Public Meeting Regarding Fleet Financial Group, Inc., and BankBoston Corporation
Wednesday, July 7, 1999
Transcript of Panel Eighteen
16 MR. CAMPEN: My name's Jim Campen. I an
17 associate professor of economics at the University
18 of Massachusetts in Boston. I'll focus my comments
19 today on the issue of mortgage lending to
20 traditionally underserved borrowers. This is an
21 issue on which I've done a number of studies in the
22 last several years.
23 In early June, I released a report entitled
24 "Does One Plus One Equal More Than Two or Less Than
25 One? A Study of Mortgage Lending Before and After
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1 Recent Mergers by Fleet and BankBoston." A copy of
2 that report is attached to my written testimony.
3 The main finding of this study, which has
4 been referred to frequently today, was that both in
5 the city of Boston and in all of Massachusetts,
6 lending to black, Latino, and low- and
7 moderate-income LMI borrowers by Fleet in 1998 was
8 approximately half of the total lending to these
9 borrowers by Fleet and Shawmut combined in 1995;
10 that is, the result of the most recent Fleet merger
11 was one plus one equals one.
12 In contrast, I find that lending to these
13 borrowers by BankBoston in 1998 was approximately
14 equal to the total lending to these borrowers by
15 Bank of Boston and BayBanks combined in 1995; that
16 is, the result of the most recent BankBoston merger
17 was one plus one equals two.
18 These findings were very robust. The same
19 general pattern exists whether one looks at Boston
20 or at the entire state at loans to blacks, to
21 Latinos, or to LMI borrowers and starting dates of
22 1994, 1995, ending dates of 1997 or 1998.
23 In the findings reported for New York, New
24 Jersey, New Hampshire, and Connecticut in Table 3 of
25 my report are even stronger than those for Boston in
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1 Table 1 and Massachusetts in Table 2.
2 Fleet's principal response to my findings
3 was stated in a June 29 letter from William
4 Mutterperl to Boston Fed CRA officer Richard Walker.
5 The same general response was articulated this
6 morning by Agnes Bundy Scanlan on today's first
7 panel, and it's presented in a 15-page document that
8 I received today from Fleet.
9 Fleet points out that it has ranked first
10 in market share in lending to blacks, Latinos, and
11 LMI borrowers; and that the percentage of its total
12 loans that go to these borrowers is substantially
13 above the industry average. This, of course, is not
14 a refutation of my findings. Fleet does not dispute
15 my findings.
16 Rather, Fleet's response, perhaps
17 unwittingly, underlines exactly why the substantial
18 drop in Fleet's mortgage lending to these borrowers
19 following its merger to Shawmut is so important. It
20 is precisely because Fleet and Shawmut had such
21 strong performance in lending to traditionally
22 underserved borrowers that the decline matters so
23 much.
24 When a major lender cuts back its lending
25 to middle- and upper-income households, there is no
0472
1 reason for public policy concern, because there are
2 plenty of other lenders aggressively seeking to lend
3 to these borrowers. But when the largest lenders to
4 traditionally underserved borrowers cut back
5 substantially, there is a shorter of other lenders
6 who will step in and take up the slack.
7 Fleet's cutback in lending to minorities
8 and LMI borrowers was approximately proportional to
9 its cutback in overall lending. However, by total
10 lenders -- by all lenders -- to all borrowers rose
11 by 29 percent between 1995 and 1997. Total lending
12 by all lenders to black and Latino borrowers fell by
13 1 percent during that period.
14 When the two largest lenders -- LMI to
15 minority and LMI borrowers -- merge, it is possible
16 for the subsequent lending of the surviving
17 institution to fall to the level of the merger
18 partner which had the lower level; that is, to fall
19 by more than 50 percent so that one plus one is
20 equal to less than one and still have it be the case
21 that the surviving institution retains the position
22 of the largest single lender to blacks, Latinos, and
23 LMI borrowers.
24 Indeed, Fleet and Shawmut were by far the
25 largest such lenders in 1995; and Fleet remains, as
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1 I emphasize, the largest lender. In fact, at this
2 time, Fleet and BankBoston are the two largest
3 lenders to minority and LMI borrowers.
