Despite its cachet in Chicago and deep-pocketed supporters, ShoreBank is running out of time to find the capital it so desperately needs.
Advocates of community development banks worry that if the $2.3 billion-asset ShoreBank does not secure a lifeline soon, it could fail, leaving some of Chicago's neediest communities without a vital source of loans and banking services.
"If ShoreBank were to fail, and everyone is hopeful that it won't, it would be a significant loss to the industry of community development banks," said Jeannine Jacokes, chief executive and policy adviser for the Community Development Bankers Association.
"The loss of a CDFI bank is different from the loss of a traditional community bank," she added. "It is not a foregone conclusion that someone will come in and serve that community."
ShoreBank's total risk-based capital dropped 494 basis points from the end of 2009 to 3.36% as of March 31, leaving the bank critically undercapitalized. This has fueled questions about the bank's ability to survive.
ShoreBank, known for its commitment to neighborhoods on Chicago's south and west sides, has been seeking capital for months. It hopes to find a matching investment that could lead to an infusion from the Treasury Department's Community Development Capital Initiative.
Meanwhile, the company has been negotiating with its existing shareholder base, including several big banks and national foundations, for further investments. It also brought in big-name Chicago bankers to help secure investors. And Illinois' economic development arm has expressed willingness to help fortify ShoreBank's capital. Still, nothing has come to fruition.
ShoreBank's spokesman, Brian J. Berg, said in a statement Tuesday that the company is "expeditiously engaged in its capital-raising efforts." Further, the statement said ShoreBank is "committed to fulfilling its role as the leading community development bank and taking the appropriate measures to position itself and its communities for the long term."
In an earlier press release, ShoreBank said it had applied for the Treasury program designed for banks operating in underserved markets.
Michael Iannaccone, president of MDI Investments, a capital advisory firm in Chicago, said one hurdle is identifying losses in ShoreBank's portfolio. For example, it said as of March 31 one-third of its $189 million construction and land development portfolio was nonperforming.
Iannaccone said ShoreBank was likely underestimating its losses. "From other banks, we know that it is probably closer to half of those loans," he said. "And ShoreBank's areas have been hit harder, so who knows? Maybe it is even higher."
In late March, regulators gave ShoreBank until later this month to increase its leverage ratio to 9% and its total risk-based capital ratio to 12%. Experts said it will need $200 million of capital to cover its potential losses and recapitalize the bank.
Iannaccone said another option might exist for Shore: open-bank assistance. Experts say regulators are interested in open-bank assistance only for banks that pose a systemic risk to the industry. Though ShoreBank is not in that category, it could make the case that it poses such a risk to its community, Iannaccone said.
"You can't make the systemic-risk argument for most community banks, but you can with ShoreBank," he said. "They serve the CRA community. If that bank closed, no one else would serve it."