Inner City Press on Fleet's Acquisition of BankBoston, to 11/00

March 1999 - November 2000 (Archive #1)

        Click here for ICP's current Fleet Watch

November 13, 2000

    Fleet has now submitted its applications to buy Summit to the Federal Reserve; the comment period will run until December 11, 2000, according to the Fed's H2A of November 9. A quick review of Fleet's Fed application reveals that it says virtually nothing about the 85 branch closings the deal would result in (other than annexing Fleet's branch closure policy). The application includes, as Exhibit Q, a "Memorandum on Community Lending and Investment Programs," which discloses, among other things, that "in the first six months of [Fleet's 5-year] $14.6 Billion Commitment, Fleet has provided loan and investment dollars across its entire footprint at the following levels: Small Business Lending: $696.4 million; Affordable Housing: $271.2 million; Community Development Lending / Investment: $83.4 million; Consumer Lending: $109.7 million; Equity Investments: $7.8 million."

    In July 1999, while applying to acquire Bank Boston, Fleet made a 5-year commitment of " Small Business Lending: $7.5 billion; Affordable Housing: $4.0 billion; Community Development Lending / Investment: $2.0 billion; Consumer Lending: $1.0 billion; Equity Investments: $100 million; Technical Assistance and Support: $15 million."

     Keeping in mind that the "six month report," above, consists of Fleet's own numbers, we've multiplied each figure by ten, and find Fleet behind "schedule" for everything except "Consumer Lending." And, in our files, we have a "loan by check offer" that Fleet mailed out, for a loan at a 14.9% interest rate. Developing... Until next time, for or with more information, contact us...

November 6, 2000

     Fleet has informed ICP that it submitted its applications to acquire Summit, to the Federal Reserve Board, on November 3, 2000. Supposedly, copies are on their way to ICP, and will be reviewed in this space (and elsewhere). In response to phone calls from Fleet, ICP has encouraged the bank to be forthright in its presentation of branch closing and other issues the proposal raises. We'll see...    

October 9, 2000

   And they're back! On October 2, Fleet announced a $7 billion deal to acquire Summit Bank, in New Jersey, Pennsylvania and Connecticut. The Philadelphia Inquirer (10/3) reports that Fleet will close 85 branches. Fleet's CRA officer (who prevailed over Agnes Bundy in last week's Fleet - BankBoston combination) has already hit the road, inviting community groups in Philadelphia and elsewhere to genteel lunches, to "discuss their concerns." It's a seemingly proactive approach, but a decision to meaningfully mitigate the closure of 85 branches does not appear to be on the menu...   ICP's Fleet page is revived, after a nine month lull.  "Watch this space...".

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December 31, 1999

     For now, in 2000, for periodic reports on Fleet (and the post-BankBoston exodus), see Inner City Press’ Bank Beat -- click here to view.

    FleetBoston’s Robertson Stephens Inc. was fined $125,000 by the NYSE after a finding that RS “lacked an adequate, separate system of supervisory follow-up and review to guarantee that order tickets were properly completed before trade execution” and that “due to misconduct by a former managing director, [RS] created and kept false order tickets and failed to retain order tickets reflecting trades made by the managing director.” Hey, that’s some great pre-purchase due diligence...

     In year-end exodus news, Ned Reilly, formerly chief investment office at BankBoston (but passed over in favor of Fleet’s Thomas O’Neill), jumped ship to State Street Global Advisors. Meanwhile, Fleet’s putative competitor in New England, the junk bond-rated Sovereign, announced that Purchase, N.Y.-based Independent Financial Marketing Group will try to sell mutual funds and annuities at the 278 divestiture branches that Sovereign is buying. Fifty brokers and sales managers will purport to cover these 278 branches. Good luck.

   Again, click here, now and in the future, for ICP’s ongoing Bank Beat.

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December 20, 1999

    And the (lay off) beat goes on. In Rhode Island, Fleet in the last weeks has sent lay off notices to 196 employees, most of them with what was BankBoston’s consumer finance unit. (Providence Journal-Bulletin, Dec. 14). And of BankBoston’s 1,700 Rhode Island employees, less than half have been offered jobs at Sovereign, which is buying the BKB branches. When you promise 5,000 lay offs, this is how it works...

    Meanwhile, outside of the U.S., where Fleet speaks more honestly, Fleet’s announced it will open investment kiosks in 25 Brazilian cities, “in order to attract high-income individuals. The bank’s Brazilian chieftains, Alex Zornig and Geraldo Jose Carbone, gush about reaching Brazilian consumers via the Internet and hand-held computers. With no Community Reinvestment Act in Brazil, this demographic is Fleet’s focus...

    For or with more information, contact us.

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December 13, 1999

   Fleet’s getting a little cocky, even bad mouthing other super-regional banks by name. Fleet’s vice chairman of technology, Joe Smialowski, says “We’re very conscious of what’s happened to First Union and Bank One,” and says that Fleet is taking steps to mitigate those type of risks. Computerworld, Dec. 13, 1999, at 24. Hey -- Fleet’s just lucky that the Fed and DOJ didn’t hold out for a larger purchaser of the divestiture package (rather than agreeing to junk-bond-Sovereign). First Union’s and Bank One’s problems (with their respective CoreStates and First USA acquisitions) helped ensure that neither bid on the divestiture package. And BankAmerica was precluded (or at least discouraged) by the current prohibition on any bank controlling 10% of nationwide deposits.

    Sovereign is moving into Fleet’s old 75 State Street headquarters building on December 13. Meanwhile, Banco Santander’s applying to up its stake in Royal Bank of Scotland, which owns Citizens. Royal Bank of Scotland is pursuing Britain’s NatWest -- and we come full circle: last week, ex-NatWest USA officials sued Fleet, for undervaluing the NatWest stock they got just before Fleet’s takeover of NatWest. It almost makes you dizzy...

    Classic Fleet quote-of-the-week: the bank’s general manager in Peru, Rafael Venegas, told the Lima newspaper Gestion that Fleet’s considering buying Banco Latino or Banco Banex, to get more Peruvian deposits. The bank “currently obtains about 10 percent of its Peruvian funding needs from local sources.” Question: where does the rest of the money come from? The new Fleet = export of capital....

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December 6, 1999

    On December 2, Duff & Phelps Credit Rating Co. assigned an A- rating to Fleet’s subordinated debt due Dec. 1, 2009 with a yield 123 basis points above Treasuries. Meanwhile, Sovereign’s debt stands at 400 basis points over Treasuries: a junk bond. Chase Securities’ Katherine Rossow said that the double leverage at Sovereign’s holding company has reached approximately 170%, making it one of the highest leveraged companies out of the top 50 bank and thrift holding companies in the U.S.. The Federal Reserve signed off on Fleet’s selection of Sovereign as the “winner” of the 278 branches to be divested; the Office of Thrift Supervision, however, will have to deal with the new (junk) Sovereign. A real competitor...

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November 29, 1999

     FleetBoston’s Geraldo Carbone was quoted by Reuters on November 24 that Fleet “starts doing business with private banking customers and gradually migrate to a retail banking strategy focusing on the upper end of the market.” While you might think Mr. Carbone was referring to Fleet’s strategy in New York, or in Connecticut and Rhode Island, he was most directly referring to Mexico. Meanwhile, Fleet’s Henrique Meirelles says the bank could add ten new branches in Chile in the coming year.

   In Connecticut, Fleet on November 24 sold four branches to Webster Bank, and three branches to American Bank of Connecticut. That day’s Boston Herald quoted Fleet spokesman James Schepker that Fleet is developing a pilot program in which two dozen Fleet ATM machines in Manhattan will start running advertisements on their screens. Reportedly, the downside is that “prolonging transactions could anger customers and reduce income from surcharges.”

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November 22, 1999

   The weakness of regulators’ purported defense of competition and consumers in New England is becoming more clear. Sovereign, now with its debt rating lowered from investment grade to junk by S&P, will face heavy debt service costs as it buys the Fleet divestiture branches. Sovereign projected $49 million in after-tax financing costs in 2000; the number is now $91 million. The Hartford-based Bank Analysis Center estimates that in the business lines of commercial lending, corporate trusts, treasury management and stock transfer, Fleet will have 75% to 100% market share. Welcome to monopoly in Y2K.

   Meanwhile, on November 17 Fleet announced with Fannie Mae a five-year “partnership for affordable housing and community development in the Northeast.” Terry Murray said the “partnership” will be the cornerstone of the pledge Fleet made while acquiring BankBoston. FleetBoston will originate the mortgages, and immediately sell them to Fannie Mae (which will then count the same mortgages toward its $1 trillion dollar commitment, was Fannie Mae seeks to retain its tax benefits and unique “quasi governmental” monopoly). Here’s an idea: Fannie Mae can then sell the mortgages to Citigroup, to count toward Citi’s $115 billion pledge. One mortgage, three times the public relations credit...

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November 15, 1999

   Once you get market power, cut services and raise prices.  That’s Antitrust 101, and if the Justice Department wasn’t focused, like Captain Ahab, on Microsoft, they might have take a closer look at FleetBoston. As reported by the Providence Journal-Bulletin’s Lynn Arditi (Nov. 12), Fleet is now converting teller drive up windows in Rhode Island to mere ATMs. Fleet spokesman James Schepker claims that “the drive up window has become less attractive to customers;” what’s indisputable is that paying salaries, and providing personal service, has become less attractive to FleetBoston. Schepker says “Fleet is also shutting down drive-up windows in other states,” but he claimed to not know where.

    Meanwhile, putative competitor Sovereign Bancorp has had its debt downgraded to “noninvestment,” or junk bond, status. The Globe’s Lynnley Browning (Nov. 10) reports that Sovereign’s CEO Jay Sidhu “recently jetted to Dubai for an investment conference.” The surreal road show, selling both equity and debt to raise funds to buy the Fleet divestiture branches, come to a close. Now comes execution -- in both sense of the word.

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November 8, 1999

   Sovereign Bancorp, which is betting its future on its highly leveraged plan to acquire the 268 branches FleetBoston must divest, has floated a $500 million credit facility, structured as a four-year term loans priced 350 basis points over LIBOR. Replies are due today, November 8. Sovereign is trying to raises the rest of the money this way: $300 million from common stock, $700 million from senior notes, and $250 million from convertible trust preferred securities. We’ll see...

November 1, 1999

   Fleet is jettisoning the BankBoston name, except in Latin America. On the Latin America front, Fleet last week laid off 35% of BankBoston’s “emerging markets” group. One of those laid off told Investment Dealers Digest (11/1), “Fleet Boston is going lean and mean.” Meanwhile, Fleet on October 26 announced it will spend up to $100 million over the next 18 months to build a more “comprehensive” Internet financial services site. “We eventually want you to buy every financial service product or service you could ever need through us,” Fleet ‘Net managing director Blaise Heltai told the Globe (10/27). The much-hyped one stop shopping, with consumer privacy protection courtesy of Fleet’s ex-CRA head, Agnes Bundy Scanlan. Now filling the void of Fleet’s “diversity” policy is Michele Adams Bolden, previously of New England Mutual Life Insurance Company.

October 25, 1999

    On October 20, FleetBoston held its first board of directors meeting, announcing its third quarter earnings and three executive promotions. Brian Moynihan, a lawyer at Edwards & Angell until joining Fleet in 1993, was promoted to executive vice president of merger, replacing BankBoston’s Peter Manning, who was bumped up to vice chairman. Anne Finucane was made EVP of marketing, fresh from Fleet’s deal with major league baseball and its “Ready When You Are” advertising campaign. In New York, Fleet’s running ads directed at entrepreneurs ready for “private banking,” ready to “build something.” From gopher to worrying about “succession planning,” suddenly what’s need is.. Fleet. Lynnley Browning of the Globe reports “analysts say[ing] Fleet still has to decide whether to adopt BankBoston’s consumer-friendly model or to go with its bottom-line attitude - an approach that has alienated customers in the past.” Globe, Oct. 21. If the past is any guide, “bottom-line” and “alienat[ion]” will prevail.

October 18, 1999

    Changes are already underway at Fleet Boston, including in the community lending division. On October 12, Fleet announced that the president of BankBoston’s urban investment subsidiary, Grady Hedgespeth, “will be leaving the new corporation after assisting in the integration” of BBDC and Fleet CDC. Two weeks and sayonara.

   On October 13, Fleet put out a press release touting its small business lending. One problem: the table at the end of the release shows that Fleet’s dollar volume of Small Business Administration lending declined from fiscal 1998 to 1999 in Connecticut, Rhode Island and Massachusetts.

   Both Fleet press releases touted Fleet Boston’s “full-service banking in Latin America.” On October 14 in Buenos Aires, Fleet’s Manuel Sacerdote spoke breezily to reporters about the upcoming Argentinean presidential elections, saying “this is no major split between” the ideas of the candidates, Fernando de la Rua and Peronist Eduardo Duhalde. Good to know that Fleet’s foreign policy is so sanguine -- because its e-business model is less stable. Fleet has decided not to spin off part of its Suretrade online-brokerage unit, but rather to create an all-Internet bank around it, modeled on Bank One’s WingspanBank.com. Fleet says it will integrate its and BankBoston’s web sites “in the second quarter of 2000.” Somehow that integration takes more than six months -- but the swallowing of BankBoston Development Company, and the departure of its president Grady Hedgespeth, took only two weeks. Some things they want to “do right,” and other things... ah, what the hell.

October 11, 1999

    Once they merge, they get quiet.  Of the 29 stories on Reuters, A.P. or the P.R/Business Wire services from Oct. 4 to Oct. 9, all but four consistent of ratings and announcements by Robertson Stephens, the boutique investment bank that BankBoston brought to the deal. In other news, Fleet Boston board member Henrique de Campos Meirelles told Bloomberg that the company hopes to make Latin America account for about 15 percent of total income at Fleet Boston, up from eight percent now. How do they plan to do it? Well, in Chile, they are targeting “higher-income earners,” according to BankBoston executive president Jorge Ramirez. He said they’ve had “informal” talks with Banco de A. Edwards, S.A., another high-end Chilean “private” bank.’

     Those who claim that absent the U.S. Community Reinvestment Act, major banks would nevertheless fairly serve all segments of American society should look closely at Fleet Boston’s explicit strategy in Chile: focus on the rich. Or, also as to Fleet, check out the General Accounting Office’s September 24, 1999 Report on the Federal Reserve’s merger processing, finding that “Fleet Financial Group’s acquisition of Shawmut National Banks was associated with a decline in Fleet’s market share in minority and [low- and moderate-income] census tracts.” Id. at 23. The GAO claims that Fleet’s decline “mirrored” its decline in the overall market -- but Appendix V of the GAO report shows that Fleet’s declines in LMI and minority census tracts were in fact notably steeper. Which is why the new Fleet Boston bears careful watching...