4 I doubt that Mr. Mutterperl or Agnes
5 Scanlon means to suggest it would be all right if
6 the lending to these borrowers by the institution
7 resulting from the proposed merger were to fall by
8 50 percent, as long as that institution retains a
9 No. 1 market share and continued to make a high
10 percentage of its loans to these borrowers.
11 I have attached to the written version of
12 my testimony, six newly-completed tables for -- that
13 replicate for six Massachusetts metropolitan areas,
14 the MSA, the analysis previously done for the city
15 of Boston and the state of Massachusetts.
16 These were done for the Boston, Worcester,
17 and Springfield MSAs, as well as for the three MSAs
18 in the southeastern part of the state. I
19 particularly call your attention to the tables for
20 Springfield, which is Table 5, and to New Bedford,
21 Table 7.
22 In Springfield, the state's second most
23 populous MSA, between 1995 and 1998, Fleet's home
24 purchase loans to blacks fell from 46 loans to just
25 2; to Latinos, from 99 loans to 10; and to LMI
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1 borrowers, from 226 loans to just 38. Of course,
2 money percentage declines, so on the right-hand
3 column of that table, were 97 -- 95.7 percent, 90
4 percent, and 83 percent.
5 In New Bedford, the state's poorest MSA,
6 total lending by both Fleet and BankBoston dropped
7 precipitously. Total loans to blacks and Latinos
8 fell from 23 loans to 3. While total lending to LMI
9 borrowers by the two banks combined fell from 127
10 loans to 11.
11 Fleet and BankBoston suggested that the
12 criterion of one plus one greater than two should be
13 modified to take into account the fact that post
14 merger -- post divestiture institutions will be only
15 about 80 percent as large as the combined size of
16 the two current banks; that is, that the appropriate
17 criterion should be one plus one is greater than
18 1.6.
19 However, there's no guaranty that a bank
20 acquiring divested branches will engage in mortgage
21 lending will make up for a drop in lending by the
22 divesting institution. In fact, I'm aware of two
23 cases in the last round of mergers where a
24 substantial number of branches and deposits in a
25 single MSA were divested to a single institution;
0475
1 and in neither case, did the acquiring bank make a
2 significant number of mortgage loans.
3 In Worcester, several branches divested in
4 the Fleet-Shawmut merger provided a basis for a new
5 bank, First Massachusetts Bank. Like everywhere
6 else, lending fell substantially there to Latinos,
7 blacks, and the LMI borrowers. To what extent did
8 lending First Massachusetts Bank make up for these
9 lending decreases? Well, in 1997, First
10 Massachusetts Bank made a total of two home purchase
11 loans in Worcester MSA.
12 Similarly, in Boston, U.S. Trust acquired a
13 lot of BayBank/BankBoston branches. They made a
14 total of three home purchase loans in the Boston MSA
15 in 1997.
16 Thus, I would strongly urge that the level
17 of post merger mortgage lending required to be
18 adjusted downward only to the extent that the banks
19 acquiring that divested branches make firm
20 commitments for mortgage lending to traditionally
21 underserved borrowers.
22 I think that the one plus one greater than
23 two criterion emphasized by CEOs Gifford and Murray
24 in their March 15 press conference establishes an
25 appropriate minimum level of post merger home
0476
1 purchase lending to traditionally underserved
2 borrowers and neighborhoods.
3 I urge the Fed to require a firm written
4 commitment to this level of lending as a condition
5 of approving the merger. In light of my earlier
6 comments, I further urge the Fed first to accept a
7 commitment to a lower level of lending by the
8 post-merger institution only to the extent that the
9 bank acquiring divested branches makes a firm
10 commitment to making such loans.
