What do the following list and the picture underneath it have in common?
The list:
a. Operating with an inadequate level of capital for the kind and quality of assets held;
b. Failing to provide adequate supervision and direction over the officers of the Bank;
c. Operating without an appropriate risk management program that establishes acceptable risk exposure and ensures appropriate policies and practices are in place;
d. Allowing the payment of excessive compensation, fees and benefits to its senior executive officers;
e. Operating with an excessive level of criticized assets;
f. Operating without effective underwriting standards and practices;
g. Operating without an effective loan documentation program;
h. Failing to provide for an effective system to identify problem assets and prevent deterioration;
i. Engaging in speculative investment practices and failing to prudently diversify its equities portfolio;
j. Operating without a system to monitor and evaluate earnings and ensure maintenance of adequate capital and reserves;
k. Operating with deficient earnings;
l. Operating without sufficient liquidity, in light of the asset and liability mix and overall financial condition of the Bank; and
m. Committing violations of law and regulation.
Answer: They BOTH are mentioned in the Cease and Desist order that the FDIC levied upon Boston’s OneUnited Bank before a US Congressman pulled some strings to get them a TARP capital injection.
What is wrong with this picture?
I’ve written about my concern over the direction of this bailout/stimulus package once the politicians get involved. I hold a dim view of the ability of politicians to use reason and sound economic principles to act wisely when spending our tax dollars…especially when they’ve got enough political cover to hide their tracks.
Among the many executive perks is a 2008 Porsche Cayenne. Pictured below is the Porsche Cayenne…SUV. It is the fastest SUV on the planet, but in my view (and if you own one or if you work for Porsche you might want to skip this next comment) it reminds me of the 1972 AMC Gremlin (see pic below the Cayenne for the considerably older and less expensive AMC Gremlin).
The AMC Gremlin costs roughly $3,200 (without the wheelie bar and drag chute).
This in my opinion is the most eggregious error in judgement to come out of this whole mess. If the board authorizes you to get a NEW PORSCHE I don’t see how you would EVER choose the Cayenne. It wouldn’t even make my Top 5 list…I would start with a GT2 and if anyone cried about the price I’d remind them that here at OneUnited we don’t let cost/benefit analysis or “legality” cloud our decision making process.
Besides…who would you want to get a loan from…a guy driving an AMC Gremlin or a guy driving a GT2?
*As I was writing this George looked over my shoulder and pointed out that an additional benefit of the increased marginal speed of the GT2 is that it will allow you to better outrun the regulators.
Oceanfront Property
Now let’s get on to their beach house. It is being reported that the bank had a beach house in Santa Monica because they have several branches in Southern California and due to the amount of time they spend checking up on things they needed a place to stay.
The property is currently listed at $7.35 million.
Description of where OneUnited executives stay when on the road (from the real estate site that is selling it now):
On the Santa Monica Gold Coast, this ocean front estate is very private with a welcoming front courtyard & rear yard with swimmers pool. A gated Family Compound with three bedrooms and three and a half baths, plus a media room. Also a two bedroom Full Guest House. High ceilings, wood floors, pillared archways and venetian textured walls. French doors open to a romantic loggia, patio, pool and spa. Master suite with marble fireplace and a spacious terrace that enjoys a spectacular ocean view. Drift off to sleep with the waves hitting the sand.
Here is a link to the site that is listing the property. I’d suggest that if you have any interest in the property that you buy it right away because once everyone figures out you can get TARP money to bail you out of decisions like this there will undoubtedly be a bidding war: http://www.zillow.com/homedetails/703-Palisades-Beach-Rd-Santa-Monica-CA-90402/20486931_zpid/
Description of where I stay when on the road (from the Hampton Inn website):
- Many of our locations near airports offer complimentary shuttle service to and from the airport for your convenience.
- Our curved shower rods make your shower space even roomier.
- Our alarm clock radios are not only super easy to set and use, but also include pre-programmed buttons to take you straight to your favorite kind of music on the radio.
- Use our portable lap desk to work or read in comfort from anywhere in your room.
Now clearly in hindsight we can argue that spending $7.5 million on a house so you can efficiently run your west coast operations might seem excessive given that you weren’t efficiently running anything except your Porsche SUV. But…I wasn’t on the board and I must not know as much about this situation they do, nor as much as Congressman Barney Frank who actually wrote verbiage into the TARP bill to help this bank.
From the Wall Street journal article on this topic:
“Mr. Frank, by his own account, wrote into the TARP bill a provision specifically aimed at helping this particular home-state bank. And later, he acknowledges, he spoke to regulators urging that OneUnited be considered for a cash injection.”
I don’t know if it’s funny or sad that the taxpayers just shelled out $12 million to help this bank. They spent close to $8 million on a house and a car and ran a bank into the ground. I spend maybe 30 days a year on the road at an average per night of $115.00 and I use the cheapest car I can find from the airport rental counter (within reason of course, I draw the line at the Toyota Prius Hybrid and I won’t drive a mini-van), plus if I have time…breakfast is free at the Hampton. All in all, I’ll spend about $4,000 in travel expenses for the year…and I see a lot more banks than the executives from OneUnited do. I think I would be a better recipient of $12 million in TARP funds than OneUnited. On that note I’ll wrap this up…I need to call my senator and see if he can hook me up.
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