Scrambling to build capital, Superior Bank, a privately held Chicago-area thrift battered by subprime lending losses, has sold almost one-fifth of its assets.
The $400 million loan sale came on Tuesday, just a day after Fitch Inc., a debt rating agency headquartered in New York and London, reduced its rating on Superior's long-term debt from BBB to BB-minus - below investment grade. Fitch analyst Christopher D. Wolfe said regulatory concerns and Superior's deteriorating operating performance prompted the downgrading. 
Superior chairman Stephen Mann refused to give any details about the loan sale, but he said it means "the bank's capital position gets even stronger." Federal Deposit Insurance Corp. data for Sept. 30 showed the $2.1 billion-asset Superior as well-capitalized, with a 13.5% equity ratio.
In an interview, Mr. Mann said Superior, which is based in Oakbrook Terrace, Ill., moved to bolster its capital after the Office of Thrift Supervision in August proposed requiring subprime lenders to hold more capital. "That got our undivided attention," he said.
Mr. Mann works for Chicago's wealthy Pritzker family, which owns roughly half of Superior; he succeeded Nelson Stephenson, who resigned Jan. 31. Mr. Stephenson remains with Superior as a consultant, Mr. Mann said. Through Sept. 30, Superior's 2000 losses totaled $1.7 million. Superior's fourth-quarter results are not yet publicly available.
The red ink came after a $105 million profit and 5.46% return on assets in 1999. Superior's recipe for success has been subprime mortgage and consumer lending, a business it entered in 1988. But last year, bad loans, particularly auto loans, buffeted the bank.
Mr. Mann called Fitch's downgrading "irrelevant," but it could hurt the thrift because about 49% of its deposits, or $778 million, are either brokered or uninsured. News of the downgrading could scare some of that money away, prompting liquidity problems, said Bert Ely, an independent consultant based in Alexandria, Va.
Last Friday, Mr. Ely took the unusual step of sending a letter to OTS Director Ellen Seidman expressing "deep concern about the solvency of Superior Bank." He cited mounting loan losses as well as its reliance on interest-only strip receivables, which are residual interests in the pools of high-risk subprime loans that it securitizes.
"My sense is that their backs are up against the wall," said Mr. Ely, who made a name for himself by accurately predicting the 1980s collapse of the savings and loan industry. In an interview, he said the value of subprime residuals is difficult to assess and tends to deteriorate in a slowing economy.
The OTS played down the significance of Mr. Ely's letter. Ella Allen, an agency spokeswoman, said it contained "nothing we did not already know." Even so, the OTS apparently shares his concerns about the interest-only strip receivables, which played a role in the 1999 failure of First National Bank in Keystone, W.Va.
Fitch's Mr. Wolfe said Superior executives told him that the OTS ordered the thrift to revalue its interest-only strip receivables, whose value Superior reported as $597 million at Sept. 30. Mr. Mann and OTS officials refused to comment.
Mr. Mann did say that Mr. Ely's concern about the thrift's solvency is overblown. "We are not insolvent," he said.
