Most people realize the $47 billion Bank of America/FleetBoston Financial merger
announcement is only the start of changes to come, but before the Fleet logo
is officially retired, the companies need to justify the merger to the federal
government.
“Their challenge will be to prove the safety and soundness of the deal – that it is both financially stable and secure,” said William A. Farrell, general counsel to the Rhode Island Bankers Association.
Eloise Hale, a Bank of America spokesperson, said the bank “typically doesn’t discuss regulatory relationships,” when asked for a comment on how the acquisition will be finalized. The transaction isn’t expected to close until mid-2004.
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With a merger of this size, the acquiring company will file pertinent documents with the Federal Reserve Bank, the U.S. Department of Justice and the Office of Comptroller of the Currency within the Department of the Treasury.
“The state has little to no input in the regulation-reviews process,” said Farrell, a partner with the firm Brown, Rudnick, Berlack, Israels in Providence.
The state has little leverage because both are national banks and Bank of America is from outside the region.
“There aren’t even any competition issues such as overlap or domination,” Farrell said. “So everything is left to the Fed. They will pretty much run the whole show.”
Bank of America and Fleet are holding companies subject to the provisions of the Bank Holding Company Act. As a result, the first step in the process will be for Bank of America to file an application to merge and/or an application to acquire with the Federal Reserve Bank of Richmond, according to a Federal Reserve spokesperson in Washington, D.C.
When considering a proposed merger, the Federal Reserve Board analyzes its competitive effect in local banking markets; the financial and managerial resources and future prospects of the companies and banks concerned as well as the convenience and needs of the community to be served.
“It’s difficult to say exactly how long the (review) process would take,” wrote the Federal Reserve spokesperson via e-mail. However, the “clock does not start ticking” until the reserve bank (or the reserve board) has all of the information needed to consider the application.
A decision on whether to hold a hearing on the merger will depend, to a
large extent, on the number and nature of comments received from the public, wrote the spokesperson. The last public hearing on a proposed merger was in 1998 and
pertained to Citicorp and Travelers Group.
Farrell said he would not be surprised if there was some type of public forum to discuss the merger somewhere in the New England area. In the past, hearing decisions were based on the number of public comments received and where they came from, according to the Federal Reserve spokesperson.
When Bank of America officially files with the Federal Reserve and the hearing process opens, Farrell says a likely concern will be community reinvestment. He said the public would want reassurances that community reinvestment will “be maintained and not diluted.”
“Regulators will want that, too,” he said.
A financial institution’s community reinvestment performance may be the basis for denying or conditioning approval of an application, according to the Federal Reserve Web site. This review focuses on the financial institution’s record of lending in low- and moderate-income (LMI) areas and to LMI applicants within the financial institution’s assessment areas, including small businesses.
Farrell, who also serves on the Rhode Island Bar Association’s legislative committee, says regulators want to make sure Bank of America will be a “good neighbor” who offers “loans that make sense.”
So far, little concern has been voiced regarding Bank of America and community reinvestment lending. Instead, many point to the bank’s distinction as the nation’s top small-business lender. According to the bank’s third-quarter 2003 earnings release, Bank of America issued 9,406 SBA loans, a 140 percent increase over the previous year.
As for the U.S. Department of Justice, it will be monitoring for compliance with the Clayton Act and the Hart-Scott-Rodino Antitrust Improvements Act.
The Clayton Act prohibits activities such as price discrimination (selling the same commodity to different buyers at different prices) and exclusive dealing (holding a retailer or wholesaler to a single supplier on the understanding that no other distributor will receive supplies in a given area) among other items, according to a government Web site. It also prohibits mergers and acquisitions where the effect is to lessen competition or to tend toward monopoly and gives the justice department and Federal Trade Commission the authority to block any merger that would violate antitrust laws. The FTC does not handle banking mergers and acquisitions.
The HSR Act amended the Clayton Act by requiring companies to notify the FTC and the justice department’s Antitrust Division before most mergers and acquisitions are consummated. The Act gives the enforcement agencies time to examine the competitive consequences of the proposed mergers; they might require that the merging parties sell off some of their assets, or they might block the merger entirely, according to a government Web site.
Specifically, the justice department must be notified if the acquiring company’s total assets of annual net sales is $100 million or more and it is acquiring a company with more than $50 million in stock and/or exceeds $10 million in net sales.
As the sixth-most profitable company in the country, Bank of America had $737 billion in assets, $409 billion in deposits and a market capitalization of $116.2 billion as of Sept. 30, according to a release. Fleet has assets totaling $196 billion, according to the same release.
The justice department never confirms or denies when it is investigating under the provisions of the HSR Act.
“We never look at a proposed merger,” said a justice department spokesperson in Washington, D.C. “Rather we do look at proposed acquisitions.”
After ironing out the regulatory matters, there are also outside vendor contracts with which to contend.
“No decisions have been made,” said Hale, Bank of America spokesperson, about how contracts will be approached.
However, she did say Bank of America intends to exercise “cost saving vendor leverage,” such as eliminating duplicative service contracts and positioning the soon-to-be-larger franchise to negotiate better rates.
On the consumer side, Farrell noted the concern that bigger banks doesn’t necessarily mean bigger fees.
“Rhode Island is a competitive marketplace,” he said. “For a large bank to increase fees and lower services on a whim is impossible because of the competition.”
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