Home > Banking Information & Regulation > Public Meeting Transcripts > PMT - Agendas July 9-10, 1998
Public Meeting Transcripts
Public Meeting Regarding NationsBank and BankAmerica
Friday, July 10, 1998
Transcript of Panel Twenty-Four
526 1 MS. SMITH: Good afternoon. I'm reminding the 2 witnesses about our timing system. We have a timer who 3 will give you a one-minute message when you have one 4 minute remaining. She'll hold it up. And then one 5 minute later -- we hope that you will see it. Sometimes 6 you may not because you'll be looking at your text. One 7 minute later, she will hold up the time expired message. 8 And then, if you still haven't looked up, then we have 9 the gong. So that's the system that we'll be using. Are 10 we all set? 11 This is Panel 23, and we're going to start with 12 Dr. Welbon. 13 DR. WELBON: Good evening, Chairman Smith and 14 to the members of the board. We are here representing 15 the Pastors and Ministers Congress of San Francisco and 16 adjacent cities and also the Northern California 17 affiliate of the National Congress of National Black 18 Churches, which represent over 25 million churches -- I 19 mean, 25 million members over the nation. 20 We are here in objection to the merger and the 21 resolution to the proposed merger by NationsBank 22 Corporation of Charlotte to acquire Bank of America 23 Corporation of San Francisco. 24 The Pastors and Ministers Congress of San 25 Francisco and adjacent cities, in conjunction with the 26 South Bay branch of the NAACP and the Northern California . 527 1 affiliate of the Congress of National Black Churches, 2 which represent over 500 churches in the Bay Area and 3 active community-based organization, have formed a 4 coalition against a merger and hereby file their concerns 5 on behalf of the neighborhoods about the merger's impact 6 on the banking services to lower income and minority 7 neighborhoods. 8 The federal law, the Community Reinvestment Act 9 of 1977, requires banks to make loans in all 10 neighborhoods in which they have branches. And we're 11 concerned about how Bank of America is closing most of 12 their bank branches in predominant African-American 13 neighborhoods in the area. 14 In addition, I'd like to put a little quote 15 there, too. If you now go to most of Bank of America -- 16 especially they've closed down most of them in the 17 predominant African-American neighborhoods in San 18 Francisco however. But if you go into any Bank of 19 America, black males is an endangered species. They 20 don't exist on the windows as tellers. 21 I would hope that you would consider a 22 comprehensive recruiting program that can enable young 23 black males to participate and be workers in the bank. 24 That's one point. 25 The next point is that -- our concerns is 26 that -- we are concerned about the poor community lending . 528 1 records to minorities, especially African-Americans in 2 low-income areas. Federal regulators should look at 3 their records very closely. I'm talking about the bank 4 before the merger. 5 We feel that these giant institutions should 6 expand their loan commitments nationwide in community 7 development loans and other investments, such as 8 assisting worthwhile community service projects. We feel 9 that the bank should expand their small business loans, 10 affordable housing loans, loans to minority contractors, 11 especially African-American contractors, and economic 12 development loans and consumer loans. 13 It is our concern if these two banking 14 institutions are allowed to merge without these detailed 15 guidelines in place as part of this merger, it is our 16 views that these institutions may neglect or abandon this 17 community investment in California, especially in 18 African-American neighborhoods. 19 More important, we are very concerned about 20 these banking institutions' lending policies to 21 African-Americans, high-end policies of 22 African-Americans, especially African-American males as I 23 state. 24 Now let me just take you just a few steps 25 further. We have signed an agreement from the National 26 Congress of National Black Churches with the Justice . 529 1 Department. If you want to see crime go down in our 2 neighborhoods, you can be a player at the table to help 3 us. We have developed a very comprehensive innovative 4 program that we have submitted to the Justice 5 Department. They have accepted our -- a one-year pilot 6 program. And I submit the comprehensive program proposal 7 to NationsBank, to the Federal Reserve Board, to review 8 that proposal. 