REP. JOHN QUINN
Pre-emption ‘greatest concern’

Several state officials and business leaders expressed their concerns to the Board of Bank Incorporators regarding Bank of America’s petition to acquire Fleet Bank and enter the Massachusetts banking marketplace at a recent hearing held at the state Division of Banks’ office at South Station in Boston.

At the same hearing last week, a parade of community activists and housing advocacy leaders, many representing groups that have received funding commitments from the North Carolina-based Bank of America, voiced their support of the proposed mega-merger, which would pave the way for the national bank to become the first to establish a substantial presence in the Bay State.

State legislators, banking regulators, community activists, members of the financial services industry and the Board of Bank Incorporators – made up of Banking Commissioner Steven Antonakes, state Treasurer Timothy Cahill and Department of Revenue Commissioner Alan LeBovidge – gathered to discuss the proposed acquisition of FleetBoston Financial Corp. by Bank of America, with much of the focus centering on gauging the level of commitment the merged entity will have to communities in the commonwealth.

FleetBoston and Bank of America executives opened the hearing by making their case for the proposed merger. Bank executives attempted to alleviate concerns that jobs will be lost in the region and less money will be channeled toward low-income loans as a result of the merger. Bank of America representatives began the discussion by outlining the bank’s overall plan for the merger and highlighting the benefits it would have in the communities where branches would exist.

“In the three months since the merger announcement, we’ve worked to define what this means for the community and the region. This is not a new scenario for New England or the region,” said Chad Gifford, president and CEO of Fleet Bank, who is slated to become Bank of America chairman should the merger be approved. “The stake in financial institutions over the past four years has increased and now it’s more difficult to survive on a regional level. This merger is more than just size … it’s about quality, and BofA has extraordinary leadership.”

Upon completion of the merger, expected to occur in April, Bank of America will own 100 percent of Boston-based Fleet, but the entry into the local market of a national bank from outside of the region has raised concern from members of the Bay State banking community.

As part of Bank of America’s petition to acquire Fleet Bank, the bank projected a $1.1 billion in savings in operating costs within the Massachusetts market, which some fear will be accomplished through job cuts and consolidation of operations in the region. Banking officials at the hearing queried Bank of America and Fleet executives about how the bank made that projection.

According to Gifford, “we [BofA] are still in the process of finalizing exactly where that [operating costs savings] will come from.” He said it is important to note, however, that the number of employees in New England will not go down and will likely grow following the merger.

In light of the Office of the Comptroller of the Currency’s recent ruling that federal regulations pre-empt state banking laws for federally chartered banks, those opposing the merger questioned Bank of America’s commitment to community investment on regional level.

State legislators have been lobbying Bank of America to voluntarily comply with state laws and regulations on issues including predatory lending and community reinvestment.

Representatives of Bank of America, which operates in 23 states across the nation, were asked if they currently comply with local laws in the states in which the bank currently does business, despite the OCC ruling.

“We take a leadership position with predatory lending, but complying with over 23 predatory lending statutes is difficult and generally we are not complying with local laws,” said Scott Cameron, associate general counsel of Bank of America. “We don’t do state-specific commitments – we are much more effective in high-impact lending. We operate in 23 different states and there are 23 different market specifications that would make it more difficult for us to contribute [on a state level].”

But state legislators from the Joint Committee on Bank and Banking are not satisfied with that answer, saying Bank of America should voluntarily comply with Massachusetts laws as proof of the bank’s good intentions on entering the Bay State banking market.

“A recent ruling by the [Office of the] Comptroller of the Currency would effectively pre-empt all existing state consumer protection laws relative to their application to national banks operating in Massachusetts. My greatest concern is that among the many protections that would be pre-empted by the comptroller’s action are our state’s current regulations governing abusive or so-called predatory lending activities,” said Rep. John Quinn, D-New Bedford, co-chairman of the Legislature’s bank committee. “Stripping state regulatory bodies, like the Division of Banks, of the power to enforce our state’s consumer protection laws will result in a disservice to Massachusetts banking consumers.”

‘Uneven Record’

Dominating the discussion at the hearing, however, was debate over how much money Bank of Ameirca will reinvest in Massachusetts communities.

In November, the Massachusetts Association of Community Development Corporations, along with other community groups such as the New England Chapter of the NAACP, the Massachusetts Affordable Housing Alliance and the Citizens’ Housing and Planning Association, together submitted a proposed “Commonwealth Investment Plan” to Bank of America and Fleet officials that detailed ways in which the bank could meet the credit needs of low- to moderate-income and underserved communities and customers in Massachusetts.

“As we are about to lose our last [locally based] major bank, we have two primary concerns: first, that the merger result in net benefits to underserved and LMI [low- to moderate-income] communities in Massachusetts and that the merged bank mitigates any potential losses to these communities,” said Joseph Kriesberg, president of MACDC. “Secondly, we ask that the acquiring bank develop a specific plan to meet the credit needs of LMI and underserved communities and consumers in Massachusetts.”

Bank of America officials responded that they will develop a Massachusetts “business strategy” which would maintain Fleet’s investment in the Massachusetts Housing Investment Corp., commit to an aggressive number of affordable mortgage originations through the Massachusetts SoftSecond program, join the Boston branch of the Federal Home Loan Bank and convert some of its loan obligations to the Massachusetts Housing Partnership into equity.

