Wintrust Financial (WTFC) is selling a failed bank after spending the last few years buying them.
The Rosemont, Ill., company announced late Wednesday it would sell $161 million of deposits formerly held by Second Federal Savings and Loan to Self-Help Federal Credit Union for an undisclosed price.
Wintrust bought the deposits, along with three branches in predominantly Latino neighborhoods on Chicago's South Side, on July 20 in one of the nine deals it has done with the Federal Deposit Insurance Corp.
Ed Wehmer, the chief executive of Wintrust, said Second Federal fit into his $16 billion-asset company's goal of being Chicago's leading bank, but that acquisition presented challenges that Self-Help might be better suited to handle.
"In order to meet our goal, we have to be in every neighborhood in Chicago," Wehmer said in an interview. "I'm a buyer, I'm not a seller, but they really are a better solution for the community. If we could help 75% of the community, they can help 100% of it."
The acquisition was unusual from the beginning. Wintrust, through its various bank units, generally has pursued whole-bank deals with the FDIC that include loss-share agreements on the loans. In the case of Second Federal, the FDIC retained the loans while Wintrust paid $100,000 to absorb the deposits.
Second Federal was among the first institutions to offer banking services to undocumented immigrants, and Wehmer was worried about the risk in taking on such loans.
"There were things that could have been issues, and that stuff carries over to the buyer in the regulatory environment," Wehmer said. "It could have screwed us up."
Other failed-bank buyers have inherited regulatory problems. In early 2011, Sunwest Bank in Tustin, Calif., received a consent order concerning Bank Secrecy Act compliance related to its core bank and three failed-bank acquisitions.
Self-Help, along with Chicago community group The Resurrection Project, tried to bid on Second Federal, but was unsuccessful. The FDIC bid summary lists two bidders: Wintrust and One PacificCoast Bank in Oakland, Calif. The FDIC declined to comment for this story except to say only institutions it insures are allowed to bid by statute. To get around that requirement, local press reports said, Self-Help had partnered with One PacificCoast to serve as a proxy for its bid.
As Wehmer and his team were looking for ways to try to work with the borrowers, he began meeting with Self-Help and the Resurrection Project. They told him they planned to buy the assets from the FDIC. Earlier this month Self-Help acquired 1,072 loans with a book value of $142.6 million for $59.9 million from the FDIC. Wehmer said that his possible solution would have been to fund a separate company that would have worked with the borrowers, but with Self-Help now holding the loans it made sense for them to have the deposits, too.
"We had a plan, we thought we had the wherewithal to come up with a solution," Wehmer said, adding that he likely would not have bid in the first place had he known Self-Help was pursuing the failed bank.
The deal will require approval by the FDIC. Failed-bank buyers are able to sell what they buy from the FDIC, but such sales come with a few strings. The buyer or "its successors" must operate branches in the failed bank's "trade area" for at least a year. Meanwhile, the FDIC is entitled to half of any proceeds the failed-bank buyer gets on the sale of branches or deposits.
"The FDIC doesn't have any problems with sales, so long as they aren't closing branches," said Randy Dennis, president of DD&F Consulting in Little Rock, Ark., which has represented several failed-bank buyers. "The FDIC just doesn't want a community to become underserved. It is not a pretty thing when you have branch closings in metro or rural areas."
Wehmer said that despite the sale, he remains interested in serving the area where Second Federal operated, particularly businesses that could be good customers for Wintrust's loans backed by the Small Business Administration.