Monday, June 13, 2011

Financial Services: How Are Black-Owned Doing?

What are the top black-owned banks, brokers, and asset managers in the U.S.? Has there been progress in financial services for African-Americans who want to start, run, own and manage their own firms?  Is the outlook better today than it was in the 1980s--or even a few years ago?

For the young black banker, broker, or trader, are there fair, reasonable opportunities to dream and aspire to starting a new firm?

Black Enterprise magazine just published its annual BE100s lists. The list shows what's possible and what's been done. The magazine every year publishes several lists of the top black-owned businesses in the U.S. for several industry groups.  In financial services, its lists includes the top banks, top asset managers, top investment banks and top private-equity firms.  Those lists suggest how much black firms have penetrated within the industry.

Review and analyze the lists in financial services, and applaud the courage, progress and showing among top black firms. But notice, too, there is still a way to go before many of the top firms find their way onto lists of top 100 or 200 U.S. banks, investment banks or asset managers.

In most cases, the firms are led by experienced leaders, many of whom started their careers at established institutions (like Merrill Lynch, Morgan Stanley, or Goldman Sachs), but decided at some point to take risks and do it on their own. In many cases, they sacrificed big bonuses and industry notoriety for the opportunity to manage and control their own (smaller) operation.

The lists in 2011 include many familiar names and firms.  In recent years, the rankings have hardly changed, yet prove how many were sturdy enough to survive the financial crisis or bounce back from episodes of dwindling business opportunity or market volatility.  If the financial crisis was a momentary blow for Morgan Stanley or Bank of America, surely it must have forced black-owned firms to pare businesses and develop new strategies. Black Enterprises's list shows how some bounced back and even got better.

Among commercial banks. Harlem's Carver Federal Savings, led by long-time CEO Deborah Wright, is the no. 1 bank (with $744 million in assets).  Just like their larger peers, black banks had to wrestle with dwindling capital and credit losses from mortgage portfolios.  Many are now trying to boost their capital bases to keep regulators comfortable.  Citizens Bancshares in Atlanta, led by former JPMorgan Chase banker Jim Young, leads black banks with the most capital with $46 million.

Since the 1970s, blacks have regularly started their own investment banks and broker/dealers. Many started their careers as investment bankers or institutional traders at major investment banks. Once they gained a track record of success, relationships with dozens of clients, and the silent backing of major institutions, they opened their own firms.  Some took advantage of the goals of corporations and municipalities that with open minds opened up opportunities for minorities in finance by including them in syndicate underwritings and new bond and equity offerings.  Blaylock Partners and Utendahl Capital are two of many examples. Jackson Securities, founded in 1987 by former Atlanta mayor Maynard Jackson, attached itself to Jackson's relationships and reputation in the South to become a significant municipal firm in the South.  The firm struggled after Jackson's death in 2003 and is now owned by insurance company Atlanta Life.

Black Enterprise's 2011 list no longer includes Blaylock, Utendahl, Jackson and others, but there are familiar mainstays.  Chicago's Loop Capital and New York's Siebert Brandford Shank rank as the top black investment banks.  Loop Capital is well known for its relationships with leaders of the City of Chicago. That has led to consistent lead roles in Chicago municipal-bond deals.

Siebert Brandford was actually formed from a venture combining Muriel Siebert, the New York-based broker/dealer run by Muriel Siebert, well known in New York circles as a woman pioneer in the securities industry, and Brandford Shank, the black-owned West Coast investment bank.

Williams Capital Group and M.R. Beal are two other familiar black-owned firms in the top 5. They have survived and thrived in the past few years, despite industry turmoil and uncertainty.  Christopher Williams, an MBA graduate of Consortium school Dartmouth, founded his firm in 1994 after stints at Lehman Brothers and Jefferies.  Bernard Beal, a Stanford MBA graduate, founded his firm in 1988 after leaving what was then E.F.Hutton. Over the past two years, Beal has been able sweep up talent from large firms that downsized and import talent (of all colors and background) to help boost his firm.

The top black asset managers, just like the investment banks, include long-time firms, with leaders who first made their marks at major firms.  American Beacon Advisors is the top asset manager (with $44 billion under management).  Tracy Maitland's Advent Capital management ($6 billion) in New York climbed into the top 5 this year.  Maitland, a Columbia graduate, started his career in convertible bonds at Merrill Lynch in the 1980s and at one point worked with Utendahl.

The top 15 includes John Rogers' Ariel Investment (Chicago) and Eugene Profit's Profit Investment ($2 billion) (Maryland).  Rogers, based in Chicago, started his firm in 1983, shortly after he graduated from Princeton, where he also played basketball.  Profit, a Yale football player successful enough to have played in the NFL for the Patriots and Redskins, founded his firm in 1996.

Black Enterprise now also includes the top black-owned private-equity and venture-capital firms. Black firms in this segment are much smaller and have not yet established a long-term record as black investment banks have.  But there is progress.  Some are affiliates or extensions of the established investment banks (Williams Capital, for example, has a private-equity unit.)  Ronald Blaylock, who once led investment bank Blaylock Partners, now leads GenNx360 Capital ($600 million under management), a New York private-equity firm focusing on investments in medium-size companies.  Hartford's Fairview Capital is Black Enterprise's top private-equity firm ($3 billion). 

For black-owned firms, challenges still exist.  In many ways, they are the same challenges that larger, known firms confront:

(a) the need for more capital,
(b) the long wait for a sustained economic recovery,
(c) the hiring and holding onto top talent,
(d) the uncertainty over regulatory reform,
(e) the urgency to find, nurture and keep clients (as borrowers, investors, depositors, or issuers), and

(f) the requirement that operating costs are under control and compliance is in order

Black firms face special challenges, too.  They know they need to establish and maintain credibility, the continual, grinding effort to prove they can provide superior service, advice, trade execution, pricing, or research, compared to larger, peer firms, who are heartless, fierce competitors. In financial services, business is not necessarily handed to them.

They have the monumental task of proving to corporate clients and investors that it makes sense to move business from Jefferies, UBS, Morgan Stanley, Deutsche Bank, or Wells Fargo to their firms.  They must show officials from California or Illinois that they can help the state borrow at a lower rate than that offered by Goldman Sachs.  They must convince the budding trader or broker that career prospects (in the long term) are better at their firms than at JPMorgan Chase.  And they can't ease up.

Somehow they find a way to survive, get the big deals done, make a difference in communities, act as adviser to large corporations and municipalities and hire the right people in crucial roles (trading, risk management, lending, compliance, research, and brokerage). 

Among all black financial-service companies, Chicago's Seaway Bank is the leading employer (200 on staff).  Loop Capital, Carver Federal, Washington's Industrial Bank, and New Orleans' Liberty Bank each has over 120 employees.

Historically, black firms tend to try to go at it alone, unless dire survival is at stake.  Hence, seldom do they seek to grow or increase market share by combining or acquiring a peer firm.  The black banker who worked 10-15 years at Merrill Lynch, founded his own firm and struggled to keep it viable and profitable--while maintaining complete control of the firm and its strategic vision--usually doesn't want to give that up in a merger, even if the combined firm is twice the size.   


While it is discouraging to some that after decades, black firms are still a blip in the financial-services landscape, it's encouraging that many of the firms have been around for a long time.

Tracy Williams

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