Bailout Fail: Chicago’s Politically Connected ShoreBank Files Bankruptcy
John on January 10, 2012 at 9:39 am
Weeks after receiving $35 million in “‘new market tax credits‘ to finance green buildings and other projects in Chicago, Detroit and Cleveland” ShoreBank was given a cease-and-desist letter from the FDIC. This was 2009. This should have been the end of it, but suddenly mega-banks including Citigroup, JP Morgan and Bank of America lined up to bail them out. The talk at the time was that the White House was concerned abut ShoreBank.
The plan was to raise $125 million in private money so that ShoreBank would be eligible for another $75 million in public money. There were reports that banks were getting pressure from the FDIC chairman to go in on the rescue plan. It was clear (to Republicans at least) that political influence was at play. The inspector general of the FDIC was tasked with looking into the bailout. Meanwhile, Democrats fought like honey badgers to insure that the proposed $75 million could still be delivered to ShoreBank while the investigation was taking place.
If the whole mess sounds vaguely familiar it’s because it’s very similar to the plan for saving Solyndra. Raise just enough private money so you can justify a further investment of public money. The Solyndra refinance plan went through and we all know how that worked out. ShoreBank never got the second bailout from the feds so it was closed and a portion of its assets were transferred and reopened under the name Urban Partnership Bank.
Today the remains of Shorebank filed for chapter 11 bankruptcy:
ShoreBank Corp., the holding company for a Chicago lender that served low- and moderate-income communities before being closed by regulators in August, filed for bankruptcy protection under Chapter 11.
ShoreBank said it had about $63.5 million in liabilities and about $19.2 million in assets in a filing yesterday in U.S. Bankruptcy Court in Chicago. Eleven of the holding company’s units also sought bankruptcy.
It shouldn’t have been hard to figure out that a bank specializing in loans to inner-city Detroit wouldn’t make it. It’s still not clear how much the taxpayers lost on this. Did the $35 million in tax credits (which were apparently for expansion) get used? How much did the FDIC cover when the bank was closed? It’s worth noting that Shorebank was run the way Barack Obama seems to expect all banks to run and that was the real cause of their downfall:
While a severe recession certainly played a role, an examination of ShoreBank’s financial statements and interviews with former employees and analysts show that ShoreBank brought many troubles on itself. An ill-timed, overly aggressive expansion at the height of the credit bubble, a headlong push into risky markets on Chicago’s West Side and to the inner city of Detroit, and an unwillingness to foreclose on troubled loans combined to weaken the bank to the point that regulators last July ordered a major recapitalization.
Even with millions in outside money invested the model just didn’t work.
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