Pritzkers to See Some of Superior Settlement

Analyst up in arms over payout

January 4, 2005

By PATRICK CROWLEY

“It’s obscene,” Bert Ely, a banking consultant and analyst based in the Washington area, told MortgageDaily.com in an interview.

The settlement stems from the 2001 failure of Superior Bank FSB, which had about $2 billion at the time of its demise. The failed bank cost the Federal Deposit Insurance Corp. (FDIC) an estimated $700 million when it went under.

Ely said poor management, risky investments and shoddy accounting led to the bank’s demise.

“There was incredible regulatory negligence,” he said.

On Christmas Eve, auditor Ernst & Young, which was Superior Bank’s outside auditing firm, agreed to the $125 million settlement with federal regulators.

Ernst & Young agreed to pay the FDIC $40 million in restitution and another $85 million to the Office of Thrift Supervision (OTS), the agency that ultimately closed the bank, according to statements from both agencies.

“The consent order requires that Ernst & Young adopt and implement specific internal controls and policies concerning its audits of federally-insured savings associations, and provide periodic reports concerning such audits to the OTS,” the OTS said in the statement.

Ernst & Young did not admit to any wrongdoing as part of the consent order.

Both the OTS and Ely said Superior Bank ran into problems because of improper accounting techniques in its valuation of residual assets in the securitization of subprime mortgage loans.

The OTS said Superior used “aggressive assumptions” and “incorrect accounting” in how it valued the assets.

Ely said that the assets were “grossly overvalued.”

“The bank was probably insolvent for years,” Ely said. “But it did not look that way in their financial reports.”

Ely said subprime loans were run through Alliance Funding, a company related to Superior Bank.

Ely noted that under the agreement, members of the Pritzker family, one of Chicago’s wealthiest families and a co-owner of Superior, will likely receive up to $30 million from the settlement while uninsured depositors have yet to receive any of the $25 million they lost in the bank’s collapse.

Representatives of the Pritzker family could not be reached to comment. The family’s holdings include the chain of Hyatt hotels.

Federal documents show that when the bank failed the Pritzker did pay $460 million to cover some losses.

But Ely said there is still something unfair about the operators of a failed lender receiving such a substantial piece of the settlement while others have not been paid a cent.

“The (Pritzkers) have tried to cast themselves as victims, but that doesn’t fit here,” he said.

Patrick Crowley is a political reporter and columnist and former business writer for The Cincinnati Enquirer. Email Patrick at: pcrowley@enquirer.com