Chicago: Midwest Bank is on the FDIC's failure clock

(Crain's) Just days after banking regulators closed seven Chicago-area banks, the Federal Deposit Insurance Corp. has begun the bidding process for one of the largest troubled local lenders: Elmwood Park-based Midwest Bank & Trust Co.

Bids from banks and other investors wanting to acquire the $3.4-billion-asset bank once it’s seized by the FDIC are due May 10, according to people familiar with the matter.

That puts Midwest Bank on course to fail as early as May 14.

The bank, whose publicly traded parent, Midwest Banc Holdings Inc., is based in Melrose Park, is trying to raise $125 million in fresh capital to stave off receivership and has made strides under CEO Roberto Herencia in winning concessions from debt holders to shore up capital. But if it’s unable to do so within the next few weeks, it will be the country’s third bank to fail after receiving federal bailout help during the financial crisis.

In December 2008, Midwest Banc sold $85 million in preferred shares to the Treasury Department under the Troubled Asset Relief Program. The federal government agreed earlier this year to convert the investment to a form of preferred stock convertible into common stock to help the bank with its capital plan.

A bank spokesman declined to comment Tuesday.

Midwest Bank is under a “prompt corrective action” order from the U.S. Office of the Comptroller of the Currency, its principal regulator, requiring it to raise capital within 45 days. That order expires in mid-May, corresponding with the FDIC’s bidding schedule.

Interest in an FDIC-assisted deal for Midwest Bank is expected to be more intense than for any of the 21 Chicago-area banks that have failed since the beginning of 2009, sources say. Likely bidders include mid-sized local players MB Financial Inc. of Chicago and Wintrust Financial Corp.of Lake Forest.

Akron, Ohio-based FirstMerit Corp., parent of First Merit Bank, which has established a substantial Chicago presence through two recent deals and wants to grow here, also is expected to bid.

And larger lenders like Minneapolis-based U.S. Bancorp Inc. are expected to join the fray, too, along with private investment pools that have been formed around the nation to buy failed banks.

With 26 city and suburban branches and a team of respected business bankers, Midwest Bank has a stronger core franchise than most of the local banks that have succumbed to the worst recession since the Great Depression. Its capital has been depleted by heavy losses from preferred stock investments in Fannie Mae and Freddie Mac that were rendered worthless when the federal government seized those mortgage giants. Real estate loan woes also have contributed to Midwest Bank’s bleak outlook.

The bank hired Mr. Herencia, former CEO of Rosemont-based Banco Popular North America, about a year ago to save it.

Observers expect the FDIC to be able to drive a harder bargain for Midwest Bank than it was able to with the seven banks that failed last Friday, including Broadway Bank, owned by the family of Democratic U.S. Senate candidate Alexi Giannoulias, and Amcore Bank, which was slightly larger than Midwest Bank but is centered in Rockford, one of the Illinois cities hardest hit by the recession.