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Public Meeting Transcripts

Public Meeting Regarding NationsBank and BankAmerica

Thursday, July 9, 1998

Transcript of Panel Fifteen


         3            MS. SMITH:    Thank you very much for your 

         4   testimony this afternoon.  And with that, we'll move on

         5   to Panel 14.  We'll go ahead and start.  And if there are 

         6   other members of the panel, they can join us as we go 

         7   along.  Mr. Espinosa.  

         8            MR. ESPINOSA:   Thank you.  

         9            MS. SMITH:    You'll be our first speaker.  

        10            MR. ESPINOSA:   Thank you for allowing me to 

        11   testify today.  I'm going to address the small business 

        12   lending aspects of B of A Community Development Bank and 

        13   what I feel would be the tremendous harm the community 

        14   would suffer if the Community Development Bank did not 

        15   continue to exist as a separate entity.  

        16            I should say something about my background very 

        17   quickly.  I run a certified -- my name is Alex Espinosa.  

        18   I run a Certified Development Corporation.  We do SBA 

        19   loans, and through our nonprofit subsidiaries, we also 

        20   help with micro-lending and lending to small businesses 

        21   in distressed areas.  

        22            I've worked in traditional banking.  I worked in 

        23   state guarantee and local guarantee loan programs, as 

        24   well as loan consortiums.  I have some regulatory 

        25   experience in that.  I serve on the supervisory committee 

        26   of a quarter billion dollar credit union.  I'm also on 

         1   the CRA advisory committee for another large I think it's 

         2   12 billion dollar bank here in California.  And I'm also 

         3   on the board of an organization called Cameo, the 

         4   California Association for Micro-enterprise Opportunity.  

         5            I have been working in the field of small 

         6   business lending for a long time, and I've seen the 

         7   tremendous difference Bank of America Community 

         8   Development Bank has made.  This difference really has to 

         9   do with their willingness, their commitment to try to 

        10   lend to under-represented groups, as well as their 

        11   underwriting skill, their ability to understand.  And I 

        12   feel that that ability to understand has a lot to do with 

        13   their local presence in the community.  

        14            I don't really have much of an opinion about 

        15   branch closures or anything like that.  I deal 

        16   specifically with the small business lending side of it, 

        17   which has to do with lending to unrepresented groups like 

        18   women and minorities.  

        19            I have gone through many agonies trying to get a 

        20   loan placed that I thought had merit, but because it was 

        21   too small, because it was too complex, because it was a 

        22   new business or there was a lack of collateral, I had 

        23   been turned down by several lenders and 

        24   (unintelligible).  B of A has always gone the extra 

        25   mile.  They don't automatically approve any loan I would 

        26   give them, but you knew for damn sure that they 

         1   understood the loan.  They really took the trouble to see 

         2   if there was any way possible to do something like that, 

         3   that kind of loan.  

         4            One of the major problems in lending to these 

         5   under-representative groups has to do with its 

         6   historical -- what would be the word? -- the damages 

         7   that's been done to the group because of historical 

         8   reasons, that is to say, a lack of collateral.

         9            I'm Hispanic.  We represent about a tenth of the 

        10   US population.  African-Americans are roughly about a 

        11   tenth.  Each group controls less than one percent of the 

        12   assets of the United States.  So if you're a bank and 

        13   you're making a small business loan, what are you looking 

        14   to?  You're looking to collateral.

        15            Well, B of A has specifically bought the SBA's, 

        16   the Small Business Administration's, requirement to have 

        17   collateral considered for small business loans, for 

        18   micro-loans especially.  That allows them to speak with 

        19   some authority as far as addressing the needs of that 

        20   community.  

        21            Now, no bank is perfect.  Banks have trouble 

        22   lending when there's not sufficient collateral.  But part 

        23   of that has to do with what the SBA, the Small Business 

        24   Administration's function is, which is to guarantee 

        25   loans, sometimes as high as 90 percent to the bank, in 

        26   essence, making up for a lack of historical problems that 

         1   that community may have.  

