Three Black-owned U.S. 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.
They were enlisted by Citigroup as part of its
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
Wall Street firms’ efforts have reached the business of selling corporate debt, where big banks are
“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
Boosting diversity
“As a result, we can do more in our own local communities,” said B. Doyle Mitchell Jr., CEO of the 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.
— With assistance from Jenny Surane.
