Public Meeting Regarding First Chicago NBD and Banc One
Transcript of Thursday, August 13, 1998
|
Public Meeting Regarding First Chicago NBD and Banc One |
1 PUBLIC MEETING REGARDING THE PROPOSAL BY
2 BANC ONE CORPORATION, COLUMBUS, OHIO,
3 TO MERGE WITH
4 FIRST CHICAGO NBD CORPORATION, CHICAGO, ILLINOIS
5
6
7 Proceedings had in the above-mentioned
8 cause, on Thursday, the 13th day of August, 1998,
9 at The Federal Reserve Bank of Chicago, 230 South
10 LaSalle Street, Chicago, Illinois at 9:00 o'clock
11 a.m.
12
13
14
15
16
17
18
19
20 REPORTED BY: Brenda S. Tannehill, CSR
21 LICENSE NO.: 084-003336
22 - and -
23 REPORTED BY: Jeanette A. Sandei, CSR
24 LICENSE NO.: 084-003685
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1 MS. SMITH: I think we can get started. Let me
2 start by welcoming you to this important public
3 meeting on the application of Banc One Corporation
4 to merge with First Chicago NBD Corporation.
5 And I'll start by introducing myself. I'm
6 Dolores Smith, the director of the division of the
7 Consumer and Community Affairs for the Reserve
8 Board in Washington, D.C. I'm also the presiding
9 officer for this public meeting.
10 Our other panelists are Scott Alvarez,
11 who is the Associate General Counsel for the
12 Federal Reserve Board, and Alicia Williams, who is
13 Vice President and Community Affairs Officer from
14 the Federal Reserve Bank of Chicago.
15 We are here today because Banc One
16 Corporation, Columbus, Ohio, has applied for
17 approval to merge with First Chicago NBD
18 Corporation, Chicago, Illinois.
19 When the Federal Reserve Board considers
20 one of these applications, we look at a number of
21 factors under the Bank Holding Company Act. These
22 include financial issues, managerial issues,
23 competitive issues and the convenience and needs of
24 the communities affected.
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1 In doing so, we particularly look at the
2 record of performance of the parties under the
3 Community Reinvestment Act.
4 The CRA requires the Board to take into
5 account an institution's record of meeting the
6 credit needs of its entire community.
7 The Banc One application transaction also
8 involves the proposed acquisition or retention of
9 non-banking companies engaged in activities that
10 are permissible for bank holding companies.
11 The Board must determine whether the
12 proposed non-banking activities can reasonably be
13 expected to produce benefits to the public that
14 outweigh possible adverse effects such as undue
15 concentration of resources, decreased or unfair
16 competition, conflicts of interest or unsound
17 banking practices.
18 The purpose of the public meeting today is
19 to receive information regarding these factors. We
20 will be seeking to elicit this information and to
21 clarify factual issues related to the application.
22 We are very pleased that so many people
23 have been willing to come and testify at this
24 public meeting. We will have more than 90 groups
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1 and individuals represented over the course of the
2 day.
3 Let me tell you a little bit about the
4 procedures that we'll be following. First, this is
5 what we call an informal public meeting. Members
6 of this panel may ask those who are testifying
7 about their testimony.
8 This is not a formal administrative
9 hearing, so we are not bound by rules regarding
10 evidence, cross-examinations and some of the formal
11 trappings that accompany that type of proceeding.
12 As you can see from the agenda that you
13 have picked up, we do need to stick to the schedule
14 very carefully so that everyone who has asked to
15 offer oral testimony will have the chance to say
16 what they would like to say.
17 We are going to ask the witnesses today to
18 be mindful of the needs of others and to help us
19 stay on schedule. The panels and panelists will be
20 expected to keep within their allotted times.
21 And we do have a system for reminding
22 people about their time. We have two
23 time-keepers. They're up front. They will give a
24 signal when the presenter has one minute left to
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1 speak. We'll hold up a sign. And then we have
2 another sign when the time has expired.
3 And then if that doesn't work, we have --
4 we go to audio and we have a little bell. We don't
5 have a hook, so you have those opportunities.
6 Now, we have accommodated everyone who
7 made a timely request to present testimony, but
8 there may be some individuals who were unable to
9 sign up in advance. And to the extent possible, we
10 do want to give them a chance to speak as well.
11 So at the end of the meeting this
12 afternoon when all of the panelists who have been
13 listed have offered their testimony, we will make
14 the microphone available to anyone who would like
15 to make a presentation, time permitting.
16 Witnesses may submit a written supplement
17 to their oral testimony and have until next
18 Thursday, August the 20th, to do so, and then the
19 record will be closed.
20 Any written supplements should be directed
21 to Jennifer J. Johnson, Secretary of the Board,
22 Board of Governors of the Federal Reserve System,
23 Washington, D.C. 20551. They must be received
24 by 5:00 p.m. Eastern Daylight Time on Thursday,
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1 the 20th. Submissions may be faxed to area code
2 (202) 452-3462.
3 Also, for witnesses who have not already
4 turned in copies of written testimony or if there
5 are any other written statements to put into the
6 record, we're asking you to leave them with Federal
7 Reserve Bank staff at the registration table.
8 It's important that we get this
9 information and material for the record. A
10 transcript of the meeting will be available by
11 August the 18th through the Federal Reserve Bank of
12 Chicago and also from the Board.
13 In addition, the official transcript will
14 be available by close of business on August 19th on
15 the Board's public web site, which is at
16 www.bog.frb.fed.us.
17 And with that, I think we're ready to
18 begin with our proceedings. We will start first
19 with the applicant panel.
20 We have Mr. Istock from First Chicago and
21 Mr. McCoy from Banc One. And they have with them
22 Ms. Decker and Ms. Williams, so if you will --
23 Ms. Johnson. I'm sorry. I'm so sorry.
24 If we can -- Mr. Istock, are you going
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1 first?
2 MR. ISTOCK: Yes.
3 Thank you and good morning. As indicated,
4 I'm Verne Istock, chairman, president and chief
5 executive officer of First Chicago NBD.
6 And with me this morning, in addition to
7 Mary Decker, our senior vice president is David
8 Vitalle, who is the vice chairman of the
9 corporation and also president of First National
10 Bank of Chicago.
11 And also with me, as indicated, is John
12 McCoy, who is chairman and chief executive officer
13 of Banc One Corporation, and Julie Johnson, who is
14 senior vice president.
15 The banking business, even when you're
16 talking about banks the size of the new Banc One,
17 is an intensely local business.
18 As with customers, you have to understand
19 the needs of your communities and then try to
20 design solutions that will work.
21 This doesn't happen quickly or easily. It
22 takes time, effort and commitment. It takes
23 bankers who know their communities, who care and
24 who get involved.
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1 At First Chicago NBD, we've had a long
2 history of community commitment. Over time,
3 we've built solid working relationships with
4 organizations that know and understand their
5 neighborhoods and who can partner with us to design
6 products and programs that respond to community
7 needs.
8 It's pretty obvious that we can't please
9 everyone, but those organizations that have chosen
10 to work with us have found us to be good partners.
11 We've learned a lot from each other and together
12 we've achieved meaningful results.
13 Let me quote from a letter from Sokoni
14 Karanja, president for the Centers for New Horizons
15 here in Chicago, that really captures that spirit.
16 He writes, and I quote, this partnership
17 in my 30-plus years of community development
18 experience, has been a unique one, for no other
19 lending institution I have worked with over the
20 years has demonstrated the capacity to first listen
21 to the community and then find ways to make
22 philanthropic as well as strictly business
23 investments that generate wins to both the
24 community and the bank, end of quote.
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1 There is a synergy between what we do
2 that's strictly business, as Dr. Karanja put it,
3 and what we do because these are the communities
4 where we live, work and raise our families.
5 We recently published a booklet titled
6 Your Community/Our Community that highlights some
7 of the ways in which First Chicago NBD supports its
8 many communities. And I've submitted a copy for
9 the record.
10 We are especially proud of our record of
11 lending in our major urban markets, Chicago,
12 Detroit and Indianapolis.
13 In Chicago and Detroit, for example, we
14 are by far the largest locally based small business
15 lender. In Indianapolis we are the leading SBA
16 lender. And we are the number-one in Capital
17 Access programs in Michigan, Illinois and Indian.
18 We are also a leader in mortgage credit in all
19 three markets.
20 First Chicago NBD has developed many
21 innovative lending practices to serve the needs of
22 all applicants.
23 For example, we offer a number of flexible
24 mortgage loan programs that include either down
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1 payment assistance or support for closing costs.
2 Our community pride loan is targeted to
3 households with less than 50 percent of median
4 family income. This loan can be used for home
5 improvements, new or used car financing or home
6 equity loan for any purpose, including business
7 development and education.
8 Sometimes traditional bank lending isn't
9 enough. We've chartered community development
10 corporations that can also make direct investments
11 in community projects.
12 In Detroit, for example, our CDC partnered
13 with the city and the local hospital group to
14 develop Virginia Park, a subdivision of new single
15 family homes in the core city.
