Home > Banking Information & Regulation > Public Meeting Transcripts > PMT - Agendas August 13, 1998
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. 7 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 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. 8 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 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 9 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 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 10 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 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. 11 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 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, 12 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 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 13 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 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 14 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 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. 15 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 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 16 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 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 17 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 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 18 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 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 19 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 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 20 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 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 21 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 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 22 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 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 23 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 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. 24 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 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 25 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 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. 26 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 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 27 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 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.
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