Correction: An earlier version of this story said that Rep. Maxine Waters (D-Calif.) served on or chaired the House subcommittee that oversees the Federal Deposit Insurance Corporation. The story should have said that Waters was a member of the primary subcommittee overseeing the FDIC and the chair of a Financial Services subcommittee principally concerned with housing and mortgage matters.
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.
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 2008, after Waters had arranged a key Treasury Department meeting for the bank, it won a bailout loan and a unique exemption from the FDIC’s accounting rules.
“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,” John M. Lane, acting regional director, warned in a March 2009 e-mail to Christopher J. Spoth, a senior FDIC consumer protection official.
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.
The ethics charges were to be heard at a special hearing deferred 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, saying at a closed meeting 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.
A spokesman for Bonner, the committee chairman since January, declined to 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 A. Boehner (R-Ohio) recently designated a new pool of members to serve on investigative subcommittees, a spokesman said.
The outlines of OneUnited’s difficulties and those of its president, Kevin Cohee, are already a matter of public record. 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.
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.
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.
OneUnited spokeswoman Joyce Sullivan declined to discuss the 2008 e-mails on the grounds that its examinations are confidential but 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.”
On Sept. 7, 2008, the bank’s Fannie and Freddie stock became essentially worthless when they were put into federal conservatorship. The next day, bank executives asked for Waters’s help 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.
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,” Frye replied.
Waters’s husband, Sidney Williams, served on OneUnited’s board from 2004 until April 2008. Waters, who served on or chaired a House Financial Services subcommittee 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.
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.”
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.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.
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.”
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.
“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.
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.
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.
“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.”