BNP Paribas, UBS, Barings, Schroders, Inter-America Development Bank & more

Just one in five of the world’s biggest listed companies disclosed data about their workforce in an annual survey run by a $7 trillion investor coalition, as corporations respond slowly to pressure to be transparent about their social impact. We expect social factor impacts on corporate activity to accelerate. Events in Minneapolis and the state of Georgia point to a period of rapid change. As one of the original impact investing analysis firms, Creative Investment Research is proud to be a media partner for Reuters Events ESG Investment North America 2021 (15-16 June), the premier place to understand the materiality of the Social Factor, and why the most senior organizations in the finance & investment community are outperforming the market because of it. See the full speaker list & agenda at the website here Get your copy of the 2021 information pack to stay up to date with the latest program and speaker reveals, get first access to the confirmed attendee lists, and gain exclusive promotional and group discount codes! Mike Freno, Chairman & CEO, Barings Sarah Bratton-Hughes, Head of Sustainability, North America, Schroders Herve Duteil, Chief Sustainability Officer, BNP Paribas Jolyne Caruso-Fitzgerald, Vice Chairman - UHNW, Global Wealth Management, UBS Anne Simpson, Director, Governance  & Strategy, CalPERS Anthony Minopoli, President & CIO, Knights of Columbus Lanaya Irvin, CEO, Coqual Catherine Howeth, CEO, ShareAction Erica Karp, CIO, Pathstone Capital Leslie Samuelarich, CEO, Green Century Emily Kreps, Global Director, Capital Markets, CDP With such a strong line-up from the largest players in the industry, ESG 2021 is the place to be if you are serious about identifying risk and gaining superior investment returns See the full speaker list & agenda at the website here If you have any questions, feel free to contact Kevin Anderson at Reuters, listed below, or send an email to info@creativeinvest.com – I’d be more than happy to give you our viewpoint on this important event. Best regards, Creative Investment Research (Reuters contact below): Kevin Anderson Head of ESG Markets Reuters Events Telephone: +44 (0)2075138928 kev.anderson@thomsonreuters.com Creative Investment Research is a Media Partner for Reuters Events, part of Reuters News & Media Ltd, 5 Canada Square, Canary Wharf, London, E14 5AQ. Registered in England and Wales: 2505735.

What is Investment Research And Why Is It Broken?

What is Investment Research And Why Is It Broken?

Investment research studies of the performance of stocks, bonds, metals, mutual funds, and other assets. This is done, most often, to influence investment decision making. It seeks to "produce a guide to what investments to make.”

With the capture of regulatory authorities (who are, supposedly, looking out of the public interest) by financial institutions, the number of investment "assets" has increased. There are now more than 5,000,000 different types of investment vehicles. Many have little actual value.

A new investment class with actual value may be cryptocurrencies. A cryptocurrency is a digital program or asset designed to work like currency. Bitcoin is a cryptocurrency.

What is Investment Research?

As we note in our online class, investing is "the process of spending money in order to increase the original dollar amount." Investment research provides timely information that, combined with expertise, provides advice." One goal is to reduce or eliminate information gaps and to reveal "potential issues and dangers associated with specific investments, known as risk." In other words, "investment research is designed to..make investors more profitable."

The current era of investment research started with "the Amsterdam Stock Exchange established in 1602.." Key issues included fraud, information validity and accuracy, and understanding true risk.

With the growth of the "market culture", in the 20th century, one set of investments, the stock market, "became a common way to invest, and because of longstanding issues investors have faced for centuries, banks began delivering equity research to their customers through private mail.

Beginning in the 1990s, investment research was provided through email newsletters and other online channels. Advanced research portals like the Bloomberg Terminal, which actually dates back to the early 1980s, have become widely used by serious investors looking for sound advice and reliable data."

(While employed by Merrill Lynch, we had dinner with Michael Bloomberg in 1987. We discussed our research paper on the future of market information systems.)

Many "investors have accessed research through paid subscriptions. As of 2017, the aggregate size of the global investment research market is $16 billion, with more than 40,000 pieces of content delivered each week by bigger banks and brokerages."

