Public Meeting Transcripts
Public Meeting Regarding Fleet Financial Group, Inc., and BankBoston Corporation
Wednesday, July 7, 1999
Transcript of Panel Three
11 MR. REILLY: Good morning. My name is Tom 12 Reilly. I'm the Attorney General for Massachusetts. 13 I want to thank you for the opportunity to offer 14 comments to this panel today on the proposed merger. 15 I know you have a long day ahead of you and I will 16 certainly do my best to not make that day any 17 longer. 18 There are a number of important issues that 19 you have to consider. We've heard a lot about CRA 20 issues. They certainly are important. I have 21 submitted a letter, and I would ask with your 22 permission on those issues to have that letter be 23 made part of the record. 24 I would like to focus my attention and my 25 comments on competition, the need to replace the 0080 1 competition that will be caused by this merger. 2 By way of background, my office has done an 3 extensive investigation that is not yet complete on 4 this proposed merger. We've done it along with the 5 Department of Justice. We've administered several 6 investigative demands, market surveys, retained the 7 services of a respected economist, Dr. Kalamaris, 8 from Columbia University. We've conducted scores of 9 interviews with all the affected communities and 10 businesses and people that are involved in this 11 process. Now, that investigation, as I said, is 12 still ongoing, but we have identified certain 13 problems and certain major concerns that I would 14 like to share with you today. 15 First, as you well know, this is 16 unprecedented in terms of this merger. The one and 17 two major players for key sectors of our economy are 18 merging, and the key sector I want to focus on today 19 is the middle market. And that creates problems 20 whenever that competition is lost. 21 Secondly, this merger has national 22 implications, because there are other markets 23 throughout this country that are looking at this in 24 order to determine and foresee what the rules are 25 going to be. So I think this is important that we 0081 1 take the time in terms of doing it right. 2 Now, the problem, and the major problem 3 that we have identified, is the problem that this 4 merger creates risk, and I believe that risk is 5 unnecessary and I believe that that risk can be 6 avoided and perhaps prevented if this is done right. 7 Now, the major area that is at risk as a 8 result of this merger is the middle market, the 9 so-called middle market, and that's not some elusive 10 term. I mean, these are real companies. These are 11 real people. A textile manufacturer in Fall River, 12 maybe 30 million in revenues, maybe 250 employees. 13 Real people that depend upon the success of this 14 company. Metal fabrications plant maybe in the 15 central part of the state, Worcester, with 200 16 people, $60 million in revenues, does business in 17 the Far East, needs sophisticated banking services, 18 international letters of credit. A paper 19 manufacturer in the western part of the state or the 20 trucking companies throughout the state. 21 This is a major part of our economy. 22 Perhaps at least 1,000 companies that are affected 23 by this merger. A hundred thousand people that are 24 impacted. They have a stake in this, too, and they 25 need to be heard as well. 0082 1 Right now in the current state of our 2 economy, they're doing well. They're benefitting 3 because of the competition between BankBoston and 4 Fleet. They have a demand for credit. As I said, 5 letters of credit, international letters of credit, 6 currency centers. They're getting all that and 7 they're getting it at a price that they can afford, 8 a competitive price, and certainly we are all the 9 better for that. And I just want that to continue 10 and I want a major competitor to come in and replace 11 this competition. 12 Now, it's going well now, but what happens, 13 even in good times, if the price of credit goes up 14 and the price of borrowing goes up? I don't care 15 whether it's a quarter or a half a point or a full 16 point. What happens? It effects an increase in the 17 cost of doing business in this state and this 18 region. We don't need any more of that. We want to 19 keep competitive pricing. 20 What happens in a downturn? What are the 21 protections there? What about the loss of jobs if 22 there's a credit squeeze and a tightening of credit 23 and the job growth is lost? What's the impact that 24 has? What is the impact of putting all our eggs in 25 one basket? There's no other competitor. What 0083 1 happens to our economy? Certainly these are good 2 institutions and strong institutions and wise 3 institutions, but if there's only one of them and a 4 series of mistakes happens, what happens next? 5 I believe that all this can be avoided. I 6 believe that this merger can be done, and it can be 7 done right. It can be done by playing by the rules. 