Alexi Giannoulias would be nothing in Illinois politics if not for Broadway Bank. Now the near-failure of that family-owned bank is threatening to make him a political non-entity again.
Broadway Bank is the source of the wealth that has made him a viable candidate. It also provides his main claim to professional expertise, the ability to write loans and tally a balance sheet. But now the precipitous implosion of the bank’s finances — punctuated last week by an agreement with regulators that the bank must raise more capital or else — is a potentially serious blow to Mr. Giannoulias’s viability in the race for the United States Senate seat once held by President Obama.
Mr. Giannoulias, 33, has ducked all but the most general questions about which loans he approved that might have contributed to the bank’s trouble. He said there would be time later to get into such details.
I interpret that to mean: “I hope I can get this past my fellow Democrats. I’ll worry about my Republican opponent later.”
Though he would not talk to the Chicago News Cooperative, in public statements Mr. Giannoulias has noted that four years have passed since he left the bank. In a statement, the bank said only 9 percent of the $242 million in nonperforming assets currently on its books originated under Mr. Giannoulias.
But here is an inconvenient fact about bank failures: They do not happen overnight. A dollop of reckless lending here, a dash of destabilizing hot money there, hide a few troubles over there. Let that simmer for a while and, voila!, an insolvency soufflé.
After law school, Mr. Giannoulias went to work full-time at the bank in 2002. He quickly became a senior loan officer and then a vice president. Whether merely by coincidence, or because of the ambition and aggressiveness of its well-pedigreed new junior executive, the bank’s profile changed sharply between then and when Mr. Giannoulias resigned after winning the race for state treasurer in November 2006.
According to a review of the bank’s annual filings with the Federal Deposit Insurance Corporation from 2001 through Sept. 30, 2009, the bank plunged into the sort of lending that has caused bank crises across the country: construction and development loans. Mr. Giannoulias’s lending department sharply increased the construction and development portfolio to $356 million by 2006, six times the level it had been before he went to work there.
In 2006, the bank set aside $2.2 million as a provision against loan losses, a safety measure that federal regulators require banks to take. Despite its large increase in risky loans, Broadway only doubled its bad-loan reserve in the time Mr. Giannoulias was there. A bank spokesman said he had been only lightly involved during that period.
Construction-related lending jumped to more than triple the bank’s required regulatory capital during this period, and the loans started to go bad. By the time Mr. Giannoulias departed, Broadway was left with nearly $14 million in real estate on its books, more than 10 times the level when he arrived. Foreclosures take time, though — often about 18 months. And within two years of Mr. Giannoulias’s departure, the bank was left holding $38 million in real estate.
The move into real estate coincided with a headlong push into brokered deposits. This is quintessential hot money — large amounts that jump from bank to bank, each bank offering the lure of high interest , which the banks then must fund by making ever-riskier loans.
During Mr. Giannoulias’s time at the bank, brokered deposits catapulted fourfold, to $640 million. The typical bank at this point was growing brokered deposits at about 9 percent a year. Mr. Giannoulias’s bank was increasing its load by as much as 48 percent in a single year. Broadway Bank’s brokered deposits reached 80 percent of total deposits in 2006.
No one knows for certain how big a role Mr. Giannoulias played in these decisions. As Broadway’s top lending officer, he must have influenced the move into construction lending. As a connected family member, he was probably present during discussions of the hot-money play. Certainly, he took part in the family’s decision to take out some $70 million in dividends from the bank in 2007 and 2008, even as it careened toward a consent decree with the F.D.I.C.
Mr. Giannoulias told reporters that a time would come when he could answer questions about what happened at his family’s bank. Here is hoping there is plenty of time, because questions keep mounting faster than the troubles at Broadway Bank.
Although it may be true that none of today’s bad loans were approved by Alexi, he probably made plenty of bad loans during his tenure at the bank – but was fortunate to enjoy a booming real estate market through 2006 that made even ill-advised loans ending up being repaid in full. When times are good and developers have multiple bidders eagerly competing to take a property off the developer’s hands, construction loans get repaid pretty easily.
Alexi needs to come clean NOW about his role in Broadway’s looming collapse, and shouldn’t get the luxury of waiting until after the primary. Imagine being a Democratic voter and giving him the nod in the primary, only to learn afterward that his hands are completely dirty with irresponsible lending and he’s unelectable in November. The GOP must be licking their chops as they wait to get their paws on him. Hard to believe that anybody associated with Tony Rezko can be leading the polls in Illinois, but people either have short memories or the media is asleep at the wheel again in not digging deep enough into the Broadway story, or both.
Republicans will DECIMATE Alexi if he wins the primary. I am hoping that people WAKE UP and realize that this is what must be considered.
It will be an interesting race. On one hand you have Kirk, a rich kid from the north shore who obviously has superior credentials that will appeal to voters on both sides of the aisle. He is fiscally conservative, but more liberal than some democrats on social issues. On paper his resume is top notch; School of London, JD from top school, MBA (I believe), is an officer in the army reserves that has served in every major conflict for the last 20 years, and is currently a U.S. congressman.
On the other hand, you have Giannoulias, the democrat running for Obama’s old seat. That’s all that can really be said about him. The issue with the bank is kind of overblown. Let’s be realistic. The bank’s previous success, and likely failure, had nothing to do with Alexi. After Alexi stopped playing euroball, in his mid 20s, he was given a title at his father’s business. Despite his title at the bank, I highly doubt Alexi made the jump from extended adolescence to the actual responsibilties of numero uno loan officer at his father’s half a billion dollar (at least back then) bank. His father built the bank from nothing over the course of 30 years. I highly doubt he was willing to turn over the keys to that kind of machine to his kid who was fresh off an extended summer vacation. Attributing the success and possible failure of the bank to Alexi seems like spin, first perpetuated by the Alexi camp during his treasurer run and now by his opponents.
So what are we left with? Kirk, a rich kid from the north shore of Chicago who looks good on paper. Alexi, a younger green rich kid from a democratic city in a democratic state who happens to be the democratic party’s nominee for Senate. There will be names dragged through the mud and embarassing secrets revealed about both candidates, much of which will not be relevant to the position nor deserved by either candidate or their respective families, but in the end I think being the democratic candidate might be enough for Alexi to win.
So, only 1 in 10 of the bank’s troubled loans were originated by Giannoulias. This begs the question, How many of Giannoulias originated loans are now non performing? Probably a much higher percentage. It’s clear that this bank was running on the edge, and is that an indicator of how the potential senator will run his office? YES! The analogy is not such a stretch. The article says nothing about the loan connections the bank has to convicted felons and the like. What about that?
It’s almost laughable to ask the question, as if the answer were subject to some question or debate. If you want Blago / Burris absurdity times 10, elect Cohen for Lt. Gov. and Giannoulias for Senator, and watch your state decline into debt and irrelevance even faster. We are fast becoming the laughing stock of the country.