Tilting the Balance of Black Bank

Sang Brown is a 78-year-old African American who still lives in the South-Central Los Angeles house he purchased half a century ago and still banks at the same black-owned bank that loaned him the money: Broadway Federal Savings.

Brown is not a man who likes change, but change is all around him. His neighborhood, once almost exclusively black, now has a majority of Latinos--and so does his Broadway Federal branch on 45th Street.

The branch manager is from the Dominican Republic. The woman in charge of new accounts is from Belize. Immigrants from El Salvador, Mexico and Guatemala work alongside African Americans. Loan officers visit Latino churches on weekend to seek new customers.

Broadway Federal is quietly doing something that once would have been unthinkable for a prominent black-owned institution: It’s growing outside the race.

Latinos now make up a quarter of Broadway Federal’s 56 employees and manage three of the bank’s five branches. The bank’s corporate board includes a Latino and an Asian American. Two years ago, the bank went public, selling large portions of the company to East Coast financial institutions.

These moves constitute a revolutionary change for an organization that got its start helping African Americans battle the stranglehold of segregation. They illustrate how institutions must continually evolve to survive in multicultural Los Angeles.

“There are a lot of folks who still believe that there is a black market, and you can make it only in a black market,” said Broadway Federal President and CEO Paul C. Hudson, the grandson of civil rights leader H. Claude Hudson, who founded the bank 51 years ago.

“Today,” says the younger Hudson, sounding like a rhythm and blues record company executive, “you have to have crossover appeal.”

That’s fine with Brown. “In a few years this neighborhood is going to be just about all Spanish. That’s OK. I’m not going anywhere. We have to live together and work together.”

Since going public, Broadway Federal--the oldest black-owned thrift west of the Mississippi--has moved its corporate headquarters from South-Central to Wilshire Boulevard in the Mid-Wilshire district and added two branches.

The majority of the bank’s loans last year--58%--were still made to blacks; 12% were made to Latinos and 14% to Asians. But loans to Latinos are increasing sharply. Last year, the dollar value represented 7% of the bank’s loans, more than double the 1996 figure of 2.8%.

The effort to broaden the bank’s base beyond the black community, orchestrated primarily by CEO Hudson, is crucial in a city in which blacks--only 12% of the population--will soon be outnumbered more than 4 to 1 by Latinos and will also be passed by Asian Americans.

“We think we have protected niches, but that is not true,” Hudson said.

John Bryant, a black businessman who heads Operation Hope, which helps inner-city Los Angeles businesses obtain loans from major financial institutions, said Broadway Federal’s strategy reflects a maturing of black capitalism.

“There was a time we needed to protest and march, there was a time for black power--now it is economic power,” he said.

An Institution to Serve Blacks

Few men better represented that earlier era in African American history than Broadway Federal founder H. Claude Hudson.

Hudson, who participated in the founding of the NAACP early in the century, decided after World War II to create a financial institution to serve Los Angeles’ massive influx of blacks, who were often denied loans and prevented from buying homes in white areas by deed restrictions.

For decades, the bank remained tightly under the control of the Hudson family. The Hudsons were almost a royal family of black Los Angeles. Paul Hudson’s maternal grandfather was the noted architect Paul R. Williams, whose designs included the Beverly Hills Hotel and Los Angeles International Airport’s theme building.

H. Claude Hudson, who died in 1989 at age 102, was succeeded by his son, Elbert, who is now chairman of the board, and then by grandson Paul. Son and grandson have both served as president of the Los Angeles branch of the National Assn. for the Advancement of Colored People.

With assets of only $128 million, the bank is minuscule compared to behemoths like City National, the largest publicly traded commercial bank headquartered in Southern California, which has 40 times the assets. (As a thrift, Broadway Federal operates like a bank but invests more in housing loans than commercial projects.)

Paul Hudson, who took the helm of the bank shortly before the 1992 riots, envisions “a statewide customer base in underserved markets.”

He has plenty of territory to work with. Drive through any urban core and you can see evidence that most major banks have fled. The old branch buildings remain, but they have been converted into laundries, liquor stores, drug rehab clinics and community centers, leaving many people to do their banking at check cashing outlets.

The Broadway Federal branch at 45th Street and Broadway is a source of community pride and a testament to blind rage: It is located in a trailer, across the street from where the bank’s original branch stood until it was destroyed during the 1992 riots.

Shortly after that branch opened in 1947, Brown borrowed $6,500 to purchase a nearby two-bedroom house. Ask him why he still banks at Broadway Federal and he gives you a two-part answer.

“After the [‘92] riots and their building was burned down, they stayed,” said the old man, glancing at the trailer and then across the street at the fenced-in, empty hole where mobs of blacks and Latinos destroyed the bank’s headquarters. “Since they didn’t abandon us, I wasn’t going to abandon them.”

The second reason takes a little more time. Brown leans against his car.

“Someone like me coming from a place like Mississippi,” he said, “I wanted to support a black-owned business.”

He was 21 when he left Vicksburg. His mother packed him a bag of chicken sandwiches for the long train ride because black people weren’t allowed to eat in the dining car. He found a job in a day, but it took years to find a decent place to live; blacks were walled in by segregation and banks were picky about lending.

