skip to main navigation skip to secondary navigation skip to content
Board of Governors of the Federal Reserve System
skip to content

Public Meeting Transcripts

Public Meeting Regarding Banc One and First Chicago

Thursday, August 13, 1998

Transcript of Panel Eighteen

 
         11       MR. GOLDSTEIN:  Hello.  My name is Ken
 
         12   Goldstein.  I am an associate at Krislov and
 
         13   Associates.  And Ken Krislov regrets that he can't
 
         14   attend.  He was drawn out of town unexpectedly.
 
         15            We have made submissions to the Board, a
 
         16   public comment, and to which we had attached a
 
         17   complaint that we had filed in Federal court, a
 
         18   class action complaint on behalf of Meleia
 
         19   Robinson, which we have voluntarily dismissed
 
         20   pending this administrative process.  All of those
 
         21   submissions, I take, are incorporated by
 
         22   reference.
 
         23            My purpose now is to highlight and
 
         24   summarize some of the points in our testimony that
 
 
 
 
                                                            371
                         McCORKLE COURT REPORTERS, INC.
                       CHICAGO, ILLINOIS - (312) 263-0052
  
 
 
 
          1   I've submitted today.
 
          2            The first point I'd like to make is that
 
          3   there's no benefit for consumers generally in this
 
          4   merger, only the elimination of competition and the
 
          5   certainty of increased fees and charges.
 
          6            This morning I heard the CEOs talk about
 
          7   the merger of equals, but we see this as a
 
          8   combination of competitors.
 
          9            The persons -- the people who are most
 
         10   injured by this merger, while CRA aspects are
 
         11   terribly important, are the general average banking
 
         12   customers, middle class consumers who are going to
 
         13   be affected by the lack of competition and by the
 
         14   combination of lack of choices.
 
         15            The concentration for -- of the
 
         16   marketplace is bad for average, middle class
 
         17   consumers and bank customers.
 
         18            We also have a problem with the
 
         19   divestiture plans, which we feel are incomplete.
 
         20   And lastly, we would request that the Board look
 
         21   closely at the relevant market areas and the
 
         22   antitrust standards in the bank merging -- Bank
 
         23   Holding Company Act and the merging -- and the
 
         24   antitrust laws.
 
 
 
 
                                                            372
                         McCORKLE COURT REPORTERS, INC.
                       CHICAGO, ILLINOIS - (312) 263-0052
  
 
 
 
          1            First of all, this merger is not based
 
          2   only on CRA grounds and a poor record of lending
 
          3   patterns, which has been evident this whole
 
          4   afternoon.
 
          5            This merger hurts middle class average
 
          6   bank customers, the core depositors who make the
 
          7   bank's fortunes rise and fall.
 
          8            This merger eliminates the competition for
 
          9   most consumers, average middle class depositors,
 
         10   based on antitrust laws.  And we see this based on
 
         11   the shrinking number of banks over time, which
 
         12   causes less bank choices where people have nowhere
 
         13   else to go.
 
         14            In the past six years alone, we've seen
 
         15   the number of banks reduced from around 12,000 to
 
         16   around 9,000.  In some places, the merger will have
 
         17   the practical effect and literally be one-bank
 
         18   towns.
 
         19            In this way, average consumers lose
 
         20   because there's nothing to be gained in having a
 
         21   lack of competition.
 
         22            We have not heard this morning from the
 
         23   banks say any reason why this combination will have
 
         24   a positive effect on interest rates for savings or
 
 
 
 
                                                            373
                         McCORKLE COURT REPORTERS, INC.
                       CHICAGO, ILLINOIS - (312) 263-0052
  
 
 
 
          1   how they would reduce bank fees or create better
 
          2   service at all because we've seen in every case
 
          3   where banks have merged and competition lessened,
 
          4   increased fees and market -- monopoly power market
 
          5   exercised.
 
          6            My next point is that the combination of
 
          7   these banks is that in the Federal Reserve Board of
 
          8   Boston's most recent article, we've seen that
 
          9   banking is local.  Consumers travel only two to
 
         10   five miles to their local bank.  With the
 
         11   elimination of branches, there will be less
 
         12   competition and we'll see an increase in fees.
 
         13            These banks are already leaders in
 
         14   generating fees and have been padding their bottom
 
         15   lines in just their last month's report and
 
         16   their -- and in the number of the amount that
 
         17   they've been collecting in fees.
 
         18            The last issue is on divesture.  We have
 
         19   not heard a full public disclosure of what the
 
         20   divestiture will be in Indiana or at all in
 
         21   northern Illinois.
 