16 We have for 15 years been an active
17 participant and are the largest investor in
18 Chicago's Community Investment Corporation, a
19 non-profit mortgage banking organization that
20 specializes in affordable housing development.
21 In July, CIC announced a $500 million loan
22 pool, the largest in the midwest, including a
23 $100 million flex-fund to finance deals that
24 stretch the limits on what we can accomplish in
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1 distressed neighborhoods.
2 And we've been an important partner in the
3 Indianapolis Neighborhood Housing Partnership,
4 providing leadership in operating support and
5 participation in affordable loan pools.
6 Microlending is an important tool to spur
7 business development and one we're using throughout
8 our business areas. Through support of non-profit
9 lending organizations, such as ACCION in Chicago,
10 the Detroit Entrepreneurship Institute, the Lake
11 County Small Business Center and Collier County
12 Economic Development Council in Naples, Florida,
13 First Chicago NBD is helping to strengthen our
14 communities by giving entrepreneurs a start.
15 Education is an important priority for us,
16 and we're particularly interested in programs that
17 promote financial literacy.
18 Through a program called Credit: Tool or
19 Trap, NBD Bank in Michigan teaches high school,
20 community college and adult education students
21 about the power of using credit wisely.
22 This program is offered in partnership
23 with non-profit organizations and churches
24 throughout the state.
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1 We sponsor more than 130 in-school banks
2 in Michigan, Indiana and Illinois where grade
3 school students learn money management, math and
4 employment skills.
5 The merger of First Chicago NBD and
6 Banc One Corporation is a merger of equals.
7 Neither company is taking over the other by paying
8 an extraordinary premium.
9 We think that's important because it means
10 that we don't have to do the kinds of extraordinary
11 cost-cutting that could damage our franchise, hurt
12 our employees and compromise our ability to serve
13 our communities. Certainly there will be
14 efficiencies and, yes, we will reduce costs, but
15 this merger is about growth.
16 And that growth benefits our customers,
17 our employees and our communities as well as our
18 shareholders. It promotes innovation, the creation
19 of new and better products and services.
20 It allows the creation of new jobs,
21 including many at entry levels, and the opportunity
22 for achievement and advancement. And growing
23 earnings allow growing support of communities.
24 I know that when companies merge,
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1 communities always fear the loss of support. We
2 heard that concern when First Chicago and NBD
3 merged three years ago.
4 But as the earnings of the combined
5 First Chicago NBD Corporation have grown, so have
6 our contributions to the civic, educational and
7 cultural institutions of all of our communities.
8 Whether it's lending, investment or
9 philanthropy, it means being part of the community,
10 being involved, knowing and understanding its
11 needs, its hopes and its dreams and being part of
12 making it all happen. And that's our goal for the
13 new Banc One. Thank you.
14 And now it's my pleasure to introduce my
15 colleague, John McCoy.
16 MR. McCOY: Thanks, Verne.
17 We appreciate very much the opportunity
18 to appear here today. We appreciate the work
19 that the Fed staff has done. We appreciate all
20 the panelists, pro or con. I think it's a very
21 healthy atmosphere and look forward to a very
22 interesting day.
23 Banc One couldn't be more pleased to join
24 with First Chicago NBD in creating the new
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1 Banc One.
2 Verne has talked about some of the
3 strengths of First Chicago. And I'd like to talk
4 about a few of the great things Banc One will bring
5 to the table.
6 The first of these is our legacy of
7 innovation. Banc One is an entrepreneurial
8 company. 32 years ago in 1966, we introduced the
9 first credit card outside of California. And in
10 1971, we launched the first automatic teller
11 machine in the nation.
12 Eight years later in 1979, we experimented
13 with one of the first home banking systems.
14 Today, credit cards, ATMs and home banking are
15 commonplace.
16 Banc One's culture of innovation has
17 created important new products and services in all
18 lines of business, including community
19 reinvestment.
20 Some of the CRA products may even seem
21 commonplace today, while other leading-edge
22 initiatives can become tomorrow's standard.
23 CRA at Banc One means business. It means
24 designing products that meet the needs of our
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1 customers and constantly refining them to make them
2 better, more affordable and more accessible while
3 providing a fair return to the shareholder.
4 Today, you will hear many success stories
5 from our markets where we continue to innovate and
6 also from our partners who are working with us to
7 find new ways to finance affordable housing and
8 small business.
9 Our CRA record is one we are proud to
10 stand on. And I think you will agree that
11 Banc One's entrepreneurial spirit has elevated this
12 record to one of distinction.
13 I'd like to review just a few of our
14 singular achievements. In 1987, Banc One was one
15 of the first banks in the nation to finance a
16 project utilizing low-income housing tax credits.
17 Over the last 11 years, we have refined
18 our expertise in this area so that today we can
19 deliver direct assistance to projects which could
20 not otherwise be accomplished because of their size
21 or complexity.
22 These projects include the rehabilitation
23 of a former crack house in Wheeling, West Virginia,
24 across the street from an elementary school.
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1 With Banc One's technical and investment
2 support, that crack house is now a three-unit
3 affordable housing project utilizing low-income
4 housing tax credits.
5 This project may rank as the smallest tax
6 credit deal in the country, but to the kids and
7 parents in Wheeling, it's a huge success.
8 In Louisville, the city struggled for
9 20 years with a severely troubled HUD Section 8
10 project. After entering the Louisville market in
11 1992, Banc One's community development team went to
12 work with the city, HUD and a private developer to
13 create a solution.
14 The turning point was an $8.8 million
15 bridge loan structured by Banc One and participated
16 to more than 13 lenders.
17 Following our entry into Delaware,
18 Banc One was approached to provide the expertise
19 and financing for an affordable housing project
20 serving low-income, chronically mentally ill
21 residents in Wilmington. This project is now
22 underway.
23 In Colorado, Banc One resources are
24 assisting the Southern Ute Indians in developing
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1 50 single family homes which will be available on a
2 lease purchase basis to low-income members of the
3 tribe.
4 Elsewhere, our CDC designed a small loan
5 program to provide long-term fixed rate financing
6 for small, affordable, multi-family projects that
7 lacked a way to deliver that product efficiently.
8 We teamed up with the Wisconsin Housing
9 and Economic Development Authority and put together
10 a partnership where WHEDA markets and underwrites
11 the loans while Banc One CDC provides the funding.
12 Together, Banc One and WHEDA share the
13 risk. Together we created a delivery system that
14 is a win-win for Banc One and WHEDA. The people of
15 Wisconsin are the beneficiaries.
16 We are now exploring opportunities to take
17 what we have developed in Wisconsin and roll it out
18 in other Banc One states, including Kentucky, Texas
19 and Illinois.
20 In the small business area, Banc One
21 stepped forward to pilot the SBA's Fastrack and
22 Microloan programs.
23 Today, Banc One is recognized as the
24 national leader in both programs and has
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1 established a reputation as a leading
2 microenterprise expert.
3 Banc One is generating more SBA microloans
4 than any other bank in the nation and has
5 established a network of microenterprise experts
6 extending from Milwaukee all the way to the Mexican
7 border.
8 Recently, these experts joined Banc One in
9 Cleveland to help the city reinvest their local
10 microlending program.
11 In another first, Banc One is the lead
12 investor in Capital Across America, the first small
13 business investment company focused on providing
14 capital to women-owned businesses.
15 There are two special ingredients in
16 Banc One's recipe for its successful CRA program.
17 One is knowledgeable employees who devote
18 all of their time and expertise to designing
19 sustainable and profitable solutions that meet
20 community credit needs.
21 The other is strong and respected local
22 partners who are knowledgeable about their markets
23 and share our commitment to sustainable solutions.
24 At Banc One, community needs represent
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1 business opportunities and collaboration creates
2 customers.
3 Finally, I would like to take a moment to
4 express a concern which has been addressed by
5 certain community groups.
6 Banc One has entered a partnership with
7 HomeSide Lending to provide servicing for Banc One
8 Mortgage Corporation loans.
9 The servicing of our portfolio by HomeSide
10 does not negatively affect Banc One's loan
11 organization business. Banc One will continue to
12 originate mortgage loans. I think it is important
13 that this be clearly understood.
14 In fact, we recently entered a new
15 partnership with Self-Help to assist low-income and
16 minority home buyers in all of our bank markets.
17 This new program is a joint initiative
18 between Fannie Mae, the Ford Foundation and four
19 lenders to generate 35,000 affordable mortgages
20 over the next five years.
21 This program is focused on serving home
22 buyers who have difficulty meeting conventional
23 lending standards because of inadequate savings or
24 weaker credit. While HomeSide will service the
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1 loans, Banc One will be the originator.
2 We're excited about serving new markets,
3 new places where the next CRA innovations may
4 develop with new partners. We look forward to
5 sharing our expertise and learning from new
6 partners in Chicago and Detroit. Thank you.
7 MS. SMITH: Questions?
8 MR. ALVAREZ: I've got a question. Many of
9 the --
10 (Whereupon, there was a
11 vocal demonstration from the
12 audience.)
