African-American Banks: Eyes on the $1 Billion Prize

Racing to reach this deposit milestone is our industry's Holy Grail

James E. Young has a dream. He wants Atlanta's Citizens Trust Bank (CZBS ) to become the first black-owned bank with $1 billion in assets. Since 1997, Citizens' assets have more than doubled, to $276 million, making it the nation's third-largest African-American bank. At this pace, Young, the president and CEO, figures he'll reach the mountaintop by decade's end -- or sooner, with an acquisition or two. "We're serving some of the wealthiest black neighborhoods in the country," he says.

Citizens isn't the only black bank racing to hit the $1 billion mark. "It's our industry's Holy Grail," says Deborah C. Wright, president and CEO of New York's Carver Bancorp Inc. (CNY ) Carver, with $425 million in assets, was the largest black bank until it lost the title last year to Boston upstart OneUnited Bank, which boasts celebrity investors such as athlete Earvin "Magic" Johnson and entertainer Janet Jackson.

What's fueling the race is the rapidly rising wealth of African Americans. Their growing deposits at the country's 31 black banks are turning this once-sleepy niche into the fastest-growing segment of the industry, experts say. "Black banks are feeding off the growing buying power of blacks in every state," says Jeffrey M. Humphreys, an economist at the University of Georgia who has studied the trend.

In part, black banks are riding the wave of the rising popularity of small banks in general. Small businesses, especially, believe they get indifferent service at big banks. "Customers are always pleasantly surprised that they can talk directly to me, the president of the bank, when they have a complaint," says Young.

Still, black banks are pipsqueaks compared with money-center giants. Even leader OneUnited, has just $500 million in assets -- vs. Citigroup's (C ) $1.05 trillion. This limits the size of the loans they can make. Moreover, it's tough to raise capital. (Only Carver is listed.) They also find it hard to keep newly affluent customers. Partly that's because many banks lack services such as trust management, forcing customers to go to bigger rivals. But there's also a perception problem. "Even blacks think that, because we're a minority bank, we don't have high-end services," says Young. "But it's not true."

Confronting these issues is a new breed of black bankers trained at big institutions. Carver's Wright, for example, worked at the old First Boston for a decade. They're turning black banking on its head -- slashing bloated staffs, boosting spending on marketing and on long-overdue services such as ATMs and credit cards, and even lending to major companies. The changes are boosting earnings at banks that were once only marginally profitable. The new bankers also have big-league ambitions to grow by devouring weaker rivals. "The same forces driving the industry as a whole are driving black banks," says Kevin Cohee, OneUnited's chairman. "You either evolve or you die."

Cohee is leading the merger pack. He leapfrogged over Carver when he bought Family Savings Bank in Los Angeles, 3,000 miles from his Boston base. He wants to build OneUnited into the first national black bank some day. "We'll be the first to hit the $1 billion mark, probably before the end of 2004," he promises. For the first time, that's not an idle boast for a black bank.

By Charles Haddad in Atlanta

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