BATTLE royale.

The fight for the future of Carver Federal Savings Bank has turned public ... and ugly

IN THIS CORNER STANDS NEW YORK'S CARVER BANCORP INC., the holding company of Carver Federal Savings Bank, an institution that has served New York's African American community for half a century and is struggling to improve its fortunes. Its challenger is Boston Bank of Commerce (BBOC), a bank with a scrappy management team seeking to continue its campaign of conquering and rebuilding financially weak black institutions.

For more than a year, the institutions have been locked in a no-holds-barred public brawl that has pit the nation's largest black bank against a 15th-ranked contender, Harlem against black Beantown, a married couple against a community, classmate against classmate. The battle has sparked a boardroom power struggle, a series of lawsuits and the involvement of a black venture capital firm and a Wall Street powerhouse. At stake is the leadership of black banking.

Since most black businesses are privately owned, the battle for publicly held Carver Bancorp provides a unique look at African American businesspeople engaged in a proxy fight. It also tells the blow-by-blow story of the strategies many community banks must employ to grow in an era of mega-mergers and financial supermarkets. Carver and BBOC have laced on the gloves.

CHALLENGES OF THE CHAMP

At 51 years of age, Carver Federal is a neighborhood stalwart that has taken its share of blows. Soon after the troops came home from World War II, and black soldiers who had helped liberate Europe found they still had to fight Jim Crow, Carver was founded. Many vets, and two generations of their families, entrusted their money and futures to Carver. In return, the institution rewarded their loyalty. When the jazz joints and other Harlem businesses packed up and moved downtown, Carver stayed. Today, as in the past, major black dignitaries are involved with the bank. Former New York City Mayor David Dinkins and banking executive Pazel Jackson sit on the board. And Carver (No. 1 on the BE BANKS list with $413 million in assets) needs its long-standing community support now more than ever.

This past January, Carver Bancorp CEO Deborah C. Wright made a huge announcement. A little more than six months into the job, she had succeeded in infusing $2.5 million of Wall Street financing into the bank. The funds represented a badly needed shot in the arm for Carver; federal regulators had already classified the bank as "troubled."

But Wright knew what she was inheriting when she took the helm at Carver in June 1999. The situation was explained carefully to the pool of CEO applicants, from which Wright--despite her lack of banking knowledge--emerged as the strongest candidate, said Carver Chairman David R. Jones. She is an intelligent, Harvard-trained professional with a resume full of economic development and urban planning experience. She was the president of the Upper Manhattan Empowerment Zone Development Corp. and a past commissioner of New York's Department of Housing Preservation and Development. But with $5 million in losses in the third quarter of fiscal 1999 alone (Thomas Clark Jr., Carver Bancorp's CEO, lost his job as a result), Carver was bleeding from all sides. Wright determined that she would not be the next sacrificial lamb.

Wright's years in urban planning taught her to involve community residents and local businesses in the bank's rehabilitation. If Carver had any advantage, none was greater than its base in Harlem. But deep roots also run wide, and at the other end of Manhattan lay Wall Street, and all the money a bank president could ever need.

Wright's experience in preserving landmarks was never so helpful. Ties to financial giant Morgan Stanley Dean Witter & Co. brought in $1 million. A working relationship with Frederick O. Terrell, CEO of black-owned Provender Capital, added another $1.5 million. Wright heralded the investments as part of Carver's strategic reorganization plan. "We're rebuilding our foundation. We've replaced senior management and we've raised new capital," she said. "We want to grow the bank and increase shareholder value."

The $2.5 million investment in exchange for Carver stock might have reassured stockholders and impressed analysts. But if it were that easy, it would have ended there. In the challenger's corner, BBOC.

A CONTENDER EMERGES

Boston, some say, suffers from a bad case of city envy--of New York. There is an intense rivalry between these two seaports that makes the East Coast-West Coast rap flap look staid: the Hudson River vs. the Charles River, Boston Commons vs. Central Park, Fifth Avenue vs. Commonwealth Avenue. When basketball legends the Boston Celtics and the New York Knicks play, there is pride at stake. Boston and New York are different, but Kevin Cohee, chief executive of BBOC, doesn't see it that way.

He believes business has no geographical boundaries. And as a testament to his philosophy, BBOC recently took over the nearly defunct Peoples National Bank of Commerce in Miami and, in the process, created the first black-owned and operated interstate banking institution in the U.S.

Peoples' fate is an example of BBOC's strategy of identifying poor performers and acquiring them at a discount. Cohee knows such takeover tactics well. He and his wife, Teri Williams, have risen quickly within the finance industry, first climbing the corporate ladder (he at Salomon Brothers, she at American Express), and then purchasing and rebuilding underperforming banks. In 1995, the young, enterprising couple invested $1 million in BBOC. Shortly thereafter, they used their clout to have the CEO removed. Cohee now serves as chairman and CEO, and Williams is senior vice president.

