I hate to keep harping on this, but I’m still at a loss to understand how in the world it can be that OneUnited Bank-the Boston institution that’s been kept afloat by the machinations of, among others, Maxine Waters and Barney Frank-is still in business.
You likely remember that OneUnited saga. (For a thundering recap of the whole tawdry business, click here.) Quick summary: OneUnited is the county’s largest minority-owned bank, but doesn’t do much in the way of actual lending to minorities. Rather, its assets have tended toward Porsche SUVs, beach houses in Malibu, and residential mortgages on properties in places like Martha’s Vineyard and Brookline. The company also, unfortunately, owned $52 million in GSE preferreds. When the government seized the GSEs in 2008 and stopped paying dividends on the preferred, OneUnited’s balance sheet took a massive shellacking. That should have been enough to do the bank in. But when the government rolled out the TARP program later in the year, Maxine Waters (whose husband is a shareholder of OneUnited and once sat on its board) couldn’t resist intervening. The matter is now before the House Ethics Committee.
Meanwhile, OneUnited is the very picture of a zombie bank. To get a sense of just how zombiesque it is, let’s put it side by side with a bank that really is a goner: First Chicago Bank & Trust, out in Illinois, which was seized by regulators earlier this month. Let’s look at some key capital ratios, first:
First Chicago OneUnited
Tier 1 Common Ratio 1.01% -7.43%
Tangible Common Equity to Tangible Assets. 0.88% -2.52%
Your eyes are not deceiving you. At the end of the first quarter, OneUnited’s Tier 1 Common Ratio was minus-7.43%. Next to that, the late, lamented First Chicago’s 1.01% makes the bank seem like a financial colossus. OneUnited hasn’t ended a fiscal year with a positive Tier 1 ratio, I hasten to add, since 2007. And yet somehow it’s been allowed to keep limping along, for years.
Shall we compare credit metrics? At the time of First Chicago’s demise, the bank’s nonperforming assets came to 15.5% of total assets. At OneUnited, by contrast, they were just 3.46% of assets. So clearly, you might be saying to yourself, OneUnited isn’t the credit train wreck that First Chicago was.
But wait! Chargeoffs at OneUnited last year came to all of 46 basis points. That is suspiciously low. For reference, at the end of 2007 (which is to say, at the start of the nationwide collapse in real estate prices) real estate loans at OneUnited accounted for 97.5% of its loan book. At the end of the first quarter, real estate accounted for 99.5% of loans. So the bank’s strength and profitability is based entirely on what happens in the real estate market. Yet since the end of 2007, cumulative NCOs have amounted to just 83 bp. During the worst real estate downturn in anyone’s memory.
That is, literally, unbelievable. It’s not too much to wonder, given OneUnited’s bodacious political connections, that its examiners have been have gone out of their way through the years to treat the bank extremely gingerly and give its iffy loans every benefit of the doubt. Which is to say, its credit numbers should not be taken at face value. A reality-based examination at OneUnited is long overdue–especially given the bank’s precarious capital position.
OneUnited should have been shuttered long ago. Its capital is a disaster and its credit metrics by all appearances are fictitious. One of the first things Marin Gruenberg, the new head of the FDIC, should do is put this dog down, or explain why the shareholders of other institutions have been totally wiped out but the same has not occurred at OneUnited. .
What do you think? Let me know!