The failure of Chicago-based ShoreBank was blamed Wednesday on poor risk management by its directors and officers, and its losses to the Federal Deposit Insurance Corp. will be worse than originally expected.
Politically connected ShoreBank, which was known for lending in poorer neighborhoods, “failed due to insolvency brought on by the board and management not implementing adequate risk management practices,” according to a report issued Wednesday by the FDIC’s Office of Inspector General.
Specifically, management did a poor job of handling commercial real estate and construction loans. The report also said that “ShoreBank management wasn’t responsive to repeated examiner concerns pertaining to these areas, particularly from 2007 until the bank failed” in August.
Initally, the failure of $2.2 billion-asset ShoreBank was expected to cost the deposit insurance fund $329 million. But the FDIC revised that to $452 million as of Jan. 31.
The report also said that management and the board violated several laws pertaining to real estate appraisals, loans to insiders and interest-rate restrictions. It added that ShoreBank in 2009 restructured numerous loans but didn’t accurately account for them as “troubled debt restructures” in its financial reports, despite concessions it made to financially distressed borrowers.
As early as October 2004, the FDIC expressed concerns about ShoreBank’s lending.
The report also said ShoreBank’s revolving management door didn’t help. “ShoreBank also experienced several senior management changes that could have impaired management continuity and contributed to ShoreBank’s inadequate response to examiner recommendations,” the report said. ShoreBank changed presidents in August 2006, April 2007 and October 2009.
But the report said that, in response to a July 2009 consent order between the FDIC and the bank, “ShoreBank requested and received the FDIC’s approval to replace its existing president and chairman of the board.”
The report also noted that ShoreBank, whose investors included large Wall Street institutions, requested a meeting with the chairman and senior headquarters officials of the FDIC; it was held May 8, 2009.
The FDIC chairman and senior officials attended the meeting at which ShoreBank presented plans to raise capital and requested that the FDIC keep its enforcement action private.
“The FDIC did not acquiesce and continued to pursue and ultimately issued a formal enforcement,” the FDIC report said.
A separate report will be issued into whether there was improper political efforts to save ShoreBank, as well as the bank’s final capital raising efforts.
The FDIC’s report into another high profile local bank failure, Broadway Bank, was released last November. To read that report, click here.
Read the 54-page report by the FDIC’s Office of Inspector General.
byerak@tribune.com
When do we get the report on Broadway Bank?
This a simple shakedown by the FDIC is lay claim to the proceeds of the errors and omissions policies of the directors and officers of Shorebank. The correct course would be to sue Sheila Bair and Anthony Lowe and Dave Mangian and all their rotten robotron thugs at the Chicag FDIC office. The claims should include charges of ineptitude, corruption and abuse of citizens and democracy…..perhaps the citizens of the US could use the UN’s complaint against Moamar Qaddafi as a template. it should be easy, these idiots are not half as coherent or a quarter ethical or just as Qaddafi. PS no Broadway Bank report unless Obama is voted out, the FDIC has been bribed prodigiously to keep that report underwraps.