Is ShoreBank Sheila Bair's Baby?
The deadline for ShoreBank to come up with sufficient outside capital has been extended again, with the Federal Reserve saying more than $150 million from the likes of Goldman Sachs and Citigroup and $75 million in TARP money aren’t enough to save the politically-connected community lender. Crain’s Chicago Business reports it’s the third extension the Wall Street firms have granted to enable ShoreBank to get its act together, with the new deadline August 6.
While the Obama administration has denied pressuring big lenders to bail out ShoreBank, these extensions (while other community lenders have been allowed to fail) only serve as further evidence that powerful political forces are at work on their behalf. Charlie Gasparino of Fox Business Network has reported that the Federal Deposit Insurance Corporation was a big player in convincing the Wall Street finance companies – all who received government bailout funds themselves – to ante up for the ailing lender.
This shouldn’t surprise, as FDIC chairman Sheila Bair has expressed great affection for Community Development Financial Instititutions in general, and specifically ShoreBank and its founders. At the March 2007 convention of the Independent Community Bankers Association, just nine months after becoming chairman, she offered praise:
In 2006, we launched the FDIC Advisory Committee on Economic Inclusion. I'm very excited to be working with the members of this committee.… I am especially pleased that two of your members – Alden McDonald, President and CEO of Liberty Bank in New Orleans, and Ron Grzywinski of Shore Bank in Chicago – have agreed to serve on the Committee. I am convinced that the experience and insight of Alden and Ron, and their fellow Committee members, will help identify and remove obstacles that hinder economic inclusion and block each of you from tapping a potentially huge market of new customers.
Later the same year, in November, she delivered the keynote address at the Annual Development Banking Conference sponsored by the National Community Investment Fund, which is advised by ShoreBank. The group’s (and ShoreBank’s) chief fund adviser, Saurabh Narain, commended Bair because she:
…has maintained a very keen focus on the underserved communities from the day she joined the FDIC. She has demonstrated leadership by nudging insured depositories to continue to level the playing field for the low-to-moderate income communities and in ‘out of the box’ thinking in times of crisis. In general, NCIF and the FDIC have had a close working relationship…
Narain also acknowledged the “privilege” of having “the leadership of Ron Grzywinski and Mary Houghton at ShoreBank,” and also thanked the “Federal Reserve Bank of Chicago as Lead Sponsor for this event.” The Fed in January this year imposed a “cease and desist” order preventing ShoreBank Corp. from paying shareholder dividends and from paying interest or principal to some of their debt holders, until the bank came up with a plan to return to “well-capitalized” status.
Grzywinski introduced Bair for her keynote speech, praising her for “her strong personal and professional leadership in supporting low to moderate income communities and people through several forward looking initiatives.” In her remarks, Bair:
…highlighted the critical role played by CDFIs in building economies, increasing jobs and building hope among low to moderate income communities. Accordingly, she has supported them through technical assistance – FDIC is proposing technical assistance to smaller CDFIs to access the CDFI programs, promoting partnerships with the larger banks (direct investment, deposits, establishing a two-way referral process, providing training, and accounting or operational services) and direct intervention in times of crisis.
Indeed, in one Fox Business report Gasparino said Bair was calling leaders of Wall Street institutions to seek assistance for ShoreBank. Now the Federal Reserve, despite the FDIC chairman’s best efforts, may now be saying $225 million is “still not good enough.”
It wasn’t long ago that ShoreBank Corporation leaders proudly declared their “old fashioned way” of lending “in the markets we know.” They were said to be “too good to fail,” as opposed to “too big to fail.” And ShoreBank Bank senior vice president Michelle Collins asserted, “We will do a responsible loan, or we won’t do a loan at all,” and not-so-modestly claimed they didn’t need TARP funds:
Just don’t mention the dubious start-ups and costly green initiatives that required massive government subsidies and little private investment. A financial institution dependent on government mandates, coercion and corruption is apparently deserving of a bottomless supply of taxpayer dollars – just ask Sheila Bair.