On the basis of his experience as the former vice president and senior loan officer of Broadway Bank, Illinois Treasurer Alexi Giannoulias wants to fill Barack Obama’s old Senate seat. The Democratic nominee recently told reporters he would even like to serve on the Senate Banking Committee if elected.
That’s a lofty goal for someone whose family bank is likely to collapse within days, and in no small part because of a risky lending strategy that he admits he helped create.
Federal regulators will soon seize Chicago’s Broadway Bank unless its owners — the Giannoulias family — raise $75 million in the next few days. (Since being elected treasurer, Alexi is a non-voting shareholder with 3.6 percent ownership in the bank.) The story behind the bank’s downfall is best told by two numbers in the records Broadway filed with the Federal Deposit Insurance Corp.
The first number to consider: $147 million. That’s the amount the Giannoulias family paid themselves out of Broadway’s equity between 2001 and 2009, in the form of sometimes very large dividends. Their largest dividend — $47.8 million, or 35 percent of the bank’s year-end equity — came in 2007, when Broadway was still profitable. In 2008, as its bad construction and commercial real estate loans were causing the bank to lose $13 million, the Giannouliases still took a $34.5 million dividend, worth 46 percent of the bank’s remaining equity.
Broadway’s $75 million loss last year did not stop them from cashing out a modest $4 million, either.
The second number to keep in mind: 51 percent. That’s the proportion of construction loans, at their peak, to Broadway’s whole lending portfolio. In a March television interview, Treasurer Giannoulias took credit (or blame) for concentrating on these relatively risky loans.
In 2004, Crain’s Chicago Business heralded Broadway as the city’s most profitable bank, noting its high-risk strategy. “Broadway has also bet heavily on Chicago’s as yet uninterrupted commercial real estate boom,” Crain’s reported. “Of the bank’s $409 million in outstanding loans, 23 percent is to customers in the construction and land development industries.”
That number was already high: Two similar Chicago banks, Crain’s noted (and FDIC records confirm), had much smaller amounts tied to such lending. But at Broadway, that number would double over the next three years. In 2005, construction loans accounted for 28 percent of the lending on Broadway’s books. In 2006, it was 46 percent. By the end of 2007, it was 51 percent.
In a March interview with a local CBS affiliate, Giannoulias was asked about Broadway’s construction loan strategy. Even as he argued that Broadway’s failure had many fathers, and times are tough generally for banks, he acknowledged his own role in creating the construction-heavy portfolio when he worked there. “I still take my fair share of responsibility for possibly overconcentrating in a certain segment,” he said.
By the end of 2009, Broadway’s books show $139 million of these construction loans in “nonaccrual,” meaning they were more than 90 days past due with little hope of recovery. In all, Broadway reported $186 million in bad loans on its books — a number equal to 20 percent of its outstanding loans.
Based on his career and philosophy of banking, Giannoulias has a strong record of taking big risks with other people’s money, and of rewarding his own failure. Talk about a guy who belongs in the United States Senate.
