At age 58, Matthews knows how tough it is to find employment. Although the unemployment rate among workers 55 and older is relatively low at 6.4%, it takes those 45 years or older longer to re-enter the market.

While between jobs, Matthews relied mainly on short-term, low-paying assignments. For the first time in his life he periodically collected unemployment. It was a blow to his wallet, ego, and self-esteem. “I grew up in a household where you were expected to work, so that time off was depressing,” says Matthews. Now he feels productive again and is elated to be “back in the game.”

The American job market has improved modestly in recent months. Economists looking deeper into the numbers found real reason for optimism in the slow economic recovery. But the huge question is how long can any gains be maintained? Headwinds such as the still high unemployment rate, limp housing market, and lack of consumer confidence could limit the economy from picking up speed.

Still, there appears to be a potential glimmer of light ahead. The U.S. economy is expected to grow about 3% in 2012, up from a projected 2% for 2011, according to Brett Hammond, senior economist at TIAA-CREF, the New York-based financial services company and leading provider of retirement benefits nationwide. But Hammond and others warn that what happens to the U.S. economic picture—including the risk of another recession—is tied to what happens in places such as Greece, Italy, Spain, and Portugal.

The upcoming U.S. presidential election will also play a critical role in driving the nation’s economic direction in 2012 and the development of policies coming out of Washington. As bickering lawmakers struggle to bring the nation back to health, there are things that you can do to alleviate whatever situation ails you—whether you’re trying to buy a home or save one from foreclosure, find a job or shift career gears, or increase your wealth through savings and investments to bring about your own personal financial recovery.

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Housing
Lakimlyn Ford is one of the fortunate house hunters who took advantage of a buyer’s market. She purchased a home in Columbus, Georgia, in late November for $118,000 by working with NeighborWorks America, a community development and affordable housing organization. The 33-year-old accountant bought a tri-level home with four bedrooms and two and a half baths. A divorced mother of a 14-year-old son and 11-year-old daughter, Ford acquired the home to show her children that they, too, could someday achieve the American dream and own a home.

“I got a pretty big house for the money I paid,” she says. The seller paid the closing costs and offered a year’s warranty on the entire home and its contents, including the appliances, air conditioning unit, hot water heater, and new roof. “I was truly blessed,” says Ford.

The nation’s overall homeownership rate was 66.3% during the third quarter of 2011, according to the latest U.S. Census Bureau report. The rate was 74% for whites, 46% for blacks, 48% for Hispanics, and 56% for all other races including Asians.

Falling home prices over the past four years have benefited new homeowners like Ford, but at the same time they have troubled homeowners who faced lower-valued homes and underwater mortgages (a loan that exceeds what the home is worth).

Gradual improvement is expected in housing in 2012, with slight increases in the sales of new and existing homes and a bit of a boost in median prices, according to projections at the 2011 Realtors Conference & Expo in Anaheim, California. Lawrence Yun, chief economist of the National Association of Realtors, stated in a press release that sales of existing homes are expected to rise about 5% in 2012 to a projected $5.22 million, from a projected $4.97 million in 2011. He sees mortgage interest rates gradually rising from recent record lows to reach 4.5% by mid 2012. For home values, he expects modest appreciation this year.

Deborah Boatright, northeast regional director at NeighborWorks America, suggests that potential first-time homebuyers consult a certified homebuying adviser before they pursue buying a home.

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Advice for homebuyers or struggling homeowners:
Make sure you can comfortably afford a home. Your monthly mortgage payment typically shouldn’t exceed 30% of your monthly income. Don’t forget, the mortgage payment will include taxes and insurance. Be honest with yourself and only take the plunge if you’re stable with managing your money. You don’t want to get in a cycle of late payments that could wreck your monthly budget or cause you to default on the loan and lose your home to foreclosure.

Seek out down payment assistance. With the passage of the Housing and Economic Recovery Act of 2008 many FHA down payment program rules were changed, making it tougher to qualify for down payment assistance, but organizations such as NeighborWorks America, which has more than 100 homeownership centers nationally, can still help by offering grants. According to NeighborWorks America, every state has a down payment assistance program.

Manage and monitor your credit. Credit is still tight, but it’s available to homebuyers who are prepared. Homebuyers need to have good credit and ample savings, which can provide them with the 20% down payment they need to become homeowners. Make sure you pay your bills on time and pay more than the minimum due. Work diligently to pay off any credit card balances. (For information on credit counseling, see “Your Get-Out-Of Debt Checklist,” money, this issue.)

Work with a foreclosure mitigation specialist. If you are facing foreclosure, a HUD-certified National Foreclosure Mitigation Counseling agency can help negotiate with a lender or servicer on your behalf—for free—to restructure your loan so your payment is more manageable. A counselor can also assess your arrearage and explore the best options. According to NeighborWorks America, a homeowner in foreclosure who sees a foreclosure prevention counselor is twice as likely to get a loan modification as a homeowner who does not.

Employment
The nation added 120,000 jobs in November 2011, the 14th consecutive month of job gains. African American unemployment edged down from 16% in November 2010 to 15.5% in November 2011, according to the U.S. Department of Labor. That figure was 7.6% for whites; the nation’s overall unemployment rate was 8.6% for the same month. Moreover, black teen joblessness fell from 46.3% in November 2010 to 39.6% in November 2011.

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The jobless rate could fall modestly next year by more than 0.5 of a percentage point but less than 1.5 percentage points, says Gary Burtless, a labor economist at the Brookings Institution, a Washington, D.C., think tank. “The U.S. economy is growing too slowly to expect a more rapid drop in the unemployment rate.”

Burtless says spending is down because of the loss of wage income among the unemployed, and because the employed fear that they may soon become jobless. Suppressed spending slows economic growth, since there’s less demand for goods and services.

Blue- and white-collar workers alike are beleaguered by unemployment or underemployment. In fact, black enterprise partnered with Walmart to address such issues at its 20/20 Vision Forum in Los Angeles in October. Among the recommendations was that African American professionals can confront these challenges by repositioning and reinventing themselves.

