ShoreBank Corp., the Chicago lender operating under a Federal Deposit Insurance Corp. cease-and- desist order for 13 months, will be shut and most of its assets will be bought by Urban Partnership Bank. Urban Partnership, created to make the acquisition, will keep branches in Chicago, Cleveland and Detroit and continue to focus on low-income communities, the people said, speaking anonymously because the matter is private. Urban Partnership will have Tier 1 capital of at least 8 percent and its chief executive officer will be William Farrow, a former executive at the Chicago Board of Trade and Bank One Corp. Investors include Goldman Sachs Group Inc., General Electric Co., JPMorgan Chase & Co., Citigroup Inc. and several philanthropic groups, the people said. ShoreBank raised more than $145 million from the firms in May and the funds were placed in escrow pending a decision by the U.S. Treasury to provide another $75 million in bank bailout funds.
ShoreBank was founded in 1973 in Chicago’s South Side, an area that includes some of the city’s lowest-income neighborhoods. The area is also home to enclaves of wealth such as President Barack Obama’s Kenwood neighborhood, close to the University of Chicago.
Congressional republicans asked for a probe into the mysterious survival of Shorebank. The letter they sent to the President asks “why did government-supported Wall Street banks decide to save ShoreBank rather than the numerous others [failing banks] that faced a capital shortage?”
The answer is that ShoreBank is politically connected to both Bill and Hillary Clinton and Michelle and Barack Obama. Obama’s connections to the world of socially responsible investing are both longstanding and personal. His friend John Rogers later became one of his campaign fundraisers. John Rogers was also the husband of Desiree Rogers who became the White House social secretary (she was let go after a couple of reality TV stars crashed a state dinner).
Obama…is pictured above in 1988, honoring one of the founders of ShoreBank, one of the largest Community Development Financial Institutions (CDFIs) in the US. The first social shareholder proxy initiative was organized by the iconic Chicago-based community organizer Saul Alinsky against Eastman Kodak in the late 1960s. Alinsky died in 1972.
Barack arrived in Chicago 13 years later to work with the Developing Communities Project, an offshoot of Alinsky’s network, a context which must have made him conversant with proxy voting strategies. He served on the Woods Fund board along with Board Chairman Howard Stanback, who is currently head of Shorebank’s Neighborhood Institute. He also was chairman of the Chicago Annenberg Challenge (CAC) during the time that Business People for the Public Interest (BPI) was approved for $375,000 in grants. Ron Weissbourd, former Exec VP for Shorebank was serving on the board of directors for BPI during the same time period.
During the 2008 Presidential campaign, while still a Senator from Illinois, Barack Obama visited Kenya, the former home of his biological father. He promoted the application of microfinancing (an activity for which ShoreBank has been a major promoter) as a way to fight poverty world-wide. Chicago’s Shorebank donated $1 million to Kenya and also assisted in setting up financial institutions in Kenya and many other locations throughout the world.
The bank steadily grew financially and facilitated the renewal of poverty stricken areas through the rest of the 1970’s and early 80’s, catching the attention of then-Governor Bill and Hillary Clinton of Arkansas (in fact, according to the IFA, Bill is still advocating on behalf of ShoreBank).
Because Shorebank was lending to run-down neighborhoods, the Clintons , along with Shorebank, decided to establish the Southern Development Bancorporation in Arkadelphia, Arkansas in 1988. They hoped that the poor in Arkansas would be helped by the loans they could obtain. Hillary’s former roommate at Wellesley College, Jan Piercy, joined Shorebank in 1984.
In this video, Hillary Clinton speaks (in September 2008) about Shorebank. The “Ron” she refers to is Ron Grzywinski, one of the founders of Shorebank (founded in 1973).
ShoreBank was the institution that financed the loan to Trinity United Church of Christ (Jeremiah Wright’s church) for Jeremiah Wright’s $1.6 million retirement home and a $10 million line of credit for Trinity United. Van Jones, who is a recognized account holder at ShoreBank.
The banks have agreed to contribute $140 million to bail out the bank, while the federal government will donate tens of millions more, according to people close to the talks. In addition to major Wall Street firms like Goldman Sachs (GS: 148.13 ,+1.03 ,+0.70%), which agreed to contribute $20 million to the bailout effort, as well as Citigroup (C: 3.76 ,-0.04 ,-1.05%) and JPMorgan (JPM: 37.14 ,+0.05 ,+0.13%), General Electric’s (GE: 15.03 ,-0.22 ,-1.44%) GE Capital will also contribute $20 million to the rescue effort. All the firms have either received massive government assistance during the financial crisis or, in the case of Goldman Sachs, are facing multiple regulatory investigations into their business practices.
The bailout has been controversial. Senior Obama adviser Valerie Jarrett served on a Chicago civic organization with a director of the bank, and President Obama himself has singled out the bank for praise in lending to low-income communities.
The bank’s Tier 1 capital shrank to $4.1 million at the end of June from $26.3 million on March 31 and $43.5 million at the end of last year, according to the FDIC. The bank had “engaged in unsafe or unsound banking practices,” the FDIC said in its order last July. In March, ShoreBank was ordered by the FDIC to boost capital within 60 days, a deadline it missed.
ShoreBank posted a $119 million loss in 2009 and a $39.6 million loss in the first half of this year, according to FDIC figures. It had a net loss of $9.3 million in 2008.
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