Thursday, May 20, 2010

ShoreBank rescue prompts call for congressional probe

Two top Republicans on the U.S. House Financial Services Committee, including U.S. Rep. Judy Biggert, R-Hinsdale, wrote a letter to President Barack Obama demanding records pertaining to any administration involvement in the $140-million Wall Street bailout of ShoreBank Corp.

“Some believe that ShoreBank was really saved because of an assumption that high-ranking officials in the Obama administration favored a bailout of this failing institution with deep political ties,” said the May 19 letter by U.S. Rep. Spencer Bachus, R-Ala., and Ms. Biggert. “The administration’s perceived involvement raises very serious questions as to whether the federal government is facilitating the rescue of a politically connected hometown bank when hundreds of others are forced to close.”

Mr. Bachus is the senior Republican on the Financial Services Committee, which oversees banking laws, while Ms. Biggert is the top GOP member on the committee’s subcommittee on oversight and investigations.

Chicago-based ShoreBank was on the brink of failing before a group of the nation’s largest financial players, including Goldman Sachs Group Inc., General Electric Co.’s commercial finance arm, J. P. Morgan Chase & Co. and Bank of America Corp. stepped forward with about $140 million in equity commitments.

That should enable the South Side lender, which made its name over three decades lending profitably in low-income neighborhoods, to qualify for about $75 million in bailout funds from the Treasury Department.

Obama administration representatives and the bank have denied any White House role in the capital-raising campaign.

A perception has fueled by anonymous comments from Wall Street sources to other publications that Goldman Sachs and other recipients of federal aid in the immediate aftermath of the financial crisis acted knowing that the administration favored a rescue of ShoreBank.

ShoreBank’s leaders, most of whom live in the Obamas’ home neighborhood of Hyde Park, long have had a personal relationship with the president, going back to when he was a state senator.

Mr. Bachus and Ms. Biggert requested that the White House provide all records of communication relating to the ShoreBank negotiations, including with Goldman Sachs CEO Lloyd Blankfein and Eugene Ludwig, a former ShoreBank board member and head of Promontory Financial Group, a Washington, D.C., consultancy that assisted ShoreBank.

“In a year in which hundreds of banks are expected to fail, it is good news that this troubled institution has managed to survive,” the letter said. “The question that many are asking, however, is why did government-supported Wall Street banks decide to save ShoreBank rather than the numerous others that faced a capital shortage?”

News of the letter was first reported by Fox Business Network.

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