Maybe It Was Error to Shrug Off B of A Deal
You could understand the concern when B of A and Security Pacific announced last summer that they wanted to merge. It would create the nation’s second-largest bank holding company. It could also eliminate 20,000 jobs, leave 2 million square feet of office space vacant and diminish competition in western banking.
No one knew whether customers would accept a name change, remaining loyal to their particular bank. It was a real marketing challenge, since polls showed that consumers hold all banks, including their own, in low esteem.
Customer loyalty, of course, seems less important than the threat to competition. If two companies become one, some competitiveness goes out of the marketplace. It’s axiomatic: The only question is whether it’s good or bad.
But Californians never really tackled the question, and now it’s moot. The Justice Department just approved the merger.
Maybe it was all just too hard to follow. Maybe Californians, true to stereotype, preferred to talk loyalty and image and feeling. Maybe everybody knew it was a done deal. But it wasn’t challenged, and some people still wonder whether the decision was good or bad.
For starters, there were a lot of different figures for both the projected dominance of the merged banks and the current market share of each. Few could reconcile them. Few tried.
It was said that the combined banks would represent 44% of the state’s banking market. It was also said that they’d control less than 10% of the residential lending market. In Los Angeles alone, the city controller pictured a banking behemoth holding 42.5% of the county’s bank deposits, while a B of A spokesman portrayed it as accounting for “only 19%” of deposits in city banks, thrifts and credit unions.
San Francisco-based Consumer Action warned that consolidation always means a “lessening of competition”--”higher fees, higher loan rates and more restrictive account conditions,” even branch closures.
Others were less specific. There was some corporate-speak, some California-speak and sometimes not much speak at all.
A spokesman said B of A was committed to “enhancing its lending goals” for low-income neighborhoods. He also pledged that “if Bank of America or Security Pacific is the only provider of banking services in a low-income neighborhood, the branch will not be closed.” No such comfort if it’s one of only two or three.
The bankers felt real good that the California Reinvestment Committee, ostensibly watching out for the low income, described the bankers at Federal Reserve hearings as very “receptive . . . willing to say to us not just yes or no, but sometimes maybe, which is very helpful, and a way of saying, ‘Here’s what needs to be done to make this work. Here is what you need to bring to the process.’ ”
The city controller of Los Angeles, calling both banks’ record of minority lending “appalling,” thought someone should “challenge banking practices” under laws requiring community service. He, however, only asked that a “long-term commitment” to such service be made a condition of the merger.
Stronger challenge was left to other states, where deposits taken in by California banks might well go back to California for investment. In Washington state, where the new bank’s combined deposits would represent almost half the commercial bank deposits statewide, legislators proposed limiting individual banks to 30%. And the state attorney general considered challenging the merger under antitrust law.
California’s concern, although voiced, never turned to challenge. Our attorney general also has an antitrust division, but if it looked into the merger at all, it was silent on its findings.
Even federal authorities seem of two minds, or three or four.
The House Banking Committee’s recent report on bank mergers argues that consolidations since 1985 hardly made the banking industry stronger, healthier and more efficient. Instead, industry profitability decreased, and “loan losses and institution failures have skyrocketed.”
The Justice Department’s negotiations also focused on consolidation problems. Its solution: B of A and Security Pacific must divest themselves of 211 branches ($8.8 billion in deposits) in five states and $2.7 billion in loans.
This is too complex. We have to have faith. Someone will make sure that the divested branches don’t include many in low-income areas, or if they do, that whoever takes them over can compete. Someone will watch out for competition and jobs and office space.
After all, the airline industry consolidated, and airlines still fly. The auto industry consolidated, and there are still cars, some even American. The retail industry consolidated . . . nah, forget retail.
It’s certainly too complex for Californians. We’ll take on the image stuff--name changes, relationships, commitment. That’s our type of thing: We can handle it.
For the next three months, columnist Dan Akst will share the writing of California & Co. with other Times staff writers.