13 MS. SMITH: I would appreciate it if we could
14 have a little quiet, please.
15 MR. ALVAREZ: I'd like to ask a question,
16 actually, many of the commentors have asked in the
17 written remarks.
18 They expressed a view that neither
19 Banc One nor First Chicago has adequately addressed
20 the minority lending needs or the needs of loan
21 individuals. And they have charged that there's
22 been substantial disparities in the loan rates in
23 many communities once they are combined institution
24 to reach out to the low and moderate income
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1 communities that are served by the organization and
2 to minorities and to ensure that credit decisions
3 are complying.
4 MR. ISTOCK: I would help the Chair out and
5 suggest that common courtesy would be that people
6 in the audience would let the other people in the
7 audience hear the response.
8 I believe both of us have addressed -- and
9 I'll speak for the First Chicago NBD -- minority
10 lending. And we've worked with many, many
11 community groups to really expand minority lending,
12 both African Americans and Hispanics and others.
13 And we'll stand on our record. We've expanded
14 these types of loans in all of the markets in which
15 we've serviced.
16 There has been some criticism that our
17 denial rates are higher than others, but I also
18 will say that the number of loans that we have
19 approved are higher as well. And we have
20 aggressively sought more applicants. And I suspect
21 that as you do that, you will find that there will
22 be more denials.
23 But, nevertheless, we had a number one
24 position here in Chicago in approving mortgages in
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1 '96. And in 1997, we had a 40 percent increase in
2 the number of loans approved and it was well over a
3 hundred million dollars. So we're very proud of
4 our record.
5 MR. McCOY: As you are aware, we have done a
6 number of mergers.
7 MR. ALVAREZ: Move the microphone.
8 MR. McCOY: We've done a number of mergers and
9 are constantly being examined by both the Fed and
10 the OCC. I think the exams speak for themselves.
11 We've had very good ratings.
12 Secondly, there is rigorous monitoring
13 that goes along in all of our markets to make sure
14 that we are absolutely in compliance and also
15 rigorous training of our employees to ensure that
16 we are reaching minorities.
17 And I think the other thing that we found
18 in the acquisitions that we've done is everybody
19 does it a little bit differently.
20 And I think that there are things that
21 First Chicago has done that we applaud. I think
22 Verne would say the same thing.
23 And I think with joining together, as we
24 will in many areas, there will be synergies. And
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1 we will take the best of both programs and, I'm
2 sure, come out with even a better program.
3 MR. ALVAREZ: A question for Mr. McCoy.
4 Banc One has recently completed a reorganization
5 project called, I guess, Project One that's
6 resulted in more centralization of management and
7 operational structure.
8 Will this centralization combined with the
9 merger eliminate local credit decision-making and
10 local points of contact and the ability of the
11 organization to understand the particular needs of
12 the local communities and address in special ways
13 the special needs of local communities?
14 MR. McCOY: Absolutely not. The key to the
15 banking business, especially the community banking
16 business, is to be knowledgeable of your individual
17 communities.
18 And there are differences between Chicago,
19 Detroit and Columbus. And if you're not aware of
20 what those differences are or what the needs are,
21 you are not going to be successful.
22 So our philanthropic giving is done by the
23 local communities in the local communities, not
24 centrally. And we have market managers in each
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1 market who are challenged to make their markets
2 successful. And in reality, our CRA is done at the
3 local market level, not centrally.
4 So the key to our success is to really
5 compete with the competitors in the local market,
6 not on a national basis.
7 MR. ISTOCK: I would just add to that question
8 that John and I are in full agreement on this; that
9 while certain functions are better managed from a
10 centralization standpoint, the closer we can get
11 the decision-making individual to the individual
12 applying for a loan or whatever the case may be,
13 the better off we are, the better off the customer
14 is and the better off the community is. And we
15 subscribe to that philosophy.
16 MS. SMITH: I would ask you one question; and
17 that is, can you tell us something about your plans
18 for merging the CRA programs of your two
19 institutions? Any detail that you might give us
20 on that?
21 MR. ISTOCK: I can start with that. We have
22 just announced internally that Jerry Bulldike, who
23 is here in the audience, will be in charge of
24 public affairs for the corporation.
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1 And it will be Jerry's responsibility to
2 put together the organizational structure for
3 public affairs, which will include the community
4 reinvestment activities.
5 And both Julie Johnson and Mary Decker
6 will be involved in those activities in the
7 corporation going forward.
8 We have not finalized that structure, but
9 you have our commitment that the intensity of our
10 effort in all of the local communities that we
11 serve will not decrease. It will, in fact,
12 increase.
13 As I think John indicated, we will learn
14 from one another and apply whatever pluses we have
15 from the Banc One organization to the communities
16 that First Chicago NBD has served and vice versa.
17 So we think overall the products and
18 services that we provide will actually increase in
19 the communities and the customers will benefit.
20 MR. McCOY: I would simply add to that that it
21 is so important to be involved in the local
22 community.
23 And I've had the opportunity with Verne to
24 meet a number of groups in Chicago and a number of
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1 groups in Detroit. And so I think that you will
2 see a very strong orientation to local communities,
3 which has worked well for us in the past.
4 MR. ALVAREZ: There has been some concern
5 expressed that in moving corporate headquarters of
6 Banc One from Columbus to Chicago that there might
7 be a lessening of the new organization's commitment
8 to Ohio and Columbus, in particular. Can you
9 address that?
10 MR. McCOY: I think that that same concern was
11 echoed with First Chicago when the headquarters was
12 moved from Detroit.
13 And I think that based on what I know --
14 and I met with the Mayor of Detroit -- that they
15 are happy with the support. I've certainly met
16 with our Mayor in Columbus and the Governor of Ohio
17 and others.
18 We have a strong commitment to that
19 market. We have a large number of employees still
20 there. We're having -- several of our businesses
21 will be headquartered there.
22 And so I don't worry about that at all.
23 And Verne will let me go back every once in a
24 while.
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1 MR. ISTOCK: That same concern was raised with
2 the First Chicago NBD merger. And I think over the
3 past three years, we have, in fact, proven in the
4 Detroit market that they have not been abandon.
5 In fact, what we have accomplished in that
6 market has actually been expanded. And we have
7 terrific franchises in all of the major cities, not
8 just Columbus, Detroit, but Flint, Grand Rapids,
9 Indianapolis and in some other states.
10 And we would be making a grave mistake if
11 we abandoned any of those communities as long as
12 this continues to be successful.
13 And John and I are committed to that
14 effort. We will continue to be able to use that
15 success to enhance our relationships with those
16 communities.
17 MS. WILLIAMS: You mentioned that you had
18 entered into a new partnership with Fannie Mae and
19 it's a Self-Help program for home buyers.
20 Could you talk a little bit about what
21 market would be impacted by that.
22 MR. McCOY: Basically, as I understand it, it
23 will be a program we will introduce in all of our
24 markets. It is one that, as we learn how it works
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1 and how to make it work, it will expand hopefully
2 past the 35,000 loans that we've set as a goal.
3 MS. SMITH: Any other questions?
4 MR. ALVAREZ: I don't think so.
5 MS. SMITH: If not, we thank you very much for
6 coming here this morning and we will move on to
7 Panel 2.
8 (Whereupon, there was a
9 vocal demonstration from
10 the audience.)
11 MS. SMITH: We'll follow the order given in the
12 agenda. And I will ask each person to indicate
13 your affiliation, so we'll start with the Honorable
14 Julia Carson.
15 MS. CARSON: Thank you very much. I'm Julia
16 Carson, Congresswoman, Indianapolis, Indiana,
17 member of Congress, sit on the banking committee
18 for US Congress. Is this microphone on?
19 MR. ALVAREZ: It's not on, ma'am.
20 MS. CARSON: Okay. I'm Julia Carson,
21 Congresswoman, Indianapolis, sit on the banking
22 committee for the United States House of
23 Representatives.
24 I have listened with interest. I have
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1 another more painful side to tell of the latest
2 story of merger mania. I urge a conservative
3 course, a careful investigation of the facts, the
4 history and the harm.
5 They claim that mergers benefit companies,
6 employees and consumers, increasing competition. I
7 favor growth, but not at the cost of harm to the
8 community and to the people.
9 Indianapolis is where the two giant merger
10 partners have, perhaps, the greatest business
11 overlap, facing each other next to the Federal
12 courthouse, a massing $17.6 billion in assets
13 between them.
14 Court is where this matter will end up if
15 this process is not well and thoroughly conducted.
16 There is a better way.
17 Our Indianapolis Star newspaper warns the
18 most pressing concern is customer service and
19 cost. If history is any guide, the former will
20 drop and the latter rise as banks become more
21 competitive.
22 Joining the Star, grassroots
23 organizations, community groups and activists from
24 Indianapolis and across the country warn, too,
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1 because of the harms threatened. These voices
2 cannot all be wrong.
3 The point of business is to beat the
4 competition. We believe the competition is healthy
5 because it benefits the consumer.
