Public Meeting Transcripts
Public Meeting Regarding Fleet Financial Group, Inc., and BankBoston Corporation
Wednesday, July 7, 1999
Transcript of Panel Nine
9 MS. ARANJO: Good afternoon. My name is 10 Carol Aranjo, and I am the CEO of D.E. Wells Federal 11 Credit Union in Springfield, Massachusetts, and also 12 a member of the African-American Executive 13 Leadership Council of Springfield, Massachusetts. 14 The African-American community of western 15 Massachusetts has not benefited from any of the bank 16 mergers or new banks entries into the State of 17 Massachusetts. We often say that people in Boston 18 think the state ends at 128. 19 We have seen the press releases, and we 20 have also been part of the bank community group that 21 started about five years ago, and we have not seen 22 any of the dollar amounts that the banks have 23 pledged to be lent in the low- and moderate-income 24 communities drift into Springfield, Massachusetts. 25 Very little dollars are in there for the business 0228 1 community. 2 The banks do lend to the nonprofits. They 3 do give charitable giving. But as every civilized 4 individual knows, it is the business community that 5 drives the community's progress. 6 The African-American business community has 7 been starved for capital and loans from the 8 beginning of time, since slavery. Our community 9 seems to be the fertile ground for other ethnic 10 groups to come in and get their economic starts. 11 Banks loaned to everyone to come into the 12 African-American community to start businesses 13 except the African-Americans. This is outrageous. 14 I am here to say that people who have 15 mortgages also need jobs with which to pay the 16 mortgages. If they are not able to create jobs 17 within their community, if they are not able to 18 establish a credible business community, if they are 19 not able to provide for the needs of their citizens, 20 then that community becomes a ghetto, it becomes a 21 starved plantation. 22 The banks of America treat the 23 African-American community as a plantation. They 24 are the owners. They are the wealth of the 25 community. They control it. They choose an 0229 1 overseer. When I use the word "overseer," I'm not 2 talking about Uncle Tom. Those are different. I am 3 talking about someone that the bank will determine, 4 "We will allow you to become successful. We will 5 loan to you, but only to you." It is a method of 6 pitting members of the community against one 7 another. 8 This is stock and trade of the American way 9 in the African-American community. For the 10 government, for entities of the government to 11 continue to allow it is to take part in it. Racism, 12 the stigma of what happens in our community, will 13 not change until the government takes responsibility 14 for what it sees happening and its part in it. 15 Banks must be able to put these dollars that they're 16 talking about into community controlled 17 organizations. 18 We are recommending that the banks, if they 19 are committing $14 billion, that these dollars not 20 stay within the banks to be given out piecemeal, but 21 to be placed into community loan funds, community 22 credit unions, community CDCs that have loan pools. 23 The money should be placed within them over a 24 five-year period and allow them to loan to the 25 businesses in the community so that they can develop 0230 1 their community. 2 Communities cannot be developed without 3 real capital, and real capital cannot be used in the 4 community if it is given to people outside of the 5 community to come in, build on their wealth and take 6 the wealth from the community. So we recommend that 7 unless the banks are willing to put these dollars 8 into the hands of community lenders and allow them 9 to loan, then they should not be allowed to merge. 10 HEARING OFFICER SMITH: Thank you very 11 much. 12 Mr. Draisen. 13 MR. DRAISEN: Thank you very much. It's a 14 little easier for me standing for some reason. I'm 15 not quite sure why. 16 My name is Marc Draisen, and I'm president 17 and CEO of the Massachusetts Association of 18 Community Development Corporations. 19 Just for purposes of explaining a little 20 bit more about who I am and what I've done, I've 21 worked in the community development field for the 22 last 18 years, and I have also served for four years 23 as a member of the Massachusetts House of 24 Representatives, representing Boston and Brookline. 25 We represent the 68 community development 0231 1 corporations of Massachusetts. Banks play critical 2 roles in the work of CDCs. They provide financing 3 for the construction of affordable housing, capital 4 for loan pools that fund small businesses or home 5 improvements, direct credit to entrepreneurs and 6 home buyers, basic banking services to consumers and 7 critical grant support to a host of CDC efforts. 