UPDATE 5-Regulators close ShoreBank in Chicago

(Repeats to more subscribers)

* ShoreBank shut down by regulators

* Deposits, branches shift to new bank

* 114th bank so far this year shut down by FDIC

(Adds information on other bank closures on Friday)

By Nick Carey

CHICAGO, Aug 20 (BestGrowthStock) – U.S. regulators on Friday
seized notable Chicago-based community development bank
ShoreBank after Wall Street backers failed to rescue the
institution, and its deposits will be taken over by a newly
chartered bank.

ShoreBank, a privately owned bank known for its
philanthropic activities, had received multi-million dollar
investment commitments in recent months from Goldman Sachs
(GS.N: ), Citigroup (C.N: ), JPMorgan (JPM.N: ) and Bank of America
(BAC.N: ), as well as from General Electric (GE.N: ).

But the bank, which was put on the ropes when the recession
hit its lower-income borrowers especially hard, was unable to
secure the funds it was seeking from the government’s Troubled
Asset Relief Program, or TARP, it needed to match
private-sector pledges.

ShoreBank’s deposits will be taken over by a newly
chartered institution called Urban Partnership Bank (UPB). Its
15 branches also will shift to the new bank.

William Farrow, a former banker with First Chicago Corp,
will be president and chief executive of UPB and David Vitale,
former executive chairman of ShoreBank, will be chairman.

The Federal Deposit Insurance Corp said ShoreBank had $2.16
billion in assets and $1.54 billion in deposits as of June 30.

The FDIC estimated that the cost to the Deposit Insurance
Fund of the failure will be $367.7 million. “Compared to other
alternatives, Urban Partnership Bank’s acquisition was the
least costly resolution,” the FDIC said in a statement.

Urban Partnership Bank will pay the FDIC a premium of 0.50
percent to assume all of the deposits of ShoreBank and in
addition will purchase “essentially all of the assets except
for the marketable securities and fixed assets,” the agency

The FDIC and Urban Partnership Bank also entered into a
loss-share transaction covering $1.41 billion of ShoreBank’s

UPB will have a Tier 1 capital ratio of at least 8 percent
and sufficient capital to meet pre-opening expenses, projected
growth and overall capital needs, UPB said in a statement.

The new bank was “capitalized by financial institutions,
philanthropic organizations and socially responsible
individuals from Chicago and nationally,” it said.

ShoreBank is one of the larger banks to fail in recent
months and the 114th FDIC-insured institution shut down so far
this year.

Seven other U.S. banks closed on Friday in Virginia,
California and Florida as the community bank sector continues
to struggle with poorly performing loans and recovers at a pace
that lags behind that of Wall Street and the larger economy.

Los Padres Bank, Solvang, California, Independent National
Bank, Ocala, Florida and Imperial Savings and Loan Association,
Martinsville, Virginia, were among the banks that were closed,
the Federal Deposit Insurance Corp said.

(For details of Friday’s bank failures, see factbox by
clicking [ID:nSGE67K00A])

Small banks are collapsing at a faster pace this year
compared to last, but regulators expect the closures to peak
this quarter.

Attempts to rescue ShoreBank have played out in the media
for months, with lawmakers and watchdogs questioning whether
special treatment was being given to the bank.

ShoreBank is located on Chicago’s South Side near the home
base of President Barack Obama and some of his top aides, and
the bank has promoted on its website connections to Obama.

ShoreBank has received national recognition over the years
for its efforts to extend loans to low-income communities and
environmental cause.

It has some prominent supporters with strong ties to
Washington, including Ellen Seidman, former director of the
U.S. Office of Thrift Supervision, and Eugene Ludwig, former
U.S. Comptroller of the Currency.

U.S. Rep. Jan Schakowsky, who represents Chicago’s North
Side, lobbied Wall Street banks this year to save the
37-year-old bank. She has blamed Wall Street’s “recklessness”
for the foreclosure crisis that precipitated ShoreBank’s

But bank activity with a philanthropic bent has not been
profitable lately. For the quarter ending March 31, ShoreBank
reported a $17.1 million operating loss, compared with an
operating profit of $384,000 in the year-earlier period.

UPB “will focus on providing continued availability of
financial services for low and moderate income communities” in
Chicago, Cleveland and Detroit, the bank said.

“The private investment in this new financial institution
demonstrates commitment to restoring the economic vitality of
our communities,” Vitale said in a statement.

UPDATE 5-Regulators close ShoreBank in Chicago