6 Our law, our public policy, encourages
7 competition by legal protection. Beating the
8 competition is okay, but killing it is not.
9 And antitrust law will make the superbank
10 reduce its markets here. Selling deposits will
11 make the purchaser a new competitor. The
12 requirement to slim down is powerful. Branches
13 will be closed, operations consolidated.
14 Each bank now has 60 or more branches in
15 central Indiana. Banc One alone has 27 on the
16 block. Each branch is a center of local commerce,
17 competing with others.
18 Closing cuts consumer choice. Merger
19 will close competitive branches, neighborhood by
20 neighborhood, as the new superbank makes the
21 rational decision not to compete with itself.
22 I doubt that the buyer bank will keep these
23 branches going.
24 The incentive is small. Deposits are the
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1 most portable form of assets. Real estate and bank
2 worker -- 6,000 in central Indiana -- complicate
3 the bottom line. This plan makes them expendable.
4 More harm is predicted by history. A Wall
5 Street Journal analysis of the five largest bank
6 acquisitions last year showed that small business
7 lending fell six percent through business lending
8 increase, less for beginning businesses.
9 In Indianapolis, we need more business
10 formation, not less. Small business opportunity
11 based at home, growing over time into big
12 business. That's what works for our people.
13 Our law forbids mergers which
14 substantially lessen competition unless these facts
15 are outweighed in the public interest by the
16 probable effect of the transaction in serving the
17 convenience and needs of the community.
18 Our law is devoted to preservation, the
19 conservation of economic values vital to our way of
20 life. Our people ask that the law be applied to
21 save their jobs, their prosperity, our
22 neighborhoods.
23 For American banking, a great windfall
24 approaches. Printing and mailing of most
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1 government checks will end in 1999. These
2 transfers will be made by electronic means, flowing
3 billions of dollars through the banks, especially
4 on September the 3rd of every month when the Social
5 Security checks are transferred.
6 For direct deposit, you will need a bank
7 account. To get one, you will have to find a
8 branch, harder and harder where I live.
9 Fewer branches mean less access for a
10 whole new throng of American consumers brought into
11 the banking system by this way of the future.
12 The longer it takes to cash a check, the
13 more the money earns for the bank holding the
14 funds.
15 Nationally, we are at the door of a new
16 era in competition. This merger threatens to slam
17 doors firmly closed Indianapolis just as they begin
18 to crack open across the country.
19 For Indianapolis, the view differs
20 painfully. You will hear complaints about bank's
21 behavior hurting those with low income, about an
22 investigation for lending discrimination against
23 low to moderate income borrowers, Hispanics and
24 Blacks.
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1 I fear untold number of bank workers out
2 of work with more pain. And Community Reinvestment
3 assessments tell us that tale.
4 I'm happy that I had an opportunity to
5 come today because, for the first time, I've met
6 the chairmen of those two banking institutions and
7 had myself approached them and introduced myself to
8 them. Thank you very much.
9 MS. SMITH: Thank you. Mr. Davis.
10 MR. DAVIS: Ms. Smith, members of the panel,
11 Mr. Istock, Mr. McCoy and other participants, I'm
12 Danny Davis, Congressman of the 7th Congressional
13 District here in the state of Illinois.
14 And for those of you who are from out of
15 town, let me welcome you to the city of Chicago,
16 the most fascinating city in all of America, and to
17 the 7th District, which I represent, and it also
18 happens to be the most intriguing of all
19 Congressional districts in the country.
20 I want to begin by thanking the Federal
21 Reserve for holding these hearings. As I will
22 indicate in my testimony, the issues before us are
23 critical to the well-being of this and many other
24 communities throughout America.
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1 We need to guarantee that the merger
2 before us meet the criteria of protecting workers,
3 minorities, consumers depositors, businesses,
4 non-profits and other partners with special needs
5 in community development.
6 We've set our public policy for bank
7 mergers based on some historical lessons, and as
8 a result of some laxness to the financial sector.
9 These decisions once taken cannot be undone.
10 In his classic 1946 film, It's a Wonderful
11 Life, Frank Capra laid before us two fundamental
12 questions which have resonated with great empathy
13 with the American public.
14 He asked us to ponder the role of the
15 community bank and the community banker in the life
16 of the community.
17 And he asked us to think about the nature
18 of history in the highly divergent paths which
19 history can take, to be changed for better or for
20 worse by the actions of those of us who make
21 decisions.
22 Those are precisely the questions we face
23 in these hearings this morning. It is not my
24 intent or desire to romanticize the state of
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1 community banking in Chicago.
2 However, the relations between Chicago's
3 First National Bank and Chicago's extraordinarily
4 rich economic, social and cultural life have
5 developed over many years and as the result of the
6 efforts of many individuals and institutions.
7 We simply cannot afford to throw away or,
8 through our inaction, allow years of community/bank
9 relationships to dissipate.
10 In response to those who say the mythical
11 unregulated market is best arbiter economic
12 structures, I would assert that lack of control of
13 markets brought us the ubiquitous crack salesman,
14 one in seven children without health insurance, a
15 mountain of garbage in Lawndale and the lamentable
16 need in this day and age for a task force on
17 sweatshops in Chicago.
18 I would urge that the Federal Reserve
19 consider the impact of this merger on the health of
20 the financial industry as well as the rest of the
21 community.
22 And I am certain that you're making a
23 careful analysis of that aspect, but I would like
24 to suggest that the financial industry's health is
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1 inseparable from the health of the broader
2 community.
3 It follows logically that we should strive
4 to understand the impact of this merger on the
5 larger community and weigh that impact against any
6 benefits which may accrue. At a minimum, we should
7 consider structuring the merger to minimize
8 negative impacts on the broader community.
9 I would hope that the Fed would consider,
10 attempt to quantify and to take into account these
11 concerns; the number of jobs which may be lost,
12 especially those in the back rooms and not up
13 front, the number of jobs which may be accessible
14 to welfare to work participants; the amount of CIC
15 lending and community development investment with
16 community partners, the agreements with the Chicago
17 CRA Coalition can serve as a model for all markets
18 served by the merged companies.
19 Certainly such agreements would go far in
20 stabilizing the process of community reinvestment.
21 Lack of such agreements would certainly threaten
22 the process of reinvestment both in their direct
23 impact and as a negative signal to other investors
24 and institutions.
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1 The impact on minority lending, both the
2 availability of loans and any disproportion in the
3 rates which loans are offered. Serious questions
4 have been raised regarding the Banc One record
5 regarding minority lending such as Denver and
6 Milwaukee.
7 We believe that personnel have been
8 developed in the city of Chicago, but we would want
9 to make absolutely certain they are, in fact,
10 retained and those experiences used as Banc One
11 continues to proliferate and carry on its activity
12 in all of its marketplaces.
13 I guess there's no doubt about my time
14 being over. Lights go out. I thank you very
15 much.
16 MS. SMITH: Mayor Goldsmith.
17 MR. GOLDSMITH: Thank you, Congressman.
18 I will be sensitive to time. The
19 Congresswoman got a bell and the Congressman got
20 the lights off, so I worry about the next step.
21 I'm the Mayor of the city of
22 Indianapolis. And the heart of our city is the
23 district represented by Congresswoman Carson, so we
24 have many of the same concerns. I appreciate the
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1 attention of the Federal Reserve in this matter.
2 These two banks are both extraordinary
3 citizens of the city of Indianapolis, both have
4 outstanding records and both have been partners of
5 the city around the community for some time through
6 community lending and other initiatives.
7 This hour is a very important moment in
8 the future of our city. Because of the leadership
9 and partnership of these institutions, if the
10 merger is not done correctly, then the progress in
11 our city and its citizens are threatened. If it's
12 done correctly, the leadership played by the banks
13 is continued.
14 This is a defining point in the future of
15 Indianapolis. It's not the merger, per se, that
16 concerns us. We've been there. We've done that.
17 Banc One purchased American Fletcher
18 National Bank. And its record after the purchase
19 and merger was every bit as good as they had
20 been before.
21 Indiana National Bank was purchased by
22 NBD, which was then purchased by First Chicago or
23 merged or whatever the right word would be. And
24 their records continue to be very strong and their
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1 community participation are every bit or greater
2 than they had been previously.
3 So to me, the issue is not one of merger.
4 It's more an issue of attitude, commitment on the
5 part of management and their approach going
6 forward; not the size of the bank, but the attitude
7 of the bank that makes a difference.
8 In that regard, I'd like to make brief
9 points about what I regard to be the role of banks
10 in urban communities.
11 It is clear from the 30 years up to the
12 1990s, there will be structural investments. The
13 cash just flowed out of the center of cities and
14 into suburban communities.
15 Some of this is because the cities didn't
16 manage their own communities very well, with high
17 taxes and high prime and the capital found
18 friendlier places to go after this merger occurs.
19 It's been my goal that the merged banks
20 pay attention to the urban core and in four ways.
21 One, these banks can locate their business centers
22 and their employees anywhere in the world. They're
23 international banks. And we would appreciate the
24 sensitivity to the core that has existed
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1 premerger.