         2            Let me throw out a couple statistics.  And I 

         3   hope I don't put anybody to sleep when I do this.  But 

         4   they're very relevant here.  Nationwide Bank of America 

         5   has done something like 1,400 SBA loans.  In California 

         6   alone, in terms of what's called a 7A loan program, which 

         7   is a straight guarantee, they've done 465 approximately 

         8   loans, SBA 7A loans, in the state last year.  Of those, 

         9   35, or eight percent, were to African-Americans.

        10            Well, that doesn't sound like a lot except that 

        11   that represents the combination of the next 13 banks 

        12   combined in terms of lending to that community.  Number 

        13   two had 11.  Going on from there, one, two's, adding up.  

        14   So they've made a tremendous effort.

        15            In the Los Angeles district alone, they've had 

        16   something like 260 loans that they've made to minorities 

        17   in that district.  Excuse me, of two 260 loans they made 

        18   in that district, 200 were to minorities.  So they've 

        19   made a tremendous effort to try to push forward the 

        20   lending to the under-represented groups.  

        21            I think in summing up, what I really want to see 

        22   happen here today is some sort of guarantee that the 

        23   SBA -- that the Bank of America Community Development 

        24   Bank will continue to exist as a separate entity.  I 

        25   think it's vital because many times the things that they 

        26   push forward can't be duplicated by any other lender, 

         1   large or small.  And I think you'll see a gaping hole if 

         2   they leave.  Thank you.  

         3            MS. SMITH:    Mr. Littrel.  

         4            MR. LITTREL:   I'm John Littrel.  I'm a housing 

         5   law counselor in Hayward, California.  And I don't have a 

         6   whole lot to do with finance.  Where I come -- the point 

         7   of view I bring to this discussion is from someone who 

         8   spends most of their time preventing evictions and doing 

         9   eviction mediation counseling.  

        10            As anyone in this room who lives in San 

        11   Francisco knows, we have a critical shortage of housing 

        12   in the Bay Area right now, with vacancy rates less than 

        13   one percent most of the time.  So pretty much any 

        14   financial institution which wants to do business in San 

        15   Francisco I think should make a specific commitment to

        16   addressing our shortage of affordable housing.  In this 

        17   instance, it's going to mean specific written commitment 

        18   to multi-family affordable housing development.

        19            And I just finished hearing testimony from a 

        20   whole panel full of people on the east coast and North 

        21   Carolina with good experiences with NationsBank, but 

        22   since they have no track record in California, all we 

        23   have to rely on here is specific written commitments.  

        24            Over the course of the last month, I've met with 

        25   representatives from both banks as part of the Community 

        26   Reinvestment Committee.  We've discussed the 350 billion 

         1   dollar commitment that was issued, and what we've been 

         2   trying to do is hammer out specific numbers, specific 

         3   goals, and specific targeting for that money in 

         4   California for low-income people and for very low-income 

         5   people.

         6            And time and time again we've come up with vague 

         7   responses.  We haven't got a whole lot of specific 

         8   commitment to, in particular, very low-income families, 

         9   and that's 50 percent of the median income.  These are 

        10   specifically the families that are being displaced by our 

        11   current housing crisis.  

        12            So pretty much while I value the testimony of 

        13   the panel that came before me, and it looks like 

        14   NationsBank has done a lot of good things in that area, 

        15   we have no guarantee that they'll be able to produce a 

        16   product that can really compete with what we already have 

        17   with Bank of America's Community Development Bank.

        18            And related to that, Bank of America's Community 

        19   Development Bank, for instance, had a strict policy of 

        20   non-competition with a nonprofit housing developers in 

        21   the area.  We've asked the NationsBank staff to guarantee 

        22   that that will continue to be a policy, and that's been 

        23   denied as well.  