Investment Research Is Broken

Our position with respect to capital markets regulation recognizes the primacy of protecting investors. Investor interests, broadly speaking' are not served by fraud and malfeasance. Securities laws and traditional investment research have failed both to protect investors and to promote efficiency, if efficiency is defined as lowering aggregate losses.

Investment analysts issue biased research reports to curry favor with management. Rating agencies, like Standard and Poor's, Moody's and research providers like Bloomberg and Morningstar, issue defective investment research reports. The former 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 vulnerable to subjective judgment, manipulation and pressure from borrowers. They say the big three are so dominant they can keep their rating processes secret, force clients to pay higher fees and fend off complaints about their mistakes.” (See: https://www.sec.gov/rules/proposed/s71005/wcunningham5867.pdf). 

In response, the European Union (EU) "implemented new rules in 2018 requiring asset managers to pay directly for their own research." This is also an attempt to correct flaws in the investment research field: "a study from Bespoke Investment Group in 2015 examined 12,122 ratings in the broad market index. Just 6.67% had a 'sell' label, with the rest either being 'buy' or 'hold.' ” This is clearly indicative of a lack of objectivity.

Also, one study noted that, "in 2012, 49% of (Wall Street Investment) analyst ratings on Dow 30 stocks were incorrect..."

The industry has long been due for reform. Banks, large asset managers, hedge funds and others have controlled the investment research industry for their own benefit.

If you want to learn more about the most objective, insightful and independent research available for investors of any size or strategy, please see: https://www.creativeinvest.com/sitemap.html

Black communities need more help from the Federal Reserve Board

An estimated $7 billion in corporate pledges have been made to facilitate efforts that support racial justice, and help activities that seek immediate solutions to the crisis affecting Black people.

We are very familiar with these types of promises, having launched the first website focusing on financial support for minority communities in 1995 and a new website to monitor such corporate pledges.

Yet it appears that only $188 million of that $7 billion is money someone can reasonably expect to get their hands on. Further, in certain sections of the Black community, there is concern about the effectiveness of the traditional organizations identified as recipients of the pledges. And there appears to be less concern with newer, trending organizations.

Our recent survey of customers banking at black-owned banks suggests most consumers who do not use Black banks are concerned about their financial stability, and have not been able to leverage financial resources from these institutions.

Programs that rely on secondary institutions to provide capital to already underutilized Black-owned banks add another stumbling block to the effort to get capital where it is needed.

Certainly, more money will help. But there may be more effective methods such as creating a digital wallet and currency to get money directly to affected communities without the need for money-sapping intermediaries; or creating a large credit program at the Federal Reserve. The latter approach holds the most promise.

Recall that the Federal Reserve Board created a secondary market corporate credit facility to purchase a more diversified portfolio of corporate bonds that include supporting large employers. Regrettably, very few Black-owned firms are eligible for this program, having been locked out of the corporate-debt market largely due to discrimination, both involuntary and self-imposed.

The Fed also created the Main Street Lending Program meant to encourage cash flows to small and midsize businesses by purchasing up to $600 billion in loans. But already, the number of black-owned small businesses plummeted by 41% between February and April when the coronavirus pandemic started in the U.S., according to a working paper published by the National Bureau of Economic Research.

The financial loss to the Black-owned businesses is estimated at $23 billion due to the pandemic. Therefore, the Fed should allocate $23 billion of the $600 billion in its Main Street program to Black-owned firms, using a wide array of financial instruments and techniques.

Lastly, Black people need a truly collaborative and cooperative effort — in and by the Black community — a community often trained to be petty and cutthroat to each other given the paucity of resources at its disposal. After Creative Investment Research, in the public spirit, disseminated an estimate of corporate pledges to the Black Lives Matter cause (at $1.6 billion), several foundations made donations totaling $1.7 billion.

Now is the time to let go of bad habits for the survival of the Black community. In so doing, we can also show the world the way out of the crisis.

First published at: The American Banker Newspaper: Black communities need more help from Fed https://www.americanbanker.com/opinion/black-communities-need-more-help-from-fed 

Webinar: Can Black People Survive Post COVID?

Come advocate for change!

