Lesniak, other insiders got loans at failed bank

Wednesday, February 10, 2010 The Record

State Sen. Raymond G. Lesniak and five other directors of an Elizabeth bank that collapsed last year borrowed more than $2 million in mortgages and commercial loans from the thrift, records show.

Some of those loans came after First BankAmericano was put under a July 2007 federal order to stop what authorities described as unsound banking and loan practices.

In a report filed before it collapsed in July 2009, the bank listed $11.4 million in "insider loans," a term used by regulators to track financing for bank employees, officers and key shareholders.

Eight former board members, including Lesniak and several others who got mortgage money from the bank, have also been political contributors to U.S. Sen. Bob Menendez, giving more than $50,000 since 1993, according to campaign-finance data.

On Tuesday, Menendez sought to play down a report in The Wall Street Journal that revealed he tried to intervene in the FDIC's handling of the First BankAmericano crisis as the bank neared collapse in July 2009.

The newspaper said a July 21 letter from Menendez to the Federal Reserve asked the agency to approve the sale of First BankAmericano to a holding company based in Brick before it collapsed. The letter from Menendez did not reveal that Lesniak and Joseph Ginarte, the bank's chairman, were longtime contributors who each had a financial stake in the bank.

In an interview with The Record, Menendez said he regretted the insistent wording of his letter to Federal Reserve Chairman Ben Bernanke. But he stood by his decision to intercede in the bank's behalf, saying that First BankAmericano filled an important need as a lender for Hispanics in Union County.

"I don't think it's unusual for members of Congress to advocate for entities within their state," Menendez said. "I don't think it's unusual to try to preserve a community bank, especially if at the end of the day it means less lending into those communities."

Menendez denied having any contact with Ginarte or Lesniak regarding his letter, saying that he had first been approached by Holly Bakke, the state's former Banking and Insurance commissioner, to help the bank.

Menendez said he did not know that Lesniak and other political contributors were getting large loans from the bank. He declined to comment on the loans, but stressed that he has clashed with fellow Democrat Lesniak when the state senator sought to expand his influence outside of his Union County base.

"We get along very well with each other," Menendez said of Lesniak. "But the bottom line is we've also had conflicts about politics when Ray wanted to play in Hudson County. So it's not that it's always been amorous."

Lesniak did not respond to detailed questions submitted through his district office and the Senate Democratic office in Trenton.

 Report issued warning

 BankAmericano was one of two New Jersey banks and among 140 nationwide that failed last year amid the ongoing nationwide recession, with risky lending practices blamed for most of the trouble. Bank analysts are now predicting as many as 200 banks could fail in 2010, at a cost of $50 billion to taxpayers.

A report prepared last month by Governor Christie's transition team said two New Jersey banks are likely to fail in the first quarter of this year due to risky commercial lending and 17 others have been put on a "watch list."

"Solvency of banks is currently the No. 1 area of concern for the [state] Division of Banking," the Christie report said.

Disclosure forms filed by Lesniak last year show that he earned less than $10,000 from his investments in First BankAmericano in 2008. As recently as 2005, however, he earned between $25,000 and $50,000 from his stake.

In July 2002, Lesniak negotiated a $575,000 refinancing of his Elizabeth town house through First BankAmericano.

The terms of the loan could not be determined Tuesday.

He was not the only board member to do personal business with the bank he directed.

Ginarte obtained a $350,000 loan for the April 1999 refinancing of a commercial building in Harrison. In October 2003, Joseph M. Gillis mortgaged a commercial building in Elizabeth with a $273,000 loan from the bank.

Other notable political figures, including James Kennedy, a Rahway businessman and friend of former Gov. James E. McGreevey, have used the bank for their personal financial needs.

Lesniak's nephew, George Devanney, who is the county manager for Union County, obtained a $70,000 loan for a Berkeley Heights town house and a $103,000 adjustable-rate mortgage on an Elizabeth property.

 Loans must be in open

 While insider loans are not illegal, the FDIC keeps close tabs on such financing, requiring federally chartered banks to reveal them in quarterly reports. Regulators said insider-banking practices contributed greatly to the collapse of the savings-and-loan system in the early 1990s.

Several First BankAmericano officers, including Francisco Mejia, took out loans after the bank received a scathing "cease and desist" order from the FDIC in July 2007. In June 2009, board member Remberto Perez received a $125,000 loan on a Guttenberg property even as federal regulators prepared to take over the bank.

