Showing posts with label Morgan Stanley. Show all posts
Showing posts with label Morgan Stanley. Show all posts

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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Wednesday, June 29, 2011

Carver Federal Raises $55 million

In a stunning development, Carver Federal today revealed they have raised $55 million in new equity capital. This amount exceeds, by almost three times, "regulatory capital requirements set by the Office of Thrift Supervision (OTS)."

According to the bank, investors include:

The Goldman Sachs Group, Inc., $15 million.
Morgan Stanley, $15 million.
Citigroup Inc., $10 million.
The Prudential Insurance Company of America, $10 million.
American Express Company, $2 million.
First Republic Bank, $2 million.
National Community Investment Fund, $1 million.

Prudential and American Express (full disclosure: former clients) have a 20 year track record of making these types of investments. National Community Investment Fund is a Creative Investment clone, and a bad one at that (we started seven years before they did.)

Which brings us to Goldman, who today "notified the New York State Department of Labor that the investment bank (might) lay off 230 employees." We'll see if they actually lay off people, but the investment in Carver is bound to cause some negative feedback, at least among those 230 people.

Goldman, you'll recall, has a history of investing in black-owned financial institutions: In May, 2009, Goldman Sachs Group Inc. invested $1 billion in a money-market fund managed by (African-American) Williams Capital.

Of course, Goldman has been fined $619.3 million by the SEC for various infractions.

That's 47 times the $15 million invested in Carver.

Wednesday, May 19, 2010

ShoreBank's Rescue Gives Community Lenders Hope

Summary version from The American Banker Newspaper. Wednesday, May 19, 2010. Story by Robert Barba.

Sources said early Tuesday that the struggling $2.3 billion-asset lender had secured $140 million in capital commitments, well exceeding the $125 million it needed to become eligible for a $75 million investment from the Treasury Department.

Though most of the companies on the roster have been solid supporters of community development financial institutions, Goldman Sachs Group Inc. and General Electric Co.'s GE Capital were two newcomers. They also were among the biggest investors in the group, kicking in $25 million and $20 million, respectively.

Another headline investor in ShoreBank is Citigroup Inc., at $20 million. Others include Bank of America Corp., JPMorgan Chase & Co., Wells Fargo & Co., U.S. Bancorp, Morgan Stanley, Northern Trust Corp. and PNC Financial Services Group Inc. Also on board were State Farm, the Ford Foundation and the John D. and Catherine T. MacArthur Foundation.

Though the commitments could signal renewed interest in helping out institutions serving the neediest communities, William Michael Cunningham, a social-investing adviser and the founder of the minority bank fund MBF LP in Washington, said the unit of ShoreBank Corp. is the only struggling bank in the country likely to secure such aid.

"This just shows the power of their brand," Cunningham said Tuesday. "It is so impressive that they were able to get these guys to pony up. For other institutions … it would have been an impossible task."

ShoreBank, which has been described as the darling of President Clinton, has deep political ties, including with the Obama administration. Several sources, however, rebuffed speculation that the investments stemmed from political pressure. For instance, Bank of Montreal's Harris Bank said in an e-mail that it has "long recognized and supported ShoreBank's role in the Chicago community and can confirm that we are also assisting with their recapitalization effort."

Still, Cunningham said implicit political pressure, as well as reputational pressure, was probably exerted.

Whatever the investors' motivations, Cunningham said, without the investment, ShoreBank would not have survived. "If you are ShoreBank, you don't care if it is out of good public relations or if they are angels; they are doing it," he said.

For a year ShoreBank's credit problems have been eating away its capital. At March 31, it had $360 million in nonperforming assets and its total risk-based capital ratio had dwindled to 3.36%, leaving it critically undercapitalized. Rumors had begun to swirl in Chicago that regulators were starting an auction for its assets.

Analysts have said that a $200 million investment would be enough to solve ShoreBank's capital issues and give it room to absorb losses in its credit portfolio.

Copyright, 2010, American Banker Newspaper/Source Media.