Magazine article American Banker

No-Frills Thrift District Stands Tall in Windy City

Magazine article American Banker

No-Frills Thrift District Stands Tall in Windy City

Article excerpt

THERE IS NOTHING GRAND about the Federal Home Loan Bank of Chicago.

While the local Federal Reserve Bank has its own building complete with columns and its name etched in imposing letters in the front, its thrift counterpart is hidden away in two cramped floors in a Chicago office building. Only in its entrance, with its wood paneled walls, thick carpets, and tables filled with flower arrangements, does the Chicago Federal Home Loan Bank strive for anything approaching ornateness.

But what the bank may lack in style it more than makes up for in substance. Chicago claims to be the 'City That Works'; The Federal Home Loan Bank of Chicago just might be the 'Bank That Works.'

"I think the [Chicago] Federal Home Loan Bank is without question one of the best run in the nation," said William D. Brouse, president of the Wisconsin League of Financial Institutions, a trade association for savings and loans in the state. "They are consistent in terms of their earnings and have an excellent staff."

Some members regard Leo B. Blaber Jr., president of the Chicago Federal Home Loan Bank, as the best manager in the Federal Home Loan Bank system. Under his leadership, District Seven has for the last several years routinely placed near the top of the 12 district banks in terms of key performance ratios.

In 1984, for example, it had the highest return on assets of any of the district banks at 1.82%. This year it slipped to third, a drop that officers at the Chicago Bank attribute more to practices at the top two banks that boost earnings than to any decline in the Home Loan Bank of Chicago's performance. Earnings hit $72 million in 1985.

The strong operational performance is something the Chicago Bank prides itself on -- and also considers to be no accident. Bank officers believe they pioneered the use of sophisticated business planning methods among the district banks.

"We were the first bank to have a business plan," said Charles M. Hill Sr., executive vice president and chief operating officer, who points out that the bank also has a strategic plan that it updates periodically.

A well managed, well functioning Federal Home Loan Bank is a direct benefit to the thrifts it oversees, Mr. Hill said, because it helps increase earnings at area thrifts through the dividends it distributes. The Home Loan Bank of Chicago believes in distributing its gains as widely as possible.

"One philosophy of our bank in terms of profitability is to distribute to the stockholders instead of the borrowers or anyone else," Mr. Hill said. He poined out that some district banks might give rebates to members who borrow or slash prices on loans it makes, thus benefiting borrowers of the Home Loan Bank at the expense of stockholders. At the Chicago Bank, in contrast, "we try to distribute as much as possible to the stockholders."

In 1985, that policy yielded a 10.69% return on capital to stockholders in the Chicago bank. "It's been a very good investment for them," Mr. Hill said.

Conservative Policies

The Home Loan Bank of Chicago oversees about 350 thrifts in the two states of Illinois and Wisconsin. Savings and loans in the area described the Home Loan Bank as conservative in its attitude and policies.

"They are conservative. They have to be," because thrifts in the area are conservative, said James Peters, president of Skokie Federal Savings and Loan Assn., Skokie, Ill.

Thrifts in both Wisconsin and Illinois are considered cautions and conservative, growing slowly in tight real estate markets. In fact, one of the major problems savings and loans in the area face is having an abundance of money to lend without a corresponding demand for that money, according to Mr. Peters.

"You can get in a situation where you are chasing deals," he said. "Our local demand is not robust by any means."

A 1984 survey by the Home Loan Bank of Chicago found that most area thrifts were slow in moving out of the real estate market and into nontraditional businesses now permitted to them because of deregulation. …

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