A deal to form the country's largest African-American-owned bank holding company is on the verge of collapse.
Negotiations between River Rouge, Mich.-based OmniBanc Corp. and Indecorp of Chicago are at a stalemate after OmniBanc recently discovered substantial unrealized losses on securities at two Chicago-based banks owned by Indecorp and lowered its offer.
The transaction must be completed by Dec. 14, or 90 days after its Federal Reserve Board approval. But no further negotiations are scheduled and the most recent offer was rejected by Indecorp, said William T. Johnson, OmniBanc's chairman.
If Indecorp refuses to cut its asking price or doesn't recognize losses, "I would be willing to sign an agreement to terminate this merger," Mr. Johnson said.
However, Indecorp chairman Alvin Boutte said if OmniBanc submits a new proposal, Indecorp's investment banker will consider it. "I'm not optimistic, but who knows," he said of completing the deal.
With nearly $300 million in assets, Indecorp is the largest African-American-owned bank holding company in the country. OmniBanc has just $25 million of assets, but plans to aggressively expand. A month ago, former basketball superstar Isiah Thomas became a major investor in the Michigan company.
To compensate for Indecorp's deteriorating investment portfolio, Mr. Johnson said, he lowered his offer for Indecorp to $26 million from the original $35 million.
Rising interest rates have hit Indecorp hard, he said. Indecorp's Independence Bank had 30% of its Tier 1 leverage capital in derivatives, Mr. Johnson said. Its Drexel National Bank had significant amounts invested in derivatives and mortgage-backed bonds as well, he said. He also said Indecorp has unrealized losses of $16 million and they could reach $20 million by yearend. Mr. Boutte, puts total unrealized losses at about $10 million.
After back-and-forth negotiations, Mr. Johnson said in a Nov. 7 letter he had considered terminating the merger, which would have given $25 million-asset OmniBanc Corp. about $325 million in total assets. In the letter, Mr. Johnson also raised concerns over what he called an insider loan to Mr. Boutte at 4.5% interest, as well as costs of a sex discrimination settlement and a race discrimination suit.
In an interview, Mr. Boutte said Indecorp does not lend to insiders and that the loan in question was a mortgage that Drexel originated and later sold off. He also denied there had been a sex discrimination settlement.