8 In March, we began to assess the impact of 9 the proposed merger of Fleet and BankBoston. We 10 looked at the various factors to assess whether this 11 merger would keep the promise that the leaders of 12 the banks had indicated of one plus one equaling 13 greater than two. 14 We examined Fleet and BankBoston's past 15 records of serving the community reinvestment needs 16 of low- and moderate-income communities after 17 previous mergers. We asked the banks to develop a 18 comprehensive, detailed and publicly verifiable 19 series of benefits to the communities we serve, and 20 we asked them to formalize these commitments through 21 signed agreements. 22 Unfortunately, to date, the banks have 23 failed to negotiate a CRA agreement with any 24 legitimate community organization or elected 25 official. In fact, they have flatly said they would 0232 1 not do so. 2 Furthermore, they have failed to provide 3 any detailed commitments either by state or by 4 program area in such a way that we can determine 5 whether the convenience and needs of low- and 6 moderate-income people are being served. 7 Please allow me to be clear. We have 8 worked for years with both of these institutions. 9 We know them well. We respect their staffs. Each 10 one of them has good programs and some programs that 11 could be improved. 12 However, we are also aware, I might note, 13 of the value of having a financial institution 14 headquartered in New England, although I would note 15 that no one knows who the next merger will be headed 16 by, and that remaining in New England could not last 17 for long. 18 Nonetheless, despite our relationships with 19 these two banks, we are not able at this time to 20 lend our support to this merger. We do not take 21 this action lightly. MACDC has never opposed a 22 merger in the five years that I've been president 23 and CEO. 24 But there are three reasons why we take 25 that position today: First, the failure to 0233 1 negotiate an agreement; second, we remain 2 unconvinced that the regionwide commitment as 3 promised by the bank truly meets the tests of one 4 plus one equals two; and finally, and perhaps the 5 most importantly, because the bank's statement lacks 6 specifics. Gross numbers in broad categories across 7 six states are not good enough. 8 We were very precise in our requests, and 9 we hope the bank will be precise as well. Yet in a 10 host of areas -- soft second affordable home 11 mortgages; rental housing production through the 12 Mass. Housing Partnership Fund; membership in the 13 Federal Home Loan Bank; basic banking, checking, and 14 savings accounts for unbanked households; targets 15 for small business lending -- we have only heard, 16 "We are still studying your proposal." 17 Therefore, without those specifics, we 18 cannot be supportive today. The Fed, however, does 19 have the ability to turn this around. You clearly 20 have the authority to establish conditions over any 21 approval of this merger under your regulations. We 22 know you tend not to do this, but we hope that you 23 will do so at this time. 24 We hope that you will require Fleet and 25 BankBoston to develop a detailed and publicly 0234 1 verifiable CRA plan negotiated with community 2 organizations and elected officials. We hope you 3 will extend the public comment period for at least 4 two weeks after such a plan is developed and release 5 to the public and take into account the public's 6 reaction to the plan in making any decision to 7 approve or deny the merger. And, finally, we hope 8 that you will incorporate these commitments into any 9 approval that the Federal Reserve might issue. 10 In the written testimony that we have 11 handed in, we have detailed -- and I might say in 12 great detail -- the five reasons why we believe that 13 in the case of this merger, there are unprecedented 14 conditions why you should establish these 15 conditions, even though you may not have established 16 CRA conditions in the past. 17 We hope you will take these recommendations 18 seriously, and please do what you can to make sure 19 that Fleet and BankBoston's commitments going 20 forward in fact are equal to or greater than the 21 activities of the two banks in the past. 22 Thank you for your attention. 