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THRIFT closed by regulators specialized in growing area of high-risk lending

Updated:
WASHINGTON (AP) _ The Chicago-area thrift closed by federal regulators specialized in high-risk consumer lending, a fast-growing business that also brought big losses to two other institutions in recent years.

The failure of Superior Bank, half-owned by the multibillionaire Pritzker family, threw a new spotlight on so-called subprime lending _ the practice of making high-interest mortgage, auto and other loans to consumers with troubled credit histories who cannot qualify for better rates.

Those borrowers often run into financial trouble in a slumping economy and may be unable to repay the loans, bringing losses for the bank or thrift.

Superior Bank was closed Friday by the federal Office of Thrift Supervision and the Federal Deposit Insurance Corp. was appointed as receiver.

The failure is expected to cost the federal insurance fund an estimated $500 million, according to banking experts who have reviewed the thrift's operations. That would make it one of the costliest failures.

Subprime lending also was implicated in the failures of First National Bank of Keystone, W.Va., and BestBank of Boulder, Colo., whose collapses contributed in 1999 to the biggest annual loss to the federal insurance fund since the regional bank crises of the early 1990s.

The Keystone bank grew by paying high interest rates to attract capital from across the country; its $800 million estimated cost to the insurance fund made it one of the most expensive failures.

BestBank sold high-interest credit cards as part of a travel-club membership to consumers with poor credit records. Its failure drained some $232 million from the fund, which backs each account up to $100,000.

Superior will open for business Monday morning as Superior Federal FSB, a full-service savings bank under a new charter, the Office of Thrift Supervision said. The agency said all depositors ``will have immediate access to their insured funds'' at all 18 of Superior's offices in the Chicago metropolitan area and loan operations will continue normally.

The FDIC also is providing a $1.5 billion line of credit to the new institution, which will be known commercially as New Superior.

The regulators found that Superior, based in the Chicago suburb of Oakbrook Terrace, Ill., had engaged in poor lending practices, inadequate supervision of employees and poor record keeping.

It was only the fourth financial institution closed by the federal thrift agency in the past five years. The nation's thrifts became financially strong after the savings and loan crisis of the late 1980s and early 1990s, which led to a massive government bailout.

The Pritzkers, who control the Hyatt Corp. hotel chain and have other real-estate and industrial holdings, are one of the nation's wealthiest families. Forbes magazine last year said that Robert Alan Pritzker and Thomas J. Pritzker each was worth $5.5 billion and tied for 41st on the list of richest Americans.

In a statement Friday, Harold S. Handelsman, an attorney for the Pritzker Interests, said, ``The Pritzker Interests are disappointed at the outcome and intend to cooperate with the regulators. The Pritzker Interests have been willing to make additional investments of more than $250 million in respect of Superior Bank, based on a viable ... plan that would give the bank a fighting chance to survive.''

However, Handelsman said, the Pritzkers were passive investors who had little control over the management of the thrift, and therefore were ``not willing to pour money down a black hole of uncertain numbers and unknown losses _ which appears to be the case.''

The Pritzkers' 50-50 partner in the thrift and its holding company, Coast-to-Coast Financial Corp., is New York developer Alvin Dworman.

Dworman had agreed with a plan to put money into Superior, approved by the regulators in May, a spokesman for Dworman said Saturday. ``We have been and continue to be prepared to participate fully in the implementation of this plan,'' said the spokesman, who declined to be identified.

That plan by Dworman and the Pritzkers expired without a capital infusion being made, according to Scott Albinson, the thrift agency's managing director of supervision.

Earlier Friday, the Pritzkers had offered through their lawyers to pump $210 million into the thrift, but the regulators rejected the plan, according to a spokesman for the Pritzker Interests who declined to be identified by name.

Albinson said the owners failed to submit a new written plan to revive Superior after the earlier plan lapsed.

Superior, with some $2.1 billion in assets, has struggled for more than 18 months and thrift agency examiners expressed concern in February about its solvency as the result of mounting loan losses and other problems.
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