9 We're working in the school systems. We're 10 taking our churches to work and to the communities, the 11 school, with the police department, social service 12 agencies, et cetera, to put together a comprehensive plan 13 and to help young people stay out of trouble. 14 And another thing that we're trying to do as 15 well, we are trying to put together a proposal to stop 16 jails from filling up. Educate our young peoples, build 17 this nation, build a strong nation. And this is what 18 this should be all about. And this is why we're at this 19 time opposing the merger until such time that some of 20 these things are looked at very carefully and some of 21 these things are put in place so that we can really look 22 at the bank and you can look at America as it grows into 23 the 21st century, all colors, all peoples participating 24 and working. 25 We want that kind of vision and we can -- you 26 can help us make it. And that's why we're here at this . 530 1 time opposing this merger. Because you can be a great 2 player in helping us make this become a reality. Thank 3 you very much. 4 MS. SMITH: Thank you, Dr. Welbon. 5 Mr. Burgis. 6 MR. BURGIS: Yes. My name is John Burgis, and 7 I serve as senior vice president of financial services 8 and chief financial officer for Catholic Healthcare 9 West. 10 Today I represent the concerns and hopes of 11 Catholic Healthcare West and a number of institutional 12 investors, including the general board of pensions of the 13 United Methodist Church, the Presbyterian Church U.S.A., 14 Christian Brothers Investment Services, the congregation 15 of the Sisters of Charity of the Incarnate Word, and 16 Sisters of Charity Health System. These institutions 17 alone hold over 650,000 shares of NationsBank stock and 18 over 400,000 shares of Bank of America stock. 19 Catholic Healthcare West uses Bank of America 20 for its cash transactions and credit needs. Both the 21 Sisters of Charity and the Sisters of Charity Health Care 22 System use NationsBank for their cash transactions. 23 Let me begin with some background on Catholic 24 Healthcare West's relationships with Bank of America. 25 Catholic Healthcare West is a 3.5 billion dollar health 26 services delivery system with facilities and affiliated . 531 1 physician groups in California, Arizona, and Nevada. As 2 a religiously-sponsored organization, CHW seeks business 3 partners that demonstrate corporate social 4 responsibility. 5 In 1991, CHW began a significant lending and 6 depository relationship with Bank of America, due in 7 large part to the bank's commitment to expanded community 8 reinvestment. During the ensuing years, we have noted 9 and admired Bank of America's efforts to differentiate 10 itself as a leader in corporate social responsibility. 11 Particular accomplishments include focused 12 attention to developing and promoting access to 13 affordable financial services and products, driven by a 14 formal goal to achieve outstanding ratings in every CRA 15 examination; substantial financial commitment to Bank of 16 America Community Development Bank; dedicated and expert 17 leadership devoted to community reinvestment and 18 development; inclusion of environmental and social 19 considerations and criteria for lending to developing 20 economies; development of a strong environmental program, 21 including endorsement of the serious principals for 22 corporate and environmental responsibility and 23 accountability; sustained commitment to diversity in the 24 workplace demonstrated by effective equal employment 25 opportunity and promotion programs, minority purchasing 26 programs, and expanded family benefits programs. . 532 1 Relative to the proposed merger of Bank of 2 America and NationsBank, we urge the new corporation to 3 embrace a comparable, if not enhanced, stance towards 4 corporate responsibility. In our view, the merger 5 presents a singular opportunity to develop an exemplary 6 enterprise that succeeds in the marketplace by becoming 7 the national leader in meeting community needs. 8 In particular, we are concerned that the new 9 corporation commit formally and publicly to meeting the 10 credit needs of every community where it does business, 11 with special attention to low/moderate income clients and 12 persons of color. To that end, we have asked Dr. Lind of 13 CANICCOR to prepare reports assessing both NationsBank 14 and Bank of America's performance in addressing the 15 credit needs of these historically under-served 16 populations. 