Tips for job seekers to consider:
Volunteer your services. You may score a new job by volunteering your time and expertise to a worthy cause. For instance, if you are a marketing expert, offer to help out the local Boys and Girls Club with its campaign or promotions for a major fundraiser. Doing this will help to expand your network, and you may meet influencers who can advocate on your behalf.

Check out the federal government. The nation’s largest employer is now hiring. About 40% of the jobs are in the mid-Atlantic and Southeast, but there are jobs in other parts of the U.S. and even beyond U.S. borders. Start at www.opm.gov, the government’s employment website. For pay grades for white-collar jobs, look for the “GS” designation. The “FWS” designation signifies blue-collar or hourly wage jobs. Search for specific agency lists at www.usa.gov/directory/federal/index.shtml.

Increase your exposure via social media. You have to do more than post a résumé online at sites such as Monster.com. That’s the old way of getting a job. Employers are now using social media to spot new hires. Use your networks—Facebook, Twitter, and LinkedIn—to build your brand. Blog about industry topics. Tweet tidbits, news, and other information that’s relevant to your field and helpful to your followers. Use LinkedIn to search for groups and find forums where you can showcase what you know.

Re-educate yourself. Job seekers, especially midcareer professionals, need to retrain themselves, which may require going back to school to acquire new credentials. What certifications would truly be a career booster? No matter what field you’re interested in, chances are there’s a certification for it.

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Reposition yourself. Explore growth industries that offer employment opportunities, such as healthcare. Also, adopt a global perspective. Search for opportunities outside the U.S. by joining a global leadership or international professional organization. Attend an international summit, serve on a panel, or conduct a seminar related to your field overseas.

Consumer Savings and Investments
The bursting of the housing market bubble in 2006 and the recession that followed from late 2007 to mid-2009 took a far greater toll on the wealth of minorities than on the wealth of whites, according to the Pew Research Center. A recent study showed that from 2005 to 2009, inflation-adjusted median wealth fell by 53% among black households, compared with a drop of just 16% among white households.

As a result of these declines, the typical black household had just $5,677 in wealth (assets minus debts) in 2009; the typical white household had $113,149. Moreover, about 35% of black households had zero or negative net worth in 2009, compared with 15% of white households. In 2005, the comparable shares had been 29% for blacks and 11% for whites.

In spite of short-term losses, you must think long term when it comes to saving and investing for your family’s future, experts say. “The market is more likely to see double-digit returns over the next decade or so rather than single-digit growth or especially a negative return,” says Mellody Hobson, president of Ariel Investments L.L.C. (No. 6 on the be asset managers list with $5.47 billion in assets under management—see “You Can’t Predict the Future,” Money, this issue).

Joshua Shapiro, chief economist at MFR Inc. in New York, says that it’s critical for families to continue to pay down their debts and get their balance sheets in order. Much progress has been made on that front and is likely to continue for 2012. Shapiro believes a lot of that behavior is going to be shaped by the strength of the U.S. labor market recovery.

Also a concern is how fast Europe can respond to fixing problems with its debt crisis and avoid falling into a major recession. He says a key factor will be how Germany, France, and the European Central Bank team up to repair Europe’s problems in the months to come.

Suggestions for increasing savings and investing in financial markets:
Track your monthly spending and net income, and transfer any surplus into savings at the month’s end. Focus on shoring up your emergency funds in this environment as well as creating reserves for investment opportunities.

Take a contrarian view and invest for the long term. Look for value in U.S. stocks, particularly those with valuations that offer a bargain investment, given the volatile market.

Consider diversifying your portfolio beyond U.S. stocks and stocks from emerging markets. Also weigh other asset classes such as commercial real estate, corporate bonds, and inflation-linked bonds.

Invest in stocks that make products people need. Also consider companies that pay solid dividends regardless of economic conditions, such as consumer staples and consumer durables.

Garrett, 80, a Durham, North Carolina, retiree who has invested in stocks for 40 to 50 years, said the latest meltdown on Wall Street has made him “very nervous.” He maintains that the volatile market is the second worst he has seen since stocks tumbled after the financial crisis in 2008. “I learned some lessons from 2008,” he says.

Today’s stock market activity has made him look more closely at the type of investments he should include in his portfolio—whether it’s stocks, cash, or fixed-income assets. “I want what works best for the well-being of my family,” says Garrett who has a wife, Wanda, 78, three grown children, seven grandchildren, and 10 great-grandchildren.
While he has become a more cautious investor, Garrett hunts for bargain stocks with strong long-term growth potential. Given the market’s volatile nature, his holdings have taken a wild ride. Consider, on July 24, Garrett’s investment strategy was “moderately aggressive,” and 75% of his investments were in equities, 10% savings, and 15% fixed income.

However on July 25, driven largely by stock market jitters and Congress squabbling over the debt ceiling, Garrett liquidated much of his stock and shifted his holdings to only 10% stock and 80% cash, and the remainder in fixed income.

Since then he has also changed his investment philosophy, becoming a self-professed “moderate” investor. On Aug. 10, after the debt ceiling compromise and stabilization of the market (at least for a few sessions), Garrett says he re-entered the market and boosted his stock holdings to 50% from 10% through his investment advisers, Piedmont Investment Advisors L.L.C. (No. 8 on the be asset managers list with $3.4 billion in assets under management). A sophisticated investor, the former CPA and lawyer has mostly blue chip stocks among his equity holdings, which make up 50% of his portfolio, 22% cash, and the remaining 28% in fixed-income investments. Stocks make up 40% of his portfolio’s value. “I’m very watchful with what’s going on now,” Garrett says.

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Garrett’s revised strategy—and those of hordes of individual investors—came about as equity markets were being hammered, largely dented by a combination of recent bad economic news: From Aug. 5 through Aug. 26, the Dow Jones industrial average dropped 1.40%, the Nasdaq composite index fell 2%, and the Standard & Poor’s 500 slid 1.88%, according to SNL Financial L.C., a Charlottesville, Virginia, financial services research firm. But gigantic swings of several hundred points in a short time have become the norm.