23 HEARING OFFICER SMITH: Thank you very 24 much. 25 MS. DuBOIS: My name is Jeanne DuBois. I'm 0235 1 the director of the Dorchester Bay Economic 2 Development Corporation in Upham's Corner, North 3 Dorchester, and East Roxbury. We're a 20-year-old 4 CDA, one of the larger ones in Boston. And we have 5 three branches in Upham's Corner -- Fleet, 6 BankBoston and Citizens -- all within about 50 yards 7 of each other. 8 I think we would be considered one of what 9 BankBoston and Fleet call their neighborhood 10 development partners. So there are many positives 11 over the years that we have experienced with them, 12 and we have some concerns. 13 They have supported our Small Business 14 Microloan Program. We have our own in-house loan 15 program right in Upham's Corner. We work with 400 16 entrepreneurs/microlenders right in the 17 neighborhood. We have made over half a million 18 dollars of our own direct loans to small start-ups 19 and small businesses. They have invested in over 20 500 units of rental housing through Mass. Housing 21 Investment Corp. 22 They have supported our home improvement 23 loan program to unbankable homeowners. We have many 24 people living in -- 80 percent of the housing stock 25 is owner occupied in North Dorchester, so our home 0236 1 improvement lending is important. 2 We have many deals in the works. 3 BankBoston and we are working on a manufacturing 4 plant to go into Savin Hill Industrial Park that 5 will create 70 jobs. We have had gap financing that 6 we have done with Little Brazil Restaurant in 7 Allston-Brighton. Through our community business 8 network, we were able to complete a deal. There is 9 an elevator company now. We are starting to do 10 bigger and bigger deals where we are packaging them, 11 and the banks can make loans as these smaller 12 entrepreneurs graduate. 13 We have also worked positively with the CDC 14 divisions of both BankBoston and Fleet. People are 15 on our boards and committees. So these are all the 16 positives I wanted to give you as a background while 17 I raise some concerns so you know this is not just 18 going one way. 19 Our anchor supermarket in Upham's Corner is 20 called America's Food Basket. I think many people 21 have heard of it. We have 16,000 shoppers a week. 22 They have 200 workers in the market. It pays 23 $36,000 a week in local salaries. This has been a 24 Fleet loan for many years with a $280,000 City 25 guarantee behind it. 0237 1 When Mr. Medina, the owner, expanded his 2 very successful market to Hyde Park, he got into 3 some management problems -- often businesses will 4 have these kind of problems when they grow -- and 5 had some losses in his first year. Fleet called the 6 loan. 7 We wound up, with the help of Fleet CDC 8 staff, getting some extensions. But it's an example 9 where now we're working with U.S. Trust and the CDC 10 Tax Credit Collaborative to try to cover this loan. 11 It should never have happened. This is our 12 anchor market. This is our jewel in the crown. 13 This is what is turning the Upham's Corner business 14 district around. It is one of our key businesses, 15 and we think that the relationship banking should 16 have been more operative in this case. We think 17 BankBoston has acted more like a partner, and we 18 hope that that culture will prevail. 19 The second business is Kasmeric Elevator. 20 This is a Caucasian man who had been 20 years in the 21 elevator business, went out on his own, and Fleet 22 did a $30,000 line of credit and term loan with him. 23 And again, he needed $70,000 to meet the kind of 24 contracts that he was hoping for, and they were not 25 able to do it. We had to take it to BankBoston, who 0238 1 successfully made the loan, and his business is 2 growing. 3 We are finding a lot of our small 4 entrepreneurs don't want to go to Fleet. There is a 5 real problem here. There is a culture problem, an 6 attitude problem. Our Board also, last night, said 7 there is a customer service problem in our local 8 branch -- too few staff, long lines, and little 9 participation in local business activities. 10 The attitude is important. The community 11 banking and relationship banking is important. I've 12 said this to other friends in other divisions of 13 Fleet. We need some specific commitments, and there 14 are some specific statements in the MACDC position 15 paper about loan size and loan volume and the size 16 of businesses. We would like those specifics 17 incorporated. We are concerned that it won't happen 18 otherwise. 19 HEARING OFFICER SMITH: Mr. Morehouse. 20 MR. MOREHOUSE: Thank you. Good afternoon. 21 Thank you for the opportunity to testify at this 22 hearing. 