COD- Political Endorsements fail the public? – Part II

DuPage Co. (ECWd) –

I greatly appreciate the Daily Herald’s response to our article on Political Endorsements Fail the Public posted here as well as the comments sent in on our tip line. I will address their comment in order to provide a perspective of who we are and how we approach things. In addition, I will address a couple of interesting comments we received from citizens that point to the very reason we ran the first article.

• “This guy was endorsed by State Representative Grant Wherli, Dupage GOP and the Daily Herald.”

• “I hope that whoever wrote this article will do some more digging to determine the truth, rather than make assumptions that may unnecessarily smear someone who may not deserve it. My information could be incorrect, but this issue deserves more light”.

As I pointed out in our first article on this matter, former Governor Edgar endorsed Roger Eddy. That did not stop us from shining the light and exposing Roger Eddy as a bad example of a political leader who ended up resigning from three public funded occupations less than a month after the gubernatorial endorsement.

My point is, I don’t care who has endorsed a candidate because more often than not those endorsements mean very little to the common citizen who continues to be hoodwinked by the political power brokers in their communities. History has also shown us that local political influence plays a key role in those endorsements and I think most of us would like to know about those connections and the details behind them.

For example:  The DuPage Business Council is “To advise and advance the mission of the DuPage County Central Committee.” They have raised $270,600.00 since their start in 2008.  

“Our interest is not in raising money for candidates directly, but in creating the infrastructure and long term orientation that positions the party and its candidates to succeed in DuPage County for years to come. The relationship between the Council and the DuPage GOP is an engagement in which the Council takes the lead with its funding and related plans.”

Gambs has donated $13,500.00 to the DuPage Business Council since 2009 (Click here for Contribution report).  He is a member of the Executive Committee of the DuPage Business Council. (Click here for profile information)

Gambs has donated $5,000.00 to the DuPage County Central Committee(Click here for Contribution report).

So, $18,000 later, an endorsement by the DuPage GOP should be of no surprise. Was the endorsement based on merit or purely political based on past financial support and connections to DuPage County organizations? Let’s not forget, he is also the current Chairman of the Chamber of Commerce.  (Chamber Board of Directors) 

One train wreck he probably missed, as did many people, is supporting Aaron Shrock.  I bet he wishes he could get his money back on that one.  Federally, Gambs has donated over $23,000.00 to varying candidates.  (Click here for Federal donations)

I have no issue with anyone providing funding as they see fit.  That is our constitutional right.  Our goal is in no way meant to smear a candidate but instead to share as much information as possible so that the voters have an informed background that they can validate for themselves with the documents provided. I think most people agree, more information is better when it comes to public office!

As it relates to Mr. Gambs, I have met him on several occasions and we have had a very open line of communication, especially after my fist article.

It’s well known in DuPage County political circles that Matt Gambs was touted as “the” clean up guy who would turn COD around. That perception was supported by his claimed success at Diamond Bank.

This echoed in inner circles, time and again, to a point it appeared sainthood had been established. But, a motto of mine that I apply regularly is, “He who markets the most, needs to!” Does that motto apply to Matt Gambs?  You decide! I don’t get to vote in this one!

Who is this clean up guy?

He said, “I think I was a little naive in 2008,” Gambs — who had estimated that he could fix Diamond’s problems in six months — said in a July 13 interview. “You have to humble yourself, and I had to bring in people who knew a lot more about loan workouts than I did.” (See page 2 of 7 for quote)

I appreciate when a person acknowledges that they do not know enough about something, and they bring in someone who does. However, Mr. Gambs’ own words seem to acknowledge the fixing was not something for which he can take all credit, contrary to those of his inner circle backers.

What follows I have verified and validated through interviews and other research. Documentation is provided as a support tool, to help voters know more about the candidate and his background. The first article pointed to important issues that no local media have reported. Using Gambs own words, “I believe the stakeholders of the College of DuPage deserve the whole story.” (Click here for questions he responded to for My Suburban Life)

What is the whole story?

Most of the time you never know, but I did my best to share more about this candidate on behalf of the people.

The condensed version: Gambs can spot a train wreck coming and has impeccable timing for a jump to safety (my perception).

Let’s look at the Daily Herald’s comment to this article as it relates to how Mr. Gambs’ experience will serve him if elected to the COD Board. Their posted comment states Gambs was unsuccessful in his efforts to save a struggling and under capitalized bank.

Failures can lead to experience that in some cases is critical to future success. However, those failures should not be used as a foundation to justify support without far more research, in my opinion.

Maybe the Daily Herald did far more research than it appears – but, after seeing their support of Sandy Pihos, I admit concern.

