In the two months after Hurricane Katrina, Liberty Bank and Trust Co. in New Orleans lost roughly $40 million of deposits, as customers left town and the steady flow of municipal deposits dried up.
But the bank's chief executive hopes it will regain the funds through a nationwide deposit-raising campaign it kicked off this week in partnership with a Community Reinvestment Act fund based in Boston.
The fund, Access Capital Strategies LLC, is marketing Liberty's certificates of deposit to other banks across the country with the goal of raising at least $40 million for Liberty in the next few months. Ron Homer, Access Capital's CEO, said a coalition of industrial loan companies in Utah has already pledged $4 million.
Access Capital is doing all of the marketing and outreach for Liberty, and City National Bank of New Jersey in Newark is processing the CDs. Banks that buy them will receive CRA credit.
"We found a way to create a new deposit base in a short period of time, since we need funds to lend to customers for rebuilding," Alden J. McDonald, Liberty's CEO, said in an interview Wednesday.
Liquidity is the huge concern for community banks in New Orleans these days. Many of their customers have been slow to return to the area or have moved out of town permanently - and taken their deposits with them. (The banks should receive of influx of deposits from insurance proceeds, but those deposits are only temporary, and the banks will need more stable funding to meet the expected loan demand.)
And with the tax base dwindling, banks cannot count on municipal deposits returning any time soon.
Other New Orleans banks are also aggressively soliciting deposits. The $111 million-asset Dryades Savings Bank is collecting hundreds of thousands of dollars of deposits from companies, foundations, and individuals from across the country. And the $668 million-asset First Bank and Trust is promoting in Louisiana its Katrina Recovery three-year CD, with a rate of 4.25%, and its Katrina Recovery Savings account, with a rate of 3.25%.
Liberty's CDs, called Katrina Investment Deposits, or KIDs, have terms from six months to one year. The rates range from 2% to 2.5%.
Mr. McDonald said that he already has commitments of $3 million to $4 million from banking companies that have personally contacted him, including Wachovia Corp.
Though the CDs are paying below-market rates, bankers are likely to find them attractive, because of the CRA component. For instance, Utah industrial loan companies often have trouble finding qualified investments in their home state, so representatives from the Federal Deposit Insurance Corp. recently met with executives there to encourage them to invest in the Gulf Coast region. It was at this meeting where Mr. Homer first presented Liberty's CDs.
The $360 million-asset Liberty is the largest black-owned bank in New Orleans. Six of its eight branches were completely flooded in the storm - and are still closed - and the bank's entire computer system was destroyed.
Mr. Homer said he first contacted Mr. McDonald a week after Katrina made landfall.
The two men, along with Raul Oseguera, a vice president at the $337 million-asset City National, have been friends for more than two decades. Each has served as the president of the National Banker's Association, the trade group for minority-owned banks.
"We wanted to do something for the bank and felt that because of the runoff of deposits and the liquidity issue, we would come up with a strategy to raise deposits," Mr. Homer said.
Mr. McDonald said Liberty would use the deposits to make loans to consumers to help them rebuild their homes, purchase new cars, and generally get their lives back together.
"People need money for everything," he said.
