Monday, July 19, 2010

ShoreBank's Ill-Fated Crosstown Expansion

The Wall Street Journal reports:
Founded in 1973, ShoreBank built a reputation on lending to low-and-moderate income borrowers on Chicago's South Side. Many of those loans were used to renovate apartment buildings in low-income neighborhoods. The company's bankers prided themselves on knowing details about the three- to six-story brick walk-up apartments that cover the neighborhood, according to the person familiar with the bank's operations.

"That was ShoreBank's sweet spot and it worked for 35 years," said a person familiar with the bank.

Over the past few years, however, ShoreBank began expanding across town into Chicago's other underserved neighborhoods, such as the Logan Square area. ShoreBank's bankers were less familiar with the neighborhood's residents and its buildings, this person said. The bank also made loans for condominium development, an area in which it didn't have much experience. Borrowers, flush from successful renovation projects, took out multiple loans from the bank.

The plan backfired when the economy started unraveling, this person said. Residents lost their jobs and couldn't pay their rent in the refurbished buildings. Borrowers, some of whom were developing multiple projects, couldn't repay loans.
The small bank that makes news.