The Boston Globe
By: Beth Healy
March 11, 2012
Minority banks face steep odds
OneUnited Bank is facing a painful question: What purpose can a minority institution serve when its own community is turning against it?
That's the situation the Boston bank, the nation's largest black-owned bank, finds itself in after threatening to foreclose on Charles Street African Methodist Episcopal Church, one of the most revered black churches in Boston, which, like many borrowers, fell behind on its loans during the recent recession. Community leaders vow to organize a national boycott of the bank if it fails to renegotiate the church's loans by Thursday.
The controversy is raising broader questions about the role of minority-owned banks and whether, in an era of widely available financial services, they are still viable - and needed. OneUnited is just one of several minority-owned banks across the country that have struggled since the financial crisis of 2008, relying on federal bailout money to survive and finding themselves constrained in doing what they were established to do: lend to minority communities.
These banks still wield political influence, rallying lawmakers, such as US Representative Barney Frank, to their cause. But for all the high-profile support and multimillion-dollar infusions from the government and large banks, one thing seems elusive for some of these institutions - lasting financial success.
"Why do these types of institutions have that kind of pull when they're no longer relevant?'' said William M. Cunningham, a social investing adviser at Creative Investment Research Inc. in Washington. ``They certainly were relevant in the '60s. But in 2012, I'd be hard-pressed to come up with a single black bank that's relevant.''
Minority-owned banks sprang up, particularly during the Civil Rights era of the 1960s, to provide fairer access to loans and financial services in low-income and minority areas that mainstream banks avoided. Over time, the federal Community Reinvestment Act required large banks to lend in the neighborhoods where they accept deposits and submit proof of fair lending.
These changes brought more competition for minority banks. The recent recession also hit them harder because they don't have the diverse clientele and market reach of big banks.
Many of the minority-owned banks today are working through millions of dollars in bad real estate loans. Some have been unable to bounce back. In Chicago, ShoreBank, which struggled for years, failed in 2010 despite $75 million in federal bailout funds, plus twice that much in investments from Wall Street banks.
In Harlem, Carver Bancorp received a $19 million bailout from the government and $55 million from a group of banks led by Goldman Sachs & Co., Enhanced Coverage LinkingGoldman Sachs & Co., -Search using:News, Most Recent 60 Daysseverely diluting the stakes of longtime shareholders. Today the bank, started in 1948 by African-Americans, is 63 percent owned by the US Treasury. (The only financial institutions in which the government holds larger stakes are insurer AIG, at 77 percent, and Ally, the former GMAC mortgage business, at 74 percent.)
OneUnited, meanwhile, owes $12 million in federal bailout funds and is skipping interest payments. It also has received poor marks for community lending.
A week ago, several hundred people attended a rally at Charles Street AME and listened to clergy from several black churches criticize OneUnited as greedy and unjust.
The bank has begun foreclosure proceedings on the Roxbury church and has advertised plans to auction the church property as soon as March 22. In a statement, OneUnited General Counsel Robert Cooper said: ``foreclosures do not occur overnight, without notice, and without missed payments.''
The bank, Cooper said, continues to ``garner tremendous support from our community, which recognizes the importance of OneUnited Bank, faith-based institutions, and other entities who support the needs of Boston's inner city neighborhoods.''
Frank, the Newton Democrat who helped ensure there was bailout money for OneUnited and other minority banks, said the criticisms of OneUnited are not necessarily fair.
A bank needs to be able to collect on a loan, especially when under pressure from regulators to improve its financial performance. ``The expectation people have is, `Gee, it's a black bank. They should be nicer to a black institution,' '' Frank said.
Frank said he believes minority-owned banks still have a place in American finance. They deserved taxpayer help during the financial crisis because racism still exists, he said, and groups should be able to have their own economic institutions to ensure financial equality.
Deborah C. Wright, chief executive of Harlem's Carver Bancorp, said businesses and consumers in minority communities still need access to loans and financial services. The bank's recent success in raising additional capital shows its importance to the community, she added.
"We really believe in what we're doing,'' she said. ``Though we're a small institution, it's a very visible one.''
Carver and the other minority-owned banks have had a lot of believers over the years. Boston's Wellington Management was Carver's largest shareholder, with a 16 percent stake, until last year's capital infusions diluted their holdings. The Kuby Gottlieb Special Value Fund in Chicago owned 4.5 percent of Carver's stock until selling a year ago.
While crediting Wright with saving Carver, Eric Kuby, the fund's portfolio manager, said, ``It did seem like a little bit less of a for-profit bank than it used to. It was not a good stock any more for us.''
On Oct. 25, Wright stood before employees, customers, and longtime stockholders at a special meeting of shareholders at Harlem's Studio Museum. She needed approval to take $55 million from Goldman Sachs, Morgan Stanley, Citigroup Inc., and other banking giants in order to stay in business.
Carver's stock had already plummeted to less than a dollar a share. She had to tell stockholders in voting to save the bank, their holdings would be slashed to one-15th of their previous value. Hers, too.
"On a personal level and for the team, it was very, very painful financially,'' recalled Wright who has run the bank for 12 years. ``It was a big part of my net worth.''
Critics of Carver note the irony of Goldman Sachs, which serves mainly wealthy customers and giant institutions, coming to the rescue of a small bank serving a poor neighborhood. But this investment helped Goldman, itself a recipient of taxpayer bailout money during the financial crisis, to receive an ``outstanding'' community reinvestment rating last fall.
Goldman declined to comment.
Strikingly, OneUnited received a much lower ``needs to improve'' community investment rating.
The bank's executives have long held that they should not be subject to the same community lending tests as the big banks because all their branches are in underserved neighborhoods.
"These institutions serve a unique and critical role, and have long been adept at finding creative and innovative solutions to meet the financial needs of their communities,'' Cooper, the general counsel, said in his statement. OneUnited, he added, ``is not only viable, it is a model for urban community banking.''