BE Editor-in-Chief Derek Dingle with Secretary Geithner

When Barack Obama became the 44th President of the United States, the nation stood on a financial cliff. The deteriorating banking sector, credit crunch, collapsing housing market and plummeting stock market, among other fiascos, threatened to plunge the nation into Depression 2.0. Part of the president’s rescue plan was tapping Tim Geithner, the former New York Reserve Bank president, as Treasury Secretary. Having served in the Treasury Department during the Clinton Era and engaged in the first leg of the bailout of the financial industry before George W. Bush left the White House, Obama saw him as being perfectly suited to help him develop every major plank of his agenda to revive and grow the American economy, including continuation of the $700 billion Troubled Asset Relief Program, or TARP; crafting the $787 million American Recovery and Reinvestment Act, better known as the stimulus package; and comprehensive financial reform. Two years later, the nation is back from the brink and GDP is growing at pre-recession levels. However, Geithner must wrestle with major challenges as he meets the  president’s mandate to rebuild America for future prosperity and competitiveness: stubbornly high unemployment,  a tepid housing market and a projected $1.5 trillion federal budget deficit.

In an exclusive interview that took place after the president’s second State of the Union address, BLACK ENTERPRISE Editor-In-Chief Derek T. Dingle talked with the nation’s chief financial officer on Black Enterprise Business Report about a range of issues, including the administration’s ability to finance Obama’s ambitious “win the future” agenda, provide foreclosure relief for the jobless, implement financial reform and develop targeted programs for African American communities that have suffered the most during the economic downturn.

Woods has traditionally turned to major banks for his lending needs. But after last week’s announcement that the Treasury Department will provide up to $1 billion in Troubled Asset Relief Program Funds to spur lending by Community Development Financial Institutions to businesses in the areas hardest hit by the economy, he’ll be taking a closer look at some of the participating CDFIs that may well be the key to restarting his construction project.

“These institutions operate in parts of the country where unemployment is way above the national average and where there’s been a huge amount of damage to people’s faith and confidence in the system,” Treasury Secretary Tim Geithner told a group of reporters following the announcement. “This program is a very powerful way to try to make sure that we’re starting to open up some of the credit channels for businesses in parts of the country where it’s most needed, and we think there’s going to be a very high return.”

The terms of the program, first announced last October, have been enhanced based on input from members of the CDFI community.

The amount of capital available to participating institutions has been increased from 2% to 5% of their risk-weighted assets or loans, and credit unions can apply for an equivalent amount of total assets. CDFIs that previously received TARP funding will be allowed to transfer that capital to the new program. Participants will pay a dividend rate of 2%, compared to the 5% rate applied under the Capital Purchase Program. That rate will increase to 9% after eight years. The Treasury will begin accepting applications for funds by the end of February.

According to Dorothy Bridges, CEO of Washington, D.C.-based City First Bank, she and several other community bankers had several extensive discussions with Geithner, members of Treasury’s CDFI staff and, on occasion, President Barack Obama himself about how the program could be improved.

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“They needed to hear from us what we thought would work for our communities and what would work for our financial institutions with regard to the terms and condition,” said Bridges. “They listened, and where they could make some changes, they did.”

CDFIs that do not receive regulator approval will be allowed to participate in the program if they can raise enough private capital investment that, when combined with matching funds from Treasury, they’ll meet the viability standard.

“The big banks go to the public markets to raise capital any time there’s a shortfall, and regardless of how much money they’ve lost, they’ve still been able to raise capital,” said Joe Haskins, CEO of Harbor Bank of Maryland (No. 10 on the BE Banks list with $285 million in assets). “We don’t have that luxury. This gives us an opportunity to enhance our capital base.”

Bridges believes that the new terms will have “a very definite and significant” impact on black businesses and hopes that learning about the program will give them a more positive outlook on the lending landscape.