October 4, 1999

    Well, BankBoston is no more. On Thursday, September 30, hours after the Massachusetts Board of Bank Incorporation gave its approval and after the Connecticut Attorney General announced a hasty settlement, under which Fleet shifts more of its Community Reinvestment Act pledge to Connecticut and agrees to divest seven additional branches there, Fleet and BankBoston officials signed the papers merging their holding companies. While still not official, it is reported that the name of the new bank will be “Fleet,” and not “Fleet Boston.” Only in Latin America will the BankBoston name survive, and BKB’s last acquisition will still be called Robertson Stephens. That’s it.

    The last minute accommodations? A decrease in Fleet’s ATM surcharges to 75 cents -- but only in Massachusetts. A “confirmation” that Fleet in Connecticut will target the higher end of its announced CRA pledge, $2.9 billion. Rhode Island officials didn’t fight, and so there was no increase, and no ATM fee accord, in that state. A General Accounting Office study of the Federal Reserve was released last week, confirming that Fleet’s lending to low and moderate income borrowers and people of color declined after its previous acquisitions. The GAO report admonishes the Fed to be more “transparent” in its future decision making, and Fed chairman Greenspan has said he agrees. As to Fleet, however, it’s too late. The Boston Globe of September 29 quotes “one Boston executive” to the effect that “I think Terry’s still got one more major play in him.” Here’s a bet that that “play” is -- selling the bank...

September 27, 1999

    The last required regulatory approval, that of the Massachusetts Board of Bank Incorporation, is widely expected to be given this week, and Fleet projects closing its acquisition of BankBoston at month’s end. To give the Massachusetts Board ground cover to approve, Fleet on September 20 announced it will cap ATM surcharges for non-Fleet customers at 75 cents -- but only in Massachusetts. Massachusetts Treasurer Shannon O’Brien declared victory, saying the commitment she got from Fleet would save Massachusetts consumers $300,000 a month. The public policy rationale for limiting this commitment to only one of Fleet’s states is questionable, but is simply explained: pure politics. What remains to be seen is whether the Connecticut AG will find a way to declare a similar, minuscule victory, and give the merger his blessing. Or will the CT AG sue? This is the week to find out...

     Meanwhile, it is now revealed that Fleet held accounts for Benex, the company at the heart (for now) of the Russian money laundering scandal, and that BankBoston wired money to Benex’ accounts. Benex official Peter Berlin and his wife, Bank of New York employee Lucy Edwards, both had accounts with a Fleet branch in upstate New York. USA Today of September 23 quoted federal investigators, in condition of anonymity, that some of the transfers at Fleet were as high as $200 million, and that BankBoston (and J.P. Morgan) have started their own internal investigations. One might assume that the Federal Reserve Board would now stay and reconsider its approval, pending the outcome of the investigations. But one would probably be wrong -- the Fed of late is not even purporting to use its full regulatory powers to get to the bottom of the increasing number of scandals swirling around its top twenty bank holding companies. The Fed has provided the public no information yet on Republic National Bank’s explanation(s) of its dealings with Martin Armstrong, Cresvale and Princeton Global Management, which have given rise to Japanese investigations and lawsuits. The Fed is currently considering allowing J.P. Morgan to acquire another shadow company based in the Cayman Islands. Still, at least on paper, the Fed has a week to tell Fleet to hold off, until the full scope of Fleet’s and BankBoston’s involvement in the Russian money laundering scandal are known...

September 20, 1999

    In the lull of the Federal Reserve Board’s antitrust waiting period, we’ll descend this time into the netherworlds of the stock traders’ bulletin boards, where cynics discount the threat, if any, posed to the Fleet - BankBoston merger by the Connecticut Attorney General (then we’ll return to Fleet’s and BankBoston’s connection with the Russian money laundering scandal, which is being ably reported by the Boston Globe, and to Fleet’s “white-washing” of its mortgage lending disparities).

   On the "FLT" bulletin board at the increasingly-popular "RagingBull.com" investors' chat page, one wag on Sept. 14 posted the following:

"[w]hat may be holding down FLT might be the A/G from Conn. who keeps blowing off about trying to stop merger until he gets more of a pay off for his state. Once that's out of the way stock will start to recover..."

   To which another investor / cynic replied:

"The AG of Connecticut has done this before and it's a waste of time. It just prolongs the buying opportunity for investors, I believe."

   Click here to be transported to this investors' chat sandbox.

September 13, 1999

    Fleet and BankBoston have, at least in the short-term, two remaining obstacles: the Connecticut Attorney General, who has indicated that his office may sue the merger as anti-competitive, and the Massachusetts Board of Bank Incorporation. Fleet has set its target closing date as October 15. On September 9, Fleet’s CEO Terry Murray met with one of the three members of the Massachusetts board, State Treasurer Shannon O’Brien. O’Brien appears ready to capitulate and/or declare victory: “They are making a very strong effort to meet some of the concerns I’ve highlighted,” O’Brien said after the Sept. 9 meeting with Murray. O’Brien’s concerns seem easy to meet: slightly reduced ATM surcharge fees, and an ad campaign to promote low-cost checking and savings accounts. The Massachusetts board is expected to reach its decision in the next two weeks.

    The Connecticut AG has raised more substantive concerns, but seems to be wavering about whether or not to try to sue the combination. “We fully know that a court battle would be uphill and difficult,” he told the Boston Herald on September 8. Perhaps that is just reducing expectations about an antitrust suit. While the U.S. Department of Justice gets an automatic stay of a merger when it sues, the CT AG would not get a stay automatically, but would have to argue to a court for one. Fleet would claim irreparable harm if it couldn’t close the deal on October 15, and might ask the state of Connecticut to post a bond, to reimburse Fleet if the deal were delayed but later went forward.

September 8, 1999

   After six p.m. on September 7, Federal Reserve Board staff telephoned representatives of Fleet and BankBoston, and then commenters who had opposed the merger, to inform them that earlier in the day, the Fed had approved the merger. By 6:18, the news of the Fed’s approval was on Bloomberg, and shortly thereafter on Reuters. Earlier in the day, Fleet had confirmed that Sovereign Bank, a savings and loan in Pennsylvania, was the purchaser, for $1.4 billion, of most of the branches that Fleet had committed to sell off.

   The Fed’s approval Order, available in PDF format on the Fed’s web site, is 78 pages long. Most of it, however, is boiler plate. The Fed recites concerns that community groups expressed about Fleet declining lending to people of color, and to low-income borrowers, acknowledges that “disparities exist” (Order at 54), but then minimizes the probative value of Home Mortgage Disclosure Act (“HMDA”) data. But Congress passed HMDA so that fair lending could be assessed; and disparities like AmSouth’s constitute a “red flag,” requiring closer inquiry by the Fed, not simply a recitation of old (and outdated) CRA performance evaluations.

    The Fed did impose a condition: that Fleet report to it semi-annually on the branch closings “that occur as a result of this proposal.” Order at page 59. The Fed imposes a similar condition on NationsBank’s (now BankAmerica’s) acquisition of Boatmens Bancshares in 1997, and hardly followed up on it. In fact, the Fed later tried to withhold as “confidential” the branch closing reports, just as it did after Fleet-Shawmut and Fleet-NatWest.

   The Fed’s Order recites that there were 344 commenters on the merger application: 97 in favor, and 247 opposed, and requesting conditions. The Fed names some of these groups, in footnotes 34 and 36. In favor? For example, the New York City Housing Partnership (founded by David Rockefeller in the 1970s, more recently demolishing blocks of apartment buildings in the Bronx and Brooklyn to build relatively expensive low-rise housing); branches of the Urban League and the NAACP. Opposed? Various elected officials, the Connecticut state treasurer, “the Attorneys General of Massachusetts and Connecticut,” and community groups ranging from Massachusetts, Rhode Island, New York, New Hampshire, Delaware, Connecticut, etc..

   The Fed’s Order is fairly obviously dismissive the Connecticut Attorney General, who has threatened to sue to stop the deal. The CT AG (and Treasurer) had written to the Fed to ask them to postpone the September 7th vote. The Fed went ahead and voted (unanimously approving the deal), and, in the antitrust section headed “Views of Other Agencies” did not even mention the Connecticut Attorney General’s opposition.

   The Fed ignored one of the main reasons it should have postponed the vote, and allowed further comment: the fact that the identify of the purchaser of most of the divestiture was not disclosed until the afternoon of the meeting. Serious disputes exist as to whether Sovereign, a savings and loan a quarter of the size of Fleet, would be a legitimate competitor for middle-market and small business lending. Fleet refused to confirm who the divestiture winner was, until the day of the Fed’s vote. Then, the Fed’s approval order, at 10, states that “[b]ased on all the facts of record, it appears that the purchaser would have sufficient scale, expertise, and dedicated resources to compete effectively...”. The Fed (and Fleet, by only confirming Sovereign as the winner on the afternoon of the Fed’s vote) did not allow any comments (or facts) to be submitted on the question of whether this purchaser would compete effectively. So the Fed ceremoniously “deliberated” on the “facts of record” -- as manipulated and limited by the Fed and Fleet.

   On the question of Fleet’s (non-existent) due diligence prior to signing the merger agreement, the Fed simply states that it considers the “managerial resources of Fleet to be appropriate for Fleet to evaluate the proposed acquisition.” In context, the Fed is removing any requirement that bank holding companies actually perform due diligence - the Fed will confine its ruling to the question of whether, in the abstract, the acquirer has the “managerial resources” to evaluate the acquisition. As scandals erupt at various bank holding companies -- Bank of New York’s and Republic’s alleged involvement in Russian money laundering, Republic being investigated by Japan’s FSA for mis-valuing investments -- it seems strange for the Fed to be become even more lax on due diligence.

September 7, 1999

    After the Department of Justice’s apparent capitulation to Fleet’s argument that a savings bank a quarter of Fleet’s size will compete with Fleet, all eyes turn to the Federal Reserve, which immediately after DOJ’s announcement put the Fleet - BankBoston application on its agenda for September 7. The reality is that the Fed is even less serious about antitrust enforcement in banking than DOJ is -- and so the Fed waits for DOJ to sign off, then approves the deal just as DOJ has modified it. This way, the Fed’s differences from DOJ on antitrust are swept under the rug (unlike the embarrassing situation in Cleveland a few years ago, when the Fed approved a merger, and the DOJ then sued to stop it). Connecticut’s Attorney General and Treasurer have both asked the Fed to take the application off of its agenda, to allow more comments, from Connecticut’s August 26 hearing, and on the identity of the purchaser of the divested branches. “A spokesman for the state treasurer said the Fed had agreed to include that transcript in the public record -- but then quickly changed its mind. A spokesman for the Fed in Washington said it had not received any communication from Connecticut officials and that the hearing was still on.” American Banker, September 7. So much for coordination by the Fed with state officials...

September 2, 1999

   The U.S. Department of Justice has just announced that Fleet has committed to divest 306 branches with deposits of $13.2 billion, and that on that basis, the DOJ will not challenge the Fleet-BankBoston merger. The Federal Reserve's Sunshine line indicates that the Fed will consider (and most probably approve) the deal at its closed meeting on Tuesday, September 7.  A main question, of which bank will purchase most of these branches and provide competition to the proposed Fleet Boston, has still not been resolved.  Newspaper accounts continue to name Sovereign Bank, a Pennsylvania savings and loan, as the buyer of 278 branches with $12.4 billion in deposits. But Sovereign, as a thrift, does less small business lending that commercial banks do. Additionally, even if it bought the Fleet branches, Sovereign would have total assets of only $37 billion, compared to the $160 billion Fleet Boston would have. Sovereign would simply not be a credible competitor to Fleet Boston, as ICP and other have commented.

   It appears that the DOJ takes antitrust in banking less seriously than it and the FTC do in other industries. Staples and Office Depot were precluded from merging -- but Fleet (which acquired Shawmut) and BankBoston (which acquired BayBanks) can?   DOJ and the Fed often rely on the banking industry’s argument that other lenders without branches in a market are in fact competing, via the Internet and otherwise. But whether small businesses in the affected markets really can, and do, access loans from California banks over the Internet has not been proved in this case.

August 30, 1999

    Public reports now name Sovereign Bank of Pennsylvania as the new favorite in the Fleet divestiture sweepstakes. But Sovereign could hardly be considered a legitimate competitor to the proposed Fleet Boston. Sovereign is a savings bank -- institutions that do far less small- and middle-market lending than commercial banks do. Sovereign has only $24 billion in assets -- more than six times smaller than the proposed, post-divestiture Fleet Boston. (As discussed in this week’s ICP CRA Reporter, Sovereign is also one among the lemmings trying to create and spin off -- or create separate stock shares for -- an Internet bank). Informed analysts opine that Fleet is actually in negotiations with another (“real”) bank (most probably HSBC), and is using Sovereign to drive up the price at which is will sell the branches.

August 23, 1999

    Eyes turn this week to the Connecticut public hearing on Fleet’s proposal, to be held by the Connecticut Attorney General and State Treasurer. The Federal Reserve denied requests to hold a hearing in Connecticut; the state officials are going forward to hold their own hearing, on August 26 in Hartford. Attorney General Blumenthal says he will forward a copy of the transcript of the hearing to the Office of the Comptroller of the Currency, “which must also approve the deal.” Reuters, August 17. That, however, would let the Federal Reserve off the hook. The Fed should have held a hearing in Connecticut (as it did on Fleet - Shawmut, in 1995); at minimum, now, the Fed should send representatives to observe the August 26 hearing, and should accept the transcript of the hearing into the record. ICP has written to the Fed and made just those requests. The OCC has very little say over this deal - the key is the merger of the publicly-traded holding companies, not the (later) merger of the banking units...

August 16, 1999

    The Federal Reserve’s review of the Fleet - BankBoston proposal continues. On August 13, ICP received a copy of Fleet’s August 11 letter to the Federal Reserve Board, which begins:

“During our telephone conference yesterday you requested information concerning due diligence conducted by Fleet in connection with the proposed merger with BankBoston... During the initial private discussions and negotiations related to the merger, Fleet and BankBoston were very concerned about unauthorized public disclosure of the proposed transaction. Accordingly, management of both institutions concluded the extensive due diligence prior to execution of definitive agreements was not advisable because it would be difficult to control leaks. Therefore, only a very small group of Fleet’s senior management and a limited number of attorney’s with Fleet’s outside counsel were involved in due diligence. Fleet believed that BankBoston’s status as a public bank holding company, subject to extensive disclosure requirements and strict regulatory oversight by both the Board of Governors of the Federal Reserve System and the Securities and Exchange Commission, provided reasonable assurances that any material information regarding BankBoston’s business and financial condition would be publicly available.”

     In context, this is an extraordinary response. By Fleet’s logic, there would be no reason for one bank buying another, publicly traded bank to conduct due diligence. But the Fed is required to consider the seriousness and professionalism of due diligence, as a managerial factor under the Bank Holding Company Act, and has in fact been asking Fleet questions about it. Fleet’s admission that it conducted little to no due diligence, and simply relied on 10K and other SEC filings -- is extraordinary.

