Brookline Bank prepares for $4.2 million loss on loans related to Curt Schilling’s 38 Studios
A Massachusetts community bank is another casualty of Curt Schilling's failed video game company in Providence.
Brookline Bancorp, Inc., the parent of Brookline Bank, said Thursday it set aside $4.2 million to cover potential losses from two short-term business loans made by its subsidiary, Bank Rhode Island, shortly after Brookline Bank bought the Providence bank in January.
The bank said the loans -- originally totaling $9.6 million -- were based partly on expected tax credits for a company in Rhode Island that unexpectedly and abruptly went bankrupt -- a reference to Schilling’s company, 38 Studios, which filed for bankruptcy in June and was seeking millions of dollars in tax credits from the state.
Public records show companies affiliated with Rhode Island film tax credit broker, Michael Corso, used tax credits that 38 Studios was seeking to secure loans from Bank Rhode Island in January. Records also show the retired Red Sox pitcher used several million dollars in 1-ounce gold coins as collateral for a loan from the bank.
Under Rhode Island’s film tax credit program, video game companies are eligible for $1 in tax credits for every $4 they spend. Companies then typically sell the credits through brokers like Corso to other companies or wealthy individuals looking to reduce their tax bills.
But Rhode Island ultimately refused to grant the tax credits to 38 Studios, citing the company’s default on a $75 million loan backed by the state.
Brookline Bancorp said in a news release about its second-quarter earnings Thursday it “moved aggressively to resolve” the problem loan.
In a conference call with analysts, bank chief financial officer Julie A. Gerschick said the total value of the loans was $9.6 million, but it has recouped $2.5 million by liquidating collateral for the loan. The bank is trying to recoup the additional $7 million it is still owed, Gerschick said.
But Gershick said efforts to recover additional money likely will be complicated by negotiations with other parties, including the state of Rhode Island, prompting the bank to set aside money to cover most of the money it is still owed.
Despite the expense, bank executives noted the company is profitable and considered well capitalized. The company reported a profit of $7.5 million for the second quarter, up from $7 million a year ago. And Gershick called the problem Rhode Island loans an “isolated incident.”
Some other banks have also felt the impact of 38 Studios’s collapse. For instance, RBS Citizens, the legal name for Citizens Bank, sued Schilling personally last month for $2.4 million for loans to 38 Studios that Schilling guaranteed. Schilling also personally guaranteed a $1.5 million line of credit from Middlesex Savings Bank of Natick.Todd Wallack can be reached at email@example.com. Follow him on Twitter @twallack.