- Chicago-based ShoreBank has failed
- A like-minded group has bought it out
- What does this mean for the communities that ShoreBank sought to help?
Another American Bank, mired in the real estate market and the travails brought on by rising unemployment and lower property prices, has just shut its doors for the last time. The victim this time is Chicago-based ShoreBank, which billed itself as the country’s leading community bank for those who might not be able to have their loans approved elsewhere.
When ShoreBank failed last Friday, a consortium of the bigger banks, civic-minded people, insurers and benevolent groups bought it out – the Federal Deposit Insurance Corporation (FDIC) picked up the tab for nearly $370 million on behalf of the banking industry that owns the latter. ShoreBank is the 114th lender to be seized by regulators this year, and the 15th one to fail in Illinois during 2010.
The new owners of ShoreBank are already posing questions regarding their new acquisition’s business model. Current thinking is that it is time to change the way that it has been operating in its niche areas of Cleveland, Detroit and Chicago, because what was profitable for several decades no longer is.
Bill Brandy, Illinois Finance Authority executive is quite clear on this. “When I sat in the regulatory meetings briefly with ShoreBank early this year, even the state banking commissioner said ‘There’s no doubt if we had to save ShoreBank, or if the regulators hold off, its near-term business model has to change because it’s a little out there in terms of mortgages.” He has also said that the collapse of ShoreBank could harm troubled neighborhoods too, and that – however the FDIC may like to mince its words – means that a community asset is gone forever.
It is not as if the financial markets did not receive warnings. ShoreBank has been on the hand-out trail for a year now, and funds of $150 million had been pledged by the group that now own it, against a federal bail-out of $75 million. The bailout never happened, because of industry complaints of a smaller bank receiving benefits ahead of its larger competition. The new entity is Urban Partnership Bank, which is at least an echo of the old one’s previous role. An early task of First Chicago executive Bill Farrow will be to oversee the transfer of all deposits.
South Shore Bank (the predecessor of ShoreBank) was established in 1973 with the goal of re-vitalizing crumbling Chicago inner-city areas and thereby uplifting the mainly black inhabitants living there. Investors and managers hoped that this philanthropic gesture would take the sting out of redlining and other discriminatory practices. Unfortunately, the hard face of business has once again proven that generosity is seldom personally profitable.
Find distressed property for sale at www.foreclosuredatabank.com.
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Written by Alex Rolim.
