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Penny Pritzker, Obama's pick for Commerce Secretary, acted commendably in the failure of Superior Bank, says former FDIC chairman William Isaac, who represented her in talks with regulators at the time.
May 10 -
President Obama has nominated Penny Pritzker to head the Commerce Department, overlooking her role in the costly failure of Superior Bank.
May 2
WASHINGTON Commerce secretary nominee Penny Pritzker defended her role in the failure of Superior Bank on Thursday, insisting that she had only tried to "salvage the situation."
Regulators blamed Pritzker and her family for the bank's collapse in 2001 after they walked away from a recapitalization deal that would have saved the bank.
Testifying on Capitol Hill Thursday, Pritzker insisted she was never involved in the management of the bank and only stepped in once regulators forced the institution to write down the value of its subprime assets.
"I stepped in on behalf of the 50% ownership of my family to try and salvage the situation," Pritzker told the Senate Commerce Committee during a confirmation hearing. "Unfortunately, those negotiations failed and the bank failed."
Pritzker's testimony did not mention that her family initially struck a deal to recapitalize the bank. In May 2001, Pritzker signed a letter to bank employees trumpeting the $351 million recapitalization deal, saying it would ensure Superior remained a leader in subprime lending. But the Pritzkers abruptly pulled out of the deal in July 2001, causing the bank's failure.
At the time, then Office of Thrift Supervision Director Ellen Seidman
The Pritzkers later entered into a settlement with the Federal Deposit Insurance Corp. to pay $460 million related to the failure of Superior, the largest payment of its kind.
At the hearing Thursdy, Pritzker cast the deal as voluntary and motivated in part by the Sept. 11 terrorist attacks.
"The family only owned 50% of the bank, but I voluntarily went to the FDIC this was post 9/11, and, as I said, I come from a family that is very patriotic. And, I said to the head of the FDIC, 'This country's been very good to our family. We need to make this situation right. We would like to negotiate something to make this right for the depositors,'" Pritzker said. "That negotiation ensued, and my family voluntarily agreed to pay $450 million. It was the right thing for us to do, because both for the depositors and for us as a family."
But observers said the FDIC would have sued the Pritzker family, casting doubt on whether it had any other choice but to settle.
"The Pritzkers' payment was hardly voluntary the message to the Pritzkers was negotiate a settlement or get sued," said Bert Ely, an independent analyst in Alexandria, Va.
During the hearing, Sen. John Thune, R-S.D., asked Pritzker whether she had a message for uninsured depositors who lost money in the failure and what she learned from its collapse.
"I regret the failure of Superior Bank," Pritzker said. "I feel very badly about that. The lessons that I've learned are really about good management, good governance structure, the importance of diversification in risk management, transparency and having a solid governance."
