Illinois hopeful faces banking woes

CHICAGO | With the public still furious over bank bailouts, Illinois Democrats desperate to keep President Obama’s old Senate seat are scrambling to counter revelations that a bank owned by their candidate’s family may be nearing collapse.

Alexi Giannoulias, the first-term state treasurer and an old basketball buddy of Mr. Obama, has tried to answer away questions about the bank’s troubles, saying he has not worked there in four years and that the bank was a victim of the same real estate slump that hurt the rest of the economy.

Republicans have been quick to portray him as a failed businessman, citing the bank’s financial woes and his involvement in loans to a convicted bookmaker. It’s swiftly become the focus in one of the nation’s hottest Senate races. Republicans, who recently gained the late Edward M. Kennedy’s Senate seat in Massachusetts, are targeting Mr. Obama’s former seat as their next big prize.

“If the Republicans can show what they’re trying very to hard to do, that Giannoulias engaged in questionable business practices … then I think it can have a very direct impact on the campaign,” said Robert Rich, director of the University of Illinois’ Institute for Government and Public Affairs.

The Republican nominee, five-term Rep. Mark Steven Kirk, has accused Mr. Giannoulias of having “direct, personal responsibility for reckless loans.” Mr. Rich said the tactic could backfire if the Democrat isn’t linked directly to the problems at Chicago-based Broadway Bank, because many other banks have failed.

Although Democrats have dominated the state in recent years, the handicapper Charlie Cook rates the Kirk-Giannoulias race a “tossup,” while a summary of recent polls by the RealClearPolitics Web site gives the Democrat a tiny edge with a large bloc of undecided votes.

Incumbent Democrat Sen. Roland W. Burris, the controversial pick of impeached Democratic ex-Gov. Rod R. Blagojevich to replace Mr. Obama, announced last year he would not run for a full term this fall.

Mr. Giannoulias, who was the senior loan officer at the bank, gave a round of interviews last week to talk about the bank’s problems - something he didn’t do in detail before the Feb. 2 primary because he said it could wait. But instead of deflecting Republican criticism, Mr. Giannoulias appeared to stoke it by predicting that it would be hard for the bank his father founded in 1979 to survive.

“I hope it will be around,” Mr. Giannoulias said. But, “it’s quite likely that, you know, it’s going to be very tough for them.”

Heavy into real estate loans and weighed down by bad debt, Broadway Bank lost $75.3 million last year. It entered into a consent decree with regulators in January that gives it 90 days - until the end of April - to raise about $85 million in new capital. It may get help from private investors, longtime customers and the Giannoulias family, which has been criticized for taking large dividends from the bank in the past.

Mr. Giannoulias, who touted his banking experience when he ran for state treasurer four years ago as a 30-year-old political novice, notes that the bank has about $242 million in nonperforming assets or bad loans and only about 9 percent of the value of those originated when he worked there.

“I haven’t worked at my family’s business for over four years and when I left it was profitable and very well-capitalized,” he said in a recent letter to supporters.

But as was the case when he ran for treasurer, Mr. Giannoulias has had to explain why the bank lent millions of dollars to Michael Giorango, a convicted bookmaker.

“As far as the details of Giorango, which we’ve answered 100 times, this is a relationship that was started before I got to the bank. Was I involved in some of the servicing of the loans? Yes,” Mr. Giannoulias recently told the Chicago Tribune editorial board.

Republicans have sought to bring Mr. Obama into the fray, noting the president’s criticism of bankers who got rich at the expense of the public.

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