Failed CU Deal Haunts Silvergate Bank

LA JOLLA, Calif. – Last summer’s failed deal to sell its industrial loan company to Wescom CU has come back to haunt Silvergate Bank. Federal regulators and state regulators have cited the $350 million bank for unsafe and unsound banking practices. A cease and desist order issued by the FDIC and California Department of Financial Institutions cites the ILC’s lack of core deposits and compliance with the Bank Secrecy Act. Bank officials attributed its problems to the ILC charter, which bars it from offering checking accounts to business customers, limiting its ability to earn a spread on brokered deposits. In addition, the bank has been without a CEO since last April. The company thought it had shed it problems when Wescom agreed last year to acquire the ILC charter in order to to allow it to develop a credit card bank for credit unions. But the deal fell through when Wal-Mart’s bid for an ILC charter caused a major political battle, prompting the FDIC to enact a moratorium on all new ILCs. Since then, Wescom has proceeded with its credit card bank through a charter switch to a central credit union, but Silvergate’s prospects have continued to decline, with net income halving to $133,000 for the first three quarters, and assets declining to $350 million, from $500 million.