“They listen to the same media that we do and because they’re hearing that—for a number of reasons—banks aren’t lending, many of them didn’t approach banks like ours to inquire about loans,” she said. “I hope this will ease their uncertainty and make them feel like the administration is very serious about its efforts, and that community banks and CDFIs are serious about lending again. Something like this will jump-start their desire to get back in business.”

Deborah Wright, CEO of Carver Federal Savings Bank (No. 1 on the BE Banks list with $789.9 million in assets), said the community bankers who met with Geithner this week explained to Treasury officials that the economy has had a more debilitating effect on the financials at black businesses.

“Part of the capital will be used to make loans to companies that may not look as pristine as they did a couple of years ago. But when you have a cushion, you can take more risks as a bank,” said Wright. “There was a lot of pressure from our regulators to preserve capital, so this will be a shot in the arm for our industry. We have to let people know that we’re back in business.”
The news has been very satisfying for black lawmakers on Capitol Hill who had begun grumbling that the Obama administration had turned a blind eye to the devastation taking place in their districts, and its domino effect on local black businesses.

“The administration is finally realizing that yes, there is such a thing as targeting—just as we targeted those big banks on Wall Street—and focusing help where the need is greatest,” said Rep. David Scott (D-Georgia), who sits on the House financial services committee. “That need is greatest in minority communities.”

Jan. 20 Obama is sworn in as the 44th President of the United States. In his inauguration address, he tells Americans that “the state of our economy calls for action: bold and swift.”

Feb. 6 The president signs an executive order to establish the President’s Economic Recovery Advisory Board. Led by former Federal Reserve Chairman Paul Volcker, the panel is charged with giving advice about resurrecting the economy.

Feb. 10 Treasury Secretary Timothy Geithner reveals plan to stabilize financial sector. After inheriting the $700 billion Troubled Asset Relief Program, or TARP, from the Bush administration, Geithner says the Obama administration’s more comprehensive plan seeks to “help restart the flow of credit, clean up and strengthen our banks, and provide critical aid for homeowners and small businesses.”

Feb. 17 The president signs into law the $787 billion American Recovery and Reinvestment Act, commonly referred to as the stimulus package. The intent is to kick-start the economy by providing new jobs, extend unemployment and health benefits, and provide tax breaks for homeowners and financing for small businesses.

March 4 Obama announces the $275 billion Making Home Affordable Program. Part of an extensive plan to restore the housing sector and provide assistance to up to 9 million families through foreclosure relief. The program provides mortgage modifications and first-time homebuyer tax credits.

March 16 The administration launches a $15 billion plan to increase lending to small businesses. The U.S. Treasury Department injects funds into the small business loan market to enable lending institutions to free up capital for them to make additional loans to small firms. The government also temporarily increases the guarantee for SBA 7(a) and 504 community development loans.

March 30 The federal government takes control of General Motors and Chrysler to protect U.S. auto industry. The ouster of GM CEO Rick Wagoner and the proposed merger between Chrysler and Italy’s Fiat clears the way for the Obama administration to lend the automakers the funds they need to stay afloat and requires them to revise their restructuring plans.

April 30 After failed negotiations between the Treasury, creditors, and the United Auto Workers Union, the Obama administration forces Chrysler into Chapter 11 bankruptcy.

May 20 The president signs the Fraud Enforcement and Recovery Act saying it will “give prosecutors and regulators new tools to crack down on … the twin scourges of mortgage fraud and predatory lending.” And the Helping Families Save Their Homes Act, provides assistance to responsible homeowners to prevent foreclosures.

May 22 Obama signs Credit Card Accountability, Responsibility, and Disclosure Act. The administration maintains that this overhaul will protect consumers from egregious charges and over-the-limit fees.

June 1 The Obama administration refuses to give additional bailout funds to GM, forcing it into one of the largest commercial bankruptcy filings in history.

June 10 Chrysler ends its bankruptcy reorganization as the automaker merges with Fiat. The federal government, which owns a minority stake in the new company, provides Chrysler with $6.6 billion in exit financing.

