Saturday, April 23, 2011

One Black owned Bank that isn't going out of business

According to recent news reports, "North Milwaukee State Bank.. recently commemorated a milestone of providing service to the community for over 40 years."

North Milwaukee State Bank ( now NMSBank ) celebrated "over 40 years of service to the community by hosting a 40 Plus Year the Milwaukee County War Memorial on April 14, 2011. The bank opened its doors on February 12, 1971, becoming Wisconsin’s first minority-owned bank.NMSBank co-founder Dr. William Finlayson states 'I never had any hesitation in opening the bank because I was motivated to bring economic empowerment to the community. People questioned the impact a minority bank would have on the community, but the biggest immediate impact was the sense of pride it gave the community.'

NMSBank co-founder Dr. Randle Pollard credits the success of opening NMSBank to the rapid exit of larger banks from the community, the civil rights movement, and a rush of college graduates who majored in accounting, banking, and finance. 'All three factors made the time right and ripe to establish a bank. It also was an ideal time because all the things the community needed financially, NMSB would be there to provide,' says co-founder Pollard."

Well done, gentlemen. Well done indeed.

Monday, April 18, 2011

Standard & Poor's cut its credit outlook on the US to negative

On Monday, April 18th, Standard and Poors, a Nationally Recognized Statistical Rating Organization (NRSRO), or credit rating agency, cut its credit outlook for the US to negative. We believe this rating opinion unwarranted and inaccurate. To understand why, one must look at credit rating agencies in general, their competence (specifically, their performance prior to the recent financial crisis), and current AAA rated countries.

Lets take that last item first. Here is the list of countries currently rated AAA by S&P:
  • Australia
  • Austria
  • Canada
  • Denmark
  • Finland
  • France
  • Germany
  • Guernsey
  • Hong Kong
  • Isle of Man
  • Liechtenstein
  • Netherlands
  • New Zealand
  • Singapore
  • Sweden
  • United Kingdom
  • United States of America
We find it difficult to believe that the Isle of Man and Liechtenstein, countries whose main export appears to be laundered money, will be better future credit risks than the United States of America.

Let's next review what a credit rating agency is, what it does and how it makes money. According to one source, "In the United States, the Securities and Exchange Commission (SEC) permits investment banks and broker-dealers to use credit ratings from 'Nationally Recognized Statistical Rating Organizations' (or 'NRSROs').. for regulatory purposes..SEC regulations require that money market funds (mutual funds that mimic the safety and liquidity of a bank savings deposit, but without FDIC insurance) (hold) only securities with a very high NRSRO rating. Likewise, (banking and) insurance regulators use credit ratings to ascertain the strength of the reserves held by (banks and) insurance companies."

In other words, the SEC, the agency that selects companies that can be recognized as credit rating agencies or use the NRSRO designation, tells institutional investors that they can only hold securities that are rated by these same NRSRO's.

The competence of the credit rating agencies is suspect: they made multiple, serious and significant errors in rating securities issued by Enron, Worldcom, Lehman Brothers, Bear Sterns, and hundreds of others, rating these securities safe until, in many cases, the day before the issuer defaulted. These institutions are supposed to “base their ratings largely on statistical calculations of a borrower's likelihood of default,” but one news report noted that:

“Dozens of current and former rating officials, financial advisers and Wall Street traders and investors interviewed by The Washington Post say the (NRSRO) rating system has proved so dominant they can keep their rating processes secret, force clients to pay higher fees and fend off complaints about their mistakes."

On a positive note, it is our belief that S&P's revised credit outlook can be used as a reason to raise taxes, to specifically repeal the Bush tax cuts.

This is, in our opinion, the most rational way to solve the so-called budget crisis.

Wednesday, April 13, 2011

Legendary Carver Savings Bank Fights To Stay in Business

"Carver Federal Savings Bank, the financial institution currently holding the top spot on the BE BANKS list, is fighting for its future. The nation's largest black-owned bank must significantly boost capital reserves by month's end or risk a potential shutdown, takeover or sale of the bank.

William Michael Cunningham, social investing adviser at Creative Investment Research Inc., a Washington D.C. firm specializing in minority banking, estimates that Carver Bancorp Inc.,parent of the Harlem-based bank, must raise nearly $20 million in new capital by April 30, 2011, to meet orders by the Office of Thrift Supervision, the primary regulator of all federal and a number of state-chartered savings banks."

Full article at:

Tuesday, April 5, 2011

"A few last items about Carver Federal"

According to a new article in Crain's NY Business: "1. Before the financial crisis, there were 36 banks that had been founded and run by African-Americans, according to Creative Investment Research in Washington. There are now 25."

The article goes on to state that:

"The reason: Most of these banks are small and lack the base of capital needed to absorb real estate-related losses clobbering small banks everywhere. Because there are so many small, ailing banks, it's all the harder for minority-owned banks to raise new capital. The competition for new capital is incredibly fierce."

While we think the articles published by Crain's on Carver have been very good, we actually disagree with this reasoning. The answer is far simpler: racial discrimination and greed. (See:

Sunday, April 3, 2011

On Carver Federal Savings Bank (Harlem, NY)

From Crain's NY Business:

"The parent of Carver Federal Savings Bank holds its annual stockholders meeting April 4 at The Studio Museum in Harlem, near the bank's 125th Street headquarters. It could be the last.

Time may be running out for Carver, the nation's largest bank founded and run by African-Americans and an integral part of the city for 63 years. Staggering under a load of delinquent real estate loans, the bank is under orders from the U.S. Office of Thrift Supervision to raise $20 million in fresh capital by the end of this month. That's a steep climb for a bank that at best posts annual profits of $5 million. Yet if Carver can't raise the cash, regulators can either seize the institution and sell it to another bank, or dissolve it.

Longtime Chief Executive Deborah Wright has pulled Carver back from the brink before and has many high-level business and political connections who could help the bank get the needed funds.

But backers would be buying into an institution where 12.3% of the loan portfolio is more than 90 days delinquent. The industry average is 4.9%, according to Federal Deposit Insurance Corp. data. In addition, although $74 million of its loans are well overdue, Carver has just $21 million in reserves to cover loan losses.

'It's worrisome,' said William Michael Cunningham, founder of Creative Investment Research, a Washington firm that tracks minority-operated banks. 'Carver faces real challenges, because the impact of the financial crisis has hit the communities that it serves especially hard.'"

For the full article, see: