Tuesday, November 26, 2013

Hearing on Fossil Fuel Divestment

The video below is of testimony before the DC City Council on the Fossil Fuel Divestment Act of 2013. The bill requires "the divestment, and prohibit(s) the investment, of public funds in the stocks, securities, or other obligations of certain companies which hold the largest fossil fuel reserves and..provide(s) for the identification of companies with the largest fossil fuel reserves."
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As a recent Forbes article noted, investor concerns about fossil fuels are growing.
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Friday, November 8, 2013

Article on Community Lending from today's American Banker

Fintech for Underbanked: The Next M&A Hot Spot?

NOV 7, 2013 5:06pm ET

Think the onset of consumer protections laws stymied M&A for companies who serve the underbanked? You're wrong.

Between July 2012 and June 2013, there were 85 investment banking transactions involving companies in the financial technology and specialty lending realms that focus on consumers with low-to-moderate incomes, according to a study released Wednesday. The authors are the Center for Financial Services Innovation and Core Innovation Capital, a $50 million venture capital fund that specializes in the underbanked market.

The data show the acquisitions, initial public offerings and equity investments had a combined value of $5.2 billion in capital.

The study, which was sponsored by Morgan Stanley, was the authors' first on this topic, so it is unclear if the activity in the year leading up to June 30 rose or fell from past years. That kind of assessment is for next year — this year's report was about defining the size of the market, they say.

"This is a space we are newly defining," says Arjan Schutte, founder and managing partner at Core. "Take payments for instance. Payment overall have been heating up for years now. We are drawing a new circle in a Venn diagram across various types of companies that serve a similar customer base."

The low-to-moderate income market is a complex one for financial companies. Those involved tend to fall into two buckets — missionary or mercenary. The aim of the study is to attract participants from the middle ground between those two extremes, the authors say. They seek companies and investors who want to provide responsible financial products to underbanked customers while still turning a profit.

"We believe in a market-based system," says Rob Levy, director of research for CFSI, a research and consulting organization. "The [financial services] industry doesn't understand or value this market and that's why we did the study — to explain the need. Less competition enables the lower quality providers to own the space. The more good companies that get in, the more competition there is and the better the products will get."

A Morgan Stanley official echoed Levy's sentiments in an email. "By supporting research on the financially underserved, we hope to create opportunities to accelerate financial inclusion in innovative, market-based ways," says Audrey Choi, head of Morgan Stanley's global sustainable finance group.

In the years following the subprime meltdown, there has been an attempt to put in safeguards to prevent predatory practices — the most notable, of course, was the creation of the Consumer Financial Protection Bureau. Although the agency, given its sweeping jurisdiction, would appear to scare off companies from entering the mark, Schutte says it could actually inspire more M&A. The startups have been working with the agency since their inception; that existing relationship is attractive to a buyer like a big bank.
"It is tough for a big institution to change their product to be in-line with the regulatory changes," Schutte says. "But a new company that has been talking to CFPB since day one has cracked the code; that's attractive."

The types of companies involved in the transactions vary. The activity was broken down into three categories: specialty credit, which includes small-dollar loans, small-business loans, private student loans and subprime auto loans, made up 42% of the transactions; payments, which include prepaid cards, remittance and bill pay, made up 33%; and other financial technology, including personal financial management tools, alternate data analysis and savings products, made up 25%.

There were 71 equity investments, 11 acquisitions and three IPOs. The sector has piqued the interest of private equity; 84% of all the transactions involved PE. Its investments totaled $947 million.
"This might not get the attention of Twitter's IPO, but a lot is happening," Levy says.

For other players in the underbanked sector, the study's findings were a bit of a mixed bag.

On one hand, the study signals that despite the fighting over economic policy in Washington, "economic activity is rebounding in African-American, minority and low income communities," William Michael Cunningham, social investing advisor of Creative Investment Research, said in an email. "Unfortunately, this has attracted the attention of a group of hyper greedy 'private equity.'"

My added thoughts are:

This is a bad, bad sign for minority, specifically African American consumers in these markets. These are the same discriminatory financial service companies and non-diverse private equity companies that helped cause the financial crisis, that thought "subprime mortgage lending was a real "Innovation." This specifically includes Morgan Stanley, the Center for Financial Services Innovation (CFSI) and the Core Innovation Capital (Core) Fund.

Ask yourself: how many of these private equity and investment firms have any African American employees? Look at total compensation going to African American employees, to compensation going to non-African American employees and to the percentage of revenue and profit from African American consumers.
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Tuesday, September 17, 2013

CBCF makes a $5 million deposit in Black banks

According to news reports, "The Congressional Black Caucus Foundation, Inc. (CBCF)..(made a) $5 million (deposit) in African-American banking institutions as part of a broader effort to increase the availability of loans for businesses and individuals in African-American communities. In all, five banks will receive $1 million each" in deposits. The Foundation, "established in 1976, is a non-partisan, non-profit, public policy, research and educational institute intended to broaden and elevate the influence of African Americans in the political, legislative and public policy arenas."

