Troubled bank a potential stain in Senate race

The bank owned by Illinois Treasurer Alexi Giannoulias' family could fail in just days, forcing him to overcome a notable business stumble as he tries to keep President Barack Obama's old Senate seat in Democratic hands.

His Republican opponent, U.S. Rep. Mark Kirk, is sure to brand him a failed banker at a time when Americans are still fuming over taxpayer bailouts of the industry. What's more, Giannoulias' family could walk away with millions in tax refunds after writing off Broadway Bank's losses -- giving Kirk the chance to paint him as a fat cat.

But with the election nearly seven months away, the campaign has time on its side to try to repair any damage and change the focus of the race -- and help Democrats avoid the embarrassing loss of another high-profile Senate seat.

Still, experts say it won't be easy -- and might not even be possible.

"You can't overcome that ... especially Giannoulias, who four years ago ran for treasurer touting his experience and expertise. I mean, you can't have it both ways," said David Yepsen, director of the Paul Simon Public Policy Institute at Southern Illinois University in Carbondale. "This is going to be an indelible stain on him."

Giannoulias, 34, has been attempting to take some of the political and public relations sting out of a collapse. While acknowledging the bank is likely to fail, he has put the blame on the bad economy, not bad management. And he has tried to turn the tables on his opponent, accusing him of running a one-note campaign.

"Just about every sentence that Congressman Kirk utters these days is a noun, a verb and Broadway Bank," Giannoulias said earlier this month.

Kirk is drawing strong financial support, raising $2.2 million in the first quarter of the year compared to $1.2 million for Giannoulias, which was the Democrat's best money quarter. And Kirk shows no intention of changing strategy. He will keep the focus on Giannoulias' "reckless decision-making" at Broadway, his spokeswoman Kirsten Kukowski said.

The Giannoulias campaign and Democratic insiders maintain he can still beat Kirk, a moderate Republican and an officer in the Naval Reserves. Democrats outnumber Republicans in Illinois, and Obama remains a popular figure in the state. Giannoulias has said he expects Obama to campaign for him.

Longtime Broadway customer Shehdeh Abukhalil said he has been praying for the bank and said he won't hold its troubles against Giannoulias. "It's the economy," said Abukhalil, who owns gas stations, restaurants and convenience stores.

Fellow customer Mohammad Khan, who owns a Chicago auto repair shop, agrees. "Everybody's suffering," Khan said.

Giannoulias' campaign won't talk specifically about the strategy for dealing with a bank failure. Spokeswoman Kathleen Strand said he will focus on the economy and creating jobs, arguing that the bank's problems are not major issue for some people.

"We are going to keep talking to voters about what matters to them most," she said.

Giannoulias has tried to distance himself by stressing that the bank was financially healthy when he left four years ago. But some decisions made while he was there are also playing into the campaign -- for instance, revelations that it had loaned $20 million to two convicted felons.

The campaign portrayed the loans as old news that Giannoulias has addressed before. He has said the bank's relationship with one man started before he worked there.

And political support for Giannoulias is sometimes less than enthusiastic because of the bank. "I'm glad I don't have any deposits there," Michael Madigan, chairman of the Illinois Democratic Party and House speaker, was quoted as saying by the Chicago Tribune.

Giannoulias says his family's bank is like other community banks suffering because of the real estate collapse. Last year, 140 banks failed nationwide. In Illinois, 25 banks have failed since 2008.

Heavy into real estate loans, Broadway Bank lost $75 million last year. Under a deal with regulators signed in January, it has until Monday to raise about $85 million in new capital.

"We continue to go out and do everything we can to raise money," said bank spokesman Tilden Katz.

The Federal Deposit Insurance Corp. typically announces bank closures at the end of the business day on Fridays. If Broadway fails, customers are insured by the FDIC up to $250,000 per account.

And if the bank goes under, its losses might be used to offset taxes and entitle the Giannoulias family to refunds. The campaign has said the family, the bank's sole shareholders, would be due the money like any other taxpayers who overpaid. Giannoulias holds less than a 4 percent stake in the bank.

But the failure of the bank would also see Giannoulias lose the business built by his late father.

"Your equity is gone, you've got nothing left," said Chicago tax attorney Richard Lieberman, "and to the extent you get a refund, I would think in most cases people would say it's a small consolation."