[A-List] The Town That Loved Its Bank
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Mon Jun 21 09:25:46 MDT 2010
The Town That Loved Its Bank
By ANDREW MARTIN
New York Times
June 18, 2010
LIKE many working-class towns in the Midwest, this
Chicago suburb has been on the cusp of better times for
Separated by a river and woods from its wealthier
neighbors, Oak Park and River Forest, it shares some of
their charms: imposing, century-old homes and stately
elms and maples draping the streets. But Maywood is
decidedly more blue-collar than its neighbors, and its
residents are predominantly African-American. Most of
its homes are modest bungalows and frame houses that
were built for factory workers whose jobs disappeared
long ago. Many storefronts are vacant, and there appear
to be more churches than viable businesses.
For more than a decade, a silver-haired banker from
River Forest named Michael E. Kelly - owner of Park
National Bank in the Chicago area and eight others
around the country - took an unusual interest in
Maywood. He did things most bankers don't do.
In 2003, he opened a branch in Maywood, just west of the
city, despite the modest incomes of most of its
residents. His bank bought an entire redevelopment bond
issue from the village and refinanced it at a lower rate
to save Maywood money. And in an effort to prop up
property values, he came up with the idea of buying
homes out of foreclosure, renovating them and selling
them at cost.
"He's from River Forest, O.K.?" says Lennel Grace, a
fourth-generation Maywood resident. "If you talk to
people in River Forest or Oak Park, they say, `Oh, poor
Maywood.' They kind of look down their nose. He's not
that kind of a person."
"He has a true connection and compassion for the
community," adds Mr. Grace, who is 60. "He understood
that all these communities are linked in one way or
Last fall, Mr. Kelly's private banking empire collapsed,
and his profitable, time-tested playbook as a banker and
philanthropist failed amid his own misjudgments and the
brutal headwinds of the financial crisis. At the
direction of federal regulators, his nine banks were
acquired by U.S. Bank, the nation's fifth-largest bank,
based in Minneapolis.
His banks are among more than 200 that federal
regulators have seized in the last three years, many of
them small, community institutions. Other banks have
acquired most of their assets and deposits, and quietly
reopened branches with new signs and little fuss.
Across the country, many have bemoaned the loss of
locally owned banks, worrying that a faceless national
bank will have little interest in a community - aside
from making profits. Perhaps nowhere has that issue
played out more publicly than in the Chicago area, where
Mr. Kelly's Park National Bank was as well known for its
philanthropy as for its financial products.
Eight months after Park National's closing, anger
continues to boil, in part because of the unusual
circumstances surrounding its demise. And residents
rankle because the federal government decided to bail
out megabanks like Citigroup, deemed "too big to fail,"
while letting a beloved community bank go under. In that
context, outrage - and hyperbole - reign.
"Basically, it amounts to the largest bank robbery in
the history of the United States," says David Pope, the
Oak Park Village president. As the new owner of Mr.
Kelly's banks, U.S. Bank has become the unwitting
lightning rod for local politicians and activists. They
demand that the bank, whose parent, U.S. Bancorp, had
profits of $2.2 billion on revenue of $16.7 billion last
year, curb foreclosures and replicate Mr. Kelly's
philanthropy (which involved giving nearly 20 percent of
annual profit to causes like education and affordable
Indignation erupted on a recent evening at a community
meeting on Chicago's West Side, organized by the
Coalition to Save Community Banking, a group of
activists and ministers.
It was clear from the start that the meeting, at Hope
Community Advent Christian Church, wouldn't go well for
the two attending U.S. Bank executives, Robert V. McGhee
and William Fanter, who sat squirming in dark suits at a
table set above the crowd on the dais.
One speaker, the Rev. Randall Harris, led the audience
in a rowdy chant. "U.S. Bank!" he shouted. "Step up!"
Others vowed more vigorous protests unless U.S. Bank
complied with community demands, which include
establishing a $25 million fund to help stave off
foreclosures. "We are ready to sit down inside your bank
until you take action," said the Rev. Michael Stinson.
"It's going to get real ugly before it gets pretty."
When Mr. McGhee, a vice president of U.S. Bank, stood to
address the crowd, he was interrupted with angry
questions and chants. "We are very much aware of the
impact Park had on this community," he said. "That is
not lost on us. We've taken copious notes."
U.S. Bank officials, clearly vexed by a groundswell, say
they intend to honor all of Park National's outstanding
commitments. But they also say the level of charitable
giving will probably decline to match donations in other
areas where U.S. Bank has branches. Because of the
complexities of the modern mortgage business, the bank
also says it has little legal ability to modify local
mortgage loans that it did not originate but for which
it acts as trustee.
"This has involved more public-relations issues than we
ever had before," says Richard C. Hartnack, the bank's
vice chairman for consumer banking. "We bought 400
branches in California, and it's a much bigger place.
That's gone absolutely smoothly."
But as he notes, there's a big difference between
California and Maywood. In California, he says, "we
didn't have the ghost of Mike Kelly to deal with."
