Obama Friends Bid For Senate Seat Threatened By Banks Losses
Broadway Bank in Chicago, owned by Giannouliass family, must attract at least $75 million in capital by late April to meet terms of a consent order with the Federal Deposit Insurance Corp. prompted by losses on commercial real-estate loans. Even if successful, the family could lose control before Novembers election, dealing a blow to Democrats and an Obama friend.
“The last thing that Alexi Giannoulias needs right now is another round of bad news stories and stories raising questions about the familys business,” said Stu Rothenberg, editor of the non-partisan Rothenberg Political Report. “The one thing you dont want to spend in a campaign is a lot of time defending yourself.”
The fate of the $1.2 billion-asset Broadway Bank, whose wealth helped finance Giannouliass successful 2006 state treasurer bid, is playing a growing role in a contest for a seat the Democrats have unexpectedly found themselves defending and that may help determine whether Obamas party can keep its Senate majority. Recent polls show Giannoulias in a tight race with Mark Kirk, a five-term Republican congressman from Chicagos northern suburbs.
Consent Order
One week before Giannoulias won the Feb. 2 primary, the FDIC and the Illinois Department of Financial and Professional Regulation issued the consent order.
It spells out additional capital requirements for a bank that has a commercial real estate delinquency rate of 21.7 percent, compared with a U.S. average of 8.3 percent, according to an analysis compiled for Bloomberg News by Foresight Analytics, an Oakland, California-based bank and real estate research firm.
“The family is committed to contributing to recapitalizing the bank, but doesnt have the full amount required,” said Tilden Katz, a Broadway Bank spokesman. “Any capital infusion will take place alongside private investors and longtime customers who have said they will stand with us.”
Failure to raise the money would make a takeover of the bank by the FDIC more likely, said Matthew Anderson, a partner with Foresight Analytics.
Capital Challenge
“Its a challenging environment to raise capital,” he said. “An enforcement order from regulators would tend to raise some alarms among investors.”
Broadway was one of 188 undercapitalized banks out of more than 8,000 nationwide in the fourth quarter of 2009, Anderson said. While the broader economy shows signs of improvement, some community banks continue to struggle. Regulators are closing them at the fastest pace in 16 years.
Kirk, 50, has highlighted Broadways struggle and said a closing would pose “significant problems” for Giannoulias, 33.
Some of the Broadway loans that have generated controversy involve Michael Giorango, a convicted bookmaker and prostitution-ring promoter. It has also made loans to convicted Illinois influence peddler Antoin “Tony” Rezko and a family accused of having connections to organized crime.
“I was not inside any loan transaction with mob figures, and I was not inside the Broadway Bank,” Kirk told reporters Feb. 19.
Senior Loan Officer
Giannoulias worked as a senior loan officer and vice president at the bank after graduating from Boston University and Tulane University Law School. The campaign committee for Obamas 2004 U.S. Senate run banked there, and the two men have remained basketball-playing buddies.
Giannoulias and his two brothers are among the privately held banks owners, Katz said.
“When I left nearly four years ago it was healthy, profitable and very well capitalized,” Giannoulias said in a statement. “Hundreds of community banks that didnt get a dime of bailout dollars are struggling, and Broadway Bank is no exception.”