2 Secondly, community lending. There are a
3 number of great cities in the midwest. And we hope
4 that the bank will use its size to bring the best
5 practices of Chicago or Detroit or Columbus to the
6 citizens of Indianapolis, particularly those
7 citizens who are the poorest and in the most need
8 of access to capital, many of those living in
9 Congresswoman Carson's district.
10 Third, we need small business lending.
11 In this regard, Indianapolis is different than
12 the other cities. I think what will drive small
13 business lending is competition. And the Justice
14 Department is looking at the anticompetitive
15 effects in Indianapolis from the merger of the
16 banks.
17 So the size of the divesture and the
18 ability of the new bank to compete with the merged
19 banks will be, to me, the most important element of
20 assuring small business access to capital.
21 Fourth, and perhaps a little bit
22 different, this merger truly will be a grand thing
23 if I were the Mayor of Chicago, but my prediction
24 is the headquarters of the bank will be in Chicago
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1 and not in Indianapolis, therefore, I am sensitive
2 about the fact that decision-making needs to be
3 decentralized as it relates to community investment
4 and civic participation.
5 What concerns me most about the merger is
6 the ability of the people located in Indianapolis,
7 a fairly good-sized business center for the banks,
8 to make decisions that are in the best interest of
9 Indianapolis citizens.
10 So the fourth area is civic involvement.
11 These banks have had a great history. They've had
12 a great history because local officials have had
13 the authority to make decisions.
14 If these four issues are addressed, then
15 we can receive some confidence.
16 And in conclusion, essentially our
17 position is that our citizens have a right to
18 certain expectations to be filled.
19 Those expectations would include a
20 commitment to recognizing that the core of a
21 regional economy is important, that the regional
22 economy cannot succeed without the core being
23 successful and that the employment in the core is
24 critical, real estate decisions in the core are
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1 critical and lending policies in the core are
2 critical as well.
3 Our citizens have a right to expect the
4 best possible access to capital. The best
5 practices anywhere in the world engaged in by this
6 bank should be available to the citizens of
7 Indianapolis.
8 We've conducted our due diligence. We
9 have lawyers who've hired financial experts. We've
10 met with the chairman and the president. We've met
11 with officials in both banks. And we've looked at
12 this in great detail.
13 We've received assurances from both banks
14 that the issues that I have raised will be
15 addressed and they'll be addressed in a
16 constructive way.
17 Based on these assurances and the track
18 record of those banks, I remain anxious, but
19 confident, that the merger will be done in a way
20 that will continue the important role that the
21 banks have played in the city's past; and that
22 these banks after the merger, if they conduct their
23 affairs with some degree of commitment, can be done
24 equally good and equally to the benefit of our
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1 citizens. Thank you.
2 MS. SMITH: Mayor King.
3 MS. CARSON: You were way past your time.
4 MR. KING: Good morning. I'm the Mayor of
5 Gary, Indiana, a city of about 120,000, about 30
6 miles around the lake from here.
7 It's a pleasure to have been afforded the
8 opportunity to speak from our perspective. And it
9 was interesting listening to Mayor Goldsmith's last
10 comment about his fears of the impact of moving
11 decision-making out of his city to Chicago and what
12 his concerns are.
13 And to quote your children, Mayor, been
14 there, done that, in Gary. And it's not a good
15 prospect.
16 One of the problems that I see with this
17 merger, quite frankly, is that individually these
18 banks in the city of Gary, whose population is
19 85 percent African American, have not individually
20 established an appropriate track record of lending,
21 of investing, of involving the community that
22 they're in.
23 And I suspect it's not due to any malice
24 on the part of the top executives of either
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1 entity. I suspect it's due, in part, to the larger
2 you get, the more difficult it is within any
3 institution to have policy implemented at the top
4 actually carried out by middle management and
5 below.
6 I can tell you, as Mayor, I have never had
7 the occasion of a department head to walk into my
8 office and say, Mayor, I'm doing a lousy job of
9 implementing the policy that you asked my
10 department to do. It doesn't happen.
11 And I suspect for both the gentlemen who
12 preceded us on this panel, it's not a matter of
13 malice, it's a matter of a lack of awareness.
14 In the banking industry and in African
15 American communities, the truth is, whether in Gary
16 or wherever in this country, they do not have --
17 they do not enjoy a good track record.
18 One of the remaining vestiges of
19 historic race discrimination today is economic
20 discrimination. That remains a barrier for the
21 people I serve, to get into the mainstream of our
22 economy.
23 The banks, along with other industry in
24 the city of Gary and the other cities in the
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1 so-called rust bill, have about three decades of
2 disinvestment in the cities.
3 The banks went. The mills went. The jobs
4 went. And what was left was a community that
5 continued to make it day-to-day, but was cut off
6 from resources enabling it to be competitive. This
7 is made all the more frightening to me with some
8 recent studies.
9 Historically, I believe banks have
10 presupposed unfairly that investment in inner
11 cities is high risk, bad investment.
12 Well, lo and behold, a bank, Bank of
13 America, several years ago decided to find out
14 scientifically was that true or not as a premise.
15 They commissioned a study. And lo and
16 behold, the results of their study was that that
17 was a myth and a false one.
18 The truth is, the inner cities, the urban
19 centers, are good places to invest in small
20 business and housing to promote home ownership.
21 These studies commissioned by banks are there.
22 Now, I'm a realist. I'm a realist. I
23 understand we may very well face the prospect of
24 this merger being approved.
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1 If it is approved, if we are going to
2 truly be sensitive, whether it's Indianapolis,
3 Gary, whatever city we're talking about, I believe
4 it is up to this board and this entity to put some
5 teeth in the tiger of the Credit Reinvestment Act,
6 to carefully scrutinize when you're getting
7 reporting, go behind the numbers.
8 I can tell you, we've not had -- we have
9 not had more good than bad. I will not castigate
10 either bank.
11 There are some things they have done in
12 our community that have been credible, but on the
13 whole, my concern is it will get worse.
14 We have some new banks that have come into
15 our city. And I can tell you, it's been a
16 refreshing change to see honest enthusiasm about
17 making lending opportunities to the people I
18 serve.
19 My concern is by making this merger occur
20 and making them bigger, it could thwart the
21 competitiveness that's just starting our city in
22 banking and continue the legacy of what I believe
23 to be unfair practices in making capital available
24 in minority communities.
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1 I thank you for the opportunity.
2 MS. SMITH: Congresswoman Carson, would you
3 like to have another minute or so?
4 MS. CARSON: I was feeling jumped upon.
5 MS. SMITH: Maybe you can have the mike.
6 MS. CARSON: I really appreciate your
7 courtesy. I feel more at home now.
8 But I, too, am optimistic about the
9 ultimate outcome of this application for merger. I
10 would simply like to echo the words of the
11 Honorable Mayor King from Gary, and that is to
12 ensure that CRA is enhanced for the benefit of the
13 urban community.
14 An urban community, regardless of
15 someone's view, does not necessarily mean Black
16 community. People who are low income and moderate
17 income are persons who live in urban America. And
18 all of them don't come with the same color on their
19 faces.
20 And so it is an equal opportunity for all
21 American citizens to be able to access economic
22 opportunities to financial institutions who thrive
23 on the profits that they generate from urban
24 America.
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1 MS. SMITH: Thank you very much.
2 MR. ALVAREZ: Ms. Carson, you had a written
3 statement. If you would give us a copy of that,
4 we'll make sure the whole statement is put into the
5 record.
6 MS. CARSON: We have left several copies of my
7 statement, but not the latter part. I didn't know
8 I was going to get another minute.
9 MR. ALVAREZ: That's all right. And anyone
10 else on the panel that wasn't able to finish.
11 MS. SMITH: Thank you very much for coming this
12 morning. We appreciate it.
13 Okay. With Panel 3, we will start with
14 the Honorable Hiawatha Davis, Junior.
15 MR. DAVIS: Good morning. I'm Denver City
16 Councilman Hiawatha Davis. I represent Denver's
17 City Council District Number 8, a predominantly low
18 to moderate income and minority community.
19 AUDIENCE MEMBER: Can hardly hear you.
20 MR. DAVIS: Is that better? Let me start all
21 over.
22 I'm the Denver City Councilman Hiawatha
23 Davis. I represent Denver's City Council Number 8,
24 a predominantly low to moderate income district.
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1 This council district is in the city
2 center, and it is being impacted by dramatic
3 economic surge and a population increase that has
4 contributed to increasing rents and virtually loss
5 of low to moderate income house choices in the
6 city.
7 As rents increase, moderate income
8 families would do better if they could purchase a
9 home before they are completely priced out of this
10 city's housing market. Rental opportunities and
11 home ownership opportunities are shrinking to the
12 point of crisis.
13 Yes, Denver is in the midst of an upscale
14 housing boom with downtown loft projects and middle
15 income housing developments springing up all over
16 the city.
17 Denver is also in the midst of its worst
18 crisis in terms of affordable, low and moderately
19 priced housing.
