Former FDIC Chairman Defends Pritzker Nomination

WASHINGTON — William Isaac, a former chairman of the Federal Deposit Insurance Corp., is defending the nomination of Penny Pritzker to serve as head of the Commerce Department.

In an op-ed published in Politico on Friday, Isaac dismissed concerns about Pritzker's role in the 2001 failure of Superior Bank. Isaac, who was hired by Pritzker to help her negotiate with the FDIC following the bank's collapse, commended her for the record $460 million agreement with the agency.

"I said publicly at the time that in all my years of dealing with bank failures, I had never known any investor in a failed bank to take responsibility as the Pritzkers had done," Isaac wrote. "I stand by that statement."

Pritzker was nominated by President Obama last week, but has drawn criticism for her role in Superior Bank's failure.

Isaac said he was impressed because Pritzker "wanted to find a way to pay for the collapse and to make sure that those customers who were affected got as much of their money back as quickly as possible."

While acknowledging that he was involved only after the fact, Isaac also said Pritzker and her family were relatively uninvolved in the events prior to the Hinsdale-Ill.-based thrift's failure.

"Their actions are even more noteworthy given that the Pritzker family owned only half of the bank, and my understanding was that they had little or no active role in management for seven years prior to the bank's failure," he wrote. "The other half of the bank was owned by a New York based real estate developer who was in control of the bank's operations."

Yet Isaac's statements stand in contradiction to other claims, both now and at the time. Indeed, many have pointed out that Pritzker was involved in the management of the thrift prior to its failure, serving as a board member for its holding company and sitting on its audit committee.

Moreover, she was instrumental in cutting a $351 million deal with regulators to recapitalize the thrift in May 2001, even writing a letter to employees trumpeting the agreement.

"After long and complicated negotiations, we have been able to preserve the bank's future and satisfy the requirements of the OTS and FDIC," Pritzker wrote in a May 31, 2001 letter. "Your resolve and dedication is a primary reason for the past successes of the bank and will once again restore Superior's leadership position in subprime lending."

Pritzker eventually reneged on that deal, however, telling regulators in July of that year that her family would no longer go through with it. Far from being uninvolved, several regulatory sources said that Pritzker played the key role in calling off the recapitalization that would have saved the bank.

"She was the decision-maker and she made the decision to do the recapitalization — and she made the decision not to do it," a former regulatory official with knowledge of the situation said last week. "She called it off at the eleventh and a half hour."

The Office of Thrift Supervision later publicly blamed the Pritzkers for calling off the deal, saying it caused the thrift's collapse.

In a follow-up e-mail, Isaac said the facts as he understands them indicated that Penny Pritzker became involved only once the bank began to fail.

"I don't doubt that Penny got very involved once it became clear the bank was in serious trouble," he said. "She was actively involved in the FDIC settlement discussions, for example."

One of Isaac's other contentions — that New York developer Alvin Dworman was "in control of the bank's operations" — also appears questionable. While Dworman owned half of the thrift, his role was mostly that of a passive investor, according to sources.

When the FDIC cut its deal with the Pritzkers and Dwormans in December 2001 over the bank's collapse, the Pritzkers were responsible for paying all of the agreement while Dworman did not pay anything.

In the e-mail, Isaac acknowledged that Dworman was not part of the settlement, "but that does not mean he was not actively involved in the bank."

"I understood at the time that he and his people were very involved," he said. "What it does mean is that the Pritzkers wanted this matter settled immediately and did not want to wait for settlements with other potential defendants such as Dworman, accounting firms, etc."

Isaac's defense of Pritzker echoes her own remarks in 2008. A friend of Obama's — and a prominent fund-raiser for him — Pritzker said then that her family "voluntarily agreed to pay" the $460 million agreement.

Prior to the thrift's failure, regulatory officials had warned Pritzker that the FDIC was almost certain to sue the family in the wake of its collapse. The agreement in December 2001 headed off that suit.

Isaac is certainly no Obama partisan, having campaigned for Republican candidate Mitt Romney in last year's election.