23 My name is Andrew Morehouse. I'm the 24 executive director of the Greater Holyoke Community 25 Development Corporation and the chair of the 0239 1 Community Reinvestment Committee of the 2 Massachusetts Association of CDCs. 3 By helping the constituency that I serve in 4 greater Holyoke specifically, we are able to build 5 the incomes, assets and human capital. And through 6 that, in my role as a member and the chair of the CR 7 committee, other CDCs are able to do the same in 8 their respective communities. 9 In turn, these individuals, low-income and 10 minority individuals, generate income demand for 11 goods, services, and, yes, even financial services. 12 However, community development organizations, the 13 banking community, and public officials have learned 14 that financial services must be adapted to these 15 underserved communities and markets. 16 Only by investing in innovative financial 17 products and services can economic activity be 18 stimulated, generating profitable opportunities for 19 business lending, home mortgages, and community 20 development projects. Yet it takes all three of 21 these institutions working together to revitalize 22 our nation's underserved communities. 23 In Massachusetts, Fleet Bank and BankBoston 24 are major partners in innovative financing. Past 25 commitments and contributions of Fleet and 0240 1 BankBoston are critical to the success of regional 2 intermediaries of community development, to 3 community organizations and to state programs like 4 the Massachusetts Housing Investment Corporation and 5 the Massachusetts Housing Partnership. 6 Small community banks generally just do not 7 have the assets and economies of scale to be able to 8 afford innovative financial products and the volume 9 of lending that Fleet and BankBoston have the 10 capacity to offer as a result of their respective 11 mergers with smaller banks. 12 I would like to share with you, however, a 13 different picture, one that is quite disturbing. As 14 both banks have merged with other banks over the 15 past decade, amassing greater financial assets and 16 profits for shareholder, their lending overall to 17 minorities and low-income census tracts has fallen 18 precipitously. HMDA data show that in the 19 Springfield MSA, the percentage decline in mortgage 20 lending is even greater than that of the 21 Commonwealth. 22 Focusing on Fleet and Shawmut lending 23 before and after the merger, from 1994 to 1998, 24 loans to low- and moderate-income borrowers dropped 25 83 percent; to Latino borrowers, 90 percent; and to 0241 1 black borrowers, 96 percent. Total lending for the 2 same period dropped 71 percent. 3 These figures represent a significant 4 retreat from underserved communities in particular 5 and home mortgages in general. It also raises the 6 specter that BankBoston's far better track record of 7 home mortgage lending will cease to exist after the 8 merger. 9 Further declines of the proposed banks' 10 combined home mortgage lending, especially to low- 11 income and minority individuals and census tracts, 12 will seriously impair the revitalization efforts of 13 these communities. The proposed divestitures and 14 likely branch closings will certainly be cited as a 15 justification for further reductions in home 16 mortgage lending. 17 The public must have guarantees that the 18 proposed bank will reserve this trend in home 19 mortgage lending to underserved communities. In 20 other words, the public should be assured that the 21 proposed FleetBank will uphold its commitment to one 22 plus one is greater than two in these communities. 23 If fact, this should hold true in all of western 24 Massachusetts, where no divestitures are reportedly 25 going to take place. 0242 1 I'm here to request that if the merger is 2 approved -- and it seems likely -- it be contingent 3 on the two banks negotiating in good faith a 4 detailed and measurable community reinvestment plan 5 with community organizations and elected officials. 6 As publicly insured institutions, these 7 banks have an obligation to serve the communities 8 whose savings are being entrusted in them. This is 9 nowhere more crucial than in low-income and minority 10 communities that are traditionally underserved. 11 Without a negotiated community reinvestment 12 plan, there is every reason to believe that their 13 home mortgage lending will continue to spiral 14 downward. Moreover, there is no guarantee that the 15 banks will even sustain, much less increase, their 16 current commitments to affordable rental housing, 17 basic banking services, and accessible branches and 18 ATM sites. 