SPECIAL GUESTS:

• CONGRESSMAN HANK JOHNSON (D-GA)
• DR. CHARLES STEELE, JR., PRESIDENT AND CEO, SOUTHERN CHRISTIAN LEADERSHIP CONFERENCE
• WILLIAM MICHAEL CUNNINGHAM, FOUNDER - CREATIVE INVESTMENT RESEARCH

Wednesday May 13, 2020 6:00 pm ET. Zoom Webinar. 

https://www.creativeinvestmentresearch.org/covid

Diversity Index Portfolio Outperforms S and P 500

Creative Investment Research, Inc. announced today that it's Diversity Index Portfolio returned 35.13% from April 19, 2011 to March 30, 2013. The Diversity Index is an investment portfolio containing stocks of the largest companies in the U.S. These companies have been selected because they have outstanding investment characteristics and are top performers with respect to four key measures of inclusion and diversity: Human capital, CEO commitment, corporate communications, and supplier diversity.

By comparison, the S and P 500, or the Standard and Poor's 500, returned 18.14% over the same time period. According to Wikipedia, "The S and P 500 is a stock market index based on the market capitalizations of 500 leading companies publicly traded in the U.S. stock market, as determined by Standard and Poor's. It is one of the most commonly followed equity indices and many consider it the best representation of the market as well as a bellwether for the U.S. economy."

The chart at left shows this performance graphically.

NOTE: "All references to performance in the text, data and spreadsheet refer to an analysis of market indexes or hypothetical portfolios using historical data from April 19, 2011 to March 30, 2013, and not for any actual accounts, either past or present. Static performance: An implicit assumption about the data is that the diversity related performance of the companies would have remained static from 2011 to 2013. In reality, this may or may not have been the case. The diversity related performance of a company will improve and deteriorate relative to peers over time. This type of bias may or may not be significant for the results of the portfolio, but it would definitely impact the selection of companies to be included in the portfolio. The analysis in no way represents the results of actual trading using client assets, but rather involves hypothetical results obtained by means of the retroactive application of a theoretical study and analysis designed with the benefit of hindsight. Expenses: No consideration was given to expenses, which would normally be included in a real-world scenario, including management fees, commissions, markups or markdowns, other trading costs, taxes, and other fees and costs of all types." SOURCE: Profitable socially responsible investing? An Institutional investor’s guide. By Mark J. Lane, Esq., www.advocacyinvesting.com, Institutional Investor Books, 2006.

Two of the first infographics created

I thought we would post, from 2008 and 2009, some of the first infographics we created: Global Market Turmoil Graphic and Financial Crisis Calendar Graphic, by Creative Investment Research, Inc., December, 2008 and November, 2009.

Black Banks Are Feeling the Pinch

Black Banks Are Feeling the Pinch

Recession pushes profits to nine-year lows

By Jeffrey McKinney - June 08, 2009

Profits at the nation’s black owned banks last year plunged to a nine-year low, newly released data shows.

The annual statistics, compiled last month by William Michael Cunningham, senior investment adviser at Creative Investment Research Inc., a Washington D.C. firm specializing in minority banking, illustrated a major decline as some black owned banks suffered big losses tied to securities-related investments.

See: http://www.blackenterprise.com/be-100s/be100s-news/2009/06/08/black-banks-feeling-the-pinch

"For Minority Firms, Crisis Opens Doors"

Wall Street Journal, May 22, 2009.

NEW YORK -- The financial turmoil that has weakened or
destroyed some of Wall Street's most prominent companies
is presenting an opportunity for some lesser-known firms,
especially those owned by women and minorities.

One company that is benefiting is Williams Capital Group
LP, an African-American-owned broker-dealer and asset
manager in New York. Earlier this week, Goldman Sachs
Group Inc. said it will invest $1 billion in a
money-market fund managed by Williams Capital, more
than doubling the amount of funds the firm has under
management and pushing it over a critical size
threshold that could help it attract additional
institutional investors.

Last month, Williams Capital was named as part of a
team assembled by Invesco Ltd. that applied to participate
in the Treasury Department's Public-Private Investment
Program, or PPIP, an effort to relieve banks of
toxic assets. Invesco, and its affiliate WL Ross & Co.,
which is controlled by money manager Wilbur Ross,
said it is willing to invest as much as $1 billion in
the program. Williams Capital is also showing up
more often as an underwriter on stock and bond offerings.

