Public Meeting Regarding NationsBank and BankAmerica - Panel 15
Thursday, July 9, 1998
Transcript of Panel Fifteen
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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
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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
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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
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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,
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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
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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
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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.
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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
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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
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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
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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
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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.