As I reflect on this challenging year, I think about the important institutions Morgan Stanley has had the opportunity to partner with to help communities in need. One such group that we have had the privilege of supporting are Minority Depository Institutions (MDIs). These banks deliver critically needed banking services to customers and communities that, for far too long, have been locked out of the mainstream financial system. In doing so, MDIs advance racial equity and promote economic growth that benefits the entire country.
The public health and economic crisis gripping the nation is disproportionately affecting minority-owned businesses. Unfortunately, many MDIs lack sufficient capital to help these communities weather the storm. In the face of this challenge, we have an opportunity to extend a financial lifeline to these institutions, and by extension, to the communities they serve. That’s why Morgan Stanley has committed $14.6 million to Carver Federal Savings Bank in New York City and $10 million in grants to support Industrial Bank of Washington, D.C., and Citizens Trust Bank of Atlanta, GA. These contributions will allow these banks to bolster their balance sheets and loan loss reserves to help withstand the economic impact of COVID-19.
By supporting soundly managed financial institutions like Carver, Industrial Bank, and Citizens Trust, we’re also supporting our employees and their families, and the neighborhoods and cities where we all work and live.
Carver is one of the premier community banks in New York City for women and minority business entrepreneurs. Our relationship with Carver goes back nearly a decade. I recently asked Carver CEO Michael Pugh to share a bit more about how his firm is creating opportunities for people to survive and rebuild. Here’s a snippet from that conversation:
We’re not just looking at any given deal in terms of credit worthiness. We think about the sustainability, the jobs that will be added, the impact to the community, and the opportunity to elevate women and minority business owners.
James Gorman: Can you share an overview of Carver’s history and mission?
Michael Pugh: Carver was founded in 1948 by a group of African American and Caribbean American business owners and faith-based leaders living in Greater New York City. These folks did not have access to mainstream banking solutions because of the color of their skin, so they decided to start a bank of their own.
Seventy-two years later, our mission is very much the same as it was then. We focus on ensuring all people have access to quality financial solutions that ultimately help turn their aspirations into reality. While our doors are open to everyone, we have a strong affinity and focus on women and minority business entrepreneurs because we know that, within the communities we serve, there is significant demand for financial access.
Gorman: How do you measure your impact across the communities you serve in New York City?
Pugh: We take pride in being hyper-local. We are a United States Treasury-designated Community Development Financial Institution, which requires that a minimum of 60% of every dollar on deposit be invested in the community. We exceed that minimum, with about 80% of every dollar on deposit directly invested in our communities. We’ve received outstanding Community Reinvestment Act ratings for each of our last three examinations, which signals our passion and commitment to community development.
Our approach goes beyond what you would see in a typical financial institution. We’re not just looking at any given deal in terms of credit worthiness. We think about the sustainability, the jobs that will be added, the impact to the community, and the opportunity to elevate women and minority business owners. With each investment, we consider the overall impact on the community in addition to the potential financial return.
Gorman: How has the pandemic changed the way that you approach your work?
Pugh: The pandemic is having a devastating effect on small businesses. Within the African American community, as much as 40% of small businesses impacted by COVID-19 may not survive and re-open. We’ve taken a programmatic approach to make ourselves available to those in need. We were a large participant in the Paycheck Protection Program as part of the government’s overall relief strategy, contributing more than $30 million dollars to small businesses. And we focused on the very smallest businesses, those with 75 or fewer employees. The end result is that we’ve helped preserve more than 3,400 jobs in the communities we serve.
More generally, the pandemic has created awareness that access to quality banking often requires personal relationships. We’ve found that many small business owners have turned to us during the pandemic because they already know us. We’ve learned that in moments of crisis, it is crucial to have those relationships—those points of contact—already established.
Gorman: Where do you see the greatest need within the small business community now?
Pugh: One of the biggest challenges for small business entrepreneurs right now is that many of them don’t have a robust e-commerce platform. Small businesses need solutions to move products in a much more digital era, when people are social distancing or staying home. The small businesses we work with—whether restaurants, clothing stores or barber shops—have tremendous talent but sometimes lack the capital to launch an e-commerce channel. So helping our clients build this capacity will be an important focus for us going forward.
Gorman: It was important to me that this grant comes without any conditions, so that you and your leadership team can determine how to use this grant in ways that you know will create the most positive impact. How will you deploy this capital to maximize its impact?
Pugh: We truly appreciate our partnership with Morgan Stanley and your trust in us. Morgan Stanley understands and supports our commitment to community development.
We will continue to stay laser-focused on providing access to capital to small business entrepreneurs in our communities. We’ll also continue to invest in financial and business education programs that will build the technical skills that small business owners need during this difficult time. Morgan Stanley’s contribution will enable us to do all this in a more robust way.
Gorman: Morgan Stanley and Carver have been partners for several years. How has this relationship created value for you so far? Going forward, how do you see the relationship between institutions like ours evolving?
Pugh: I think there are tremendous opportunities for banks like us to continue collaborating with large organizations that have gravitas and influence on our national and global economy, like Morgan Stanley. I think we’ll see more of these partnerships and more willingness to place deposits in smaller financial institutions so that those dollars can be directly lent to businesses in the community. Morgan Stanley has really been a trailblazer in this area.
I also think there is room for collaboration on the technical side. I spent the first twenty years of my career working at two of the largest banks in the country, and the data and engineering capacity of such large institutions would be invaluable for small community banks, which often have limited resources and employees.
Gorman: What can Morgan Stanley and the broader financial services industry learn from organizations like yours?
Pugh: I do think there is reciprocity in terms of learning. What I can say about Morgan Stanley’s leadership is that every person I’ve come in contact with loves the firm, is committed to it, and believes in what they do. What a bank like Carver can offer is a true understanding of the small business community in the Greater New York City area. I know that Morgan Stanley is committed to supporting this community, so our 72-year focus on this space brings value. We’ve had a tremendous partnership, and I hope we continue to exchange and share ideas.
