Calling the financial markets over the last year erratic is an understatement. Triple-digit swings in the major indexes were commonplace, and the near collapse of the once-mighty financial services giant Bear Stearns, combined with the ongoing subprime mortgage crisis, a weak housing market, and a lackluster mergers and aquisitions scene kept the financial markets under a gray cloud.
The equity markets finished up slightly last year: the Dow Jones industrial average gained 6.43%, the S&P 500 climbed 3.5%, and the Nasdaq composite index rose 9.8%. However, the dip in housing prices hit the debt side, with the yield on the benchmark 30-year Treasury note dropping 7.5%. To help ease recession fears, the Federal Reserve aggressively acted to revive the economy, including slashing short-term interest rates seven times from September 2007 to April 2008. The Fed also agreed to lend investment houses and banks $200 billion in securities to free up new credit.
With this backdrop, skippers at many of the nation’s largest black-owned financial services companies are turning to tried-and-true strategies to boost profits and generate business in today’s unstable business climate. Stock buybacks, cash and stock bonuses, as well as acquisitions and divestitures are among the tools the leaders of these firms are employing to increase the bottom line. These entrepreneurs are digging in to entrench themselves against uncertain equity and real estate markets, recession fears, and banking woes. Here’s how they’re doing it.
BANKS: DEALING WITH DECLINING ASSETS
The top challenges for most banks over the past year, including those on the BE BANKS list, were declining quality of assets, slowing earnings growth, and the compression of net interest margin (the difference between what banks charge on loans and pay on deposits). Buddy Howard, president and banking analyst at Equity Research Services Inc., in Raleigh, North Carolina, says these pressures are likely to persist in 2008, particularly given the recent economic slowdown. “Looking ahead, it will be critical for financial institutions to maintain sound underwriting and collection policies, to contain costs, and to seek nontraditional sources of income, such as insurance and wealth management,” Howard says.
One bank dealing with such issues was Durham, North Carolina-based Mutual Community Savings Bank. In March the bank closed a $3.7 million stock buyout deal with M&F Bancorp, parent of M&F Bank (No. 11 on the BE BANKS list with $222.2 million in assets).
Adjusting to the unstable environment, some black banks performed well — particularly those that diversified their lending. In Los Angeles, Broadway Financial Corp., parent of Broadway Federal Bank (No. 4 on the BE BANKS list with $356.8 million in assets), saw its assets grow 18% as the bank tripled its lending to churches. “In that type of environment, small community banks have to develop a niche strategy to be competitive, maintain profitability, and sustain growth,” says Paul C. Hudson, chairman and CEO. According to Hudson, the bank will continue a cash incentive program it started last year to encourage employees to sell more products and services to boost lending and deposits. For instance, a