August 9, 1999

      Something of a lull in the Fleet Watch this week. Community groups in at least four states have written in to the Federal Reserve, ridiculing Fleet’s purported “clarification” of its CRA pledge (see below). At the shareholders’ meetings on August 11, the Connecticut Treasurer’s Office (and others) have indicated they will either vote the shares against the merger, or abstain. Reportedly, the New Hampshire Treasurer has moved to withdraw state funds from Fleet’s branches in that state. And, it is becoming clearer than none of the bidders for the divestiture branches is large or “fair” (fair lending, that is) enough to provide effective competition in the affected communities. How the Justice Department, which has already caved once to interests scarcely related to antitrust, would be able to hold its nose and issue a “non-objection” letter on this transaction -- is a mystery.   More next week...  In the interim, Fleet-watchers may wish to peruse ICP's exclusive coverage of the Federal Reserve Board's "feeding" of documents to Senator Phil Gramm (R-TX), to assist in Gramm's attacks on the Community Reinvestment Act.  Click here to view ICP's CRA Reporter.  Fleet appears emboldened by Senator Gramm's attacks on the CRA;  more on this in future Fleet Watch editions.    

August 2, 1999

      Fleet has submitted a 100-page binder to the Federal Reserve Board, purporting to respond to the comments and objections raised at the Fed’s public meeting on Fleet’s application to acquire BankBoston. As set forth below, Fleet’s response is more a political document than anything else. Fleet only responds to Massachusetts issues and witnesses -- apparently, Fleet perceives that it’s only problems are in Massachusetts. Fleet says that its response provides more specificity about its $14.6 billion CRA pledge. Fleet provides the Fed with a table, listing “Commitment Levels by State:”

                       Estimated Post-
                   Divestiture Branch                 % Distribution of
                         Distribution                   $14.6 B Commitment

MA                      28%                               30% - 40%

CT                        15%                               15% - 20%

RI                           4%                                 5% - 10%

NH                         4%                                  3% - 8%

ME                         4%                                 3% - 8%

NY                        32%                               20% - 30%

NJ                          13%                              10% - 20%

     Not to be parochial, but what ICP could not miss in this table is that Fleet doesn’t even ASPIRE to bring its lending / investment in New York State into conformance with the percentage of its branches that are in New York State. If this proposal were approved, Fleet would have 32% of its branches in New York -- but states that (only) 20% to 30% of its investment would be in this state. The percentage appear to be in direct proportion to the political pressure Fleet feels. No way to run a bank -- or a CRA pledge.

      Fleet’s defense might be that it is concentrating its proposed pledge in the divestiture states, and that its continuing export of capital from New York State is irrelevant to this merger application. First, the CRA requires a bank to be fairly serving the credit needs of its existing communities before it expands by merger -- and NYS is an existing Fleet community, Fleet’s LARGEST market, in fact. Second, Fleet saw fit to pay the travel and hotel costs of the directors of New York State groups it funds to testify to the Fed in Boston, at the public meeting -- clearly acknowledging, or even arguing, that its New York performance is relevant to the merger. Why, given Fleet’s limited aspirations in New York, these people testified -- is another question...

      Meanwhile, Fleet on July 26 settled predatory lending charges with the Federal Trade Commission. FTC lawyer Carol Reynold said, “The violations were nationwide, and not just a regional problem.”

    Finally (for now), the FFIEC finally made 1998 Home Mortgage Disclosure Act data available on its web site, on July 29. Below is a review of Fleet’s lending in New York City in 1998; more forthcoming.

      On July 29, 1999, the FFIEC finally made 1998 HMDA data available on its web site. ICP is analyzing Fleet’s 1998 lending record. While ICP’s analysis continues (and ICP will be submitting further comments), note that in 1998, for conventional home purchase loans in the NYC MSA, Fleet Mortgage Corp. denied the applications of African Americans 2.49 times more frequently than those of whites, compared to the aggregates’ disparity of 2.15 to one. Fleet’s denial rate disparity for Latinos was also higher than the aggregates’.  [snip - contact ICP for more recent data]

July 26, 1999

     In advance of Fleet’s and BankBoston’s shareholders meetings on August 11, certain governmental stock holders are preparing to vote “no” or to abstain on the merger. Government employees’ pension funds hold stock in both banks, but these shares must be voted in the monetary interest of the pensioners, without (much) regard to the social costs of the merger, in the pensioners’ communities. Even so, “no” votes can be supported with reference to, for example, the dramatic decline in First Union Corporation’s stock price after it acquire CoreStates last year. Many of the stock analysts singing the praises of Fleet Boston -- also shilled for First Union - CoreStates. First Union is now viewed as a takeover target. So local officials who have supported Fleet - BankBoston because, they claimed, it would keep a major bank headquartered in New England, have taken a very short term view. This proposal is just one step in the ongoing mega-consolidation of the banking industry.

     On July 22, the Federal Reserve mailed ICP a copy of summary of a meeting its staff held with Fleet and BankBoston, on June 15. No explanation was given for the five week delay. There is a one-page Memo to File, reciting that that the bank’s Representatives “stated the number of parties that had signed confidentiality agreements and indicated preliminary interest in each divestiture package.” Attached to the Memo was a page headed “Interested Buyers,” stating that “[X] Confidentiality Agreements Have Been Executed and Ofering [sic] Memoranda Distributed... [X] Buyers Currently Interested in Entire Divestiture; [X] Buyers for MA, [X] Buyers for CT, [X] Buyers for RI; Some Buyers Seeking Preemptive Process.” Each “[X]” above represents a redaction by the Federal Reserve. One can infer that some bidders are seeking the entire divestiture, under an undefined “preemptive process.”

July 19, 1999

      Fleet has yet to meaningfully provide any more detail about its $14.6 billion community reinvestment “pledge.” Some in Massachusetts have implied that Fleet is privately providing greater detail; a Fleet letter to the Federal Reserve dated July 12, however, simply reiterates: “Fleet’s commitment is based on specific and measurable initiatives in the following areas: Total small business lending, $7.5 B; Affordable Housing / Mortgages to LMI borrowers, $4.0 B; Community Development Lending / Investment in LMI areas, $2.0 B,” etc.. Massachusetts Republican Governor Cellucci, who virtually alone among Massachusetts elected officials has not opposed the merger, implies without elaboration that regulators will move “to attach a condition to the merger that ensures that commitments are fulfilled.” That has hardly been the Federal Reserve’s track record. However, on the First Union - CoreStates merger in 1998, the Pennsylvania Attorney General, threatening antitrust litigation even after the Fed’s approval, did obtain some binding commitments. Should the same be expected in Connecticut and Massachusetts? We shall see.

     Reportedly, Fleet has winnowed the list of bidders for divested branches down to six banks. Two reports include New York’s (and Hong Kong’s) HSBC as a finalist. It’s worth nothing that HSBC’s current application to acquire Republic National Bank of New York is itself embroiled in community protest, and that the NYS Banking Department is having to request more information from HSBC, including regarding what outreach, if any, HSBC is doing. ICP has just learned that the NYSBD earlier this year, in a rare enforcement move, required a commitment from HSBC to increase its mortgage lending to people of color. Is this the kind of bank that would credibly “pick up” the 20% of Fleet’s and BankBoston’s CRA performance that would be sold off?

July 13, 1999

     The Federal Reserve has now posted the transcript of its July 7 public meeting on its web site -- click here to view the transcript.  

     Comments are due by July 14. Also, on July 13, Massachusett’s Board of Bank Incorporation is holding its own hearing on the proposed merger, at One South Station in Boston at 1:15 p.m..

     Here’s a little review of the Fed’s meeting’s transcript, focusing on the banks’ presentation on Panel One:

     At the beginning of the meeting, the Fed’s presiding officer informed the audience that “Witnesses at this public meeting also may submit a written supplement to their oral testimony, but they must do so by next Wednesday, July 14th, and then the record will be closed.” It is illegitimate to limit the extension of the comment period to those who could afford to travel to Boston -- particularly since Fleet paid the travel and hotel expenses of its pro-merger witnesses (see below).

        Next, Fleet CEO Murray stated

"When we announced the merger in mid-March, slides used the tag line, 'One Plus One Equals Greater Than Two.'  This slide illustrated the idea that our combined institution could do more in total for our customers, communities and stockholders than what the two premerger banks have done separately. This was not a statistical assertion, but rather a broad statement about how the new bank's synergies would make Fleet-Boston more competitive than either bank would be by itself."    --Emphasis added.

     Murray is trying to back away from the claim the banks made when they announced the merger, and claim that all it meant was that a combined bank could do more than either could alone. But that slogan would have been “One plus one is greater than ONE.” Fleet clearly implied that the combined bank would do more than the sum of Fleet and BankBoston. Since Fleet’s pledge has been exposed, Fleet tries to lower the bar to “One plus one is greater than one.”

    Then, after Chad Gifford spoke (no mention of the $30 million in stock options, or strange “hard-wiring” of himself into the CEO job, while others are being let go), Gail Snowden took the floor. The Fed’s transcript reads:

“I would now like to spend some time outlining the five-year 14.6 billion dollar strategy. Because we believe entrepreneurs are the engine for growth creation and job creation that transform entire communities, over half of this entire commitment, 17.5 billion, is earmarked for the support of small business lending.”   --Emphasis added.

      While the “17.5 billion” is probably a typographical error -- it’s a figure more in line with “maintaining or enhancing” the two banks current lending... Then Ms. Snowden said: What I have presented is a framework.... we will be announcing more details in the next month or so.” That is -- after the (current) close of the comment period.

    Next up was Fleet’s Agnes Scanlon. She said, Understandably there have been concerns expressed about this merger in terms of its effect upon communities, businesses, and consumers. Terry, Chad, Gail and I have addressed some of them here and in other meetings with concerned parties. Nonetheless, apprehension and misapprehensions remain, fueled in part by incomplete and in some instances incorrect information.”

    Ms. Scanlon chose to respond to only one set of comments, and only about Massachusetts. This ignores the worse of Fleet’s last two acquisitions: NatWest (which is also the more recent of the two). Even so, Ms. Scanlon admitted, “Fleet did experience a decline in mortgage lending overall.”

     The Fed’s Associate General Counsel then asked how Fleet arrived at its pledge -- but limited his question to mortgages.

     Thereafter, and to 9:30 p.m., the Fed heard from twenty panels: alternating between “unabashedly” pro-merger panels, and those raising questions. Here’s a medley of some “pro-merger” testimony, particularly interesting in light of Senator Gramm’s allegations and proposals about CRA:

MS. SCOTT: My name is Ruth Scott and I'm president and CEO of Scott Consulting Associates.... I come in favor of the merger between Fleet and BankBoston because I see things there that make me understand that they know what it's all about.... I was involved with a community development organization, a faith- based organization, three ago which wanted to build a complex as the first African-American organization in Rochester, York, to do such a thing. We went to Fleet and asked them for $5,000 originally as seed money to establish a corporation, and they gave us that. commitment grew over time to $100,000....

* * *

My name is Phillip Morrow. I'm the president of the South Bronx Overall Economic Development Corporation, which is an economic development, industrial development work force, CEFI, all of those things. Fleet has been involved with us, and we have a director, Phil Grossman, who is on our Board of Directors. They're involved with industrial financial and commercial financing in the South Bronx. They have provided us with corporate support...

* * *

MR. KUMRO: My name is Richard Kumro. I'm vice-president and general counsel of the Community Preservation Corporation, a nonprofit community lender in New York City that serves the states of New York and New Jersey... Fleet stands out for the breadth and depth of its support of our programs... Beyond their money, they also provide us with great leadership in serving on our boards and committees.

* * *

MS. WHITLOCK: Hello. My name is Linda Whitlock, and I'm speaking as president and CEO of Boys and Girls Clubs of Boston. And I speak on unabashedly in support of the merger.... all because of the notable generosity of donors like BankBoston and Fleet Bank. Stellar corporate citizens, these two banks, and BankBoston in particular, are peerless in their charitable giving to inner-city programs like ours. Since 1978 BankBoston has given our organization in excess of $800,000 for program and building needs. Similarly, Fleet has provided us with nearly $300,000....

     And on that undoubtly “concrete” and fact- (quantity-) specific note, we leave you. Until next time, for or with more information, contact us.

July 12, 1999

       As the dust settles on the public meeting the Federal Reserve held July 7 in Boston, it has emerged that Fleet paid the transportation and hotel costs of many of the pro-Fleet witnesses. While this also took place at the First Union-CoreStates and Wells Fargo-Norwest hearings in 1998, a difference now is that the new Chairman of the Senate Banking Committee, Phil Gramm (R-TX) has proposed legislation which would require banks to disclose all payments made “in connection with CRA;” similar legislation has been proposed in the House.

     While Sen. Gramm’s proposals are clearly intended to make more difficult the activities of advocacy groups which oppose banks’ records and merger applications, his amendment, as worded in S. 900, would seem to apply to most of the pro-Fleet witnesses on July 7. The Boston Herald of July 10 reported:

“As the hearing date neared, Fleet executives countered by calling agencies helped by the bank on Long Island and in New York, promising to pay their way if they’d come to the hearing. ‘They decided at the last minute to have us come up,’ said Phillip Morrow, director of South Bronx Overall Economic Development Corp... Given Fleet’s help with housing, job training and economic development in the Bronx, Morrow said, Morrow agreed to help without hesitation... Karen Phillips, the chief executive of Abyssinian Development Corp. in Harlem, said she wanted to testify for Fleet, but hadn’t planned on it until Fleet offered to pay her expenses.”

     Mr. Morrow of SOBRO’s statements seem to clearly fall within the scope of Gramm’s amendment. While he referred to Fleet’s “help... to the Bronx,” a review of Fleet Mortgage Corp.’s 1998 Loan Application Register shows only 61 FMC mortgage transactions the South Bronx, virtually all of them purchased FHA loans, or refinance loans (as opposed to any loans Fleet makes to allow people to buy homes). SOBRO, however, routinely solicits banks for contributions. In fact. on the same day at the Fed’s public meeting in Boston, another SOBRO official testified to the NYC City Planning Commission, how Citibank and Bankers Trust gave $50 and $60 thousand respectively to help SOBRO buy up vacant lots in Morrisania. SOBRO then re-sells these lots at a profit, for example for the building a new McDonald’s on Third Avenue and 164th Street.

     In exchange for contributions to SOBRO, a plane ticket and hotel accommodations, Mr. Morrow testified in favor of a clearly anticompetitive merger by a bank whose lending in the Bronx has decreased dramatically in recent years. Low income consumers in the Bronx harmed by Fleet could not, of course, travel to Boston and stay overnight to let the Fed know their experience. Where is Senator Gramm on this one? We shall see, in the coming weeks and months.

    The Federal Reserve has yet to place the transcript of the public meeting on its web site.   Once it does, ICP will be submitting further comments to the Fed, and publishing in this space further analysis (including comparing testimony to Fleet’s actual lending record in the applicable geography).

