Carson Lender Had Big Role in Somalia Money

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Carson lender Merchants Bank of California is one of the smallest banks around, but it plays an outsized role in war-ravaged Somalia: The bank processes about two-thirds of the $215 million sent from Somali immigrants in the United States to their relatives back home, according to non-profit groups there.

But now the bank is getting out of that business, causing a stir in the Somali diaspora and with African development organizations. Merchants Bank last month sent letters to several remittance companies saying their accounts with the bank would be closed because of “ever-changing regulatory requirements and expenses,” according to a letter obtained by the Business Journal. Foreign Policy magazine first reported the story.

Merchants Bank had been one of the few banks that continued to work with Somali remittance outfits after Wells Fargo, U.S. Bank and other lenders dropped that business in recent years, Degan Ali, executive director of Adeso, a non-profit development group in Nairobi, Kenya, told the Business Journal.

U.S. bank regulators have said they did not order Merchants Bank to stop working with the money transmitters, but Ali believes that regulatory concerns drove the bank’s decision.

Transmitting money to Somalia, a country without an effective government or a functioning central bank, is inherently risky, Ali acknowledged. What’s more, bank regulators have been more focused in recent years on enforcing rules aimed at preventing money laundering, especially by terrorist organizations such as Somalia’s al-Shabab.

“I don’t think this environment of risk and perception of risk would exist if al-Shabab didn’t exist,” Ali said.

The letters from Merchants Bank said accounts would be closed effective June 20, though Adeso said last week that the bank would keep accounts open through July 31. Merchants Bank executives did not return calls for comment. The bank has a single office and assets of just $93 million, making it one of the five smallest banks in Los Angeles County.

Adeso has asked U.S. regulators to provide clear guidelines on how to work with remittance companies. Without remittances, Ali said Somalis will face even more financial hardships.

“We need regulators to help facilitate a more enabling environment so that those who are willing to take the risk, like Merchants Bank of California, continue to operate this lifeline for Somalia,” Ali said. “Households that were depending on remittances for their food and education and health care are going to lose out.”

Hey Big Lender

Ares Management is often called a private equity firm, but it might be better to call it a private debt firm. The Century City company’s direct lending business is bigger than its private equity practice, and it continues to grow.

Earlier this month, Ares announced it has acquired New York lender Keltic Financial, a firm that makes asset-based loans to small and mid-size companies.

Asset-based loans are a specialized product that Ares didn’t offer before, so the acquisition adds to the firm’s capabilities. Sources familiar with Ares’ lending business said the Keltic acquisition will let Ares offer more types of loans to existing clients.

Most of Ares’ loans are term loans, which are similar to mortgages: they’re taken out by a borrower, and then paid off over a few years. But Keltic and other asset-based lenders tend to specialize in revolving loans, which are more like lines of credit: borrowers take out and repay loans again and again.

Asset-based loans are made against the value of a borrower’s inventory or accounts receivable. Companies borrow money, then pay it back once they sell inventory or get paid by customers. By acquiring Keltic, Ares will be able to offer both types of loans to its clients, rather than referring them to other lenders if they needed an asset-based loan for a particular need.

Ares executives declined to comment.

Consolidated

Bank Leumi USA, the American subsidiary of Tel Aviv’s Bank Leumi, has shuttered branches in Beverly Hills and Encino, consolidating operations at a new downtown branch. The consolidated branch is on the 33rd floor of the Gas Co. Tower on Fifth Street.

The bank’s old downtown branch was just a few blocks south at 600 Wilshire Blvd.

C-Suite News

Peter Firestone has joined the downtown Los Angeles office of consultancy Protiviti as a managing director. He was previously in the El Segundo office of consulting firm Accenture. … Jeffrey Andrews has joined Century City investment bank Houlihan Lokey Inc. as a director in the firm’s real estate valuation practice. He was previously in the local office of New York financial consultancy Alvarez & Marsal.

Staff reporter James Rufus Koren can be reached at [email protected] or (323) 549-5225, ext. 225.

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