The lifeline that ShoreBank in Chicago has been thrown by some of the nation's largest financial companies could turn out to have benefits for other community development banks.
Sources said early Tuesday that the struggling $2.3 billion-asset lender had secured $140 million in capital commitments, well exceeding the $125 million it needed to become eligible for a $75 million investment from the Treasury Department.
Though most of the companies on the roster have been solid supporters of community development financial institutions, Goldman Sachs Group Inc. and General Electric Co.'s GE Capital were two newcomers. They also were among the biggest investors in the group, kicking in $25 million and $20 million, respectively.
"It was a little bit of a surprise, particularly with GE. We are hopeful that this demonstration of support for ShoreBank, specifically, will bode well for other CDFIs," said Jeannine Jacokes, chief executive and policy adviser for the Community Development Bankers Association. "We hope they become converts."
Another headline investor in ShoreBank is Citigroup Inc., at $20 million. Others include Bank of America Corp., JPMorgan Chase & Co., Wells Fargo & Co., U.S. Bancorp, Morgan Stanley, Northern Trust Corp. and PNC Financial Services Group Inc. Also on board were State Farm, the Ford Foundation and the John D. and Catherine T. MacArthur Foundation.
Though the commitments could signal renewed interest in helping out institutions serving the neediest communities, William Michael Cunningham, a social-investing adviser and the founder of the minority bank fund MBF LP in Washington, said the unit of ShoreBank Corp. is the only struggling bank in the country likely to secure such aid.
"This just shows the power of their brand," Cunningham said Tuesday. "It is so impressive that they were able to get these guys to pony up. For other institutions … it would have been an impossible task."
ShoreBank, which has been described as the darling of President Clinton, has deep political ties, including with the Obama administration. Several sources, however, rebuffed speculation that the investments stemmed from political pressure. For instance, Bank of Montreal's Harris Bank said in an e-mail that it has "long recognized and supported ShoreBank's role in the Chicago community and can confirm that we are also assisting with their recapitalization effort."
Still, Cunningham said implicit political pressure, as well as reputational pressure, was probably exerted.
Whatever the investors' motivations, Cunningham said, without the investment, ShoreBank would not have survived. "If you are ShoreBank, you don't care if it is out of good public relations or if they are angels; they are doing it," he said.
For a year ShoreBank's credit problems have been eating away its capital. At March 31, it had $360 million in nonperforming assets and its total risk-based capital ratio had dwindled to 3.36%, leaving it critically undercapitalized. Rumors had begun to swirl in Chicago that regulators were starting an auction for its assets.
Analysts have said that a $200 million investment would be enough to solve ShoreBank's capital issues and give it room to absorb losses in its credit portfolio. Yet credit issues and how to regain profitability remain challenges, said Michael Iannaccone, the president of MDI Investments Inc., a capital advisory firm in Chicago.
"The $200 million should be enough to shore up capital," he said. "But there are still problems after you solve the capital issues, and those can be a lot harder to fix."