8 In my opinion, the way to do that is to bring in -- 9 that all of the assets that are going to be divested 10 go to one buyer for the entire region. One buyer 11 comes in and picks up this package, it ensures 12 competition. It ensures that there's going to be 13 regional competition in Massachusetts and throughout 14 this region. That is what I believe should happen. 15 Now, there are those -- and certainly I 16 respect their opinions and I value their opinions -- 17 that we should carve out for some community banks. 18 I support community banks. Everyone supports 19 community banks. They don't service the middle 20 market. And they won't service the middle market 21 when this is all said and done. 22 If a major competitor picks up this piece 23 and someone with the size and scope and scale and 24 the expertise to service this middle market, it is 25 my opinion they will divest. They will not need all 0084 1 these branches, particularly some of the smaller 2 branches, and that divestiture will occur in an 3 orderly fashion and they'll be making good business 4 decisions as to what they can divest, and that is 5 the way that I certainly would urge and recommend 6 that the Board adopt the direction that I think we 7 should go. 8 In the end this is about preserving 9 competition and maintaining the competition that 10 exists and filling that gap and filling that void 11 that is in that middle market. If we do that, and 12 we do it right, we'll set the standard to make sure 13 the flow of affordable credit and competitive credit 14 flows to the businesses of Massachusetts and this 15 region that depend upon them for their survival and 16 the economic future and health of this region. 17 Thank you very much. 18 My colleague Richard Blumenthal from 19 Connecticut is next. (Applause) 20 PRESIDING OFFICER SMITH: Mr. Blumenthal? 21 MR. BLUMENTHAL: Thank you very much. I 22 want to join my colleague, Attorney General Tom 23 Reilly, in thanking you for this opportunity and say 24 that I also join in sympathizing with the arduous 25 day you're devoting to this subject. I want to make 0085 1 it clear I think you need to devote another day, if 2 you choose to do so, in Hartford, which we've asked 3 you to do, and you're always welcome, as you were 4 some years ago. 5 I want to say that my comments have been 6 submitted formally in writing, and I will just 7 briefly summarize them. And I want to say that 8 we've appreciated the cooperation and the help that 9 we've received from the Commonwealth of 10 Massachusetts, General Reilly and his staff, who 11 have done excellent work. We've done much the same 12 kind of investigation and ours, too, is ongoing 13 involving documents that we've subpoenaed from the 14 banks, which are in confidential form and submitted 15 to you in excerpt. 16 We've also spoken to customers, 17 competitors, other banks that will be affected. We 18 have reviewed the complaints that we've received 19 over the years, not only in my office, but the 20 banking department, and we have benefitted from the 21 economic analysis done by Charles Cavanaros. 22 And today's situation brings me to somewhat 23 different conclusions than my colleague, General 24 Reilly, but we share a similar view of the enormous 25 peril and threat to competition and consumer 0086 1 interests that are inherent in this merger. 2 You will remember that four years ago I 3 spoke to you in Hartford regarding the proposed 4 merger of the Fleet Financial Group and the Shawmut 5 National Corporation, and we had high expectations 6 at that time that Fleet Bank would provide superior 7 services to consumers and small businesses as well 8 as to larger customers and that its community 9 investment commitment would be a model to the 10 nation. In fact, we negotiated a package of 11 divestiture and community commitments that we 12 believed offered tremendous promise for our region 13 and for the nation. 14 The record since 1995, I say regrettably, 15 offers warning for grave caution. The record has 16 been at best mixed. I expressed concern then that 17 large banks often do not give sufficient priority to 18 smaller customers, and we've seen throughout the 19 industry a limitation in competition, unceasing ATM 20 litigation and voluminous consumer complaints. 