Banks commit funds to riot areas; regulators to review loan portfolios.

Numerous Southland bank officials announced last week they would invest millions to help heal the riot-torn inner city, while at the same time, banks that have loaned heavily to damaged communities braced themselves for possible inquiries from state and federal regulators concerned about damaged loan portfolios.

While banks assessed the damage, a number of financial institutions announced they would lend and grant millions to help rebuild Los Angeles as political leaders chastised banks' lack of lending in the inner city.

* Bank of America announced it had set aside $25 million to invest in equity partnerships with business owners whose firms were damaged. The bank would become a minority equity partner with the small business owner and invest in the business, said Donald Mullane, BofA executive vice president of corporate community development.

* Glendale Federal Bank announced last week it has set aside $50 million to lend on home and apartment mortgages in riot-torn areas of Los Angeles. Borrowers won't get special terms, but loans to rebuild in damaged areas will be given priority and rushed though, said Glendale Federal spokeswoman Judy Cunningham.

* Irvine-based American Savings Bank announced it would make a $1 million cash contribution to the effort to rebuild Los Angeles.

* San Francisco-based Union Bank made a $100,000 grant and is providing special loan terms to those who suffered losses during the riot.

* Officials from both Los Angeles-based First Interstate Bank and San Francisco-based Wells Fargo announced last week that special loan repayment schedules may be worked out for business customers who have incurred riot damage.

State Sen. Diane Watson, who represents much of South Central Los Angeles, said banks' efforts are good but not enough. She wants large banks to invest $300 million in the ravaged communities. Banks' lack of business development lending before the riots contributed to the area's poverty, she said.

"Those banks were not putting money into (small business) ownership and, coupled with the joblessness in the labor market, it has resulted in people who felt disenfranchised," she said. "If you wanted to buy a Cadillac, the money was there. If you wanted to start a small business ... they would question you if you had committed a crime before."

Los Angeles City Councilman Mark Ridley-Thomas, who was appointed chairman of the newly created Ad Hoc Committee on Recovery and Revitalization of Los Angeles last week, said it is not enough for banks just to contribute and lend funds. They must open branches in devastated neighborhoods to help rebuild Los Angeles, he said.

Chris Chenoweth, general counsel for the California Bankers Association, said last week's announcements may only be the beginning of banks' contribution to revitalizing minority and low-income areas -- even as pressure and criticism of banks' past efforts mounted.

Political leaders have stated on national television that much of South Central Los Angeles' economic problems were due to banks not lending in the community.

"So now we are the cause of all the problems," Chenoweth said, adding that such characterizations were unfair.

Robert Gnaizda, general counsel for the Greenlining Coalition, a San Francisco-based activist group which has pressured large California banks to lend and provide services in minority communities, said: "I would say that you can expect more pressure on banks to lend from far more diverse sources and in far more diverse ways."

Meanwhile, the California Bankers Association has sent letters to about a dozen Los Angeles area banks warning them to expect a visit in the next few weeks from state and federal regulators checking to see how much damage the riots have caused loan portfolios, Chenoweth said. State banking regulators told the bankers association they would visit banks which had lent heavily in riot-damaged areas to investigate whether loans made there posed any threat to the institution's financial health, Chenoweth said.

State banking department officials did not return repeated phone calls from the Business Journal.

"The smaller banks, particularly those in the South Central area, really got hit on the chin," Chenoweth said. "If you are making loans in this community you're in serious trouble because your entire loan portfolio is on the line."

Robert Herr, chief credit officer of Mid City Bank, which has an office in Koreatown, said an official from the federal Office of the Comptroller of the Currency has asked for "a list of what we felt were the problems because of the riots."

Mid City Bank does expect "some" losses as a "significant number" of its Small Business Administration loans were made to Korean merchants and a number of Korean merchants have cleaned out their depository accounts "to feed their families," Herr said.

Mid City Bank will not be in jeopardy of insolvency because of its Koreatown loans, Herr said, but there could be banks with serious problems. "We have heard that one bank has in the neighborhood of 250 loans on buildings that burned," Herr said.

Founders National Bank of Los Angeles, the only black-owned bank in the state, only had one business customer affected, a beauty school owner who had taken out a $150,000 loan to complete seismic work on her building, said Nuria Jenkins, vice president and loan officer for Founders.

"Luckily," Jenkins said, Founders, which is only two years old, just began making business loans.

But it was not only small area banks which had business customers affected.

Wells Fargo Bank, the second-largest bank in the state, estimated 2,000 business customers suffered damage during the riots, said Karen Wegmann, executive vice president of corporate community development. "Right now we have 40 people doing nothing but calling them and finding out how they are," she said.