DESCRIBING Mr. Kelly as a ghost isn't entirely
inaccurate. This 65-year-old banker, who is alive and
presumably well, is as intensely private as he is
generous. In keeping with his past aversion to the news
media, he declined to be interviewed for this article.
According to Congressional testimony and former
colleagues, Mr. Kelly took over the First Bank of Oak
Park in 1981, and built it into an enterprise with about
$19 billion in assets, largely by buying failed or
He ended up owning nine banks in Texas, California,
Arizona and Illinois, all under the umbrella of his bank
holding company, the FBOP Corporation. It was the
largest privately held bank-holding company in the
United States and, before 2008, recorded 25 consecutive
years of profits, according to Mr. Kelly's testimony
before Congress in January, in a hearing prompted by the
closing of his banks.
Mr. Kelly's banks were also known for generous
charitable donations and a commitment to low-income
areas, particularly in the Chicago area. For instance,
Park National pledged a $27 million, interest-free
construction loan to build a Jesuit preparatory school
in Austin, a predominantly African-American neighborhood
that abuts Oak Park.
Park National also helped to create a community savings
center on the West Side of Chicago that provided low-
cost banking services and financial counseling to people
who normally don't use banks. And it set aside $20
million to help homeowners facing foreclosure.
In total, Mr. Kelly's banks donated a total of $36.7
million to charitable causes in 2007 and 2008. FBOP, the
holding company, chipped in a further $17 million in
those two years, according to his Congressional
FBOP banks also provided $583 million in that two-year
span for community development loans, including such
things as affordable housing and inner-city
redevelopment, he told Congress.
"This was the finest community bank in America," says
the Rev. Marshall Hatch, a leader in the community
banking coalition. "The loss of the bank is incalculable
for our side of town."
But, of course, Park National is now out of business. So
are Mr. Kelly's other eight banks, which were also
acquired by U.S. Bank last October. The Federal Deposit
Insurance Corporation said the cost of the failures to
its insurance fund was $2.5 billion.
LEFT in the rubble of that takeover are questions about
the viability of Mr. Kelly's altruistic business model
and the fairness of the federal government's system for
closing down - or saving - ailing banks.
Whereas some of the nation's biggest banks nearly
collapsed under the weight of risky loans and dubious
underwriting, FBOP's big problem, according to Mr. Kelly
and his regulators, was that it invested nearly $900
million in what appeared to be sure-thing, blue-chip
investments - preferred stock in Fannie Mae and Freddie
Mac, the government-sponsored mortgage giants. Those
investments were considered so safe, in fact, that
government regulators encouraged banks to invest in
But as the mortgage industry melted down, so did Fannie
and Freddie; the government took them over two years
ago. Holders of Fannie's and Freddie's preferred
securities were out of luck, and the loss left gaping
holes in the capital cushion at some of Mr. Kelly's
He had other problems, too. For years, he had prospered
by scooping up other banks in times of trouble or
lending when others pulled back. He followed the same
instincts as the mortgage crisis began to go into
overdrive, allowing FBOP's banks to expand their loan
portfolio by 35 percent between 2007 and 2008.
When the credit and real estate markets subsequently
fell apart, the deterioration of FBOP's loan portfolio,
particularly in commercial real estate, accelerated,
federal regulators testified at the January hearing.
At the hearing, Mr. Kelly testified that he believed his
problems with securing new funding during the mortgage
crisis were solved when the government announced the
Troubled Asset Relief Program, or TARP, in October 2008.
Mr. Kelly said regulators urged him to apply immediately
for TARP funds and gave him verbal assurances that his
application would be approved. But the first round of
TARP money was directed at publicly traded banks, not
private entities like FBOP, and Mr. Kelly didn't receive
any aid. He testified that a second application for TARP
funds stalled as regulators kept changing the criteria.
In a story that has gained much notoriety in Chicago,
the Treasury secretary, Timothy F. Geithner, awarded a
Park National subsidiary $50 million in tax credits on
the morning of Oct. 30, 2008, to help the bank finance
schools, retail development and a community center on
the city's South Side.
Later that day, federal regulators closed Mr. Kelly's
F.D.I.C. officials said they simply pursued the least
costly option for resolving the failed banks, as
required by law.
"FBOP's business strategy - which had previously been
successful - left the bank vulnerable to the perfect
storm of events that the FBOP banks could not survive,
including unforeseen and devastating G.S.E. losses,"
testified Jennifer C. Kelly, senior deputy comptroller
for the Office of the Comptroller of the Currency, the
primary regulator for many of Mr. Kelly's banks. Fannie
and Freddie are known as G.S.E.'s, or government-
"The determinations to place the FBOP banks into
receivership were consistent with, or required by, the
statutory scheme Congress put in place," she said.
MR. HARTNACK, the U.S. Bank executive, says that his
bank has won over customers in the many markets it has
entered over the years, and that it eventually will do
so here. But he said big banks will never be mistaken
for the old corner bank.
