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Showing posts with the label Douglass National Bank of Kansas City

Expect other small banks to fail

From Alumni Connections, No. 44 - March 2008. Alumni Connections is a sampling of alumni news gleaned from media online and in print, including news submitted to Chicago GSB Magazine.

"William Michael Cunningham, Social Investing Advisor of Creative Investment Research, linked the failure of African-American-owned Douglass National Bank to the global mortgage crisis, according to a January 28 article in U.S. News & World Report. The bank, which originated in the 1940s, lost $1.3 million in 2007 and $4.3 million in 2006, the article said. Bad commercial real estate loans, not residential mortgage loans, led to recent losses, the article said. “It’s this secondary and tertiary impact of the crisis in the subprime market that’s beginning to impact smaller institutions mainly through [the slowdown in] consumer spending,” Cunningham told the magazine. He said he expects other small banks to fail, as a faltering economy inhibits borrowers’ ability to repay loans. Douglass is the fo…

The First Bank Failure of 2008

From US News and World Report:

Bad commercial real estate loans sink a small financial institution in Kansas City
By Luke Mullins
Posted January 28, 2008

A tiny bank in Kansas City, Mo., has become the first bank in the country to fail this year—but it's unlikely to be the last.

Federal regulators on Friday shuttered Douglass National Bank, an African-American-owned bank with $59 million in assets that was named in honor of the 19th-century abolitionist Frederick Douglass. The bank, which has roots stretching back to the 1940s, had struggled of late, losing $1.3 million in 2007 and $4.3 million in 2006.

Although its recent losses were tied to bad commercial real estate loans, not residential mortgages, the bank's problems are nonetheless linked to the global mortgage crisis that has ripped through the financial services industry, says William Michael Cunningham of Creative Investment Research. "It's this secondary and tertiary impact of the crisis in the subprime market tha…

Douglass National Bank fails

According to the Kansas City Star, "Douglass National Bank, the Kansas City area’s only black-owned bank, failed Friday under the weight of mounting loan problems. It will reopen Monday as part of a Louisiana bank.

The bank’s failure is the first in the nation this year and the first in the area since Superior National Bank failed in April 1994.

Douglass’ two Kansas City, Kan., offices and one in Kansas City will reopen as branches of Liberty Bank and Trust Co. of New Orleans.

Liberty is a profitable $327 million bank with 14 branches in Louisiana, Mississippi and Texas."

Douglass National Bank reports $1.3 million dollar loss

According to the Kansas City Business Journal, "Troubled Douglass National Bank lost $1.3 million in 2007, the Kansas City-based bank reported in its latest filing with federal regulators."

As we noted yesterday (1/24/08) in an article by Marissa Fajt in the American Banker Newspaper ("Prospects Said to Be Dim for Struggling K.C. Bank")

"The bank had a deal to sell itself, but it fell through in October, and William Michael Cunningham, social investing adviser with Creative Investment Research Inc. in Washington, said he has been wondering since then if Douglass could survive on its own.

'Given the trouble they have been in and the problems they have — lack of income, a buyer backing out, and real estate issues — it just wouldn't surprise me if they had reached the tipping point..Douglass is likely to have trouble meeting its capital needs, because there are not many investors or investment funds looking to put money into a small minority bank.."

Mortgage GSE's, Predatory Lending and Minority Banks

The Washington Post reported yesterday that "government-chartered mortgage funding companies Fannie Mae and Freddie Mac .. shares rose on speculation that regulators may relax restrictions on their investments to allow them to pick up slack in the troubled market for home loans." We believe equity markets will trend to the downside until the end of 2007, but believe an increase in lending limits will be good, over the long run, for both mortgage and stock markets.

We believe troubles at Fannie and Freddie allowed predatory lenders to enter the mortgage market in full force. While there is no question that Fannie and Freddie were hurt by their own fraudulent practices, large and small predatory lenders, using groups like FM Policy Focus as a shield and a proxy, were able to obtain a greater share of the profits being generated by an overheated home mortgage market. Significant profit increases depended, however, on an ability to engage in predatory practices. Given distraction…