Did securities fraud at Goldman Sachs contribute to the collapse of AIG? AIG is said to be mulling over a civil suit against Goldman Sachs, which it believes misled it about the nature of many of the securities that it agreed to guarantee. The money AIG might recover from Goldman Sachs would surely not be enough to save AIG, but it would make a big difference to AIG’s creditors, and it could be enough to drag Goldman Sachs into the bankruptcy pit. As has been pointed out by various observers over the last year, without the U.S. Treasury money funneled to it by way of AIG, Goldman Sachs would have closed its doors already.
Broadway Bank faced a regulatory deadline tomorrow, or effectively tonight, to raise capital, a deadline no one expected it to meet — and the bank’s troubles could affect the political story of the state of Illinois. Alexi Giannoulias, a candidate for U.S. Senate, worked for the bank for a few years early in his career, and it was founded by his father, so it is easy for the local papers to depict the bank as a key part of the candidate’s personal history. The bank’s expected failure was bad enough, but to make it worse, the bank took losses on bad loans to unpopular figures in Illinois politics. Another candidate, Mark Kirk, has made Giannoulias’s connection to Broadway Bank the centerpiece of his campaign, but Kirk has Wall Street connections of his own, with the largest block of his out-of-state campaign money coming from Goldman Sachs.
If Giannoulias was hoping the bank failure would come quickly and quietly so that voters would have time to forget the whole story before the November election, he got part of his wish. As it turns out, it was Illinois week at the FDIC, and Broadway Bank was one of several high-profile Illinois banks seized tonight. Broadway Bank’s failure was tied to its heavy involvement in commercial real estate projects. Loans to real estate developers for commercial projects, mostly around Chicago, made up half of its loan portfolio. To be fair, the problems at Broadway Bank developed years after Giannoulias had left banking for politics. The bank had less than a fourth of its loan portfolio in commercial real estate in 2004, but that had more than doubled by 2007, and it was mostly loans made in 2007 that led to the bank’s huge losses in 2009.
Broadway Bank had $1.1 billion in deposits as of the end of last year. That number was probably considerably lower by the time the bank closed because of the heavy publicity locally this month, with the bank’s troubles mentioned in the political news every day. MB Financial is taking over the deposits and purchasing the assets.
MB Financial picks up four new locations from Broadway Bank and three from a smaller bank failure, New Century Bank. New Century Bank had perhaps the ugliest balance sheet of any bank to fail so far in the current cycle, with $492 million in deposits and $6 million less in assets as of the end of 2009. The bank’s financial condition was not as bad as that makes it sound — many of its Chicago real estate loans were required to be marked down on the books because the loans were underwater, even though the borrowers were still making payments. The bank’s exposure to Chicago real estate left it few options when the local real estate market collapsed.
One of New Century Bank’s problem loans was the mortgage on the world-famous Apollo Theater building. (That’s the one in Chicago, not to be confused with the more famous Apollo Theater in New York.) If that $2 million mortgage (on a building that might be worth $20 million) was four months past due, it shows how difficult things are in the Chicago real estate market right now.
MB Financial is taking over the deposits and purchasing the assets.
There were reports of Harris Bank bidding on several of tonight’s Illinois bank failures, but the one it got was the largest. Amcore Bank had 58 locations and $3.4 billion in deposits. Bank of Montreal, the fourth largest bank in Canada, bought out Harris Bank in 1984 for about $1 billion and had since spent more than $2 billion on other banks in the north central U.S. states.
Amcore was expanding rapidly and seemed to be at the peak of its success two years when it was stunned by loan losses. Its CEO retired, and the bank quickly found itself in financial disarray, downgraded by ratings agencies after it failed to keep up with its obligations to JPMorgan Chase. It sold off branches two by two throughout 2009, and another 12 just a few weeks ago. Separately, it sold one of its buildings to a credit union. Losses continued to mount, though, and in January, regulators rejected the bank’s plan for raising capital. Amcore’s largest losses were in commercial real estate development loans.
Harris Bank is paying a token premium for the deposits and is purchasing the assets of the bank.
The failure of Wheatland Bank, which had $438 million in deposits at a single location in Naperville, Illinois, was tied to the mixed fortunes of retail during the past two years. Falling revenue at retail meant that payments on construction loans were late, and one shopping center that the bank funded, and is now foreclosing on, is sitting empty, with no tenants to be found.
Wheaton Bank & Trust is paying a 0.4 percent premium for the deposits and is also purchasing the assets.
Three smaller Illinois banks, each with less than $200 million in deposits, were also part of tonight’s parade of bank failures.
- Peotone Bank and Trust Company, with two locations. First Midwest Bank is paying a 1 percent premium for the deposits and is purchasing the assets.
- Chicago-based Lincoln Park Savings Bank, with four locations. Northbrook Bank and Trust Company is paying a 0.4 percent premium for the deposits and is purchasing the assets.
- Citizens Bank & Trust Company of Chicago, with one location. Republic Bank of Chicago paid a $100 premium to purchase the deposits, but apparently will not be purchasing a significant part of the assets.
The FDIC had delayed several Illinois bank closings as it opened its new office in the area. With the seven closings tonight, there have been 10 bank failures in Illinois so far this year. That compares to 9 in Florida, 7 in Georgia, 5 in Washington, and 26 in other states. The FDIC estimates costs of nearly $1 billion for tonight’s bank failures.