I have no clue whether Maxine Waters, the congresswoman from California, broke House rules when she intervened to get the Treasury to give TARP money to a bank her husband is an investor in. But I do know that the institution in question, OneUnited Bank, is in truly disastrous financial shape. I’m at a loss to understand how it got anywhere near TARP. I’m at a loss, too, to understand why it’s even still in business.

OneUnited, you may recall, is said to be the country’s largest minority-owned bank, with $517 million in assets. Rep. Waters’ ethics-related kerfuffle surrounding it began at the end of 2008, soon after Congress approved the TARP program. She apparently arranged an October meeting between Treasury officials and OneUnited executives, during which the OneUnited people lobbied hard for federal aid. The bank certainly needed it. It had been a big holder of Fannie and Freddie preferreds and, after the federal government seized the two companies, found itself with $50 million hole in its balance sheet. OneUnited wanted a $50 million infusion from the government to make up the difference. (Waters’ husband must have been eager, too. His OneUnited stake is worth between $350,000 and $750,000, according to the Congresswoman’s financial disclosure, and accounts for at least 16% of the couple’s financial assets.) In the end, the Treasury invested $12.1 million in TARP preferred.

Only it wasn’t nearly enough. The result of the Treasury’s investment was to transform OneUnited’s balance sheet from horrific to merely ghastly. Some numbers: at September 30, 2008 (that is, before the TARP investment but after the GSE blowup), OneUnited’s ratio of tangible common equity to total assets was minus-4.97%. At yearend (post-TARP), that ratio had ballooned to . . . minus-2.65%! It has since settled back to minus-2.95%. 

This bank is a federally subsidized zombie, in other words. Its Texas ratio (nonperformers plus loans 90 days past due, divided by tangible common equity plus reserves) is minus-199%. (It’s a negative number, of course, because TCE is negative). Non-performers are 5.52% of total loans.

By all appearances, then, it’s only a matter of time before the folks from the FDIC show up at OneUnited some Friday afternoon to put the bank out of its misery. (Something tells me this won’t occur until after the elections, however.) The banking world will not be a worse place when that happens. For, in fact, OneUnited isn’t some undercapitalized but doughty community bank doing God’s work in the inner city. It has some issues.  In October of 2008, the FDIC hit OneUnited with a cease-and-desist order after the agency found it “had reason to believe that the Bank had engaged in unsafe or unsound banking practices and violations of law.” Among the items the FDIC wasn’t so keen on was the $6.4 million beachfront home in Malibu OneUnited owns for use by its CEO. The bank also owns a Porsche SUV for the CEO to use when he’s home in Boston, where OneUnited is headquartered. (The bank also has significant operations in Los Angeles and South Florida.) 

What OneUnited doesn’t do, meanwhile, is lend much mortgage money in the inner city.  Among the mortgages it’s written in recent years are loans, ranging from $500,000 to nearly $4 million, on properties in places like Brookline and Martha’s Vineyard. The company’s loan book has shrunk to $321 million at the end of June, from $502 million at year-end 2006.

You’ll get no objection from me that from time to time the federal government can step in to save a failing institution. People rail against bank bailouts, but the fact is that if the banking system goes down, the whole economy goes down with it. But how is the bailout of OneUnited fair? To put it in perspective, in 2008, National City, the big Cleveland lender, jumped through one hoop after another for regulators, up to and including massively diluting its shareholders via an equity offering that raised its Tier 1 capital ratio to more than 10%. And regulators still shut it down. National City was a key supplier of credit, especially to medium-sized businesses, throughout the Midwest. It could be doing some real good right now. Compare that to OneUnited, whose two main lines of business seem to be self-dealing and special pleading. And OneUnited is the one that gets to survive?  

I’m no fan of the federal bailout of ShoreBank that’s lately being considered. It smacks too much of political cronyism, and short-sighted cronyism, at that. But at least ShoreBank has an honorable mission, and is backed by honorable people. For the life of me I can’t figure out what purpose OneUnited is supposed to serve. As one social-investing consultant put it to the Boston Globe last year, “My question is, why is this bank still open?” Beats me. It’s among the walking dead already.  The sooner this one goes down—and without another dollar in federal aid before then, if you don’t mind— the better.

What do you think? Let me know!