June 17 Obama unveils massive plan for the reform of the nation’s financial regulatory system to avoid “systemic risks.” The administration proposes to give the Federal Reserve new powers to oversee the entire financial system as well as create a consumer protection agency to guard against credit abuse and other consumer abuse.

June 23 The president signs an executive order creating the White House Council on Automotive Communities and Workers.  The new task force will help autoworkers make the transition to new manufacturing jobs in emerging industries such as alternative energy.

July 10 GM emerges from bankruptcy,  forming a new company with U.S. Treasury owning 60.8% of the common stock.

Aug. 7 Obama signs an extension of the “Cash for Clunkers” program. The Car Allowance Rebate System, which started in June, pays consumers up to $4,500 in credit for trading in their autos for more fuel-efficient models. The Senate approves an additional $2 billion for the program.

Nov. 6 Obama signs the Worker, Homeownership, and Business Assistance Act of 2009 to promote job creation through an additional tax cut for businesses, extend unemployment benefits up to 20 additional weeks, and increase home sales with a one-time extension of the $8,000 homebuyer tax credit.

—Additional reporting by Alan Hughes & Christina Faison

This article originally appeared in the January 2010 issue of Black Enteprise magazine.

The Congressional Black Caucus shared with reporters on Friday a letter to President Barack Obama identifying several proposals they believe should be included in a jobs package currently being drafted in the House.

The list included a broad range of issues from direct job creation and training to small business assistance. The one recurring theme was that of the amounts allocated to a particular project or program, at least 10% of that assistance should be targeted to qualified areas of economic hardship. According to the CBC, that means “any census tract or block numbering area where 20% or more of the population is at or below the federal poverty line as defined by the Office of Management and Budget.”

The CBC feels an enhanced sense of urgency about the nation’s high unemployment rates that they and the entire Democratic Caucus fear the White House and the Senate may not share. The House is hoping to get a robust and targeted jobs package passed before year’s end.

CBC Chair Barbara Lee of California and Rep. Emanuel Cleaver of Missouri, chair of the CBC jobs taskforce said they will work closely with Democratic leadership, particularly House Whip James Clyburn, who is black, to ensure their priorities are included in a final bill.

But is that enough?

The CBC’s problem, lamented one Democratic source who asked to not be named, is an ongoing struggle to find more specific ways to influence and shape legislation. The scaled down public option the Blue Dogs fought for and the Stupek amendment pro-lifers successfully inserted in the House healthcare bill are recent examples. Next week the Congressional Hispanic Caucus plans to launch an immigration bill that provides a specific approach to dealing with undocumented immigrants.

“What the CBC has not found a way to do is to promote a tangible legislative proposal as opposed to a laundry list. You have to do that with a very specific policy idea that says take this out and put this in,” the source said. “Until the CBC can do that, it’s going to have limited ability to shape or drive the legislative process.”

Steele on Healthcare Reform: Stall, Delay, or Just Say No

Michael Steele

Republican National Committee Chairman Michael Steele is encouraging GOP lawmakers to do whatever they can to delay or stop healthcare reform.

“I urge everyone to spend every bit of capital and energy you have to stop this health care reform,” Steele wrote in a memo issued Thursday. “The Democrats have accused us of trying to delay, stall, slow down, and stop this bill. They are right. We do want to delay, stall, slow down, and ultimately stop them from experimenting on our nation’s healthcare. And guess what, so do a majority of Americans.”

Steele pointed to a recent Rasmussen poll in which 51% said they’re opposed to the “Obama-Pelosi-Reid” healthcare bill; 57% believe costs will go up; and 54% believe the quality of their healthcare will worsen. He also said that 68% of Americans want President Obama and Congress to focus on the economy before tackling healthcare.

“Looking at the mood of the American electorate, the strategy in the healthcare debate is clear,” Steele wrote. “All we need to do is add our voice and amplify the chorus of Americans urging President Barack Obama and Congressional Democrats to slow down their healthcare experiment and focus on jobs and growing the economy.”

