B of A Pledges $140 Billion to Inner Cities

Making by far the largest community loan commitment from a U.S. banking institution, BankAmerica Corp. said Tuesday it has pledged to lend $140 billion to mostly lower-income and minority borrowers over 10 years, much of that to small-business owners.

The pledge by the San Francisco-based parent of Bank of America, the nation’s third-largest bank, is almost twice the amount of the biggest previous so-called community reinvestment commitment--$75 billion made last spring by Washington Mutual Inc. as part of its strategy for merging with Great Western Financial Corp.

BankAmerica’s new pledge, which community groups described as highly aggressive but doable, was seen as extraordinary not only for its amount and potential economic impact but because it came without the nudge of a pending merger or acquisition. About half of the $140 billion is expected to go to California, but it is not clear how much will go to Southern California.

Lenders have found that such commitments can help them win important community support for mergers. And in fact, BankAmerica in 1992 promised to lend $12.1 billion in low- and moderate-income areas over 10 years as a condition of its merger with Security Pacific Bank.

BankAmerica fulfilled that commitment in less than half that time, and David A. Coulter, the company’s chairman, had been preparing a renewal of that pledge since early this year.

Banks have found that loans to small businesses and low-income borrowers can be highly profitable, in part because they generate higher fees and additional banking business from borrowers. And small business is considered one of the fastest-growing segments for bank lending.

The new pledge includes $70 billion for small-business loans, of which 80% will be for $50,000 or less. These smaller loans are seen as critical to stimulate formation of new businesses, which many experts see as key to economic growth in inner cities.

“A commitment like this is very, very critical and will help keep our economic momentum rolling,” said Jack Kyser, chief economist at the Economic Development Corp. of Los Angeles County, a nonprofit business association. “I think it’s going to fill a huge need out there.”

Coulter, in a recent internal newsletter to employees, characterized the $140-billion campaign as a company goal rather than a formal public commitment under the Community Reinvestment Act. Senior B of A officials said that was because BankAmerica could not come to terms with various community-based groups, which wanted more specific commitments than BankAmerica was willing to make publicly.

But company executives and community groups agreed that BankAmerica’s pledge was essentially the same as a formal Community Reinvestment Act commitment, because there was no pending merger that would require a filing with regulators. Moreover, BankAmerica agreed to disclose reports at least annually on how well it is meeting those goals.

“We’ll be obligated to meet the numbers. We will keep score,” said Don Mullane, B of A’s executive vice president of corporate community development in Los Angeles.

BankAmerica’s commitment, which takes effect in January, contains five broad components:

* $70 billion in conventional small-business loans. This year, B of A expects to make about $6 billion in small business loans, at least 25% of them in low- and moderate-income areas.

* An additional $10 billion in Small Business Administration loans, of which about 40% is expected to go to women and minorities. B of A will have to double its current SBA loan production to meet its new commitment.

* $37 billion in mortgages to lower-income and minority borrowers. The bank now is doing about $2 billion of these mortgages annually.

* $13 billion in lower-income consumer loans, such as loans for mobile homes. The bank is on track to do $600 million of these loans this year.

* $10 billion for multifamily affordable housing--more than 50% of the volume the bank is now doing.

Both Coulter and Mullane acknowledged that each of these five goals will be a “significant stretch” for the bank. But Mullane said Tuesday that the strengthening California economy and big demand for housing should enhance the bank’s chances of reaching its goals.

Bob Gnaizda, general counsel at the Greenlining Institute, a nonprofit community rights group based in San Francisco, lauded BankAmerica’s pledge. But Gnaizda, whose group has met with Coulter, said his group wanted the bank to pledge that it would target women and minorities who operate small businesses. Even though a federal rule prohibits lenders from asking about the ethnicity or gender of small-business loan applicants, Gnaizda said, BankAmerica could apply for an exemption to this rule with regulators.

B of A’s Mullane, however, said the bank would not seek such an exemption, although the company would continue to market products to minority and female entrepreneurs. Mullane added that BankAmerica’s commitment was broadly stated to give the bank flexibility in case of market or economic shifts.

* SPARKING SAVINGS: Major foundations hope to boost savings of the poor. D1