Considering a news media enterprise such as The Daily Herald, they should have understood the serious threat to the Illinois’ FOIA statute in a bill that contained punitive restrictions.  Rep. Pihos’ voted for that bill and Gov. Quinn singed it into law as one of his last pieces of legislation. I can only conclude there are other local reasons behind such an endorsement, as she is a former State Representative for whatever that is worth.

Considering transparency is clearly a major need at COD, the Daily Herald’s Pihos endorsement stuns those of us who know her record in Springfield.  Anyone supporting that bill – that placed extensive financial burdens on those seeking public records, has no place in public office, in my opinion.

History establishes a pattern of success or failure. Gambs’ perspective on the failed Diamond Bank is that it was a “successful failure.”

I asked him ten questions regarding the U.S. Office of Thrift Supervision’s Cease and Desist Order that he signed, to get his perspective which I believe the voters deserve. He was kind enough to answer those questions.  I thank him for that!

Question 1: Why did matters descend to a ‘cease-and-desist’?

Answer: – No civil monetary penalties (CMPs) were assessed or paid. This is an important measurement to evaluate this order. I would encourage you to pull up other orders during this time period, there are 100s, and we will see the standard language and specific case elements. I feel like I have addressed how this happened, and would welcome any stakeholder to reach out and discuss this with me. 630.669.5168

• It appears we still don’t know why matters descended to the point of a Cease and Desist being issued. Only the fact that they did not issue civil monetary penalties. Banking regulation moves through an established sequence of regulatory actions. For instance, before reaching a “C and D,” Diamond Bank would sign a “written agreement,” followed by an “Official Notice.” Both of those would identify the same problems we see in the C and D, and each would propose steps out of the regulatory status (such as, recapitalization, new directors, reduced costs, etc.). The point here is – no one wakes up to a C and D, one descends down a long spiral. At any point thereon, Gambs could have succeeded – but, obviously, he didn’t. That’s why they arrived at the Cease and Desist, the last step before seizure or a sell off.

Question 2: What violations of law took place on your watch? (p31)

Answer: Reg O and Reg W were violations and those are the items that we self-report and were discovered during internal reviews.

• Regulation O governs any extension of credit by a member bank to an executive officer, director, or principal shareholder of that bank, of a bank holding company of which the member bank is a subsidiary, and of any other subsidiary of that bank holding company. Specifically it prohibits a member bank from extending credit to a bank “insider” or to any of its affiliates unless the extension is made on the same terms as other loans and in accordance with underwriting procedures used for other loans, does not involve more than the normal risk of repayment, and does not present other unfavorable terms. This prohibition was violated under Gambs watch. Many refer to this as insider dealing.

• Regulation W requires that transactions between members banks meet certain stipulations and as designates the types of companies that are affiliates of a bank; (2) specifies the types of transactions covered by the statute; (3) sets the quantitative limitations on a bank’s covered transactions with any single affiliate, and with all affiliates combined; and (4) sets forth collateral requirements for certain bank transactions with affiliates. This prohibition was violated under Gambs watch.

• My concern with the response is he signed a Federal regulatory finding that said all of these elements had to be stopped – or prevented. To say now, in the midst of a campaign, that he was responsible for only two issues contradicts his agreement then. This gets to veracity.

• How were the Reg O and Reg W loans made under his watch? Does this not point to a lack of internal controls? This is the same problem that bedevils COD – and allowed Valenta to go on forever.

Question 3: Why did the federal government have to order new directors, why didn’t you recruit strong directors yourself? (P28)

Answer: By the time the order came out we had already put in place one new outside directors and interviewing and recruiting a second. We needed to replace two folks from the previous board. Finding the right outside directors with skills and expertise took time.

• Here, Gambs may have a bit of a point, but only a bit. First, he acknowledged that he had failed to recruit enough independent directors. Second, it is never easy to invite someone onto a ship that is taking on water. Third, that is the job he signed up for, so we are right to hold him accountable for not succeeding.

Question 4: If you approved any of the insider loans, please identify the loan makers and the loan amounts. (P27)

Answer: I made no insider (reg O) loans.

• Check again up at #2 and his response, and then look closely here. At his word, he might not personally have approved the Reg. O loan(s) that booked, but they happened on his watch, when the bank was deteriorating. To be nice, this sounds like trying to have it both ways. Is this not an internal control issue?

Question 5: By the time of the C and D, you had been at Diamond for two years. Why did the federal government find your business plan to be inadequate? (P4)

Answer: The regulator process takes a while to work its way through. During the financial crisis of 2009-2010 Diamond might not have been their highest priority. From the time I got there we were working with OTS and then OCC in one form another.