         22            It has not been made fully public.  In
 
         23   fact, there's been speculation that the sale of the
 
         24   new banks will be to someone without a local
 
 
 
 
                                                            374
                         McCORKLE COURT REPORTERS, INC.
                       CHICAGO, ILLINOIS - (312) 263-0052
  
 
 
 
          1   presence, which will only serve to strengthen the
 
          2   incumbent bank's position.
 
          3            In Illinois, we have not heard about any
 
          4   divesture and specifically in the time of -- in the
 
          5   towns of Evanston and Wilmette where banks are
 
          6   literally across the street from one another.
 
          7            To conclude, in short we ask that this
 
          8   merger be rejected unless and until these concerns
 
          9   to preserve competition and protect middle class
 
         10   core depositors are fully addressed.  Thank you.
 
         11       MS. SMITH:  Thank you very much.
 
         12   Mr. Harrington.
 
         13       MR. HARRINGTON:  My name is Bill Harrington,
 
         14   and I work in Gary, Indiana.
 
         15            I suppose I would be one of the people
 
         16   that would be the least thought to be here and
 
         17   express concerns over a merger because I probably
 
         18   am one of those people that's considered to be
 
         19   rather privileged.
 
         20            Had a great career, started a firm called
 
         21   Harrington Properties in Gary, Indiana, really with
 
         22   the idea of taking some areas that are rather
 
         23   depressed and through private industry rehabbing
 
         24   some houses and creating some in-fill housing to
 
 
 
 
                                                            375
                         McCORKLE COURT REPORTERS, INC.
                       CHICAGO, ILLINOIS - (312) 263-0052
  
 
 
 
          1   create a neighborhood.
 
          2            In 1994, I happened to, as a favor to my
 
          3   parent company that I ran then as president and
 
          4   CEO, bought some commercial property.
 
          5            NBD had been my bank since -- or Gainer
 
          6   Bank had been my bank since 1984.  And I went to
 
          7   NBD Bank.  And they were very gracious and loaned
 
          8   me the money.
 
          9            I ended up with a $312,000 mortgage and
 
         10   also later a line of credit of $50,000, which they
 
         11   secured with a second mortgage on a house that the
 
         12   company owned and that I paid rent in excess of
 
         13   market value for.
 
         14            We had an agreement that when -- I asked
 
         15   when the release of this mortgage on the house
 
         16   would be, and that would be whenever the $50,000
 
         17   note was paid.
 
         18            And when the primary note was below
 
         19   $285,000, the formula was that they wanted to see
 
         20   the loan to the point that the developed land, the
 
         21   three acres with the buildings on it, were -- the
 
         22   debt was less than 80 percent of appraised value
 
         23   and 50 percent on the vacant land, which sounded
 
         24   reasonable.
 
 
 
 
                                                            376
                         McCORKLE COURT REPORTERS, INC.
                       CHICAGO, ILLINOIS - (312) 263-0052
  
 
 
 
          1            1996, 97, our line of credit was
 
          2   established for 50,000 and later increased to
 
          3   $100,000, obviously secured by inventories,
 
          4   equipment, receivables, as well as a personal
 
          5   guarantee, which I have never had a problem
 
          6   giving.
 
          7            I guess my point is that when I was
 
          8   renewing the last line of credit in 1997 and I'm
 
          9   looking at the documents which are given to me to
 
         10   review, I happen to get one document I wasn't
 
         11   supposed to get, and that's the bank's internal
 
         12   document.  And that document said, CRA, yes.
 
         13            Now, the bank on a hundred thousand
 
         14   dollar line of credit when they had collateralized
 
         15   everything in the company and me personally
 
         16   guaranteed with a personal financial statement well
 
         17   in excess of a million dollars, it started to
 
         18   trigger me why we have difficulty in Gary, Indiana,
 
         19   in attracting capital to the inner city if the bank
 
         20   can satisfy its needs through nonrisk loans being
 
         21   qualified for Community Reinvestment Act credits.
 
         22            I guess if you really want to find out
 
         23   where the heart of your bank is, go ask them for a
 
         24   $250,000 nonrecourse line of credit to rehab a city
 
 
 
 
                                                            377
                         McCORKLE COURT REPORTERS, INC.
                       CHICAGO, ILLINOIS - (312) 263-0052
  
 
 
 
          1   block that today looks like Beirut, Lebanon, which
 
          2   I did in writing, submitted a letter to NBD, who
 
          3   was at one time Gary National Bank, Gainer Bank,
 
          4   now NBD, and was pretty flatly rejected.
 
          5            They said, you know, if you want to
 
          6   come in and borrow some money and tie up your
 
          7   corporation and personally endorse the note, we'll
 
          8   loan you some money to do some work, but, you know,
 
          9   we want to be collateralized.
 
         10            I guess my point is this.  Six months ago
 
         11   through a developer that wanted to partner with me,
 
         12   I decided I would approach the bank to release the
 
         13   vacant land since by then the mortgage was well
 
         14   below $200,000, which certainly left them in an
 
         15   oversecured position.
 
