Wilmington Trust: Failed bank's lender faked loans, feds say

It's starting to look like more than a coincidence: Yet another former Wilmington Trust business lender has been indicted, by federal prosecutors in Wilmington, and charged with fraud for giving a developer millions more than he was authorized to lend in the years leading up to the collapse and forced sale of what used to be Delaware's dominant bank.

The ex-lender, Peter W. Hayes, worked for the bank for 20 years until he left in 2011, the year the bank was taken over by M&T Bank, which cut more than 700 jobs. Hayes is accused of lending $195 million to a developer over several years, while he was secretly invested in the developer's properties, and using false and insufficient documents to justify loans that weren't repaid.

"He has consistently denied criminal wrongdoing" and will plead not guilty," his lawyer, Eugene Maurer, told me. If convicted, Hayes faces 210 years in prison and $7 million in fines if convicted of all five counts of fraud and two of bribery, according to US Attorney Charles Oberly.

The developer wasn't identified in Oberly's indictment, but has been outed by the Wilmignton News Journal as Anderson Homes, a Middletown company that went under in 2011. Anderson and its owners have not been charged with wrongdoing.

Hayes is the latest ex-Wilmington Trust lenders and customers to face federal charges for losses in the run-up to the bank's financial collapse. In February 2013, Kevin McAlllister was sentenced to 20 months for fraud, bribery and tax evasion for taking kickbacks from a Delaware County mortgage broker in exchange for loans that went unpaid.

Joseph Terranova, former vice president in the bank's commercial real estate unit, last year pleaded guilty of "conspiring to extend credit to customers of the Bank under terms inconsistent with those approved by the Bank's loan committee." His former boss, ex-Wilmington Trust Delaware banking chief Brian D. Bailey, was indicted last winter on bribery, fraud and money laundering charges for a string of illegally disguised loans to a lender at MidCoast Bank; that case appears to have derailed a plan to sell MidCoast to Bryn Mawr Trust Co. 

At least two developers have also been indicted for borrowing money from the bank illegally, apparently with the connivance of bank lenders.

Who was watching these guys? Oberly hasn't filed charges against senior management of the bank, whose forced discount sale cost investors more than $1 billion from the bank's earlier stock market value, and resulted in the loss of more than 700 jobs.

At least the Feds in Wilmington are going after alleged wrongdoing. Compare that to the government's $7 billion cash settlement with Citigroup, where billions in bad loans were falsely called good ones and sold to investors, and individuals aren't being held responsible.