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<H1 property="dc.title">Federal examiners protested help for politically
connected bank, e-mails show</H1>
<H3 property="dc.creator">By R. Jeffrey Smith, <SPAN class=updated>Wednesday,
April , <SPAN class=special>6:17 PM</SPAN></SPAN></H3>
<P>A decision in late 2008 by top officials of the Federal Deposit Insurance
Corp. to help a politically connected bank in Boston left federal bank examiners
there angry enough that some called it a “travesty of justice,” according to
internal e-mails obtained by The Washington Post.</P>
<P>The chairman of OneUnited Bank, a friend of Rep. Maxine Waters (D-Calif.),
had rendered it insolvent through lavish spending and bad investments, according
to the examiners’ written accounts. But by the end of that year, after Waters
arranged a key Treasury Department meeting for the bank, it had won a bailout
loan and a unique exemption from the FDIC’s accounting rules.</P>
<P>“There are some really good people expressing very strong opinions regarding
what they view as a travesty of justice regarding the special treatment this
institution is receiving,” acting regional director John M. Lane warned in a
March 2009 e-mail to Christopher J. Spoth, a senior FDIC consumer protection
official.</P>
<P>The claim that OneUnited benefited from assistance organized by Waters —
whose husband held substantial stock in it — lies at the heart of unresolved
House Ethics Committee charges. A special subcommittee alleged last spring that
Waters’s actions related to the bank had brought discredit to the House, a claim
that she has rejected. </P>
<P>The ethics charges were to be heard at a special hearing postponed last fall
by then-chairman Zoe Lofgren, a fellow California Democrat, partly on grounds
that it was too close to the election. Rep. Jo Bonner (Ala.) the panel’s senior
Republican, protested that decision, telling a closed meeting on Sept. 23 that
“if, God forbid, this thing goes into the 112th Congress, I just think we are
stained for life in terms of our inability to get this thing done,” according to
a transcript. </P>
<P>A spokesman for Bonner, the committee chairman since January, declined
comment on whether or when the planned Waters hearing might be scheduled. Three
key staff members involved in the probe left amid controversy over the soundness
of the investigation and have yet to be replaced. But House Speaker John Boehner
(R-Ohio) recently designated a new pool of members to serve on investigative
subcommittees, a spokesman said.</P>
<P>The outlines of OneUnited’s difficulties and those of its president, Kevin
Cohee, are already <A
href="http://www.washingtonpost.com/wp-dyn/content/article/2010/08/11/AR2010081105561.html?nav=emailpage">a
matter of public record</A>. But the depth of the bank’s troubles, its alleged
resistance to making repairs and the FDIC officials’ dissent over the wisdom of
its bailout are detailed in the e-mails, as well as in interviews with some of
those involved.</P>
<P>In the period leading up to the bank’s crisis, a regional FDIC official said
Cohee “has apparently made accusations that examiners are biased at every exam
(stopping just short of calling them racist).” </P>
<P>FDIC officials said that he resisted disclosing his decision to invest $50
million in Fannie Mae and Freddie Mac stock in early 2008 — or about 130 percent
of the bank’s core working capital. When they subsequently pressed Cohee to sell
the stock, he refused, the officials said.</P>
<P>OneUnited spokeswoman Joyce Sullivan declined to discuss the 2008 e-mails on
grounds that its examinations are confidential, but she said that “OneUnited has
a strong and constructive relationship with both its state and federal
regulators. ... As a minority FDIC-insured commercial bank, OneUnited is
profitable [and] operates in a safe and sound manner.”</P>
<P>On Sept. 7, 2008, the bank’s Fannie and Freddie stock became essentially
worthless when they were put into federal conservatorship. The next day, <A
href="http://www.washingtonpost.com/wp-dyn/content/article/2010/09/16/AR2010091606819.html?nav=emailpage">bank
executives asked for Waters’s help </A>arranging a meeting with top Treasury
Department officials. Waters persuaded Treasury Secretary Hank Paulson to
convene a Sept. 9 meeting but has said she was trying to help all minority banks
punished by the stock devaluation — not specifically OneUnited.</P>
<P>Inside the FDIC, however, officials immediately connected Paulson’s decision
with Waters’s family ties to the bank. “Evidently Kevin has called Maxine
Waters. ... (Is it her husband who is on the board?) ... to complain about our
mistreatment of the bank,” Doreen Eberly, then regional director, wrote to
Boston area director Daniel Frye on Sept. 9. “Yes, husband of Maxine,” replied
Frye.</P>
<P>Waters’s husband, Sidney Williams, served on OneUnited’s board from 2004
until April 2008. Waters, who served on or chaired the House subcommittee that
oversees the FDIC through this period, held some bank stock for a time but sold
it before these events. Her husband’s holdings were valued at $350,000 in June
2008.</P>
<P>At the outset of the FDIC’s deliberations, Frye told a senior official in
Washington that OneUnited’s appeal for help was “going nowhere I hope.” Because
Cohee had made bad investments, Frye added in a Sept. 12 e-mail, “there is no
reason to talk about moral hazard if it does.” </P>
<P>None of the other regional or Washington officials, in e-mails written before
the FDIC’s decision to help, said they were opposed outright. But several
described it as a dangerous precedent. Serena Owens, the FDIC’s associate
director for supervision, separately warned top officials that OneUnited’s
management and board “have consistently demonstrated an inability or
unwillingness to address criticisms and recommendations of examiners,” raising
issues of trust, according to an Oct. 15, 2008 e-mail.</P>
<P>One e-mail dated Sept. 29 makes clear that top FDIC officials believed that
members of the Congressional Black Caucus would try to stymie the
administration’s Troubled Asset Relief Program bill authorizing a broad bailout
of many financial institutions if it lacked a provision specifically helping
OneUnited. Such a provision, added by Rep. Barney Frank (D-Mass.), the Financial
Services Committee chairman, was later cited by the FDIC as a justification for
its assistance.</P>
<P>Lane said in his March 2009 e-mail that he told complaining staff members
that “there are often external issues at work that we do not have control over
and the board or the treasury has to take all factors into consideration.” </P>
<P>Eberly wrote in March 2009 that although “the CEO’s treatment of our
examiners and his public utterances about the whole situation are distasteful to
everyone,” the agency could — under the bailout deal — pressure Cohee into
signing a cease-and-desist order curbing his expenses and allowing more
oversight.</P>
<P>“Confidential internal staff discussions aside ... [OneUnited] was ultimately
required to raise capital ... and address its management issues,” FDIC spokesman
Andrew Gray said Friday. He said the agency had followed “interagency guidance
to provide flexibility” for banks affected by the devaluation of Fannie and
Freddie stock.</P>
<P>In a previously undisclosed June 2009 report, FDIC Inspector General Jon T.
Rymer concluded that the agency’s five-member board should have reviewed
OneUnited’s requests for an accounting rule exemption more carefully, according
to three sources who have seen it. </P>
<P>Rymer specifically faulted the board for relying on “unaudited” claims by the
bank underpinning the accounting rule exemption request, including its
projection of future earnings. But he said he did not find evidence that
politics had swayed the agency’s decision making. </P>
<P>“My thinking is this,” Spoth wrote in an e-mail to the acting regional
director on Oct. 28, as the agency wrapped up its deliberations on OneUnited and
prepared to pass key paperwork on the potential loan bailout to the Treasury.
“We did what we could to avert failure. ... We got the corrective program that
we needed. ... If the UST makes an investment, that’s their call. What a
country.”</P>
<P><STRONG></STRONG></P>
<P><STRONG><STRONG>smithj@washpost.com</STRONG></STRONG></P></DIV>
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