Wall Street has felt shocks from heightened fears about the sour economy, the possibility of a double-dip recession, and worries over the European debt crisis. Moreover, on Aug. 5 Standard & Poor’s slashed the United States’ credit rating to AA+ from AAA. Also in early August, the Federal Reserve pledged to keep interest rates super low for two more years making investors scratch their heads over the long-term impact of those events.

Well, expect more volatility. The market will continue to seesaw as a congressional super committee deliberates over the best way to shrink the federal deficit and the 2012 presidential contest heats up. Despite the unpredictable climate, a group of top-flight money managers says there are still some attractive places to invest your money—that’s particularly true for long-term investors willing to ride out some short-term bumps.

Stay calm and focus on long-term goals. Isaac H. Green, CEO at Piedmont Investment Advisors, says Garrett’s portfolio shifts were based on his risk tolerance and need for safety. He believes investors must realize in a turbulent market that short-term risks are magnified by market volatility. If a person has a long-term horizon, they can actually afford to not pay too much attention to market turbulence.

William H. Young, president and COO of Buford, Dickson, Harper & Sparrow Inc., a St. Louis-based portfolio management and financial services firm, agrees, urging investors not to panic: “Staying calm will keep investors from making knee-jerk decisions that they will regret when the market settles down.”

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Eugene A. Profit, CEO of Profit Investment Management L.L.C. (No. 15 on the BE Asset Managers  list with $2.07 billion in assets under management) adds it’s extremely important to understand long-term investment objectives—whether you are trying to build a nest egg or finance junior’s college education.

Stick with market leaders. Young recommends quality stocks with proven earnings track records and strong cash positions. Specifically, he recommends market leaders such as Apple Inc. (AAPL), McDonalds Corp. (MCD), FedEx Corp. (FDX), and PepsiCo Inc. (PEP). His reason: All have strong brands, solid products, and product development with consistent earnings. “These are the factors that should be considered when selecting investments,” he says.

Profit likes U.S. multinational companies with revenue streams that benefit from multiple geographic locations and offer downside protection. His firm is focusing on stocks in the technology and healthcare industries due to the need for such products and low investor expectations. He says equities that have become more attractive during the recent market activity include Google Inc. (GOOG), EMC Corp. (EMC), Aetna Inc. (AET), and Costco Wholesale Corp. (COST). “It’s a great time to buy high-quality, large, successful U.S. companies at what will be seen to be bargain prices in future years,” he says.

Look for bargains. Timothy Fidler, senior vice president, co-portfolio manager of focused-value strategies, and portfolio manager of mid-cap products for Ariel Investments L.L.C. (No. 6 on the be asset managers list with $5.5 billion in assets under management), agrees that market downturns offer some great opportunities: “If you’re a longer term investor, buying shares of very high-quality businesses at these prices will give you some attractive returns.”

He says Lazard Ltd. (LAZ), one of the world’s largest investment banks, falls into that class. The firm advises clients on mergers, acquisitions and restructurings, as well as operates an asset management business. Fidler says that unlike its rivals such as Goldman Sachs and JPMorgan Chase, Lazard is an independent firm without the balance sheet risks of its competitors with trading arms or mortgage portfolios. Moreover, Lazard is not being hounded by federal regulators regarding capital requirements. “What we like about the firm is that there is enormous pent-up demand for advisory services, particularly M&A, in the global economy,” says Fidler of Lazard, which at press time was trading around $26 a share from the mid $40s in May.

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Another firm Fidler likes is Jones Lang LaSalle (JLL), a global real estate services firm specializing in commercial property management, leasing, and investment management services. He predicts commercial real estate will grow much faster than residential as the economy fully recovers. The stock now trades around $60 a share versus $108 three months ago.

In addition to Lazard and Jones Lang LaSalle, Fidler is attracted to CBS Corp. (CBS). Currently trading around $23 a share, CBS is a “dirt cheap” stock given it’s now growing very rapidly and well-positioned to benefit from mammoth spending during the 2012 political campaign.

“These businesses are worth substantially more than where they are trading today,” he maintains. “Their (current) value gives you a sense of how quickly the market has nosedived in the last month.”

Seek out dividend-paying stocks. According to Piedmont’s Green, some companies have managed to significantly grow earnings over the past decade, generating free cash flow and starting to offer investors strong dividend yields. He maintains that companies with above-average dividend yields, moderate dividend payout ratios, and a history of growing the dividend are very attractive now.

Vast opportunities can be found in the consumer products world. Green points to major packaged food and beverage companies and household products firms manufacturing goods ranging from detergent and toothpaste to soda and cheese. Many food and beverage companies, household product manufacturers, and pharmaceutical firms offer annual dividend yields of 3% or 4%, he says. “That yield is going to grow with the growth rate of those companies,” Green says. “That looks like a pretty good investment to me right now.”

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Fidler also recommends healthcare firms such as Abbott Laboratories (ABT) and Merck & Co. Inc. (MRK) paying annual dividends of 4% and 5%. His reason: The dividends of both companies are sustainable for the long term as their earnings are much higher than the dividends they pay out to investors. (See “Stocks That Pay Dividends,” this issue.)
Treasuries remain among safe investments. Greg McBride, senior financial analyst at Bankrate.com, says the weak economy will keep interest rates low, but the downgrade will raise borrowing costs for Uncle Sam, consumers, and businesses. For example, riskier borrowers may see credit card issuers increase rates, but consumers with sterling credit are unlikely to see the same impact. For home loans, the weak economy is the key determinant of where mortgage rates are, McBride says. Eventually the downgrade will result in higher mortgage rates, but not until the economy picks up some speed.

