First Chicago Bank & Trust, which has been operating under regulatory scrutiny for more than a year, is “significantly undercapitalized” and has until early June to raise enough money to be considered “adequately capitalized,” according to an April 7 agreement between the Federal Reserve and the $1.02 billion-asset institution.
On April 7, the Fed issued a “prompt correction action” against First Chicago. That’s often one of the most severe and last actions that regulators take against a bank before seizing it. The regulator is asking the bank, within 60 days, to raise capital by selling shares or to agree to be acquired by another institution.
The bank lost $85.8 million last year. About 13 percent of its loans have been seriously delinquent for the past two years.
The order also restricts the bank from paying dividends and management bonuses, and from accepting or renewing deposits at above-average interest rates.
The bank needs to raise about $50 million.
First Chicago’s key shareholder has long been California-based private equity firm Castle Creek. But in January, other investors, including the parent of Franklin Templeton Investments, stepped up their involvement.
Fed documents have shown that other First Chicago investors include PPM America Private Equity Fund II, JPMorgan Chase, Ariel Capital, OneBeacon Insurance and CVF LLC, a Chicago-based venture capital firm affiliated with members of the Crown family.
Jason Tyler, Ariel’s research operations director, is now chairman.
Tyler said the bank is “talking to a lot of different groups” about a capital infusion and that talks are “beyond the introductory phase” and into “late-stage due diligence.” He said there’s a “good chance” that the bank will succeed at raising funds, and that Castle Creek is “committed each step of the way.”
“I’m sure they’ll participate,” Tyler said. He added that Ariel — the firm and not its investors — has only a small stake in First Chicago.