Plan to start Net bank for blacks stalls

The effort to create a Boston-based online bank targeting African-Americans has stalled after the bank's backers missed the regulatory deadline to raise enough money for the project.

Executives at the bank, which was to have been known as BankBlackwell, had been working to raise the $16.5 million required to open for business. Though investors had committed to giving them the cash, the bank could not get the money in hand quickly enough to meet the regulators' deadline of July 28, said James R. Mundy, the bank's chief executive. The bank's lead investor had planned to pay for his shares by selling bonds, but the sale did not go though in time and organizers could not make up the difference, Mundy said.

The deal's demise was a blow to BankBlackwell's organizers and investors, who had viewed the bank as a way to reach consumers underserved by larger institutions and to build the black community's financial resources.

``I feel very sad today -- I really do," said Virginia Morrison, executive director of the Neighborhood Development Corp. of Grove Hall, who had invested in the project. ``It was an opportunity for people of color to be on the cutting edge of Internet banking, and to own and to benefit from the type of financial institution that would afford us an opportunity to buy black and also to earn black."

Investors will get their money back, plus interest. And organizers vowed to try again if possible -- though that would likely be a lengthy process, with no guarantees the second time, either.

``We believe the business plan is sound and viable," Mundy said. ``We're inclined to reapply if the opportunity presents itself."

Mundy declined to name the investor who did not come up with the money in time, or the size of the investment .

BankBlackwell would have operated very differently from a traditional bank: It had no plans for branches; it would have conducted all of its banking business on the Internet. Most of its customers would have kept their primary checking accounts elsewhere but used BankBlackwell for services such as savings accounts and mortgages. The bank also had planned to expand by recruiting customers in black churches: Its ``turnkey banking ministry" called for kiosks at churches around the country offering educational material on home buying and financial services.

BankBlackwell had attracted prominent backers, ranging from former executives at Boston's large black-owned bank, OneUnited Bank, to African-American clergy.

In the view of the bank's proponents, a black-owned company, marketing specifically to African-Americans, is best equipped to address the financial needs of the black community -- especially in mortgages, where blacks are frequently charged higher rates than whites.

But the very premise that made a black-owned bank appealing ideologically may have made it a tougher sell to investors: Those putting money into a business often want it to appeal to the broadest customer base , said Dan Schatt, a senior analyst with Celent LLC, a consulting firm that focuses on financial services. In addition, big banks, such as Bank of America Corp., are trying to reach more diverse customers, he said.

Tailoring online financial services to blacks ``may have been a challenge for investors in thinking about how big an opportunity it is for them," Schatt said.

BankBlackwell, like every start-up bank, also may have faced another problem: bad timing. The market has been tough for banks lately, especially in slow-growing New England, said Lee Forker, president of the Boston investment firm New England Research & Management. In the housing market, the rising rate of foreclosures could leave banks holding the bag, he said, while an unfavorable interest-rate environment is squeezing banks' margins.

``All banks are going to have a tougher and tougher time ," he said. ``It's far more competitive than it was before."

Sasha Talcott can be reached at stalcott@globe.com.