The Future of ShoreBank
The time for a decision on ShoreBank may be coming soon.
A few rumors are circulating that the FDIC is ready to make a decision about ShoreBank, the famous Chicago community development lender that helped to define the field of community capitalism.
ShoreBank created a model of making loans in low-and-moderate income neighborhoods in the South Side of Chicago. ShoreBank ignored many of the underwriting metrics used by mainstream banks, and focused on lending to working-class families with jobs. ShoreBank worked in places like Woodlawn, Bronzeville, and the area that once encompassed the Union Stockyards. This is an important area in American History: it is the location for The Jungle, Black Metropolis and A Raisin in the Sun, architecture by Frank Llloyd Wright, and the birthplace of political figures that include the Daley family. In recent years, a well-intentioned young lawyer from Harvard made the Southside his home. He later became a Senator and then the President of the United States.
That last detail may help ShoreBank. Still, it’s probably some fuzzy thinking to believe that ShoreBank is just an extension of President Obama’s political sphere. The Wall Street Journal makes that implication when they characterize the institution as “the troubled Chicago community lender with ties to the Obama administration.” ShoreBank was making loans before Obama entered high school.
The FDIC does its work on Friday afternoons. Were the FDIC to decide to shutter Shorebank, it would take place at the end of business Friday. No one would have advance notice, and no one would be given a chance to work late to retrieve ther things. The FDIC comes knocking and there is no recourse.
Initially, it seemed possible that the FDIC would close ShoreBank. This is complicated by political reality, and also by the demand in the market for bad assets. This outcome would require the FDIC to take on new liabilities.
What has emerged is another option: that a group of private buyers, some from the existing circle of management, would step in to take over the bank. The buyers still might be able to pick and choose from the balance sheet, taking the “good” assets and moving the “bad” assets to the FDIC.
That is a very favorable deal.
Bill
August 20, 2010
The statement that "no one would have advance notice" is ludicrous. This story, and the FDIC's probable intentions, has been all over the airwaves and the internet. To be sure, the FDIC has been telegraphing their intent since news about ShoreBank first broke. In reality, when the FDIC seizes a bank, NO ONE, not even the deepest insiders know it's going to happen. If people within ShoreBank don't know what's coming, then they have been sitting in a cave for the last 18 months.
adam
August 20, 2010
So I don't understand. Are you saying that it is ludicrous because: everyone already knows that the FDIC is going to act, or that it is ludicrous, because the secrecy of the FDIC means that no one knows what is going to happen? Because my sense is that the FDIC does not give advance notice. A deal of some sort may have been telegraphed. Still, the issue of "when" remains unknown. It may happen this afternoon, and since there is speculation about that, I believe that it is a timely topic. Moreover, it is an important event, because this is an important institution in the cd field.
Bill
August 20, 2010
So, the countless other banks that went under or were seized by the FDIC don't constitute important events? Tell that to the people that worked there. As for the timing, my point is that the FDIC does not rountinely air the fact that they are looking at a bank with the intent of taking it over. A C&D may be issued, but there generally is not a lot of ink spilled discussing the future of the "target" by the FDIC. In the case of ShoreBank, there have been barrels of ink. The amount of press this has gotten is the important event and the fact that plenty of time has been given for "insiders" to get their ducks in a row. Actually, the bank is fortunate that there hasn't been a run. Now that would be an important event. As to its role in the cd field, the gap will be filled. That's the nature of business. You should know that.