ACTIVISTS BANK ON MERGERS: BEFORE THE DEAL CAN BE DONE, PARTIES MUST PAY THE PIPER

It was meant to be a splashy preemptive strike: Citicorp and Travelers Group Inc., just days after announcing megamerger plans, pledge to invest or lend $115 billion in low- and moderate-income communities.

But it landed with a decided thud: “Too little. Too general. We expected more,” community watchdogs told reporters.

“Take it or leave it,” Citicorp responded, refusing to bow to pressure.

As the deadline for approval of the merger nears — groups have 30 days to file protests based on the Community Reinvestment Act (the 1977 federal law that mandates bank investment and service in low- and moderate-income communities) — both sides spin their story in the press.

Similar scenes are unfolding across the nation, as big banks continue an unprecedented acquisition binge and community activists scrap to protect poor communities who, they argue, are almost always hurt by such deals.

discussion gets results

But such public posturing — on both sides — masks a reality that neither side wants to tout too loudly: Pending mergers provide community activists with a rare window of opportunity to muscle banks into jacking up investments in low-income communities. Behind the tough talk, many banks are more than willing to negotiate. As are savvy activists, who are often busy hammering out sophisticated loan agreements with banks even as they distribute ardent protest letters to the media.

It’s not that anyone really believes the feds will deny a merger on CRA grounds — that hasn’t happened in a decade. But protests can substantially slow the approval process, which can be quite costly for the banks. Equally important: Though they don’t like to admit it, banks are never more subject to public scrutiny — nor vulnerable to bad P.R. — than when doing a deal.

“These banks know how important it is to get out ahead of both the regulatory process and criticism from community groups. That’s why you see these seemingly unsolicited commitments,” says Paul Grogan, president of the New York-based Local Initiatives Support Corp., a nonprofit organization that invests private sector capital — 60% of which comes from banks seeking to satisfy CRA — in poor communities.

Unlike most of his peers, Mr. Grogan believes bank mergers have generally been good for low- and moderate-income people. “For whatever reason, the winners in the consolidation sweepstakes have been quite committed to community development,” he says, citing merger partners San Francisco-based BankAmerica Corp. and Charlotte, N.C. -based NationsBank Corp.

Both BankAmerica, which has committed more than $300 million to LISC, and Citicorp, which has a $100 million commitment, have approached LISC about increasing their pledges since their mergers were announced. “That rhetoric about the community getting raped every time a bank does a deal is 20 years old,” Mr. Grogan says.

Indeed, 95% of the more than $500 billion committed to the CRA in its 21-year history has come in over the last five years, according to the National Community Reinvestment Coalition (NCRC). And many see great opportunity for new products and services targeted at low-income communities in deals like the Citicorp and Travelers combine, that mix and match banks with financial institutions (such as brokerages and mortgage companies) not formerly subject to the CRA.

Still, NCRC president John Taylor is resolutely unimpressed. He attributes the surge in CRA commitments not to newfound goodwill of the part of banks, but to other factors, including more accessible CRA rating data and President Clinton’s support. Mergers, he says, have meant increased cost to consumers, and reductions in both lending to small businesses and in branch networks, especially in rural and urban areas.

“Yes, we have leverage, and yes, many of the banks have gotten smart enough to make forward commitments,” he concedes, “but no matter how large, those commitments can be insignificant without direct community input and evaluation.”

That’s where Phyllis Falowe-Kaye comes in.

As executive director of NCRC member New Jersey Citizen Action (NJCA), Ms. Falowe-Kaye has hashed out agreements totaling more than $8 billion with 26 banks doing business in New Jersey.

“We talk all the time, but we usually get ’em at the time of a merger,” she says. “We used to have use more pressure — filing protests, picketing, deposit withdrawal, public ridicule. Now, 85% of the time, they come to us and we work something out.”

Typical agreements include small business loans, discounted home improvement loans, construction loans and below-market-rate mortgages. Only Chase Manhattan Corp., so far, has refused to sign an agreement with the NJCA.

watchword is caution

The NJCA is in the midst of negotiations with Citicorp, even as the bank publicly refuses to commit to specific local market initiatives. So far, however, there’s no deal. The sticking point: Citicorp is so far unwilling to agree to offer discounted products.

Citicorp officials did not return calls but after several meetings with bank officials, Ms. Falowe-Kaye now says she is “optimistic that Citibank will address the needs of the community we have identified” before the June 16 deadline for official protest.

The NJCA doesn’t use a fixed formula — for example, a percent of assets — to determine what a bank should commit. Rather, each agreement is tailored not only to the size and strengths of a specific bank, but also to the group’s policy agenda of the moment.

Thus, for example, when Summit Bancorp and United Jersey Bank merged two years ago, just as the NJCA was focusing on lead contamination in poor New Jersey neighborhoods, the new $22.4 billion entity ended up developing a loan program to fund lead abatement as part of its $275 million pledge. Although NJCA had prior relationships with both banks, that merger commitment, as is usually the case, marked a substantial increase in dollars committed.

Another issue on the NJCA’s 1996 wish list was improved access to buildings for people with disabilities. No surprise, then, that loans supporting disability access renovations became part of its agreement with Boston-based Fleet Financial Group when it entered the New Jersey market in 1996 with its acquisition of National Westminster Bank.

The relationship with Fleet is instructive. After getting off to a rocky start — the NJCA initially protested the merger — the two now work closely, if not cozily, to mutual benefit, with the group helping Fleet market the products it helped craft.

Fleet Managing Director for Corporate Community Development Agnes Bundy Scanlan, whom Ms. Falowe-Kaye fondly calls her “former archenemy,” describes the negotiations with the NJCA as “not exactly smooth.”

“You never go in as the best of friends,” she says. “The biggest problem we face is fear of the unknown. ‘What will Fleet be like? How will they handle community development?’ ”

In New Jersey, Fleet held more than 100 meetings with community groups and local officials to help answer those questions, as well as some of its own.

“We needed to know who are the players — who can hurt us and who can help us,” Ms. Scanlan says.

In the end, Fleet, with assets of $23.1 billion, pledged over $500 million. The disability access renovation program — which Ms. Scanlan notes satisfies new CRA regulations that award points for innovative programs — looks sound so far. Fleet is considering rolling it out in other markets.

Despite such recent successes, many community groups remain cautious about the changing terrain.

“The big question with these national mergers and CRA is accountability,” says Alan Fishbein, general counsel of the Center for Community Change in Washington, which helps local groups with strategies for boosting bank lending in poor communities. “When you create a multibillion-dollar institution, you create a Goliath that can be very hard to influence, or even evaluate, in any meaningful way.”

It does seem that the bigger banks can be the worst bullies. Even CRA poster bank BankAmerica wants community groups to remember who’s calling the shots.

stand up to the little guys

Though it was the first to make a community lending pledge of $140 billion over 10 years, and is generally considered an exemplary CRA lender, BankAmerica has never signed an agreement with a community group.

“If we are as good as we think we are, and if we are as responsive as we think we are, there is no reason to have agreements,” says Donald Mullane, a BofA executive vice president.

Mr. Mullane would not say whether another — and increased — pledge is in the offing in connection with the NationsBank merger. “We are meeting with community groups, as we always do. And as always, we will do what we think is appropriate.”