At No. 15 on the BE BANKS list with $137.8 million in assets, BBOC has grown over 30% since the husband-and-wife team took over, according to company estimates. Their deft touch turned a $3.6 million loss in 1996 into a $705,000 profit in 1999. BBOC's branches in greater Boston have been successful, and the Miami outposts are slowly returning to good health. "What we're looking to do is take what we've done successfully in Boston and export it to other markets," says Cohee.

But there is one frontier Cohee and BBOC have yet to conquer.

THE MAIN EVENT: CARVER VS. BBOC

Cohee and BBOC had looked at entering the New York market. Cohee and Williams spent $1.35 million to buy 170,700 shares of Carver Bancorp stock in March 1999, which amounted to about 7.4% of Carver's voting power. The deal made BBOC one of Carver's largest single stockholders. Combined, Carver bank employees own about 8%.

Presenting himself as a candidate for CEO of Carver, Cohee first sought to merge the two institutions. He proposed Carver purchase BBOC at a premium and hire him and his wife to manage the new entity. Carver officials feared that Cohee and Williams, who own nearly two-thirds of BBOC and a commanding share of Carver, would use their influence to seize control of the bank. Carver officials interpreted the move as a takeover attempt and balked. Their board of directors ultimately chose someone else to take the helm--Debbie Wright.

The move would not have been noteworthy had Wright and Cohee never met. But Wright and Cohee are old acquaintances. Both CEOs are the products of Harvard. Cohee went on to use his finance skills in the corporate sector, while Wright put her business acumen to work rebuilding neighborhoods. Both represent a new breed of African American entrepreneurs, those who have used their sterling credentials, mainstream business and political experience and powerful Rolodexes to build up black-owned enterprises.

Early last April, with Wright named to take charge of Carver, a second merger proposal from BBOC was rebuffed. Award round two to Carver. In this fight, however, round three would feature jabs and damaging blows from both sides, with Cohee taking the offensive.

Cohee's big break came in August 1999, as two seats on the board of directors--those of David Dinkins and David Jones--would come up for election at Carver's annual stockholders' meeting. BBOC nominated two of its executives to the eight-member board: Cohee and Williams. With a commanding portion of Carver stock, and a little shareholder support, it seemed likely BBOC would win the two board positions. But Carver's board of directors called off the shareholders' meeting. The action prompted BBOC to file a lawsuit to force one.

Wright maintains the company did not announce a 1999 shareholders' meeting because she needed time to "get [her] arms around the organization. I was a new CEO, literally," she says. "We felt it would be prudent to wait."

But after Wright was put in place, there would have to be a meeting and the inevitable vote. The board settled BBOC's lawsuit in November 1999 by scheduling a meeting for February 24, 2000.

In the meantime, Wright announced that Morgan Stanley and Provender would invest $2.5 million in Carver in exchange for preferred voting stock. The deal, completed one month before the February shareholders' meeting, gave Morgan Stanley and Provender 208,000 shares of stock, or a combined 8.25% equity stake in Carver. Officials from BBOC claimed that Wright sold stock to her allies, with full knowledge that they would vote for incumbents Dinkins and Jones. Wright denied the accusations. BBOC immediately countered with a second lawsuit.

BBOC officials maintain that Cohee and Williams have no plans to takeover Carver. "This is about allowing shareholders to change the management if they so desire," said Robert Patrick Cooper, BBOC's senior counsel. "Two people on an eight-person board can't [take over] unless they have amazing powers of persuasion."

There's nothing to suggest that Cohee and Williams couldn't help turn Carver around. Carver's situation was similar to that of Miami-based Peoples.

But Wright disputed the claim. "I would say [BBOC] has a better chance of going out of business than Carver. We're building a strong, vibrant bank to better serve New York City," she says.

Morgan Stanley officials refused to comment, only saying they remain committed to their investment in Carver. Provender's Terrell was appointed to Carver's board after the financing deal.

A flurry of letters began in January, which sparked coverage from the local media. Wright wrote to shareholders, telling them that Cohee has not dealt well with losing the Carver CEO position, and challenged his understanding of conducting business in Harlem. Cohee jabbed back, offering to help turn Carver's fortunes around. Carver's board, he wrote, "Does not understand basic commercial banking." The letter criticized Wright for her lack of banking experience, saying she has only directed "quasi-governmental, not-for-profit agencies."

Wright denounced Cohee for "getting personal with his outrageous claims. Business is business."

The election turned out as BBOC feared: the Morgan Stanley-Provender alliance barely outmuscled BBOC, as Dinkins' and Jones' margin of victory was 30,670 and 31,689 votes, respectively, or just 4%. BBOC recently moved forward with another lawsuit against Carver to nullify the Morgan Stanley-Provender votes.

WAITING FOR THE JUDGE'S DECISION ...

To many, the fight over Carver revolves not around two board seats, but around control of a symbolic neighborhood institution. The war between Carver and BBOC is far from over though. Wright and Carver have just won the first bout, and Cohee is a tenacious and calculating competitor.

At the end of the count, one institution will persevere. What remains to be seen is whether the prospective homeowners, the businesses they finance and the communities they serve will be the ultimate winners.