With ShoreBank on the ropes, two possible scenarios emerge

ShoreBank facing failure?

The hour of reckoning is fast approaching for ShoreBank.

All signs now point to the Federal Deposit Insurance Corp. seizing the South Side lender within the next few weeks.

As unlikely as it seems, though, it's still possible that a bank named "ShoreBank" will emerge from the failure with a mission similar to the one it has pursued for more than three decades — lending in low-income urban neighborhoods — beginning in Chicago's South Shore neighborhood in the 1970s.

Led by former First Chicago Corp. senior executive David Vitale, who agreed to try to save ShoreBank beginning last spring, the bank's new management is pursuing an offer for portions of ShoreBank once the FDIC moves to seize the bank, the Wall Street Journal reported Wednesday. Sources confirm the effort, but much still needs to be worked out, including — crucially — financing the bid.

If it's to succeed, the management buyout probably would have to be the only bidder interested in ShoreBank. The FDIC would be hard-pressed to reject a bid for the majority of the bank's assets and deposits from a qualified buyer.

But indications are that few if any banks or investors want to acquire ShoreBank. Its branches are in neighborhoods that have been pummeled by the financial crisis, and working out and disposing of its bad loans would require a Herculean effort.

There are two probable scenarios, then, for ShoreBank.

One is a straight liquidation, in which the FDIC would reimburse insured depositors, close the branches and dispose of the assets later. In that scenario, ShoreBank would be consigned to history.

The other is a management-led buyout, most likely funded in large part by some of the investors who committed $150 million to save ShoreBank but whose investment was predicated on an accompanying $75-million federal bailout that now is not forthcoming because of regulators' concerns that it won't be enough to keep the bank solvent.

In that case, the investors would acquire the branches, deposits and some of the good loans — essentially rebooting ShoreBank with a more cautious lending approach — while the FDIC would take on the bad loans for later disposal. Unclear is how much capital would be needed to back this effort, something presumably that management, investors and regulators will grapple with over the coming days.

That second scenario would be the “good bank, bad bank” approach that Fox News first reported earlier this week.

Ordinarily, when the FDIC begins an auction process for a bank that's failing, it takes four to six weeks to sort through the bids and prepare to seize the bank. But ShoreBank already went through that process earlier this year, averting failure at the time after putting together the $150-million rescue package.

As a result, sources say, the FDIC could seize ShoreBank anytime.

To be sure, an eleventh-hour bid with the FDIC by a bank or qualified investment group can't be ruled out, but there aren't any signs of that at the moment.

Complicating matters is the ShoreBank saga's high notoriety. White House critics, including some Republicans and conservative talk-show hosts and bloggers, continue to complain that the $2-billion-asset community lender couldn't have drawn the interest of Wall Street titans like Goldman Sachs Group Inc. and J. P. Morgan Chase & Co. without pressure from the Obama administration.

President Barack Obama and Michelle Obama are acquaintances of the bank's founders and former leaders. But the White House has consistently denied any involvement in the attempted rescue of ShoreBank.

So, there will be more scrutiny than normal over what transpires.

A ShoreBank spokesman declined to comment on what's in the works but said, “We're continuing to work very, very hard to make sure there are financial services in our communities, which are struggling from the economic crisis.”