Tribe Agrees to Buy Troubled San Diego Bank

Using money from its casino, a San Diego County Native American tribe agreed Thursday to buy controlling interest in a troubled bank for $2.4 million.

If the deal is approved by state and federal regulators, the Viejas Band of Kumeyaay Indians would own 60% of Borrego Springs Bank, said bank President Frank Riolo.

It would be the first takeover of a bank by an Indian tribe in California, regulators said.

“The Viejas Band is essentially seeking to invest in the community and help preserve a community source of jobs and revenue,” said John Winkelman, the tribe’s economic adviser.

The deal represents a new--if risky--investment strategy for the Viejas tribe, which is one of three San Diego tribes that have reaped fortunes from casino gambling.

But it also could be a gamble for the bank because the casino makes most of its money from video slot machines, which state officials claim are illegal. U.S. Attorney Alan Bersin said he would not prosecute the tribes while Congress and the courts clarify the legal issues.

The tribe’s ownership also raises regulatory questions. Native American tribes are considered sovereign and protected by the federal government, and it is unclear whether state banking laws would apply to them.

The bank began negotiating with the Viejas in February, Riolo said. Federal regulators had ordered its directors to raise $2.7 million to cover bad real estate loans.

The bank now has about $1.5 million in capital and $30 million in assets.