21 At least in 1995 one of the reassuring 22 thoughts was that Fleet would still face meaningful 23 competition and BankBoston was a viable remaining 24 rival. Now Fleet is again before this Board seeking 25 approval to acquire its largest New England 0087 1 competitor, BankBoston. And this proposed merger 2 would create a behemoth of more than 200 billion 3 dollars in assets, dwarfing its next largest New 4 England competitor by more than ten fold. 5 To counter this economic and competitive 6 threat, Fleet offers to sell less than one half of 7 BankBoston's Connecticut presence; really an offer 8 that would create a mere shadow of the competitive 9 force that premerger BankBoston offered. 10 Essentially talking about the rules as 11 General Reilly did, talking about the antitrust 12 rules that I am bound to enforce as Connecticut's 13 chief antitrust official, Fleet and BankBoston have 14 attempted to justify this result with an antitrust 15 argument that is simply out of touch with those 16 rules and with economic reality. They divided New 17 England into numerous artificial municipal and 18 metropolitan markets and they have argued that even 19 the smallest of banks and credit unions compete on 20 an equal footing, despite the fact that they have 21 recognized themselves in other contexts, the 22 importance of size and scale in economies that drive 23 down costs. 24 The key flaw in this case is that it 25 persists in mistakenly using the same incorrect 0088 1 formula in antitrust terms to determine that 2 competition won't be harmed. Artificially defining 3 those markets with municipal boundaries rather than 4 seeing them as statewide or regional. 5 I urge that there be a package of larger, 6 more extensive divestiture, a more satisfactory sale 7 of assets that is necessary to counter the 8 anti-competitive effects of this merger. In a sense 9 that kind of larger-scale divestiture would enable 10 various kinds of purchasers to use those assets to 11 increase themselves as competitive, pro consumer 12 forces in the marketplace. 13 A sufficient number of branch banks, 14 deposits, ATMs, other assets must be made available 15 to our growing regional financial institutions, 16 including the community bank, so that they will grow 17 from the ground up. 18 At the same time I urge that a substantial 19 block of assets -- not all, but a block -- from all 20 three states that are affected be sold on a combined 21 basis to a strong major purchaser that has economies 22 of scale and scope to directly and immediately 23 compete with Fleet-Boston. 24 In contrast to this approach, what Fleet 25 offers is what it has called a clean sweep of 0089 1 BankBoston assets. But their broom, it seems to us, 2 is really a worn-out brush applied to one or two 3 cities; not to the relevant market as a whole. 4 BankBoston doesn't operate out of Hartford alone or 5 out of Torrington alone in the State of Connecticut. 6 It has a statewide presence. The mid market is key 7 and will be the victim of less competition, tighter 8 credit, higher rates and lower quality service if 9 this merger is permitted to go forward as it is 10 structured now. 11 And as General Reilly has said so well, 12 this mid market really is the engine that fuels our 13 economic growth in the State of Connecticut and 14 throughout the region. These are small and middle- 15 sized businesses that employ tens of thousands of 16 our citizens and, most importantly, most critically, 17 even in good times, they are the economic forces 18 that employ new workers and create new jobs. 19 Let me just say finally that I urge the 20 Board to require Fleet-Boston to make good on the 21 commitments that it has articulated more 22 specifically this morning by further defining them, 23 by stating them even more specifically, but most 24 important, saying explicitly what it will do to make 25 sure that the community investment commitments are 0090 1 actually realized. What we found in the last 2 go-around on community investment is that they are 3 completely dependent on community outreach and 4 promoting aggressively the kind of opportunities 5 that are made available. The numbers mean nothing 6 unless they are backed by a solid, aggressive 7 program of community outreach. (Applause) And that 8 is what I urge the Federal Reserve Board to require. 9 I very much appreciate this opportunity to 10 be with you this morning and for you to give me this 11 chance to talk to you. 12 PRESIDING OFFICER SMITH: Thank you very 13 much. Ms. Nappier. 14 MS. NAPPIER: Good morning. My name is 15 Denise Nappier and I am treasurer of the State of 16 Connecticut. I am pleased to join with Attorney 17 General Richard Blumenthal from my State of 18 Connecticut and his counterpart here in 19 Massachusetts to share with you some serious 20 concerns about the proposed merger as it stands 21 today. I would also like to thank you for the 22 opportunity to testify, although I must express my 23 disappointment in your decision not to hold a 24 hearing in Connecticut on a matter that will 25 effectively remake the financial landscape in 0091 1 Connecticut. 