Summer of Corruption: Maxine Waters’ zombie deadbeat bank; Update: House Ethics panel releases charges
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I’ve been telling you about Maxine Waters’ shady OneUnited meddling for the past year — and most recently spotlighted the OneUnited/TARP hanky-panky and Waters’ minority fat-cat banker pals last week. You’ll recall that I linked to an analysis by Linus Wilson at Seeking Alpha that exposed how weak OneUnited was. Flashback:
OneUnited Bank was left with NEGATIVE $7.0 million in equity, according to to this spreadsheet, which was mailed by OneUnited bank officials to the U.S. Treasury.
My joint research with Wendy Yan Wu, “Escaping TARP” shows that the average TARP recipient had a tier 1 capital ratio of 11.02 percent. Before it lost the bank’s capital on the Fannie and Freddie preferred stock, OneUnited was near the regulatory minimum of a 5 percent tier 1 capital ratio. After the mortgage giants were seized to prevent their failure, OneUnited’s tier 1 capital ratio was about -1 percent. In other words, OneUnited was a zombie bank. The stock owned by Ms. Waters’ husband would have been worthless without a government rescue and forbearance from regulators.
Yet, despite knowing that OneUnited had negative equity, and thus did not meet even the minimum capital requirements to be open for business, the U.S. Treasury invested $12.1 million of taxpayers’ dollars in this zombie bank on December 19, 2008. Ms. Waters’ alleged use of her position to enrich herself at taxpayer expense is troubling. So is the U.S. Treasury’s ultimate investment in OneUnited Bank based in House Financial Services Committee Chairman’s, Barney Frank’s (D-MA), district. My paper “TARP’s Deadbeat Banks” shows that OneUnited has missed five straight dividends. If it misses its sixth dividend, the U.S. Treasury will have the right to appoint two new directors to the banks’ board. Taxpayers representatives probably will soon be holding a board seat at OneUnited like Ms. Waters husband once held.
Has Congress learned its lesson? Not yet. Ms. Waters’ and Mr. Frank’s party are attempting to pass legislation to invest up to $30 billion in banks like OneUnited. An amendment pushed by U.S. Senator George LeMieux (R-FL) says that banks on the Federal Deposit Insurance Corporation’s (FDIC’s) problem bank list can get access to taxpayer funds, if they get matching amounts of private capital in the amended “Son of TARP” bill. CIT Group raised private capital prior to receiving TARP funds, and it failed nevertheless. I’m wondering why OneUnited was not seized by regulators a long time ago. Perhaps the Boston lender is too politically connected to fail.
This analysis has been confirmed by a separate report from American University’s Investigative Reporting Workshop:
The bank at the center of a House ethics investigation of U.S. Rep. Maxine Waters was the weakest to receive funds from the government’s Troubled Asset Relief Program at the time of its rescue, according to an analysis by the Investigative Reporting Workshop.
When then-Treasury Secretary Henry Paulson announced creation of the so-called “Capital Purchase Program” in October 2008, he said it was directed at “healthy institutions.” Nevertheless OneUnited Bank of Boston received a $12.1 million capital injection from the Treasury Department on Dec. 19, 2008. The money has not been repaid, according to Treasury Department documents.
Records show that as of Sept. 30, 2008, the latest quarter before the investment, OneUnited had “Tier 1 capital” of just 1.8 percent of assets. Of the 363 banks that got TARP money in the fourth quarter of 2008, at the height of the financial crisis, that was the lowest Tier 1 ratio.
In fact, none of the 987 banks that got TARP money between October 2008 and December 2009 reported a lower ratio in the quarter before they received federal cash. As of March 31, 2010, 16 TARP banks had lower Tier 1 ratios then OneUnited’s 4.98 percent.
And more: “OneUnited is one of only a few banks to be under a federal supervisory enforcement order at the time it received TARP funding.”
The more you dig, the worse it smells.
3, 2, 1…RAAAAACIST!
Update: The House Ethics panel has released details this afternoon of the charges against Mad Maxine. Go here.
Transcribing from the PDF of the House Ethics panel’s memorandum in support of the order rejecting Waters’ request to dismiss the case:
…the Statement of Alleged Violation asserts that the day after the Department of Treasury and the Federal Housing Finance Agency took action that threatened the viability of OneUnited Bank (OneUnited), a bank on whose board Respondent’s husband had previously served and in which Respondent’s husband held a significant investment, Respondent arranged for a meeting between executives from OneUnited and officials at the Department of Treasury. At the meeting between the OneUnited executives and Treasury officials, the executives asked Treasury for $50 million in funding for OneUnited. Treasury officials informed the executives that Treasury was not legally authorized to provide such funding. Following this direct request for funding by OneUnited executives, Respondent determined that it would be ethically improper for her to advocate on behalf of OneUnited. Despite previously instructing her Chief of Staff to work with the OneUnited executives, Respondent failed to instruct her Chief of Staff that he should not advocate on behalf of the bank. Respondent’s Chief of Staff in fact continued to do so even after Respondent determined that she could not do so.
The memo goes on to note that Waters’ chief of staff was heavily involved in proposing legislative solutions and communicating with other congressional staff about those solutions. And most notably, Waters’ chief of staff was thanked by OneUnited executives for helping to raise $17 million in private funding — in addition to the $12 million in TARP bailout money that OneUnited eventually secured after the Waters-brokered meeting.
The memo also responds to Waters’ claim that she did not benefit from her intervention:
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…the fact that the value of Respondent’s shares of OneUnited stock did not change after receipt of TARP funds does not show that Respondent did not benefit from OneUnited’s receipt of TARP funds. This retention of value is the benefit Respondent received….the Investigative Committee concluded that OneUnited was under eminent threat of failure, and that Representative Waters, through her husband, had a significant financial interest in OneUnited, which would have been worthless if the bank had failed…this created the appearance that Respondent was improperly using official resources for her own narrow financial interest.”
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