19 Community organizations and public 20 officials from across the Commonwealth have 21 painstakingly reached out to each other to debate 22 the impact of the proposed merger on community 23 reinvestment in underserved communities. Coalitions 24 representing diverse constituencies have come 25 together to formulate a realistic and measurable 0243 1 plan that the banks have steadfastly refused to 2 negotiate in good faith. 3 I respectfully call upon the Federal 4 Reserve Bank to break the impasse by requiring the 5 banks to negotiate a community reinvestment plan, 6 plain and simple. Moreover, I urge the Federal 7 Reserve to extend the comment period after a 8 negotiated plan can be reached so that all affected 9 parties have an opportunity to respond to it. 10 In my humble opinion, I think we should 11 expect no less from the Federal Reserve. 12 Thank you again for inviting me to testify 13 before you. 14 HEARING OFFICER SMITH: Thank you very 15 much. 16 Mr. Westgate. 17 MR. WESTGATE: My name is Michael Westgate 18 from Chelsea Neighborhood Housing Services. We've 19 been around for 20 years. We do about 1.2 million a 20 year in rehab of buildings in Chelsea for low- and 21 moderate-income people, almost all of it -- I would 22 say all of it in fact in partnership with banks. 23 And the resulting benefits to the community include 24 about a half million dollars in wages paid to 25 Chelsea residents. 0244 1 About two years ago a Cambodian family came 2 into my office. They had recently bought a house 3 for $150,000. This was a duplex. They had a 4 $127,000 mortgage from Fleet. The bankers on my 5 Loan Committee said that the building was only worth 6 $120,000, and it needed $20,000 worth of work. It 7 needed a new roof, it had no second means of egress, 8 the furnace was completely busted. 9 It was a Cambodian family, as I mentioned. 10 They were unwilling to stick their necks out. We 11 wanted to go to bat for them, but they came from a 12 culture where if you stick your neck out too far, it 13 was literally blown off. And there were a lot of 14 people that are not willing to step forward. 15 I wanted to do something more than 16 anecdotal, because we did have some other anecdotes 17 like that. When we started with a 120 percent 18 loan-to-value ratio before they even came in for a 19 home improvement loan, there wasn't much we could do 20 for them. 21 Did I ask NCRC, the National Coalition -- 22 the National Community Reinvestment Coalition, and 23 they did a study of all of the loans made by all of 24 the banks in Chelsea during the period of comment on 25 Fleet's application for review. And while the 0245 1 numbers were high, in gross numbers, numbers when 2 you picked them apart were rather startling, that if 3 you took as a common denominator the average price 4 in Chelsea, Asian applicants had paid 120 percent -- 5 excuse me -- their mortgages were 120 percent of 6 average value, Hispanics were 130 percent, and 7 African-Americans were 140 percent. 8 I presented that to the OCC a year ago. It 9 took months to get an acknowledgment. I gave it to 10 the head of their CRA office when I was down in 11 Washington in March of this year. 12 I know OCC is not FRB, but just to explain 13 the difficulty that we see in having regulators take 14 responsibility for regulating, it was particularly 15 insulting to see Fleet get an outstanding review 16 from Massachusetts when we -- and I know people in 17 Dorchester and elsewhere -- had similar experiences. 18 What we're seeing today is a violent 19 escalation of prices. Where during the downtrend 20 prices in Chelsea went down 1 percent a month, they 21 are now going up 1.5 percent, and unfortunately, 22 Fleet is among the leaders in giving excessive 23 loans, and it's the banks that are the determinants 24 of value rather than the buyers. 25 We oppose the merger. We see that there 0246 1 has been irresponsible lending in Chelsea and 2 elsewhere. We see dollar headlines for millions of 3 dollars, but the devil is in the details. 4 We have seen millions of dollars languish 5 at Mass. Housing Partnership. We were given loans 6 by Mass. Housing Partnership. The terms were too 7 onerous for us to use, so we went elsewhere. 8 The solution, I believe, is enforceable 9 agreements with regional groups that take full 10 advantage of our knowledge of the communities, the 11 regulators' ability to regulate, and the banks 12 stepping forward with programs that will work. 13 CRA today is being gutted in Congress, and 14 I think it's incumbent on the people in this room to 15 come up with a new tripartite agreement that would 16 apply to this or any other major merger where the 17 goals are spelled out, we can all agree to them, 18 they're transparent, they're enforceable. 19 And I thank you for your attention. 