Showing posts with label Shorebank. Show all posts
Showing posts with label Shorebank. Show all posts

Wednesday, May 19, 2010

ShoreBank's Rescue Gives Community Lenders Hope

Summary version from The American Banker Newspaper. Wednesday, May 19, 2010. Story by Robert Barba.

Sources said early Tuesday that the struggling $2.3 billion-asset lender had secured $140 million in capital commitments, well exceeding the $125 million it needed to become eligible for a $75 million investment from the Treasury Department.

Though most of the companies on the roster have been solid supporters of community development financial institutions, Goldman Sachs Group Inc. and General Electric Co.'s GE Capital were two newcomers. They also were among the biggest investors in the group, kicking in $25 million and $20 million, respectively.

Another headline investor in ShoreBank is Citigroup Inc., at $20 million. Others include Bank of America Corp., JPMorgan Chase & Co., Wells Fargo & Co., U.S. Bancorp, Morgan Stanley, Northern Trust Corp. and PNC Financial Services Group Inc. Also on board were State Farm, the Ford Foundation and the John D. and Catherine T. MacArthur Foundation.

Though the commitments could signal renewed interest in helping out institutions serving the neediest communities, William Michael Cunningham, a social-investing adviser and the founder of the minority bank fund MBF LP in Washington, said the unit of ShoreBank Corp. is the only struggling bank in the country likely to secure such aid.

"This just shows the power of their brand," Cunningham said Tuesday. "It is so impressive that they were able to get these guys to pony up. For other institutions … it would have been an impossible task."

ShoreBank, which has been described as the darling of President Clinton, has deep political ties, including with the Obama administration. Several sources, however, rebuffed speculation that the investments stemmed from political pressure. For instance, Bank of Montreal's Harris Bank said in an e-mail that it has "long recognized and supported ShoreBank's role in the Chicago community and can confirm that we are also assisting with their recapitalization effort."

Still, Cunningham said implicit political pressure, as well as reputational pressure, was probably exerted.

Whatever the investors' motivations, Cunningham said, without the investment, ShoreBank would not have survived. "If you are ShoreBank, you don't care if it is out of good public relations or if they are angels; they are doing it," he said.

For a year ShoreBank's credit problems have been eating away its capital. At March 31, it had $360 million in nonperforming assets and its total risk-based capital ratio had dwindled to 3.36%, leaving it critically undercapitalized. Rumors had begun to swirl in Chicago that regulators were starting an auction for its assets.

Analysts have said that a $200 million investment would be enough to solve ShoreBank's capital issues and give it room to absorb losses in its credit portfolio.

Copyright, 2010, American Banker Newspaper/Source Media.

Friday, January 29, 2010

On Shorebank

Ailing ShoreBank Seeks the Aid of an Ailing State

American Banker | Wednesday, January 27, 2010

By Robert Barba

With dwindling capital and mounting losses, ShoreBank Corp. in Chicago is seeking a bailout from the state of Illinois.

Executives of the $2.5 billion-asset community development bank met with the Illinois Finance Authority and regulators earlier this month to discuss raising as much as $50 million through a bond deal, according to local media reports. ShoreBank executives are playing up its history of community service in trying to secure a lifeline from the state.

Banking experts say such help is conceivable, as ShoreBank's inception stems from the civil rights movement in the 1960s and it has supported struggling Chicago neighborhoods. Yet state assistance could have unintended consequences - especially given Illinois' own troubled fiscal picture.

"It deserves a look, because from a historical standpoint, it is part of the legacy of Martin Luther King Jr.'s Chicago movement and it is the prototype of the impact that a large community development bank can have," said William Michael Cunningham, a social investing adviser and the founder of the minority bank fund MBF LP in Washington. "But if this is approved, every struggling bank in the country is going to go to their state for a handout."

ShoreBank, experts agree, is delivering what the government wants from a community development bank. But the question is whether the government can afford to subsidize that mission.

Experts said community development banks have faced even more difficulty raising capital in recent years than conventional banks, because they are perceived to be riskier. Given this landscape, government assistance for ShoreBank would be viewed as a positive sign by the nation's 60 or so community development banks, said Jeannine Jacokes, chief executive and policy adviser for the Community Development Bankers Association.

"The notion that the government, be it state or federal, would step up to provide additional support to our banks is a good thing. It is important that the low-income communities they serve be a part of the recovery," she said.

ShoreBank's efforts include its Rescue Loan program. Launched in 2007, it has made $40 million in loans to help Chicago families refinance adjustable-rate mortgages into more affordable loans.

Illinois officials did not return phone calls seeking comment. But according to Crain's Chicago Business, the state aid would be tailored to ShoreBank. The report said any state investment would be tied to ShoreBank's ability to raise private capital. The governor also would have to approve the measure.

Brian Berg, a spokesman for ShoreBank, would not comment on talks with the state. He would say only that the company is developing a capital plan but that it would be inappropriate to discuss details until it is completed.

Since July, ShoreBank has been operating under a cease-and-desist order from the Federal Deposit Insurance Corp. and the Illinois Department of Financial and Professional Regulation, which gave it 60 days to develop a capital plan. Regulators have granted the bank some leeway, yet the Federal Reserve Board this month slapped an enforcement action on the holding company requiring more capital, better management oversight, and a ban on dividend payments.

In July, Ronald Grzywinski , ShoreBank's chairman, said in an interview that it was turning to longtime supporters to raise as much as $10 million of capital. It also was seeking to reduce assets.

Continued real estate losses have pushed ShoreBank's capital ratios in the other direction, however. At the end of the third quarter, losses on real estate loans left the bank adequately capitalized, with a total risk-based capital ratio of 9.6%. Mike Heller, the president of the rating firm Veribanc Inc. in Woonsocket, R.I., estimated that ShoreBank would need to raise $77 million to cover its problem loans, which made up 15.11% of total loans at the end of the third quarter. But it would need as much as $200 million to put itself back on solid footing, he said.

"Their losses are trending in the wrong direction," he said. "This institution is not doing very well."

ShoreBank has been denied assistance through the Treasury Department's Troubled Asset Relief Program. "We put in an application and were asked to withdraw it," Grzywinski said in the July interview.

Another issue complicating whether ShoreBank receives aid is the state of Illinois' own precarious financial situation. Watchdog groups have pegged Illinois as headed toward insolvency.

The state could face liability issues by investing directly in a bank, Cunningham said. If ShoreBank were to fail, he said, not only would the state's investment be wiped out, but creditors could turn to the state to settle claims.

"There would have to be some sort of safeguard in place," Cunningham said. "I could see creditors going after the state for repayment, because they were part owners and are therefore responsible."