The Money Game

Profile of an interstate bank that looks for a solid reputation in the community.

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Can Blackstone Bank succeed by focusing on markets other lenders ignore?

In 1986, Roxbury, a predominantly black district of Boston, attempted an unusual ploy. The community proposed to secede from the city proper and reincorporate itself under the name Mandela (after South African dissidents Nelson and Winnie Mandela). As a piece of political strategy, the referendum fizzled; it was soundly defeated at the polls. As a symbol of community frustration, however, the movement was significant. In many of Greater Boston's poorer, more ethnically insulated neighborhoods, people heard the news about their region's booming economy and wondered why the gravy train was passing them by.

Their concerns had merit. To a large extent, Boston's heavily Brahmin banking establishment shunned them, major developers ignored (or exploited) them, and politicians dutifully counted their votes -- only to vanish with their tax dollars after election time. Need operating capital to feed a growing business, or a pipeline into federal funding? Good luck. Around Roxbury, leaders knew, the celebrated Massachusetts Miracle often meant nothing more than getting someone at the State House to return your phone calls.

While Roxbury considered its political fate, Daniel Dart and Ann Hartman had a different dilemma on their hands. Approval of their application to charter a new bank to be called Blackstone Bank & Trust Co., filed in September 1986, was being mysteriously delayed, to the point at which they began to fear the worst. Their plan -- to create a community bank making loans in Roxbury and in Boston's South End, to make it a low-cost provider of basic financial services, and to attract depositors from all over the country by offering top-end rates on deposit accounts -- seemed reasonable on paper. Both officers, though young, had a wealth of big-bank experience. Both had strong ties to the area and were intimately acquainted with Boston Redevelopment Authority projections of job growth, population growth (Roxbury up 10%, the South End up 20% by 1990), and investment in the two communities (a new subway station, the Copley Place retail development, a $275-million expansion of Boston's Prudential Center).

Well on their way to raising the minimum $4 million in start-up capital required by state banking regulators, Hartman and Dart were convinced that while most of Boston appeared "overbanked," their target neighborhoods did not; only three branch offices existed in the South End, six in Roxbury -- with no bank headquartered in either community. On the lending side especially, this competitive vacuum suggested the kind of value added to the community that regulators look for when considering new charter applications. So what was the problem?

The problem, as it often is in Massachusetts, turned out to be political. Word leaked to Blackstone's founders that one of the charter's signatories, facing a tough reelection fight, wanted to see which way the Mandela referendum went before approving the proposal. Only after the referendum was defeated -- actually, on the same day -- did Dart and Hartman learn that their application had been approved. Eight months later, in July '87, Blackstone Bank & Trust opened for business.

"These neighborhoods had a horrible reputation," concedes Hartman, 37. "Not only did bankers not think them 'tame' enough [to invest in], but people literally feared for their safety down here. We don't look at it that way. From our perspective, this area is pretty mainstream.'

Community banking, she adds, is as much a state of mind as it is a function of resources or geography. "You need to know the territory and who the local players are," she avers, "but you also need to know how your customers want to be treated. We don't offer the lowest loan rates -- in fact, we charge a premium for our [lending] services. But we don't take six weeks to make a decision, either. Or turn down a loan for no apparent reason. Borrowers come to us because they know they can always get Ann or Dan on the phone. Not everybody needs that kind of service. But a lot of people seem to want it.'

Speaking as someone who never balances his checkbook or shops around for the best CD rates (journalists tend to be notoriously bad money managers, perhaps because we have so little to practice with), I address the question of how a bank makes money with some trepidation. The logical answer seems simple: by dealing with customers like me. Actually, according to Dan Dart, the real explanation is not much more complicated than that.

"We rent money for a fee," says Dart, 32. "Or, to put it another way, think of our deposits as finished-goods inventory. We mark that inventory up and sell it at retail, principally in the form of commercial loans. The difference is, we don't actually own our deposits, nor do we give away our loans on a permanent basis. What we're really in is the money-renting business.'

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