Regulators on Friday shut down a big community bank based in Chicago that has been known for its social activism but racked by financial troubles in recent months. A consortium funded by several of the biggest U.S. financial firms is buying its assets and pledging to operate the new bank by the same principles.
The Federal Deposit Insurance Corp. took over ShoreBank, with $2.16 billion in assets and $1.54 billion in deposits. Urban Partnership Bank, the newly chartered financial institution, agreed to assume ShoreBank's deposits and nearly all its assets.
The FDIC also seized seven other banks Friday, bringing to 118 the number of U.S. bank failures this year amid the recession and mounting loan defaults.
In an unusual move, the FDIC allowed some of ShoreBank's executives to continue running the restructured bank. Executives who joined ShoreBank recently, as the bank struggled to raise capital, will manage Urban Partnership Bank. These managers "did not contribute to the bank's problems," the FDIC said.
The FDIC and Urban Partnership Bank also agreed to share losses on $1.41 billion of ShoreBank's loans and other assets.
ShoreBank's failure is expected to cost the deposit insurance fund $367.7 million.
The FDIC also took over Community National Bank at Bartow, in Bartow, Fla.; Independent National Bank of Ocala, Fla.; Imperial Savings and Loan Association of Martinsville, Va.; and four California banks: Butte Community Bank, based in Chico; Pacific State Bank, based in Stockton; Los Padres Bank, in Solvang; and Sonoma Valley Bank, in Sonoma.
ShoreBank lost $39.5 million in the second quarter amid soured real estate loans. The bank had been under a so-called cease and desist order from the FDIC for more than a year, requiring it to boost its capital reserves. ShoreBank was able to raise more than $146 million in capital this spring from several big Wall Street institutions. It was unable, however, to secure federal bailout funds it sought from the Treasury Department's Troubled Asset Relief Program.
Investors in Urban Partnership Bank read like an all-star roster of U.S. finance, including American Express, Bank of America, Citigroup, Goldman Sachs, JPMorgan Chase, GE Capital Equity Investments, Morgan Stanley, Northern Trust Corp. and Wells Fargo. The Ford Foundation and the MacArthur Foundation also are investors.
ShoreBank was founded in 1973 with the aid of several dozen institutional backers. The bank has been known for promoting redevelopment, minority business and environmentally responsible lending, and serving low- and moderate-income neighborhoods in Chicago. It was the nation's first community development and environmental bank, branching out from its roots on Chicago's South side to Cleveland, Detroit, the Pacific Northwest and 40 foreign countries.
ShoreBank had indirect ties to a few members of the Obama administration — one of them, presidential adviser Valerie Jarrett, was on the board of a Chicago civic organization led by a ShoreBank director — and powerful supporters, including former top federal banking regulators Ellen Seidman and Eugene Ludwig.
House Republicans launched an inquiry this spring into whether the administration intervened to help shepherd a bailout of ShoreBank. Rep. Darrell Issa of California, the senior Republican on the House Oversight and Government Reform Committee, sent a letter to a White House legal adviser asking specific questions on possible contacts between administration officials and executives of ShoreBank or potential investors.
The White House has said no administration officials met with ShoreBank concerning its rescue or requested help from financial institutions on its behalf.
The new bank's chairman will be David Vitale, a former president of First National Bank of Chicago and an adviser to Arne Duncan, now the U.S. Secretary of Education, when he headed the Chicago school system.
"Urban Partnership Bank will provide access to financial services and support to distressed neighborhoods in order to help transform distressed neighborhoods into strong, stable communities," Vitale said in a statement issued Friday night. "The private investment in this new financial institution demonstrates commitment to restoring the economic vitality of our communities," Vitale said.
He said the bank will continue the mission of serving low- and moderate-income and minority communities, and to support energy efficiency and environmentally constructive development.
© Copyright 2022 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.