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Black-owned financial institutions are going on the offensive. Instead of waiting for monolithic megabanks to invade their territory, these banks have developed an arsenal of innovative strategies, ranging from developing investment vehicles to bolstering their infrastructure to pursuing corporate accounts and high-net-worth individuals. The recent activity of New Orleans-based Liberty Bank and Trust Co. (No. 8 on the be banks list with $178 million in assets and $155 million in deposits) is indicative of this new trend: last year, the institution unveiled a homegrown mutual fund and a move into the insurance business.
Despite the challenges, black-owned institutions continue to grow. Assets for be banks rose from $3.57 billion in 1997 to $3.92 billion in 1998, an increase of 9.85%, while deposits grew from $2.98 billion in 1997 to $3.14 billion in 1998, an increase of 5.32%.
In the banking industry, the name of the game is convergence — cross-selling an array of financial products under one roof. It has been driven primarily by money-center institutions that have formed even larger financial behemoths. To increase market share, institutions like Citigroup (formed from the 1998 marriage of Citicorp and Travelers Group Inc.) and Bank of America (the product of the union of NationsBank Corp. and BankAmerica Corp.) have bombarded consumers with ads, product offerings and promotions. Moreover, new competitors, from Wall Street firms to "subprime" mortgage lenders, have appeared on the scene and aggressively wooed borrowers with promises of higher returns and better deals.
"Competition is particularly challenging these days," says Fritz Elmendorf, vice president of communications at the Consumer Bankers Association in Arlington, Virginia. "Under the Community Reinvestment Act (CRA), many large banks are actively moving into areas that once were the domain of minority banks. Customers are able to shop for the best terms, and minority banks are increasingly feeling threatened."Fortunately, the national economy remains strong and small banks in general are faring well. Ignacio Urrabazo Jr., CEO of IBC-Commerce Bank in Laredo, Texas, and chairman of the National Bankers Association, a Washington, D.C.-based trade group of minority- and women-owned banks, reports that member banks have enjoyed solid improvements in return on assets and return on equity in recent years. "Only a few members reported losses, while most benefited from the strong national economy," he says.
Indeed, an informal phone survey by black enterprise found that many black banks are sharpening their competitive edge by expanding into new areas, like large institutions, yet retaining the "personal touch" of community banks. For instance, Liberty Bank and Trust continues to press ahead with its audacious plan to offer a variety of financial services. Last July, it launched a mutual fund, the Liberty Freedom Fund, that was targeted at, among other prospective investors, individual customers as well as the Association’s member banks. What made the product introduction unique is that it represented a rare example of an African American bank teaming up with a black money management firm. Liberty serves as the manager while Edgar Lomax