A CBS/New York Times Poll released on Dec. 9, however, found that 42% of respondents believe that proposed reforms would have no effect on them, while 34% said they would be harmed.

In a statement, Democratic National Committee Press Secretary Hari Sevugan said, “With this memo and Senator Judd Gregg’s obstruction manual, Republicans have laid their cards on the table and made explicit that their intention, their singular goal, is obstructing the president’s agenda for the sake of politics no matter how high the price for the American people. … Republicans are obstructing progress for the benefit of themselves and their special interest allies. If they think that’s a winning proposition, they are in for a world of hurt.”

CBC Plays Political Hardball and Scores

The 10 Congressional Black Caucus members who sit on the House Financial Services Committee made headlines last week when they boycotted two important votes. To their dismay, several stories darkly hinted of a brewing feud between the CBC and President Barack Obama. But it’s not personal, they say, just politics.

It paid off, too. Financial Services Chairman Barney Frank of Massachusetts agreed to include two amendments proposed by Rep. Maxine Waters (D-California) to the Wall Street Reform and Consumer Protection Act that would commit $3 billion from the Troubled Assets Relief Program (TARP) to assist unemployed homeowners so they can stay in their homes. An additional $1 billion would fund grants to city and county governments for neighborhood revitalization projects.

The committee also has adopted an amendment that would establish an Office of Minority and Women Inclusion at each of the seven financial regulatory agencies. Another Waters amendment calls for five additional board members to serve on the Consumer Financial Protection Oversight Board with the seven regulatory agency heads. It’s worded, she says, to ensure that they would be picked from organizations that represent the voices of minority consumers.

“We got a lot in this bill,” said a beaming Waters. “We demonstrated 10 votes on the committee is an extremely powerful bloc and some of this may carry over to the floor where we might organize all 42 [CBC members] on some issues.”

Waters has said more than once that the CBC has taken too long to begin flexing its muscle. “Now that we have this power, I don’t think leadership will negotiate only with Blue Dogs; they’ll have to negotiate with us, too.”Cummings Seeks Bonding Assistance for Minority Entrepreneurs

Cummings

It takes money to make money, so the saying goes, and that’s especially true for federal contracting opportunities that require bonding.

“One of the major problems that minority contractors experiences is putting up a bond. In many instances they don’t have enough equity in their companies or may not have a past history to [satisfy] bonding companies,” said Rep. Elijah Cummings (D-Maryland) Thursday. He also believes sometimes discrimination is also a factor. “Without bonding, you can’t do the contract.”

Cummings, a member of the Committee on Transportation and Infrastructure, is seeking support for the Department of Transportation Bonding Assistance Authority Act, a bill he’s introduced to expand DOT’s authority to guarantee bonds issued to disadvantaged business enterprises (DBEs). The measure would designate up to $50 million per year to fund the program, which Cummings says will significantly increase the amount of bonding aid available to DBEs. In addition, it would modernize the authorizing statute for DOT’s Minority Resource Center “to ensure that it serves as a clearinghouse providing information to DBEs on business opportunities related to all modes of transportation.”

Although Cummings has just 10 of the 30 co-sponsors he’s seeking, he is confident that the measure will pass on its own or as part of a six-year transportation bill.

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DOT Partners With Carver Bank in Loan Program

Flanked by thousands of boxes of paper records stored by Metropolitan Archives, a Maryland-based business that used an Small Business Administration loan last year to buy its building, Obama said, “There’s still too little credit flowing to our small businesses,” that need financing to stay open or to grow.

Under the administration’s plan, banks with less than $1 billion in assets will be able to borrow at a 3% dividend rate, which is lower than the five-percent rate banks participating in TARP’s Capital Purchase Program currently pay. The rate will increase to 9% after five years to encourage timely repayment.

Community Development Financial Institutions (CDFIs) that lend to small businesses in low-income neighborhoods will be able to borrow capital at a 2% rate for eight years.

No date has been set for when the program will begin, but each bank’s participation is subject to the approval of its federal regulator. In addition banks must submit a plan that explains how the capital would allow them to increase small business lending and includes lending goals based on how much they want to borrow. If approved, they must submit quarterly progress reports.