If Treasury rates keep dropping says Mary Pugh, CEO and chief investment officer of Seattle-based Pugh Capital Management, expect 15-year and 30-year mortgage rates to also fall because those rates typically move in tandem. “If we end up with a very weak economy or in a double-dip situation, we could see mortgage rates dip 25 to 50 basis points below their current levels,” she says.

From a credit quality standpoint, Pugh says Treasuries still offer a risk-free credit investment. For instance, she says a 10-year Treasury note at 2.4% might seem low, but it’s a much better return when compared to a savings or money market account.

Even with the downgrade, investors continued to flock to government bonds as safe havens in the topsy-turvy market. Experts say these securities represent the world’s most solid investment—especially with the nagging European debt crisis. No investor holding U.S. Treasuries is expected to lose principal.

The law allowed Smith’s firm, (No. 7 on the BE ASSET MANAGERS list with nearly $5 billion in assets under management), to land a contract last fall to provide advisory services to the U.S. Treasury Department, Smith says. Smith Graham, through a partnership with Boston-based State Street Global, is advising the Treasury on the management of about $150 billion in mortgage-backed securities, Smith says. “Our goal is to spend more time in Washington and work with these offices, bring more business to the firm, create new opportunities and show them our value added proposition,” he says.

The Treasury is among about 30 agencies that oversee the financial system, including the Federal Reserve, the Federal Deposit Insurance Corp. and the Securities and Exchange Commission, required by the Dodd-Frank Wall Sreet Reform and Consumer Protection Act (signed into law by President Obama last July) to open an Office of Minority and Women Inclusion (OMWI). The offices are charged with tracking diversity within and the pool of contractors who sell the government goods and services.

William Michael Cunningham, social investment adviser at Creative Investment Research Inc., a Washington, D.C., firm specializing in minority banking, estimates the new law could bring at least $136 million in new contract opportunities for women and minority firms.

But the law also has some skeptical observers. Among their concerns: Will the covered agencies actually be held “accountable” to comply with the law, and will it foster a quota system that could discriminate against firms not minority or women owned?

Joset B. Wright, president of the New York-based National Minority Supplier Development Council, one of the nation’s top business member groups, described the intent of the Frank-Dodd Act as “laudable.”

However, she adds, it appears that this requirement would duplicate the functions of the U.S. Department of Commerce’s Minority Business Development Agency and the Small Business Administration.

“The true value in such a provision will be in its enforcement to insure equal access to contracting opportunities for the Asian, Black, Hispanic and Native American suppliers that are certified by NMSDC,” Wright says.

Mark Calabria’s, an economist and director of financial regulation studies at the Cato Institute, a Washington, D.C.-based think tank, said the law requires that covered regulators provide an annual report to Congress on matters like how much in total contracts they’ve awarded and what percentage of their total contract (activity) is going to minorities and women.

But Calabria also is concerned that the law could cause agencies to focus more on reaching an undefined quota instead of finding the best qualified contractor.

Cunningham predicts respectively minority and women owned law firms, investment consultants, accountants, asset management firms, mortgage banking firms, investment banking firms are among those that stand to benefit the most.

Kwabina Appiah, vice chairman and chief operating officer at New York-based Mitchell & Titus, the nation’s largest black owned accounting firm, says the law helped his firm land a monthly contract with the FDIC.

He said the firm provides the regulator a review of the accounting and regulatory practices of the banks the FDIC supervises.

Though Appiah said his firm done work for the FDIC since the 1990s on smaller scale, it has never such a sizeable contract with the regulator.

The nation’s 12 Federal Reserve Banks, stretching from New York to Chicago to San Francisco, have opened OMWI offices, says Bill Cooper, vice president and deputy director of diversity and inclusion at the Federal Reserve Bank of Richmond. He said the banks will look for minority and women contractors to provide many services, including janitorial, transportation, food, office supplies and information technology services to name a few.

In addition to procurement, Cooper said the law requires the Federal Reserve to be inclusive of minority and women contractors also in the areas of workforce (hiring), retention and community outreach. Each of the Fed banks have an OMWI link on their web sites, allowing potential contractors to find jobs and make connections.

“We want to make sure that we have the appropriate processes in place so that they have their greatest potential for success,” he says.

Deborah C. Wright, chairwoman, CEO and president of Carver Federal Bancorp Inc.

Some of Wall Street’s largest financial services powerhouses, including Goldman Sachs Inc., Morgan Stanley and Citigroup Inc., helped save Carver Federal Bancorp Inc. from a possible shutdown or takeover by injecting $55 million of fresh capital into the nation’s largest Black-owned bank.

Carver, No. 1 on the BE Banks list with $744 million in assets, announced last night that it raised the money from an investment group that includes Goldman and Morgan Stanley—which agreed to put in $15 million each—and Citigroup and Prudential Insurance Company of America—which invested $10 million each. Investments of $2 million each by American Express Co. and First Republic Bank, and $1 million by the National Community Fund round out the capital raising team for Harlem-based Carver, parent of Carver Federal Savings Bank.

Carver Chairwoman, CEO and President Deborah Wright, who will continue to run the financial institution, was pleased and relieved with the outcome. Wright told Black Enterprise that the seven institutional investors each acquired an equity (preferred stock) position for their investment. But unlike other capital investments into struggling banks, the investors will not have voting power, seats on Carver’s board, or sway its management decisions.“Thank goodness we got the money, and we’re really thrilled with the results,” Wright said. “The capital raise exceeds the regulatory capital requirements established by the OTS [Office of Thrift Supervision].”

Wall Street appears happy with the deal. Carver’s stock closed at 80 cents
a share today, up more than 45% from 55 cents a share yesterday, and the
bank’s biggest stock gain since early April.

The capital lift comes after analysts estimated earlier this year that Carver must raise nearly $20 million in new capital by April 30, to meet orders by the Office of Thrift Supervision, the primary regulator of all federal and a number of state-chartered savings banks.

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William Michael Cunningham, social investment adviser at Creative Investment Research Inc., a Washington, D.C. firm specializing in minority banking, said the deal is good for the bank because it nearly triples the amount of capital Carver needed to survive. “It will give Carver a chance to remain in business and hopefully provide capital to its under-served community,” Cunningham said.