July 8, 1999

Fed Fleet-BankBoston Public Meeting Wrap-Up
Compiled from correspondents

     The Federal Reserve held its public meeting on Fleet’s application to acquire BankBoston, and the testimony flew. 170 witness signed up to speak. There were “pro-Fleet” panels of two dozen people each, each given one minute to mouth support for the merger. Critics of the merger focused much of their testimony, understandably, on Fleet’s $14.6 billion Community Reinvestment Act pledge, calling it too small, not specific enough, even “insulting.” Fleet’s CEO, interviewed after his presentation, said “I think the overall package is exceedingly generous... But the pieces can be rearranged.” BankBoston’s CEO said, “There are a number of specifics that do need more discussion.”

     One question is: when will this “more discussion,” that even BankBoston acknowledges is “need[ed],” take place? The Fed was repeated asked to extend its comment period, but has not yet responded to these requests.

     By having floated this pledge twelve days before the hearing, Fleet’s succeeded in shifting much of the focus from its actual mortgage lending record and volume, which even Fleet’s CRA officer acknowledged has declined after Fleet’s past two acquisitions, see American Banker of July 8. That shifting of focus appears to be the goal of recent CRA mega-pledges; Fleet appears to be hoping that now that the public meeting is done, the heat will dissipate. At a meeting with groups invited by the banks held the day before the hearing, Fleet reportedly floated the following “percentages:”

Massachusetts     30 to 40% of the pledge
Connecticut         10 to 20%
Rhode Island        5 to 15%
NH, ME, FL        5 to 15%
NY & NJ           10 to 30%

     The minimums adds up to 60%; the maximums add up to 120%. The ranges (for example, anywhere from 10 to 30 percent) are broad; it seems unlikely that Fleet (or other banks) are so loose about their “real business plans.” Perhaps the ranges are adjustable based on -- the vehemence of testimony and comments against Fleet.  Several witnesses who have previously supported Fleet -- opposed it at the hearing.

     Surprisingly little attention was paid to antitrust, and, for example, to Fleet’s unilateral removal of over $5 billion from its divestiture calculations. Attention was given to the related but separate question of the identity of purchasers of branches that would be divested. That appears to be the main focus of Massachusetts politicians, rather than the insufficient size of the divestiture, in such markets as New Haven and Springfield, and in light of the “removed from calculations” $5 billion.

July 7, 1999

    Today, the Federal Reserve is holding its public meeting on Fleet’s application to acquire BankBoston. Witnesses have been restricted to five minutes apiece, and it appears that the Fed will not allow any questioning of Fleet’s and BankBoston’s CEOs by the public. The Fed’s public meetings have become like kabuki theater -- click here for ICP’s analysis of the Fed’s less-than-helpful public meeting procedures. ICP’s testimony is below.

     In recent days, Fleet’s CEO Terry Murray has dug in his heels, and said that Fleet’s “proposed” CRA pledge, which stated that it would be revised based on community groups’ feedback, is in fact set in stone. Even the Mayor of Boston has now said that Murray “has an attitude problem.” Boston Herald, July 2, 1999, Pg. 23. Murray has started claiming that witnesses signed up for the public meeting don’t “know anything about our markets” -- even witnesses from New York, where Fleet owns hundreds of branches (and, for example, runs advertisements at Yankee Stadium in the Bronx).  On July 6, the Attorney General and the State Treasurer of Connecticut said they are opposing the merger, on antitrust grounds. Fleet responded that it “will be working with the Department of Justice to ensure that there is competition in all our markets.” Reuters, July 6, 16:35. But state attorneys general and consumers -- and not only the federal DOJ -- could sue to block the deal, as nearly happened on First Union-CoreStates in 1998.  Attitude problem indeed...

     The Fed has set this Fleet public meeting up to be more of a charade than usual. The Fed set the meeting for just after the three-day Fourth of July weekend; the witness list still hadn’t been provided to commenters, as of July 6th. ICP’s time for testimony, for example, was changed twice, the last change being at 4 p.m. on July 6. Because the Fed decided to hold only one public meeting, in Boston (despite the fact that on Fleet-Shawmut in 1995, the Fed held three public meetings, including in Hartford and Albany, New York, and has held meeting in both San Francisco and Los Angeles on big California mergers), ICP requested that it and other groups be allowed to present testimony via the Fed’s video-conferencing system. The Fed’s response? No, “due to the difficulty in making appropriate arrangements.” Fleet’s Terry Murray has said, of the public meeting, “I don’t think it will be lively. I think it’ll be predictable.” Which is just the way Fleet -- and apparently the Fed -- want it. Again, click here for ICP’s analysis of the Fed’s less-than-helpful public meeting procedures. Now, ICP’s testimony [available on Fed's web site, or from ICP].

July 5, 1999

    The Federal Reserve will hold its public meeting on Fleet’s application to acquire BankBoston on July 7. Its scheduling immediately after the 4th of July holiday, the Fed’s failure to provide a witness schedule before the holiday, and refusal to hold hearings in the other affected states, including Connecticut (where the Fed held a hearing on Fleet’s Shawmut acquisition in 1995, along with Boston and Albany, New York, Rhode Island and New Hampshire, may affect the range of views of the Fed hears on July 7.

     Fleet’s CEO Terry Murray has reiterated the questionable $14.6 billion Community Reinvestment Act pledge (for comparison to current lending volumes, see below), and has said that he and Chad Gifford of BankBoston will provide further details about the pledge at the Fed’s July 7 meeting. The Fed currently says that its comment period will close on July 7. At past hearings, the Fed has announced an extension of the comment period for at least a week following the hearing. No less should be done here, particularly in light of Fleet’s putting-off of details until the day of the hearing itself.

    At press time we learn that “Terry n’ Chad” have scheduled a last-minute meeting with Massachusetts community groups, the day before the hearing. Groups in other states were not invited, but may attend. There have been more than 160 requests to testify -- that’s be 3.7 minutes per person. And no questioning of Terry n’ Chad allowed. Unless...

June 29, 1999

     Fleet has been circulating a memorandum entitled “Community Commitment: A Proposal for the Fleet Boston Transaction.” A copy of this Fleet document is reproduced further below on this page. Inner City Press has conducted an analysis, comparing Fleet’s proposed commitments to Fleet’s and BankBoston’s current lending levels. We have even, to follow Fleet’s proposed methodology, reduced Fleet and BankBoston’s 1998 lending volumes by 20%, to take into account the (too small) divestiture Fleet has proposed. The results (which ICP has submitted to the Federal Reserve, as a supplement to ICP's June 7 protest, which is reproduced at the bottom of this page)::

Fleet’s Proposed $14.6 Billion CRA Pledge is LESS Than What Fleet and BankBoston Currently Do -- even reduced by 20% for divestitures

     Here is a summary table; a more full analysis, citing the sources of the data, follows.

Fleet’s proposed pledge in the three major categories:

                                                                           5 Year Amt

Small Business Lending                                          $7.5B

Affordable Housing/Mortgages to LMI Borrowers $4.0B

Community Development Lending/Investment          $2.0B

     Compare to Fleet’s and BankBoston’s 1998 volumes, x 5 (for 5 yrs) and x 0.8 (divest):

                                                                   SQ 5 yr  Fleet     Short-
                Fleet     BKB       Total        x 5     x 0.8    Pledge   Fall

Small Biz   1.5B    588MM   2.1B      10.5B   8.4B    7.5B      12%

C.Dev’t  486MM  245MM  731MM  3.66B  2.92B   2B        46%

                                    --See below regarding mortgage lending.

      Fleet claims that its proposed pledge of “$14.6B reflects a maintenance and in some cases enhancement of LMI lending activity by Fleet and BankBoston -- when adjusted for divestiture of branches and deposits required by the Justice Dept... Post divestiture, the Fleet Boston franchise is approximately 80% of the combined Fleet and BankBoston franchises.”

     However, using Fleet’s and BankBoston’s 1998 actual lending volumes, taken from Fleet’s application to the Federal Reserve, and using Fleet’s logic (reduction by 20% to take into account the (too small) proposed divestiture), Fleet’s proposal is in the three major categories LESS than Fleet and BankBoston do today.

   Beginning with small business lending: Fleet’s “Memorandum on Community Lending and Investment Programs,” submitted to the Federal Reserve as part of Fleet’s application, states at page 10 that Fleet in 1998 made $1.449 billion in small business loans. At page 42, it states that BankBoston in 1998 made $588 million in small business loans.

      So, in the single year of 1998, Fleet and BankBoston mad $2.1 billion in small business loans. Accepting Fleet’s methodology -- multiplying by five (for five years) and multiplying by 0.8 (for divestiture), one gets -- $8.4 billion in small business loans over five years, just to maintain the status quo.

     Fleet is proposing $7.5 billion -- 12% less than current volume, even reduced for divestiture.

     In community development lending: Fleet’s CRA Memo to the Fed, at 10, states that Fleet in 1998 made $486 million in community development loans. At 42, its states that BankBoston in 1998 made $245 million in community development loans. Accepting Fleet’s methodology -- multiplying by five (for five years) and multiplying by 0.8 (for divestiture), one gets -- $2.92 billion in community development loans over five years, just to maintain the status quo.

    Fleet is proposing $2.0 billion -- 46% less than current volume, even reduced for divestiture.

     Mortgage lending to low and moderate income (LMI) borrowers is more complex to calculate, but even more troubling. Fleet’s CRA Memo to the Fed, at 10, states that Fleet Mortgage Company in 1998 originated or purchased $35.46 billion in mortgage loans. At 42, its states that BankBoston in 1998 originated or purchased $1.74 billion in mortgage loans. The two companies combined 1998 mortgage volume was $37.2 billion.

      Fleet’s proposal of $4.0 billion in mortgages to LMI borrowers over FIVE YEARS appears laughable in this light. Fleet’s CRA Memo does not state for either company what percentage of their 1998 mortgage volume was to LMI borrowers. But Fleet’s June 22 response to Inner City Press / Community on the Move’s June 7 protest states, at 6, that in New York State in 1997, “nearly 25% of all home purchase loans originated by Fleet went to low- or moderate-income borrowers....”. Given, for example, that Fleet has a lower CRA rating in New York than in Massachusetts and elsewhere, one could legitimately assume that Fleet’s percentage of mortgage lending to LMI borrowers is at least as high in other states as in New York.

     Taking, for purposes of this analysis, a 20% figure (of mortgage lending that is to LMI borrowers), and taking Fleet and BankBoston’s 1998 combined mortgage volume of $37.2 billion -- then multiplying by five (for five years) and multiplying by 0.8 (for divestiture), one gets -- $29.76 billion in mortgage loans to LMI borrowers over five years, just to maintain the status quo.

* * *

June 28, 1999

    On June 21, the Fed announced it will hold a public meeting on Fleet’s application, July 7 in Boston. Later than week, Fleet and BankBoston circulated the memo reproduced below to their community relations offices. The Boston Globe of June 25 reported rumors of this pledge; other reporters had the same rumor, but apparently didn’t feel comfortable with the sourcing.  The full text of Fleet's memo is set forth at the bottom of today's Report.

   A comparison of this pledge with, for example, the claims Fleet made to the Federal Reserve in its Application’s “Memorandum on Community Lending and Investment Programs,” shows that the pledge is for LESS than the two banks together do.  Fleet has already laid the groundwork for this (scam): see, e.g., Boston Globe of June 22, at A15: “Fleet spokesman Jim Mahoney says the phrase ‘one plus one is greater than two’ applies to ‘synergies of the company. It was not intended to be a mathematical formulation of loans.” Clearly not.

    It remains to be seen if Fleet will be forthright about how this pledge compares to the two banks’ currently lending, prior to the Fed’s July 7 public meeting. In context, the pledge appears to have been slapped together. The Fed announced on Monday, June 21 that it was granting the public meeting requests. Fleet’s memo is dated June 22. Sources in the banks tell ICP that as of Friday, June 18, they had heard nothing about any pledge, but that on Monday, June 21, they were told to drop everything, that they would have to start conveying a pledge to community groups later that week. It appears that the Fed, as it did in Chase-Chemical in 1995, gave Fleet some advance notice that it would be announcing on June 21 a public meeting.

   Now, here's the text of Fleet's draft CRA pledge, obtained by ICP:

Community Commitment

A Proposal for the Fleet Boston Transaction

Confidential For Internal Use Only

Executive Summary

WE ARE PROPOSING A 14.6+B COMMITMENT FOR FLEET BOSTON OVER 5 YEARS -- THIS WILL BE BASED ON SPECIFIC AND MEASURABLE INITIATIVES IN THE FOLLOWING AREAS...

                                                                           5 Year Amt

Small Business Lending                                            $7.5B

Affordable Housing/Mortgages to LMI Borrowers    $4.0B

Community Development Lending/Investment            $2.0B

Consumer Lending in LMI Areas                               $1.0B

Equity Investments                                                    $100MM

Technical Assistance and Support                             $15MM

                                                          Total               $16.4B

APPROACH TO COMMUNITY INVESTMENT STRATEGY...

The new company has a goal to achieve an outstanding CRA rating - Fleet and BankBoston both have outstanding CRA ratings in Massachusetts, so we come into this merger with a strong record of performance.

We want to assure the community that the new company will continue to provide credit, banking services, and investment dollars to the LMI communities in which we do business.

Over the past 6-8 weeks, we have met with over 125 organizations to solicit input on community needs and ideas on how our community investment programs can be maintained or improved.

Using that input, we are now formulating a community investment commitment.

We will begin sharing the components of the investment commitment with key community leaders in the next week.

We will revise our plan if warranted following the meetings with key community leaders.

A final “commitment letter” will be issued to community based organizations and elected officials in July based on specific and measurable commitments.

OUR COMMITMENT REFLECTS A MAINTENANCE AND IN SOME CASES ENHANCEMENT OF LMI LENDING BY FLT AND BKB -- WHEN ADJUSTED FOR DIVESTITURE OF BRANCHES AND DEPOSITS...

Sizing of Commitment

The $14.6B reflects a maintenance and in some cases enhancement of LMI lending activity by Fleet and BankBoston -- when adjusted for divestiture of branches and deposits required by the Justice Dept.

For the large programs (mortgage, small business, consumer), the commitment sizing is based on the last 2-3 years of average annual volume of originations (excluding renewals) adjusted for the post divestiture size of the company.

Post divestiture, the Fleet Boston franchise is approximately 80% of the combined Fleet and BankBoston franchises -- for the branch network and deposit levels for small business, consumer and middle market.

The purchaser of the divested branches will be required to make a substantial CRA commitment in accordance with the level of deposits acquired, and we assume they will play a significant role in the marketplace to make up the differential.

Relative to other major bank mergers, the Fleet Boston commitment will be very specific in terms of dollars and programs, and the level is consistent/slightly higher than several other major announcements (First Union / Corestates, Citicorp / Travelers) when expressed as a % of total assets.

In addition, it assumes we maintain $1.1B of existing commitments -- a small amount of this total ($50MM) will be divested, but buyer(s) will assume commitments. Also the current combined contributions level of $25MM will be maintained. This is in addition to the $14.6B.

SOME ADDITIONAL SPECIFICS OF THE COMMITMENT...

