Commerce secretary-nominee Penny Pritzker told lawmakers Thursday that she regrets the losses suffered by customers of a failed bank she once led, but a lawyer for the depositors said the bank’s owners never fully reimbursed them or the government.
During a cordial confirmation hearing with the Senate Commerce, Science and Transportation Committee, the Hyatt hotel heiress and fundraiser for President Obama described her role in the 2001 collapse of Superior Bank in Illinois, in which about 1,400 underinsured depositors lost portions of their savings.
From 1991 to 1994, Ms. Pritzker was chairman of the board of the bank co-owned by her family. It made bad loans in a push for a larger share of the subprime mortgage market.
Ms. Pritzker told senators that she “was never an officer of the bank, nor was I involved in management.” She noted that she stepped down as chairman seven years before the federal government closed the bank, although she kept a seat on the board of the bank’s holding company.
She did not discuss a letter that she wrote in May 2001 that urges the bank to make an expanded push into subprime loans in an effort to save itself.
When the bank failed, Ms. Pritzker said, she “voluntarily” contacted the Federal Deposit Insurance Corp., which insures bank deposits, and ultimately agreed to pay $450 million.
“I come from a family that is very patriotic,” Ms. Pritzker said. “And I said to the head of the FDIC, ‘This country’s been very good to our family, we need to make this situation right, we’d like to negotiate something to make this right for the depositors.’ And that negotiation ensued and my family voluntarily agreed to pay $450 million. It was the right thing for us to do, both for the depositors and for us as a family.”
But Clint Krislov, a Chicago attorney who represented bank depositors in a class-action lawsuit against Ms. Pritzker and others, said her testimony overlooked the losses incurred by the depositors and the FDIC’s insurance fund.
“They didn’t make depositors whole, nor the FDIC insurance fund, but still captured a net profit to themselves exceeding $200 million,” Mr. Krislov said in an email. “We do not know of another instance when the operator of a failed bank was left with a huge profit on the deal while the government and depositors were left unpaid.”
He said the bank’s owners walked away with a “unique benefit.”
“Making this right would mean giving up the profits to make the depositors whole ($10 million) and the government fund ($296 million), so everyone comes out even,” he said.
Ms. Pritzker was asked by Sen. John Thune, South Dakota Republican, what she would say to the bank depositors who lost money in the collapse.
“Senator, I regret the failure of Superior Bank,” she replied. “It was not an outcome or a situation that I’m, you know — I feel very badly about that.”
The FDIC then protected depositors’ savings up to $100,000. The Office of Thrift Supervision, a Treasury Department agency that regulates federal savings associations, closed Superior and its 18 branch offices on July 27, 2001.
An FDIC report in 2002 says the bank’s failure “was directly attributable to the bank’s board of directors and executives ignoring sound risk management principles.” The report says the bank “paid dividends and other financial benefits without regard to the deteriorating financial and operating condition of Superior.”
Judging from the polite questioning from committee members of both parties, Ms. Pritzker’s nomination didn’t suffer any setbacks Thursday. Mr. Thune made a passing reference to the nominee’s “role with and position as a beneficiary of an offshore tax haven,” but said the panel would submit questions to her about that after the hearing.
On her financial disclosure form, Ms. Pritzker revealed holdings in a trust in the Bahamas, which generated $53 million in income for her in 2012. A spokeswoman said it was one-time compensation for Ms. Pritzker’s work in dividing up the trust, started decades earlier by her grandfather.
Committee Chairman John D. Rockefeller IV, West Virginia Democrat, praised Ms. Pritzker’s record in business and said the administration needs her expertise at a time when automatic budget cuts are “creating a new drag on the economy.”
“We’ve not had a secretary of commerce in a while, and if I can be just a bit brash, we’ve not had a strong secretary of commerce in quite a while,” Mr. Rockefeller said.
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