President Obama has nominated long-time supporter, prominent fundraiser, and friend, Penny Pritzger, to be Secretary of Commerce, a position that has been vacant for almost a year. If her name sounds familiar, don’t be surprised.
The Pritzger family is well known in Chicago business circles as the owners of Hyatt Hotels Corp. According to Forbes magazine, ten members of the family are individually wealthy enough to be on the Forbes 400 list. Penny’s net worth is estimated at $1.85 billion. She has not rested on the laurels of her predecessors, though. Ms Pritzger holds both an MBA and a Law Degree from Stanford.
If you don’t recognize her from her fortune, you may recall that she was considered for this same position in 2008. She withdrew from the running that time amid public outcry. According to the The New York Times, the position has remained vacant so long because the vetting of all her assets took that long.
It’s no secret that the family has tax-free investments in offshore trusts. The overseas tax shelters were set-up long before Penny took the reigns (some when she only 4 years old). While these tax shelters are illegal now, the Pritzger’s were able to take advantage of an old loophole in the tax laws that has since been closed. They would be illegal today but were grandfathered in.
There’s one more place that you may have heard the Pritzger name: right here in the pages of JRN. The Pritzger family owned 50% of Superior Bank FSB, Chicago, which failed in July 2001. Penny Pritzger had stepped down as chairman in 1994, but her influence still permeated the bank.
As we reported in 2001, “What got Superior into trouble was a combination of making high-interest consumer loans to applicants who would have been denied elsewhere, excessive residual assets and brokered deposits” (JRN 18:30). Superior Bank could have (should have) been saved, though. Under Penny’s guidance, the Pritzger family and the other 50% owner, Alvin Dworman, had a deal with the Office of Thrift Supervision (OTS) to recapitalize the bank. No one outside of those walls can know for certain what transpired after that. What we do know is that the OTS forced Superior to write down many assets that had been overvalued on its books. This rendered the bank “Significantly Undercapitalized”, but still salvageable. Shortly thereafter, the Pritzgers called off the recapitalization. That was the end of Superior.
At the time of its failure, Superior Bank had $42.9 million in uninsured deposits including one depositor who reportedly had $1 million in an IRA. Most was lost. Some customers reported they were lulled into a false sense of security because of the “pristine” Pritzger name.
The FDIC ended up going after Pritzger, Dworman, and Ernst and Young for the failure. Without admitting any culpability, Penny Pritzger settled for $460 million, far more than the $255.5 million she had initially pledged to recapitalize the $2.1 billion asset thrift.
This was the second bank failure bearing the Pritzger and Dworman names. They were part of a partnership that controlled River Bank America, a $1.5 billion bank liquidated in the 1990’s. Ms Pritzger may not have had day to day dealings at River Bank; she did at Superior.
Penny Pritzger has some high profile support. Jay Timmons, president/CEO of the National Association of Manufacturers, says of Pritzger: “an extensive business back-ground …understands what it takes for businesses to create jobs. …comes from a family with a rich history in manufacturing …partnered with manufacturers on important initiatives to address our nation’s critical need for skilled workers …understands skills gap.”
Roger Dow, president/CEO of the U.S. Travel Association, adds “Pritzger is a proven professional who is more than qualified to lead the U.S. Commerce Department.”
Although the responsibilities of Secretary of Commerce to promote growth and development of U.S. business interests should match her skill set well, we will be keenly interested to see if she acknowledges her role in the Superior failure at her confirmation hearing.