Probably not. Seems like the more that presidentially-prized ShoreBank gets extensions from private financial institutions (Goldman Sachs, Citigroup, etc.) and from its federal regulators (the FDIC and Federal Reserve), the deeper in the hole it finds itself. Earlier this week the Chicago Tribune reported:
ShoreBank’s capital deficiency worsened in the second quarter, according to newly submitted financial results to regulators, and the Chicago-based lender now needs to raise at least $190 million just to meet targets set out in March by state and U.S. banking regulators….
The South Side bank has arranged a capital infusion of about $150 million from Wall Street investment firms, big banks, insurance companies and philanthropic groups. It’s hoping that private investment will then make it eligible for about $75 million in bailout funds from the U.S. Treasury Department.
Concerns have been raised about whether $225 million will be enough to save ShoreBank. Fox Business reported in June that people with knowledge of the situation say the Fed believes that, to remain solvent, ShoreBank would need at least $300 million and probably more because of the toxic nature of its balance sheet.
The Tribune reports also that about 25 percent of the bank’s loans are delinquent. And now, a day before the private investors’ deadline for ShoreBank to raise sufficient capital, Bloomberg reports that hope is nearly lost:
The money raised in May was placed in an escrow account and is scheduled to be returned to investors tomorrow unless the government agrees to provide money or some other remedy can be found for the bank, according to a person who helped arrange the investments….
Investors in the bank held a conference call Aug. 2 to discuss the rescue effort and agreed to keep seeking bailout funds, one of the people briefed on the matter said. The investors said such help was a slim possibility, and they discussed whether to start a new lender using the ShoreBank brand, the person said.
“People ought to be proud of what the bank has done; I’m proud of it,” said Eugene Ludwig, Comptroller of the Currency from 1993 to 1998 and a former ShoreBank director who led the effort to raise private capital and agreed to invest some of his own money. “It would be a genuine shame if it’s not kept open.”
Sounds like ShoreBank is an extension of any other government program – in this case, the Community Development Financial Institutions created under the Community Reinvestment Act. Few of ShoreBank’s loans (“investments”) would be considered wise without the substantive backing of other people’s money, whether it’s coerced assistance from private financial institutions, subsidies for their “green investments,” or TARP money. And if it fails, organizers think they can just turn it into something else with a similar identity, a la ACORN.
Meanwhile, Fox Business Network’s Charlie Gasparino reports that TARP special investigator Neil Barofsky says he will investigate alleged Obama administration pressure on financial institutions to help ShoreBank:
In a letter to Congressman Spencer Bachus, ranking member of the House Banking Committee, Barofsky said his office has “agreed to do an audit” of the federal program that granted ShoreBank the money about two months and examine the “issues raised” in a letter Bachus sent to the White House, asking for records and other documents detailing whether key administration officials played in role in convincing Wall Street to help bail out the bank….
One thing is certain: The Wall Street bailout of ShoreBank was unusual. Scores of have been allowed to fail during the economic downturn, and rarely do major banks come to the rescue of a struggling community lender, particularly with a balance sheet as impaired as ShoreBank’s. In fact, Goldman CEO Lloyd Blankfein took time out from his busy schedule to make calls on behalf of ShoreBank to drum up enough money to prevent an immediate takeover of the bank.
As Gasparino reports and noted previously in this space, pressure on Wall Street firms to help also came from FDIC chairman Sheila Bair. At the same time Treasury Secretary Timothy Geithner was lobbied to help ShoreBank by several Chicago power players, including Lester McKeever Jr., partner in the CPA/management firm Washington, Pittman & McKeever. Known well in the minority community, McKeever has contributed heavily to Democrats over the years, including a $10,000 donation to the Obama Victory Fund in 2008 and $25,000 for his inauguration. He also gave $8,000 to the president’s Senate campaign in 2004. He wrote to Geithner:
It is my hope, and one shared by others who care deeply about its most vulnerable communities, that the ShoreBank recapitalization plan with investment coming from the U.S. Treasury will enable it to continue servicing its customers and fulfilling its mission. ShoreBank serves the African American community in Chicago and there is no other community whose suffering from the economic crisis is as great.
Also pressing Geithner heavily in June were four Democratic congressmen who represent Chicago-area districts: Rep. Jan Schakowsky, Rep. Jesse Jackson Jr., Rep. Danny Davis, and Rep. Bobby Rush. It may be that, as the White House claims, that the Obama administration did not pressure Wall Street to finance ShoreBank. But with some many of the president’s allies burning up the phone and Internet lines to Treasury, what’s the difference?
So much time, energy and money expended for an ideologically liberal bank whose Tier 1 capital has fallen from $43.5 million in December 2009 to $4.1 million at the end of June. Whether ShoreBank survives or fails, somebody’s got some explaining to do.
Paul Chesser is an associate fellow for the National Legal and Policy Center.