Carver Bank Gets Much-Needed Capital Injection

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.