The banks are:
  1. Chicago-based Seaway Bank and Trust Co. 
  2. New Orleans-based Liberty Bank and Trust Co. 
  3. Washington, DC-based Industrial Bank
  4. Newark, NJ-based City National Bank
  5. Durham, NC-based M&F Bancorp 

This effort was spearheaded by Ron Busby, Sr., CEO, U.S. Black Chambers, Inc. (pictured right).

All in all, a good move. This is modeled on efforts we spearheaded over 20 years ago:
  • We pioneered the systematic use of financial and social data in the selection and evaluation of financial institutions when we created the first social and financial impact methodology, the Fully Adjusted Return (TM) index, in 1991. 
  • Our work in creating targeted minority bank deposit programs was described in the Wall Street Journal on Friday, August 21, 1992. The Journal article pointed out that, following the Los Angeles riots, many church groups increased their investments in the inner cities. The article cites the efforts of Creative Investment Research in assisting one national church group, the Episcopal Church of the United States. The Church, in an effort to be more careful about urban investing, hired Creative Investment Research to review the financial and social performance of minority-owned banks. We conducted our review based "on several factors, including the number and size of their inner-city loans and their borrowers' repayment rates." The Church, based on our research, "added two minority owned banks there to the 26 minority owned and women-owned banks across the country where it already had decided to deposit $100,000 apiece earlier this year." Creative Investment selected the 26 other minority owned banks, too. By using our research, the Church indicated it was "casting a sharper eye than ever on the bottom line: getting tangible (social and financial) results." 

Friday, September 6, 2013

SF 49er Protest this coming Sunday, Sept 8th

If the 49ers knew and this is true…That special legislation was passed so that the Santa Clara Stadium Authorities could circumvent the California State laws in regards to contractor selection when using public funds.

If the 49ers knew and this is true…That Turner/Devcon joint venture, the contractor selected to build the stadium, submitted a list of “pre-qualified subcontractors” and that list had NO, zero, African American Contractors on that list.

What does that say about our 49ers? That Black Players are good enough to perform on the field but Black Business people are NOT GOOD ENOUGH to build a stadium.

1940’s – they said we could not Play the game
1960’s – they said we were not smart enough to Quarterback
1980’s – they said we could not Coach a winning team

Now in 2013 – We CAN’T BUILD a stadium ??

Forward & Pass ON, so people know there is a process that “Excludes” folks and we’re not going to continue to let this happen.

We deserve the “American Dream” too !!!

Carl Davis Jr
President & Executive Director
The Silicon Valley Black Chamber of Commerce


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Friday, July 5, 2013

'Minority' Bank Designation Has Become Meaningless

We note with interest the designation of Urban Partnership Bank as a Minority Depository Institution. According to Crain’s Chicago Business, “The $1 billion-asset bank based on Chicago's South Side
(formerly South Shore Bank) is officially a minority lender despite an ownership dominated by Wall Street giants like Goldman Sachs Group Inc. and J.P. Morgan Chase & Co.”

A Minority Depository Institution, as defined by Section 308 of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 ("FIRREA"), used to be a bank in which 51% or more of the common stock was owned by one or more members of the following groups: Black American, Asian American, Hispanic American, or Native American.

The threshold now for MDI designation is a bank that meets one or more of the following standards:
  • 1.       51% or more of the common stock was owned by one or more members of the following groups: Black American, Asian American, Hispanic American, or Native American.
  • 2.       51% or more of the members of the Board of Directors are one or more members of the following groups: Black American, Asian American, Hispanic American, or Native American and the community the banks serves is primarily minority.
The FDIC expanded the MDI definitions because is says it found the old definition “ambiguous.” Now a bank that does not meet the ownership test can be designated an MDI if 51% or more of the directors on the board are members of those minority groups and the community the banks serves is primarily minority. This is how Urban Partnership Bank was able to obtain recognition as an MDI.

This means that any institution, no matter how discriminatory, can obtain this designation. The MDI designation is valuable because banking regulators use deposits in minority banks made by non-minority banks as evidence that the non-minority bank is not breaking the law by discriminating against racial minorities and that it (the non-minority bank) is meeting community credit needs.