• According to Gambs campaign profile, he implemented a viable business plan. (Viable Business plan claim in his profile)

• If the plan was a viable business plan, why would the Feds find the plan to be inadequate? Gambs seems to blame the regulators for his not having a business plan. “Diamond might not have been their highest priority.” Gambs is missing the point that Diamond was his highest priority, and that more than two years in, he had failed to create a plan the Feds would approve, contrary to the claim a viable business plan was implemented.

Question 6: Please list the Golden Parachutes you allowed. (P34)

Answer: I gave no Golden Parachutes. That part of the order is put in as a proactive understanding.

Question 7: Please describe the “unsafe or unsound practices” the federal government ordered you to cease and desist. (P1)

Answer: They wanted different capital measurements and time frame for results in the plan. By the time this order was in the public we had already agreed to a plan and had several quarters of work in.

• Here Gambs appears to play on assumed ignorance of banking regulation, as if we would not know that institutions do not start at a Cease and Desist order, they end there (see above). Diamond had already been through any number of examinations and consultations. The regulators are nothing if not clear, and they are most specific about capital-to-deposit ratios, non-performing loan ratios, tangible common equity, etc. So, Gambs’ answer erroneously implies, “We were just figuring this out when the C and D came down”. In fact, under Gambs, the unsafe and unsound practices had not been stopped under earlier interventions, and thus had to be specified in the C and D.

Question 8: Why did the federal government restrict your freedoms re employees (P36), third parties (P37), and dividends (32), and affiliates (P38)?

Answer: – These are proactive steps.

• Let’s take another look. These are immediate restrictions, based on the regulators’ estimates of what a given management might attempt to do in a declining situation. Had the regulators placed their confidence in Gambs, these would not be necessary. One might further point out that had Gambs inspired such confidence, perhaps Diamond would never have reached this place.

Question 9: With this record, why should taxpayers think you will do differently at COD.

Answer: – This experience taught me how to bring together a team, inform and protect stakeholders with honesty and integrity. I am proud of my service at Diamond, we were able to execute a plan in very challenging conditions that lead to a positive outcome. This was accomplished without taxpayer money or backstops. I think the skills and knowledge I obtained would benefit the stakeholders of COD.

• Diamond is fortunate to have several good branches which were themselves of value to a growing chain in the Chicago region. It is to his credit that taxpayers were not stuck with Diamond’s tab. But his leadership remains a failure – whether “successful” in his phrase, or not – in everyone else’s understanding.

Question 10: In the attached photo your bio does not mention Diamond Bank. Why is that omitted from your BIO? (Go Green BIO)

Answer: The attach bio is from a start-up that I am an investor in. I am still with the company that purchased Diamond (Wintrust), I did not put this bio up, but I take responsibility for not looking it over. If you look on LinkedIn I have Diamond Bancorp on my resume and I us that site as my professional and outward facing profile daily.

• There is another company missing from his BIO, as well as missing from the LinkedIn account used daily by Gambs. BB&T FINANCIAL SERVICES, INC. – Matt Gambs listed as President. A company that started in April of 2002 and was involuntarily dissolved in September of 2005. This company does not appear in his LinkedIn history or the Go Green company bio. According to Gambs this was a subsidiary of the bank that was created to do insurance. “It never took off and it died on the vine”. (Click here for corporate file) (Click here for LinkedIn file)

More history

In November 2006, First Chicago Bank and Trust (First Chicago) was created following the merger of Labe Bank and Bloomingdale Bank and Trust. First Chicago was wholly owned by First Chicago Bancorp. A large stake in Bancorp was held by Castle Creek Capital (Castle Creek), a bank holding company (BHC) and private equity firm based in Rancho Santa Fe, California

Gambs was President & COO of Bloomingdale Bank & Trust (BBT) for approximately three years. They were purchased by Castle Creek capitol in 2007. He was President and COO of First Chicago Bancorp, 2006-2007 based on his LinkedIn information.

According to documents obtained from the Office of Inspector General, First Chicago Bancorp Board of Directors and Management Failed to Reduce the Bank’s Commercial Real Estate Concentration.  (Click here for OIG Report)

Mounting losses depleted the bank’s earnings and eroded capital, which prompted the State to close First Chicago and appoint the FDIC as receiver on July 8, 2011. Now keep in mind, this federal intervention was 4 years after Gambs left for his position with Diamond Bank however the information in the OIG report lays out some management concerns that took place starting in 2005 with increased commercial real estate lending, a time frame in which it appears he was the COO.

As shown on page 13 of the OIG report, Chart 3a, First Chicago’s Commercial Real Estate loan concentration as a percentage of total risk-based capital remained high and consistently exceeded both its peer group average and the thresholds described in the Federal Reserve Board’s Supervision and Regulation (SR) Letter 07-1, Interagency Guidance on Concentrations in Commercial Real Estate