ShoreBank, RIP

By Felix Salmon
August 20, 2010
the Shorebank rescue, back in May? Well, it got lots of headlines at the time, but it didn't pan out in the end, and now Shorebank has failed. The FDIC's deposit insurance fund is taking a $367.7 million loss, and the money which was going to be invested in Shorebank by Goldman, JP Morgan, Citigroup and others is now going to be invested in Shorebank's successor institution, Urban Partnership Bank. UPB will have a whole new management team, led by former Bank One executive William Farrow -- something which rather puts the lie to conspiracy theories which said that Goldman et al were only investing in Shorebank because its CEO was a friend of Barack Obama's.

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Remember the ShoreBank rescue, back in May? Well, it got lots of headlines at the time, but it didn’t pan out in the end, and now ShoreBank has failed. The FDIC’s deposit insurance fund is taking a $367.7 million loss, and the money which was going to be invested in ShoreBank by Goldman, JP Morgan, Citigroup and others is now going to be invested in ShoreBank’s successor institution, Urban Partnership Bank. UPB will have a whole new management team, led by former Bank One executive William Farrow — something which rather puts the lie to conspiracy theories which said that Goldman et al were only investing in ShoreBank because its CEO was a friend of Barack Obama’s.

This clean-sweep approach makes a certain amount of sense: it’s right that ShoreBank’s shareholders should be wiped out when it managed to lose so much money. But it’s interesting to me that the government, given the choice between losing $368 million of the Deposit Insurance Fund or investing an extra $75 million in bailout funds, chose the former option. The deposit insurance fund, I guess, isn’t really considered taxpayer money, and will ultimately (eventually, hopefully) be repaid with future insurance premiums.

I wish Urban Partnership Bank well, and look forward to it proving that community-based urban lending can not only perform a crucial social function but can also be reasonably profitable. It’s sad that ShoreBank failed, but the main reason for the failure seems to have less to do with its community lending and more to do with its overexposure to speculative commercial real estate ventures. Urban Partnership Bank, I trust, will stick to its core competency, and do well for all concerned by doing so.

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