Arco to Invest $1 Million in Minority-Owned Bank : Capital: The infusion of funds is expected to increase lender’s ability to make loans in South-Central L.A.
Founders National Bank of Los Angeles, California’s only African-American-owned bank, said Wednesday that Arco will invest $1 million in the institution, significantly increasing its ability to make loans in capital-starved South-Central Los Angeles.
Arco also offered to put as much as $1 million more into Founders through a “challenge investment” program whereby the huge Los Angeles-based oil and gas company will match dollar for dollar new capital infusions in the bank by other corporations through the end of 1993.
If the challenge investment is met, $3 million in new capital would be pumped into Founders. Since federal capital rules allow the bank to leverage their lending based on capital, Arco’s stock investment could translate into $45 million in new loans by Founders--more than doubling the bank’s current portfolio. The bank presently has 312 loans outstanding, totaling $32 million.
“Arco’s investment allows us to leverage our lending capacity by $15 for every dollar invested” under federal banking guidelines, Carlton Jenkins, Founders’ managing director, said during a news conference at the bank’s headquarters on Martin Luther King Jr. Boulevard.
Moreover, Jenkins said Arco’s action has ramifications well beyond this investment.
“Arco’s investment signals an end to the myth that the inner city represents an inordinate and unacceptable level of financial risk that has kept corporate America from investing in these communities,” said Jenkins, who attended Washington High School in South-Central before going to Dartmouth College.
“Corporate America has never been there before for minority-owned banks. Maybe this will cause other corporate officials to look at this kind of investment. I’m excited for the other 40 minority-owned banks around the country.”
Jenkins said the increased capital will enable Founders to make more loans to small businesses and entrepreneurs in areas affected by the spring riots. “One cannot seriously speak to rebuilding the inner cities of America without some genuine focus on building the financial infrastructure of these communities,” he said. “Arco recognized this and addressed it.”
Camron Cooper, Arco’s senior vice president and treasurer, said she and other Arco officials had worked on the “unique” deal with Jenkins for the past two months. The initial investment will be in the form of preferred stock.
“We see this as a sound business decision,” she said. “Arco evaluated the overall financial integrity of the bank, the expertise of its management and its success potential relative to the communities it serves and we serve,” Cooper said.
“The greatest risk at this time in Los Angeles would be for Arco and the rest of the corporate community to pass this opportunity by. Founders can be a critically strong force for good and for growth in the communities it serves. Its success is vital for South-Central and the entire city.”
The company has taken other steps to help the South-Central neighborhood since the riots last spring. In early May, Arco donated $1 million to United Way and other agencies and churches for emergency aid. The company also committed to rebuild all 48 of its riot-damaged gas stations and to use minority contractors in the effort. Additionally, community groups have praised the Arco Foundation for grants it has made before and after the riots that were designed to spur long-term change in the city’s minority communities.
City Councilman Mark Ridley-Thomas and numerous black business leaders hailed Arco’s latest investment. “This is the kind of partnership that is needed,” he said.
Bruce Gamble, president of the National Bankers Assn., a Washington, D.C., trade group for minority banks, said he thought Arco’s investment was “very significant in that it could encourage other investments of that type.”
That sentiment was echoed by Lemuel L. Daniels, associate director of Bear Stearns & Co., the investment banking firm. “There has been difficulty getting Wall Street, pension funds and other entities to pay attention to the opportunities that exist in minority areas. I think Arco . . . sent out a challenge to the rest of corporate America.”
Rena M. Wheaton, a corporate lawyer who is the staff director for Rebuild L.A.’s finance task force, said Rebuild L.A. would be working with Founders in seeking other corporate investment to meet that Arco challenge. She expressed confidence that the money could be raised.
Arco’s action also was hailed by Gilda Haas, the organizer of Communities for Accountable Reinvestment, a Los Angeles group that has criticized many of the large banks for failing to locate more branches or make sufficient investments in neglected communities.
She noted that at the time the city erupted last April 29, there were only 19 branches in South-Central Los Angeles but 133 check-cashing outlets, many of which charge high fees for their services.
“Lots of banks have voted with their feet not to participate in the inner city,” Haas said. “We think this (Arco’s investment) is really a good way to go. I’m particularly interested that Arco, which is not a bank, knows how to do community reinvestment better than some of the banks.”
For Jenkins, who said he was close to tears of joy, Wednesday’s announcement clearly was an emotional one. It culminated months of efforts to expand the capacity of Founders, a very small bank launched 22 months ago with capital from his grandfather, Leon T. Garr, the bank’s chairman. Founders, which also has branches in Compton and Gardena, is 78.5% minority-owned.
In the bank’s first year of operation, completed last Dec. 31, Founders earned $1.2 million. For the 10 months ended Oct. 31, Founders also earned $1.2 million. It has total assets of $69.8 million.
Since the riots, Founders and the city’s two African-American-owned savings and loans--Broadway Federal Savings & Loan and Family Savings Bank--have been seeking equity investment from larger, white-owned financial institutions.
Jenkins said that he has been negotiating with Bank of America about acquiring two shuttered B of A branches and discussing the possibility of B of A providing some of the capital for the purchase. A B of A spokesman confirmed the discussions.