In a conference call with reporters last week, Gene Sperling, counselor to Treasury Secretary Tim Geithner, said that 56% of the business loans made by the more than 7500 financial institutions that have assets under $1 billion go to small businesses, compared to 21% by those with assets over $1 billion. Treasury has not yet determined how much of an increase the program will yield.

“If you want to help small businesses get more credit you’ve got to make sure that smaller banks that are so often the source of their lending have more capital,” he said. “It’s the community banks that are lending not from Wall Street but from down the street that are the source of credit for so many of the entrepreneurs and small business owners in our country.”

Louis Prezeau, CEO of the City National Bank of New Jersey (No. 3 on the BE Banks List with $495 million in assets), is elated.

“This will help us to do more of what we do, which is help an underserved community. It will be business as usual-plus, with some incentive for us to do more,” he said.

Prezeau, believes institutions like his have been caught in a catch-22 situation in which banking regulators are requiring them to maintain higher capital ratios while encouraging them to do more lending.

“You can’t grow the bank as fast because of restrictions on your ability to leverage capital,” he said, so Obama’s plan is particularly appealing. However, he and other CDFIs, believe that the business plan requirement is a redundant step that will slow the actual lending process and that their annual certification should be sufficient.

“We don’t mind reporting every quarter, but should not be required to provide additional data on [small business lending goals]. That’s what we do, so why are they asking us to file that information again?” he said.

Prezeau believes the administration could instead sweeten the plan by forgiving part of a bank’s previous TARP loans based on its rate of increase small business lending as a result of the new program.

Obama also called on Congress to increase SBA loan limits. Under his recommendation, the agency’s microloan program would be increased from $35,000 to $50,000; 504 loans would go from $2 million to $5 million for standard borrowers and to $5.5 million from $4 million for manufacturers; and 7(a) loans would go from $2 million to $5 million. Congressional approval would be required but there is bipartisan support such changes in both the House and Senate.

José Mantilla, president of Legacy Bank in Milwaukee (No. 13 on the BE Banks list with $224.5 million in assets and BE Financial Services Institution of the Year), said it would be a “tremendous help” to banks like his because it mitigates the risk and creates liquidity.

“We have been very active as lenders this year and this will help us even further once the legislation is passed,” Mantilla said. “For community banks, raising capital is tough today. Having access to more at a lower cost will allow us to leverage and lend out more funds.”

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 New York Times recently reported about the prospects for small investors to cash in on this new-fangled vehicle, but details about its administration and marketing appear sketchy.  Resembling mutual funds, these so-called “bailout funds” would buy mortgage-backed securities from failing banks at fire-sale prices.  So far it’s exclusively been gigantic private investors that have bought toxic assets from weakened financial institutions and, in turn, stand to reap huge profits if real estate values rebound. A number of BE 100s asset managers have reviewed these vehicles to determine whether they prove to be a viable option for Main Street investors. “We think it is a mechanism to provide an investment opportunity at all portfolio levels to share in the government quasi-guarantees,” says Eugene A. Profit, CEO of Silver Spring, Maryland-based Profit Investment Management (No. 14 on the B.E. Asset Managers list with $1.4 billion in assets under management).

The proposed investment funds would be akin to the U.S. war bonds citizens bought to help finance the military effort during World War I.  Bailout funds would give retail investors a chance to profit from helping to resolve the current economic crisis.  Still outraged about huge bonuses paid to executives who work for institutions that received a portion of the $700 billion from the Troubled Asset Relief Program (TARP), some taxpayers may view this investment as an opportunity to achieve significant gains by taking a risky bet on economic recovery.

Reportedly, these funds are still under review and may take several months before they’re established. In an interview with Black Enterprise magazine earlier this week, Rep. Charles Rangel, chairman of the powerful House Ways and Means Committee that has worked closely with Obama administration officials on creating liquidity in capital markets, says he was not fully aware of plans to make such instruments available to small investors.

