Nov. 3--A year ago, FBOP Corp. owner Michael Kelly was told his Oak Park-based company, owner of Park National Bank and eight other U.S. lenders, had been approved for a capital infusion from the U.S. Treasury's Troubled Asset Relief Program.

One catch: FBOP would have to wait until January 2009 to receive TARP funds because there wasn't a program in place for small and midsize, privately held banks. In February, TARP changes made FBOP ineligible.

Kelly divulged that chain of events in a letter to employees Friday, the day regulators seized Park National, Community Bank of Lemont and other FBOP institutions in California, Texas and Arizona.

The seizures marked one of the first times in recent years the Federal Deposit Insurance Corp. imposed "cross guaranty liability," basically requiring Park National and Citizens National Bank in Texas to cover losses incurred by the deposit insurance fund from their weaker siblings. The healthier banks were unable to pay the assessments and were, therefore, closed by the Office of the Comptroller of the Currency. As of June 30, Park National wasn't undercapitalized.

FBOP's problems trace to last fall, when the U.S. government took over Fannie Mae and Freddie Mac, thereby rendering worthless $855 million in preferred shares FBOP held in the government-sponsored entities.

Having been snubbed for TARP, FBOP turned to private sources, Kelly said in his letter. "Since then, up to and including this week, FBOP was working with private investors to invest up to $750 million of new capital into the banks, and recently we submitted a proposal to the regulators, but it has not been approved."

Regulators picked U.S. Bancorp to take over FBOP's banks.

Terry McEvoy, an Oppenheimer & Co. analyst, said that had regulators allowed private investors to inject money into FBOP banks, it would have created "one more thing for the FDIC to worry about. Who is to say that in six to 12 months the FDIC wouldn't be at their door again, saying, 'We should have dealt with this problem earlier.'

"Capital was clearly needed, but another important question for the sustainability of the company was day-to-day decision-making. The business plan at FBOP resulted in banks failing."

The timing of the banks' closure was awkward.

The government shut down $4.8 billion-asset Park National on the same day that its community development arm, Park National Bank Initiatives, received $50 million in federal tax credits, announced in Chicago by Treasury Secretary Timothy Geithner. That money is intended to stimulate investment in low-income communities for projects such as charter schools, health clinics and stores.

"No taxpayer dollars have been lost, because Park National Bank received tax credits, not a direct government grant, and the tax credits have not been awarded to investors," a Treasury spokeswoman said Monday. "That process will take place in the future when the new parent company, U.S. Bank, finalizes its agreement with the CDFI program."

CDFI refers to the Treasury's Community Development Financial Institutions Fund, which administers the tax-credit program.

"Even in cases like this one, where a bank is being acquired by another bank, U.S. Bank, the surviving entity, is fully capable of administering the award," the Treasury spokeswoman said.

byerak@tribune.com

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