Public Meeting Regarding First Chicago and Banc One
Thursday, August 13, 1998
Transcript of Panel One
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.