BE 100s money managers, however, have weighed in on the viability of this new type of investment. Not all asset managers will likely participate in its distribution and management.  For instance, Boston-based Rhumbline Advisers (No. 2 on the B.E. Asset Managers list with $19.1 billion in assets under management) will maintain its ultra-conservative approach. According to its management, the firm does not invest in mortgage-backed securities, “junk” bonds or similar high-risk vehicles.

Jason Tyler, a senior vice president at Chicago-based Ariel Investments L.L.C. (No. 3 on the B.E. Asset Managers list with $13.2 billion in assets under management) asserts that opportunities for small investors has not been the primary focus of the financial recovery plan.  He says the term-asset-backed Loan Facility program (TALF) designed by the Federal Reserve to increase available for entrepreneurs and households is “really not for small investors at all. This is really geared toward institutional investors that have a lot of background in valuing these assets. Retail investors will be able to get to these assets but through mutual funds.”

Profit, on the other hand, views such potential opportunities for small investors as a positive development.  “[We don’t] think this is a bad idea.  Investment companies are already familiar with holding a diversified pool of assets, utilizing professional management and marketing the merits of a particular investment idea.  This is a good idea for small investors for the same reasons mutual funds are a good idea generally for the smaller investor — that is, lower risk through diversification, structured investment programs, extensive disclosures and professionally managed asset portfolios.”

The government’s involvement in the structure of the proposed funds is not clear, Profit says.  “I suspect the mutual fund companies would create, run, and market the funds.  The mutual fund companies would also probably service the shareholder accounts.  These are all functions that mutual fund companies have expertise in.  The question is how much of a partner would the government be in the funds, and whether they would be the initial shareholder at a size that makes the bailout fund idea feasible,” he says.

From Profit’s vantage point, the plan is neither a political gimmick nor a direct economic stimulus measure.  “We have all been negatively impacted by the toxic debt issues, and while it might be prudent to allocate TARP funds to large investment companies and/or pools of capital, they should not be the sole beneficiaries of our tax dollars being utilized in the bailout.  The proposed bailout funds as suggested might be a way to allow everyman or everywoman who is interested or willing to have similar opportunity to invest and benefit in bailout activities as large institutional investors.  We think that the bailout funds proposal is another indication of the Obama administration’s interest in leveling the playing field and providing access in all opportunities.”

Auto suppliers are reeling from current market conditions. An A.T. Kearney study released in March found current market conditions could cause more than half of the country’s major auto parts makers to file for bankruptcy this year. That would result in one million job losses.

The study reported fallen auto sales, raw material price increases, and high fixed cost and excess capacity were cited as top factors.

“We are facing a situation where 50% of all black-owned businesses could be out of business a year from now,” says Louis Green, president of the Michigan Minority Business Development Council in Detroit. “We are looking at a high likelihood that we may lose half of all of our black automotive suppliers.”

In the state of Michigan alone, home to the domestic auto companies and some of the largest black-owned auto suppliers, the ramifications could be bleak. The effect on black-owned auto parts businesses could be even more severe as these businesses have operated for only a fraction of the auto industry’s century-long existence and many have not diversified their businesses or customer base fast enough to cushion the blow.

Before GM and Chrysler’s recovery plans were rejected by the government, the industry was expected to shed close to 30% of all supplier businesses based on market conditions. “But things have been a lot more dire, I think, than anyone would have suspected,” Green says. “When you look at things like potential bankruptcies, very few businesses are equipped to handle that.”

Suppliers trying to stay afloat have been burning through cash as they keep their facilities open to produce very few parts. “The industry is so complex and so massive that there is no escaping the serious amount of pain that will be felt,” Green adds.

The cash reserve overall for auto suppliers aren’t typically as deep as healthier auto manufacturers, meaning if GM or Chrysler — which have already received $17.4 billion in federal aid — go bankrupt, so will many auto suppliers.
“There’s that fear that any company – supplier or [original equipment manufacturers] – could potentially go away,” says Leon Richardson, head of the National Association of Black Automotive Suppliers (NABAS), about the industry’s rocky state.