        24            These are just a few of the concerns that we've 

        25   had as far as the merger is concerned.  So given the 

        26   vagueness, the lack of specificity, and in some cases the 

         1   outright refusal to address the specific needs of 

         2   California, we have to -- I have to not be in favor of 

         3   this merger and oppose it.  

         4            MS. SMITH:    Thank you.  Ms. Burks.  

         5            MS. BURKS:   Madam Chairman, members of the 

         6   committee, my name is Gail Burks.  I'm president of the 

         7   Nevada for Housing Center in Las Vegas, Nevada.  We 

         8   provide for enforcement under Title 8.  We provide 

         9   educational classes, as well as technical assistance to 

        10   local governments and nonprofits.  

        11            I should also say I am chair of the Southern 

        12   Nevada Reinvestment and Accountable Banking Committee, a 

        13   group that has been in existence since Bank of America 

        14   came to our market in 1992.  

        15            I'd like to focus my comments today on three 

        16   areas.  And I know it's late in the day and it's 

        17   difficult to have a discussion about HHI and competitive 

        18   concerns, but I'd like to make a couple of points about 

        19   it before everybody falls asleep.  

        20            There are three basic issues that we have with 

        21   the application submitted.  One is we believe that it 

        22   does pose a problem with competitiveness.  We do believe 

        23   that there are problems with respect to assurances, 

        24   specifically as it relates to the Nevada market, and we 

        25   also would like to address the record of Bank of America 

        26   in Nevada as compared to that with NationsBank.  

         1            In the application submitted by NationsBank, the 

         2   bank admits that currently the index for determining 

         3   whether or not there is a problem with competition is at 

         4   1,800 and that that will increase by 29 points after this

         5   deal is completed.  However, they rely heavily on other 

         6   competitors in the market.  And two of those competitors 

         7   are Norwest and Wells Fargo.  However, with the 

         8   announcement of those two mergers, I believe it can be 

         9   estimated if the HHI is recalculated that, indeed, it 

        10   will rise above 29 points and perhaps exceed 100.  

        11            The merger guidelines are clear in terms of if a 

        12   merger goes above 50 points, it does, indeed, raise 

        13   competitive concerns.  And we can look at the guidelines 

        14   not only of the FDC but of justice to take a look at 

        15   that.  And our written submission sort of details that 

        16   and sets it out a little bit more.  And you can read it 

        17   earlier in the day.  

        18            The second area of concern that we have is with 

        19   respect to adequate assurances.  You have been told and 

        20   given a lot of information this morning about the great 

        21   things and partnerships that Nations has done in other 

        22   markets.  And, indeed, in the application, there are lots

        23   of examples of community reinvestment initiatives.   

        24   However, in making a broad announcement, there are no 

        25   details to that initiative.

        26            The question was asked by one of the members 

         1   earlier what does a detailed commitment look like?  This 

         2   is an example of a detailed commitment (indicating).  It 

         3   is over 30 pages.  It sets forth everything that the 

         4   community will look at in terms of considering the needs 

         5   of the community.  This is an agreement with Bank of 

         6   America that has been in effect in Nevada since 1992.  I 

         7   would be misleading this committee if I indicated to you 

         8   that we do not and have not had concerns with Bank of 

         9   America.  

        10            It would also be misleading to state that there 

        11   are not good partnerships with Bank of America.  

        12   Currently, as of September 1997, when the OCC issued that 

        13   portion of the exam for the Las Vegas MSA, Bank of 

        14   America received a low satisfactory in lending, a low

        15   satisfactory in investment.  However, despite that, we 

        16   believe that record is better than what Nations has done 

        17   in other communities, especially with respect to 

        18   low-income people.  

