Regulators shut down two black-owned institutions

According to Black Enterprise Magazine,

"Liberty Bank (No. 5 on the BE 100s bank list with $373 million in assets) has assumed all of the $13.5 million retail deposits of Home Federal Savings Bank and has purchased approximately $14.9 million of its assets.

Home Federal, which was founded in May 1947, was 'critically undercapitalized and in an unsafe and unsound condition to transact business,' according to the OTS. Its two branches and eight employees reopened under the Liberty Bank and Trust Company banner on Monday.

Liberty Bank was founded in 1972 and has expanded into seven metropolitan areas and six states while offering banking services and mortgage lending. 'The expansion of our banking network to Detroit is a significant benchmark in our development. We want to broaden our reach and provide our services to a larger audience,' said Alden J. McDonald Jr., Liberty Bank and Trust Company’s president and CEO, in a news release. 'This acquisition is another step to be more aggressive on a national stage.'

Separately, the Missouri Division of Finance took possession of Gateway Bank of St. Louis, another black-owned institution, and appointed the Federal Deposit Insurance Corporation receiver. The FDIC then sold Gateway to Central Bank of Kansas City, a minority-owned financial institution that was chartered in 1950. Central Bank will assume the failed bank’s deposits and its total assets of $27.7 million.

'My sense is that there are going to be a lot of other black-owned banks that are going to go belly up,' says William Cunningham, president of Creative Investment Research Inc., which tracks minority banks. He says even the loss of just two institutions takes a big chunk out of the number of black-owned banks, which has dwindled to 33.

The FDIC has instructed loan customers of the banks to continue to make payments as usual. The regulator estimates that the cost to the Deposit Insurance Fund (DIF) will be $5.4 million for Liberty Bank and $9.2 million for Gateway Bank."

Top Ten minority owned banks in the US

Below, we feel, are the best minority owned banks in the US (as of 6/30/08):

LIBERTY BANK & TRUST CO, New Orleans, LA (Black)
INDUSTRIAL BANK, Washington, DC (Black)
MECHANICS & FARMERS BANK, Durham, NC (Black)
CITIZENS SECURITY BK GQ INC, Guam, GU (Asian)
CENTRAL BANK OF KANSAS CITY, Kansas City, MO (Women)
BROADWAY FEDERAL BANK F S B, Los Angeles, CA, (Black)
BANCO SANTANDER PUERTO RICO, San Juan, PR (Hispanic)
UNITED BANK OF PHILADELPHIA, Philadelphia, PA, (Black)
CARVER STATE BANK, Savannah, GA, (Black)
NORTH MILWAUKEE STATE BANK, Milwaukee, WI (Black)

Yes, we know there are a lot of Black-owned banks on the list. Here's why:
Black banks have always had relatively higher levels of nonperforming loans, so they know better (than, say WAMU) how to survive with these types of loans on the books. We think this skill will serve them well in the current credit cycle. Thus, they are rated a little higher than other minority banks.

We think smaller banks will do well over this part of the credit cycle:
1. They should be able to gain deposits from the big guys.
2. They did not make a lot of subprime loans, so they should have relatively fewer loan defaults.
3. They did not buy a lot of CDO Swaps, or other derivative products.

One cautionary note: if a small bank gets in trouble, it will go down quickly (see: Douglass National Bank of Kansas City). Keep an eye out...(or ask us to do so for you...)

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."