- Post 27 November 2012
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A once-robust minority banking scene in Chicago soon easily could shrivel down to just a few lenders. That's because the recession has had a disproportionately devastating effect on these niche players.
Before the financial crisis that hit in 2008, the Chicago area was home to 17 banks owned by or focused on lending to minorities. Six since have failed, and five are saddled with so much in troubled assets that their futures are in question. That leaves six, plus newly created Urban Partnership Bank, the successor to failed ShoreBank, that appear to be survivors.
The banks still standing serve a variety of ethnic groups. Today, there are five catering to African-Americans, one to Hispanics and six to Asian-Americans. Two black-owned banks (Covenant Bank on the West Side and Highland Community Bank on the South Side) and one Asian lender (American Metro Bank on the North Side) are desperately trying to raise capital to survive. The one remaining Latino bank (Aztec-America Bank in Berwyn) and another Asian bank (United Trust Bank in Palos Heights) carry levels of troubled assets that indicate likely failure without an equity infusion.
Minority banks "are critical now," says Norman Williams, chairman and CEO of the black-owned Illinois Service Federal Savings and Loan Association of Chicago on the city's South Side. "I think it's an incredible, tragic loss that the minority-owned banks have dwindled."
Among the casualties so far: $2 billion-asset ShoreBank, one of the most active lenders on the South Side, catering mainly to African-Americans; $191 million-asset Second Federal Savings & Loan, a mortgage lender to Hispanics in the Little Village and Back of the Yards neighborhoods on the Southwest Side; and $1.6 billion-asset Mutual Bank of Harvey, an Indian-American-owned bank that lent aggressively to business owners in the Devon Avenue corridor on the North Side.
Minority banks whose futures are under imminent threat include Covenant, the West Side lender owned mainly by members of the Forest Park megachurch run by the Rev. Bill Winston; Highland, launched in 1970 to combat red-lining on the South Side; and American Metro, a 15-year-old bank based in Chicago's Uptown neighborhood.
Some Chicago banking observers say minority banks aren't as needed today as they were decades ago. While most bankers and business leaders in minority neighborhoods of Chicago believe that loans are hard to obtain in those areas, both for businesses and consumers, they don't all see the minority banks moving aggressively to provide that credit.
Many minority banks were launched in the 1960s and 1970s, when nonwhite borrowers had trouble getting loans from downtown banks no matter what their financial circumstances. Few would argue that's the case now, in no small part because of the federal Community Reinvestment Act, which requires banks to lend in less-advantaged areas in their locales.
Minority banks "may be symbolically important," says Paul O'Connor, founder of Chicago-based Angkor Strategic Advisors, an investment banking firm specializing in community banks. "But when it comes to the African-American borrowing community, they don't need them anymore."
Case in point: John Griffin Jr.'s AGB Investigative Services Inc., a South Side firm providing security services to government, university and private clients and employing 115 people, recently negotiated a $350,000 line of credit with $17 billion-asset Wintrust Financial Corp., three years after having its credit line slashed by Charlotte, N.C.-based giant Bank of America Corp.
Mr. Griffin also was approved for a loan by Urban Partnership Bank, which caters to minority borrowers, but he went with Rosemont-based Wintrust because it approved his loan faster, he says. The credit line enabled him to take on new business that will mean $750,000 in additional revenue.
"The only way to grow your business is access to capital," he says.
The 44-year-old native of Chicago's Englewood neighborhood allows that he worried at times that he wouldn't make payroll over the past three years and went without pay himself in some lean months. The company suffered its first net loss in years in 2010 but is profitable again.
"Prior to (August, when the bank loan came through), it's been hell," he says.
Minority bankers express frustration both that economic circumstances haven't improved more in their neighborhoods and that the regulatory clampdown following the credit crisis has hampered their ability to be flexible on lending criteria.
"There still are no jobs," says Walter Grady, president and CEO of Seaway Bank & Trust Co., Chicago's largest black-owned bank, with $565 million in assets. "How are (consumers) going to make their mortgage payments and so forth? In the commercial area, things are starting to pick up, but not to the point where you feel you're in the clear."
Mr. Grady, who with 32 years of experience running Seaway is Chicago's longest-tenured bank CEO, laments the thinning ranks of minority lenders.
Majority banks, he says, started lending in Seaway's neighborhoods during the housing boom. Now, he says, "they're backing off, stepping down. . . . They're not as prepared to make the kind of loans we have made and continue to make."
Seaway is one of the healthy minority banks, having grown through the recession largely by acquiring assets and deposits of two failed banks, one a black-owned lender in Milwaukee.
Seaway's size should help it in the future, since higher capital standards are making it tougher for small banks to survive, says Craig McCrohon, partner at Burke Warren MacKay & Serritella P.C. in Chicago.
"I think operating any kind of small niche bank is more difficult than it was 10 years ago," he says. "If there genuinely are underserved niche businesses, the challenge will be to create a large enough bank to find and exploit those opportunities."