20 There is very little capital being made
21 available for low and moderate income home buyers,
22 and not much being made available to non-profit
23 developers of low and moderately priced housing.
24 If trends continue, this crisis will only get
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1 worse.
2 I'm here today to ask for your help in
3 getting Banc One to live up to the principles
4 articulated in the Community Reinvestment Act as it
5 pertains to Denver.
6 Prior to the close of initial comments
7 on this merger, I was joined by 10 of my 13
8 colleagues on City Council, Denver's Congresswoman,
9 three Colorado State representatives and a State
10 Senator, all of whom were concerned about
11 Banc One's discriminatory lending practices toward
12 minorities especially in the areas of home
13 mortgages.
14 We all requested an extension to the
15 comment period, which we thank the Federal Reserve
16 Board for granting, and requested a public hearing
17 in Denver.
18 While we are disappointed a hearing in
19 Denver could not be accommodated, I'm honored to be
20 here today to testify on the merger between
21 Banc One and First Chicago.
22 This merger is of no small matter to my
23 community and constituents. The new entity will be
24 the biggest bank in between the Appalachians and
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1 the Rockies serving millions of consumers who will
2 be directly affected by the way it does business.
3 And if the way it is conducting its
4 business currently is any guide, Banc One needs to
5 significantly change its approach to lower income
6 and minority communities.
7 Its record of providing mortgage financing
8 in Denver has been appalling. In 1995, Banc One
9 made 12 mortgage loans to African Americans and
10 Latinos. In 1996, it made none. It took no
11 applications from Latinos or African Americans in
12 1996, either.
13 As I mentioned earlier, I represent a
14 predominantly minority district. I have plenty of
15 constituents struggling with high rent, struggling
16 to get ahead, who want to achieve the American
17 dream of becoming home owners, but that dream won't
18 be achieved with any help from Banc One.
19 They could not find a single minority in
20 the city of Denver in 1996 to even take an
21 application for a mortgage from.
22 Something is wrong. And unless Banc One
23 makes some commitments to change this record, when
24 my constituents ask me where to go in terms of
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1 their banking, I won't be able to say Banc One.
2 This lack of service to the minority
3 community in Denver is outrageous. Latinos make up
4 23 percent of the population in Denver and African
5 Americans account for 12.8 percent of the
6 population. To ignore over one out of three
7 consumers in the Denver area is unconscionable.
8 Access to credit is essential to breaking
9 the cycle of poverty. Home ownership is the best
10 route to building wealth and achieving the American
11 dream.
12 One of the most important measurements of
13 an institution's commitment to move American
14 families to self-sufficiency and economic stability
15 is the entrance into home ownership.
16 Renters have greater difficulty
17 accumulating and maintaining wealth than home
18 owners.
19 Particularly for African Americans, home
20 ownership is a bellwether for wealth. According to
21 the Department of Housing and Urban Development,
22 African American renters have a net worth of $500
23 on average, while African American home owners have
24 a net worth of more than $48,000.
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1 Banc One's failure to provide this needed
2 credit demonstrates its disregard for Denver's
3 minority communities and consumers.
4 The vast bulk of Banc One's mortgages went
5 to the wealthiest and the whitest Denver
6 neighborhoods. 42 percent of its mortgages were
7 made in census tracts where the population was more
8 than 90 percent white.
9 An additional 41 percent of its home
10 purchase mortgages were made to neighborhoods where
11 whites made up between 75 and 90 percent of the
12 population.
13 Only one of its loans under two percent
14 went to a census track where minorities were more
15 than half the population in 1996. And that loan
16 was not even made to a Latino or African American,
17 since we know that no applications were taken from
18 this population in 1996.
19 Banc One has a comparable disregard for
20 low income communities. In 1995, more than
21 one-third of those under 50 percent of the median
22 income were rejected for home mortgages, more than
23 three times the rate of Africans earning
24 120 percent of the area median income.
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1 In 1996, it took more than 80 percent
2 fewer applications from low income people. Just 4
3 or less than 7 percent of its mortgage loans went
4 to neighborhoods with 50 percent of the area median
5 income.
6 Additionally, Banc One has so far refused
7 to make a lending commitment for the Denver area.
8 It has pledged 4 billion for Chicago and 3 billion
9 for Detroit, but not one penny for Denver.
10 MS. SMITH: Mr. Davis, could you bring it to a
11 conclusion. We'll be glad to have your entire
12 statement put into the record.
13 MR. DAVIS: I have submitted 11 copies of that
14 statement to the folks where I checked in.
15 But essentially the point I'm trying to
16 make here is that Banc One still has a long way to
17 go. We think that, in other words, for them to get
18 there that this merger needs to be put on hold
19 until they're able to really establish some real
20 relationships with low-moderate income communities
21 in Denver and minority communities.
22 And I am asking you to, in fact, put this
23 merger on hold until they have been able to work
24 out and really develop some serious commitments
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1 that allow them to live up to the principle and the
2 objectives of the Community Reinvestment Act.
3 Thank you very much.
4 MS. SMITH: Thank you. Mr. Ries.
5 MR. RIES: Hello. My name is Leo Ries. I'm
6 the director of Housing and Neighborhood
7 Development for the city of Milwaukee. And I'm
8 here representing Mayor John Norquist, who sends
9 his regrets that he was not able to be here
10 personally.
11 My purpose in being here today is not to
12 really speak in favor of the merger or to protest
13 the merger, but rather to report on our experience
14 with Banc One as a corporate citizen.
15 Clearly, all banks can do a better job,
16 especially in terms of lending to low and moderate
17 income communities.
18 And clearly, the effect of this merger
19 will be different in various communities. For
20 example, unlike Indianapolis, there is very little
21 overlap in Milwaukee between First Chicago and
22 Banc One's services.
23 But having said that, I also have to say
24 that our experience with Banc One in Milwaukee has
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1 generally been very positive. And we have no
2 reason to believe that that will change after the
3 merger.
4 That didn't occur after Banc One purchased
5 Milwaukee-owned Marine Bank in 1987 and we don't
6 suspect it will happen after this merger.
7 I would like to provide a couple examples
8 which will provide a basis for assessment. First
9 of all, in 1991, Mayor Norquist, along with
10 Congressman Jerry Blejka (phonetic), called
11 together a number of local banks and community
12 agencies to talk about the problem of affordable
13 lending.
14 What grew out of that discussion was a
15 locally based coalition called NOHOM or New
16 Opportunities for Home Ownership in Milwaukee.
17 This has been a collective effort
18 involving community groups and local lenders to
19 focus on the issue of affordable lending and to
20 address -- to look at products that will meet that
21 market need and to also work with lenders to expand
22 the availability of credit.
23 Banc One was a leader in helping to form
24 this partnership and they have continued to be a
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1 very active member to this day. As a matter of
2 fact, one of their senior bank officials chaired
3 this effort for a couple of years.
4 We're currently working on an effort
5 involving the whole problem of home improvement
6 lending. And, again, Banc One is very active on
7 that task force.
8 But more significant, I think, is their
9 actual practice of lending or their actual history
10 of lending patterns in Milwaukee.
11 Annually, the office of the City
12 Comptroller prepares an analysis in which we
13 analyze the lending patterns of various financial
14 institutions in the Milwaukee area and especially
15 focus on their lending in what we've designated as
16 the local target area, which is the area that has
17 the lowest level of home ownership in the city.
18 And in the most recent report, copies of
19 which I've shared and I've left with the Board of
20 Governors, Banc One was listed as the best lender
21 in the target area of banks having assets of over
22 150 million.
23 And so I think it does demonstrate that,
24 again, clearly banks can all do a better job, but
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1 based on our analysis of other lenders in the
2 Milwaukee area, Banc One has done a better than
3 average job.
4 Banc One has also been very active in
5 various other community development efforts through
6 their CDC by investing in low income housing, tax
7 credit projects and also through their various --
8 through their Banc One Foundation.
9 And so for all of these reasons, I can --
10 I want to just say on behalf of the Mayor that we
11 have been very satisfied with their performance as
12 a corporate citizen in Milwaukee.
13 MS. SMITH: Thank you very much. Mr. Flood.
14 MR. FLOOD: Yes, good morning. My name is
15 Lawrence Flood. I'm special council to the
16 Attorney General of Illinois.
17 And I would like to preface my remarks by
18 telling you that our office has no position
19 regarding the merger, the Banc One merger.
20 We would tell the Federal Reserve Board
21 that we would cooperate with them if we were called
22 upon to provide some assistance to you here in the
23 state of Illinois.
24 Several months ago, the Office of the
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1 Attorney General was appointed receiver for the
2 now-dissolved Dixmoor Park District after a finding
3 in chancery court that the Park District was
4 totally lacking in organization and financial
5 record-keeping.
6 It was also learned that certain
7 commissioners and members of that Park District
8 Board had misappropriated certain monies received
9 from the issuance of bonds on behalf of the Park
10 District.
11 Banc One was the underwriter. And the
12 amount of the bonds issued totaled approximately
13 $700,000 over a period of several years.
