Washington Prowler

Shoring Up Chicago’s Community Bank

How much White House involvement in ShoreBank rescue effort?

By 5.17.10

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Republicans on the House Financial Services Committee want to find out if anyone in the Obama White House attempted to influence the financial bailout of a well-known Chicago-based "community bank," which faced FDIC closure last week, and which, going back to the Clinton Administration, has had close ties to ACORN and the leftist community-organizing world of Chicago.

The story about the bailout attempt of ShoreBank first began breaking last Thursday night. The FDIC was demanding that the bank have $125 million in investments by Friday, but discussions to bail out the bank, which has close ties to both senior members of the Obama Administration, as well as the Clinton family, went deep into the weekend as Chicago politicians scrambled to save the bank.

Focus on the White House's role is due in large part to the ties senior staffers there have to the investors and management of the bank, which started out as a community bank, and lately has been deeply involved in "micro-financing" and "green" loans. In 2006, before his Presidential race, then-Sen. Barack Obama visited his father's homeland of Kenya, and around the same times ShoreBank donated $1 million to that country to assist in micro-loan programs there. At the time, Obama officials said it was a coincidence that ShoreBank made the contribution to Kenya. According to Department of Energy sources, disgraced Obama Administration "green" adviser Van Jones was a touter of the bank's efforts -- and an account holder -- though he may not have had much to do with the bank receiving more than $30 million in funds to underwrite green projects.

Senior White House aide Valerie Jarrett appears to be the central figure in the Financial Services' interest, according to Republican staffers with ties to the committee. "We have the Wall Street Journal reporting that no White House contacts were made on behalf of the bank with outside investors, but you keep hearing from those involved directly in the discussions that the White House appears to be all over this thing," says one staffer.

Last week Eugene Ludwig, a former U.S. comptroller of the currency, who is working with ShoreBank to find financing to save it, held several individual and conference calls with senior officials from a number of different banks, including Goldman Sachs Inc., Bank of America Corp., Citigroup Inc. and J.P. Morgan Chase & Co., as well as several other foreign banks, seeking funding. "If you were on the call, the inference was that the White House wanted this bank saved. Obama's name wasn't invoked. Jarrett's or [Rahm] Emanuel's names weren't invoked. But the implication was there," a senior lobbyist for one of the banks said. "The White House would look favorably on this bailout." Ludwig has stated publicly that to the best of his knowledge, the White House was not involved in lobbying efforts on the bank's behalf.

But Republican committee staffers point to the fact that Goldman Chief Executive Lloyd Blankfein until late last week had declined to invest in ShoreBank, but then apparently had a change of heart and began calling other banking leaders to build support. Goldman's stake: $20 million. "Given the crap Blankfein has been taking, you have to wonder what happened between his saying no and then saying yes," says one Finance Committee staffer. "It's not like the deal suddenly got better. "

Indeed, ShoreBank, even if saved now, is not guaranteed anything beyond perhaps a short-term save from the regulators. Initial estimates of ShoreBank's shortfall had been in the $100 million range, but those numbers ballooned to $200 million. The majority of the funds, $125 million would have to come from private investors. The rest, $75 million, would come from TARP funding.

Supporters of the bank claim that ShoreBank was not like other banks that were dealing in subprime mortgages. However, the bank did make a business of refinancing subprime mortgages through its Rescue and Foreclosure Prevention loan program. In fact, at one time the MacArthur Foundation provided grant funding to underwrite the risk of those loan funds.

"It's actually kind of awe-inspiring to see the effort being expended on this bank," says the head of a U.S.-based bank's Washington office. "You've had something like 70 or so bank foreclosures, and you could argue that some of those were better bets to recover than ShoreBank, but because of the Clintons, the Obamas, the Moseley Brauns of the world, and ShoreBank's sentimental value because it supported their community organizing efforts, it should be saved. None of them were saying that about the bank in Wisconsin that kept family-owned farms afloat. Wonder how those banks' investors feel about the Obama Administration's lack of interest in them."

At press time, however, it appeared that the best efforts to save ShoreBank had not panned out, though the FDIC had been allowing ongoing discussions to continue.

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