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TARP millions open new doors for L.A.’s Black bank

By BETTY PLEASANT, Contributing Editor

Story Published: Mar 4, 2009 at 10:10 PM

As the nation's financial institutions began plunging into the abyss last fall, the federal government pledged more than $200 billion to pull banks out of the vortex of certain doom. Because of the federal Troubled Asset Relief Program (TARP), financial help to banks running out of money has arrived in South Los Angeles.

Broadway Federal Bank - the Southland's only Los Angeles-based African American-owned and operated bank - is one of 13 Los Angeles County-chartered banks that has received a little more than $1.2 billion from the government's financial rescue plan since November 2008.

Just in time for the holiday season, Broadway Federal received $9 million in TARP funds, and Paul Hudson, chairman and CEO, is breathing a sigh of relief that is resonating through the community's credit-worthy home and business owners.

Granted, the $1.2 billion received by county banks is just a fraction of the $200 billion distributed nationwide so far, but half of the total TARP funds went to the country's nine largest banks and none of them are based in Los Angeles. The largest local institution, Beverly Hills-based City National Corp., received $400 million. The Black-owned OneUnited Bank, with which many people in the community are familiar, received $12 million in TARP funds, but that bank is based in Boston and its TARP activity is recorded and tracked in the commonwealth of Massachusetts.

Hudson, whose bank has been a bulwark in Black Los Angeles for more than 60 years, is delighted with what he got. "It's a very good thing," Hudson said of the TARP funds. "It provides us capital and allows the community access to loans they needed and which we feared we could not provide. And that's a very big thing - to be able to lend money in our community.

"This TARP loan - and it is a government loan, make no mistake about that - gives us the capital to continue to make loans to the community just as we have been doing all these years," Hudson added.

Hudson, whose grandfather, the iconic Dr. H. Claude Hudson, was one of the founders of the bank in 1946, explained that Broadway Federal, with its five South L.A. branches, "had pretty much maxed out how big we could get depending on the money we could lend. And then Obama and Congress began addressing the need to expand lending by banks and that concept was consistent with what Broadway wanted to do," Hudson said. "So we applied for the funds, were notified of our approval and shortly thereafter, the $9 million was wired into our account."

Hudson said the $9 million in TARP funds allows his bank to generate $90 million in new loans. (Actually, my research shows that Broadway can generate a bit more than $90 million in loans since its total risk-based capital ratio is 11. The ratio measures total capital to total assets while adjusting for varying loan risks. A bank is considered well capitalized if its ratio is 10 or higher.)

Consumers and financial officials are now attacking TARP-funded banks, accusing them of hoarding the money and not deploying it to the community in the form of loans, as intended.

"That's not us," Hudson said. "It has always been our intent to lend the money. The only reason we applied for it was because we wanted to continue to lend. I don't spend TARP money on trips or acquiring other banks.

"I don't use the TARP money to pay our monthly bills. I use the interest from the loans we make to pay our monthly bills," Hudson said. "And the loans must be made in the usual way, as there is no relaxation in the requirement of borrowers' credit worthiness. We must continue to lend money to people and to entities that are able to pay us back. We now have the money to conduct business as usual."

Hudson wants to disabuse the public of a prevalent misconception about the TARP money. "This is not free money. It's nothing close to a grant. It is a government loan which we must be repay with 5 percent interest. Because we've accepted this $9 million, the government has ended up owning 10 percent of our company, if the government chooses to exercise its stock warrants," Hudson said.