20 HEARING OFFICER SMITH: Thank you very 21 much. 22 MS. WORGAFTIK: My name is Susan Worgaftik. 23 I'm chair of the Massachusetts Micro-Enterprise 24 Coalition and director of This Neighborhood Means 25 Business!, a micro-entrepreneurship education and 0247 1 technical assistance program in Dorchester, 2 Massachusetts. I would like to thank the Federal 3 Reserve for this opportunity to present my views. 4 The announcement of the merger of Fleet 5 Bank and BankBoston foreshadows a change of great 6 concern to micro-enterprise training, technical 7 assistance and loan programs. 8 The micro-enterprise programs of the 9 Commonwealth serve entrepreneurs with businesses of 10 five employees or fewer and low and moderate 11 individuals who are in the process of creating their 12 own businesses. Most of these businesses are 13 located in the Commonwealth's inner cities and rural 14 areas. The development of new micro-enterprises has 15 been an important element in the recent economic 16 improvements in urban neighborhoods and rural 17 communities throughout the Commonwealth. 18 In the last decade, we've been able to work 19 very closely with both BankBoston and Fleet Bank to 20 create loan products designed specifically for the 21 smallest of Massachusetts entrepreneurs. In the 22 early days of micro-entrepreneurship, the 23 development of these programs in Massachusetts was 24 very difficult. The large banks did not want to 25 involve themselves in these types of small loans. 0248 1 Competition between both BankBoston and Fleet Bank 2 was very helpful to us in the development of the 3 kinds of loan products we need, and today we have 4 many loan products that are available to our 5 smallest entrepreneurs that were not available to us 6 ten years ago. 7 In addition, the foundation and corporate 8 support that micro-entrepreneurship programs have 9 received from BankBoston and Fleet Bank have been 10 essential to the development of the technical 11 assistance and entrepreneurship education programs 12 that are crucial to making micro-enterprises 13 succeed. Without those programs, we have found that 14 many of our entrepreneurs fail very early in their 15 business life. 16 So, clearly, BankBoston and Fleet Bank 17 believe that the synergy that's created by the 18 merger will be beneficial in the development of 19 their business. We believe that the same should be 20 true for the communities, the businesses, and the 21 individuals which the banks serve. If one plus one 22 equals more than two for the banks, it should also 23 equal that for the businesses and the individuals in 24 our communities. 25 It's my hope that this merger will mean an 0249 1 increase in the number of loans available to micro 2 and small community entrepreneurs in urban and rural 3 communities, and that there will be a significant 4 increase in the technical assistance and education 5 support grants essential for making those loans 6 successful. Anything less is a direct step backward 7 from the commitments that these two banks have made 8 to our communities for micro-entrepreneurs in the 9 past. 10 As a partner in the efforts of the 11 Massachusetts Association for Community Development 12 Corporations, Massachusetts Affordable Housing 13 Alliance, and the Organization for a New Equality, I 14 had hoped that we would be able to have a verifiable 15 agreement with the new Fleet-Boston by now. 16 I had hoped that such an agreement would 17 ensure that the number and availability of funds for 18 loans to micro-entrepreneurs would expand much the 19 same way that the expectations for the new 20 Fleet-Boston would forecast their future. I had 21 hoped that this agreement would recognize the 22 importance of entrepreneurship training and 23 technical assistance to the success of micro loans 24 and that there would be funds available for that 25 purpose. At this time, no such agreement exists. 0250 1 As we move into a new era of banking, it's 2 essential that all aspects of the economy benefit 3 from the progress and the projections that are put 4 forward. At this time, the projections that we 5 have -- that have been presented publicly -- don't 6 mention the needs and the concerns of the 7 micro-entrepreneurs of the Commonwealth. 8 I urge you to recommend that the new 9 Fleet-Boston resume discussions with MACDC, MAHA and 10 ONE to develop a balanced plan for the future which 11 will make this merger a success in everyone's eyes, 12 a merger which benefits all of us. 13 Thank you. 14 HEARING OFFICER SMITH: Thank you. 15 Mr. Young. 