11 Second, to require that the commitment be
12 made not only overall but for individual states and
13 appropriate submarkets to avoid having other areas
14 experience outcomes like that observed in New
15 Bedford. And third, to have the commitment
16 expressed in numbers of home purchase loans rather
17 than dollar amounts.
18 Finally, I want to emphasize that the
19 information so far made available by Fleet and
20 BankBoston is insufficiently detailed to make
21 possible an evaluation of their proposed mortgage
22 lending in light of this criterion.
23 I strongly endorse the call by many other
24 parties testifying in today's hearing that the Fed
25 extend the comment period so that it remains open
0477
1 for a reasonable period of time after Fleet and
2 BankBoston make their detailed final plan
3 available to community groups and other interested
4 parties. Thank you.
5 HEARING OFFICER SMITH: Mr. Davis.
6 MR. DAVIS: Thank you. I am Robert Davis,
7 and I serve as Director of Government Relations for
8 America's Community Bankers. We appreciate the
9 opportunity to present our views today on the
10 acquisition of BankBoston by Fleet Financial.
11 Your day has been pretty long. I promise
12 to be as brief as I possibly can be.
13 America's Community Bankers is a national
14 banking trade association that represents
15 progressive community banks of all sizes. In New
16 England our membership covers a complete range of
17 institutions other than Fleet and BankBoston,
18 consisting of savings banks, cooperative banks,
19 savings associations and commercial banks. We're
20 the only national trade group that represents the
21 entire spectrum of banks in New England other than
22 money center banks.
23 Our statement focuses on the divestiture of
24 branches, ATMs and other assets necessary for the
25 proposed acquisition to comply with the antitrust
0478
1 laws as well as other competitive situations. I
2 should comment that while a good bit of the
3 testimony today is focused on the behavior of the
4 new Fleet-Boston after the acquisition, especially
5 with respect to community development, I think there
6 can be no question that any assets that are acquired
7 through divestiture by the community-based
8 institutions in New England are going to be managed
9 to the benefit of those communities, and I think
10 that is one of the strengths of the community banks
11 in this region.
12 Our concerns really can be summarized in
13 five points. Community banks in New England are
14 fierce and effective competitors, and they should be
15 afforded a significant role in resolving antitrust
16 problems that are inherent in any large acquisition
17 in a concentrated banking market.
18 Two, unlike other regions of the country,
19 savings institutions in particular in New England
20 have well-diversified portfolios and are strong
21 competitors for the business customer, which is one
22 of the concerns.
23 Three, the unprecedented potential
24 concentration of ATM ownership that could result
25 from the proposed acquisition raises special
0479
1 economic concerns that must be addressed in the
2 regulators' anti-trust analysis. The divestiture
3 plan being developed must take into account the
4 unique implications of such a high concentration of
5 ATM ownership that would result from this
6 acquisition, particularly within the 128 corridor.
7 Four, so as not to revisit problems that
8 have emerged in the past, the government should
9 continue to provide careful scrutiny of any
10 restrictive real estate covenants that would hamper
11 future competition.
12 Five, along a similar vein, other contract
13 provisions, such as unreasonable restrictions on
14 communications between potential consortia partners
15 in the bidding process or restrictions on future
16 hiring practices of banks that bid for divested
17 branches, two issues which have been raised and are
18 potentially problematic in this acquisition, should
19 be prohibited.
20 A more detailed analysis of each of these
21 points is in our written statement that is submitted
22 for the record.
23 In conclusion, I want to emphasize that
24 America's Community Bankers has no interest in
25 impeding the BankBoston acquisition by Fleet. To
0480
1 the contrary, we believe the transaction can bring
2 new efficiencies and competition to the marketplace.
3 However, for that to occur, we believe the Federal
4 Reserve and the Justice Department must carefully
5 oversee the divestiture plan to resolve anti-trust
6 concerns, and that divestiture plan should take
7 account of the points that we have raised in
8 particular.
