Over the Past Six Months, a Portfolio of Minority Bank Stock Beat the S&P 500...by a Lot...

In the wake of the Black Lives Matter Movement, several major banks made significant investments in Black banks:

With this increased attention, the performance of stocks issued by all minority banks (Asian, Black, Hispanic) have improved dramatically:

Over the past six months, from August 27, 2020 to February 25, 2021, a portfolio of stocks in minority banks beat the S&P 500. The S&P 500 Index (green) returned 9.37% The Minority Bank portfolio (blue) returned 54.13%. The portfolio consists of equal stakes in a group of minority banks. (Email [email protected] for the list).

The increased majority bank investments are the reason for the overperformance versus the S&P 500.

The dramatic, S&P beating portfolio returns were generated by Asian and Hispanic banks, not Black banks, although majority bank investments in Black banks have gotten most of the media attention.

It's also hard to actually buy this portfolio, mainly because stock in Black-owned banks is hard to come by. It is thinly traded and very illiquid. We are aware of a few with selected availability, but this is the exception, not the rule. Reach out to [email protected] for more information.

We do not expect this situation to last. Most of the overperformance is due to investments made by large non-minority banks, like JP Morgan, Morgan Stanley, Citibank and Wells Fargo. You can't expect that these institutions will continue to pump up minority bank stocks. As they exist now, even with the enhanced investments, black banks are still too small to make a difference.

At the Federal Reserve Bank of Kansas City in 1994, I suggested the Federal Reserve Board’s Federal Open Market Committee (FOMC) purchase mortgage-backed securities (MBS) originated by Black banks as part of open market operations. The Fed, then under Alan Greenspan, declined, saying that only Treasury securities were appropriate collateral. Since the financial crisis, the Fed has purchased trillions in securities, helping white-owned banks, broker-dealers, insurance companies auto companies, and investment banks. Not only did few black banks receive any assistance, but the ones that did were the wrong banks.

We still believe one possible solution to the black banking crisis is to have the FOMC create a black bank liquidity pool totaling at least $50 billion by conducting repo and reverse repo transactions, purchasing Treasury, MBS securities (and/or SBA PPP loans) from black banks with a record of actually making loans to the black community.

We remain confident that, with the increased level of private sector interest as reflected above, this is a viable solution.

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