16 MR. YOUNG: I'm here representing a rural 17 perspective. Our CDC works in nine towns, 300 18 square miles, about 25,000 people. To personalize 19 it, if my septic system fails, and you drink water 20 in Boston, you get it. North Quabbin Region is the 21 place I'm representing. 22 We have got to be mindful that the CRA, 23 coupled with strong compliance on the part of 24 financial institutions and regulatory agencies, 25 makes stronger communities. Communities of the 0251 1 North Quabbin Region are concerned over the proposed 2 merger, and the concerns thus far raised by the 3 North Quabbin Community Reinvestment Coalition are, 4 first, diminished local autonomy. 5 This has had a profound negative impact on 6 institution involvement in our community, as, for 7 instance, the role of Fleet, formerly known as 8 Shawmut, formerly known to us as Franklin County 9 Trust, formerly known as Orange National Bank, has 10 been diminished to the point that the Orange -- that 11 the Fleet Bank in Orange is jokingly referred to as 12 a manned ATM. But it is not really a joking matter, 13 and regulators should look with a keen eye on the 14 possible outcomes of this merger on rural 15 communities. 16 The second concern is the increased 17 reliance of credit scoring. We understand the needs 18 of the bank to meet the community's credit needs 19 consistent with safe and sound lending practices. 20 Small businesses in our region face difficulties 21 obtaining credit, and they warrant special 22 consideration. The use of credit scoring continues 23 to increase the difficulty. 24 With every merger, more and more of our 25 small and micro-businesses are no longer 0252 1 creditworthy. This diminished creditworthiness 2 comes, in many instances, after decades of hard 3 work, decades of prior credit having been repaid as 4 agreed. Our small and rural and sometimes 5 unconventional businesses fall through the cracks in 6 national and regional credit scoring models. 7 Thirdly, financial institutions need to 8 participate in educational and social service 9 support. Fourthly, banks need to provide portfolio 10 lending in our region, especially for renovation of 11 owner-occupied one- to four-family properties. The 12 portfolio aspect is critical, that they be held and 13 not resold. 14 The merged bank needs to be responsive to 15 community leaders and members of our area. We 16 suggest an advisory Board be made up of members of 17 respective regions to ensure that all community 18 concerns are addressed by the management of the 19 combined bank. 20 A little more than a year ago, our CDC went 21 through this with Family Bank. We raised concerns 22 about local lending authority, loan funds, mortgage 23 outreach, portfolio lending, and in the end we 24 signed an agreement. The agreement provided for 25 various commitments by Family Bank to enhance its 0253 1 community development activities. In the end, I 2 think Family Bank appreciated our concerns. The 3 needs were addressed. Community development banking 4 is good business. 5 Please extend the comment period. Don't 6 approve this merger without a signed agreement, 7 because it's in our mutual interest. 8 HEARING OFFICER SMITH: Thank you very 9 much. 10 Questions from the panel? 11 HEARING OFFICER KWAST: I have a question. 12 Mr. Morehouse, I think touched on this, but 13 I wonder if some of the other panel members might 14 comment on the role of smaller and medium-sized 15 banks in serving the needs of the organizations and 16 needs of your customers. 17 MR. DRAISEN: We've had a lot of 18 discussions internally, Mr. Kwast, among our CDCs 19 about the divestiture issue and the different sized 20 banks. And I think the sense among our CDCs is that 21 there's a role for everyone. 22 Very frequently, we have individual CDCs 23 that have a very close relationship with a local 24 bank that really knows the customers in that 25 community, the entrepreneurs that the CDC is dealing 0254 1 with, and their presence is invaluable. So the loss 2 of those community banks is a severe problem. Or, 3 conversely, the possibility of those community banks 4 picking up a few additional branches would be a very 5 good thing. 