Wright said the investment provides the bank a financial cushion in a period of economic uncertainty to cover future loans. She said it also gives the bank the opportunity to grow the franchise new products and expanding products, such as Carver Community Cash, a new check cashing service for the “unbanked.” Wright said Carver has launched the product at two of its branches in the New York area and will offer it at the remaining seven branches later this summer.

Analysts told BE in April that the stakes would be high for 63-year-old Carver to pursue investors to invest new capital with the bank losing money in recent years. In its latest results released today, Carver reported a net loss of $5.5 million for the fourth quarter of fiscal 2011 versus a net loss of $2.2 million the same time last year. For all of fiscal 2011, the bank had a profit loss of $39.5 million compared to a loss of $1 million in 2010.

“This has obviously been among the most challenging periods we’ve faced at Carver,” Wright said in a press release. “Our loss in fiscal 2011 reflects the impact of charge-offs and provisions required to address troubled loans in our loan portfolio, as well as the substantial reserve taken against our deferred tax asset.” Referring to the bank’s financial woes, Wright said the capital injection “will allow us to transition from the impact of the recession and invest in opportunities to return Carver to profitability.”

In addition, Carver also announced yesterday that the U.S. Treasury agreed to exchange the $19 million in preferred shares it received from the bank under the Troubled Asset Relief Program for about 34.8 million shares of common stock.

Bank consultant Bert Ely, president of Ely & Co. in Alexandria, Virginia, said the capital deal will allow Carver to remain independent and get out of regulatory trouble for the time being, regarding its capital concerns, however, the bank will still need to address whatever other regulatory issues it may have.

(Image: ThinkStock)

Carver Federal Savings Bank, the financial institution currently holding the top spot on the BE BANKS list, is fighting for its future. The nation’s largest black-owned bank must significantly boost capital reserves by month’s end or risk a potential shutdown, takeover or sale of the bank.

William Michael Cunningham, social investment adviser at Creative Investment Research Inc., a Washington D.C. firm specializing in minority banking, estimates that Carver Bancorp Inc., parent of the Harlem-based bank, must raise nearly $20 million in new capital by April 30, 2011, to meet orders by the Office of Thrift Supervision, the primary regulator of all federal and a number of state-chartered savings banks.

In response, Carver Bancorp spokesman Michael Herley says “we are working very hard to meet this requirement and are looking at a variety of options.” The bank, however, did not offer details to BlackEnterprise.com on its capital-raising plan.

The adversity faced by Carver comes at a time when federal banking regulators have closed or forced the sale of nearly 350 banks nationwide – including five black-owned institutions in the past six months – since the financial crisis began in 2008. In fact, Seaway Bank and Trust Co. (No. 8 on the 2010 BE BANKS list with assets of $385 million ) recently assumed control of Legacy Bank (No. 13 on the 2010 BE BANKS list with assets of $231 million) when the institution went into receivership after being walloped by the Great Recession and hefty loan losses.

Analysts say the stakes are high for 63-year-old Carver. Cunningham says its major challenge will be persuading investors to inject new equity into a bank that has lost money in recent years. Carver lost $1 million for fiscal year ending March 31, 2010 versus a loss of $7 million for the same period in 2009. Moreover, its stock has dropped to about 77 cents per share as of April 4, 2011 from roughly $6 around the same time two years ago.

Cunningham says he’s discovered the bank is working with Wall Street investment bank Keefe, Bruyette & Woods (KBW) to identify investors to replenish the institution’s capital. Carver officials say KBW has been a trusted partner for more than a decade but would not comment further. “The key for Carver is convincing investors that they have a credible plan to return to profitability soon,” Cunningham says.

Efforts to gain direct comments last week from Chairwoman, CEO and President Deborah Wright proved unsuccessful. Wright, however, alluded to some of Carver’s financial problems in an interview with BLACK ENTERPRISE in late February. As of Dec. 31. 2010, she said the institution sought to boost core capital–the minimum amount of reserves that a savings bank must have on hand in order to comply with federal regulators–from 6.36% of $743.8 million in assets, or $47.3 million, to 9%, or $66.9 million.

Cunningham says Carver’s current capital level in the 6% range is higher than the 4% threshold required by OTS and questions its actions. OTS spokesman William Ruberry says he can’t comment on Carver or any other institution his agency regulates. But, in general, OTS sets capital requirements based on the level of risk in an institution’s loan portfolio and other operations.”The greater the risk, the greater the required capital,” Ruberry says.

Carver’s problems stem from a cease and desist order the OTS issued in February. Among other demands, it requires Carver to achieve and maintain minimum regulatory capital levels, places restrictions on future credit extensions and orders that various procedures be implemented to improve the bank’s asset quality.

Carver spokesman Herley says the losses the bank suffered in its most recent two fiscal years are consistent with challenges all institutions have had to grapple with: an unprecedented recession and declining value of real estate assets.

Adds Cunningham: “The bank is being hit by a decline in borrowers’ disposable income, hurting their ability to pay on mortgages and small business loans.”

Wright has said in a previous interview that regulators are concerned about risk to the bank’s balance sheet from real estate loans for multi-family buildings and mixed-used properties negatively impacted by reductions in valuations across the bank’s geographic markets.

Wright said a significant portion of the bank’s balance sheet includes affordable housing construction loans adversely impacted by the federal government’s decision to suspend activities of Fannie Mae and Freddie Mac. She asserts: “On lending, we’ve shifted our focus to business lending where we’ve developed a specialty in small loans to contractors working for city, state and federal government agencies. In addition we’re building our loans to small grocers in New York City. Given our concentration in real estate loans, I expect this new focus to remain for some time.”

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.