Auto parts manufacturers tend to depend on short-term loans for the 45 to 60 days it can take for automakers to pay for car components delivered. With vehicle sales down 40% this year and vehicle production drastically slowed, orders for various auto components ranging from seating to dashboards to navigation systems are on hold.

“Our business has a high fixed cost, so at some point, without the volume, the math just doesn’t work,” says Kirk Lewis, president of Bing Group, a Detroit-based, black-owned supplier that does about 98% of its metal business with GM and Ford Motor Co., the only domestic car company that has not asked for federal aid.

Lewis, who is also treasurer of NABAS, has attempted to rally support from Capitol Hill for struggling U.S. auto makers, conveying to lawmakers during past conversations the effect market conditions are having on suppliers, he said. “If our customers are weak then we’re going to be weak,” Lewis says.

Several weeks ago, Obama’s auto task force put forth a $5 billion supplier support program to help prop up weakened suppliers. The program, which was $20 billion short of what was requested and draws funds from the Treasury Department’s Troubled Asset Relief Program (TARP), does not include specific language aimed at minority-owned businesses.

GM and Chrysler will handle the funds and decide which suppliers can participate. The program is still being tweaked, insiders say.

Congressional Black Caucus (CBC) members are pushing for minority vendor inclusion as the federal government hands out billions of dollars in stimulus funds. (Source: Getty Images)

Federal Reserve Chairman Ben Bernanke participated in a closed-door meeting yesterday with members of the Congressional Black Caucus (CBC) and more than 300 minority and women entrepreneurs who’d eagerly accepted a last-minute invitation to attend the CBC’s TARP/TALF Access Summit.

The purpose of the event was to examine why these entrepreneurs, many of whom provide asset management, accounting and legal services, have not been allowed to help manage the federal government’s bailout programs, and to explore future contracting opportunities across a broad range of industries as part of the nation’s economic recovery process.

Representatives from the Treasury Department, the Federal Deposit Insurance Corp., and the Federal Housing Finance Agency also addressed the group.

According to Democratic Reps. Maxine Waters and Gregory Meeks, who co-chair the CBC’s Economic Security Taskforce, the summit was just the opening move in what will be an ongoing push to ensure that women- and minority-owned businesses participate fully in federal financial and economic recovery programs. Invitation-only requests for proposals and high asset thresholds that have kept them locked out of the process will no longer be tolerated they say. In addition, they believe that it is both unfair and unwise to rely on the same companies that destroyed the economy to now repair it.

Waters said Bernanke was very receptive to their ideas. He said that not all of the recovery planning and decision-making had been finalized and that he welcomed the opportunity to get input from minority professionals. While Waters found his attitude to be a “refreshing” contrast to the Bush administration’s, she also acknowledged that even with a Democratic administration, the CBC will still have to fight for minority inclusion.

CBC members also indicated that in this matter the group would be using its influence more than ever. “We will be responsible for public policy in ways that have not been seen before. We are 43 members strong and about to exercise some direct and aggressive influence on these financial agencies and our government,” said Waters. “We’re tired of the exclusion historically, tired of being overlooked, and absolutely tired of people not asking for our involvement in ways that will influence how all of this is organized. It simply is a new day.”

“The policies are there but it’s the implementation of that policy that’s the issue,” said Robert Wallace, president and CEO of Bithgroup Technologies. “We stressed to Bernanke that that’s where the weakness is and we need to see some better results in that capacity. He promised to listen, to have an open-door policy and that he’s committed to diversity in the procurement of services and work.  We need work, contracts, and dollars to flow, and he did not promise that.”

Rep. Sheila Jackson Lee also noted that many of the CBC members chair powerful committees and subcommittees whose oversight is intertwined, making it easy for them to oversee and track the government’s progress. “We won’t allow small businesses to be left out,” she said.

