The owner of Sinclair National Bank in Gravette, Ark., will continue pursuing a lawsuit that charges the Office of the Comptroller of the Currency with interfering with its business plan even though the agency shut his bank down Friday.
"The failure of the bank in no way moots or impairs the lawsuit," Alex Schmidt, a lawyer for Damian Sinclair, said Monday. "It's still pending."
An OCC spokesman said Mr. Sinclair's lawsuit had no bearing on the agency's shutdown decision. "We looked at this bank on its own merits and did what had to be done. It was evident that they had no prospect of raising enough capital to recapitalize the bank," he said.
OCC officials said they closed Sinclair because it was "critically undercapitalized," meaning its equity capital had fallen below 2% of assets. The Federal Deposit Insurance Corp., which is overseeing the bank's resolution, said Sinclair had assets totaling $30.7 million and deposits of $25.7 million.
The FDIC arranged for Delta Trust & Bank of Parkdale, Ark., to assume Sinclair's federally insured deposits and purchase selected assets totaling $4.9 million. Under the agreement, Delta paid a premium of $551,000 for the right to assume the deposits and to purchase the assets.
Sinclair's two branches, in Gravette and Bella Vista, reopened Monday as branches of Delta Trust & Bank.
The FDIC said Sinclair's failure would cost the Bank Insurance Fund $4.4 million. The FDIC said it would retain the remaining $25.8 million of Sinclair's assets for future disposition.
The bank's suit contends that the OCC committed a breach of contract by initially approving Mr. Sinclair's business plan, which called for purchasing pools of subprime automobile and manufactured-housing loans, then blocking the bank from pursuing it.
Mr. Sinclair purchased the bank, formerly known as Northwest National Bank, in December 1999 for $2.7 million, and in March of last year OCC officials sent him a letter granting his business plan conditional approval.
In May, however, after Sinclair National Bank had purchased its first pools of subprime loans, the agency objected. Regulators said they were concerned about the quality of the loans and the fact that most of them came from one source, Stevens Financial Group Inc., a company that Mr. Sinclair had owned before purchasing Northwest National Bank.
In June of 2000, the OCC issued a notice of deficiency to Sinclair National Bank, citing loans-to-one-borrower violations.
In October 2000, Mr. Sinclair filed two suits against the OCC, one for breach of contract and another charging agency officials with violating the civil rights of the low-income and minority borrowers the bank was seeking to serve with its business plan. Mr. Sinclair dropped his civil rights complaint in December 2000.
Lawyers for the OCC had sought to have the breach-of-contract suit dismissed, but in April, Judge Christine Odell Cook Miller denied their motion and allowed Mr. Sinclair's legal team to begin depositions of witnesses.
That ruling was not enough to save the bank, which lost money during the entire period of Mr. Sinclair's ownership. After losing $1.5 million in 2000, Sinclair National Bank reported a loss of $418,000 for the first quarter of 2001.
"Hopefully, the federal government will have to pay for what it did to this bank," said Helen Davis Chaitman, who along with Mr. Schmidt is a lawyer at the firm Wolf, Haldenstein, Adler, Freedman & Herz in New York, and represents Mr. Sinclair.
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