2 The Connecticut State Treasurer's interest 3 in the proposed merger are substantial. We are a 4 shareholder and a major customer of both banks. The 5 combined shares of both banks held by the state 6 treasury is in excess of 630,000. For the past two 7 years the state treasury has spent nearly $6 million 8 on banking service fees, of which 90 percent has 9 been spent or paid to Fleet and BankBoston, Fleet 10 representing the lion's share of roughly 77 percent 11 of all fees paid, and BankBoston 15 percent. 12 I believe that a sense of responsibility 13 for the well-being of the citizens of Connecticut 14 can and must go hand in hand with the fiduciary 15 responsibilities of the state treasurer's office, 16 and it's within that context that I express my 17 concern. 18 Let me say from the onset that I believe 19 that this merger could be a tremendous opportunity 20 for Connecticut and New England. There could be 21 great promise in the establishment of a strong 22 regional bank, a great player on the national stage, 23 but that's not the blueprint we see today. 24 My office is taking a look at Fleet's track 25 record in lending in the communities, and I am 0092 1 concerned. Fleet has claimed that the merger will 2 generate greater capacity for the bank to provide 3 superior services to customers. It sounds good, but 4 I believe in checking the record, and so far the 5 record tells a different story. 6 For example, Fleet's history of post-merger 7 performance demonstrates a declining level of 8 commitment in providing better access to banking 9 services, home mortgage and small business loans, as 10 well as other forms of community investments. 11 (Applause) Now, I do understand the art of 12 statistics, but the facts speak for themselves and 13 as a fiduciary, I don't typically engage in those 14 forms of tactics. So I am here to say to you that 15 in Connecticut we know that the amount of loans to 16 low and moderate income households before the merger 17 of Fleet and Shawmut was twice the level it is 18 today. (Applause) I understand that the CEO of 19 Fleet was recently quoted as saying that the merged 20 bank will be for everyone. Well, my concern is over 21 just who is being left out here. (Applause) I am 22 generally concerned that the big losers in the 23 merger, the people being left out, may be the 24 consumers and businesses of Connecticut. That is, 25 people who are trying to get a small business up and 0093 1 running or expand a growing business and need a 2 reasonable loan. Or the low or moderate income 3 family living in our rural communities or in the 4 inner city trying to afford their first home and 5 need a mortgage at an affordable rate. And 6 consumers depend on reasonable rates, healthy 7 competition and banking parties that respond to 8 their needs. 9 Let me briefly highlight nine critical 10 areas of concern. First, due in large part to the 11 competition for business between Fleet and 12 BankBoston, the state treasurer's office here in 13 Connecticut has saved nearly $1 million reduction in 14 banking service fees from 1994 to 1998. While I can 15 speak only for the business relationship of the 16 state treasury, it would not be unreasonable to 17 assume that Fleet may possess substantial 18 competitive control over other business 19 relationships in our state. 20 We are concerned that the savings achieved 21 by my office may well be eroded as competition is 22 eliminated. Adequate capital is frequently cited as 23 the major barrier to growth and development of small 24 businesses. Undercapitalization is the largest 25 contributor to business venture failure. Therefore, 0094 1 the economic stability and well-being of small 2 businesses in our state is directly tied to the 3 availability of choices of banking services and the 4 fair lending practices of the financial institutions 5 serving our state. That's why reduction in 6 competition is of concern here. (Unintelligible) 7 bank is a program that helps small Connecticut 8 businesses that are unable to obtain conventional 9 financing with an emphasis on minority and women- 10 owned businesses. 11 As part of the Fleet-Shawmut merger Fleet 12 was required three years ago to maintain a high 13 level of urban loans. Once meeting its obligations, 14 under the agreement Fleet's participation with 15 (unintelligible) dwindled considerably, from 1.2 16 million in fiscal 1998 to 295,000 in fiscal 1999. 17 That track record is cause for serious concern. 