9 We strongly believe that the acquisition
10 and divestitures in question can result in gains for
11 the entire banking community and all of its
12 customers in New England. We're just as strongly
13 convinced that the best solution will be a
14 divestiture that ensures a strong role for
15 competitive community banking throughout the region.
16 Thank you.
17 HEARING OFFICER SMITH: Thank you.
18 Mr. Glass.
19 MR. GLASS: Thank you. For the record, my
20 name is Donald Glass. I'm president of the
21 Community Bank League of New England, which is a
22 regional trade association representing 118
23 community banks located throughout the six New
24 England states. Our members range in size from as
25 small as $9 million to as large as $1.2 billion,
0481
1 with an average asset size of $147 million.
2 We believe that generally this merger will
3 have a very positive impact on the economic vitality
4 of the New England region. It is good for the two
5 companies, and the region as a whole. We advocate a
6 win-win scenario where community banks, small
7 businesses, local communities and consumers win as
8 well, as a consequence of this transaction.
9 Community banks are a vital source of
10 financial services to small businesses, local
11 communities and consumers. Community banks strive
12 to provide quality products and services at
13 affordable prices while demonstrating a strong
14 commitment to and investment in their local
15 communities. A key principle in the League's
16 mission statement is to foster an environment in
17 which community banks can operate in a productive,
18 profitable manner. In line with our mission, we
19 believe it is essential and in the best interest of
20 the banking industry as a whole that this proposed
21 transaction be conducted in a way that allows
22 community banks to play a role in the completion of
23 this merger.
24 We have three key concerns regarding the
25 proposed merger between Fleet Financial Group and
0482
1 BankBoston Corporation, and they are as follows:
2 First, there are a number of antitrust
3 issues such as overall market dominance, state-
4 imposed deposit caps, as well as a concentration of
5 ATM ownership. The latter is of primary concern to
6 our members, since together Fleet and BankBoston own
7 the largest number of bank-owned ATM machines in use
8 today in Massachusetts.
9 In the metropolitan Boston area, their
10 combined ATM ownership is well over 50 percent.
11 This gives them the ability to employ predatory
12 pricing practices, such as surcharging.
13 We strongly urge that these antitrust
14 concerns be thoroughly evaluated and that serious
15 consideration be given to requiring the divestiture
16 of a specific percentage of ATM machines, both those
17 located in branches and freestanding alike.
18 Second, in the past large banks in this
19 region have included noncompete clauses in sale and
20 other documents relating to the divestiture of bank
21 branches and real estate. In this regard, we would
22 urge you to make sure that this practice is
23 prohibited.
24 Finally, we believe that community banks
25 should be allowed to have the opportunity to
0483
1 participate in the purchase of deposits and branches
2 that are to be divested. Their participation in the
3 divestiture process will help ensure that
4 community the community banking industry remains a
5 strong and vibrant player serving local communities
6 in their respective markets.
7 Thank you for consideration of our views.
8 HEARING OFFICER SMITH: Thank you.
9 Questions from the Panel?
10 HEARING OFFICER KWAST: Yes. Thank you.
11 I have a question for Mr. Davis and Mr.
12 Glass. Could you amplify on the role of your banks
13 and so-called middle-market lending. One of the
14 concerns that was expressed earlier today was
15 whether small- and medium-sized banks would be able
16 to compete effectively in the so-called middle
17 market. What role do your banks play in making
18 middle-market-type loans.
19 MR. DAVIS: Let me make the first
20 observation there. Our members range in size from
21 multi-billion dollar regional community banks, like
22 People's Heritage in Webster and People's in
23 Bridgeport, Connecticut, to very small institutions.
24 We have, as Don mentioned, institutions that, with
25 less than $10 million in assets, their assessment
0484
1 areas are literally defined as blocks. So there is a
2 whole range of institutions.
