Prometheus 6

In its day, Independence served working-class and professional blacks who were turned away by white-owned banks. Whether they came in jingling paper bags or neatly stuffed envelopes, their deposits were accepted and loans were made, oftentimes without significant credit history or collateral....

Several supporters of Fitzgerald and his early vision of the bank expressed dismay at regulators' willingness to allow Bender to take control of the bank.

"There are only a limited number of African American institutions in the country, and this is one of them, in what has to be considered a premier marketplace," said William Michael Cunningham, head of Creative Investment Research of Minneapolis and an expert in minority financial institutions.

Takeover Completed At Historic Black Bank
Board Members Replaced After Years of Turmoil
By Anita Huslin
Washington Post Staff Writer
Friday, May 18, 2007; D01

From the day it opened in July 1968, just months after the riots, D.C.'s Independence Federal Savings Bank began breaking the pattern of redlining that had kept so many African Americans from buying homes, starting businesses and financing their children's college educations.

William Fitzgerald III, a former drywall contractor and real estate broker who founded the bank, presided as it grew into an important black institution. Eventually, it was tarnished by board and family infighting, declining revenue and scandal. But today, at the annual shareholders meeting, a new era begins. Another Washington developer is taking over, with an agenda he said the bank had lost sight of: profitability.

Over the past five years, Morton A. Bender has tied up the board in multimillion-dollar lawsuits that allege mismanagement and wrongdoing. In recent months, six board members -- including two of Fitzgerald's heirs who fought Bender's efforts -- have resigned, sold off their stock and been effectively muted by the lawsuits. Last month, the federal agency that regulates thrifts approved Bender's request to acquire 51 percent of the company's stock. And today, five men and one woman whom Bender recommended are slated to become directors, effectively giving him control of the board.

"The stockholders got rolled under a bus, and [the previous board] didn't care," Bender, 74, said in an interview. "We're trying to turn the Titanic around and keep it from sinking."

In its day, Independence served working-class and professional blacks who were turned away by white-owned banks. Whether they came in jingling paper bags or neatly stuffed envelopes, their deposits were accepted and loans were made, oftentimes without significant credit history or collateral.

But by the 1980s, when interest rates rose to 18 percent and the bank's assets dropped precipitously, Fitzgerald and other directors realized they needed to raise capital. They took it public and kept the business afloat. It fell on hard times again after Fitzgerald died in 1998. His daughter, Donna Fitzgerald Shuler, a mortgage lending official at the bank, was named chief executive. His son, William Fitzgerald IV, was elected chairman in 2000.

Declining revenue and infighting on the board made it a target of federal regulators. A money-laundering scandal involving deposits from the Washington Teachers' Union prompted the Office of Thrift Supervision to order the bank to clean up its act and develop a plan to make money -- or to sell. After an agreed merger with New York-based Carver Federal Savings Bank, another historically black institution, fell through, Bender, who is white, sought to increase his shares in the company and merge it with another thrift he controls, Rockville-based ColomboBank. The thrift supervisor blocked that, citing regulatory problems with Colombo, and Independence's deposits continued to decline.

But Bender persisted, promoting his own slate of candidates for the board and seeking regulatory approval to buy a majority share of Independence stock. When board members who supported the bank management tried to thwart Bender, he sued. Last summer, a judge ruled in his favor. Facing at least two ongoing lawsuits from Bender seeking hundreds of thousands of dollars in damages from the board and individual members, they began resigning. Fitzgerald's son and daughter were among them.

Over the objections of a group that said the bank should remain black-owned, the regulator gave Bender approval to expand his ratio of shares to 51 from 21 percent. And the remaining board directors followed his recommendations and appointed new members who support Bender's agenda.

The bank's declining revenue in recent years, legal fees of at least $2 million racked up during the teachers' union scandal, and the board's battle against Bender "do frighten me," said Bender nominee Lisa Gordon-Haggerty, president of a McLean consulting firm and a national security official in the Clinton White House. "But that is behind us now. And now what we're doing is focusing on making the bank well and resurrecting it to its former self, helping Washington's minorities."

Several supporters of Fitzgerald and his early vision of the bank expressed dismay at regulators' willingness to allow Bender to take control of the bank.

"There are only a limited number of African American institutions in the country, and this is one of them, in what has to be considered a premier marketplace," said William Michael Cunningham, head of Creative Investment Research of Minneapolis and an expert in minority financial institutions.

"Unfortunately and sadly, what we are facing here is the golden rule," said Lew Sosnowik, a Rockville investment manager who tracks Independence. "He who's got so much gold makes the rules."

Four of Bender's nominees are minorities, a move to preserve the bank's historic leadership, an attorney for Bender said. Those who were part of Independence in Fitzgerald's day say they are resigned to the change.

"Back then, Independence was like some miraculous medical cure because we made other people, other banking institutions realize that they were discriminating against the citizens," said Rudolph Arkin, one of the nine founders and former chairman of the board. "Being one of the organizers, I have a feeling for Independence and what it did. But I can't have the same attitude that I did before because the problem that we solved is not there anymore."