Chicago's Shorebank Corp. has acquired a failed, minority-owned bank in suburban Detroit.
The $650 million-asset community redevelopment banking company bought $42 million-asset Omnibank last month for $154,000. To encourage Omnibank's sale, the Federal Deposit Insurance Corp. agreed to absorb up to 80% of Omnibank's bad loans for three years.
Regulators declared Omnibank, River Rouge, Mich., insolvent in January. It is the only bank to fail so far in 1998 and one of only two that have failed since January 1997.
Last year Omnibank reported a $3.3 million loss and charged off $1.8 million of loans. It was also in the red in 1996, posting a $526,000 loss.
Ellen Burzynski, president and chief executive officer of the reorganized Omnibank-now called Shorebank, Detroit-said the risk-sharing arrangement with the FDIC made the deal possible.
"This was an institution with a very unusual liability mix" because $17 million of Omnibank's $40 million of deposits were uninsured, she said. "To protect the uninsured depositors, we needed the cooperation of everyone."
The FDIC struck 16 loan-loss-sharing deals in the early 1990s to encourage healthy banks and thrifts to acquire failed institutions. The agreement covering Omnibank is the agency's first since 1993 and first ever for a failed bank with less than $200 million of assets, said David Barr, FDIC spokesman.
The agency included the loan-loss-sharing arrangement as part of the Omnibank sale after three potential buyers' bids were deemed too low to justify a sale. By reducing the buyer's risk, the FDIC was able to fetch a higher price for Omnibank, Mr. Barr said.
"If we couldn't do this, we would have had to pay off the depositors and take a loss," he said.
Ms. Burzynski said Shorebank Corp. views the Omnibank acquisition as a growth opportunity, though many depositors have been "confused and frightened" by their bank's failure and subsequent sale.
"It's going to take awhile to build up some trust," she said.
Omnibank is Shorebank's first retail banking operation in the Detroit area. The Chicago company had been searching for an acquisition opportunity in the Detroit area since 1995 and opened a loan production office in the city in 1996, Ms. Burzynski said.
Last month's deal was not the first time Shorebank and Omnibank had crossed paths. In late 1995, it bought Chicago-based Indecorp, a $275 million-asset, black-owned banking company, after Omnibank's effort to buy Indecorp had failed.
