Tag Archives: ajo partners

Spelman College & Regions Bank – A Failure To Disclose

In your area of responsibility, if you do not control events, you are at the mercy of events. — Harland Svare


Let me say that it took me some time to even bring myself to write this article. I have always had a certain affection for Spelman College and the work they do there. Primarily because I have always appreciated their unapologetic approach to building a stronger African America and not caving to some of the newer and less Afrocentric strategies I see popping up at other HBCUs these days. My visits to the campus many years ago visiting friends there or in recent years to buy my daughter a shirt from their bookstore were always pleasant. Perhaps because more than any other HBCU campus I have visited it always gave me the nostalgia feeling of the television show A Different World, it does not hurt that there is a building with Bill and Camille Cosby’s name on it either to that point. However, when it was announced that Spelman College and five other HBCUs (Alabama A&M University, Alabama State University, Florida A&M University, Jackson State University, and Tennessee State University) I felt both a sense of frustration and skepticism. The latter as I wondered just why and how Regions Bank was chosen for this “financial partnership” and also because the relationship between European American owned companies and HBCUs has tended to be in my opinion a very one-sided affair.

Regions Bank, a wholly owned subsidiary of the publicly traded Regions Financial Corporation, is headquartered in Birmingham, Alabama. Birmingham has a myriad of advantages going for it as it certainly serves as a fairly central geographic point of HBCUs in the deep south. Birmingham is also emerging as something of a poor man’s Houston in terms of its economy with an affordable cost of living, growing healthcare center anchored by the University of Alabama System, and an emerging banking industry. Regions Bank is the tenth largest U.S. based bank and fourth largest bank headquartered in the South behind Bank of America, Sun Trust, and BB&T. It is largely considered a regional bank meaning that its operations are largely confined to the southeastern United States, which is where the majority of HBCUs are located, but given that Sun Trust and BB&T are also regional banks and both are larger than Regions Bank it continued to make me question why they were chosen. Especially given the bank spent much of 2011 with swirling speculation that it was a takeover target and as its share price sank rather unceremoniously. Both typically a sign of a bank not on the most solid of financial ground.

Traditionally, HBCUs and African American organizations have been institutional customers Bank of America. An almost comical situation given Bank of America’s history of redlining in the African American community. Banking at its simplest form works by a bank collecting deposits and in turn making loans with those deposits. Banks are the ultimate form of the old business acronym OPM (Other People’s Money) to make money. The bigger the deposit base a bank has the more loans it can make. Loans are a bank’s assets and its deposits are a bank’s liabilities. They are also risk movers in the sense that their job is to disperse the economic and financial risk of the community they are owned by onto other communities. By doing so they are able to keep the cost of capital to the community they are owned by at a lower interest rate than what the demand of capital commands. As it were African Americans have been depositing our money in European American owned banks and then being loaned our own money at disproportionately toxic interest rates in the form of subprime loans even when our credit approves us for traditional mortgages which are at lower interest rates. This happens because most African Americans, even the college educated among us, tend to lack financial IQ. For bankers their interest as it relates to their bonuses and commissions is tied to getting the customer into higher risk loans. The more complex (or dangerous) the product is usually the higher the commission that comes along with it.  Given subprime loans pay higher interest rates than a traditional mortgage if you can lead a sheep (see customer) to slaughter without any resistance rarely do you pass up the opportunity.

All of this leads me to the “financial partnership” of Regions Bank with the six HBCUs. The “financial partnership” is described in Journals of Black in Higher Education as “Under the program, the bank will help establish a financial education curriculum at the partnering institutions. Regions Financial will mentor students and recruit students and graduates for employment and internship positions. An executive lecture series will be established with business schools at participating partner institutions.” The cynic in me has a hard time believing in individual altruism but my time in business school and in industry leaves me with quite a bit of resolve in saying that there is no corporate altruism. Companies build up goodwill, ironically goodwill is quantified by companies and listed on corporate balance sheets as an asset,  to bring in customers plain and simple. I have no problem with this method of advertisement under the guise of community outreach but it speaks to our financial naivety that we do not realize this goodwill is just a move in an ongoing chess game. A different method/strategy intended to still accomplish the same ending. Partnerships usually imply a two-way street. At least the last time I checked the definition. So what is the partnership? We see what Regions Bank is providing and it is pretty clear what they are hoping to get in return. The customers in the form of students, professors, and even the universities themselves (if they are not already customers). They will take our deposits and give us loans and African American ownership in Regions Bank is negligible at best – an institutional development fail on our part.

So why did I single out Spelman College? In a game of “which of these things do not belong” Spelman sticks out like a sore thumb. Three of the six are members of the SWAC, which just happens to be headquartered in Birmingham. Five of the six are public universities which made Spelman’s presence even more peculiar to me. Why would an HBCU with the 2nd largest endowment, at approximately $326 million, more than the other five HBCU endowments combined and a private institution which in itself presents very different financial needs, enter into this cohort? The simple answer is to follow the money. When examining Regions Financial Corporation institutional ownership via NASDAQ, I saw the usual suspects before coming to the seventh largest institutional investor AJO, LP. I had researched this company before or at least I thought I had but could not remember so I decided to check out the company website. Heading to the profile of the managing principal of the company is a man named Ted Aronson. Mr. Aronson founded AJO, LP in 1984 and the company currently has $19.5 billion of assets under management. He also as it turns out is a trustee at Spelman College and chair of its investment committee which decides largely how Spelman will invest its endowment. An endowment portfolio that is the lowest performing of the top ten HBCU endowments. The average return among the top ten largest HBCU endowments is 17.5 percent while Spelman’s endowment portfolio came in at 10.7 percent last year. It would be hard not to believe that the chair of your investment committee does not have you invested in a bank where his company is the seventh largest investor and has $160 million at stake. Just how invested the school is in Regions Financial Corporation is hard to say but with the bank seeing an almost 40 percent decline in its share price in 2011 it is not hard to potentially connect the dots of Spelman’s endowment portfolio under performance.

It continues to bewilder me why HBCUs and African American organizations seem to conduct themselves outside of the institutional development chain. It should be noted that the United Negro College Fund also has a partnership with Regions Bank. The same effort that was put into forming this “financial partnership” with a bank we do not own could have been put into forming the HBCU Credit Union and offered all of the same services plus massive employment creation (Regions Bank has over 25,000 employees) for African America not just a few internship positions and – all under our ownership. The Regions Bank board of directors has two African Americans, of which only one attended an HBCU, and the bank’s senior management has no African Americans. So we have little to no control of the power positions within the bank and more importantly very negligible ownership of the bank. For some reason this movie seems familiar and I am sure the ending will be as well.