The MDI designation originally helped Black-owned banks, whose historical significance was clear: they were created at a time when discrimination against Black people was legal in the US. They served as the only financial service providers to the community. Black banks do not now have the same level of significance to the Black or minority community today. They are too small to serve the community in any meaningful way. For example, they cannot serve as a line of defense against predatory lending. The result: banks like Wells Fargo are free to target wealthy black communities for predatory loans, in a nakedly discriminatory (and ultimately successful) campaign to strip wealth out of the Black community.

According to a June 12, 2012 article in the Washington Post, one Wells Fargo loan officer, “in sworn court testimony..described watching loan officers comb through heavily African American areas such as Baltimore and Prince George’s County, forging relationships with churches and community groups to sell their members (predatory) mortgages.” This same loan officer “processed loans for (Black) homeowners with sterling credit ratings with higher interest rates than they needed to pay.”

Of course, some will claim that the actions of a few bigoted individuals cannot mark an entire institution as racist. We disagree, and refer to the clear double standard concerning these matters, evidenced by the treatment of ACORN, after a few individuals at that non profit made mistakes.

What’s specifically relevant in this case is that Goldman Sachs, one of the owners of this newly designated “minority bank,” has a history of discriminatory behavior. The firm's bigoted attitude toward Blacks and women is described, in great detail, by author by William D. Cohan in Money and Power: How Goldman Sachs Came to Rule the World, a book released in 2011.

Cohan recounts the case of James. E. Cofield, Jr, an African American Stanford MBA who sued Goldman for discrimination in 1972. On December 6, 1987, a female employee filed another in a series of discrimination lawsuits claiming Goldman had "a hostile working environment in which women were demeaned." In March, 2010, yet another female employee filed a discrimination lawsuit. In September, 2010, three female former employees filed a class action lawsuit stating that Goldman "systematically discriminates against women in pay and promotion." 

This discriminatory behaviour appears to be ongoing. On Sunday, June 2, 2013, an article on Salon.com described a “series of racist and sexist ‘tips’ to succeeding at” Goldman Sachs. (http://www.salon.com/2013/06/02/wall_street_insiders_advice_for_interns_sleep_with_your_female_colleagues_then_brag_about_it/)

Goldman also has a history of manipulating financial data in order to support unethical business activities designed to maximize short term profit. In 2003, Goldman Sachs admitted that it had violated anti-fraud laws. In 2010, according to the New York Times, Goldman paid “$550 million to settle federal claims that it misled investors.” (http://www.nytimes.com/2010/07/16/business/16goldman.html?_r=0)

As part of that settlement, the firm “agreed to a judicial order barring it from committing intentional fraud in the future.”  As an investor in an institution that has received designation as a minority depository institution without actually being one, some may suggest that Goldman has violated that order.

At any case, Urban Partnership Bank’s designation eliminates an honest and ethical explanation of the “Minority Depository Institution” designation. As an analyst who has been producing statistical reports on women and minority banks for 30 years, this change also affects my ability to derive meaningful insights from bank performance data pre definition change and after the MDI designation change. It makes any long term statistical analysis meaningless, as I noted in the Minority BankMonitor, our annual review of the social and financial performance of minority banks.

More importantly, this change removes any real social meaning from the MDI status designation.
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Friday, May 10, 2013

On Black Banks

I saw an article recently on Black banks in the US that was filled with inaccuracies. It was a public relations piece for the banking industry, so I thought I would post something based on my 20 years of research experience in the sector.

1. What is the historical significance of Black banks?

They were created at a time when discrimination against Black people was legal in the US. They served as the only financial service providers to the community.

2. Do Black banks have the same level of significance to the Black community today? Why or why not?

No. They are too small to serve the community in any meaningful way. For example, they cannot serve as a line of defense against predatory lending. The result: banks like Wells Fargo are free to target black communities for shoddy loanshttp://www.washingtonpost.com/business/economy/former-wells-fargo-loan-officer-testifies-in-baltimore-mortgage-lawsuit/2012/06/12/gJQA6EGtXV_story.html

Some Black banks were trying to help: See:

But most were not. See:

This is contrary to their original mission. See:

3. What factors contributed to the dwindling in the number of Black-owned banks?

Several factors, but the main one is a lack of vision. Let's face it, though. Greed is a factor, too: "Regulators in October (2008) concluded in a cease-and-desist order that one Black bank had poor standards for qualifying and documenting loans, and gave top executives excessive pay and perks. Two of the perks regulators targeted were a $6.4 million beachfront Santa Monica mansion Cohee used while in California and a Porsche SUV..." 


4. How would you characterize the experience of Black banks in America throughout their history?

They once served a critical role in Black economic development, but they were sidetracked by the factors listed above. 

5. How did the recent Great Recession impact Black banks?

Decimated most of them.

