Posted on 23 Aug 2010
Regulators seized ShoreBank Corp. on Friday and agreed to sell assets to a team led by the community lender's executives and backed by several large U.S. financial firms.
The bank closure, among the 118 failures in the U.S. this year, caps months of uncertainty for a $2.16 billion Chicago bank that had ties to the Obama administration and deep roots on Chicago's South Side. The new institution will be known as Urban Partnership Bank and led by William Farrow, a former First Chicago Corp. executive who was ShoreBank's president and chief operating officer at the time of its failure.
Mr. Farrow will be president and chief executive of the new institution, said a person familiar with the situation. David Vitale, a ShoreBank board member, will become chairman. Messrs. Farrow and Vitale arrived at ShoreBank after regulators ordered the bank to raise its capital levels significantly.
The decision to sell to management is a rare move by the Federal Deposit Insurance Corp., which generally bars investors who own more than 10% of the failed bank from bidding on its assets. The FDIC also typically wants to know if bidders have "ever been an officer or director of a failed institution" and "participated in a material way in one or more transactions that caused a substantial loss to any such failed institution," according to an FDIC document.
The structure of the deal "is unusual," said Atlanta banking attorney Chip MacDonald. But it "may have resulted in FDIC getting a better price and lower cost resolution" if "the management team was not responsible for the failed bank's problems," he said.
Aside from ShoreBank, regulators on Friday closed four small banks in California, two in Florida and one in Virginia. CenterState Bank of Florida picked up the assets and deposits of the two failed Florida banks, Bartow, Fla.-based Community National Bank at Bartow and Independent National Bank of Ocala, Fla. Community National Bank had assets of $67.9 million and deposits of $63.7 million; Independent National Bank had assets of $156.2 million and deposits of $141.9 million.
In Martinsville, Va., regulators seized minority-owned Imperial Savings & Loan Association, which had six employees, assets of $9.4 million, one office and no branches, according to the Office of Thrift Supervision. Martinsville-based River Community Bank agreed to assume all deposits and purchase its assets.
In California, El Centro, Calif.-based Rabobank purchased assets and assumed deposits of Butte Community Bank in Chico, Calif., and Pacific State Bank in Stockton, Calif. Pacific Western Bank in San Diego took over assets and assumed deposits from the failed Solvang, Calif.-based Los Padres Bank, while San Rafael, Calif.-based Westamerica Bank purchased assets and assumed deposits from the seized Sonoma Valley Bank in Sonoma, Calif.
Those eight failures, tied for most on any day so far in 2010, cost the FDIC insurance fund $473.5 million.
Urban Partnership Bank is buying almost all assets of ShoreBank's Midwest bank and assuming $1.54 billion in deposits. The FDIC and Urban Partnership also agreed to share losses on $1.4 billion in assets. The holding company will remain intact, according to a person familiar with the deal. Urban Partnership is backed by a consortium of large U.S. financial institutions, including Bank of AmericaCorp., Goldman Sachs Group Inc. and Morgan Stanley. Philanthropic groups and individuals in the Chicago area are also part of the effort. The group is investing between $140 million to $150 million, said a person familiar with the deal.
The banks involved in the successful bid were many of the same institutions that agreed earlier this year to help fill a capital hole at ShoreBank, but that rescue attempt fell apart when ShoreBank officials were unable to secure an additional $75 million in federal support via the Troubled Asset Relief Program. A Federal Reserve analysis showed that ShoreBank would be insufficiently capitalized even with a new capital injection, said people familiar with the situation.
The attempts to save ShoreBank were complicated by calls for inquiries into the assistance offered by the nation's largest banks. Republican lawmakers have questioned whether the Obama administration pressured the big banks for help. The White House has said it didn't pressure the lenders.
Rep. Darrell Issa of California, the top Republican on the House Oversight and Government Reform Committee, will request an investigation by FDIC of ShoreBank, a spokesman said Friday. After prominent Wall Street bankers tried to raise money to save the bank, Mr. Issa raised questions about whether the Obama administration had sought help for the bank, but hasn't yet received any response from the White House, a spokesman said.
Shore historically has served low- and moderate-income communities and got into trouble by making bad loans to borrowers in neighborhoods away from its historical roots on Chicago's South Side.
Urban Partnership Bank will continue to serve Chicago's South and West sides, along with Cleveland and Detroit, said a person close to the situation.