6 From another perspective, however, if we 7 have a very large bank that comes into the area, 8 sometimes it has greater overall CDC -- overall CRA 9 capacity, it knows how to work with some of the 10 bigger programs, it has experience from other parts 11 of its portfolio with doing some of the more 12 complicated deals that sometimes involve three 13 government programs and six different funding 14 programs and things like that. 15 I think the summary is that we want to make 16 sure that it's not just one big bank, that gets to 17 deal here. We do want to see more competition. We 18 understand the value of that. We sense that that's 19 going to be the direction that the divestiture goes 20 in. But there's also a very important role for the 21 small or the medium-sized banks, and we work with 22 them very closely, and they should not be shut out. 23 MS. WORGAFTIK: In relationship to 24 micro-entrepreneurs, I would second that. And I 25 would also point out that in some ways, the size of 0255 1 the bank relates to programmatic issues, but the 2 availability of the bank is something that the 3 micro-entrepreneurs need. 4 We often find that we don't have banks 5 staffed well enough to be -- and some of the larger 6 banks -- in terms of their real recognition of the 7 micro-entrepreneurs to really give them the kind of 8 attention that they need. It is kind of -- so I 9 would be looking for the kind of staffing from any 10 sized bank that would really be able to say, "We are 11 serious about the work that is done with the 12 community and just not simply that we have an 13 outpost here." 14 So regardless of whether it is a larger 15 bank or a smaller bank, that question of taking the 16 time to really work through issues of 17 entrepreneurship is extremely important to our 18 members. 19 MR. YOUNG: The smaller banks are critical 20 to our success. For example, the most recent real 21 estate deal we did involved -- we were attempting to 22 purchase a building from Fleet which was a 23 foreclosure. While we were trying to borrow money 24 from Fleet's community development side, it couldn't 25 hold back the asset management or foreclosure side, 0256 1 and they sold the building to Bob Fader. 2 Ultimately, it was a local bank that financed the 3 deal, and we had to renegotiate it with somebody who 4 bought the sold-off paper. 5 So in my region, Fleet's branch is really a 6 nonplayer. Although BankBoston and Fleet have been 7 important supporters to my organization in terms of 8 banking services, they are only going for the 9 highest cut, which is really not our CDC strategy in 10 economic revitalization. 11 MS. ARANJO: In the African-American 12 community -- and as you can see, there are not many 13 of us here testifying -- I run a credit union. I 14 just had a gentleman who has a million dollars worth 15 of orders from J.C. Penney and the U.S. Army. These 16 are not people who won't pay. They needed a credit 17 line of $348,000 for their merchandise to be made. 18 Fleet Bank turned them down even after getting a 19 guaranty from the business association in Washington 20 who guarantees minority loans, and they were still 21 turned down. 22 This happens too often in the 23 African-American community. They will give you 24 loans of all types except those which allow us to 25 develop credible businesses which allow us to 0257 1 develop our community. And I would like to say that 2 it is important to the African-American community 3 that there are local, community-driven banks or 4 financial institutions which take the time to know 5 the community and understand that color is not 6 character. 7 MR. WESTGATE: It's the competition that we 8 all need, both for our own agencies and for the 9 people we serve. Just to illustrate it, we had an 10 unsecured line of credit with a local bank at prime 11 plus 2. Another bank came in, and now we have an 12 unsecured line of $400,000 of prime minus a half. 13 If you have competition, both the 14 homeowners and the businesses and the nonprofits can 15 profit from that. If you have no competition, then 16 we all have to live with some of the stories you've 17 heard today. 18 HEARING OFFICER BROWNE: I have a question 19 for Mr. Westgate. 20 In talking about the high value -- well, 21 high loan-to-value lending in Chelsea, was that 22 unique to Fleet, or did you see that in other 23 institutions as well? 24 MR. WESTGATE: I won't say it is absolutely 25 unique to Fleet, but in the NCRC data, it was the 0258 1 only banking institution that showed up that way. 2 HEARING OFFICER SMITH: Thank you very much 3 for coming this afternoon, and I'm sorry you all had 4 to wait so long, as other panels also are having to 5 do. 6 (Pause) 7 HEARING OFFICER SMITH: Thank you. With 8 this next group, we again have very brief 9 presentations; but what we are also doing is setting 10 a time limit, so that at a certain point, if people 11 haven't made it through, we will have to move them 12 to later in the day in order to not have our other 13 panels running quite so late. So -- 14 MS. WEBSTER: What is our time limit? 15 HEARING OFFICER SMITH: One minute.
Last update: December 3, 2010