"It is virtually impossible for a very large company to
attain that same level of affection that a community
bank has," he says, suggesting that the local banking
model has become somewhat antiquated as more consumers
bank online. "It's a charming part of our financial
Mr. Hartnack also points out that FBOP concentrated its
donations in the Chicago area. U.S. Bank, he said, tries
to spread donations fairly among its more than 3,000
bank offices across the country. As a big publicly
traded institution, U.S. Bank also has to consider
shareholders who would undoubtedly frown if 20 percent
of its profits went to charity.
"It's probably reasonable to expect some diminishment in
total giving but not reneging on commitments," Mr.
Hartnack says of his bank's takeover of FBOP. "We'll
gradually not make as many new ones until we get the
numbers in balance."
U.S. Bank's evolving policy in the Chicago area has
created a fair amount of angst, in part because the bank
donates 1 to 2 percent of its profits. Besides its
donations, the bank provides billions in community
lending and investments.
Jackie Leavy, a founder of the Coalition to Save
Community Banking, said the bank hadn't been transparent
in its intentions. For instance, she says, U.S. Bank has
taken over and renamed Park National's nonprofit arm,
which rehabbed homes and redeveloped blighted areas, but
has declined to say how much money it is putting into
"It's the bob-and-dodge act," Ms. Leavy says.
U.S. Bank officials say they are still working out the
numbers and don't feel compelled to share news of every
donation with community activists.
Members of the coalition have also criticized U.S. Bank
for what they say is its hands-off policy on housing
foreclosures. But the bank is in a difficult situation
in that regard, given the structure of the mortgage
market. Individual mortgage loans were long ago pooled
into bonds and then sold to investors as a means of - in
theory - reducing investors' exposure to mortgage losses
and therefore allowing banks to underwrite many more
Neither U.S. Bank nor Park National was a major
originator of mortgages in Maywood or the Chicago area.
But U.S. Bank is a custodian of bonds containing those
Bank officials say that as trustee, they have no
authority to try to restructure mortgages. But that
reasoning has done little to appease critics, who say
banks are just passing the buck.
Protesters recently rallied against U.S. Bank at a
vacant apartment building in Austin, the neighborhood
near Oak Park; the bank is trustee for the bonds backed
by the property. The back door was ajar, and a pipe in
the basement spewed water. The apartments were littered
with dog feces and the detritus of past lives: birthday
streamers over a doorway, a girl's pink coat on a hook,
computer monitors and dishes.
"The door is open; sometimes I can hear dogs barking,"
says Delia Ewing, 84, who lives next door. "I walk in
the backyard and see grass taller than I am."
Given the circumstances, U.S. Bank officials said they
contacted the originator of the mortgage, Wells Fargo,
and urged it to board up the building.
But U.S. Bank officials say they are dumbfounded that
they are being singled out. "We agree that foreclosures
are a huge problem," says Steve SaLoutos, executive vice
president of U.S. Bank's Midwest division. "It's not a
Park National problem, or a U.S. Bank problem, but a
He says it's a frustrating situation for the bank to
manage, because it is essentially in the position of
cleaning up other people's mistakes. "Do you isolate the
bank that is the last one to put a sign on the
building?" he asks.
U.S. Bank, though, has made some friends in Chicago.
At Christ the King Jesuit College Preparatory, the
school to which Park National pledged a no-interest
loan, the bank is seen as a hero. The school caters to
motivated low-income students who agree to work one day
a week to cover most of their tuition costs.
As the first new Catholic high school on the West Side
in 85 years, it owes its existence to Michael Kelly, but
when Park National folded last fall, Christ the King's
future suddenly looked bleak.
"There was so much uncertainty," says the Rev.
Christopher J. Devron, the school's president, adding
that he "prayed a lot, lost a lot of sleep."
He said he eventually approached U.S. Bank to see if it
would take over Park National's commitments. U.S. Bank
sent a team to the school to meet students, and it
eventually decided to substantially match Park
National's commitments - not only money but also jobs
for students. "You couldn't argue with the value of what
the school was doing," says Mr. Hartnack.
ON a tour of Maywood, Lennel Grace works through a list
of foreclosed homes for which U.S. Bank is either
originator, trustee or servicer. At some of the stops,
members of the Coalition to Save Community Banking have
put signs on the door that read, "Another U.S. Bank
Mr. Grace, economic development director at Rock of Ages
Baptist Church, says foreclosures have devastated the
village, creating dangerous eyesores that have decimated
property values. Of the town's roughly 6,800 households,
there were 449 new foreclosure filings in Maywood from
the beginning of 2009 through the first quarter of 2010,
according to the Woodstock Institute, a community
development think tank.
"This is not a bad neighborhood," he says, pulling onto
South 17th Street. "But they are buying these houses for
Mr. Grace and others say they are well aware that U.S.
Bank isn't responsible for all the foreclosures. But
they also said that by acquiring Park National Bank,
U.S. Bank accepted the community's expectations set by
At the meeting at Hope church, Mr. Hatch applauded U.S.
Bank for making some steps, like investing in schools.
But like many others that night, he dispatched with
niceties, and threatened to send busloads of protesters
to U.S. Bank's headquarters in Minnesota unless it
started acting more like Park National.
"We have made tremendous progress," he said, turning to
the audience. "Because on the West Side we fight back."
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