17 Based on Dr. Lind's assessment, we ask the new 18 corporation to commit to both mortgage lending and small 19 business goals. In mortgage lending, especially on 20 purchased mortgages and home improvement loans, we ask 21 that the new holding corporation seek to achieve, first, 22 performance levels above the industry level in the 23 assessment areas of the banking subsidiaries and lending 24 to black, Hispanic, and low-income borrowers and in 25 lending in low/moderate income tracts and, secondly, 26 performance levels at parity with the industry in all . 533 1 other geographic areas in which the mortgage lending 2 subsidiaries operate in lending to black and Hispanic 3 borrowers. 4 With regard to business lending, we request that 5 the corporation achieve above the industry levels in 6 small business loans, especially first loans of 100,000 7 and under in low/moderate income tracts and, secondly, 8 loans to small businesses in low/moderate income tracts. 9 We believe that these goals would not impair the 10 financial viability of the corporation but would increase 11 the corporation's market. Such goals would provide a 12 firm basis for a further development of these communities 13 and help ensure the corporation against violations of the 14 Equal Credit Opportunity Act. 15 In recent negotiations with a number of 16 corporations, we have been gratified by their readiness 17 to adopt similar goals and are confident that the merged 18 corporation will demonstrate a comparable willingness to 19 implement such goals. 20 We were pleased with the announcement of a 21 community lending commitment of 350 billion over the next 22 ten years for the merged corporation. It is, indeed, the 23 largest commitment announced to any merger so far. 24 We welcome the new corporation's willingness to 25 detailed annual reporting of performance at national, 26 regional, and local levels. We view such reporting as a . 534 1 means to maintain public accountability and as a platform 2 for dialogue. 3 However, we believe that the goals which I 4 outlined above serve a different function from these 5 commitments. Commitments are what can be counted on, 6 while goals detail the benchmarks toward which the 7 corporation aims, thus goals are usually higher than 8 commitments and are more specific. We are particularly 9 concerned that goals be developed to apply to local 10 markets and market sectors. 11 As Dr. Lind points out -- well, I will stop 12 there and simply conclude by saying that, in closing, let 13 me reiterate my advocacy that the new corporation embrace 14 a vigorous stance toward corporate social responsibility 15 and seize the opportunity to develop an exemplary 16 enterprise that succeeds in the marketplace by becoming 17 the national leader in meeting community needs. 18 MS. SMITH: Thank you very much. And next we 19 will hear from Dr. Lind. 20 DR. LIND: Thank you. I'm John Lind, executive 21 director of CANICCOR, an agency of a nonprofit 22 corporation. CANICCOR serves as a consultant to 23 institutional investors on the social responsibility of 24 financial institutions. It provides services in two 25 fashions. 26 First, CANICCOR provides information to funds . 535 1 that have social screens. These include Kinder, 2 Lynderberg & Domini, Calvert, and U.S. Trust. Secondly, 3 CANICCOR provides analysis for and coordination between 4 institutional investors which take an active role with 5 the corporations in which they invest. It is out of this 6 second role that I speak with you today. 7 As you have heard from John Burgis of Catholic 8 Healthcare West, church-related shareholders have sought 9 agreements with a number of major lenders to have goals 10 of lending at or above the industry level to each 11 under-served group and area in which the corporation 12 operates. The industry level is defined as all reporters 13 under the Home Mortgage Disclosure Act. 14 Concerns focus primarily on home purchase loans, 15 home improvement loans, and small business loans. These 16 are products geared towards first-time home buyers, 17 households improving their living conditions, and small 18 businesses seeking to expand or sustain their 19 operations. 20 With regard to home purchase loans for owner 21 occupancy, neither NationsBank nor Bank of America have 22 been near the industry levels in their home areas, let 23 alone in distant areas. 24 Bank of America's performances were outstanding 25 in 1992 with their development of Neighborhood Advantage 26 loans, and these performances were particularly good with . 536 1 low/moderate income minority borrowers. But in the 2 intervening years, the industry overtook Bank of America 3 and its performance levels dropped continuously. 