Buddy Howard, president and banking analyst at Equity Research Services Inc. in Raleigh, North Carolina, said black owned banks, much like the majority of banks, were under intense profit pressures in 2008, and these pressures have extended into 2009. “It was one of the most challenging years the entire industry has had in many years, with earnings pressured by tighter margins, severe asset quality problems and anemic loan demand, which has negatively impacted earning asset growth,” Howard said.

Profits at 44 black-owned banks fell to a collective net loss of $27 million last year, down from a profit of nearly $24 million in 2007 and the lowest level since 2000, according to Cunningham’s analysis. He said the data was based on call reports the banks’ flagship banks – not their parent companies – filed with the Federal Deposit Insurance Corp. for the year ending Dec. 31. He said 22 of the banks had a net loss.

Kevin Cohee, CEO of OneUnited Bank (No. 2 on the BE Banks list with $636 million in assets) acknowledged that the investment losses in the two mortgage giants hurt the bank’s earnings last year. But he said the bank continues to be well capitalized and has returned to profitability in 2009. “It’s a testimony to the strength of OneUnited that it was able to lose over $50 million tied to investments in Freddie Mac and Fannie Mae and narrow that lost to $29 million by year end shows the company’s earnings capacity,” Cohee said. “The fact that the bank is now well capitalized shows the financial wherewithal of the bank’s shareholders.”

However, the news was not all bad. The number of black owned institutions that survived last year was at a substantially higher rate than U.S. banks overall and their growth in assets rose at nearly the same level as their mainstream peers. According to Cunningham, there were 44 black owned banks or banks controlled by a black board in 2008, three fewer than in 2007. Those institutions had assets of $7.6 billion in last year, up 5.5% from in 2007. In contrast, the number of FDIC-insured banks and thrifts totaled 8,305 of last year, down from 8,534 two years ago, according to the FDIC. Their net income totaled $10.2 billion in 2008, down from $100 billion in 2007. Those institutions’ assets reached $13.8 trillion, up 6.1 percent from 2007.

At Newark, N.J.-based City National Bank of New Jersey (No. 3 on the BE Banks list with $495 million in assets), CFO Ed Wright said the bank last year earned $1.1 million, down from $1.9 million the prior year.  He said profits plunged as the bank had $2.7 million in write-downs from investment in its securities portfolio that lost their value. The bank also set aside $1.6 million last year to cover problem loans, double the amount it set aside the prior year. “Black-owned banks (in general) were largely hurt by customers losing their jobs and businesses, reducing their ability to repay loans, make deposits and maintain their savings,” Wright said.

Wright said the reduced profitability and deterioration in credit quality has prompted federal regulators to put more pressure on already well capitalize minority banks to boost their capital ratio given the weak economy. He said his bank continues to get such pressure even though it was recently granted $9 million in capital from the U.S. Treasury Department’s Troubled Asset Relief Program (TARP).

According to James E. Young, CEO of Citizens Bancshares Corp. (No. 8 on the BE Banks list with $348.1 million in assets), the bank earned $1.2 million last year, down from $3.3 million in 2007. The decline, he says was mainly because it set aside $2.5 million to cover potential loan losses, compared with making no provision for loan losses in 2007. “The bottom line is the weak economy hurt our individual and business customers’ ability to repay loans,” He says, adding that many banks were confronted with the worst recession in more than 40 years, resulting in a big decline in loan demand and increased loan loss provisions for those institutions.

CEO Paul C. Hudson of Broadway Federal Bank (No. 4 on the BE Banks list with $407.9 million in assets) said his bank boosted profits by increasing its volume of loan originations and expanding net interest margin by driving down liability costs at a faster rate than the decrease in loan yields. He said it also managed credit risk in its loan portfolio through active loan service management and sound loan underwriting.

Piedmont along with New York-based AllianceBernstein LP and FSI Group L.L.C. of Cincinnati are expected to manage preferred shares, senior debt, and other securities the Treasury attained for providing capital to more than 500 financial institutions through its Capital Purchase Program. Officials at Piedmont would not comment on its deal with the Treasury. While terms of the deals with these firms were not released, they will collectively manage roughly $218 billion in assets under management, according to Andrew Williams, a Treasury spokesman. The agreements will run though April 20, 2014.

The Treasury, which announced the deal in late April, said in a press release it received more than 200 submissions from interested firms, applicants with more than $2 billion in assets under management.  The Treasury also says it also plans to hire an additional group of asset managers with less than $2 billion in assets under management to help manage its assets within the next two months.

The announcement also came after federal officials told 10 of the nation’s 19 largest banks they will need to raise nearly $75 billion in additional capital, part of the Treasury’s stress test program. Orim Graves, executive director at the National Association of Securities Professionals, a Washington, D.C.-based non-profit group of minority and women securities professionals, says this is a landmark deal. “This is the first time to my knowledge that the federal government has hired a minority firm to manage assets of this magnitude in its history,” he says.

John Foff, a senior analyst at SNL Financial, a Charlottesville, Virginia-based tracker of data for the financial services industry, says the deal shows a “sign of confidence” in Piedmont, something the firm could use as a selling point to generate future business.  “It puts them on the stage a little bit more for everyone else to see,” Foff said.  Graves said the deal came together after five years of pressure from NASP, along with the Congressional Black Caucus, of encouraging the federal government to increase its participation of doing more business with minority owned investment firms.

He said the push was led by Congresswoman Maxine Waters (D-California). The congresswoman points out that this is an area where very few African Americans historically have participated. “What you will find is that African Americans have really not been in this game; that the treasurer certainly does not have the kind of relationships that he has with the big Wall Street firms, with the big banks who walk in and out of the offices at will; our people can’t even get an appointment,” she says. “And so our job is to push those doors open, to get some connections made and to get them to see that we certainly do have African Americans who are capable and competent and to change the rules about who can play. The rules are usually defined in ways that only the big, big boys can play, and we’re trying to break that down.”

The deal, announced last month as a merger, would more than double Independence Federal’s size to more than $350 million in assets. It would obtain an additional $150 million in deposits and boost its branches to nine from its current four in the nation’s capital and Maryland area. Colombo Bancshares is the parent of Colombo Bank.

