Credit Crisis Hits ShoreBank
By Kevin Robinson in News on Jul 14, 2009 5:20PM
Chicago-based ShoreBank, known for making credit available in underserved communities, has been hit with a cease and desist order from the Federal Deposit Insurance Corporation, the federal agency charged with insuring deposits and regulating the liquidity of member banks. The order, which requires ShoreBank to to buttress its capital holdings and improve its asset quality and earnings and develop a plan to improve its liquidity, hasn't yet been made public. Nevertheless, it appears that ShoreBank is suffering from the same stagnant economic climate that has hobbled the rest of the banking industry. "We all got hit with a more severe recession than anyone - either here or in Washington or on Wall Street recognized," ShoreBank Chairman and co-founder Ronald Grzywinski told Crain's. While the bank asserts that it is "well-capitalized" by industry standards, it does have a plan in place to raise $30 million in capital. The bank already has a $4 million commitment.
While other banks have been hit with similar regulatory orders, including four here in Chicago, ShoreBank is higher-profile in this case, as it has a reputation for profitably lending in lower-income communities. In fact, an analysis by Crain's suggests that ShoreBank would have to add $52 million to its loss-provision fund to be on par with its peers in the banking industry. The loss-provision fund is capital that is available to cushion a bank in the case that loans default. The bank lost $2.4 million in the first quarter of 2009, compared with a $3 million profit in the same period last year. It had $9 million set aside to cover bad loans this year, up from $1.5 million the year prior. Grzywinski said the bank will shrink its $2.7 billion balance sheet this year, and that while they will continue lending to existing customers, homeowners with income that are saddled with subprime mortgages and non-profits that are faltering under the weight of the on-going economic crisis. But making loans to other commercial borrowers "will be more difficult than it has been historically."