                                                                                           5 Year Total

Total Small Business Lending                                                $7.5B

    Enhanced SBA Partnership

    Conventional small business loans

     Second look platform/Co-lending

Affordable Housing - Home Ownership/Mortgages                 $4.0B

     Mortgage lending and other partnership programs for Low to Moderate Income Borrowers

     FHA/VA/FNMA/Other

      Soft second mortgages

      Low down payment and flexible mortgage products

     Women head of household initiative

      Employer assisted program for LMI employees

     Rural homebuyer credit program

     Mortgage assistance programs through organizations (e.g., AFL-CIO)

Community Development Lending/Investment and
Affordable Housing Development                                          $2.0B

Community Development Lending and Investment             $1.5B

    Neighborhood Reinvestment Corporation (NRC)

     Economic Development Lending -- urban core/neighborhood revitalization

    Fannie Mae Neighborhood Partnership Initiative

    Affordable Rental Housing Development -- construction, development and rehabilitation loans

     Community Not-for-Profit Lending

      Low Income Housing Tax Credits                                     $0.5B

Community Lending to LMI areas                                          $1.0B

   Housing Rehab Program

    Consumer Lending directed at LMI areas

Equity Investments                                                                       $100MM

Direct investments in small, minority and women owned businesses

Specialty programs and project financing

Indirect investments made the Community Development Financial Intermediaries, SBICs, and Community Development Corporations

Services and Support                                                                       $15MM

Innovative Education and Technical Assistance Programs to consumers and small business

A comprehensive community Revitalization Initiative targeted to selected LMI urban and rural communities

A commitment to maintain First Community Bank in existing markets and to explore growth

No change in Branch LMI penetration as a % of total network

Provide and promote basic banking services

Retain a focus on volunteer activities that promote community development

Promote board involvement in Community-Based organizations

Other

Federal Home Loan Bank Membership

FNB is a member, and there is no intention of changing this at this time

Once a decision is made to merge the national banks, we will review the economics/alternatives for membership

BKB is not a member today

Mass Housing Partnership (MA only) -- Negotiations in progress

Accountability

An oversight board(s) comprised of community leaders will be formed.

The board(s) will convene twice a year to receive information on the progress of Fleet Boston’s commitments.

The company will be publicly accountable for meeting all commitments, and a quarterly newsletter will be issued to the community at-large.

       A comparison of this pledge with, for example, the claims Fleet made to the Federal Reserve in its Application’s “Memorandum on Community Lending and Investment Programs,” shows that the pledge is for LESS than the two banks together do...

June 21, 1999

    The Federal Reserve Board has just announced that it is granting the requests for a public hearing on the Fleet - BankBoston merger proposal. The hearing (which the Fed calls a “public meeting”) will be held on Wednesday, July 7, at the Federal Reserve Bank of Boston.

    ICP submitted a 45-page protest and hearing request on June 7, which is summarized below. Hearing requests were also made by groups in Massachusetts, Rhode Island, New Hampshire, Connecticut and, at least indirectly, New Jersey and upstate New York.

    The Fed’s comment period on the merger, which has been set to expire on June 23, will now extend at least until July 7, and, if the past is any guide, for one week after (at least for the groups who comment, before or at the hearing, to the Fed).

   Click here to view the Fed’s press release announcing the public meeting.

June 21, 1999

    ...On the antitrust front, as to Fleet’s claim that it would sell off all of BankBoston’s operations in such markets as Hartford, Inner City Press on June 18 received the following e-mail (apparently from a BankBoston employee):

Date: 6/19/99 1:39:01 PM Eastern Daylight Time
From: jemjems@netscape.net (Jorge E. Machado)
To: FleetWatch [at] innercitypress.org

I do not know where you get your information. However you may want to check your facts regarding the so called First Community Bank unit of BankBoston's supposed move out of Connecticut which you are reporting.

Since 1994, the FCB unit has covered its Western Massachussets [sic] and Connecticut operations together with offices in Springfield, Holyoke, Worcester, Hartford and New Haven. To this day the FCB unit continues to cover these same territories with physical offices in Springfield, Holyoke, Worcester, Hartford and New Haven. If you would like to check out these facts, visit the various offices in Springfield, Holyoke, Worcester, Hartford and New Haven. The FCB unit has local people, telephones, and offices in each of these markets. Because some of the individual staff members cover multiple territories, the bank uses local telephone numbers which forward to where the individual staff member may be on that given day; hence one day in New Haven, another in Hartford, another in Springfield and so on; This makes sense from a marketing view as prospects/customers do not want to call a toll number. This is the way FCB has been doing business since 1994.

The above is being provided in the interest of providing you with accurate data and facts...

     This would seem to undermine Fleet’s claim that it is proposing a “clean sweep” divestiture in such markets as Hartford (a claim that Fleet has made to the Fed in its antitrust memo):

To: jemjems@netscape.net

     Appreciated the information you submitted. Note, however, that we haven't reported the closing (or "shut down") of FCB -- we've reported (based on sourcing we're more than comfortable with) that BankBoston and Fleet are claiming that, for example, FCB's Hartford operation is "based" in Springfield. This actually could have been reported / inferred from the public record alone: in its application to the Federal Reserve Board, Fleet claims to be making a "clean sweep" divestiture of ALL of BankBoston Corp.'s Hartford operations. Unless (as has not been reported) Fleet / BankBoston are proposing to sell off FCB, the proposed Hartford divestiture is NOT, particularly in light of your presentation, a clean sweep divestiture.

      This is the contradiction we were identifying... The merger is anticompetitive, and Fleet's mortgage lending to low- and moderate-income neighborhoods has declined dramatically since it acquire Shawmut and then NatWest. If you disagree with those two statements, would very much appreciate hearing back from you. Or with your reaction to this clarification. Will await your response.

June 17, 1999

    The Federal Reserve Board’s comment period is set to expire on June 23.  Requests for public hearings have been made from Rhode Island, Connecticut, New Hampshire, New York and Massachusetts. If the Fed is, in fact, going to hold public meetings, expect them to be announced late this week, or next Monday or Tuesday. Fed Governor Gramlich, in a speech delivered June 16 in Madison, Wisconsin, said “there is a public comment period for mergers, and in many cases a public meeting.”  So far in 1999, the Fed has not held ANY public meetings on mergers. So, until Governor Gramlich’s head is in the clouds, Fed public meetings should be expected here.

    Inner City Press has learned this week that DOJ’s bank merger review unit, while dramatically under-staffed, is nonetheless not rolling over for the Fleet-BankBoston proposal, but rather is conducting an inquiry into the issues, including automatic teller machine issues.  It has been confirmed to ICP that BankBoston’s silent shift of its First Community Bank unit from Hartford to Springfield was done to avoid having to divest the unit along with the rest of BankBoston in Hartford. While trying to retain a CRA unit is perhaps laudable, this is another example of how Fleet’s supposedly “clean sweep” divestiture proposal are not that at all.  (See ICP's June 7 comment, below).  What else is being shifted?

   Sources report that the banks have been implying to community groups that some sort of CRA pledge or "strategy" will be announced, as early as June 22.  Even then, a June 23 closing of the Fed's comment period would be absurd.  Also, since Fleet's previous pledge, the $8 billion "INCITY" program announced in 1994, did nothing to ensure that Fleet's lending to low and moderate income communities did not decrease (see analysis, below), another such pledge by Fleet would be less than credible.  Last year, Citibank and BankAmerica both made multi-year CRA pledges during the comment periods on their mergers.  But the change in leadership on the Senate Banking Committee (see ICP's CRA Reporter for analysis), and Fleet's record of antagonism, and near-meaningless prior pledge -- make this a different case.  One of the Federal Reserve's most slip-shod merger reviews to date: comments once filed are not being provided by the Fed to other commenters, and Fleet has yet to submit any substantive response.  Apparently, Fleet will try to wait to June 22, the day before the expiration of the Fed's comment period, for that as well.

June 14, 1999

     Community Reinvestment Act and fair lending challenges have been filed (see below); the “action” on the Fleet-BankBoston proposal shifts to antitrust and local politics.

     On June 9, Massachusetts Attorney General Tom Reilly announced his proposal that whatever large bank buys the branches Fleet is divesting be required to re-sell some of the branches to smaller banks. It is unclear how splitting up the divestiture package would increase the ability of the buyers to compete with Fleet. But small Massachusetts banks, like Bay State Bancorp and Plymouth Savings Bank, are grouping together to lobby for this requirement. Fleet has mailed out over 100 bid packages; executives “close to the Fleet-BankBoston merger said the Justice Department was drafting a statement describing what kinds of banks would be allow to bid for the assets.”  Boston Globe, June 11, also reporting that “regulators do not publicly discuss their thoughts or give assurances” -- for more on this, see ICP’s Federal Reserve Reporter.

June 9, 1999

    On June 7, Inner City Press / Community on the Move filed a 45-page challenge to Fleet’s applications to acquire BankBoston, with the Federal Reserve System and state banking and insurance regulators who would have to approve the merger.  ICP’s filing asks for a number of public hearings.  Below is a summary; updates will be provided weekly (at least) in this space.  (See also, ICP’s “For the Media” page).

    Since June 7, ICP has received from the Fed copies of other comments received from the public.  These include a memo reciting that a Fed staffer informed a consumer that “the substance of the comments is more important that the volume of mail we receive.”  While that may be true, it's questionable advice to the public, given that the Fed appears to decide whether or not to hold public hearings based on the number of requests received.  The Fed also provided ICP with a print out of an e-mail from a consumer, that the Fed is treating as a public comment.

    Therefore, ICP here provides the e-mail address to "send comments to the Federal Reserve Bank of Boston."   Click to send the Fed an e-mail, to <jim.mceneaney@bos.frb.org>.    Consumers, if nothing else, should e-mail him their views of the merger, and whether they think the Fed should hold public hearings.  Commenters can also send non-electronic comments to Jonathan Fine, Asst. Vice President, Federal Reserve Bank of Boston, 600 Atlantic Avenue, Boston MA 02106, or fax Mr. Fine at 617-973-3219.  The current expiration of the Fed’s comment period is June 23;  that will be extended, if the Fed agrees to hold public hearings.

 June 7, 1999:

PETITION TO DENY AND HEARING REQUEST BY INNER CITY PRESS / COMMUNITY ON THE MOVE AND THE INNER CITY PUBLIC INTEREST LAW CENTER IN OPPOSITION TO THE APPLICATIONS AND NOTICES OF FLEET FINANCIAL GROUP, INC. TO ACQUIRE BANKBOSTON CORP. AND ITS SUBSIDIARIES

JUNE 7, 1999

I. PRELIMINARY STATEMENT

     On behalf of Inner City Press/Community on the Move and its members and affiliates, including the Inner City Public Interest Law Center (collectively hereinbelow, “ICP” or the “Protestants”), this is a timely comment opposing and requesting hearings on the applications and notices of Fleet Financial Group, Inc. (“Fleet”) to acquire BankBoston Corp. and its subsidiaries (“BankBoston”).

This proposed merger, even with the divestitures proposed to date by Fleet, would have substantial anticompetitive effects not outweighed by benefit to the public. As such, under the Bank Holding Company Act (the “BHC Act”), at 12 U.S.C. §1842(c), the Federal Reserve Board (the “FRB”) cannot legitimately approve this merger. See Section II of this Comment, infra.

Furthermore, as set forth below, Fleet has a troubling fair lending and Community Reinvestment Act (“CRA”) record, militating for denial of this expansion application. Following each of its last two major bank acquisitions, that of Shawmut in 1995, and of NatWest in 1996, the combined entities’ subsequent lending to low- and moderate-income neighborhoods, to the people of color, has declined substantially. See Section III, infra.

ICP is requesting public meetings and an evidentiary hearing on this proposal.

II. THIS PROPOSED COMBINATION WOULD HAVE SUBSTANTIAL ANTICOMPETITIVE EFFECTS, NOT OUTWEIGHED IN THE PUBLIC INTEREST BY THE CONVENIENCE AND NEEDS OF THE COMMUNITY

The FRB cannot approve any proposal under Section 3 of the BHC Act which would substantially lessen competition in any banking market, unless the anticompetitive effects are clearly outweighed in the public interest by the convenience and needs of the community. 12 U.S.C. §1842(c). Convenience and needs aspects do not outweigh the anticompetitive effects of a merger, unless the gains expected cannot reasonably be expected through other means. See United States v. Third National Bank, 390 U.S. 171, 88 S.Ct. 882 (1968).

Until the mid-1999’s, there were at least four major competitors in the relevant product markets in New England: Fleet, Shawmut, BankBoston and BayBanks. In 1995, the FRB allowed Fleet to acquire Shawmut. Subsequently, BankBoston was allowed to acquire BayBanks. The trend toward lessening competition is clear. Now, in a proposal that, if approved, would culminate this anticompetitive trend, Fleet proposes to acquire BankBoston, bringing about a consolidation of the four previous competitors into a single institution. The proposal should not be approved. Even since it has been announced, it has triggered further consolidation (see, e.g., Peoples Heritage’s June 2, 1999 proposal to acquire Banknorth Group of Burlington, Vt (which has branches in New Hampshire, Massachusetts, Vermont and New York).

Trends toward lessening competition are to be cut off while incipient, before they fully ripen into monopoly power. The FRB should take note in this proceeding of the Federal Trade Commission’s seeking and obtaining an injunction against the proposed merger of Staples and Office Depot in 1996, and more recently, of the FTC’s opposition to Barnes & Noble’s proposal to acquire the Ingram Book Group. Despite the FRB’s apparent preference for larger and larger bank holding companies, there is no rational basis for failing to apply the spirit of, and analysis applicable to, section 7 of the Clayton Act to banking, an essential product and service for small business and consumers, particularly in low- and moderate-income communities.

This proposed merger would substantially lessen competition for banking products and services in numerous geographic markets.  Consider these sample markets (the insufficient mitigation that would be provided by Fleet’s proposes divestitures, many of them mis-characterized as “clean sweep” divestitures, is analyzed further below in this comment):

Fed Market            Fleet             BankBoston        Combined
or State             Share Rank         Share Rank        Share Rank

Providence           48%  1               13%   3               61%  1

Hartford               42%   1                6%    3               49%  1

Worchester MA    21%  2                29%  1                50% 1

Boston                  13%  2                 25% 1                 38% 1

Gardner MA          12% 5                  26% 1                38% 1

Rhode Island          47% 1                  12% 3                59% 1

Connecticut            26% 1                    5% 5                 30% 1

Massachusetts        13% 2                    23% 1               36% 1

    In Massachusetts, the next largest retail bank would be Citizens Financial Group, with a mere 3.89% of Massachusetts deposits. In Connecticut, the next largest bank would be People’s Mutual, with a mere 11% of the state’s deposits. It should be noted that Fleet already surpasses Rhode Island’s 30% deposit cap; as set forth below, Fleet’s mischaracterization of its divestiture proposal as a clean sweep (while in footnotes disclosing that it would retain and/or cynically relocate unspecified quantities of deposits and other business) should not be accepted by the FRB or the Department of Justice. This anticompetitive merger proposal should be denied.

