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Three Black-Owned Banks Tapped By Citigroup to Take Part in Rare $1.2 Billion Loan Offering

By Paula Seligson

Three Black-owned US banks have bought a piece of a $1.23 billion syndicated corporate loan, a rare move in a market typically dominated by bigger Wall Street and regional lenders.  

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Industrial Bank, First Independence Bank, and Mechanics and Farmers Bank joined the group of lenders to Science Applications International Corp., a provider of IT and other services largely to the government. Together they committed to lend about $10.5 million, or just under 1% of the total, according to a June 30 filing.  

They were enlisted by Citigroup Inc. as part of its initiative to connect minority-owned banks to business opportunities that may otherwise be too big for them. While their contributions to the loan are a small portion of the total, the transaction sizes are relatively large compared with their total assets, Federal Deposit Insurance Corporation data show.  

In the aftermath of protests over George Floyd’s death at the hands of police, big banks vowed to do more to address racial and economic inequality. Since then, Citigroup and its rivals have poured an estimated $300 million in equity commitments into Black-owned banks and other minority-owned financial firms, which work in communities that might be underserved by other institutions. 

Wall Street firms’ efforts have reached the business of selling corporate debt, where big banks are increasingly tapping institutions owned by minorities, women and veterans to help underwrite bond sales, among other transactions.

“Our goal really is to open up the aperture as wide as we can and expose the banks to a wide variety of products and services,” said Harold Butler, who runs Citi’s diverse financial institutions group, which connected the three banks with SAIC. That gives the banks, “more horsepower in order to be able to make loans, to help create jobs and to do other things that are important to the growth and vitality to the communities they serve.” 

Corporate loans like the ones SAIC got are key for banks looking to build relationships with companies to win additional business. Such loans are also considered relatively safe as they sit high up in a company’s debt stack, meaning they’re among the first in line to get repaid.

“For our banks to have long-term sustainability, we need to look at lending to areas we’d normally not had the reach or relationship,” said Kenneth Kelly, chief executive officer of Detroit-based First Independence Bank. Minority-owned banks typically need more diversification because they focus on lending in low- and moderate-income communities, often hardest hit in recessions, he said.

Participating in a large corporate loan also gives the banks exposure, said Pete Williams, senior vice president at M&F Bank, which is based in Durham, North Carolina.

“We don’t have the luxury that some large banks have where they have various lines of business where they generate income,” he said. “We make most of our money off of interest income on loans, so that was one of the big motivators for us.” 

Citi has also brought minority-owned institutions into affordable multifamily rental housing loans, and created a mentoring program. 

Boosting Diversity

“As a result, we can do more in our own local communities,” said B. Doyle Mitchell, Jr., CEO of Washington, D.C.-based Industrial Bank.

For its part, SAIC wanted to refinance and increase the size of its existing bank loans earlier this year, said Shane Canestra, the company’s vice president of corporate communications. Citi, the lead bank on the transaction, suggested adding the three Black-owned lenders. 

There were a total of 21 banks on the syndicated term loan, which pays interest in the range of 0.75 to 1.75 percentage point, plus 0.1 percentage point, over the Secured Overnight Financing Rate, depending on the borrower’s leverage level, according to the filing.

SAIC has already been focused on supporting diversity and inclusion throughout the business, said Canestra. The opportunity was a “tremendous way for our financial organization to further our progress,” with its diversity and inclusion efforts, he said. 

More stories like this are available on bloomberg.com

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