Banking on Diversification

From investment banks to insurers, B.E. financial services companies are discovering that they must diversify to achieve the competitive edge

Over the last few months, Christopher J. Williams has been accumulating a great deal of frequent flier miles. Dealing with events ranging from recession to terrorist attacks, the CEO of The Williams Capital Group (No. 1 on the BE INVESTMENT BANKS list with $196.2 billion in total issues) and his staff have been hitting the road more than ever to provide personalized service to clients and to calm jittery institutional and individual investors. At the same time, Williams tends to customer needs, leveraging relationships for future deals and making diversification maneuvers such as the recent launch of an asset management unit expected to contribute as much as 30% of the firm’s future revenues. “All these events have raised investor concern, created credit quality problems, and caused fewer companies to come to market for financing,” Williams says. “When things are in turmoil like this, we try harder to better serve clients and extract a diminishing pool of new business opportunities.”

In today’s volatile environment, Williams and other CEOs of black-owned financial service concerns — such as investment banks, insurance companies, banks, asset managers, and private equity firms — are facing their toughest challenge yet. Prodded by an unpredictable economy, demanding customers, and rapacious competition, black-owned financial services firms have been forced to diversify operations not only for growth but also for survival. “Business is not falling into people’s laps like it was in the late 1990s when things like interest rates were low, the economy brisk, and the stock market strong,” says Joe Gladue, an equity analyst and director of market research at The Chapman Co. (No. 8 on the BE INVESTMENT BANKS list with $16.7 billion in total issues). “It’s much harder to make profits nowadays than before, and many of these companies are being forced to go after new business or develop alternative ways to generate a new stream of income.”

EXPANDING THE CUSTOMER BASE
All is not gloom and doom though. There are great opportunities for many black-owned firms beginning to take advantage of the Financial Modernization Act. That law allows financial service providers to commingle their businesses for the first time, build new customer relationships, and fend off mainstream financial giants like Citigroup and State Farm Insurance and discount retailers such as Wal-Mart stores. It is fitting that BE has unveiled a new list in this bold, new environment — a ranking of the top private equity firms, companies that invest in the next generation of entrepreneurs.

Now African American firms compete with each other as well as mainstream entities trying to tap into a more affluent, sophisticated black consumer market. “You can no longer compete if you don’t offer people the products, services, and conveniences they’re looking for, particularly with more competition going after the same market,” Gladue says.

Still, black-owned banks were able to grow assets and deposits last year fueled, in part, by changes in market conditions. For instance, the Federal Reserve cut the federal funds rate — what banks charge each other for overnight loans — from 6.5% in January 2000 to

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