Segregation gave blacks a more intense appreciation of having institutions to call their own--not just banks, but newspapers, hospitals, schools, funeral parlors and insurance companies. Black ownership meant black jobs, from the security guard to the manager.

“I used to see the old man who started the bank right here,” Brown said with pride.

H. Claude Hudson--the son of slaves who became a bricklayer, a dentist and a lawyer before starting Broadway Federal--might be irked by the changes taking place at his bank.

“My grandfather would lament the fact that we don’t know every customer the way we used to and business isn’t done on a handshake the way it once was,” Paul Hudson said. “There isn’t the same cohesion in the community. We are bigger and we deal in a broader market.”

One of the techniques Broadway Federal uses in catering to a growing Latino base is to continue a strategy that H. Claude Hudson employed--forging strong relations with churches, attending on Sundays to gain greater visibility and attract more business.

Employees are assigned to visit black and Latino churches and to make home visits to help customers fill out loan papers. The outreach is crucial because some branches are in blighted areas with few or no other commercial outlets.

“If the customer cannot come to us, we will go to them,” said Hector Vanegas, loan officer of the 45th Street branch. “It doesn’t matter what area or time of day.”

The result is customers like Samuel Martinez, a 29-year-old cargo operator who borrowed from Broadway Federal to buy a $72,000 house in Lakewood and said the bank made him feel like a member of the family.

“They knew my name, they knew my wife and children’s names. They visited my sister-in-law’s house and gave her a loan,” he said.

Martinez said he had been turned down by other banks because he had an insufficient credit history.

“You get caught in a trap,” he said as he walked into the 45th Street branch with two daughters. “You can’t get credit unless you have it. They were willing to take a chance with me.”

‘A Bank of Last Resort’

Paul Hudson compares his mission to other banks that got their start as ethnic-based institutions, such as Bank of America, founded at the turn of the century in a San Francisco tavern by an Italian immigrant to serve “the little fellows.”

“We have always been a bank of last resort for people,” he said.

But some admirers of the bank are concerned that its decision to open ownership to the public through stock could threaten the Hudson family’s control of the historic institution.

When Broadway Federal decided to go public by selling nearly 900,000 shares at $10 per share, it created an infusion of $9 million that allowed it to add two branches--the new headquarters on Wilshire and a satellite branch on Slauson Avenue in South-Central inside the lobby of a check-cashing outlet.

But the public offering also created the possibility that “someone from outside would buy us out,” Hudson acknowledged. “Overnight, it could go from black Broadway Federal to another Beverly Hills bank.”

One banking analyst, speaking on the condition of anonymity, said the bank is a potential target for a takeover because its inefficient management hides the potential for greater earnings. In terms of profitability, Broadway Federal ranks in the bottom 25% among institutions its size, she said.

Hudson acknowledged that the bank could benefit from strategic cuts including branch closings, but said he puts a higher premium on community service.

The family and its allies now own only 11% of the bank. Hudson takes some solace from the fact that the board of directors is still largely African American, and vows to “fight to hold on” if a takeover bid materialized.

The bank’s plans call for opening a branch in Watts. Another branch will soon open at Figueroa Street and Martin Luther King Jr. Boulevard, taking the place of the trailer on 45th Street.

Hudson has been publicly criticized for not hiring a black contractor to build the Figueroa branch, where 5,000 of the bank’s 12,000 accounts will be held.

“It’s been a very sensitive issue,” Hudson said. “We made a real good-faith effort to get a black contractor and were not able to.”

Redefining the Nature of Banking

When Federal Reserve Board Chairman Alan Greenspan toured South-Central Los Angeles recently, he told bankers and community activists that inner-city economic ills would be cured by capital investment that would spur lasting development--not by government aid.

To Hudson, that means redefining the nature of banking in poor communities. He envisions a wide variety of down-to-earth services in Broadway Federal branches. “Wiring money, passport photos, computer rentals, copy machines, you name it. If my community says they want chips and dip, then I’m going to figure out a way to put chips and dip in the lobby.”

Clyde Oden, CEO of Watts Health Systems and chairman of the board of black-owned Family Savings, said the bank is avoiding mistakes made by black-owned institutions that died out. For example, black hospitals thrived during segregation, but largely went out of business not long after laws were passed outlawing discrimination.

Gregory Rodriguez, a research fellow at Pepperdine University who has written extensively about relations between blacks and Latinos, said Broadway Federal’s policy changes typify how good human relations decisions sometimes grow out of market pressures.

“The primary level here is self-interest and this is purely an economic reason,” he said.

Dan Medina, the only Latino member of the board, prefers to explain the Latino outreach in terms of community service.

“Many new customers in South-Central tend to be first-time bankers. We need to draw them in and show them the benefits that a small bank has over larger institutions,” said Medina, who grew up in Monterey Park, holds an MBA from Harvard and is a vice president of acquisitions at Avco Financial Services in Costa Mesa.

Muhammad A. Nassardeen, the head of Recycling Black Dollars, which has sponsored an annual drive to get blacks to transfer accounts to African American-owned banks, says Broadway Federal’s legacy demands that it serve the emerging Latino population.

Latinos “are part of our community,” he said. “We are trying to break down cultural barriers.”