Even by Fleet’s calculations, the HHI in the New Haven market would increase by fully 319 points; the HHI in the Springfield market would increase by fully 687 points, to a level over 1800. ICP maintains that divestitures would be required in these markets. As to the New Haven market, Fleet acknowledges that divestiture WOULD be required under the DOJ’s “2% test.” In attempting to downplay the trend toward loss of competition in the Springfield market, Fleet proposes to include thrifts at 100%, including thrifts with C&I Loan to Asset ratios as low as 2.38%. Fleet also attempts to rely on Peoples Heritage (which, as noted above, has since the filing of the Application announced yet another merger). Fleet seems to think that all it needs to show is the existence of one other competitor -- but that is not the case. The FRB and DOJ must consider oligopoly as well -- the trend toward loss of competition, which is clearly taking place here. Divestiture would be needed.

Fleet’s Memo and Proposed Divestiture

Throughout its Memorandum on Competitive Consideration (the “Antitrust Memo” or the “Memo”), Fleet characterizes its proposed divestiture as “the largest in the history of U.S. bank mergers,” mischaracterizes its proposed divestitures in various markets as a “clean sweep,” and implicitly predicates its presentation of future competition on the divestiture packages being sold to a single, large buyer (while Fleet’s executives have publicly expressed a preference for selling to smaller, more fragmented buyers which would not provide effective competition to this regional monopoly).

The insufficiency of Fleet’s divestiture proposal is made clear by the qualifications Fleet slips into footnotes in its proposal. For example, Fleet’s Antitrust Memo, at 3, discloses in a footnote that “Fleet’s 1997 loan origination data as originally filed with the FFIEC incorrectly included loan renewals, which had the effect of overstating Fleet’s origination volume in New England by about 59%. In the market share tables attached hereto, Fleet’s 1997 data have been restated to remove loan renewals.”

ICP contends that a number of other institutions’ 1997 FFIEC data DO include renewals -- thus, Fleet’s switch of its own data, without controlling for how other institutions have reported, has the effect of dramatically UNDER-stating Fleet’s market share. This merger is far more anticompetitive than Fleet has (misre-)presented it; the Application could not legitimately be approved.

Fleet has excluded from its divestiture proposal -- and apparently from its HHI and market share presentations -- “certain lines of business conducted predominantly at Fleet’s Boston headquarters...”. Antitrust Memo at 11. This included so-called brokered deposits acquire along with Advanta’s credit card operation (in the amount of $1.6 billion), deposits associated with unidentified corporations that Fleet characterizes as “not locally limited with respect to their access to banking services” (in the amount of $.17 billion), etc.. ICP opposes the exclusion of these deposits from the analysis, and from the divestiture.

Furthermore, even where Fleet claims to be proposing a “clean sweep” divestiture, it discloses, in footnotes, that it would be retaining a number of Fleet’s (or BankBoston’s) operations. See, e.g., Memo at 15, stating in the first footnote that “[t]he parties propose to retain certain special industry customers in Boston and other New England markets, some of which may have revenues less than $100 million.” Thus, this is NOT a “clean sweep” proposal. ICP opposes the mis-characterization and overstatement of the reality of the divestiture proposal, and reiterates that even with the current divestiture proposal, this combination would have substantial anticompetitive effects.

Where Fleet’s proposed divestiture, even cast in the light most favorable to it, exceeds thresholds of market concentration, Fleet suddenly switches to including thrifts at 100%. See, e.g., Memo at 18-19, New Bedford Market. Another market mischaracterized as “clean sweep” divestiture market is Worchester -- see Memo at 11, note 2.

Hartford is already overconcentrated (Fleet puts the HHI at 3017, see Memo at 23) -- particularly because Fleet’s so-called clean sweep divestiture proposal is in fact NOT a clean sweep (deposits would be retained, in an unspecified amount), this combination would have substantial anticompetitive effects, and must be rejected.

It seems clear that the actual proposed purchaser(s) would have to be identified for the FRB (and DOJ) to legitimately assess this proposal -- that is, before either agency reaches any final determination (other than denial) on this proposal. Furthermore, the current expiration of the comment period (June 23) will be inadequate; see Boston Herald of May 23, 1999, at 35: “Fleet officials expect bids to be returned by the end of June and to select a buyer in July or August.” While Fleet’s General Counsel’s letter to the FRS, dated May 28, 1999 and purporting to respond to ICP’s April 9 comment states that “prior to its approval of the merger, the Board will be informed of the purchasers who propose to purchase the branches,” the identities and sizes of the purchasers materially impact the competitive analysis of the proposal, and the public has a right to know and comment on this before the comment period closes. ICP hereby formally requests an extension of the comment period on this basis.

ICP also notes that the specifics of Fleet’s divestiture proposal as to middle-market lending has been redacted from Fleet’s Antitrust Memo. See Memo at 40, last to last line. This is illegitimate, particularly in light of the lack of foundation for Fleet’s other claims of “clean sweep” divestiture (see supra). At 41, the Memo reiterates its qualification to the “clean sweep” claim -- and then states that “the parties may also explore alternative middle-market divestiture structures...”. So, Fleet’s divestiture proposal is a moving target. The proposal must become fixed, and must be disclosed to the public, before the comment period can close.

* * *

III. FLEET HAS REDUCED LENDING TO LOW- AND MODERATE-INCOME CONSUMERS AFTER EACH OF ITS PREVIOUS MERGERS;  FLEET MAINTAINS A TROUBLING FAIR LENDING RECORD;  THE MERGER SHOULD BE DENIED ON THESE BASES AS WELL

     Fleet is a bank with a troubled history of discriminatory lending. For example, in May 1996, Fleet settled discrimination charges with the U.S. Department of Justice, that it systematically overcharged minorities from its two New York City-area mortgage offices. See, e.g., Newsday, May 8, 1996, Mortgage Bias: Fleet Agrees to Refund $3.8 Million. See also United States v. Fleet Mortgage Corp., Complaint prepared for U.S. District Court for the Eastern District of New York, May 7, 1996.

ICP contends, and substantiates hereinbelow, that Fleet’s record has not improved. ICP’s analysis will begin with New York, then expand to Fleet’s lending nationwide. Then, particularly pertinent to this merger proposal, ICP will analyze how Fleet has reduced lending to low- and moderate-income neighborhoods and people of color after each of its previous two acquisitions, of Shawmut in 1995 and of NatWest in 1996. In light of the analysis below, ICP asks for public hearings on this merger proposal, and asks that the application be denied.

ICP has monitored Fleet’s mortgage lending in New York (and elsewhere, see infra) for some time, and has found little to no improvement. For example, in the New York City Metropolitan Statistical Area (“MSA”) in 1997, for home improvement loans, Fleet Bank, N.A. (NJ) denied 74% of applications from African Americans and Latinos, versus only 44% of applications from whites. Fleet Bank, N.A. (NJ)’s disparities on Long Island were similar.

Fleet also lent in the area in 1997 through “Fleet Home Equity (USA)” -- which, for home improvement loans in the New York City MSA, denied every single one of the eleven applications it received from Latino applicants.

In the Long Island MSA in 1997, Fleet Real Estate Funding, for mortgage refinance loans, denied 31% of applications from African Americans, versus only 14% of applications from whites, for a 2.21 denial rate disparity -- much worse than the industry average in this MSA.

Fleet Real Estate Funding Corporation (“FREF”) was one of the entities charged with discrimination by the Justice Department in the above-cited case (see Complaint at 1: “Fleet Mortgage Corp. is the successor to Fleet Real Estate Funding Corporation, the name under which the defendant did business during the occurrence of the events described in this Complaint”). A review of FREF’s nationwide lending in 1997 reveals continuing racial disparities. For example, for conventional home purchase loans in 1997:

In the Philadelphia MSA, Fleet Real Estate Funding Corp. denied 35% of the applications it received from African Americans, 20% of the applications it received from Latinos, and only 5.2% of the applications it received from whites. FREF’s denial rate disparity between African Americans and whites was 6.73; between Latinos and whites it was 3.85, both much higher than industry averages in this MSA.  [snip - contact ICP for more recent data]

IV. Other Adverse Issues Which the FRB Should Consider

    Beyond the adverse fair lending and CRA issues analyzed above, their are other adverse managerial / financial issues at Fleet (and/or concerning this proposed merger) which the FRB must consider.

BankBoston’s CEO’s obvious focus, in agreeing to this merger, to maintaining his own position, has raised concerns including among the banks’ own executives. Even the retired vice chairman of BayBanks, Donald Isaacs, has questioned this highly unusual (and unnecessary, if the requisite managerial resources are there) arrangement. See, e.g., Boston Globe of April 23, 1999, at E1. As to BankBoston’s CEO’s inappropriate focus on his own prospects, see The Boston Globe of March 26, 1999, at E1.

Fleet’s chief technology officer is resigning, and leaving the bank right before January 1, 2000. Fleet confines its discussion of how this would affect its Y2K readiness to a confidential exhibit -- this exhibit should be made public.

While the FRB often states that job loss (and/or diversity in banks’ work forces) are not factors that the Board can consider, the Board should take note of the fact that the layoffs this anticompetitive combination would cause would adversely affect the regional economy. See, e.g., the Providence Journal-Bulletin of April 14, at 1F: “Fleet said... that an estimated 5,000 jobs throughout the combined companies are expected to be eliminated after the merger... even if all 600 of BankBoston’s branch employees land jobs at a new bank, and another 400 who work in telebanking get hired by the new Fleet Boston, that still leaves roughly 870 BankBoston employees [in Rhode Island] whose fate is uncertain, according to [Dennis] Moore,” a BankBoston spokesman.

Also, for the record, see Reuters news wire of March 31, 1999, Eleven Jobs, No Women: Merger Highlights Gender Gap: “Of 11 top executive posts assigned by the combined bank so far, every single one has done to a white male.” Given the Fed Governors’ and Chairman’s participation in and statements at recent conferences about increasing diversity in the financial services sector, ICP questions whether the FRB’s “hands off” policy should continue. Diversity in the upper echelons of management can be related to, for example, fair lending (see supra for an analysis of Fleet’s ongoing fair lending problems). This reality also contrasts to the claims Fleet makes in its “Memorandum on Community Lending and Investment Programs,” at 13 (“Programs Specifically Targeted Toward Women,” see supra).

V. The Federal Reserve System’s Consideration and Processing to Date of this Proposal Has Been Flawed

...The FRS has conducted private meetings with the Applicants without providing the public or protestants notice of such meetings nor the opportunity to attend.

...ICP contends that no amount of bank-solicited comments in support, or FRB nose-counting, can rebut Fleet’s demonstrated record of decreasing lending to low- and moderate-income neighborhoods and to people of color after its two previous mergers. This Application should be denied.

CONCLUSION

For the reasons set forth above, the FRB should forthwith schedule the hearings requested above. On the current record, the FRB must deny this proposal.

Respectfully submitted,

_________________
Matthew Lee, Esq.
Executive Director
Inner City Press/Community on the Move

    NOTE:  For or with more information, contact us.

May 31, 1999

    In the past week, community groups from Rhode Island and New Hampshire have asked the Fed for public hearings and extensions of the comment period, and legislators in Massachusetts have held their own first public hearing, in a gymnasium in Roxbury.

    Fleet, through its proposed new Community Reinvestment Act (CRA) officer, Gail Snowden of BankBoston, has told groups in New Jersey, Massachusetts and upstate New York that the bank will not be making any CRA commitments. Fleet seems to have either changed its CRA strategy in the past year, or to have been emboldened by Senator Phil Gramm’s (R-TX) attacks on the CRA, or both. Fleet has entered into a number of CRA agreements since 1991, including a 1994 agreement that Sen. Gramm on May 6 displayed on an easel on the Senate floor, as an example of extortion. It seems clear that Fleet itself gave the agreement to Senator Gramm. Strange for a multi-billion dollar institution to sign an agreement with a community group, then claim it was extorted.

    What has become clear is that Fleet’s lending in low- and moderate-income communities, and to people of color, has declined after both of its recent mergers: Shawmut in 1995, and NatWest (in New York and New Jersey) in 1996. Joint analysis by community groups in the affected states has found, for example, that:

--In New York State, Fleet’s, Shawmut’s and NatWest’s combined home purchase lending declined 76% in low- and moderate-income census tracts from 1995 to 1997 (from 1,146 such loans in 1995, to only 268 such loans in 1997).

--In the Nashua, New Hampshire Metropolitan Statistical Area, Fleet, Shawmut, BayBanks and BankBoston’s home purchase lending to low- and moderate-income borrowers declined from 91 in 1994 to only nine in 1997. (Analysis courtesy of Granite State CRA, Concord).

     Fleet’s and BankBoston’s attempted defense is that there has been a proliferation of mortgage companies, “they are cutting into everyone’s business.” Manchester, N.H. Union Leader of May 27, quoting spokesmen for Fleet and BankBoston.

     But not only has Fleet’s and BankBoston’s volume of lending gone down -- their lending to people of color compares unfavorably to the industry as a whole. For example:

--In Connecticut, home mortgage lending to Hispanics by Fleet, Shawmut, BankBoston and BayBank declined 51% from 1995 to 1997, while the rest of the industry’s combined lending to Hispanics increased 15% in this time frame. And see below on this page, for data on Fleet’s denial rate disparities to African Americans and Hispanics, in New York and elsewhere.

    So the data is flying. The Federal Reserve Board’s comment period extends until at least June 23. If the Fed agrees to hold public hearing (which it should, if it follows its own Bank One and Wells Fargo precedents of 1998, and Governor Gramlich’s statement, set forth below), the comment period will be further extended. The Fed’s web page promises that copies of applications will be provided three days after a request; in this case, however, the Fed has delayed responding to requests for up to ten days (and counting). That may be another ground on which the comment period will have to be extended.

     Under veils of secrecy, Fleet has two New York-based investment firms circulating bid packages for the 292 branches it proposes to sell off. While consumer groups are arguing that more branches would have to be sold (and Fed precedents provide support for these arguments, see below), the Fed has conducted its meetings on antitrust with the banks in complete secrecy, and the Department of Justice is not, to date, conducting meaningful outreach to affected small businesses and consumers. And so, to increase sunshine and public participation, here are the telephone numbers of the DOJ staffers who are reviewing Fleet’s proposed anticompetitive merger:

Ms. Erin Grace: (t) 202-307-1052
Mr. Richard Gebbert (t) 202-307-5783

     The public is encouraged to let DOJ know its views on this merger.

     The investment firm Fleet has chosen to collect bids for its Massachusetts and Connecticut branches, Credit Suisse First Boston, recently admitted to misleading Japanese securities regulators, and faces the stripping of its licenses in that country. But here in the U.S., the beat goes on.

