Carver Bancorp, Inc (CARV)

[56Chevy]

Shareholders OK Carver's rescue by Wall St. banks

Largest black-run bank in U.S., overwhelmed by soured real estate loans, gets a $55 million cash rescue from Citigroup, Goldman, Morgan Stanley and other key investors.
By Aaron Elstein @InTheMkts

October 25, 2011 2:19 p.m.

Carver Bancorp's shareholders confronted a painful choice on Tuesday. They could vote to cede control of the Harlem-based institution to a consortium of Wall Street firms and the U.S. government in return for $55 million of cash to rescue their ailing bank. Turning the money down would likely have doomed Carver Federal Savings, the nation's largest bank founded and run by African Americans.

In the end, the shareholders voted to approve the rescue package—but not without first voicing considerable anguish over the options they faced. “This represents a significant shift from community ownership to corporate,” said an investor who identified herself as Wimberly Edwards. “What's our future with all the outsiders whose interests may be different from ours?”

Carver Bancorp CEO Deborah Wright tried to assure the audience at Harlem's Studio Museum that Goldman Sachs Group Inc., Morgan Stanley, Citigroup and the other new owners are “keenly attuned to our mission” and “wouldn't have stepped up” if they didn't think Carver was worth preserving.

“I understand the optics,” Ms. Wright said in an interview after the shareholder meeting. “But there was no alternative. The amount of capital we needed wasn't available locally.”

Carver's clients, who generally live and work in the city's poorer precincts, have been hit especially hard by the recession. The bank posted a $40 million loss last year, more than wiping out the prior decade's worth of profits, as seriously delinquent real-estate related loans soared to about $120 million—well in excess of Carver's $23 million set aside in reserves.

In February, federal regulators ordered the bank to raise additional capital. Ms. Wright, a former Giuliani administration housing official who sits on such powerful boards as the Partnership for New York City and Time Warner, began searching far and wide for money.

In June, she announced she'd been able to raise $55 million, mainly from the city's biggest banks, while the U.S. government agreed to convert into common stock a preferred stake it got upon bailing out Carver two years ago during the financial crisis.

But tempering that good news was the fact that the price of salvation was terribly steep for Carver's stockholders, many of whom are longtime customers of the bank. Under the terms approved at Tuesday's meeting, the Wall Street banks will hold 73% of Carver's shares, the U.S. government 25%, with the rest going to Carver's existing stockholders. The new owners didn't demand any changes to Carver's board and allowed Ms. Wright to remain in the CEO post she has held since 1999.

Ms. Wright said her goal now is to repair her bank, get it growing and diversify beyond its traditional real estate lending to serve more small businesses. The bank is looking to buy loans from other institutions to bolster the quality of its loan portfolio and launching new initiatives to attract consumers who lack bank accounts. She added that she wants to buy out the government's stake as soon as Carver can afford do so.

The shareholder meeting ended with an official from the firm that counted the votes making a lengthy announcement that a majority had in fact been cast in favor of the $55 million rescue package, including one provision that required a two-thirds supermajority. After the official completed his formal remarks, Ms. Wright, allowing for a bit of levity, cracked: “I think he said we won.”

There was a short round of applause, and the crowd quickly dispersed.

http://www.crainsnewyork.com/article/20111025/FINANCE/111029933#

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