The Federal Deposit Insurance Corp (FDIC) seized control of Chicago-based ShoreBank on Friday last week following months of flirting with financial difficulties, adding that Urban Partnership Bank agreed to absorb the troubled bank’s deposits and assets, which were last reported at $1.54 billion and $2.16 billion respectively.
The bank regulator also ordered the shutting down of seven more banks on the same day, roughly pushing to 118 bank failures that so far occurred in the United States this year as the country’s financial community is continuously battered by recession and piling loan defaults.
In its statement, the FDIC said that the takeover would not immediately affect ShoreBank’s existing executives who were instructed by the regulator to stay put while the bank is being restructured.
The FDIC added that ShoreBank executives who were recently hired would still manage Urban Partnership Bank as it stressed that “these managers did not contribute to the bank’s problems.”
The federal regulator and Urban Partnership jointly announced that they are poised to share the burden of ShoreBank’s loans and assets losses that run to $1.41 billion, with further deposit insurance cost estimated to reach $367.7 million to be funded by FDIC.
The FDIC revealed that ShoreBank suffered losses in soured real estate loans in the second quarter of the year and was ordered by the bank regulator to cease and desist from issuing any loans in order to buffer its capital reserves.
Initially, the bank managed to convince a number of Wall Street investors to shore up its capital by $146 this spring but eventually failed to get the nod of the Treasury Department’s Troubled Assets Relief Program for some form of federal bailout funding scheme.
ShoreBank was established back in 1973 and made its name as the country’s first community development and environmental bank with particular interest in serving the minority businesses operating in Chicago.
From its founding days, the bank eventually branched out to Detroit, Cleveland and further expanded overseas by establishing offices in some 40 foreign countries, and along the way rubbing elbows with luminaries of the Obama administration.
Presidential adviser Valerie Jarrett once sit on the board of a Chicago civic group chaired by a ShoreBank director while two former federal banking regulators, Ellen Seidman and Eugene Ludwig, were known supporters of the troubled bank.
The White House ‘connections’ prompted Republican Rep Darrell Issa to write President Barack Obama’s legal advisers and clarify the possible networks that may have been established between administration officials and ShoreBank’s executives and investors.
The Obama administration maintained that ties by some of its officials with ShoreBank were inconsequential with its pursuit of federal aid as it stressed that no administration official ever requested any help from any financial entities for the beleaguered bank.
The FDIC said that former First National Bank of Chicago president David Vitale would assume chairmanship of a new ShoreBank, who vowed that the new leadership would sustain the bank’s mission of supporting average income and minority communities.
Vitale also pledged to continue ShoreBank’s advocacy of promoting energy efficiency and environmentally constructive development.
Also, the FDIC announced that along with the Chicago bank, it has taken over Community National Bank and Independent National Bank in Florida; Imperial Saving and Loan Association of Martinsville in Virginia and Butte Community Bank, Pacific State Bank, Los Padres Bank and Sonoma Valley Bank all in California.