Managing risk in today’s volatile commercial real estate markets
Thursday, August 19, 2010
ShoreBank: Improving Odds?
Odds of ShoreBank Takeover Now Seen at 50-50
By Charlie Gasparino
Published August 19, 2010
Officials at ShoreBank, the troubled community bank with ties to the Obama administration, say there’s a “50-50” chance that recent efforts to rescue the institution will fail, and the bank will be taken over by federal government, FOX Business has learned.
“It’s a coin flip, 50-50,” ShoreBank spokesman Brian Berg said, assessing the bank’s potential for surviving. “We’re working on” raising the money. Berg says the bank believes that it needs to raise $75 million more in additional capital to avoid being taken over by the Federal Deposit Insurance Corp. as early as this Friday.
An FDIC spokesman declined to comment, but executives at major Wall Street firms say the FDIC has launched a last-minute attempt to save the institution by asking them to contribute more money in addition to the $150 million that the firms have already donated to keep ShoreBank alive, FOX Business has learned.
Under one scenario that might be announced Friday, the FDIC would take over the bank, assume its liabilities and cover depositors’ savings accounts, and the firm would recapitalize a new bank with a clean balance sheet, Wall Street executives say.
Already, major firms and banks have agreed to donate $150 million to repair the bank’s balance sheet, which in addition to a $75 million government grant was initially thought to provide a long-term fix to secure the bank’s future. But a recent Federal Reserve analysis has determined that the bank needs more money to survive, causing the FDIC to alert the community lender that without additional funds it would be taken over.
Since the start of the Great Recession, dozens of bank holding soured loans and other securities have been taken over and liquidated as part of the FDIC’s resolution process.ShoreBank officials have in the past been reluctant to discuss the bank’s future amid the controversial effort by government officials to save the bank in recent months, which included an unprecedented effort by some of Wall Street's largest banks to chip in money to repair the bank’s balance sheet.
But ShoreBank wasn’t an ordinary bank. When it became clear that the bank was heading toward insolvency, FDIC chief Sheila Bair swung into action by convincing firms such as Goldman Sachs (GS: 147.10 ,-2.04 ,-1.37%) and General Electric (GE: 15.25 ,-0.44 ,-2.80%), and other big New York banks, such as Citigroup (C: 3.80 ,-0.06 ,-1.55%), JPMorgan (JPM: 37.09 ,-0.80 ,-2.11%) and Bank of America (BAC: 13.02 ,-0.30 ,-2.29%), to contribute tens of millions of dollars in new capital to prop up the firm.
But as FOX Business has reported, the bailout effort became a source of controversy because ShoreBank has close ties to the Obama administration and was said to be receiving preferential treatment; the Chicago institution has been singled out by the president, himself a Chicago native, for its community lending activities and efforts to finance environmentally friendly businesses.
Senior presidential advisor Valerie Jarrett has connections with at least one director of the bank and the president’s former and controversial green czar, Van Jones, had ties to the bank.
Meanwhile, officials at the New York banks giving the money said they felt political pressure to contribute the funds. (Jarrett has told FOX Business she played no role in the matter.) But congressional Republicans were dubious. Ranking House Financial Services committee member Spencer Bachus [R-Ala.] launched an investigation into the bailout after reports that Goldman CEO Lloyd Blankfein began raising money for ShoreBank when his firm faced a serious civil charge from the Securities and Exchange Commission, which it has since settled for a modest fine.
GE, another contributor to the ShoreBank bailout, has feasted off of government contracts, particularly in the area of grants and other government handouts associated with the president’s environmental agenda.