14 Criminal charges were filed against
15 members of the Board. Some of those defendants
16 have pled guilty, and some of those cases are still
17 pending.
18 When our office was appointed receiver,
19 the court directed that we review processes by
20 which the bonds were issued by Banc One.
21 We have substantially reviewed documents
22 provided by Banc One and have interviewed several
23 of the bank personnel involved in the transaction.
24 Banc One has fully cooperated with us in
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1 providing documents and also making available to us
2 for interview bank personnel familiar with this
3 matter.
4 At this point in time, we have no reason
5 to believe that Banc One acted inappropriately in
6 the issuance of those bonds. And I bring that to
7 you for your information. Thank you.
8 MS. SMITH: Thank you. Mr. Smithers.
9 MR. SMITHERS: Good morning. My name is Ralph
10 Smithers, and I'm executive assistant to Greg
11 Lashutka, Mayor of Columbus.
12 I'm here today at the request of the
13 Mayor, who's travelling in Europe and unable to
14 present his testimony in person.
15 As you know, the merger of Banc One and
16 First Chicago is a bittersweet development for the
17 people of Columbus.
18 On one hand, it signifies that our
19 hometown bank has truly become a national company;
20 but on the other hand, its decision to relocate its
21 headquarters from Columbus to Chicago is difficult
22 for us to accept.
23 Perhaps an apt analogy would be one of a
24 parent who has watched their child grow up, but sad
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1 to see the child leave home to go out into the
2 world.
3 But in a sense, this is different.
4 Banc One is growing up, but not really leaving us.
5 Banc One employs more than 10,000 in Columbus. And
6 following the merger, that number is not expected
7 to diminish.
8 In fact, the continued prosperity of the
9 company will likely cause an increase in employment
10 in the Columbus market. Many of Banc One's
11 significant businesses, including their retail
12 banking and computer operations center, will remain
13 in Colorado.
14 Along with these important lines of
15 business, many people will also remain. The people
16 of Banc One are leaders.
17 They have made important contributions to
18 Columbus, starting with the Chairman, John B.
19 McCoy, who has chaired one of the City's most
20 significant urban renewal programs in our history,
21 the Capital South Community Urban Redevelopment
22 Corporation.
23 Mr. McCoy has committed to the Mayor that
24 he will continue on in his capacity as chairman of
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1 Capital South and other Banc One officers will also
2 continue to serve in leadership roles for our
3 Riverfront Development, our Chamber of Commerce,
4 the City's Neighborhood Development Loan Committee,
5 the Columbus Compact and Fannie Mae's Columbus
6 Partnership Office and many other initiatives which
7 are important to our community.
8 The people of Banc One volunteer to help
9 children with their school work through our
10 Adopt-a-school program. They provide help to the
11 homeless and food to the needy.
12 They're actively engaged in supporting
13 quality healthcare in our community and have
14 consistently set the pace for one of the most
15 successful United Way Organizations in America.
16 Perhaps less well-known are the many
17 unsung personal contributions made by the employees
18 of Banc One who, as they have prospered on an
19 individual basis, have provided significant support
20 to the Columbus Foundation.
21 The Columbus Foundation is one of the
22 largest community foundations in America. The
23 generous contributions from people who work for
24 companies like Banc One have made this possible.
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1 With respect to economic and community
2 development, Banc One has been a reliable partner
3 as long as I can remember. And I've been around
4 for more than 30 years.
5 When the City undertook a large and risky
6 central city redevelopment project in the 70s,
7 Banc One stepped forward to help with the
8 financing.
9 When the federal government threatened to
10 pull its financial support, Banc One lenders flew
11 to Washington to change their minds.
12 When the City of Columbus decided to
13 launch a major public-private partnership with the
14 Enterprise Foundation to promote home ownership and
15 foster community based development, Banc One
16 stepped out in front with both it's human and
17 financial capital.
18 During the last five or so years, Banc One
19 has financed more than 1,200 units of affordable
20 rental housing in the city of Columbus, including
21 two major YMCA and YWCA single room occupancy
22 projects and the first redevelopment of a public
23 housing project in the State.
24 Last year alone, Banc One made more than
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1 12,000 loans to consumers residing in low and
2 moderate income neighborhoods of the Columbus area
3 and financed $162 million in small business loans
4 to more than 1,800 small business owners.
5 Recently, a group of neighborhood
6 representatives wanted to undertake a comprehensive
7 revitalization of their community.
8 They went to Banc One for help in getting
9 started. Banc One's staff took the group to other
10 markets where they had participated in similar
11 initiatives.
12 I accompanied the group to Indianapolis to
13 study how projects started. The one thing we
14 learned is that partnership is the foundation of
15 community development and that partnerships are
16 built on local resources and local commitment.
17 No two cities are the same. And the
18 beauty of a company like Banc One is that it has
19 the local capital -- financial, human, technical
20 and philanthropic -- and the autonomy to commit to
21 worthy local endeavors.
22 There are some folks who think this merger
23 will cause Banc One to turn its back on the
24 Columbus community or who think that the commitment
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1 of its people will somehow diminish if the
2 corporate headquarters leaves the city.
3 But I don't think this merger is about
4 creating something less or dismantling the culture
5 that made Banc One a great institution.
6 I have seen what Banc One has accomplished
7 in other markets. And their commitment to the
8 community is no less today than it will be in
9 Columbus tomorrow.
10 We look forward to your approval of this
11 merger and to a bright future with a strong
12 company. We are proud to be a Banc One community
13 and look forward to working together in the days to
14 come to address the needs of our common
15 constituencies.
16 MS. SMITH: Thank you very much.
17 Any questions from the panel? Thank you
18 very much for coming this morning. We'll, again,
19 be glad to have your entire statements entered into
20 the record. And we'll move onto Panel 4.
21 I will mention as the panelists are coming
22 to the table that there have been some changes from
23 the names that were listed on your agenda, so we
24 will -- we do have -- we will have people introduce
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1 themselves and say their names for the benefit of
2 the audience who may not be able to see the name
3 plates.
4 We are going to start with Ms. Coleman.
5 MS. COLEMAN: Good morning. My name is Cora
6 Coleman, and I am a Board member of Local 880 of
7 the Service Employees International Union.
8 I am here to talk about what things could
9 be like for minorities here in Chicago when
10 Banc One takes over the local control of
11 First Chicago.
12 If it's anything like what went on in
13 Akron, Ohio, it could get ugly. In the early 90s,
14 Banc One took over the Local Central Trust in
15 Akron. Soon after, minority job applicants filed
16 employment discrimination complaints with the
17 Department of Labor.
18 After a two-year investigation, the
19 Department found that 31 qualified minority job
20 applicants were unfairly turned down for jobs at
21 Banc One, a clear-cut case of employment
22 discrimination.
23 For five years, Banc One fought the
24 Department of Labor's attempts to reform the bank's
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1 hiring practices.
2 Finally, just last year, the bank was
3 forced to hire 12 of the complainants and to
4 provide financial compensation to those minority
5 applicants it had refused to hire.
6 First Chicago NBD is a larger operation
7 than Central Trust. And squeezing the two
8 companies together is going to involve all sorts of
9 job changes, all sorts of chances for Banc One's
10 record in the lending office of turning down
11 minority applicants to come shining out in the job
12 interview.
13 We know the Federal Reserve is not
14 sympathetic to this issue since they themselves are
15 facing a large class action lawsuit from its
16 minority employees, but Banc One should be careful
17 because we will be watching with our trial
18 lawyers.
19 Banc One also has violated lending
20 discrimination laws. In March of this year,
21 Banc One Mortgage Corporation signed a lending
22 discrimination settlement with HUD after their Fort
23 Worth Humans Relation Commission filed their
24 lending complaints. They found that Banc One
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1 offered African Americans and Latinos loans at
2 worse terms than offered to whites by steering them
3 to inferior and more expensive products than their
4 conventional loan product.
5 As a result of this case, Banc One
6 Mortgage committed to provide 10 million in
7 mortgages to low and moderate income and minority
8 borrowers.
9 This pattern of discrimination continued
10 in Arizona where Banc One recently settled a case
11 with the Attorney General by agreeing to provide
12 5 million in mortgages to low and moderate income
13 residents of Yuma County. This agreement came only
14 after the state investigated complaints from five
15 Latino families who claimed they were denied
16 mortgages because of their ethnicity. Banc One
17 denied these claims, citing internal processing
18 problems.
19 One family said they received the run
20 around from Banc One Mortgage until their
21 application was delayed long enough that they lost
22 their house to another buyer.
23 When a second attempt with Banc One
24 mortgage met similar delays, they took their
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1 application to another bank and were approved
2 within a week.
3 In another instance that is strikingly
4 similar to the Phoenix example, a Dallas homeowner
5 who applied for a Banc One home improvement loan in
6 1996 cannot get his loan processed or even his
7 application rejection.
8 This practice of deterring applications of
9 prospective minority borrowers at the outset helps
10 understate the minority rejection rates.
