Feeling the Pinch

Interest rates are up, real estate is down, and black financial services firmsare caught in the middle

Howard, banking analyst and president of Equity Research Services Inc. in Raleigh, North Carolina.

Adapting to the changing business climate, Milwaukee-based Legacy Bank (No. 13 on the BE BANKS LIST with $160.8 million in assets), founded in 1999 by three African American women, increased assets by nearly 31%. The growth occurred as total lending rose 36%, to $145.7 million, primarily from an increase in loans to small businesses and commercial real estate developers.

Legacy provided a $10 million loan to Wisconsin Energy Corp. to build power plants. That was a big deal for us because we were never able to compete before with the big banks in Milwaukee for a project of that size, says President and CEO Deloris Sims.

In 2004, Legacy and the Wisconsin Housing and Economic Development Authority joined forces to apply for funds under a federal program, New Markets Tax Credits, which offers tax breaks to investors who finance business projects in low-income areas. The program helped spark a 23% increase in deposits. Whats more, the alliance helped boost the banks profits last year by nearly $443,000, to $1.25 million, as the effect of the tax breaks began to be felt. In a time when interest rates were rising and reducing our net interest margin, notes Sims, the New Market Tax Credits allowed us to gain additional fee income and helped boost our bottom line.

Competition also increased in cyberspace when OneUnited Bank (No. 2 on the BE BANKS list with $650.4 million in assets), launched an Internet presence in February 2006 that accounted for some of the $42 million in deposit growth at the Boston-based bank. CEO Kevin Cohee says that the Internet branch has succeeded chiefly because of its annual percentage yield of 5.3%, which is higher than what most competitors offer.

Investment Banks: Healthy Results
The strong stock market helped some black-owned investment banks grow their businesses. Managed issues for BE investment banks increased by more than 18% last year. Among those helped by the market was Cleveland-based SBK-Brooks Investment Corp. (No. 9 on the BE INVESTMENT BANKS list with $14.6 billion in total managed issues), which increased its total managed issues by some 22% in 2006. CEO Eric Small says additional underwriting work for several of the top 500 publicly traded companies more than offset a flat year in the municipal bond market.

Similar gains were posted at The Williams Capital Group L.P. (No. 1 on the BE INVESTMENT BANKS list with $142.4 billion in total managed issues). The New York City-based firm saw a 47% climb in its dollar volume of total managed issues. The firm led or co-managed nearly 100 debt transactions, up 32% from 2005; fixed-income underwriting experienced the greatest growth and accounted for about 55% of total revenue. It was a year of progress, but theres still substantial room for improvement, says CEO Christopher J. Williams.

It was also a strong year for Chicago-based Loop Capital Markets L.L.C (No. 2 on the BE INVESTMENT BANKS list with 124.8 billion in total managed issues). Growth resulted

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