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Federal Regulators Close Thrift Half-Owned by Pritzker Family; Cost Could Reach $500 Million

By Marcy Gordon The Associated Press Published: Jul 27, 2001

WASHINGTON (AP) - Federal regulators on Friday closed a Chicago-area thrift half-owned by the multibillionaire Pritzker family that has been battered by huge losses on loans to high-risk borrowers. The thrift's failure is expected to cost the federal insurance fund an estimated $500 million, according to the Federal Deposit Insurance Corp., making it one of the costliest failures of a U.S. financial institution.

The federally insured thrift was closed and the FDIC was appointed as receiver.

The regulators found that Superior, based in Chicago suburb Oakbrook Terrace, Ill., had lost nearly all its assets and had engaged in poor lending practices, inadequate supervision of employees and poor recordkeeping.

The Pritzkers, who control the Hyatt Corp. hotel chain and have other real-estate and industrial holdings, are one of the nation's wealthiest families and have been major contributors to the Democratic Party.

Responding to the FDIC's announcement, Harold S. Handelsman, an attorney for the Pritzker Interests, said, "The Pritzker Interests are disappointed at the outcome and intend to cooperate with the regulators. The Pritzker Interests have been willing to make additional investments of more than $250 million in respect of Superior Bank, based on a viable ... plan that would give the bank a fighting chance to survive."

However, Handelsman said, the Pritzkers were passive investors who had little control over the management of the thrift, and therefore were "not willing to pour money down a black hole of uncertain numbers and unknown losses - which appears to be the case."

The Pritzkers' 50-50 partner in the thrift and its holding company, Coast-to-Coast Financial Corp., is New York developer Alvin Dworman.

Earlier Friday, the Pritzkers through their attorneys had offered to pump $210 million into the thrift, but the regulators rejected the plan, according to a spokesman for the Pritzker Interests who declined to be identified by name.

Superior specializes in making high-interest mortgage, auto and other loans to consumers with troubled credit histories who cannot qualify for better rates. Those borrowers often run into financial trouble in a slumping economy and may be unable to repay the loans, bringing losses for the bank or thrift.

Some community groups have criticized Superior for its lending practices, which they said targeted minorities and the poor in ads on daytime television.

The outgoing director of the Office of Thrift Supervision, Clinton appointee Ellen Seidman, had regulatory responsibility for Superior.

The thrift was represented in dealings with the agency by former Comptroller of the Currency Eugene Ludwig, also a Clinton appointee, who oversaw nationally chartered banks until he left the government for the private sector. Both banking agencies are divisions of the Treasury Department.

Seidman, who was a special White House assistant for economic policy before former President Clinton named her to head the thrift agency in 1997, had her confirmation delayed at least in part by controversy over her role in Democratic fund raising. Seidman had helped organize a White House fund-raising event with prominent bankers in May 1996, and she was questioned closely by senators at her confirmation hearing.

Seidman didn't attend the White House coffee klatch, while Ludwig came under fire from Republicans for going to it. He acknowledged that his participation was inappropriate and said he would not have gone if he had known it was sponsored by the Democratic Party. Clinton said it was a mistake to include Ludwig, then one of the government's top bank regulators, in a political event.

Superior, a mortgage and consumer lender with some $2.1 billion in assets, has struggled for more than 18 months and thrift agency examiners expressed concern in February about its solvency as the result of mounting loan losses and other problems.

The thrift lost $22 million in the fourth quarter of last year.

In February, according to banking industry publications, Superior sold off $400 million in loans a day after the credit-rating agency Fitch lowered its rating on the thrift's long-term debt to below investment grade.

AP-ES-07-27-01 1849EDT

-- Anonymous, July 27, 2001