18 The Community Reinvestment Act has fought 19 discrimination in lending practices and increased 20 access to capital for home mortgages and business 21 start-up for more than two decades. Any entity 22 emerging from a merger between Fleet and BankBoston 23 should be a leader obligated to formulate, promote 24 and implement unfolding principles of community 25 investment. 0095 1 We have seen just the opposite. For 2 example, the 1998 CRA rating report showed that 3 Fleet made nine community development loans totaling 4 just over $16 million in Connecticut while they made 5 19 community development loans totaling nearly 157 6 million dollars in Massachusetts. Of the 200 7 million in community development loans, 8 Massachusetts received 72 percent of the loans to 9 Connecticut's 7.5 percent, even though Connecticut 10 has 25 percent of the bank's branches to 11 Massachusetts' 33 percent. 12 Obviously every potential borrower in 13 Connecticut is concerned about those stats. In 14 Connecticut we understand the value of community 15 banking, where the bankers know all the 16 businesspeople and are aware of potential business 17 problems before they become critical. BankBoston 18 has developed an internationally recognized model 19 for community banking. Fleet has not. And even the 20 BankBoston model has worked more effectively in 21 Massachusetts than in Connecticut. 22 Any approved merger plan should include the 23 preservation of the banking relationships developed 24 by First Community Bank and a commitment to the 25 continued success of the First Community Bank. Now, 0096 1 we're concerned that won't happen. Connecticut's 2 urban and rural communities have traditionally been 3 underserved by financial institutions. Yet nearly 4 half of the branches targeted for sale in connection 5 with the proposed merger are located in the rural or 6 urban areas of our state. Location is particularly 7 important to low and moderate income families where 8 transportation is frequently limited. We're 9 concerned that service to these communities will be 10 disrupted at best and perhaps in some cases will be 11 eliminated. 12 Fleet and BankBoston have recently 13 announced a $14.6 billion commitment for 14 lower-income borrowers, small businesses, community 15 development programs over a five-year period of 16 time. Our internal analysis indicates this is only 17 a slight increase from the current lending patterns 18 and we have no idea from Fleet how this will affect 19 our state. Given the uneven distribution of Fleet's 20 attention to community development efforts in the 21 past, it would not be unreasonable to assume that 22 Connecticut would not fare as well as Massachusetts. 23 We remain concerned about that and would much prefer 24 that Fleet show leadership in all jurisdictions in 25 which it operates. Thank you very much. (Applause) 0097 1 PRESIDING OFFICER SMITH: Thank you. 2 Questions from the panel? 3 MR. McDONOUGH: I have a question for Mr. 4 Reilly. Your remarks today have centered around the 5 antitrust implications of this merger, particularly 6 your concern about middle market lending, and you're 7 advocating a solution where a large institution 8 would come in and acquire all the assets in all 9 three states? 10 MR. REILLY: Yes. 11 MR. McDONOUGH: Whereas, Mr. Blumenthal was 12 suggesting that maybe a large institution could 13 acquire some assets, a sufficient number, toehold or 14 whatever, to meet the middle market. Is that a 15 potential solution to this issue or do you still 16 believe -- obviously you believe -- but would it be 17 sufficient if a large institution acquired 18 sufficient assets in the three states rather than 19 acquiring everything? 20 MR. REILLY: I think the key for me would 21 be whether or not the bank that acquired the new 22 buyer was sufficient in size and scope and expertise 23 to meet the competitive demands or competitive needs 24 of that middle market. That's the focus. Once that 25 was satisfied, certainly I'm open to other 0098 1 considerations. But that's the main focus. That's 2 the main consideration. And I am concerned about in 3 terms of carving out a piece, who's going to do the 4 carving out? Is it going to be Fleet-Boston? Isn't 5 that a conflict? What about the inevitable 6 cherrypicking that's going to go on? It's going to 7 make it all the more difficult for a new, viable, 8 strong competitor that I'm looking for to come in 9 here and be willing to come in here under those 10 circumstances, if there are going to be carveouts in 11 the first stage regionally or carveouts individually 12 within the states. 13 I think it makes it more complex. It makes 14 it more difficult. Is it impossible? No, but I 15 think it's a real challenge to put on the table. 