Showing posts with label Douglass National Bank of Kansas City. Show all posts
Showing posts with label Douglass National Bank of Kansas City. Show all posts

Tuesday, July 29, 2008

Expect other small banks to fail

From Alumni Connections, No. 44 - March 2008. Alumni Connections is a sampling of alumni news gleaned from media online and in print, including news submitted to Chicago GSB Magazine.

"William Michael Cunningham, Social Investing Advisor of Creative Investment Research, linked the failure of African-American-owned Douglass National Bank to the global mortgage crisis, according to a January 28 article in U.S. News & World Report. The bank, which originated in the 1940s, lost $1.3 million in 2007 and $4.3 million in 2006, the article said. Bad commercial real estate loans, not residential mortgage loans, led to recent losses, the article said. “It’s this secondary and tertiary impact of the crisis in the subprime market that’s beginning to impact smaller institutions mainly through [the slowdown in] consumer spending,” Cunningham told the magazine. He said he expects other small banks to fail, as a faltering economy inhibits borrowers’ ability to repay loans. Douglass is the fourth bank to fail since February 2007, the article said."


Monday, February 11, 2008

The First Bank Failure of 2008

From US News and World Report:

Bad commercial real estate loans sink a small financial institution in Kansas City
By Luke Mullins
Posted January 28, 2008

A tiny bank in Kansas City, Mo., has become the first bank in the country to fail this year—but it's unlikely to be the last.

Federal regulators on Friday shuttered Douglass National Bank, an African-American-owned bank with $59 million in assets that was named in honor of the 19th-century abolitionist Frederick Douglass. The bank, which has roots stretching back to the 1940s, had struggled of late, losing $1.3 million in 2007 and $4.3 million in 2006.

Although its recent losses were tied to bad commercial real estate loans, not residential mortgages, the bank's problems are nonetheless linked to the global mortgage crisis that has ripped through the financial services industry, says William Michael Cunningham of Creative Investment Research. "It's this secondary and tertiary impact of the crisis in the subprime market that's beginning to impact smaller institutions mainly through [the slowdown in] consumer spending," Cunningham says.

Douglass is the first bank to fail in 2008 and the fourth since February of last year. Before that, federal regulators hadn't shuttered a bank since June 2004.

But Cunningham expects other small banks—especially those with weak profits and deteriorating capital bases—to follow suit in the coming months, as the slowing economy limits borrowers' ability to repay loans.

Larger banks, such as, say, Bank of America or Citigroup, are far less likely to experience a similar rise in failures. Such banks have more capital to protect against losses and greater access to additional funds should they need them.

But with limited resources, smaller banks simply have fewer options, making them more vulnerable to downturns in the industry and the economy as a whole.

Saturday, January 26, 2008

Douglass National Bank fails

According to the Kansas City Star, "Douglass National Bank, the Kansas City area’s only black-owned bank, failed Friday under the weight of mounting loan problems. It will reopen Monday as part of a Louisiana bank.

The bank’s failure is the first in the nation this year and the first in the area since Superior National Bank failed in April 1994.

Douglass’ two Kansas City, Kan., offices and one in Kansas City will reopen as branches of Liberty Bank and Trust Co. of New Orleans.

Liberty is a profitable $327 million bank with 14 branches in Louisiana, Mississippi and Texas."

Friday, January 25, 2008

Douglass National Bank reports $1.3 million dollar loss

According to the Kansas City Business Journal, "Troubled Douglass National Bank lost $1.3 million in 2007, the Kansas City-based bank reported in its latest filing with federal regulators."

As we noted yesterday (1/24/08) in an article by Marissa Fajt in the American Banker Newspaper ("Prospects Said to Be Dim for Struggling K.C. Bank")

"The bank had a deal to sell itself, but it fell through in October, and William Michael Cunningham, social investing adviser with Creative Investment Research Inc. in Washington, said he has been wondering since then if Douglass could survive on its own.

'Given the trouble they have been in and the problems they have — lack of income, a buyer backing out, and real estate issues — it just wouldn't surprise me if they had reached the tipping point..Douglass is likely to have trouble meeting its capital needs, because there are not many investors or investment funds looking to put money into a small minority bank.."

Tuesday, August 7, 2007

Mortgage GSE's, Predatory Lending and Minority Banks

The Washington Post reported yesterday that "government-chartered mortgage funding companies Fannie Mae and Freddie Mac .. shares rose on speculation that regulators may relax restrictions on their investments to allow them to pick up slack in the troubled market for home loans." We believe equity markets will trend to the downside until the end of 2007, but believe an increase in lending limits will be good, over the long run, for both mortgage and stock markets.

We believe troubles at Fannie and Freddie allowed predatory lenders to enter the mortgage market in full force. While there is no question that Fannie and Freddie were hurt by their own fraudulent practices, large and small predatory lenders, using groups like FM Policy Focus as a shield and a proxy, were able to obtain a greater share of the profits being generated by an overheated home mortgage market. Significant profit increases depended, however, on an ability to engage in predatory practices. Given distractions caused by their own incompetence, the GSE's were unable or unwilling to protect mortgage borrowers.

Major market institutions are now, as the troubled Bear Stearns reveals, feeling the negative effect of allowing these practices to flourish. Bear Stearns may be in real danger - it's stock decreased in value by 27% over the last month. We do not expect, but would not be surprised if the firm failed, another casualty of arrogance and greed.

These issues also impact smaller, minority-owned institutions, especially black owned institutions, who have been struggling to reverse predatory lending practices in their markets. According to the Kansas City Business Journal, "Louisiana-based bank owner First Guaranty Bancshares Inc. has agreed to buy troubled Douglass National Bank of Kansas City."

This is the second black owned bank in as many months sold to a non-minority banking group. This seems a direct contradiction of FIRREA Section 308, which, according to the FDIC, "requires the Secretary of the Treasury to consult with the Director of the Office of Thrift Supervision and the Chairperson of the FDIC Board of Directors to determine the best methods for preserving and encouraging minority ownership of depository institutions."

Given the two transactions noted above, anecdotal evidence suggests these consultations have not taken place in any meaningful way.