However, Bank of America officials stated that the bank would not develop a state-specific community investment plan for Massachusetts. Instead the bank announced in January a $750 billion nationwide community economic development plan with $100 billion specifically targeted to BofA’s Northeast region markets.

State officials, however, questioned how much of that reinvestment plan – which dedicates $100 billion over 10 years to the Northeast region – would be allocated in Massachusetts.

According to Bank of America, the $100 billion is a baseline number that the bank hopes to increase over the years. The amount of money allocated from that $100 billion to each Northeast state depends upon growth and profitability in the state, total state market share and the state’s contributions to the bank’s overall volume of business.

Local housing and economic development leaders say they want a more concrete description of the bank’s community investment plans in Massachusetts.

“We are concerned about Bank of America’s ability to meet our communities’ credit needs given the bank’s uneven record in meeting its federal CRA [Community Reinvestment Act] requirements in other states and Bank of America’s previous uneven lending patterns in Massachusetts,” said Kriesberg. “While Bank of America has an overall ‘outstanding’ CRA record from the Office of the Comptroller of the Currency, the bank has only seven outstanding ratings out of the 23 states in which it does business.”

Community leaders and legislators said they have been disappointed in the lack of specificity surrounding the details of the commitment to loans for low-income individuals and have proposed new ways to weigh the bank’s commitment to Massachusetts consumers.

One way for the bank to demonstrate its commitment to the Bay State would be to eliminate automated teller machine fees for consumers, according to one state senator.

Sen. Andrea Nuciforo, D-Pittsfield, co-chairman of the Joint Committee on Banks and Banking, asked members of the Board of Bank Incorporators to pressure Bank of America executives to make their ATMs available to customers of other banks at no charge via the SUM network.

“Inside [Interstate] 495, Fleet will have 1,300 machines in Massachusetts and a condition of this merger should be that Bank of America include the 1,300 ATMs in the SUM network,” said Nuciforo, referring to the selective-surcharge program initiated in 1998 by the Massachusetts Bankers Association as a way to level the playing field between community banks and credit unions and their larger competitors with more ATMs. “Since we can’t regulate them [the federally chartered Bank of America], let’s make a condition of this merger be that all BofA ATMs become part of the SUM network.”

Although testimony opposing the merger of Bank of America and Fleet was prominent throughout the hearing, many supporters of the merger also spoke on behalf of BofA, offering testimony to the Board of Bank Incorporators outlining the benefits of having BofA in Massachusetts. Such supporters said the presence of national bank in the state would help strengthen the local economy.

Clark Ziegler, executive director of the Massachusetts Housing Partnership, said the merger would increasing housing opportunities in the state and provide more alternatives for low- and moderate-income communities:

As part of a Massachusetts bank statute drafted in 1990 – the Inner-State Banking Act of Massachusetts – banks that enter the market from outside the region are required to make a loan commitment to MHP in the amount of nine-tenths of 1 percent of the Massachusetts assets being acquired. MHP then uses the funds to provide financing for affordable housing.

“We have loan agreements more than 20 banking institutions, including Fleet, and we have up until this point had loan agreements in the amount of almost $460 million,” said Ziegler.

In order for Bank of America to acquire Fleet, Ziegler said it was mandatory that the bank accept the state statute. Bank of America has agreed and already has made arrangements to distribute the 1 percent contribution to the fund, which Ziegler said MHP would put towards new housing developments and rehabilitation of buildings in low- to moderate-income communities.

“This statute has a very major impact on affordable housing. This is not a negotiation – we are enforcing a state statute, so it’s a little different than … a voluntary commitment,” said Ziegler.

On Thursday, the MHP board and Bank of America executives agreed on a $549 million allocated to MHP over a 10-year call period, with a 20-year borrowing term. The $549 million represents nine-tenths of 1 percent of the bank’s projected earnings from Massachusetts.

The agreement is not in effect until the merger is complete, but Ziegler said this is one item that the Board of Bank Incorporators can sign off on when reviewing the merger petition.

Bruce Marks, who heads the Neighborhood Assistance Corp. of America, a Boston-based nonprofit that lends to low- and moderate-income homeowners, praised the merger, saying while he has seen questionable lending practices in his 10 years of activism, “the exception has been the Bank of America.” The Neighborhood Assistance Corp. of America has been promised $6 billion if the merger goes through, which would allow about 40,000 low- and moderate-income families to buy homes.

David J. Cotney, senior deputy commissioner of administration and policy at the DOB, confirmed that the public comment period on the merger is scheduled to remain open until Feb. 10, “so from now until then the board will be looking at the testimony given at the hearing, any submissions that come in from the public and any responses from the petitioners,” he said.

In ruling on banking mergers, the Board of Bank Incorporators must base its findings on whether competition among banks will be unreasonably affected, whether public convenience is promoted, and whether there will be “net new benefits” such as capital investments, job creation plans, consumer and business services, and commitments to maintain and open branch offices. If those conditions are met, the DOB can approve the merger. Cotney said the DOB may require additional information after initial the comment period deadline, which could delay the merger completion process.