"Companies appear a bit more open to broadening their
universe of relationships," says Chris Williams, the
company's founder and chief executive. "We're not a major
firm so if someone only wants to do business with the
top four or five firms, we may not be on the list. But
as companies broaden their relationships, we are being
included more often than we had been in the past."

The nation's most powerful financial firms have long been
hesitant to forge strong ties with minority firms, in part
due to perceptions that the smaller firms lacked the
knowledge base or talent pool they required.

But as the financial crisis humbles some of the industry's
most storied firms, that view is being reassessed.
"The so-called smart money got too smart for its own good
and got shot in the foot," says William Michael
Cunningham, a socially responsible investment adviser
who tracks minority-owned financial firms.

In contrast, smaller firms tended to be more conservative,
which caused them to lag behind during the boom years but
is serving them well now.

Meanwhile, there is pressure on financial companies by
politicians and clients to broaden and diversify. That has
led to a recent flurry of large companies, from Pacific
Investment Management Co. in California to Northern Trust
Corp. in Illinois to publicly seek minority-owned and
women-owned firms that could be potential business
partners or service providers.

"As diversity has become a more important issue in this
country, many large pension funds are asking us to be open
to new ideas and new firms," said Lyle Logan, an executive
vice president at Northern Trust, which on Monday
announced that it is seeking "emerging" and minority-owned
broker-dealers to become trading partners.

Some members of Congress have been pressing the Treasury
Department to increase the participation of minority- and
women-owned firms in various asset-management and
bank-rescue programs, including the PPIP and the Troubled
Asset Relief Program, or TARP. The programs are expected
to provide millions of dollars in management fees and
investment possibilities for private companies.

Last month, the U.S. Treasury selected minority- and
woman-owned firm Piedmont Investment Advisors LLC,
of Durham, N.C., as one of three firms to manage
assets acquired by the Treasury through TARP.

One of the most prominent ways in which minority and
small firms have gained attention is through the PPIP
program. In response to pressure from Congress members
-- like Maxine Waters of California, Gregory Meeks of
New York and Keith Ellison of Minnesota -- the U.S.
Treasury asked asset managers to partner with
minority-and women-owned firms before applying
to manage PPIP assets.

A spokesman for Goldman Sachs said the firm's interest
in Williams Capital isn't specifically related to PPIP,
although Goldman hopes the partnership with Williams
Capital will expand to include other business areas.

Leading contenders for PPIP work, such as Pimco and
New York money manager BlackRock Inc., have tied up
with several such firms, according to a spokesman for
Rep. Waters. "This represents the first time in history
that we have opened up real opportunities for
well-qualified small, women- and minority-owned firms
to participate in this type of public-private
partnership," Rep. Waters said through a spokesman.

The smaller companies have been quick to seize the
opportunities coming their way. Maria Fiorini Ramirez,
the founder of New York-based macro research firm
MFR Inc., teamed up with money-management and
private-equity firm Paramax Capital Partners, to
apply for PPIP. "By adding our name to it, it made
the application I think a little bit more attractive,"
Ms. Ramirez says.

She notes that smaller firms like hers also are
benefiting from the holes caused by the collapse of
some large financial-services firms in recent months.
Revenues at her firm have increased 10% over the
past year, she says, thanks to new clients and
increased business from existing clients. MFR is now
building up its municipal-bond team by hiring seven
new executives in the past three months, and it is
looking to add more.

Minority-owned and "small firms, in particular,
have a great opportunity to take advantage of the
chaos that's still in the marketplace," Ms. Ramirez
says.

http://online.wsj.com/article/SB124286748215841675.html

See also: http://www.pionline.com/article/20090519/DAILY/905199976/1062

High Growth, Low Returns Found at Minority Banks

From: American Banker Newspaper
Wednesday, September 19, 2007
By Katie Kuehner-Hebert

Banks that target minority groups, particularly Hispanics and Asian-Americans, are reporting asset growth well above the industry average, largely because of an influx of immigrants.

