The Chicago Tribune
By: Becky Yerak
May 19, 2010
Friends in high places' help South Side lender raise $135 million, more than it needed to stave off seizure
More than 30 Illinois banks have failed since the beginning of 2009: a $7 billion-asset bank like Corus, headline-making banks like the Giannoulias family's Broadway, and banks with stellar reputations for helping the community like Park National.
So when South Side lender ShoreBank ran into trouble and was ordered by regulators to essentially raise nearly $200 million in new capital, the deathwatch began.
Then something unusual and, to be sure, political started happening.
In the past week some of the nation's biggest financial institutions, many of which received federal bailout money and some of which have been criticized for business practices that could become the subject of financial industry reform, started chipping in to raise ShoreBank's capital.
Goldman Sachs, Citigroup, Bank of America, Chase and General Electric are throwing in at least $15 million apiece to help recapitalize a $2.3 billion-asset bank that holds 0.6 percent of deposits in the Chicago area.
Around midnight Monday, ShoreBank firmed up commitments for about $135 million in new capital from private sources, about $10 million more than it was seeking.
With the private capital, which also includes several million dollars from Chicago-based Northern Trust, ShoreBank might also be eligible for about $75 million in money from the U.S. Treasury and stave off seizure by banking regulators.
"We are continuing our capital-raising efforts, and the results we have achieved so far are encouraging," ShoreBank Chief Executive George Surgeon said in a statement. "We are very appreciative of the efforts of all investors who have expressed support, those who have been with us over the years as well as new supporters."
The final big contributor was General Electric, headed by Jeff Immelt, who last year was named to President Obama's Economic Recovery Advisory Board.,
But no White House officials have been involved in the effort to help ShoreBank, a White House spokesman said Tuesday.
Bill Brandt, chairman of the Illinois Finance Authority, a government financing body, said no arms were twisted. But Brandt quickly added that he "didn't just fall off a turnip truck": Given how some financial institutions have been vilified in the financial crisis, it's understandable that they'd want to help ShoreBank, similar to how other industries try to position themselves in a good light, he said.
"They want to control the narrative," Brandt said. "These are financially astute people, and this is a good way for them to show they're not all about just profits, that they do have involvement in their communities."
Delmarie Cobb, a South Side political consultant, said no one wanted ShoreBank to fail.
"People have been talking about what they could do to save ShoreBank," Cobb said. "No one has even said, 'Who cares?' That has not been case for other banks in the community that have failed.
"They certainly have friends in high places."
Had ShoreBank failed, its demise could have called into question its social mission of lending in down-on-their-luck areas.
In 1977, co-founder and co-Chairman Ronald Grzywinski was the only banker to testify before Congress in favor of the Community Reinvestment Act, which encourages lending in low-income neighborhoods.
ShoreBank lent profitably for years, but so had other banks, including Broadway, that collapsed in this recession.
Illinois Gov. Pat Quinn, House Speaker Michael Madigan and U.S. Rep. Jan Schakowsky were all key to ShoreBank lining up the financing, Brandt said. Quinn and Madigan, for example, showed that the state had been willing to stand behind ShoreBank through possible debt bridge financing, which turned out to not be needed. Brandt said he saw Quinn Sunday afternoon and "He talked to me constantly about" ShoreBank.
Matthew Roth, who consulted for ShoreBank for five years and previously managed Harris Bank's Hispanic banking business, said that by virtue of being "the oldest and largest community development bank, they have a lot of support."
During a critical point last week, Schakowsky said, "To bail out the big banks from Wall Street and to punish ShoreBank by having them forced to shut down is just unacceptable."