Inside Financial Services

Zombie Update: OneUnited Stumbles On

There's just one question: Why?

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Here’s a question I asked around this time last year, and still have yet to come across a good answer to: why in blazes is OneUnited Bank still in business?

Do you remember OneUnited? Here’s a hint: it’s the country’s largest minority-owned bank, with $535 million in assets. Here’s another: it’s Maxine Waters’ favorite financial institution.

Ah, now you recall! OneUnited was the bank Waters intervened on behalf of with regulators (apparently under false pretenses) back when the government was doling out TARP money. Strictly by the numbers, the company would only survive with the help of egregious special treatment by the government. A $50 million hole had just appeared in its balance sheet, after its portfolio of GSE preferreds collapsed when the government stopped paying dividends. So the FDIC-over the loud objections of staffers–went to extreme lengths to keep the company on life support. For instance, the agency allowed OneUnited to recognize $20 million in future tax benefits, from stock losses, as capital. (OneUnited was the only bank under the FDIC’s jurisdiction to get such an exemption.) And when the company was awarded $12 million TARP money (again, over the objections of FDIC staff), the FDIC let OneUnited count it as capital before it even received the funds. Later on, an FDIC official complained in an e-mail that the special treatment OneUnited got was “a travesty of justice”-which, of course, it was.

(Waters neglected to mention at the time, by the way, that she had a particular interest in OneUnited not collapsing, inasmuch as her husband was a major shareholder and once sat on its board. The House Ethics Committee is looking into the matter.)

But put aside which House rules Waters may or may not have broken. Let’s get back to my original question: why haven’t Sheila Bair and her minions, who’ve propped this zombie up for so long even as they’ve shuttered scores of other banks, finally brought the hammer down? The numbers are beyond ugly. At the end of the first quarter, OneUnited’s Tangible Common Equity to Tangible Assets was minus-2.52%. There are only 25 banks in the country that carry a TCE ratio that’s actually negative. Worse, OneUnited’s TCE has now been in the red for eleven straight quarters. Just two other banks have gone longer. The bank’s Tier 1 Common Ratio is minus-7.43%.

Nor is its asset quality a thing of beauty. At the end of the first quarter, non-performing assets stood at 5.55%, while the bank’s loan loss reserve was just 1.0%, or only 26% of nonperforming loans. The company has missed paying its last nine consecutive TARP dividends. By any realistic accounting, OneUnited is insolvent.

This would be a sorry enough tale if OneUnited had actually been doing some good on the lending side, by financing worthy minority borrowers that larger lenders had overlooked. Wrong. Prior to Waters’ intervention in 2009, OneUnited was perhaps best known as the being the bank that owned a 3,200-square-foot beach house in Malibu (and a Porsche SUV in Boston) for use by its CEO. That same CEO, Kevin Cohee, was arrested for cocaine possession in 2007.

And, remember, the bank’s financial troubles didn’t come about as a result of inner-city subprime loans gone bad. OneUnited simply made the mistake of owning GSE preferreds. Its problems were then compounded by the declining real estate cycle. Real estate lately accounts for 99.5% of the bank’s loan book (including loans on properties in tony areas such as Brookline and Martha’s Vineyard). C&I accounts for just 0.4% of loans. And consumer? All of $498,000. That’s right, thousand. So the help OneUnited has provided minority borrowers essentially rounds to zero.

Why is this bank still in business? Since the credit crunch ended, we’ve all gotten used to hearing tough talk from banking regulators, not least Sheila Bair, about how it’s long past time that the banking industry’s worst excesses be ended once and for all. Fine. Here are some flagrant, abusive, long-lived excesses-many of which Bair and her crew have enabled. After extending so many lifelines, for so long, to such a politically favored bank, the FDIC may feel too embarrassed to step up and do what it should have done awhile ago. OneUnited has already gotten too many benefits from the taxpayer. Bair’s FDIC should finally do what it’s done to so many other banks (many of which weren’t in nearly as bad a shape as OneUnited.) Shut it down!

What do you think? Let me know!

16 Responses to “Zombie Update: OneUnited Stumbles On”

  1. strongboy, Asheville, NC

    Your thoughts are right on. This is another example of this administration’s efforts to preserve the appearance of help to the “needy”. As you very succinctly show, without the connections to the “minority” in ownership, this bank should have been closed.

    Violating almost every FDIC internal guidelines and procedures, actively engaging in loans and administrative relief to this “bank” is a violation of the general citizenry trust in governmental over-site.

    Tom, keep pushing, but watch your back because you are ”not with the program”.

  2. CONFUSED GUY

    WHERE ARE THE REPORTERS ON THIS TOPIC. WHERE ARE THE REPUBLICAN CONGRESSMEN AND THEIR COMMITTEES ON THIS. WHERE ARE THENY TIMES, WSJ, WASHINGTON POST, ETC. REGARDING WHAT APPEARS TO BE NOT ONLY FRAUD AND OUTRIGHT ABUSE OF TAXPAYER MONEY, BUT ABSOLUTE POLITICAL CHICANERY AT FDIC AND THE WHITE HOUSE. WHAT THE HELL HAPPENED TO CHAIRMAN PAUL RYAN? IS HE DEAF AND BLIND TOO?

  3. Robert Buhrmann

    I suspect that goes under the “fat chance” column.

  4. John J

    Is there any wonder why the American people have so little faith in the Federal Government and senior officials to do the right thing?

  5. Erich Riesenberg

    Probably for the same reason Tom Brown’s fund has any money left. Government takes care of the rich.

  6. Doug

    Could not agree more. Shut down congress while your at it.

  7. Erich Riesenberg

    Probably for the same reason Tom Brown’s fund has any money left. Government takes care of the rich.

  8. sarwor

    Just another example of the fact that nearly all governmental agencies have succumbed to political influences, in spite of their roles to protect taxpayers. Bank regulation has become a joke, serving only to protect the Wall Street’ers and the “connected”.

  9. Chris

    Maxine Waters is a national treasure. She and Michele Bachmann should have their own CSPN channel. The two rarely have any idea what they are talking about and it makes for great TV, certainly more entertaining than the garbage CNBC puts up every day.

  10. Chris

    Maxine Waters is a national treasure. She and Michele Bachmann should have their own CSPN channel. The two rarely have any idea what they are talking about and it makes for great TV, certainly more entertaining than the garbage CNBC puts up every day.

  11. rtrtlori

    What an embarrassment to our financial system. Seems the bank is kept going strictly on the premise of standing for minority rights. What a sham………..unfortunately seems to be be par.

  12. Chad Miller

    Mr. Brown, please contextualize your argument for shutting this little bank down and NOT shutting down the larger “too big to fail” banks. The way this reads it is simply a diatribe against a tiny stone in the banking business.

  13. greekco

    Another politically insipired decision by just another self-dealing Congress-person. Is anyone in Congress truly honest?

  14. BK

    We know why it’s still open. The real question is who has guts enough to confront this shril,l racist welfare cheat and shut down her husband’s meal ticket.

Comments are closed.