise sufficient funds to stay afloat.
Its deposits and most of its assets were acquired by a consortium of major U.S. financial institutions and philanthropic groups and will reopen under the name Urban Partnership Bank.
ShoreBank was the 15th Illinois bank to fail this year and the 118th to be seized by federal and state regulators nationally. Its failure is expected to cost the Federal Deposit Insurance Corp. $367.7 million. The FDIC, which is funded by the banking industry, said it received only one bid for the bank.
Major investors in Urban Partnership include American Express Co., Bank of America Corp., Citigroup, Ford Foundation, GE Capital's equity investments arm, JPMorgan Chase & Co., Key Community Development Corp., Morgan Stanley, Northern Trust Corp., PNC Investment Corp., Goldman Sachs Group Inc., and Wells Fargo & Co. Former First Chicago executives who joined ShoreBank in recent months will run the bank.
In a news release, Urban Partnership said it enters the market "well-capitalized." A person familiar with the matter said the group was investing about $120 million.
Urban Partnership is acquiring all of ShoreBank's $1.54 billion in deposits and most of its $2.16 billion in assets. The FDIC and Urban will share in the losses of $1.41 billion of those assets. The bank will be responsible for 20 percent of the losses; the FDIC will shoulder 80 percent.
The FDIC said the bid saved its insurance fund more than $250 million had ShoreBank been liquidated.
Each ShoreBank depositor is insured to at least $250,000.
ShoreBank's 15 branches in Chicago, Detroit and Cleveland will reopen their next usual business day under the new bank's name.
David Vitale, a former First Chicago executive who recently joined ShoreBank, will be chairman of Urban Partnership. Bill Farrow will be president and chief executive.
Urban Partnership has indicated it will maintain ShoreBank's focus of providing loan and deposit products and services to individuals and small to mid-size businesses, including those on Chicago's South and West sides, and in Detroit and Cleveland.
"We're excited to see an agreement that will allow this new institution to continue to serve Chicago communities starved for access to loans and other mainstream financial services," said Dory Rand, president of Woodstock Institute, a Chicago think tank.
Eugene Ludwig, chief executive of Promontory Financial Group, said in a statement Friday: "The investors and new management deserve great credit for their commitment to low- and moderate-income communities. Their efforts provide continuity for the working people in Chicago's South and West sides and in Cleveland and Detroit, where community development financial institutions have long exerted a transformative influence.''
Ludwig, a former U.S. comptroller of the currency, helped spearhead the original initiative to raise private capital to try to save ShoreBank.
Still, ShoreBank's failure is seen as a setback for community banking, and some people familiar with its operations say they don't expect that business model to continue. From its beginning in 1973, ShoreBank's mission was to revitalize declining, mostly black Chicago neighborhoods. Redlining and other discriminatory practices had taken a toll on communities such as South Shore, and the bank set out to prove that reinvestment could help revitalize communities. That strategy worked for a long while.
But then the recession claimed many of its borrowers' jobs, which meant they couldn't keep up payments on their mortgages and loans. Until the recession, ShoreBank had been profitable, its officials have said.
Going forward, the new bank probably will have to tighten its lending practices and diversify its loans geographically, experts say. ShoreBank got into trouble making loans on homes and multifamily buildings that more conservative banks probably wouldn't have made.
Since 2001 ShoreBank filed more than 325 foreclosure lawsuits in Cook County, according to Kaneville-based Record Information Services, which compiles real estate data.
"The number of foreclosures that occurred and continue to occur in these neighborhoods was a symptom of our desire to have full homeownership without any sanity attached to it," said Jeff Metcalf, chief executive of Record Information Services.
About two-thirds of the foreclosures were for one- to four-family single-family residences, followed by apartment buildings and commercial properties. Many occurred in Englewood, Roseland, South Shore, North Lawndale, South Chicago and West Englewood.
"When I sat in the regulatory meetings briefly with ShoreBank early this year, even the state banking commissioner said, 'There's no doubt if we had to save ShoreBank, or if the regulators hold off, its near-term business model has to change because it's a little out there in terms of mortgages,'" Bill Brandt, chairman of the Illinois Finance Authority, a government financing body that looked at ways to help ShoreBank, recalled recently. He believes that the bank's failure will further hurt the area.
For about a year, ShoreBank had been under pressure to raise capital. Last spring, several big investors pledged about $150 million in funding that they had hoped would make the bank eligible for about $75 million in government aid.
But bailout money from the U.S. Treasury's Troubled Asset Relief Program never came as ShoreBank's finances continued to deteriorate. Critics also complained about the prospects that a relatively small but politically connected bank was getting preferential treatment by Washington insiders for a possible taxpayer-funded program.
This is Crime, Inc., folks. It's just changed its name.
The Wall Street Insider fellow was interviewed by Ulsterman recently and talks about Shore Bank/Urban Partnership Bank. You can read it here: http://theulstermanreport.com/2012/01/24/wall-street-insider-california/
I see prison in the future.
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Please ping me if you come across more info.