        19            Finally, with respect to the proceedings, we, 

        20   too, commend you for setting these hearings and allowing 

        21   people to come and testify.  However, there are a couple 

        22   of points that I think we need to point out.  The 

        23   proceedings are not about prorating people that have 

        24   gotten a loan.  The sole question under the regulations 

        25   is whether or not the applicant meets the test as defined 

        26   by the regs.  And if you find that they don't meet the 

         1   test, the application should be denied.  

         2            Taking into account all of the different things 

         3   that people have said with respect to receiving grants or 

         4   special programs would be equivalent to dismissing all of 

         5   the evidence before you regarding key concerns about 

         6   competitiveness, as well as how the record of Bank of 

         7   America will be affected in a specific market.

         8            Thank you for your opportunity to testify.  

         9            MS. SMITH:    Thank you.  Ms. Marshall.  

        10            MS. MARSHALL:   Thank you.  I represent the 

        11   California Association for Micro-enterprise Opportunity.  

        12   This is a trade association of public agencies, 

        13   nonprofits, and interested individuals who are working 

        14   with low-income individuals who are starting businesses.  

        15            Micro-enterprises are those businesses that have 

        16   five or fewer employees and can be capitalized for under 

        17   $25,000.  They're usually the small businesses like the 

        18   landscape business, a janitorial business, a lot of our 

        19   service businesses, seamstresses, businesses that have 

        20   started from the skills the individuals have so that they 

        21   can create a job for themselves.  

        22            Micro-enterprise development is that process of 

        23   jump-starting those businesses, jump-starting them and 

        24   reducing their risk through technical assistance such as 

        25   consulting, business planning, training, and workshops, 

        26   as well as micro-loan funds and ongoing services such as 

         1   networks and even business incubators.  

         2            Most of these resources are provided by 

         3   nonprofit organizations, sometimes community-based or 

         4   faith-based organizations, sometimes in partnership with 

         5   government organizations.  

         6            Now, for micro-enterprise development, the 

         7   community benefits from this, as well as individuals.  

         8   What happens in the community is there's reduction in 

         9   welfare, unemployment, and other public assistance costs 

        10   and increase in jobs and goods and services in the 

        11   community.  

        12            Bank of America has done a good job, generally 

        13   speaking, in providing a significant investment for small 

        14   business development for California in the form of a 

        15   support for nonprofits and technical assistance to the 

        16   emerging business owners, as well as loans to small 

        17   businesses.  And a written -- what we're asking for is a 

        18   written commitment of community investment in small 

        19   business development as an essential element of any 

        20   merger agreement.

        21            We recommend the following:  We recommend an 

        22   investment in the nonprofit technical assistance 

        23   providers who assist the small business as they reach the 

        24   level of expertise that permits them to qualify for the 

        25   bank credit, otherwise creating customers for the banks.  

        26            We're looking for recommendation -- we are 

         1   recommending a target of 75 percent of the loans based on 

         2   the dollar amount to small businesses and loans of lines 

         3   of credit of under $50,000.  That's what our 

         4   micro-enterprises need.  

         5            We're also looking for a target of 30 percent of 

         6   small business lending to minority and disabled-owned

         7   businesses and, finally, a secondary review process for 

         8   declining of small business loan applications.  Thank 

         9   you.  

        10            MR. FRIERSON:    Ms. Burks, I'm sure this view 

        11   isn't shared by my fellow panelists, but it's never too 

        12   late to talk about HHI's in my opinion.  And we'll read 

        13   your competitive analysis very carefully, particularly in 

        14   terms of the guidelines.  We will be applying, as you 

        15   indicated, the Department of Justice guidelines, which 

        16   does set the threshold change at 50 points.  However, we 

        17   have received advice from the Department of Justice back 

        18   in the early '80's saying that in light of financial and 

        19   non-financial competitors of banks that the threshold is 

        20   actually 200 points.  Nevertheless -- for the change, for 

        21   the delta.  Nevertheless, we will be considering your 

        22   competitive arguments, and we appreciate you bringing the 

        23   information to us.  

Last update: December 3, 2010