Midwest Bank fails; FirstMerit to take over

Posted May 14, 2010 at 6:10 p.m.

By Becky Yerak | Midwest Bank, a $3.2 billion-asset lender that was among the first community banks to receive federal bailout funds, was seized by U.S. banking regulators Friday after failing to raise the capital it needed to stay independent.

Its assets, deposits and branches will be taken over by Akron, Ohio-based FirstMerit. The failure of Midwest Bank, which is part of publicly traded Midwest Banc Holdings of Melrose Park, is expected to cost the Federal Deposit Insurance Corp., which is financed by insurance premiums paid by banks, $216.4 million.

It’s the 11th Illinois bank failure in 2010; in 2009, the state saw 21 banks collapse. On Thursday the Tribune reported that FirstMerit was the frontrunner in the bidding.

The purchase of Midwest is the third recent deal in the Chicago market by FirstMerit, whose chief executive, Paul Greig, and chief credit officer, William Richgels, spent a combined 45 years in Chicago banking circles.

Before being lured to FirstMerit in 2006, Greig had been CEO of Charter One Bank-Illinois. Earlier he had served as head of consumer banking for First Chicago’s Chicago and northwest Indiana marketplace. He began his banking career in 1978 with American National Bank.

Earlier this year, FirstMerit bought 24 First Bank branches in the Chicago area from Missouri-based First Bank. It also bought the failed George Washington Savings Bank in another FDIC-assisted deal.

But Midwest Bank, which also had about two dozen branches in the city and suburbs, gave potential bidders a rare opportunity: to acquire a meaningful presence overnight in a deal with financial assistance from the FDIC. Most of Illinois’ bank failures have been much smaller institutions. Also, local bank industry observers say Roberto R. Herencia, recruited for the Midwest CEO job a year ago, made the bank more attractive to potential buyers through cost cutting and other initiatives.

With the three deals, FirstMerit, which has assets of $12.3 billion, now has Chicago-area deposit market share of 1.46 percent, which ranks it 13th here.

Friday’s seizure was all but expected after Midwest, on Thursday, said in a Securities and Exchange Commission that it expected to miss a May 13 capital-raising deadline set earlier this year by the government. Midwest had been trying to raise $125 million to $250 million.

Midwest’s problems surfaced in the fall of 2008. That’s when Fannie Mae and Freddie Mac sustained huge losses in the financial crisis, and Midwest eventually suffered an $82 million loss on its preferred shares in the government-sponsored enterprises.

A few months later, Midwest became one of the first U.S. community banks to receive money in the Treasury’s Troubled Asset Relief Program. It received $85 million.

But with a downturn in the real estate market, the bank has continued to have problems. It has exercised its right to not pay dividends to the government, so its failure, unlike that of many other banks, will cost the taxpayers money.

Midwest Bank is unrelated to both First Midwest, another publicly traded midsize Chicago-area bank, and  Midwest Community Bank.

The standard deposit insurance at FDIC-insured banks is $250,000 per depositor.

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  1. Joeb May 14, 2010 at 7:00 pm

    Meanwhile, politically connected ShoreBank gets an Obama/Goldman crony capitalism bailout.

  2. Tom May 14, 2010 at 7:22 pm

    And another bank goes down thanks to our government. They encouraged banks to buy stock in Fanny and Freddie with their reserves but let Fanny and Freddie run without supervision. Then when things went bad they took them over and many banks lost their investment which put them in dire straits.

  3. James Andrews May 14, 2010 at 7:35 pm

    I notice ShoreBank didn’t close as scheduled. There is a last minute effort by the 3 biggest banks under federal investigation to save this bank so closely aligned with Obama? Why would they all wait until the last minute and then frantically work together to save this failure? Could it be the pressure from the White House?

  4. John May 14, 2010 at 7:56 pm

    Is this the same thing as “First Midwest Bank” namesake of the Chicago area’s most awful venue? Too bad they won’t tear that pile of crap down.

  5. Rick May 14, 2010 at 8:29 pm

    1) First Midwest Bank Ampitheatre is a lousy venue. Not this Bank though.
    2) Shore Bank at least is an important Bank to its community. Makes good sense to try and save it. If you hate everything about Obama, that’s your perogative, but there’s a lot of nuance behind that Bank and it’s appropriate to try and save it. Not a lot, but a medium amount at least.
    3) The Fannie and Freddie Preferred issue really destroyed a lot of “safe” capital at a lot of Banks. FBOP was a shame.

  6. FMBA May 14, 2010 at 8:32 pm

    Did you read the work “First” in the article, or use a thing called Google.

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