11 These cases indicate a pattern of
12 discrimination through a series of delays and
13 deceptions that help Banc One pad their humble
14 reporting.
15 They also show us that under the threat of
16 a lawsuit, Banc One seems able to provide
17 alternative financing to meet the needs of low
18 income and minority borrowers.
19 Banc One clearly has a problem when it
20 comes to serving the banking and employment needs
21 of African Americans and Latinos. They don't seem
22 to understand that discrimination is against the
23 law.
24 The burning issue of today is does the
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1 Federal Reserve Board understand that
2 discrimination is against the law, does the Federal
3 Reserve Board have the guts to finally say no to a
4 renegade like Banc One.
5 On behalf of my union's 10,000 members, I
6 implore you to do the right thing.
7 Thank you.
8 MS. SMITH: Thank you very much.
9 Mr. Shea.
10 MR. SHEA: Ted Thomas is going to speak next.
11 MS. SMITH: Okay.
12 MR. THOMAS: Good morning. My name is Ted
13 Thomas. I'm the president of Illinois ACORN.
14 Banc One has a history of refusing to
15 negotiate lending agreements to meet the needs of
16 the low income communities. The only time Banc One
17 has quantifably made a lending commitment to a city
18 was when it was forced to do so by Michael White,
19 the Mayor of Cleveland.
20 Mayor White was so disturbed by Banc One's
21 unwillingness to help him rebuild the central city,
22 he actually filed a CRA protest against the bank
23 and forced the bank to set CRA lending goals for
24 his city.
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1 ACORN has negotiated lending agreements
2 and partnership with scores of banks throughout the
3 nation. For example, we worked with Nations Bank
4 in 12 cities and with Chase Bank in ten cities.
5 Our partnerships have a proven track
6 record of performance. Since 1987, we have helped
7 over 10,000 low income families, mostly African
8 American and Latino heritage, achieve the American
9 dream of home ownership.
10 We were amazed at Banc One's flat-out
11 refusal to even discuss the formation of a
12 partnership or a corporate-wide CRA lending
13 commitment.
14 Banc One's Senior Vice President, Julie
15 Johnson, sent a rejection letter to several ACORN
16 officers. She said we do not believe in negotiated
17 CRA programs.
18 In Denver, Banc One officials have
19 canceled and postponed every meeting that has been
20 scheduled with ACORN members. To this day,
21 Banc One has not set CRA lending goals or made
22 commitments to Denver.
23 In Milwaukee, Banc One's met with ACORN
24 members. They said that they were unwilling to
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1 negotiate a lending agreement and pulled out
2 Mrs. Johnson's letter to justify their position.
3 They told the same thing to the city's Fair Lending
4 Coalition. Today, Banc One has not set CRA lending
5 goals or made a commitment to Milwaukee.
6 In Louisiana, Banc One officials have also
7 refused to enter into a partnership discussion.
8 Instead, they sent a letter saying that they
9 already do enough. To this day, Banc One has not
10 set CRA lending goals of any kind in New Orleans,
11 Baton Rouge, Shreveport or anywhere else in the
12 State of Louisiana even though they are by far the
13 largest bank in the state.
14 Unlike other bigger mergers this year,
15 Banc One has refused to make corporate-wide lending
16 CRA commitments. What Banc One has done is allow
17 the First Chicago NBD CRA team to promise a lot of
18 grants to non-profits here in Chicago and in
19 Detroit.
20 Four weeks ago, ACORN thought it had a
21 commitment from First Chicago NBD. This commitment
22 was personally given to me by the CEO of
23 First Chicago, Mr. Verne Istock. He looked me
24 right in the eye and said Ted, we value the
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1 partnership with ACORN. He said that they wanted
2 to keep it going in Detroit and Chicago and
3 possibly expand it to other cities.
4 Following that meeting, his staff told us
5 that we could expand our partnerships to Milwaukee
6 and perhaps to a couple of the bank's other
7 cities. They told us that they would value the
8 ACORN mortgage counseling program because it helped
9 them to make mortgages in places like Ingallwood,
10 North Lawndale, places where for years, banks had
11 not been able to make a single loan on its own.
12 I left the meeting feeling like things
13 were going to work out. After all, I had received
14 the word of the top dog, so I thought. Can you
15 imagine to my surprise just three days later,
16 Banc One suddenly terminated our negotiation with
17 no notice or explanation of any kind.
18 The First Chicago CRA team were very
19 apologetic and said that they would still be
20 willing to continue our program in Detroit and
21 Chicago but that they were not allowed to form CRA
22 partnerships in any additional cities.
23 When we asked what had happened to the
24 commitment from Verne Istock, they sheepishly
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1 explained that Mr. Istock had been overruled by
2 John McCoy, the CEO of Banc One. They reminded us
3 John McCoy, and not Verne Istock, was going to be
4 the CEO, the new top dog.
5 Thank you.
6 MS. SMITH: Thank you very much.
7 MR. SOZA: Hello. Good morning.
8 My name is Nelson Soza. I'm an organizer
9 with Chicago ACORN, and I want to thank the Federal
10 Reserve Bank for having reopened this comment
11 period. I think it's key for our community such as
12 the one I work in. I also want to thank the
13 members of ACORN and Local 880 that come from
14 everywhere.
15 There is justice to be made, and we think
16 that this is one of those cases, red lining.
17 People in our community understand it that way so I
18 thank everybody for being here today.
19 I proceed to read the statement.
20 The merger between Banc One and
21 First Chicago NBD poses very serious issues for the
22 residents of Chicago. It represents a loss of one
23 of the last local major banks in Chicago, one of
24 the last major banks rooted in our communities.
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1 Not that there isn't room for improvement
2 at First Chicago. Banks in Chicago reject African
3 Americans and Latinos for home loans more
4 frequently than banks in other cities, and
5 First Chicago is worse than the rest of the banks
6 here.
7 First Chicago NBD rejected African
8 Americans nearly four times as frequently as whites
9 for home loans, and Latinos were denied home loans
10 more than twice often as whites. This is far
11 higher than the citywide averages for all lenders.
12 This performance is unacceptable from a
13 bank that touts its hometown image. Incredibly,
14 even the wealthiest African Americans and Latinos
15 are rejected at the same high rates.
16 The Woodstock Institute found similar
17 patterns when looking at lower income borrowers.
18 First Chicago has much larger shares of the Chicago
19 small business and mortgage lending market for
20 wealthy borrowers than lower income borrowers.
21 Yes, First Chicago has some cracks in
22 their record, but they are nothing compared to the
23 problems of Banc One. They seem small.
24 Banc One is already in the Chicagoland
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1 area, but as you can see from the map behind me or
2 on the side over there if you look in the corner,
3 there is a map. If you look at the map there, as
4 you can see, it just isn't in Chicago.
5 Banc One isn't in Chicago really in fact
6 with exception of its branch on LaSalle Street in
7 the Loop across the street, Banc One has avoided
8 the City of Chicago as if it were the plague.
9 Its branches are located in wealthier
10 suburban neighborhoods like Schaumburg, Winnetka
11 and Highland Park. So if people from the West Side
12 want to open an account, they have to go all the
13 way there, for instance.
14 We know if past track record is any
15 indicator, then it is very likely that once
16 Banc One takes over First Chicago, it will close
17 the few First Chicago NBD branches that are in our
18 neighborhoods.
19 Banc One has always closed branches
20 following mergers no matter what the overlap in the
21 merging bank's service areas. In fact, Banc One
22 has recently announced that it will close between
23 200 and 500 branches, and somehow, I don't think
24 that it would be the branches in Winnetka and
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1 DuPage County that will be closed.
2 Banc One is planning on replacing the
3 branches with ATMs in regional outlets and
4 convenience stores where Banc One already charges
5 its own customers one dollar for each use. Compare
6 this to First Chicago, which provides unlimited ATM
7 use to its own customers for free.
8 Banc One is also teaming up with
9 Texas-based Mr. Payroll to install check cashing
10 stores across the country. These operations will
11 cash a check for you but only if you submit to
12 video identification or fingerprinting. After
13 treating you as if you were a common criminal, they
14 will then charge you one percent for payroll and
15 government checks, two percent for money orders and
16 three percent for personal checks.
17 Sadly enough, even these high rates may be
18 cheaper than the flat $8 fee Banc One charges to
19 cash a government check at its own branches, $8 for
20 a government check.
21 Again, compare this to First Chicago where
22 government checks are oftentimes cashed for free by
23 tellers who get to know their customers who have
24 government checks, many of whom are older and
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1 disabled.
2 Given the choice between locally-based
3 First Chicago and notoriously customer unfriendly
4 Banc One, we'll keep what we've got.
5 I urge you to reject this merger and the
6 high cost, low volume customer services that come
7 with it.
8 Thank you very much.
9 MS. SMITH: Ms. Vargas.
10 MR. VARGAS: Good morning. My name is Shirley
11 Vargas. I live in Pleasant Grove, Dallas, Texas.
12 Me and my fiancee went to Banc One to get
13 a home loan, and when