Public Meeting Transcripts
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 0470 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 0471 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 0473 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 0474 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.
Last update: December 3, 2010