     The number of public comments the Fed is receiving already equals or surpasses those the Fed received on mergers by Bank One and Wells Fargo in 1998, both of which the Fed held public meetings on. Unless the Fed has silently changed its standards in 1999, Fed public hearings on Fleet-BankBoston should be expected. ICP has also recently received from the Fed transcripts of the meetings of the Fed’s Consumer Advisory Council (see ICP’s CRA Reporter for an analysis). As is relevant here, at the next to last meeting, Governor Gramlich told the Council:

“We like the public meetings, and we plan to keep having them. There’s always a question of how many people who want to talk at these public meetings is enough to call the meeting, but we’ve been deciding that in a very liberal way, and I think we’ll keep doing that. This is, if there’s a relatively few number of people that want to talk, then we have it because we think that things come out at the public meetings that we might not hear otherwise, and we just like to get all the information we can on these mergers. We do try to go behind the CRA ratings and ask questions, what they mean, because very often there’s conflicting evidence on some of these mergers, and we try to get into that....”

     Going behind the CRA ratings will be particularly important as to Fleet, given its recent downgrades from Outstanding to merely “Satisfactory” ratings, and the steep decline in community lending after it acquire Shawmut and NatWest. So now we’ll see if Governor Gramlich meant what he said...

   The Boston Globe of May 20 reported that as of that date, the Fed had received only eight protests to the proposals. The figure was apparently based off the “public file” made available by the Fed. The Fed generally lags in updating its public file -- but in any event, most community and consumers’ groups wait until an application is actually filed before commenting on it.

    Fleet, by its Community Reinvestment Act officer Agnes Bundy-Scanlon (who would be second in comment, to Gail Snowden, in the proposed combined bank) has been traveling to meet with, and perhaps mollify, groups in at least four states. Sources tell ICP that Ms. Bundy has been emphasizing that Fleet will not make any commitments outside of areas where Fleet and BankBoston overlap; in upstate New York, Ms. Bundy has refused to meet with coalitions of groups, preferring to “deal with” the groups one-on-one. It’s worth noting that, where Fleet bought Shawmut and NatWest in 1995 and 1996, Fleet has decreased the total CRA-relevant lending the combined banks used to do. For example in New Jersey, NatWest and Fleet combined in 1995 to make 1,482 mortgage loans to low- and moderate-income (LMI) borrowers. In full year 1997, after Fleet had acquired NatWest in 1996, the figure declined to 902 -- a drop of 42.6%. Loans to African Americans declined 38.6%; loans to Latinos declined 44.1%. Loans in LMI census tracts declined 51.3%. ICP is preparing a similar analysis for New York and other states, for submission to the Fed in support of the public hearing requests.

May 19, 1999

    Fleet has now filed its merger application with the Federal Reserve Board. The application was filed late Monday. By close of business Tuesday, the Fed had no yet published notice of the application on its web site. Newspaper notices were published on May 14. The thirty-day (minimum) comment period will begin when notice is placed in the Federal Register.

     Reportedly, Fleet’s application proposes an even lower level of divestiture than Fleet projected earlier in the process, prior to meeting with the Federal Reserve (see below, review of documents ICP has obtained under the Freedom of Information Act). While earlier Fleet had projected selling off $13 billion in deposits and $5 billion in loans, the application reported cuts both numbers, to $12.5 billion and $1.97 billion, respectively. BankBoston’s spokeswoman says, “There will still probably be changes because of the bank-and-forth process.”

     A major question is whether this “back-and-forth process” will, as it should, be public. The Fed has met with Fleet about these antitrust issues, before publishing any notice, before receiving any detailed comments from the public. The Fed refused to release any part of Fleet’s antitrust proposal in response to a FOIA request, claiming that this proposal is in the “control” of the Justice Department, even though Fed officials already have it and are considering it. The goal appears to be to keep the public in the dark as far into the comment period as possible -- perhaps all the way through the comment period. ICP is appealing the Fed’s withholding of documents, including notes taken at the Fed’s meeting(s) with Fleet, and will be providing updates in this space.

* * *

May 17, 1999

     Fleet has still not submitted its required applications for its proposed merger with BankBoston to the Federal Reserve Board. The Fed’s May 14 list of applications received contained no Fleet - BankBoston notice.

     Late on May 14, the Fed finally provided some documents responsive to Inner City Press’ April 9 Freedom of Information Act request concerning the Fed’s communications with Fleet about the merger. One of the documents provided was a two-page memo entitled “Minutes of Meeting,” of a March 24 closed-door get-together between Fed staff, the banks and their lawyers.

    This meeting was held at the Federal Reserve Bank of Boston, in the “T-10 Small Conference Room.” The memo states that the meeting was “requested by Fleet.” Attendees for the banks were: Drew Pfirrman of Fleet, Bill Parent and Robert Klivans of BankBoston, and a slew of lawyers. From Wachtell, Lipton, David Neill and Cynthia Nickerson attended. For Edwards & Angell, Duncan Johnson and Lauren Mogensen were there, along with John Danforth of Danforth & Company.

     The meeting was kicked off by David Neill, who has repeatedly appeared before the Fed and Department of Justice on bank antitrust matters. According to the summary minutes, Mr. Neill presented in this closed-door meeting “the process that [Fleet] would use to select the branches that it would target for divestiture in each specific banking market and described how the branches would be packaged for potential buyers... the timing of the divestitures was discussed.”

     No further information has been made public by the Fed, which has withheld from ICP all other notes taken at this meeting. The American Banker of May 17 reports that BankAmerica, First Union and KeyCorp are the most likely out-of-state bidders. (KeyCorp, meanwhile, is reported to be a take-over target of National City, also of Cleveland). Smaller regional banks, like Hudson United (confirmed), Summit, Citizens and Peoples (all “no comment”) are also in the mix.

    The next presenter at the meeting was Bill Parent of BankBoston, explaining why, “in spite of the anticipated significant divestitures... the proposed transaction makes sense.”

     An unidentified speaker stated that “an application... is expected to be filed with the [Federal Reserve] System within four to five weeks.”

    This meeting took place seven weeks ago, and, to date, no such application has been filed. One might surmise that Fleet’s negotiations of antitrust issues with the Department of Justice are going more slowly than expected, or that Fleet has decided to try to get off the record approvals from the DOJ (and perhaps the Fed) prior to even applying.

     Next, Duncan Johnson of Edwards & Angell (Fleet’s long-time outside counsel) “inquired about the likelihood of the System requiring public meetings in connection with the proposed application.” Here is the Fed’s cursory summary of its response:

...the Federal Reserve System does not regard public meetings as a routine part of the application process and clearly favors written comments. However, given the magnitude of the transaction and the public interest, there is a possibility that public meetings may be required. The need for public meetings will be determined by the Board of Governors... with input from this Reserve Bank, after notice of the transaction has been published and the System begins to receive written comments from the public.”

    Seven weeks after this closed-door meeting (of which no notice was provided to the public, and from which most documents are being withheld), Fleet has yet to file its application.

May 10, 1999

   Nearly two months after Fleet’s announcement of its proposed acquisition of BankBoston, Fleet has yet to submit its required application for regulatory approval to the Federal Reserve. It will be the filing of that application that will trigger the ability of the public to comment against (or, more paradoxically, for) the proposed merger. Fleet appears to want to finagle Justice Department, Congressional and even Federal Reserve support or approval for its merger, before the public can even review the proposal and comment on it.

   On May 6, Fleet and BankBoston officials traveled to Washington and met with the Massachusetts Congressional delegation. “We thought it was respectful,” said Ira Jackson, BankBoston’s chief of governmental affairs. It is unclear is similar “respect” has been paid to official in Rhode Island and Hartford, where the merger’s effects would be even worse than in Massachusetts. This is particularly true given that Fleet’s record of lending in low- and moderate income communities, and to people of color, is much worse in the states outside of Massachusetts.   See Rhode Island analysis, two paragraphs down, and New York analysis, further below.

    Fleet’s impact in Washington last week was not limited to its visit with the Massachusetts Congressional delegation. On the Senate floor on May 5, during a debate of Texas Senator Gramm’s anti-Community Reinvestment Act amendments, Gramm placed on an easel a portion of a CRA agreement that he characterized as “extortion.” It is clear that this agreement was provided to Gramm by Fleet, and thus, that Fleet has joined Gramm’s anti-CRA crusade.  See Boston Globe of May 6, at C7, confirming that the sample agreement involving payment of 2.75 percent of each loan to “a nongovermental agency” was a Fleet agreement. Gramm introduced the agreement fragments as having been “obtained on the condition that we not disclose the name of the bank or community group involved.” 145 Cong. Rec. S. 4756. As to at least one of the three agreements that Gramm presented, this was patently false: the First Union National Bank “public policy partnership” agreement is available, unredacted, on the Internet (ICP’s CRA Reporter has a link). The 2.75 percent fee agreement, however, could only have been obtained under these conditions from Fleet Bank. Fleet is imminently going to file with the Fed and other regulators its application to acquire BankBoston.  Does Fleet think that its alliance with Gramm will make community groups think twice before challenging its applications, despite Fleet’s still-troubled fair lending record? And what of the wisdom of Fleet handing over to Gramm for display this fee agreement -- despite the questions of Fleet’s compliance with the Real Estate Settlement Procedures Act that it raises? We shall see...

    Finally, on this pre-application roundup, the Boston Herald of May 7 reported that “Gail Snowden, Roxbury native and longtime BankBoston community lending ambassador, beats Fleet’s Agnes Bundy [Scanlon] for top community banking job.”  This was confirmed by Fleet's press release of appointments on May 10. One might now expect Fleet / BankBoston to reconsider and reverse its anti-CRA positions and document provision (see above). Or is this, like some aspects of President Clinton’s Serbian campaign, one of the freedoms of a lame duck?

May 3, 1999

   Fleet has not yet filed its merger applications with the Federal Reserve and state regulators. Meanwhile, the exodus of apparently redundant (or angered) executives continues. BankBoston’s pointman for external affairs, Ira Jackson, was among the first to pull the rip cord of his golden parachute, while saying that Fleet’s John Hamill would take over most of his duties in the community. Then on April 29, Mr. Hamill signaled his departure by the end of the year. Boston’s Mayor Tom Menino said, “we now have a void at this crucial time.” The next day, Fleet’s vice chairman and chief technology officer Mike Zucchini said he too will leave by the end of the year, to raise horses in California. Does he know something about “Y2K,” the millennium computer bug, that we don’t? Can’t bode well for the banks’ computer integration... Meanwhile, the Pensacola General Pension Retirement Fund has placed a “watch” on its relationship with BankBoston, indicating this may soon be terminated. The consultant manager to two other retirement systems, in Plymouth and Worchester Counties, Joseph O’Reilly, has said his clients are nervous: “This is the second or third generation of mergers Fleet has gone through in the past few years. They acquired Bank of New England in 1995, and the acquisition of Shawmut Bank in 199 wasn’t handled very well.”

    On the antitrust front, the Massachusetts Bankers Association states that it has been told by the Justice Department that, even if an acceptable level of divestiture can be reached, Fleet Boston would be precluded from a practice that the Fed has often accepted (for example, in the NationsBank-Boatmens Bank merger of 1997): covenants that the spaces in which the banks close branches cannot be leased or sold to other banks, for branching. DOJ refuses to comment. In fact, ICP questions the propriety of the DOJ beginning its formal review before the public has seen any document about Fleet’s divestiture proposal, which must be included in Fleet’s merger application, not yet filed.

    Data continue to mount reflecting Fleet’s questionable CRA and fair lending record. Fleet’s combined mortgage lenders in 1997 in the state of Connecticut, for owner-occupied conventional mortgages, denied over 50% of applications from African Americans, versus the whole industry’s denial rate of 28.4% for African Americans in this state. Using the same analysis for Rhode Island, Fleet’s combined lenders had a 52.6% denial rate for African-Americans, versus an industry average of 32.8%. As analyzed in more detail below on this page, in New York State, Fleet’s combined lenders’ denial rate for African Americans was 51%, versus an industry average of 35.7%. Analyses by income of census tract, and in the many of states where Fleet lenders -- are being prepared.

    Against this backdrop, Fleet’s Community Reinvestment Act roadshow is underway. Like a circus (or, more surreally, a Marilyn Manson concert), it’s hitting all the big New England cities, before deigning to deal with Fleet’s other underserved communities. Recent itinerary: Rhode Island on April 28 and April 30; in between, a pit stop in Connecticut on April 29. At the first Rhode Island meeting, Fleet demanded that the RI community groups restrict attendees to only three. The demand was ignored, and the meeting proceeded. It’s said that Fleet not returning the mail of New Hampshire groups; meetings in New Jersey and New York have been pushed back.

   Meanwhile, the junk mail flies. Here’s excerpts from Fleet’s generic letter:

Dear X:

One common theme of the many discussions we held prior to our announcement of Fleet’s and BankBoston’s agreement to merge was our desire that the combined company build on our traditions of strong community involvement. To accomplish this goal, we want to continue to work in partnership with the communities and neighborhoods we serve.

Together we have assembled a team of Fleet and BankBoston community development professionals and asked them to hold a series of neighborhood meetings over the next few weeks to discuss directly with you how best to move forward with the community development programs, initiatives and strategies of both institutions. We will then work with our team to formulate a strategy for the new company, Fleet Boston Corporation, that will best serve our customers and the communities of which we are a part.

The proposed merger of Fleet and BankBoston represents a momentous event in New England banking. By joining together, we preserve a major financial services company headquartered in Boston that is attuned not only to the regional economy, but to community needs as well. The power of our new company will give us the opportunity to engage and lead our communities.

We respect and share your dedication to the community in which you live and work, and we know that the information and suggestions you provide to our representatives will assist us in establishing a focused community development strategy for Fleet Boston Corporation....

Sincerely,

Terry Murray                   Chad Gifford
Chairman and CEO         Chairman and CEO
Fleet Financial Group       Bank Boston

    ICP note: sources in more than one state who have attended these staged Fleet meetings have come away with the impression that Fleet may be preparing the type of unilateral CRA mega-pledge that BankAmerica and Citigroup announced last year. The purpose of Fleet’s by-invitation-only meetings may be to claim that a non-binding pledge that Fleet announces responds directly to what Fleet has heard. It is unclear if such a pledge would address or improve Fleet’s disparate fair lending record, sketched above. It also cannot be missed that Phil Gramm (R-TX), Chairman of the Senate Banking Committee who is currently attacking the CRA, cites unilateral mega-pledge figures in support of his claim that CRA is “out of control.”

    Finally, along this line, while Senator Phil Gramm (R-TX) prepares for this week's Senate debate an amendment that would require disclosure of all Community Reinvestment Act agreements between banks and community groups, rumors are swirling that Gramm intends to use agreements between the Neighborhood Assistance Corporation of America (NACA) and Fleet as his lead example of alleged “extortion” in the CRA process. Reportedly, Fleet’s agreement with NACA provided for $1.1 million in funding for NACA, and two or three percent fees on every Fleet mortgage processed by NACA.