4 However, this decline was retarded by the manufactured 5 housing lending unit. Unfortunately, this unit was sold 6 during the spring of this year, and I have had to 7 eliminate its lending from my analysis to estimate Bank 8 of America's present performance level. 9 To its credit, Bank of America is beginning to 10 design some new products, but it will take time to get 11 these products into the marketplace. 12 NationsBank has performed poorly in its home 13 areas of North Carolina and surrounding states. It has 14 aggressive -- it has an aggressive acquisition program 15 and recently acquired Boatmen's and Barnett banks, both 16 of which perform much better than NationsBank. It 17 remains to be seen whether NationsBank will have learned 18 from its acquisition or whether NationsBank's policies 19 will prevail and cause the lending performances to 20 decline. 21 Let me give you a few numbers to illustrate the 22 problem. In 1996, NationsBank originated 14,092 loans to 23 black borrowers, the most difficult to serve group, in 24 its home territory of North Carolina, South Carolina, and 25 Virginia, 657 loans below the industry level of all Home 26 Mortgage Disclosure Act reporters. If NationsBank were . 537 1 to achieve the industry parity, lending to black 2 borrowers in these states should have increased by 45 3 percent. 4 In 1996, Bank of America issued 396 loans to 5 black borrowers in California, 186 loans below the 6 industry average. To have achieved industry parity in 7 its lending to this sector, lending to black borrowers 8 should have increased by 47 percent. 9 Overall, in 1996, the two corporations performed 10 at 24 to 27 percent below the industry in lending to 11 black borrowers, 12 to 15 percent below the industry in 12 lending to Hispanic borrowers, 14 percent below in 13 lending to low/moderate income borrowers, and seven to 22 14 percent below in lending in low/moderate income tracts. 15 I refer you to my filing for details on home improvement 16 lending and small business lending. 17 Let me summarize by saying that we have had a 18 recent phone conversation with NationsBank and believe 19 that the goals we propose are not foreign to the 20 corporation. However, even if these goals were adopted, 21 the merged corporation faces considerable challenge in 22 developing the necessary structures to attain these goals 23 in the near future. 24 NationsBank -- one, NationsBank and Bank of 25 America have very different corporate cultures which need 26 to cooperate and coordinate. Two, their market areas are . 538 1 very different, high housing price California versus 2 moderate-priced midwest and south. So they will need a 3 diversity of loan products, and those products will have 4 little overlap. And, three, both corporations are coming 5 from relatively poor performance levels in their distinct 6 market areas. 7 These challenges underscore the importance of 8 detailed reporting by loan type and market area on the 9 part of the merged corporation and the necessity of 10 providing a forum for discussion of the performance 11 results. 12 We do not expect miracles overnight, but we hope 13 to see progress according to a planned process. Thank 14 you. 15 MS. SMITH: Thank you very much. Ms. Hizel. 16 MS. HIZEL: Good afternoon. I have the 17 pleasure of representing Youth Enterprises System 18 Incorporated, which, along with its parent organization, 19 Youth Development Incorporated, is one of the largest 20 nonprofit community development corporations in New 21 Mexico. We develop affordable housing, as well as 22 counsel under-served communities primarily comprised of 23 residents with very low, low, and moderate incomes, the 24 majority of which are minority groups such as Hispanic, 25 Native American, and African-American. 26 Youth Enterprises System Incorporated is not . 539 1 opposed to the merger but asks that the Federal Reserve 2 Bank consider these concerns and address any foreseen 3 problems to ensure a successful merger. 4 Currently both NationsBank and Bank of America 5 are active lending institutions in the state of New 6 Mexico, and though NationsBank is a newcomer, some of its 7 employees are long-time banking partners from Boatmen's 8 and Sun West. 9 The impact of the recent Sun West acquisition 10 was fairly smooth because the preliminary transactions in 11 which we were actively involved did not appear to slow or 12 diminish. The residual effect has been, however, less 13 than favorable in that our current transactions are 14 tediously slow and inconsistent. The cause seems to be 15 due to the fact that some of the new loan officers are 16 unfamiliar with our market and transaction types are not 17 properly prepared or informed of our needs. We hope the 18 merger will not displace any bank officers who are 19 familiar with our market and who are intimately familiar 20 with our client and agency obligation. The needs of our 21 communities are unique to New Mexico, as are the needs of 22 communities in say San Francisco or Houston. 