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January 23, 2004
Community Investment Advocates Question Bank of America/FleetBoston Merger
    by William Baue

Bank of America is responding to critics of its proposed merger with FleetBoston.

In October 2003, Bank of America (ticker: BAC) agreed to acquire FleetBoston (FBF) for $47 billion in stock. This move would make the merged bank the second largest in the US behind Citicorp (C) in terms of assets and possibly the first in terms of deposits. However, the Federal Reserve Board needs to approve the terms of the merger first. Among other things, the Fed assesses the two banks' records of performance under the Community Reinvestment Act (CRA). CRA is a law enacted in 1977 that requires banks to meet the credit needs of the communities in which they operate, including low- and moderate-income neighborhoods.

Earlier this month, Bank of America committed to lend and invest $750 billion for community economic development over the next decade, a goal it claims to be the largest in the history of US commercial banks.

"We are cautiously optimistic about Bank of America's 10-year commitment to spend $750 billion on community reinvestment after its acquisition of FleetBoston Bank," said Connecticut State Treasurer Denise Nappier and Attorney General Richard Blumenthal.

The treasurer and AG expressed concern, however, that the $100 billion earmarked for the Fleet region does not correspond to the asset levels in this Northeast area.

"The Fleet region will comprise 20 percent of the merged Bank of America's assets, but the bank is allocating only 13 percent of its total CRA commitment to the region," testified Mr. Blumenthal at a January 14 meeting hosted by the Fed in Boston for public commentary on the merger. Mr. Blumenthal also bemoaned the merger plan's lack of detail.

“Simply put, without specifics, the $100 billion commitment is eye candy--appealing and alluring, but untested and untasted," stated Mr. Blumenthal. "Looks good. Smells good. But what’s at the center?"

However, Mr. Blumenthal revised his position later that day.

"I'm encouraged by a high-ranking FleetBoston official's statement to me this morning that the goal for community reinvestment for the Northeast is $150 billion, a 50 percent increase over the $100 billion the bank originally proposed as a minimum," Mr. Blumenthal said. "This newly articulated position seems to be a significant step forward."

The merger has other critics as well. In a December 2003 newsletter, the National Community Reinvestment Coalition (NCRC), a consortium of 800 nonprofit community reinvestment organizations, listed nine "major" concerns with the merger. NCRC joined the Connecticut officials in seeking confirmation that Bank of America will honor all of Fleet's existing community development commitments, as well as increasing them due to inflation.

"As previously stated publicly, Bank of America will honor all existing community development and charitable commitments underway by Fleet," wrote Douglas Woodruff, Bank of America's president of community development banking, in direct response to NCRC's concerns. "This will be part of an ongoing process and one that will provide flexibility to review new opportunities, as well."

In response to NCRC's concern about loans to minority and low- and middle-income populations, Mr. Woodruff points out that Bank of America's 22.2 percent of home loans to minority customers in 2002 bested the industry average of 18.8 percent.

NCRC also expressed concern that the merger application indicates a drop in the bank's community development lending in many states.

"In terms of community development lending, Bank of America is the most significant lender and investor in community development projects of any financial institution," responded Mr. Woodruff. "By the end of 2003 alone, Bank of America will exceed $2 billion in lending for the year to affordable housing projects from around the country."

"Also, Bank of America is the largest private sector investor in the CDFI [community development financial institution] industry, with 90 relationships, more than 100 investments, and fundings of nearly $212 million in total CDFI deposits," he added.

The Connecticut officials are hosting an open meeting in Hartford at 10 am on Wednesday, January 28, to allow the public to present testimony about the proposed merger. They have invited representatives from Bank of America and FleetBoston, as well as from the Fed, who will all receive transcripts of the written and oral statements on the record.


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