By Kyle Peterson and Scott Malone
May 18, 2010
A troubled Chicago community bank with a philanthropic reputation has won uncommon Wall Street backing to save it from a government takeover, while similarly sized rivals flounder and fail.
Privately owned ShoreBank, a community development lender on Chicago’s South Side near the home base of President Barack Obama and some of his top aides, is getting assistance from a consortium of Wall Street banks including Goldman Sachs Group Inc (GS.N), Citigroup (C.N), JPMorgan (JPM.N) and Bank of America (BAC.N), sources have said.
Spokesmen for Citigroup and General Electric Co (GE.N) each confirmed $20 million investments on Tuesday, and JP Morgan previously said it was ready to inject $15 million. Another source said Goldman injected $20 million.
ShoreBank, which has $2.3 billion in assets, was reported to have exceeded the $125 million in rescue capital it needed to avoid a takeover by the Federal Deposit Insurance Corp.
A ShoreBank spokesman declined to comment on specific investments, saying only that capital-raising efforts so far had been “encouraging.”
Small banks across the nation are failing at a rapid pace due to troubled real estate loan portfolios, but ShoreBank’s dedication to community development and environmental causes apparently secured its special status.
“I think this is a very unique circumstance. But ShoreBank is kind of a unique institution in that regard,” said Geoff Smith, senior vice president at the Woodstock Institute, which studies lending in poor communities.
“When you think of other banks, they don’t usually get bailed out in this manner,” he said.
Smith and others say ShoreBank’s philanthropic reputation — it traditionally provided loans for small residential renovation projects in impoverished areas — and its Washington ties may have saved it from a fate suffered by other banks.
So far this year, the FDIC has seized 72 banks, several of them in Illinois. Among those taken over was Chicago’s Broadway Bank, which was owned by the family of Illinois Treasurer Alexi Giannoulias, a Democrat running for Obama’s old U.S. Senate seat.
Among ShoreBank’s champions are former U.S. comptroller of the currency Eugene Ludwig and Ellen Seidman, a former head of the Office of Thrift Supervision.
U.S. Rep. Jan Schakowsky, who represents Chicago’s North Side, has lobbied the big banks to “leave no stone unturned” in saving 34-year-old ShoreBank. She blamed Wall Street’s “recklessness” for the foreclosure crisis that precipitated ShoreBank’s losses, which were $53.6 million in 2009.
Bill Brandt, chairman of the Illinois Finance Authority, said there had been no political arm-twisting to win investments for ShoreBank. He said Wall Street banks were happy for a chance to align themselves with a community bank that has a national reputation for philanthropic investments.
“People were fighting to get into this deal, as odd as that sounds,” Brandt said. “Many of these organizations are aware they are under public scrutiny and they take a philanthropic vision to improve communities very seriously. The White House had nothing to do with this.”
Goldman has been trying to burnish its image after confronting political pressures and populist anger over its quick turnaround and perceived lack of concern over the economic downturn. Its image was further tarnished last month when the U.S. Securities and Exchange Commission brought fraud charges against the firm.