23 NationsBank was generous in its debut in New 24 Mexico, and Bank of America has also contributed to our 25 communities via organizations, businesses, and other 26 institutions. We would suggest increased and more . 540 1 focused bank contributions targeting affordable housing 2 and economic revitalization of older neighborhoods via 3 mini/macro-loan programs, nonprofit neighborhood credit 4 unions, and other new initiatives as necessary given the 5 current economic climate in our community. 6 One of our major concerns is that the two bank 7 personalities will distort one another and cause chaos in 8 the delivery of contributions and bank products. If the 9 cost of the merger is passed through to the 10 organizations, then the communities we serve by reducing 11 contributions and/or minimizing discounted and wavered 12 products, then the people we serve will suffer the 13 burden. 14 Many bank employees from both banks are 15 uncertain of their future. Combine this with the Norwest 16 buy-out of Bank of New Mexico and Wells Fargo buy-out of 17 Norwest and the entire banking community is on its ear in 18 New Mexico. Our organization and others like us are not 19 able to function at full capacity because of the turmoil, 20 because of the lack of fluid transactions, new staff 21 coming, old staff going, and contributions at a 22 standstill. 23 Last year we conducted over $11 million of 24 business not inclusive of our day-to-day banking business 25 in excess of 12 million a year. This calendar year we 26 have not been able to close a single transaction with . 541 1 NationsBank despite the fact that we have nine sites 2 under contract and were scheduled to close one bond 3 transaction on June 30th, 1998. We had commitments from 4 the bonding agency and the rehab granting agency since 5 March and April of '98 respectfully and began discussions 6 on this 4.2 million deal in March of '98. The deadline 7 has now been given as August 15th. 8 We have memorandums of understanding with other 9 major mortgage lenders in our market but have not been 10 able to get one with NationsBank due to the lack of 11 response, nor Bank of America. Again, I believe it is 12 due to the fact that policy changes are occurring, 13 staffing changes are occurring, and employees are 14 entering our marketplace with ideas that may have worked 15 in San Francisco but will never work in New Mexico. 16 Our mortgage and commercial product is important 17 to our constituency and to us, and if this merger slows 18 the delivery of our product, of that product, then our 19 production and growth potential is also diminished. The 20 bank contributions are important to us and, without them, 21 we cannot conduct feasibility analysis and other 22 pre-development duties necessary to commit ourselves to 23 long-term loans and other bank products. Therefore, it 24 is critical that local officers conduct business as usual 25 to ensure the bottom line of the bank and the services of 26 the agencies are fulfilled. . 542 1 Deals work only if the bank is willing to 2 provide below-market interest rate, fee waivers, and 3 discount portfolio products to our constituency. 4 The new merger is going to add to the existing 5 chaos, and though we are thankful we're not in your 6 shoes, it is important that this merger not diminish our 7 relationship but that it strengthens our relationship and 8 endeavors to build new and innovative ones to ensure our 9 common goals are met. 10 We fear contributions will diminish, 11 below-market interest rates will go away, and New Mexico 12 employees will be replaced by employees unfamiliar with 13 New Mexico communities. 14 The method of the merger is critical to all of 15 us, and we would like to stay abreast of all the changes 16 and expectations as they occur and provide as much 17 assistance as we can during the period to hope that our 18 existing products do not fail or falter. Thank you. 19 MS. SMITH: Thank you very much. 20 MR. FRIERSON: I have a question for 21 Dr. Lind. Could you go into a little more detail about 22 the methodology of the study that you used and address 23 whether the data allowed you to control for income as 24 well as race? 25 DR. LIND: Well, my general methodology is to 26 take the home mortgage data and take the full HMDA report . 