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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