However, on average these banks are less profitable and less efficient than mainstream ones, according to a report published last week by Creative Investment Research Inc., a Washington consulting firm that focuses on minority banking.

Assets at minority-owned banks are on pace to increase by an average of 17.43% this year, compared with the overall industry average of 6.38%, according to the report, which cited data from the Federal Deposit Insurance Corp. and other sources.

William Michael Cunningham, the consulting firm's president and chief executive, said the trend reflects both the increased number of start-ups targeting Hispanics — about a dozen have opened since the end of 2005 — and the continued asset growth at new and existing Asian-American banks.

Mr. Cunningham attributed the asset growth at the niche banks mainly to the surging Hispanic and Asian populations. The Hispanic population increased about 26% between July 2000 and July 2006, to 44.3 million, according to Census Bureau data, while the Asian population grew 45%, to 14.9 million.

But he also said he believes it is easier for these banks to attract ethnic groups, because they hire people who speak the group's language, and they have flexible underwriting policies to more accurately reflect the creditworthiness of their customers, particularly immigrants with no established credit histories in the United States.

Many immigrants have just checking accounts at mainstream banks, and language barriers or conventional underwriting policies may be stopping such customers from taking out personal or business loans or investing in securities with the banks.

Jose Reyna, Zions Bank's regional president for Utah and Idaho, said he does not agree that minority-owned banks necessarily serve minorities, paticularly immigrants, better than mainstream banks.

"We have strict credit policies and a very conservative portfolio, but we believe [minorities] deserve a very thorough look...and we're willing to support them for both personal and business loans," he said.

The $10.8 billion-asset East West Bancorp in Los Angeles caters to Asian-Americans, and its assets have increased an average of 21% a year for the last decade, said Dominic Ng, the chairman, president, and CEO of the company and its East West Bank.

(On 2/28/06, we profiled a set of Asian Banks.)

Much of the company's asset growth has come from the fact that many Asian-Americans tend to own businesses or buy commercial real estate and bank with East West as commercial customers, he said.

Still, not all of the growth in recent years can be attributed to an increase in Asian-American customers. Mr. Ng said that his company also is gaining non-Asian customers, particularly business owners who import and/or export goods and services and need its trade finance services.

"We have done well in serving minority businesses and have applied that same approach to mainstream businesses," he said.

On average, though, minority-owned institutions have not performed as well as the industry as a whole, largely because they tend to be smaller and less efficient. As of June 30 the efficiency ratio for women- and minority-owned banks was 91.36%, versus the industry average of 56.52%.

The report also showed that the ROAs of these banks has dropped of dramatically in the last 18 months, though Mr. Cunningham was quick to attribute this to an increase in start-ups targeting minorities. (There were 225 minority-owned banks and thrifts as of June 30, versus 190 at the end of 2005.)

Return on assets at minority institutions averaged 0.09% at June 30, compared with 0.78% at the end of 2005. For all FDIC-insured institutions, the ROA was 1.21%, compared with 1.3% at the end of 2005.

Mr. Cunningham said that he suspects that the minority start-ups mature, their returns will move closer to the industry average.

Broken down by ethnicity, Native American banks performed the best, with an average return of 0.84% at June 30. The average was 0.22% for Asian-American banks, 0.11% for Hispanic banks, and negative-0.6% for African-American banks. (For the new category of banks that have minority boards and serve African-American communities but are not majority owned by African-Americans, the average was 0.52%.)

Mr. Cunningham said that Native American banks topped the list because of strong revenue from casinos.

Banks owned by African-Americans have not had as strong as demographic growth as the others and have struggled with cost control, he said.

Though the increased number of start-ups may have skewed minority banks' performance ratios, chargeoff ratios for the group on average have been better than the industry as a whole, the report said.

Net chargeoffs as a percentage of average loans totaled 0.21% at minority institutions as of June 30, compared with the average of 0.47% for all FDIC-insured institutions.

Mr. Cunningham said that nonperforming assets at minority-owned banks may be in line or even higher than the industry average, but the banks tend to work with their customers much longer in resolving credit problems, so chargeoffs tend to be lower.