543 1 for each MSA and basically scale down that portfolio to 2 the size of the lender in that MSA and then compare the 3 two. 4 And so if the lender -- if the scaled portfolio 5 which is of the same size as the lenders had, you know, 6 65 loans to black borrowers but the lender had only 35 7 loans, then I say that the lender is below the industry 8 by 35 loans. And then I can add those up as I go up to 9 higher levels of geography and corporate levels. 10 And obviously I used the HMDA data in terms of 11 the income that's provided by the HUD income levels for 12 that -- for the given year that are provided by the FFIEC 13 in looking at the income distribution of the borrowers. 14 This is equivalent to the old market fraction 15 rate that was proposed by the OCC back -- by the FFIEC 16 back in December of 1993. 17 MR. FRIERSON: Market share test? 18 DR. LIND: It's basically the market share 19 test, but I've -- actually, Stephen Cross at OCC agreed 20 with me that we're talking the same language. It's just 21 that it's convenient for me to phrase it this way because 22 I can add it up from -- to higher levels, whereas the 23 market share test is really good at the -- just at the 24 MSA level. 25 MS. SMITH: But the income that you use is the 26 demographic information from the Bureau of the Census? . 544 1 DR. LIND: That's right. 2 MS. SMITH: So that it tells you the income 3 level of given census tracts? 4 DR. LIND: That's right. I buy the FFIEC 5 census tape each year. 6 MS. SMITH: I have a question for Dr. Welbon. 7 You mentioned a pilot -- a one-year pilot program and 8 having submitted a proposal. I wasn't clear. You 9 mentioned the Department of Justice and you mentioned the 10 Federal Reserve. 11 DR. WELBON: That is correct. 12 MS. SMITH: And what exactly is the proposal 13 for? 14 DR. WELBON: We submitted in a very 15 comprehensive proposal that we submitted to the Federal 16 Reserve Bank and NationsBank as dealing with the school 17 systems. We have an initial 1.5 million dollar grant on 18 the national level from the Congress of National Black 19 Churches, which I serve as the Northern California 20 chair. And we are initiating a comprehensive innovative 21 program dealing with young peoples into the school 22 systems, also to make sure that they stay on the right 23 side of the track, and also that we haven't a lot of 24 violence in our school system at this particular time. 25 And we're trying to do something to bring that level 26 down. . 545 1 And we feel that -- and we feel that what is 2 happening in our school systems, there must be some sort 3 of proper -- reason why it's happening, especially kids 4 shooting one another and shooting our school teachers, et 5 cetera. And we need to try to focus on what can be done 6 to solve that sort of problem. And that's the type of 7 program that we have initiated with the Justice 8 Department and we're working with our school. 9 We put a summits on in San Francisco, also in 10 Oakland. And in the Northern California we're having 11 summits meeting with the teachers of the school, the 12 Justice Department, the social service department. All 13 of those entities are working to establish a network and 14 a joint partnership to order for us put -- to help this 15 comprehensive program at work. 16 I would rather see us take that $35,000 so we 17 incarcerate prisons, put young people in prison, and put 18 it into -- invest it into our young people. Because we 19 have to look at we're investing into our future, our 20 young people. America is on the -- it can be the most 21 beautiful country in the world, but we have to look at 22 the positive side and the negative side and work with 23 both sides to put together this innovative -- and with 24 your help, we can do that. 25 MS. SMITH: But the proposal is for joining in 26 a partnership? Is it for -- . 546 1 DR. WELBON: The proposal has been submitted to 2 First Nationwide if you need to take a look at it, Bank 3 of America -- 4 MS. SMITH: Well, I was interested in -- you 5 mentioned the Federal Reserve and I didn't know exactly 6 what role. 7 DR. WELBON: Well, we submitted a copy to the 8 Federal Reserve. 9 MS. SMITH: For our information? 10 DR. WELBON: For your information. 11 MS. SMITH: Okay. I understand. 12 Any other questions? If not, we thank you very 13 much for your testimony this afternoon. Be sure if you 14 have any supplemental comments to submit them by a week 15 from today close of business. Well, 5:00 Eastern 16 Daylight Time. And with that, I guess we're ready for 17 the next panel.
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