Earlier this week, we learned that Alexi Giannoulias and his family can’t come up with more than a few hundred thousands dollars to keep the feds from seizing their bank, which needs $75 million in new capital, and from which the Giannouliases extracted almost $70 million over the last few years. Don’t worry about those destitute multi-millionaires for very long, though. Thankfully, they are poised to get $10 million from the same federal government that is about to seize their family business:
The family of Democratic U.S. Senate nominee Alexi Giannoulias stands to collect more than $10 million in federal tax refunds even if its Broadway Bank fails, which Mr. Giannoulias said this week is likely.
A $75-million loss at the struggling lender last year generated tax benefits potentially worth between $12 million and $15 million to Mr. Giannoulias, his two brothers and his mother. As the sole owners of a subchapter S corporation that controls $1.2-billion-asset Broadway, they pay the taxes on the bank’s income and reap tax deductions on its losses.
The possibility of family members pocketing millions in tax refunds as Broadway slides toward insolvency and federal receivership is likely to fuel more controversy for Mr. Giannoulias, who is already under fire for his role in the bank’s downfall. In an interview this week, he took some responsibility for a disastrous expansion of real estate lending when he was senior lender at Broadway in the mid-2000s, before winning election as Illinois treasurer in 2006.
Just how sweet is this deal? Chicago Business puts it in a nutshell:
If, as Alexi Giannoulias said this week, the bank is likely to fail, the family could walk away with millions in tax refunds while the FDIC’s insurance fund absorbs what likely would be hundreds of millions in losses from Broadway’s collapse. That fund is backed by premiums levied on banks but can tap taxpayers for help if it runs short of funds. Its reserves are dwindling as real estate losses bring down banks across the country, including 14 in the Chicago area since 2008.
The expected tax refund comes on top of $70 million in dividends the family took from Broadway’s holding company in 2007 and 2008. Alexi Giannoulias says $40 million of that went to pay taxes and the rest was invested, partly in real estate assets and a New York bank. He says the family took the dividends to diversify its wealth and didn’t foresee the depth of the financial crisis to come.
Will the Giannoulias family offer up the$10 million in an effort to recapitalize Broadway? Alexi refused to answer, but his brother said they would, if that would satisfy the feds. If not, then they apparently plan to keep the cash.
Other closely-held banks will likely find themselves in the same position, one analyst told Chicago Business. However, other closely-held banks didn’t do business with known mob figures to back casinos, and then have the man who approved that business run for the US Senate. Perhaps Broadway’s failure would have happened even if the owners hadn’t cashed out just before the collapse, but the timing — and their clientele — seem rather suspicious.