3 And obviously the very small institutions
4 have much less capacity to engage in business
5 lending except for community Mom-and-Pop businesses.
6 But the larger institutions that are still community
7 banks and they're still community oriented, even if
8 they operate regionally, we believe have very
9 substantial capacity to engage in business lending
10 and also can make the jump into middle markets.
11 We recognize that it's important to
12 establish that middle market competitor. We
13 recognize that the government has an interest in
14 establishing a new, large, dominant player. We
15 don't disagree with that objective.
16 And we realize, frankly, also, that the
17 majority of the assets divested are probably going
18 to have to go to that type of player. Frankly,
19 community banks don't have the capital to absorb all
20 the assets that are going to be divested. But we
21 think that a very substantial proportion of the
22 assets that are divested can be effectively deployed
23 in the hands of the community banks, and they can be
24 effective competitors.
25 MR. GLASS: We view this transaction taking
0485
1 place as being in two parts, basically. The first
2 part is the creation of a mid-market competitor,
3 probably an outside financial institution, and
4 another part where community banks will be able to
5 participate in consortia and pick it up in the after
6 market, so-called after market.
7 And there are ways of doing some of the
8 mid-market by participation, with a small bank being
9 the lead and putting together groups of banks that
10 can participate in some of those types of loans. So
11 there is a way of doing it. Certainly they aren't
12 going to be the competitor that either the Justice
13 Department or the Fed would like to have in here,
14 and we view that as probably the reality.
15 MR. DAVIS: I want to add also that we're
16 not looking for Fleet and BankBoston to carve out a
17 segment for sort of a discount sale. In fact, we
18 think that the community -- the highest value usage
19 of a lot of the divested assets are going to be with
20 community banks, and they will often be willing and
21 able to pay the highest premium for some of the
22 divested assets.
23 So I think that the strong participation
24 and an open process that lets community banks bid
25 probably also ultimately benefits the stockholders
0486
1 of Fleet and BankBoston the most in terms of
2 realizing gains from the sale of divested assets.
3 HEARING OFFICER KWAST: I also have a
4 question for Mr. Campen. I was a little unclear,
5 did your study of mortgage lending apply to dollar
6 value of lending as well as the number of loans or
7 is it only the number of loans?
8 MR. CAMPEN: I just looked at the number of
9 loans.
10 HEARING OFFICER KWAST: Thank you.
11 HEARING OFFICER BROWNE: I also have a
12 question for Mr. Campen. If I understood correctly,
13 you were saying that for minorities, that the
14 cutbacks by Fleet resulted in basically a cutback
15 overall or at least no growth overall; whereas for
16 non-minorities, there was overall expansion.
17 Who is picking up the -- or who is doing
18 the expanding in both cases, and is there -- and as
19 a consequence, who is not stepping in as much in
20 terms of lending to minorities? Is there a
21 differential? Is it mortgage banks? Or where is
22 the slack? Who is picking up the slack?
23 MR. CAMPEN: The big lenders -- I could
24 answer this more precisely if I looked at the data.
25 But the big lenders in Massachusetts and Boston
0487
1 overall -- there are a number of out-of-state
2 mortgage companies -- countrywide, NorWest,
3 BankAmerica, just looking at 1997 data -- which have
4 made lots of loans, which are among the five or six
5 biggest lenders statewide and citywide to all
6 borrowers. They made very few loans to minorities.
7 So the big Boston-based banks were
8 disproportionately the lenders -- I mean, in 1995,
9 they had almost two-thirds of the total lending
10 between them. There were four banks then, but they
11 accounted for almost two-thirds of the total lending
12 in the state to minority borrowers. In 1997 that
13 had gone down to slightly below 50 percent.
14 HEARING OFFICER SMITH: Thank you very much
15 for coming to present your views.
16 We'll move on to Panel No. 19. Mr.
17 Carvalho.