Bank Autopsy: New Jersey's First BankAmericano

December 28, 2009 WNYC News

NEW YORK, NY December 28, 2009 —One hundred and forty American banks failed in 2009. But only two of them were in the New York metro area. WNYC’s Ilya Marritz reports that in the case of First BankAmericano, an institution based in Elizabeth, NJ that was founded to serve the Latino community, sloppiness and a risky business strategy killed the company.

Anthony Perez is just the kind of guy First BankAmericano wanted as a customer. He’s Puerto Rican. He cuts hair around the corner from the bank’s headquarters in Elizabeth. But he keeps his money at a bigger bank with more branches.

When First BankAmericano shut down last summer, he chalked it up to the law of the jungle.

“Hey it’s survival of the fittest, man. If you don’t play your cards right then go out of business,” Perez says. “Just don’t ask for a bailout.”

Now a fried chicken restaurant and a Western Union anchor the intersection, and the former bank headquarters is being cleared out.

Perez is right about First BankAmericano. It definitely did not play its cards right. And it did ask for a bailout: Former CEO Holly Bakke recalls writing letters begging for access to the Troubled Asset Relief Program, or TARP, last spring. She was unsuccessful. But Bakke says this bank, with only $160 million in deposits, was just as deserving as the too-big-to-fail institutions.

“It’s crisis on a much smaller scale,” Bakke says. “What other bank are people going to go to where Spanish and Portuguese are spoken? What other bank are people going to go to where we know it’s the first time they’re coming to a bank?”

Bakke was a believer in the First BankAmericano outreach mission. But she didn’t have much time to put it into action.

A former state banking commissioner, Bakke was brought in in 2007 to fix what she calls “process problems” that had already earned First BankAmericano a letter of warning from regulators. For example, loans weren’t being adequately vetted. Bookkeeping was sloppy and incomplete.

“None of us anticipated the economic downturn and that was not the problem we were hired to solve,” Bakke says.

With new policies in place, the warning letter was rescinded after one year. But now First BankAmericano faced new problems. Borrowers were missing their scheduled payments.

“It’s sort of like that drip and the next drip and the next drip, sort of led to someone turning the faucet on. So it was more than dripping,” Bakke says.

At one point, First BankAmericano took possession of a pizza parlor whose owner had fallen into arrears. The bank re-sold it pretty quickly, but Bakke says most delinquent loans –- to small businesses and especially property developers -– couldn’t be turned into cash.

Last June, the bank was hit with another warning letter from regulators. Six weeks later, the Federal Deposit Insurance Corporation shut it down. Bakke says for her it was “very disappointing” and “disheartening.”

Overnight, the bank’s depositors and borrowers were carried over to a new owner. But shareholders lost everything.

“We made a small investment and we were unfortunately wiped out,” says retired attorney Alan Coen. He and his wife bought stock in 1997, in part because they believed there was money to be made lending to the growing Hispanic population in Elizabeth.

The Coens never received a dividend, and they never considered selling their shares. They will take a writeoff on their taxes this year, and Alan Coen says he’s not looking to cast blame.

But Rutgers business professor Darius Palia says the FDIC’s 2007 warning letter is a stunning criticism of the board of directors’ policies.

“Usually it’ll be two or three items. This was like a blanket,” Palia says. “It’s loans, management, security, capital. It was right across the board.”

Even with a new CEO, First BankAmericano couldn’t earn the FDIC’s confidence. Palia says it’s noteworthy that the board of directors didn’t include a single banker.

It did include a prominent personal injury lawyer, a spokesman for a publicly owned utility, and State Senator Ray Lesniak, a leader of the New Jersey Democratic Party. This month, the state Senate advanced a bill authored by Lesniak to increase state oversight of banks.

But neither Lesniak nor any other member of the First BankAmericano board contacted by WNYC would speak about what went wrong. Several people with knowledge of the bank’s dealings declined comment for fear of retribution.

Across the street from the old First BankAmericano building, deli owner Sam Sherma has only good things to say about his vanished neighbor.

"He is my mortgager. I have all kinds of accounts with them. Million, million dollars," Sherma says. "They always deal beautiful with us."

And now that First BankAmericano is gone? For Sam Sherma, it’s actually no big deal. The new owner of his account, Crown Bank, is just around the corner.

Dissolving First BankAmericano cost the FDIC $15 million. It appears the biggest individual losers were the thirteen members of the board, who held most of the shares.