The entity, MBF LP, would be designed to make capital investments in and own parts of new and existing black-owned U.S. banks, said William Michael Cunningham, senior investment adviser at Creative Investment Research Inc., a Washington D.C. firm specializing in minority banking.
Cunningham, MBF general partner, said the company would be an equity fund based in Washington. The company has applied for bank holding company status and is seeking capital from the U.S. Department of the Treasury’s Troubled Asset Relief Program (TARP).
Cunningham said MBF partners and management team members would include Elrick Williams, chairman and CEO of Allston Trading L.L.C., a Chicago-based firm that specializes in electronic trading of stocks, Treasury bonds and other securities, and Glenn Harvey, former president and CEO at Broadway Federal Bank.
Cunningham said the MBF is needed because black-owned banks have few sources for investment capital. A typical investment in a black-owned bank might total $5 million to boost the bank’s capital base, allowing it to leverage that money to make new loans of up to $50 million, he added.
“We will provide capital on better terms than those provided by the few limited sources currently available,” he said.
Joe Gladue an equity analyst specializing in banking at B. Riley & Co. L.L.C. in Philadelphia, had mixed reaction about MBF.
He said the company could be helpful in providing capital to black-owned banks because it’s harder for those institutions to raise capital than their larger rivals, particularly in the current economic environment.
But Gladue also said MBF could have a hard time getting cooperation from black-owned banks because those banks typically are closely held and very independent minded.
Cunningham said the Federal Reserve, which would be MBF’s regulator, does not have a requirement on how much capital has to be raised to form the holding company. MBF submitted its application earlier this month.
He said MBF would encourage participating banks to offer home mortgages, small business loans, and several other new types of financial products and loans it developed. He said MBF would make its money by receiving a dividend from the banks it invest in.
“We may factor in social returns as part of our approach, but our goal will be to clearly maximize returns,” Cunningham said.
He also said he doesn’t know of any other bank holding companies now similar to the proposed company in the banking industry.
Cunningham said another factor behind the formation of the holding company is to pump capital into black-owned banks that might not get an investment from the Treasury as part of the $700 billion rescue package.
To date, Cunningham said he knows of only one black-owned bank, Los Angeles’ Broadway Financial Corp., to get funding. Broadway Federal last month received $9 million from the Treasury as part of its effort to bail out U.S. bank’s impacted by the financial crisis.
TARP was initially implemented