Dispute with defunct Seaway still could cost Urban Partnership Bank – Finance News

on Jun17

16 June 2017 | 5:33 pm

Seaway Bank & Trust is no more, but its ghost haunts another South Side lender, Urban Partnership Bank.

A lawsuit Seaway filed in early 2016 against UPB after a deal to buy $90 million in mainly South Side mortgages from UPB went sour still is pending despite Seaway’s failure earlier this year.

That’s because the Federal Deposit Insurance Corp., which sold off most of Seaway’s assets and liabilities when the bank failed, took over the case and is continuing to press it.

UPB had a deal to sell 849 mortgages to Seaway, going so far as to take a $6.5 million down payment in late 2015. The two banks soon thereafter disagreed on terms, and Seaway backed out. But UPB wouldn’t refund the money.

UPB booked the $6.5 million as income in 2015 and sold the mortgages to another party in 2016. Now UPB is seeking to raise about $15 million in capital to comply with an August 2016 consent order with bank regulators.

Attracting the money has been hard enough. Adding another $7 million to the total if UPB is forced to repay the FDIC will make the hill that much steeper.

For its part, UPB is fighting back. In court filings, it said Seaway reneged on a $64 million deal to acquire the mortgages. UPB later sold the same home loans for less, it said.

Interestingly, UPB effectively asserts the FDIC is being disingenuous in pursuing Seaway’s suit.

The original dispute between UPB and Seaway centered on how quickly Seaway could assume the loans. It was always a mystery that Seaway could afford to pay more than $60 million in any transaction when its financial condition was such that regulators closed it just a year later.

UPB alleged in a June 13 filing that “Seaway used the servicing transfer date as a ruse in order to get UPB to renegotiate the terms of its purchase after the FDIC expressed concern to Seaway that purchasing (the) loan portfolios would impact Seaway’s liquidity.”

An FDIC spokesman declines to comment on the litigation, as does a UPB spokeswoman.

A federal judge will rule soon on an FDIC motion to dismiss UPB’s counterclaims.

In the meantime, UPB is on track this year to record its first annual profit since its 2010 inception. Backed by more than $140 million in equity from Wall Street goliaths like Goldman Sachs and JPMorgan Chase, UPB was formed to assume the assets and deposits of prominent South Side community lender ShoreBank when it failed.

After burning through more than $100 million of that, UPB’s equity stood at $36 million as of March 31. It posted a $235,000 profit in the first quarter. Assets were a modest $526 million.

UPB Chairman David Vitale told Crain’s last August that he was asking larger Chicago-area banks to invest in UPB as a way to meet their federal requirements on serving underprivileged communities.

Nearly a year later, UPB spokeswoman Monica Carney acknowledges the capital campaign hasn’t begun yet. “The bank is currently focused on completing its audited financial statements, which is standard practice and required for the capital raise,” she emailed.

The bank is on track to originate $75 million in new loan commitments this year, she wrote. That’s up from $51 million last year.

And it’s launching a money market account aimed at individuals and institutions who can afford to deposit at least $100,000. The new “Partnership Pledge” account gets a higher interest rate and depositors are recognized as UPB partners in supporting economic development in low-income neighborhoods.



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