Clock Ticking on 2 Big Banks
Merger partners NationsBank Corp. and BankAmerica Corp. said Wednesday that they will earmark $350 billion during the next 10 years for loans in lower-income areas, a plan that was immediately attacked by community activists for its lack of specifics.
The two banks, which agreed last month to a $60-billion merger, said the ambitious plan will set aside funds for affordable housing, small-business loans and economic development in low- and moderate-income areas. The $350 billion includes a $140-billion commitment announced by BankAmerica in September.
“As we create America’s bank, our opportunity and our responsibility to make a difference in our communities increases,” said Hugh L. McColl Jr., chief executive of NationsBank.
Though the community loan commitment is the largest ever by a U.S. banking institution, activists were quick to criticize the plan.
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“The number looks great, but without specificity it’s like getting a hamburger without any meat,” said John Gamboa, director of the Greenlining Institute, a nonprofit community rights group.
“This is what happens when you have an absentee landlord in Charlotte,” he added, noting that once the merger is completed, BankAmerica’s headquarters will move from San Francicso to Charlotte, N.C.
Activists said they want clear goals set on the amount of loans for minority- or women-owned small businesses and for the amount of minority and low-income home loans. They want more specific goals for charitable contributions, “so it doesn’t all go to the opera,” Gamboa said.
But such specifics are “counterproductive,” said NationsBank executive Catherine Bessant.
“It would set unnecessary caps. We believe we will build credibility over time as communities see just how detailed our reporting of results will be,” she said.
Some speculated that with their criticism, activists are taking advantage of the pending merger, since any public concern could cause regulators to delay approving it. The Greenlining Institute is one of several calling on the Federal Reserve Board and state lawmakers to hold public hearings on the proposed merger to make sure California community interests are protected.
It was not clear Wednesday how much of the $350 billion would be earmarked for California or Texas, Florida and the other states NationsBank operates in. At least $70 billion would go to California, as part of BankAmerica’s earlier $140-billion commitment.
Of the total $350 billion, at least $180 billion is targeted for small businesses, $115 billion for affordable housing, $25 billion for economic development and $30 billion for consumer loans.
Such commitments are not simply charity or formal requirements under the Community Reinvestment Act. Banks have found that loans to small-business and other low-income borrowers can be highly profitable, in part because they generate higher fees and additional banking business from borrowers. Indeed, small-business lending is one of the fastest-growing segments for all banks.
Stephanie Tyler, who started AllStaff Temporary Services in Los Angeles in 1994, said she is concerned about whether the money will really reach female and minority small-business owners like herself.
“Is it just a publicity stunt or is it for real?” Tyler asked. “They say they will contribute this money, then they often use the same criteria they use for people who don’t need the loans.”
While it was unclear how much would be earmarked for Southern California, these small-business loans are seen by many experts as critical to the growth of businesses in the inner cities.
“This is a big number; these commitments are very, very important,” said Jack Kyser, chief economist at the Economic Development Corp. of Los Angeles County, a nonprofit group. “There will be good to come out of it.”
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Movement on Merger Rumors
Wells Fargo’s stock has fluctuated lately as rumors alternately flare up and die down that the big California banking company is about to be bought by U.S. Bancorp or another out-of-state rival. Until a rebound in the last few days, U.S. Bancorp’s shares had been dropping this month. In mergers, the stocks of acquiring companies often suffer because investors worry that the cost of the purchase will hurt short-term earnings. Daily stock price closes since March 2:
Wells Fargo
Wednesday close: $374.50
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U.S. Bancorp
Wednesday close: $41.19
Source: Bloomberg News
