By Becky Yerak | A
proposed Treasury Department program could go a long way toward easing
the capital-raising challenges of ShoreBank Corp., the struggling
Chicago-based lender that last week reported worsening financial
results.

Last week Treasury said it had firmed up plans for a program to use
some proceeds from the Troubled Asset Relief Program to invest in
Community Development Financial Institutions (CDFIs), which lend to
small businesses in hard-hit communities. ShoreBank is a CDFI.

Last week the bank holding company, which has been ordered by regulators to shape up, reported a $51 million loss for 2009. Based on the capital ratios that regulators are ordering these days, ShoreBank would have to raise almost $120 million in new capital.

The Treasury’s new program will make equity investments in the eligible institutions of up to 5 percent of risk-weighted assets. In ShoreBank’s case, that could be up to $68 million, about half of what ShoreBank might need to raise these days to remain in good stead with regulators.  ShoreBank has been out trying to raise capital.

But there are still many unknowns to the Treasury’s program, CDFI experts say.

The Treasury said the CDFIs will need approval from their regulators to participate in the program.

“For CDFIs that might not otherwise be recommended for participation by their regulator, Treasury will offer matching capital investments, up to 5 percent of risk-weighted assets, against private investments on a dollar-for-dollar basis, provided the combined amount would return the institution to a viable position,” Treasury said.

Treasury said private capital is junior to its investment.

After the Treasury made its initial round of funding to the nation’s biggest banks under the TARP program, it made a later point of saying that only viable institutions were viable for TARP funding. Of the 40 or so Illinois banks that received TARP, few if any were in a deep financial hole and operating under regulatory restrictions when they got TARP funding.

Under the program, CDFI banks, thrifts and credit unions that have been certified by the Treasury as targeting more than 60 percent of their small business lending and other economic development activities to underserved communities would be eligible for capital investments at a dividend rate of 2 percent. TARP recipients paid 5 percent interest to Treasury.
byerak@tribune.com