16 It's a problem that I think can be solved by the 17 solution that I'm proposing. Are there other 18 solutions? Perhaps, but we need to be very, very 19 careful here and proceed with caution. This can be 20 done I believe, but it has to be done right and I 21 believe that complicates it the more layers of 22 carving out that there are. But it could be solved. 23 If there is one strong competitor, wherever that 24 competitor comes from or evolves that can meet the 25 competitive needs of have middle market, I'll be 0099 1 satisfied, and I think this merger would ultimately 2 be a good thing for this region and for the state. 3 MR. McDONOUGH: Thank you. 4 MR. ALVAREZ: I have a question for Mr. 5 Blumenthal and Mr. Reilly. Do you find, in looking 6 at the middle market, that there is much competition 7 from banks or other lenders outside the market in 8 the contiguous area? The middle market tends to be 9 a larger geographic market than some retail markets, 10 and I'm wondering what kind of competition you're 11 finding outside the particular State of Connecticut 12 or the State of Massachusetts. 13 MR. REILLY: In Massachusetts we're finding 14 that there is some competition, but there is no 15 question that the two major competitors are 16 BankBoston and Fleet. At the lower end of that 17 middle market you'll find some competition at the 18 very higher ends. Obviously there are already more 19 options. But right smack in the middle there, these 20 are the two major competitors, and essentially the 21 only major competitors, and that's the void that 22 certainly I'm very concerned about. There's a 23 little bit of competition, but these are the primary 24 players here, and they're competing, and it's a good 25 thing. I just want to keep it going. 0100 1 MR. BLUMENTHAL: Much the same is true in 2 Connecticut. There is now competition, we find, 3 talking to customers, between BankBoston and Fleet 4 for mid-market business, and one of the key 5 differences, disagreement between ourselves and 6 Fleet-BankBoston, is on precisely that point. They 7 have in essence said they are doing enough now in 8 terms of divestiture, and going to the first 9 question that was asked, I think the focus ought to 10 be on the clean sweep. Let's really use a broom. 11 Let's sell more of those assets so that they can be 12 made available not only to a major purchaser who can 13 offer competition in the mid market, but also to 14 community banks and regional financial institutions 15 that are grown from the ground up and can also begin 16 to offer competition for that mid market. 17 These solutions are by no means mutually 18 exclusive. If the broom sweeps clean and hard 19 enough and assets are really made available, both 20 can be done. But the competition that now exists is 21 very much on a regional and statewide basis, and 22 ought not to be defined artificially and 23 unrealistically and inaccurately by municipal 24 boundaries or metropolitan areas, as the submission 25 from Fleet-BankBoston essentially does. 0101 1 PRESIDING OFFICER SMITH: Other questions? 2 MR. KWAST: A follow-up with Attorney 3 General Blumenthal for a moment. Do you have a feel 4 for how large a bank needs to be to serve 5 effectively the middle market in Connecticut or the 6 rest of New England? 7 MR. BLUMENTHAL: I can't put a precise 8 number on its assets. I would be glad to get back 9 to the Board with that kind of estimate. Part of 10 what we're doing now essentially is working with our 11 economist on exactly that question, which obviously 12 is an core one for you as it is for all of us. But 13 our feeling is that the sale of assets can be done 14 realistically and aggressively so as to enable a 15 major competitor, a large purchaser and at the same 16 time the community banks to both be involved. And 17 what exactly the size is I would be happy to submit 18 in further written testimony if the Board will 19 permit me to do so. 20 MR. REILLY: I thought a little bit about 21 that, and I don't have a hard figure, but the 22 starting point is that this merged bank is going to 23 have what? 170 billion dollars in terms of assets, 24 and certainly the closer you get to that figure, the 25 better off you're going to be. I don't know whether 0102 1 it's 30, 40, 80, 100, but the closer you get to that 2 figure, certainly the more comfortable I think we're 3 all going to be if we reach that kind of competitive 4 size and dimension that's going to provide real deep 5 pockets, real competition. 6 PRESIDING OFFICER SMITH: Thank you very 7 much for coming this morning. 8 MR. BLUMENTHAL: Thank you. 9 PRESIDING OFFICER SMITH: We'll move on to 10 Panel Four. We're ready to start and we have Ms. 11 Campbell reading a part of the statement from Ms. 12 Hurd, and I have assured her that the entire 13 statement will be part of the record.
Last update: December 3, 2010