         16            And, you know, they told me they'd be just
 
         17   more than happy to do that if I, again, would give
 
         18   them my house as collateral, which by then had no
 
         19   mortgage on it at all.
 
         20            And that's okay.  I'm not here to complain
 
         21   about the treatment that I've had with NBD Bank.  I
 
         22   guess my concern is Gary, Indiana, and all of the
 
         23   little people.
 
         24            And that is, if I have the kinds of
 
 
 
 
                                                            378
                         McCORKLE COURT REPORTERS, INC.
                       CHICAGO, ILLINOIS - (312) 263-0052
  
 
 
 
          1   problems in -- with a lot of resources in
 
          2   attracting some capital into a city like Gary,
 
          3   Indiana, that people like Bennie Simmons, like
 
          4   other businesspeople that have little resources
 
          5   that want to reach out and rebuild a community, it
 
          6   really is a struggle.
 
          7            I don't know Banc One well.  And Jim
 
          8   Danduran called me one day from Merrillville.
 
          9   And I had a breakfast meeting, and he bought
 
         10   breakfast.  So I'm sure they're a pretty good bank
 
         11   and he's a pretty good guy.  I've never had any
 
         12   other dealings with Banc One.
 
         13            I guess I'm not saying that I'm totally
 
         14   opposed to the merger, but I would sure like to see
 
         15   a commitment, as those that we've read about in the
 
         16   paper to Chicago and to other communities, that the
 
         17   bank that at one time was Gary's bank, who now has
 
         18   at least partially abandoned Gary, would make a
 
         19   commitment to Gary, Indiana.
 
         20            And the one thing I would say not only to
 
         21   NBD and Banc One, but to every other bank, great
 
         22   community on the rebound and, you know, with
 
         23   everybody leaving it would be a great place to
 
         24   open a bank.  Thank you.
 
 
 
 
                                                            379
                         McCORKLE COURT REPORTERS, INC.
                       CHICAGO, ILLINOIS - (312) 263-0052
  
 
 
 
          1       MS. SMITH:  Mr. Simmons, please.
 
          2       MR. SIMMONS:  Yes.  My name is Bennie
 
          3   Simmons.  I'm president, founder, CEO of the
 
          4   Marshall Plan for Gary.  I have some major problems
 
          5   with the merger, just some incidents.
 
          6            Number one is that I went into Banc One to
 
          7   request a CRA report.  And what they gave me was a
 
          8   report of the city of Indianapolis and not Gary.
 
          9            Reason why is because Banc One
 
         10   consolidated several years ago.  And when they
 
         11   consolidated, they moved a lot of their operations
 
         12   down in Indianapolis.  So when I make a phone call
 
         13   for help, I have to dial a 1-(800) number and talk
 
         14   to someone down in Indianapolis.  So I couldn't get
 
         15   a proper CRA report on what's happening inside of
 
         16   Gary, Indiana.
 
         17            Millions of dollars are deposited into
 
         18   Banc One and First Chicago NBD in Gary, Indiana;
 
         19   the City government money, the school City money,
 
         20   unions, churches every Monday, Gary residents.  And
 
         21   those millions of dollars are being used to finance
 
         22   the communities outside of Gary.
 
         23            The majority of the citizens will tell
 
         24   you -- just ask them -- that there is racial
 
 
 
 
                                                            380
                         McCORKLE COURT REPORTERS, INC.
                       CHICAGO, ILLINOIS - (312) 263-0052
  
 
 
 
          1   discrimination in Banc One's banking system.  I
 
          2   think we need to adhere to what Matthew Lee
 
          3   was saying.
 
          4            Economic blight; I have some pictures here
 
          5   that my friend, Darryl Curie, kind of helped me
 
          6   with on Gary, Indiana.  And I think the panel has a
 
          7   copy and there's a copy out in the hallway there.
 
          8            And if you could see this, here's the
 
          9   beginning of Gary from Merrillville, but here is a
 
         10   senior citizen's building here, NBD and Banc One in
 
         11   a couple of blocks.  That's only about two
 
         12   businesses.  The rest of that area is nothing but
 
         13   blight, boarded-up buildings.
 
         14            Here is another picture here of a
 
         15   building, three and a half blocks, okay?  There's
 
         16   nothing but blight.  A picture here of two doors
 
         17   from -- one, it's a lady digging in the abandoned
 
         18   building looking for garbage, okay, right almost
 
         19   adjacent to Banc One.
 
         20            That's the reality of what is happening in
 
         21   my community.  I've been there all my life.  My
 
         22   father has too.  He's 75 years old.
 