The deal is a move by Washington investor and businessman Morton Bender, a longtime vocal critic of Independence Federal, to reverse the thrift’s fortunes. Bender, who is white, gained control of Independence Federal two years ago when he and his wife increased their stock ownership to 51%. He and his family now own more than 90% of Colombo’s stock.

The merger, which must still be approved by shareholders of Independence Federal and Colombo and banking regulators, is expected to be completed by June.

The transaction would come after Independence Federal — founded in 1968 after the D.C. riots as an entity where all segments of the population could get a loan– in recent years has faced many challenges.

Those hurdles include numerous quarters of losses, many board and top management changes, and multi-million-dollar lawsuits from Bender. Moreover, Harlem-based Carver Bancorp Inc., holding company of Carver Federal Savings Bank, (No. 1 on the B.E. Banks list with $802.7 million in assets) unsuccessfully tried to buy Independence Federal about six years ago.

Some observers also have questioned whether Independence Federal is a minority-run bank given that Bender controls the majority of its stock. Bender says five of the combined bank’s directors will be minorities, it will have a black chief executive officer, and it will mainly serve predominately black communities.

“If the combined company enhances the community from a lending and services perspective, then the communities it serves will be better served,” says Bert Ely, president of Ely & Co., an Alexandria, Virginia-based bank consulting firm.

Bender said he was motivated to do the deal to cut Independence Federal’s costs, adding, “Hopefully, we’ll be profitable within a year.”

Independence Federal’s new board chairman has not been determined, Bender says. Lester Johnson, now Colombo Bank’s president and CEO, will assume those roles at Independence Federal after the merger.

Johnson says Independence Federal will pick up about 2,300 deposit accounts and 800 loans from Colombo, and will be able to do several things it could not before. Among those, it can:

– Boost its legal lending limit to individuals and businesses to about $3.5 million from $1.6 million.
– Offer customers a wider array of mortgage products.
– Expand its retail products to include such things as home equity and personal lines of credit.
– Provide financing to small government contractors in new and existing markets, allowing Independence to boost deposits and increase interest and fee income.
– Be more aggressive in lending to the faith-based churches.

Johnson says the merged entity plans to open a second branch in the Baltimore area and expand into Prince George’s County with some new branches within the next year. He says the county’s population is the largest predominately African American county in the country and has one of the nation’s highest per capita income levels for blacks.

Bender also says he expects nominal job reductions from the merger. Both banks have roughly 80 employees.

Credit deterioration and securities write-downs have hobbled even large, long-established lending institutions, both in the U.S. and abroad, causing many to severely curtail lending. According to Bloomberg, the finance and information services media company, banks have reported more than $745 billion in write-downs and losses globally since the credit crisis began. With the bailout, the Treasury encourages banks to increase lending by purchasing certain assets, thereby providing capital. When lending occurs and money circulates, it stimulates the economy. “It does not benefit the Treasury or the economy to have a lot of failing banks,” Hudson says.

Also chairman and CEO of Broadway Federal Bank, the wholly owned subsidiary of Broadway Financial Corp., Hudson plans to use the investment to make new loans, weather difficult economic times, and sustain the bank’s growth. Over the past five years, deposits at the bank have risen nearly 64%, to $295 million as of late September. So far, $4.5 million of the $9 million has been used to increase bank capital, increasing Broadway’s total risk-based capital ratio to 11.99%; it was previously 10.23%. To be classified as well capitalized, the regulatory capital requirement for risk-based capital is 10%. Bank capital, also known as equity, is the cushion that covers creditors if a bank’s assets are liquidated. It’s also considered a key measure of a bank’s soundness.

Banks that fall below the 10% requirement are typically ordered by their regulator to take corrective action. “The Treasury investment allowed the bank to continue to lend in our market,” Hudson says. “We did not have the capital to support the bank’s loan growth, and in this economic environment it would have been very difficult to raise additional capital.” The remaining $4.5 million will support future loan growth. Hudson projects he’ll need to invest up to another $2 million in the bank later in the year to support projected loan growth.

According to William Cunningham, senior investment adviser with Washington, D.C.-based Creative Investment Research Inc., which specializes in minority banking, Broadway Federal became the first black-owned bank to receive funding from the Treasury’s Troubled Asset Relief Program. With tight credit markets, capital—the lifeblood of the banking business—is in short supply. This is especially true of smaller, black-owned banks that are often cornerstones in their neighborhoods and are more likely to provide necessary business and housing loans within their communities.

IS RELIEF IN SIGHT?
Broadway has remained profitable in part because, like other black-owned banks, it avoided the subprime debacle. Broadway earned $1.9 million in the first nine months of 2008, up from $1 million for the same period in 2007. Its relatively small size kept the bank out of  trouble since unethical subprime lending involves volume production that’s securitized and then sold on the secondary market, and Broadway had neither the production volume of single-family loans to support the loan pricing necessary to compete, nor the internal operations or staff experience to efficiently deliver the loans to the secondary market. Moreover, Hudson adds, the loans didn’t make sense from a credit or interest rate risk perspective. “We don’t believe that we should put consumers in loans they cannot afford,” he says, “or originate loans without verifying income.”

Hudson’s team realized the bank needed additional capital at the beginning of 2008. So management contacted Broadway’s primary regulator and expressed interest in participating in the Treasury’s Capital Purchase Program, in which the bank would sell certain securities to the federal government. A two-page application was filed with the bank’s primary regulator; then it was reviewed and forwarded to the Treasury for final approval, a process that took less than 30 days. All told, the Treasury acquired preferred stock in Broadway Financial, the parent company, as well as a warrant to purchase about 183,000 shares of the company’s common stock. The common stock underlying these warrants represents less than 11% of the parent company’s outstanding common shares as of Sept. 30, 2008.

