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Public Meeting Transcripts

Public Meeting Regarding Banc One and First Chicago

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.
Last update: December 3, 2010