The 37-page federal order did not name any bank officials or single out any bad loans. But it did cite inadequate loan supervision and management, failure to comply with anti-money-laundering policies, bad management and poor supervision.

Federal documents also show that BankAmericano was criticized especially for its commercial-lending practices. A brief review of bank records shows that dozens of development companies in Union and Essex counties relied on the bank for financing.

The bank also had government depositors. In 2008, for instance, the Union County freeholders made First BankAmericano one of its official repositories for county deposits.

The failure of First BankAmericano cost the cash-starved FDIC $15 million. The string of recent failures across the nation has depleted the agency, which is now seeking taxpayer money from Congress.

Commercial real-estate loans were also partially to blame for the demise of the second New Jersey bank to fail recently — Citizens Community Bank in Ridgewood, which was taken over by North Jersey Community Bank.

Troubled loans have the attention of Bernanke, who this month said regional and community banks may face "particularly acute" pressures from commercial real estate, which the central bank last month called the economy's "weakest sector."

Federal reports show that First BankAmericano was reeling from the effect of bad commercial loans in the months preceding its demise.

The bank, which had six branches, including one in Clifton, charged off $4.6 million in loans in the first half of 2009, including $2.2 million in construction and land-development loans, according to the reports.

The bank posted net losses totaling $3.6 million in that period. Non-accrual loans, which are loans not yet written off but deemed unlikely to be fully repaid, totaled $9.5 million, exceeding the bank's capital and loans loss reserves.

The bank's loan portfolio was heavily concentrated in loans backed by commercial real estate: More than 72 percent of the $122.1 million in total loans were commercial real-estate loans.

 Merger attempt failed

 Officials with First BankAmericano thought they had a way out of the mess through a possible merger with JJR, the Brick-based holding company that's connected to Crown Bank which is now operating the failed bank's branches. But the FDIC declined to act on the bank's request to approve the takeover.

Lawyer Mike Horn, a partner at McCarter & English in Newark, who represented First BankAmericano in the merger deal with JJR, complained to The Record last summer that the Federal Reserve was being unresponsive to the bank's pleas.

Menendez suggested Tuesday that the FDIC wasted millions by failing to approve the JJR deal being negotiated.

"Why no one gets that part of it is pretty shocking to me,'' he said. "We could have saved $15 million."

A spokeswoman for the Federal Reserve declined to comment.

For Menendez, it is the second time recently that he has been criticized for seeking to intervene with federal oversight of New Jersey businesses that supply him with political cash.

The Food and Drug Administration said last year that it been "pressured" by Menendez and three other New Jersey congressmen on behalf of Hackensack orthopedic manufacturer ReGen Biologics.

The FDA has admitted it was influenced by pressure from the four congressmen to approve ReGen's product, despite the fact that the agency's scientific reviewers were critical of the device, an implant to repair tissue in the knee.

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Inside First BankAmericano

First BankAmericano was chartered in January 1997 with a target market of the multicultural business community; its six locations included its home base in Elizabeth and a branch in Clifton. When it failed last year, its assets were acquired by Crown Bank of Brick from the Federal Deposit Insurance Corp., which lost $15 million in the deal. Some First BankAmericano directors were both clients of the bank and contributors to U.S. Sen. Bob Menendez, who has come under criticism for trying to intercede on behalf of the bank with the FDIC.

A review of public records shows loans made over time to board members:

Joseph A. Ginarte, $350,000 to refinance a commercial building in Harrison in April 1999.
State Sen. Raymond J. Lesniak, $575,000 to refinance a town house in Elizabeth in July 2002.
Joseph M. Gillis, $273,000 to refinance a commercial building in Elizabeth in October 2003.
Frederick K. Leighton, $500,000 for a construction loan for a town house in Short Hills in October 2003.
Francisco P. Mejia, a total of $215,000 for a commercial loan on an Elizabeth condo in February 2008 and two refinancings.

Remberto Perez, $145,000 backed by a Tenafly property in January of 1999, and $125,000 backed by a property in Guttenberg in June 2009.

Campaign records also show that eight of 15 directors have been contributors to Menendez or his leadership PAC:

• Francisco Dominguez, 1996-97, 2002: $8,000
• Gillis, 1999-2006, $10,000
• Ginarte, 1993-2007, $19,630
• Arthur S. Guida, 1999, $1,000
• Lesniak, 1993-2005, $8,000
• Wilson Londono, 1996, $250
• Roberto A. Madan, 1992-98, $800
• Perez, 1995-2005, $10,600