Hudson asserts that the bank is on solid financial footing. “The bank did not need financial assistance because of problem assets or negative earnings,” he says, although the bank’s stock was trading in the $5 range in early January, down about 44% from a year ago primarily because of a lack of investor confidence in the financial industry. “Bank profits were strong and credit quality was healthy. What we needed was capital to continue to grow assets.” Broadway also sought the Treasury investment because regulators have been advising banks to keep more capital on hand to protect against future loan losses. Broadway issued preferred shares and a warrant to purchase common stock to the Treasury in exchange for the investment.

Buddy Howard, president and banking analyst at Equity Research Services Inc. in Raleigh, North Carolina, says the Treasury’s investment in Broadway affirms its belief that the bank is likely to survive and use the increased capital to make new loans. But even with an investment from the Treasury, banks in general may continue to face challenges that include maintaining good asset quality, good expense control, and balance sheet growth. “They’ve got to maintain profitability, because if they start losing money they will burn through that capital,” Howard says.

BANKING ON GROWTH
With the added capital, Hudson’s goal is to make $90 million in total loans in 2009. He plans to fund loan growth with new deposits, loan repayments from borrowers, and money borrowed from the Federal Home Loan Bank of San Francisco. He concedes there is no magic solution or single strategy to deposit acquisition. “We plan to continue the hard work of reaching out to consumers and organizations, marketing our products and services, and providing outstanding customer service.”

Hard work, yes, but these are hard times. In December, the unemployment rate hit a historic high of 7.2%, but Hudson sees the glass half full and notes that despite an increased credit risk, about 93% of people are still working. In light of President Obama’s goal to create 3 million new jobs, he feels there’s reason for optimism because individuals and businesses still need loans. “Even in this economic environment, people will still require financing.”

Hudson expects Broadway’s single-family mortgage lending to now account for 35% to 40% of new originations; in contrast, it historically accounted for 10% to 15% of originations. He also expects that Broadway will benefit from reduced competition resulting from the closure or acquisition of banks such as Countrywide, IndyMac, Downey Savings, and Washington Mutual, as well as from banks that have canceled loan programs or eliminated certain loan products. As of Sept. 30, 2008, Broadway’s assets exceeded $400 million; the bank operates five full-service branches, four in Los Angeles and one in Inglewood, California.

The economy dictates that banks change the way they do business, and Broadway is no exception. The bank isn’t lending to out-of-state borrowers. It has also reduced its loan-to-value ratio for home purchases, from 90% to 80%, and it now requires a 20% down payment from borrowers, compared with 10% previously. Such changes may reduce the number of eligible borrowers, Hudson concedes, but they may deter borrowers from overleveraging themselves.

“The ethical question is, do banks have a responsibility to verify that borrowers can afford the loans they’re requesting, and do they have an obligation to offer loan products that best meet the consumers’ financial interests?” Hudson theorizes. “We believe that verifying that the borrower can afford the loan, and offering the best loan product to meet the borrower’s financial needs are not only in the best interests of the borrower, but also good for the company and its shareholders.” Broadway’s average home loan is $350,000, so Hudson projects that the bank could reach 143 new customers if it lends $50 million home loans this year. The new lending could also boost the bank’s profitability by generating fee income from things such as servicing mortgages. But the biggest gain would come from an increase in the bank’s net interest margin, the spread between what the bank charges on loans and pays on deposits. Even so, the bank increased its loan loss provision, an expense set aside to offset future loan losses, from $194,000 during the same period in 2007 to $947,000—a move that reflects the realities of the sluggish economy and how it may affect borrowers.

Hudson says it’s likely that more black-owned banks will seek capital from the Treasury. “In the current economic environment, most banks, particularly black-owned banks, will need to acquire additional capital.”

This story originally appeared in the March 2009 issue of Black Enterprise magazine.

McDonald says Liberty will continue to look for more deals in those regions. “We’re interested in those areas because there’s a continuing need to service small and midsized customers wanting banking services in those areas,” he says.

The United Bank acquisition continues Liberty’s long-term growth strategy of acquiring financial institutions that allows it to expand into new markets, McDonald says. Liberty is acquiring United Bank for an undisclosed cash amount, allowing it to pick up branches in Louisiana, including Harvey, Jefferson, and Opelousas, all new markets.

Liberty also acquired a United Bank branch in New Orleans.

The United Bank deal will allow Liberty to obtain an additional $25 million in assets, nearly $23 million more in deposits, and several ATMs, McDonald says. The merger has been approved by United Bank’s shareholders, but must still be approved by banking regulators, he says. The deal is expected to be completed by late March.

Joe Gladue, an equity analyst specializing in banking at B. Riley & Co. in Philadelphia, predicts that with the slow economy there will be a lot of merger and acquisition activity in the banking industry within the next year.

“Consolidation activity this year and next year will likely remain high because the economy is showing no signs of getting better,” Gladue says.

He says banks that haven’t been approved for capital injection as part of the U.S. Department of Treasury’s Troubled Asset Relief Program (TARP) and may be struggling because of the weak economy, likely will be forced to look for buyers. Gladue adds that some banks are being forced to sell before being taken over by regulators because their capital levels are getting too weak.

Liberty, now with assets of about $375 million, will become a roughly $400 million bank with 17 branches, making it one of the nation’s five largest black-owned banks.

Expanding networks

McDonald says Liberty has been discussing the possibility of acquiring United Bank for the past five years. He says United Bank felt now was the right time to sell, but says it was not driven to do so because of the weak economy.

He adds that Liberty’s purchase will allow it to provide United Bank customers additional services, including a larger bank network, larger loan limits for individuals and business, as well as expanded mortgage services.

United Bank CEO Howard Brooks says the bank decided to sell because both banks have synergies that complement each other, including banking networks, personnel, and their focus on satisfying their customer base.

The merger will also give United Bank customers access to a larger Internet banking network, Brooks says. “We will be able to provide more services for the customer base that we have served the past 19 years,” he adds.

Brooks says he plans to remain with Liberty in a position that has not yet been determined. He also says Liberty plans to retain all of United Bank’s roughly 20 to 25 employees.