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Wall Street crisis clouds rez road
By
Rob Capriccioso
Story Published:
Oct 10, 2008
Story Updated:
Oct 10, 2008
NEW YORK – With major bank closings and mergers taking Wall Street by storm, American Indian-focused investment programs and individual Indians who work in the finance sector have already ended up on the cutting block. Financial experts say the developments will likely add to problems already facing credit-crunched and economically ailing tribes.
“We’ve certainly seen some Native-focused banking teams take a hit,” said Bill Lomax, president of the Native American Finance Officers Association. “At least two or three firms have cut back on their Native American banking groups.”
In the months leading up to the much-talked-about $700 billion federal bailout of the finance sector, banks were already making decisions that could negatively affect their outreach to and relationships with tribes.
Not long after Bear Stearns, formerly one of the world’s largest investment banks, made the shocking announcement in March that it would be purchased by JP Morgan Chase for $2 a share, officials with JP Morgan decided to shutter the company’s Native-focused bond and investment banking crew.
Jeff Lamb, the head of the program until its demise, is American Indian. He is believed to be currently looking into starting a financial venture of his own, according to sources who know him. He could not be reached for comment.
Despite the loss of the Native-focused investment crew, JP Morgan continues to retain a Native American in a high-ranking vice presidential position. Derrick Watchman, Navajo, leads the Native American Banking Group, which is part of the commercial banking activities of the firm.
At least one of the former Native-focused members of the old Bear Stearns team had previous ties to Lehman Brothers, which rocked the finance industry by declaring bankruptcy in September just before the federal government decided to intervene on Wall Street.
When Lehman shuttered, any tribal clients who had investments with the firm were forced to turn elsewhere. Most clients likely had their investments in separate accounts and would have been able to transfer all of their investments to another institution after the failure, according to financial experts.
In an interesting side note to history, a delegation of tribal members warned Lehman stockholders in 2001 that they would face bleak consequences after the firm acquired the interests of Peabody Coal. The company has long faced Native ire due to its massive coal-mining expansion plans on sacred Navajo and Hopi ancestral homelands in Black Mesa, Ariz.
Before Lehman’s collapse, another top firm, Morgan Stanley, recruited a team of Lehman’s Native American wealth management team to broaden its coverage to tribes. But today, uncertainty swirls around the investment bank’s future, despite confirmation from Japan’s Mitsubishi UFJ Financial Group that it’s investing $9 billion in the investment bank.
Lomax said that the cuts and shuffles involving Native-focused programs will end up making it more difficult for tribes to get access to the U.S. financial system. He said this is because employees at the firms will end up having to be retrained to work with tribes in order to deal with their unique financial circumstances.
“Indian country is a specialized client compared to any other client in the market. You really don’t have sovereignty issues coming up the way that you do from tribal nations with any corporate client out there.
“These companies really need to get their head around the fact that when they let people go who are their Native American contacts and staff, they lose their institutional knowledge.”
Valerie Red-Horse, a Wall Street investment banker, said that tribal leaders shouldn’t panic if diversity programs become scarce in this tough economic climate.
“Some of these programs are going to end up being cut,” she said. “But I think that the institutions are going to have to still try to compete for [tribal] business because we are such a force.”
Despite cuts in Native-focused programs at some high profile firms, some, like Merrill Lynch, are continuing to reach out to tribes.
Merrill Lynch retains Frank King as managing director of tribal banking for the firm. His team has raised more than $6 billion in the capital markets from a broad range of investors for tribal governments and their enterprises.
Bank of America is also known to be one of the largest lenders to Indian country on a large scale, and has developed relationships with several tribes.
Given the strong Indian focus of both Merrill Lynch and Bank of America, some Indian financial experts are cautious about the firms’ merger, which is currently in process.
“These two were two of the fiercest competitors out there [for tribal business] and would go head-to-head all the time over Native American business,” Lomax said. “How that’s going to shake out we don’t know at this point.”
But one thing is for sure as a result of the merger: there will be less competition for tribal dollars. And less competition usually means higher rates for borrowing.
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