Bank merger may be affected by lending protests; claim of local inattention may affect Mitsui-Taiyo deal.

Bank merger may be affected by lending protests

Claim of local inattention may affect Mitsui-Taiyo deal

Protests against Mitsui Bank and Mitsui Manufacturers Bank by various community groups pose a serious threat to the merger of the U.S. operations of Mitsui Bank and Taiyo Kobe Bank, scheduled for April 1, according to Ron Supinski, a spokesman for the Federal Reserve Bank.

The merged institutions would become the world's second-largest bank, with assets of $400 billion. Because they both have U.S. operations in two different states, they must apply to the Federal Reserve to approve their combination.

Taiyo Kobe owns a bank based in New York City.

"One or two letters of protest we may not think as very substantive, but we have received more than a dozen letters, so we will have to look very closely at the proposed transaction," Supinski said.

The complaints against Mitsui and Mitsui Manufacturers concern their compliance with the Community Reinvestment Act of 1977 (CRA), which obliges banks to lend in the communities where they take deposits.

Supinski said the Federal Reserve last year denied Continental Illinois a go-ahead on its proposed merger with Grand Canyon State Bank, of Scottsdale, Ariz., because of CRA problems.

The Federal Reserve last year increased oversight of CRA issues with the release of a policy statement, Supinski noted. It is expected to rule on Mitsui's compliance with CRA by mid-March, Supinski said.

Jerry W. Johnston, president of Mitsui Manufacturers, dismisses the threat, arguing the Federal Reserve's review of the proposed merger will not consider CRA issues, contrary to what Supinski said.

The biggest show of strength by community groups was a demonstration in front of the Mitsui Bank building in downtown Los Angeles on Feb. 22.

The coalition of community groups, calling itself Communities for Accountable Reinvestment, includes the Black Employees Association, the City of West Hollywood, the Little Tokyo Service Center, Concerned Citizens of South Central and eight other groups.

The protesters singled out Mitsui, even though they have complaints against other banks, because of the proposed merger, said Clyde Johnson, president of the Black Employees Association and spokesman for the coalition.

"The real issue -- reinvestment in the community -- can only be challenged when a bank seeks a merger or a new charter," Johnson said.

The diverse coalition of groups seeks more loans for affordable housing, students and small- and minority-owned businesses, Johnson said.

Mitsui Manufacturers has met with the community groups, but so far to no avail. "Mitsui Manufacturers is saying they deal primarily with other businesses and so they have no community responsibility," Johnson said.

Adds Debbie Potter, housing and economic development manager of West Hollywood. "Mitsui Manufacturers has done nothing to invest back in the community."

Potter also takes exception with how Mitsui Manufacturers defines its community for CRA purposes: "They define their community as a small radius around their branches, instead of all of Los Angeles County."

Johnston would disagree. "There is a general recognition that Mitsui Manufacturers has met its CRA obligation and has a good record of meeting community credit needs," he said. "We lend basically to small and medium-sized businesses. . .that are as important a credit need to serve as single family mortgage lending."

One way the bank has complied with CRA is by contributing $1 million to the California Community Reinvestment Corporation (CCRC), a consortium of 46 banks set up last September and capitalized at $100 million.

Johnston added the protesters are jousting with the wrong adversary: "The protesters are attracted by the asset size of Mitsui and Taiyo Kobe, even though the CRA has no extraterritorial authority."

"We have tried to explain to the activists that Mitsui Manufacturers, and not Mitsui Bank, is the appropriate entity to focus their community efforts on," Johnston said. "The activists are asking Mitsui to take deposits out of Japan and lend here, and that exactly fits the definition of redlining, which the CRA was originally directed against."

Johnston, nonetheless, acknowledges that his bank could increase its CRA-related activities. The bank will be meeting with community groups in Los Angeles, San Francisco and San Diego. At those meetings, "We will be getting down to brass tacks and say things which we think will sit well with community leaders," he said. "We need to find a way to expand our CRA activities in a more efficient manner and do more things along the lines of CCRC instead of a lot of small loans."

CCRC operates as a blind loan pool, in which the members have no say on where funds are directed. The organization plans to sell its loans in the secondary market and use the proceeds to make new loans, said Daniel Lopez, the head of CCRC. He predicts low income housing will make up between 70 and 75 percent of the organization's loan portfolio.

Most of CCRC's loans will be made at below market rates because of how the not-for-profit organization sets its rates, Lopez said. Of the three loans it has made so far, two were below market, Lopez added.

Community groups have grievances against other banks, and in particular, Japanese institutions. "A lot of Japanese banks look to move into the California market but are not responsive to local community issues," Potter said.

Activists have achieved success with some local banks. Johnson cited Security Pacific, which has recently agreed to finance a credit union in the South Central area.

Other banks have taken a variety of approaches to comply with CRA. City National Bank, for instance, has set up a committee whose members meet with community groups and developers in low income areas, said Steve Strange, senior counsel. Under its standard lending procedures, the bank provides construction loans to finance low income housing, Strange added. For example, the bank recently approved a $850,000 loan to construct an apartment building, 15 percent of whose units will be set aside for low income tenants. Strange noted.

"The CRA leads us to take another look at loans, but we don't make loans if they are not sound in the first place," Strange explained.

City National defines its community as all of Los Angeles County, Strange said.