Wall Street's Financial Crisis Rocks Nonprofits

Foundations and other charitable organizations brace for a steep decline in giving as the value of their portfolios shrinks sharply

by Aili McConnon

T. Boone Pickens will give "significantly less" this year Redux

Wall Street's money has long fueled the nonprofit world. Lehman Brothers chief Richard S. Fuld Jr. favored New York's Museum of Modern Art and Middlebury College in his family foundation. Former American International Group (AIG) Chairman Maurice R. "Hank" Greenberg loved to support hospitals, libraries, and educational causes.

Now that level of generosity could come to an abrupt end. Even those a step removed from the havoc are pulling back. Donald Bren, chairman of California real-estate giant Irvine Co., gave $380 million last year. After taking a hit from the housing downturn, his spokesperson says Bren has given less than $14 million so far this year.

Banks were the second-largest corporate givers to U.S. nonprofits in 2007, according to the Conference Board, behind pharmaceutical companies. Finance houses such as Bear Stearns and Lehman were generous donors. Since the 1970s, Bear Stearns required senior employees to give 4% of their income to charity. Lehman Brothers gave $39 million to various causes last year—and that excludes additional millions donated by rich executives.

The fallout is likely to spread far and wide. Linda Dunphy, who heads up Doorways for Women and Families, says her Arlington (Va.)-based group may have to close a shelter funded by the Freddie Mac (FRE) Foundation. Says Dunphy: "There's no one standing in the wings to take their place."

The financial sector's woes add more hardship to a year in which corporate giving already has been squeezed, notes Sandra Miniutti of nonprofit watchdog Charity Navigator. "Individuals have less money to give, foundations distribute fewer grants, and corporations make less profit," she explains.

The staff of Jawonio, a New City, N.Y. nonprofit that provides services to the disabled, is already coping with an ever-tighter budget. With private donors taking a fresh hit, Jeff Kassover, director of development, is so desperate to cut costs that he has removed two of the eight fluorescent lights over his desk to save on energy costs. "The pie is only so big," he says.

Among the hardest hit are charities that had found favor with AIG's Greenberg. Along with chairing the Starr Foundation, he had given out $700 million through his family foundation. Now, Greenberg says, his foundation will "continue to exist, but in a very modest way." While Starr saw as much as $600 million worth of AIG stock essentially wiped out (it won't disclose actual losses), it had reduced AIG shares to roughly 20% of total assets in recent months, from 97.7% of assets last year. Starr canceled an annual $350,000 grant, which supports food banks and shelters through Washington-based Community Foundation for the National Capital Region. Says Terri Lee Freeman, the foundation's president: "We're trying to figure out where we're going to make up those dollars from."

Financiers such as energy tycoon T. Boone Pickens, who has lost $270 million personally in the crisis, are closing up their wallets, too. Pickens typically makes annual donations in the $200 million range but has given just $3.7 million so far this year, according to Jay Rosser of BP Capital Management, Pickens' investment firm. More is expected later this year, says Rosser, but contributions will be "significantly less."

Faced with diminishing resources in a time of mounting need, some charities are turning to an activity that some of their recipients know all too well: taking out loans. American Red Cross spokesman Jonathan Aiken says the disaster relief group has no choice, given the need to help hurricane victims, who have received scanty attention amid the financial turmoil. "We are in a cycle of spending where we don't have money, but we have to supply services," says Aiken. "We have to get it somewhere, so we end up borrowing and spending."

With Lawrence Delevingne in New York
McConnon is a staff editor for BusinessWeek in New York.