First Chicago Bancorp aspired to be the Windy City's next great bank, not the struggler it has become.

The $1 billion-asset company is backed by Castle Creek Capital LLC, a California private-equity firm with stakes in several banks and a reputation for improving the institutions before selling them at a big premium. Castle Creek hasn't had much luck improving First Chicago, with the giant recession negating two capital contributions and, apparently, dissuading Castle Creek from a third.

At Dec. 31, the bank was significantly undercapitalized and, earlier this month, the Federal Reserve issued a prompt corrective action directive giving the bank 60 days to become adequately capitalized by raising capital or selling itself.

A First Chicago spokesman said the company is in late-stage talks with multiple investors. "We are working very, very hard to get enough equity raised so that we are not just in compliance with the regulatory guidelines, but well above," the spokesman said.

"There is no doubt in my mind that we have an attractive name and attractive branch footprint with some good lending groups in the bank."

Industry observers have doubts, believing a recapitalization should have already materialized.

"Since they don't have any committed capital by now, no one has been confident that it is going to be able to get out of the hole," said Brian Martin, an analyst with FIG Partners LLC in Chicago.

Castle Creek's ostensible unwillingness to invest again could hamper the chances of finding another backer, observers said. Castle Creek did not respond to phone calls. "Castle Creek is known for its ability to cobble cats and dogs into something valuable and then flipping it," said Terry Keating, a managing director at Amherst Partners in Chicago. "There is an indirect implication that they've decided not to provide any further support, and that isn't going to help First Chicago's efforts."

Castle Creek began its involvement in First Chicago when, in 2006, it bought 89% of the $528 million-asset LDF Inc. That same year, LDF said it would buy the $447 million-asset BB&T Bancshares in Bloomingdale, Ill. (Also in 2006, John Eggenmeyer, Castle Creek's managing principal, was named one of American Banker's community bankers of the year.)

By 2007, LDF had adopted the First Chicago moniker for its bank. Like many Chicago banks, First Chicago had high hopes of taking advantage of disruption caused by Bank of America Corp.'s purchase of LaSalle Bank Corp. from ABN Amro Holding NV in late 2007. The goal was to hire top talent to expand commercial and industrial loans. LDF said it wanted $5 billion of assets by 2013.

While companies such as Taylor Capital Group Inc. and PrivateBancorp Inc. have managed to grow, First Chicago hasn't. "Chicago is one of the most competitive banking markets in the country, if not the most competitive," said Justin Barr, the managing principal of Loan Workout Advisers LLC in Chicago. "It is a tough place to fight. It is the heavyweight division, and First Chicago has been trying to do it with one arm tied behind its back."

First Chicago has reported $217 million in losses since 2008. At Dec. 31, nonperforming assets totaled 13.68% of total assets, according to data from the Federal Deposit Insurance Corp. Barr said First Chicago's growth in problem assets appeared to slow in late 2010, which should help recapitalization efforts. First Chicago's investors have not completely abandoned it. FDIC data shows that it got $46 million in outside capital in 2009 and another $25 million last year.

Analysts said the company needs about $50 million to comply with regulators, but should try to raise as much as $100 million.

Gerald Francis, a former managing director of FSI Group LLC, a Cincinnati investment firm, said a third investment is unlikely. He speaks from experience, having handled a $40 million investment in 2009 in Security Bank Corp. in Georgia, which ultimately failed. "You can save any institution if you put enough capital into it, but ultimately what is going to be the return on that investment?" he said. "It is really simple arithmetic," Francis said. "At some point, you can't get a return, and investors are not looking to save banks. They are looking to make returns."

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