   Some point out that NACA is providing a service to Fleet, and negotiated its fees at arms length, in a private agreement that Republican ideology would say should not be questioned by the government. Others point out that NACA’s other agreements, with First Union and NationsBank, had nothing to do with the CRA process, in that NACA never filed comments with regulators opposing either of these two banks.  How Fleet would fare (or participate) in such a Gramm campaign -- is still unclear, as is whether Fleet itself provided a copy of its agreement with NACA to Gramm's staff.  Developing...  This special Inner City Press section will grow more quickly once Fleet files its actual merger applications, which ICP has already requested.  

April 26, 1999

    Fleet has said that its supporters are preparing to testify in its favor to the Federal Reserve, once Fleet submits its application to acquire BankBoston. Since the application’s not yet filed, (and since ex-BankBoston officials Donald Isaacs and William Crozier are already questioning the deal), it’s worth reviewing the roster of Fleet’s supporters (and detractors) when Fleet applied to acquire Shawmut, in 1995. The lists below are from the Federal Reserve’s memoranda on that merger:

BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM

To: Board of Governors

From: Legal Division (Messrs. Alvarez and Frierson and Ms. Robinson)

The attached memorandum provides a brief overview of the issues raised by the public comments, both in writing and at the public meetings, received to date on Fleet's application to acquire Shawmut... The Board has received comments from approximately 278 commenters on the proposal by Fleet Financial Group, Inc., to acquire Shawmut National Corporation.

Approximately 167 commenters generally supported the proposed merger or commented favorably on the Community Reinvestment Act ("CRA") performance of Fleet or Shawmut. n2

n2 These commenters included: (1) Massachusetts -- Boston Chamber of Neighborhood Commerce; Urban Edge (Massachusetts community development corporation); Worcester Community Housing Resources, Inc.; the Community Builders; and U.S. Representative Richard E. Neal; (2) Connecticut -- Urban League (Hartford and Springfield); Connecticut Minority Purchasing Council, Inc.; and Hartford Economic Development Corporation; (3) New York -- New York State Association of Black Women-Owned Enterprises, Inc.; Community Alliance of Black Ministers (Rochester); Orange County Rural Development Advisory Corp.; Long Island Housing Partnership, Inc.; and U.S. Representatives Gary L. Ackerman, Edolphus Towns, and Maurice D. Hinchey; (4) Rhode Island -- Local Initiatives Support Corporation; Olneyville Housing Corporation; U.S. Senators John H. Chaffee and Claiborne Pell; and U.S. Representatives Patrick J. Kennedy and Jack Reed; and (5) New Hampshire -- New Hampshire Business Development Corporation; Manchester Neighborhood Housing Services, Inc.; and Greater Nashua New Hampshire Center for Economic Development. The National Puerto Rican Coalition, United Way of Southeastern New England, and the Maine Housing Investment Fund also supported the proposal.

Approximately 111 commenters generally opposed the proposed merger or raised concerns regarding (1) the CRA performance of Fleet and/or Shawmut, (2) the competitive effects of the merger, (3) managerial issues relating to Fleet or Shawmut, (4) financial issues concerning Fleet, and (5) other matters relating to employment practices and potential job losses... Many commenters expressed concerns about aspects of the CRA performance records of Fleet and Shawmut in Massachusetts, Connecticut, New York, Rhode Island, and New Hampshire. n3

n3 These commenters included: (1) Massachusetts -- ACORN (Massachusetts); Massachusetts Association of Community Development Corporations; Massachusetts Affordable Housing Alliance; Central Massachusetts Housing Alliance; Worcester Common Ground; City of Somerville Office of Housing and Community Development; City Life/Vida Urbana (community organization serving Latinos); and U.S. Representative Joseph P. Kennedy II and State Senator Dianne Wilkerson; (2) Connecticut -- Bank on Hartford Campaign (coalition of small businesses and community organizations); Connecticut Urban Reinvestment Endowment, Inc.; Hartford Economic Development Corp.; and Denise L. Nappier, Treasurer of the City of Hartford; (3) New York -- New York State Reinvestment Alliance (statewide coalition of community groups); Inner City Press/Community on the Move (community organization based in South Bronx); Yucahu, Inc. (nonprofit organization serving East Harlem); New York Citizens Action; and Coalition for Community Reinvestment (Ithaca); (4) Rhode Island -- Rhode Island Community Reinvestment Association; and Family Housing Development Corporation; (5) New Hampshire -- New Hampshire Community Reinvestment Association; and state representative C.M. Wheeler; and (6) Michigan -- Washtenaw County Council on Aging. Several individuals also discussed their specific experiences in attempting to obtain credit or other services from Fleet or Shawmut.

   It appears clear that Fleet will re-request the support of the groups which supported it in 1995; what will be more interesting is which of the groups who raised questions about Fleet in 1995 -- may now support Fleet in 1999, and on what basis.

     Meanwhile, as more fully reported in ICP’s Federal Reserve and CRA Reporters. the General Accounting Office’s inquiry into the Federal Reserve’s treatment of CRA in mergers is ongoing, and now focuses on six mergers, including Fleet-Shawmut.

   GAO staffers have gone over the various memoranda underlying the Board’s approval of each of these mergers, and have met with the FRB’s Community and Consumer Affairs staff. Questions remain. For example:

   When the Board approved the Fleet - Shawmut merger in late 1995, it required Fleet to submit quarterly reports about its branch closing decisions for eighteen months. In April 1996, during the Board’s consideration of Fleet’s next acquisition application, to acquire NatWest in New York and New Jersey, ICP requested Fleet’s first quarterly report on its Shawmut-related branch closings. These reports showed that Fleet, while it claims to conduct outreach to community groups before making branch closing decisions, did not contact groups who had explicitly commented against specific branch closings during the 1995 Fleet-Shawmut merger. Fleet only contacted groups which had supported its Shawmut merger. Not surprisingly, these groups did not express opposition to the branch closings that followed the merger.

   Since this “quarterly report on branch closings” is one of the few CRA-related conditions the Fed imposes on its merger approvals (for example, the Fed also imposed this condition on its NationsBank-Boatmens approval in late 1997), the Fed’s failure to follow up on these reports, or to set any substantive or procedural standards, is more than a little troubling.

    Meanwhile, Fleet’s CRA “messenger” Agnes Bundy Scanlon states that she has set up 100 meetings with community groups in the next thirty days. See Fleet’s Messenger, Boston Business Journal, April 12, 1999, in which Ms. Bundy Scanlon states, “These have been many comments in the newspapers, many comments on the Internet. I am specifically interested in meeting with the community groups themselves and hearing what they have to say.”

   This appears debatable. Already, it is reported that prior to Fleet’s meeting with primarily government-sponsored development groups in one New England state, Ms. Bundy Scanlon slipped out the back prior to the meeting. Advocates who asked Fleet to meeting with a number of groups at the same time were told that Fleet prefers to meet with groups one-on-one. The goal being...

    (Tellingly, the above-cited article reports that “Scanlon acknowledges that Fleet had some problems with questionable lending practices in the past, especially in the New York area.” As will be documented to the regulators (and in this space) as the process unfolds, these problem continue.  Meanwhile, Fleet has indicated that meeting with groups in areas where Fleet but not BankBoston is large will be put back).

   What promises to be particularly interesting is how Fleet’s outreach will relate to Senator Gramm’s recent proposal to criminalize any trading of commitments beyond arms’ length loans in exchange for positive testimony to Federal regulators. (Click here for background, in ICP’s CRA Reporter).

   While at bottom Gramm’s proposal intends to target activist groups which oppose mergers, as written it would more clearly criminalize pro-bank witnesses at the public hearings that are likely on this merger. The above-cited article ends with Ms. Bundy’s quote that “[w]hen we have the public comment period we will hear from our supporters in the community -- and there are supporters.” Yes, we will hear... To be updated.

* * *

April 12, 1999

     Fleet has yet to submit its merger application to the Federal Reserve Board; apparently, Fleet wants to gain momentum in the public relations war before starting the formal process. Fleet flak James Mahoney claims that “[i]n the next thirty days, we expect to meet with close to 100 organizations, ranging from the Federal Home Loan Bank and Fannie Mae, to community development corporations and other community groups.” Boston Herald, 4/7/99 at 27. Meanwhile, Fleet tries to make its low-ball divestiture proposal appear as painful as possible, including $13 billion in deposits and $5 billion in loans. Given that a combined Fleet-BankBoston would control 60% of the deposits in both Rhode Island and Connecticut, Fleet’s sell off proposal is laughably low. ICP has already requested the application and all related documents from the Fed, to be made available as soon as the application is filed. In the interim, ICP has continued to analyze Fleet’s mortgage lending record.   [snip - contact ICP for more recent data]

* * * *

March 23, 1999

    Opposition begins to mount to Fleet’s proposed acquisition of BankBoston. Beyond the Community Reinvestment Act and fair lending issues described below, the basis for this opposition includes the starkly anti-competitive nature of the proposed merger. Here are sample markets:

Fed Market            Fleet             BankBoston        Combined
or State             Share Rank         Share Rank        Share Rank

Providence           48%  1               13%   3               61%  1

Hartford               42%   1                6%    3               49%  1

Worchester MA    21%  2                29%  1                50% 1

Boston                  13%  2                 25% 1                 38% 1

Gardner MA          12% 5                  26% 1                38% 1

Rhode Island          47% 1                  12% 3                59% 1

Connecticut            26% 1                    5% 5                 30% 1

Massachusetts        13% 2                    23% 1               36% 1

     In Massachusetts, the next largest retail bank would be Citizens Financial Group, with a mere 3.89% of Massachusetts deposits. In Connecticut, the next largest bank would be People’s Mutual, with a mere 11% of the state’s deposits.

    On March 18, 1999, eight Massachusetts Congressional representatives wrote to the banks and regulators, urging that branches that would have to be divested should be sold to small, Massachusetts-based banks. Connecticut’s Banking Department is not even sure they can or will require an application in connection with the merger. The reflected the defeat of Federalism by the inter-state banking laws, the national bank charter and the OCC’s interpretations. Fleet continues to maintain, for example, that it can impose ATM surcharges in Connecticut, regardless of Connecticut law. Fleet was also among the first banks in New York State to impose ATM surcharges; now 72% of ATMs in New York impose surcharges.

    During the public process that will begin when Fleet files its application for the various approval it would need, Fleet is sure to point at its CRA ratings (which, notably, has been downgraded recently in New York and New Jersey). How the anticipated and needed local opposition to this merger will play into Senator Gramm’s anti-CRA campaign in the Senate is not yet clear. An expectation is growing that Fleet will, whether publicly or behind the scenes, become even more of a Gramm ally than in the past.

    Here are sample public statements by Fleet’s CRA chief, Agnes Bundy Scanlon:

   “‘The whole purpose of the rewrite was to reduce paperwork and documentation, but regulators have now come back and said you need to have more documentation and paperwork,’ said Agnes Bundy Scanlon, managing director of corporate community development at Fleet Financial Group. ‘It doesn’t make sense.’” Bankers Say Revised CRA Exams Are Still A Pain, American Banker, February 19, 1999, at 1.

“‘If they would have provided better instructions and allowed more time to tweak things, then we would have had better data,’ said Agnes Bundy Scanlon, managing director at Fleet Financial Group. ‘It is wrong for the regulators to slap us on the face when we are going through hell trying to get this data out.’” OCC Chides Banks For Faulty Business-Loan Data, American Banker, October 21, 1998.

“‘I have just gotten through an exam by the Office of the Comptroller of the Currency, and let me tell you, the regulators are in full enforcement mode,’ said Agnes Bundy Scanlon... ‘We spent thousands of hours on this with the regulators.’” American Banker, August 7, 1998, at 1. [Note that Fleet’s CRA rating in New York and New Jersey was downgraded by the OCC].

“Fleet’s direct-mail lending effort, which will begin next month, is already drawing fire... The pitch: ‘Simply your monthly shopping bill... spruce up your house,’ said Fleet senior vice president Agnes Bundy Scanlon. She said Fleet hopes to keep the interest rate for the loan ‘under 14 percent’...”. Boston Globe, November 5, 1997, at C2, emphasis added.

    It was high-interest rate lending that got Fleet into trouble, with state attorney generals, in the early 90s; it was overages that got Fleet sued by the Department of Justice for discrimination in 1996; and now... Updates forthcoming.

* * * *

March 14, 1999

     Fleet Financial has just announced its proposal to acquire and merge with BankBoston, for $16 billion.

    Fleet is a bank with a troubled history of discriminatory lending. For example, in May 1996, Fleet settled discrimination charges with the U.S. Department of Justice, that it systematically overcharged minorities from its two New York City-area mortgage offices. See, e.g., Newsday, May 8, 1996, Mortgage Bias: Fleet Agrees to Refund $3.8 Million.

    Inner City Press has monitored Fleet’s mortgage lending for some time, and has found little to no improvement. For example, in the Long Island, New York, Metropolitan Statistical Area in 1997, Fleet Real Estate Funding, for mortgage refinance loans, denied 31% of applications from African Americans, versus only 14% of applications from whites, for a 2.21 denial rate disparity -- much worse than the industry average in this MSA.

    In the New York City MSA, for home improvement loans, Fleet Bank, N.A. (NJ) denied 74% of applications from African Americans and Latinos, versus only 44% of applications from whites. Fleet Bank, N.A. (NJ)’s disparities on Long Island were similar.

   Fleet also lent in the area in 1997 through “Fleet Home Equity (USA)” -- which, for home improvement loans in the New York City MSA, denied every single one of the eleven applications it received from Latino applicants.

   This Home Mortgage Disclosure Act data is available from, and can be confirmed on, the Federal Financial Institutions Examination Council's web site, through a link of ICP’s Resource page.

   Fleet acquired Shawmut in 1995, and closed hundreds of bank branches. Inner City Press sought and obtained Fleet’s branch closing reports from the Federal Reserve Board -- these reports revealed that, despite Fleet’s commitment that it would do outreach in communities, about alternatives to closure, before closing branches, in most instances Fleet only contacted groups which had explicitly supported the merger. Groups which has raised questions about the merger, including questions about branch closings, were not contacted.

   For all of these reasons, if and when Fleet applies to the Federal Reserve Board and other agencies for the regulatory approvals that would be required, public hearings, with an opportunity for cross-examination, should be conducted, and Fleet’s fair lending and branch closing record should be closely reviewed. Fleet’s application will be subject to the Community Reinvestment Act, which provides a ground for the denial of this ill-conceived merger.

   A proposed Fleet - BankBoston combination flies in the face of antitrust laws, and should be disallowed on this ground as well.

   Inner City Press will update this proposed merger on this space -- as opposition mounts, as the banks’ submit their applications for the (required) regulatory approvals, and as issues, including fair lending and antitrust issues, continue to develop. For or with more information, please contact us.

        Click here for ICP's current Fleet-Watch

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Copyright 1999 2003 Inner City Press/Community on the Move, Inc..   All rights reserved.  Permission granted to reproduce for educational or informational purposes, if you let us know before you do so.   For further information, contact: Permissions Coordinator, Legal Administration, Inner City Press, P.O. Box 580188, Mount Carmel Station, Bronx, NY 10458.  Phone: (718) 716-3540.  Fax: (718) 716-3161.  E-mail: FleetWatch.html