Treasury offers minority-owned banks lifeline, and JPMorgan pitches in
A pair of black-owned banks has found a high-profile mentor to smooth its entry into a low-key but lucrative government program.
As part of the Treasury Department's Financial Agent Mentor-Protégé program, JPMorgan Chase is providing guidance to Harbor Bank of Maryland in Baltimore and Liberty Bank & Trust in New Orleans. The move should allow the $290 million-asset Harbor and the $601 million-asset Liberty to provide the agency with financial services.
The Treasury Department has relied on selected banks, typically money-center institutions, as agents since the 1860s. Financial agents process transactions that support government activities such as collecting taxes and passport payments and offering stored-value cards to overseas members of the military. The institutions are paid based on the volume of transactions handled.
The mentorship element is another way the government is reaching out to minority-owned or -operated banks. The number of minority banks has declined by nearly a third since the financial crisis, to 149 at the end of last year, according to data from the Federal Deposit Insurance Corp.
“The Treasury has expressed a commitment to inclusion by encouraging more business with women and minority banks,” said Eva Robinson, head of treasury services public sector sales at JPMorgan Chase. She said the idea is that Harbor and Liberty could eventually support JPMorgan, possibly as subcontractors.
"We understand that Treasury has a vested interest that at the end of the program, when these protégé banks graduate — which won’t be overnight — they will be a banking source that Treasury can tap into," Robinson added.
For Liberty and Harbor, winning even a small slice of the financial agent pie could have an outsize bottom-line impact. Treasury payments to financial agents are expected to total $830 million in the current fiscal year, or 31% more than what they were five years earlier.
Harbor earned $435,000 last year. Liberty, the nation's most profitable black-owned bank, with 2018 net income of $4.8 million, reported a return on assets of 0.84% — well below the banking industry’s 1.35% average.
Overall, the nation’s 21 black-owned banks generated a return on assets of just 0.10% in the first quarter, according to the FDIC. Total assets at black-owned banks have fallen by 23.3% since the financial crisis, to $5.2 billion.
The opportunity to generate substantial fee income “encouraged Harbor to participate,” said Joseph Haskins, Harbor's chairman and CEO. “Involvement with Treasury transactions previously not available to Minority Development Institutions should achieve that goal.”
Efforts to reach Liberty were unsuccessful.
JPMorgan Chase, which has worked hard in recent years to raise its profile in the black community, is hoping the partnerships extend beyond the financial agent program. The $2.6 trillion-asset company is offering both banks wide access to its systems and decision-makers.
“What we’ve committed to Harbor and Liberty is to be a good mentor by offering them access to JPMorgan, whether it be our new the wholesale payments organization, the retail side, corporate responsibility, philanthropy or a specialized area," Robinson said. "Depending upon where their interests are in terms of growth or expansion and where we feel we have something of value to provide, we want to connect them to the right experts across the firm.”
JPMorgan Chase, moreover, expects benefits to flow both ways. The nation's biggest bank can learn a lot from Liberty and Harbor about serving low-income communities, Robinson said.
"We fully expect we're going to learn from them just as they’re going to be learning from us," she said.
"We believe we can add value, especially in matters regarding investments in urban communities and more challenged environments," Haskins said.
Such mentorship arrangements are relatively common in the defense industry — the Department of Defense established the first collaborative program in the early 1990s — but not in financial services.
“I'm not aware of similar mentor-protégé programs in the banking industry,” Haskins said.
More can be done, said some industry observers.
While the Treasury has been looking to forge more partnerships, it is unclear how many relationships the agency has been able to organize. A spokesman for the department declined to comment.
“We’re women-owned and we’ve been looking for a mentor for eight years,” said Ivan Feinseth, chief investment officer and director of research at Tigress Financial Partners, who likened the search for a mentor to hunting unicorns.
“We hear they exist," Feinseth said. "They get a lot of press, but we haven’t been able to capture one.”
Rob Nichols, president and CEO of the American Bankers Association, said he hopes to see more partnerships along the lines of JPMorgan Chase’s mentorship arrangements.
“These types of partnerships speak to the collaborative nature of our industry, particularly when it comes to creating positive change in the communities they serve,” Nichols said in a statement. “Smaller institutions benefit from the breadth of expertise and resources, and mentors value the opportunity to establish long-term business relationships with trusted partners.”