         23            Senior citizens; there's a large senior
 
         24   citizens building right across the street from Banc
 
 
 
 
                                                            381
                         McCORKLE COURT REPORTERS, INC.
                       CHICAGO, ILLINOIS - (312) 263-0052
  
 
 
 
          1   One.  The first of the month, the senior citizens,
 
          2   you know, they get their checks and they go down
 
          3   to -- across the street to the bank.
 
          4            They have seven teller windows and
 
          5   there's two windows being manned, operated.  So my
 
          6   grandparents have to stand in that line, sick and
 
          7   old.  And we complain and nothing is done.
 
          8            That's the relation.  There's almost an
 
          9   adversary relationship between Banc One NBD, First
 
         10   Chicago and Gary, Indiana, against our community.
 
         11   And that's a reality.
 
         12            So there's been a tale of two cities
 
         13   here.  I like to call it the doughnut.  You've
 
         14   heard people -- there's a part of the nourishing
 
         15   part of the doughnut.
 
         16            They've been telling you that Banc One is
 
         17   great.  And they're telling the truth.  Oh, they
 
         18   helped build our community.  It's wonderful.
 
         19            But then there's other areas like Lorraine
 
         20   area of Ohio and Gary, Indiana, and Milwaukee where
 
         21   there's nothing there.  There's a doughnut hole.
 
         22            So you cannot base your decisions to
 
         23   approve this merger based on the nutrition outside
 
         24   the doughnut hole.
 
 
 
 
                                                            382
                         McCORKLE COURT REPORTERS, INC.
                       CHICAGO, ILLINOIS - (312) 263-0052
  
 
 
 
          1            I'm not saying that this merger should be
 
          2   denied because I imagine no bank mergers have been
 
          3   denied.  What I'm asking is that for this bank
 
          4   merger to be delayed until Banc One and NBD First
 
          5   Chicago make the same commitments that they made
 
          6   with Woodstock here in Chicago, to places like Gary
 
          7   that is right next door.  In fact, we got an
 
          8   airport called Gary-Chicago Airport.  So this is
 
          9   what we ask you for.
 
         10            Now, why is that the doughnut hole?  Is it
 
         11   because that is John McCoy's intentions?  No, I
 
         12   don't believe that.
 
         13            But what I believe is this.  I believe
 
         14   there's been a lack of managerial responsibility.
 
         15   So if you got a racist bank president or racist
 
         16   bank managers, they do what they want to to these
 
         17   communities.  And we complain, you know, but
 
         18   nothing's done.
 
         19            So I'm asking -- they had an advertisement
 
         20   in northwest Indiana saying, we want to give
 
         21   $2 billion.  Well, I'm asking John McCoy to commit
 
         22   $1 billion to Gary, Indiana, over the next eight
 
         23   years to rebuild that community in loans, in
 
         24   grants, business loans, mortgages to Gary, Indiana,
 
 
 
 
                                                            383
                         McCORKLE COURT REPORTERS, INC.
                       CHICAGO, ILLINOIS - (312) 263-0052
  
 
 
 
          1   and then do the same to those other doughnut holes
 
          2   across the country.  And if you do that, Banc One
 
          3   would be a great bank.
 
          4            Lastly, Citibank; the mayor of
 
          5   South Dakota went to Citibank and said, look, we
 
          6   need help.  We think that we can handle your
 
          7   database and your credit cards at one-third the
 
          8   cost.  And whoever is in the leadership of Citibank
 
          9   said okay.  So you know when you get your statement
 
         10   back, it says South Dakota.
 
         11            I think there's ways in which creatively
 
         12   Banc One and places like Gary and Milwaukee can --
 
         13   we can barter together.  We can sit down and reason
 
         14   together, you know, and not paint a glowing picture
 
         15   like everything is okay because it's not.
 
         16            So it is my recommendation that this
 
         17   merger be not denied, but delayed until such
 
         18   commitments can be made, just like they did with
 
         19   Woodstock here in Chicago.  Thank you.
 
         20       MS. SMITH:  Thank you very much.  We appreciate
 
         21   your being here this afternoon.
 
         22            And we will go onto, I think, another
 
         23   panel.
 
         24       MR. ALVAREZ:  Mr. Simmons, you left a copy of
 
 
 
 
                                                            384
                         McCORKLE COURT REPORTERS, INC.
                       CHICAGO, ILLINOIS - (312) 263-0052
  
 
 
 
          1   the pictures?
 
          2       MR. SIMMONS:  They out there, yeah.  I left two
 
          3   copies.  One's on the desk and then --
 
          4       MR. ALVAREZ:  Thank you very much.
 
          5       MR. SIMMONS:  Yes, thank you.
 
          6       MS. SMITH:  We'll start with Mr. Reyes.
Last update: December 3, 2010