The group will look to the Treasury to put in place a process to ensure minority participation, including lowering the $10 billion asset threshold required to participate in the public-private partnership Obama announced last week or allowing smaller companies to form joint venture partnerships that would enable some businesses to reach that threshold. Gary Grippo, deputy assistant secretary for fiscal operations and policy at Treasury, said he would share the group’s ideas with Treasury Secretary Timothy Geithner and Obama.

The CBC plans to put together a more detailed proposal for administration officials that it will prepare with the help of minority trade associations.

“This is not going to be a one-day meeting. We are not going to sit back and allow billions of dollars to be dumped into this economy and watch the same old players be advantaged by it,” Waters said “We’re not going to sit back and watch some of the players who are responsible for the economic mess we’re in today be the recipients of these taxpayer dollars that provide services and make even more money despite the fact they’ve mismanaged their own businesses.”

William C. Thompson, New York City comptroller; Hazel Dukes, NAACP-New York City branch president; Deborah C. Wright, Carver Bank Chairman and CEO (Source: Carver Bank)

While many large commercial banks cling to life or become engulfed by the specter of death, Carver Federal Savings Bank is celebrating its 60th anniversary. Proving to not only have a propensity for withstanding economic turmoil, the black-owned bank has also sought growth opportunities during the downturn.

On Wednesday, the who’s who of New York’s political arena joined Deborah C. Wright, Carver chairperson and CEO, and more than 75 guests including Rep. Charles Rangel in a celebratory reception at the bank’s headquarters in the heart of Harlem.

In honor of the bank’s milestone, New York City declared Feb. 19 Carver Federal Savings Bank Appreciation Day.

“One of the reasons we haven’t been pushed around by a lot of the financial problems is because our customers are loyal to us and we’re loyal to them,” said Wright, who is a member of the Black Enterprise Board of Economists. “You can’t succeed if your customers aren’t succeeding.”

As many African Americans strive to deal with the personal ramifications of the financial crisis, Carver’s duel presence as an educational resource in the black community has become more pronounced.

“I think everybody is so concerned about their finances and about debt and about understanding how credit works and their FICO score,” said Blondel Pinnock, president of Carver Community Development Corp. (CCDC). The CCDC has also been holding financial empowerment workshops around New York.

Inspired by African American scientist and agricultural researcher, George Washington Carver, a group of black Harlemites pooled their resources in 1948 to found the bank.  Though Harlem was a hub of black business and homeownership in the 1940s, access to capital was a major challenge the bank sought to alleviate. The financial institution was started with assets of $250,000 that included $14,000 in cash and the rest in pledges from community residents. By 2006, Carver’s assets had grown to $765 million.

Though larger banks continue to falter, Carver, which employs 154 people at branches in Brooklyn, Queens, and Manhattan, continues to stand firm. Carver ranked No. 1 on the B.E. Banks list in 2008.

But it hasn’t been completely immune from the credit crunch and ailing job market. Wright said there has been an increase in loan delinquencies.

“Our basic business is commercial real estate and churches, and for the first time we’ve seen contributions at churches go down, so they’re under a little stress,” Wright explained. “We’re seeing landlords stressed out because they’re losing tenants. The main thing is we underwrote those loans in a very conservative way, and we have confidence that they’ll pull through.”

For the third quarter ending in December, Carver’s total assets dropped to $790 million from $796 million in year-over-year figures. Deposits dropped to $621.5 million, a 5% decrease compared with the same quarter in 2007.

But Carver, the largest black-owned financial institution, is optimistic about its prospects. It received $19 million in the first round of funds distributed as part of the federal government’s Troubled Assets Relief Program (TARP).

“The trick is to invest that capital for growth,” Wright said. “We hope to be in a position to consolidate some of the banks that are in trouble and some that aren’t. We hope to pick up some branches and obviously to expand loans to our community, which we’re already doing. So for us, the capital is for growth” she added.

William C. Thompson, New York City comptroller, praised the institution’s “rich and strong tradition,” adding “Carver’s best days are still ahead of them.”