6. Do you believe Black banking institutions were given a fair shake with regards to the TARP program?

Perhaps, but one Black bank got the most: http://www.washingtonpost.com/wp-dyn/content/article/2010/08/11/AR2010081105561.html

7. What is the forecast for Black banks moving forward?

We will see the number fall to low single digits within 10 years.
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Thursday, April 11, 2013

An unprecedented move by the FED

In an unprecedented move, the Federal Reserve tied monetary policy to a specific social metric, an unemployment rate of 6.5%. Given stubbornly high unemployment levels, this new monetary policy target is entirely appropriate. Looks like its working.

Mr. Bernanke appears to be willing to risk his reputation as an inflation fighter in order to lower the unemployment rate. I think the Bernanke Gambit is good news for the unemployed and good news for the country as a whole.

Bernanke signaled that bondholders would no longer dominate monetary policy considerations. This is for their own good, since they will benefit, over the long term, from a fairer and more stable economy.

The majority of American citizens are bond sellers, not bondholders. In a downturn, government spending, required in order to get the economy out of a recession, is financed through the creation, by fiat, of new money. The resulting increase in the quantity of money gives rise to inflation, assuming the quantity of goods remains constant. (“Inflation is always and everywhere a monetary phenomenon.”) Bondholders are impacted primarily, since long term bondholders, those with bonds that mature in, say, ten years, face an increased risk that
the dollars they will receive as interest payments and principal will be worth less than anticipated. Most American I know value day to day social stability more than price increases that may or may not occur at some point in the future.

This is also a nod to the electorate and to political reality. There is no question that, had Romney won, this would not have happened. Romney's monetary policy supported capital owners. Capital owners fear inflation above all else (except a popular revolt by well informed citizens), since the spending power represented by investment cash flows, like those generated by bonds, decline in an inflationary environment.

Our Fully Adjusted Return ® Models show that societal benefits generated by higher employment far outweigh negative impacts of a potentially elevated inflation rate. Our models incorporate the new reality that sustained, high levels of unemployment contribute to social instability in a way we have not seen before. The ability of an
increasingly literate, technologically savvy population to coalesce and act quickly is new. We have seen, in Egypt, Syria, and Libya, the influence that rapidly forming communities have.

In the US, both the Tea Party and the Occupy Wall Street movements reflect this reality. The growing risk of a total breakdown in the ability of the US Government to function in the way that governments must in order to be considered legitimate is the big concern here. In other words, growing income inequality combined with new communication technology that increases the ability of activists to, well, act, have significantly lowered the rationality of traditional monetary policy targets and heightened the risk that normal economic policy mechanisms will fail. This is why the Fed has turned to unconventional monetary policy tools, like Quantitative Easing. Unemployment targeting is simply an acknowledgement and extension of this work.

This may also be a contributing factor to Germany’s recently announced move to reclaim and repatriate $36 billion in gold reserves. As the political side of the US Government fails to anticipate and manage risks associated with growing income inequality, the monetary side of the government finds itself unable to manage policy in a rational way. Hence the growing risk of default. If the US Government defaults on its debt, creditors could try to seize assets, including gold reserves belonging to others but held in the US. The risk that an extremist domestic political faction might support these efforts, previously unthinkable, has also grown. The sensible thing for any foreign government to do  in anticipation of  this situation is to reclaim their assets, quickly and quietly, using whatever excuse they need to do so. Thus, Germany’s recent  action.

That the unemployment rate has become the primary measure used to evaluate the effectiveness of monetary policy is significant. It sends a strong, unmistakable signal to corporations and investors that if they want to protect the value of their investments, they better start hiring. They can start by using some of the cash they have been hoarding, created by falling real wages and increasing productivity, resulting in record profits. This means that they, and the wealthy, now have one more incentive to drive the unemployment rate down. It also signals to politicians that if they want to protect wealthy contributors, they should solve the fiscal crisis now, since the
crisis threatens to increase unemployment.

Already, key corporate entities, like WalMart, have started moving production back to the US. As the New York Times noted, “A number of companies, including Apple, General Electric and Brooks Brothers, are..making more products in the United States.” Corporate social returns, materializing first as positive reputational impacts, will
increase as a result. This is not inconsequential. Expect an employment boom.

The move also doesn't hurt Mr. Bernanke’s chance of being reappointed for a third term.

Looks like we all win.

Bravo, Mr. Chairman.
William Michael Cunningham is an economist and social investing advisor. On June 18, 1998, he opposed the application, approved by the Federal Reserve Board on September 23, 1998, by Travelers Group Inc., New York, New York, to become a bank holding company.. In 2003, five years before the financial meltdown, Mr. Cunningham told the Securities and Exchange Commission that his economic models indicated a growing risk of systemic failure. He is the author of The JOBS Act: Crowdfunding for Small Businesses and Startups.
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