Criticism of Wells Fargo Bank's lending record to minorities was without merit, the Federal Reserve Board said in its decision to allow the bank to acquire First Security Corp.
The board, in its unanimous approval of the $3.2 billion acquisition that will make Wells Fargo the largest bank in Nevada, answered comments from 25 individuals and organizations that asked the Fed to block the deal.
And although the Fed gave the acquisition its blessing, Matthew Lee, one of the most vocal critics of Wells Fargo's lending practices in Nevada, said the Fed's lengthy order sent a message that the bank is going to be under scrutiny in the future.
Lee, executive director of the Inner City Press/Community on the Move, Bronx, N.Y., and Gail Burks, president and chief executive officer of the Nevada Fair Housing Center, said in August that they were concerned about the merger because Wells Fargo and First Security hadn't offered any specifics about what their community responsibility and lending policies would be.
Burks said in addition to minority lending, she was concerned about the company's community reinvestment plan and small business lending in the Las Vegas area.
But the Fed's approval of the acquisition said Wells Fargo and First Security adequately served cities within the states affected by the transaction and in Nevada, the banks had "outstanding" or "satisfactory" ratings on performance examinations.
In a review period that covered 1996, 1997 and the first quarter of 1998, examiners commented favorably on Wells Fargo's lending to small businesses, including small businesses in low- to moderate-income census tracts.
The report included analyses of the practices of Norwest Corp., with whom Wells Fargo merged in 1999 after announcing the plan a year earlier.
"The bank was commended for its small business loans ... particularly in the Las Vegas (metropolitan statistical area), where the amount of small business loans in low-income census tracts, as a percentage of the bank's total small business lending in the MSA, exceeded both the percentage of small businesses in the state that were located in low-income areas and the bank's overall market share of small business lending," the Fed's report said.
The report also praised Wells Fargo's residential lending, which included 459 loans totaling $15 million.
"Although the bank's volume of residential lending was relatively low, examiners found that Wells Fargo Bank's loan distribution among areas representing different income levels was good and that the bank's market share of lending in (low- and moderate income) areas approximated its overall market share of residential loans," the report said. "The examination report commended Wells Fargo Bank for the distribution of its residential loans to low-income borrowers."
The Fed also ranked the banks' community reinvestment record high. The report said Wells Fargo promised to maintain current lending policies in the wake of the acquisition.
"In connection with the proposal, Wells Fargo has indicated that the combined organization generally would follow the (Community Reinvestment Act) policies and procedures currently used by Wells Fargo's subsidiary banks and has provided the board with detailed information about the proposed CRA policies, procedures and programs it intends to use in the future.
"Moreover, Wells Fargo has informed the board that the combined organization would honor the existing CRA lending and contribution commitments of First Security and retain various First Security products and programs that are designed to help meet the credit needs of (low- and moderate-income) individuals and areas," the report says.
Lee, who said he was disappointed with the Fed's final decision, said the regulator made a considerable effort to review the entire lending record and filed a report that was longer than usual for a regional merger. He said this indicated Wells Fargo was under scrutiny.
He also said the fact the decision wasn't signed off immediately after the Justice Department approved the deal showed that the Fed was serious about checking the record. Lee also promised to continue to monitor the record, using a Hollywood metaphor to make his point.
"This was one round in a boxing match," Lee said. "Apollo Creed may have won the round on points, but the underdog got some good hits," he said in a reference to "Rocky," a film about an underdog fighter taking on a boxing champion.
"For a deal of this size, a regional merger, the Fed often doesn't get any comments at all," Lee said. "But in this case, 25 groups from a variety of states came forward. I think that shows that Wells Fargo is being watched carefully."
As part of the acquisition, the combined banks announced the divestiture of seven Las Vegas branch offices with deposits totalling $393 million, which will be bought by BankWest Corp., Honolulu.
Even after the sale of those branches, the combined banks would have a market share in Las Vegas exceeding the usual limit of 30 percent. But the Fed cited intense competition among 22 existing banks and savings and loans and 71.4 percent growth in deposits in the Las Vegas area compared with the national growth rate of 18 percent.
In Las Vegas, Wells Fargo has deposits of $2.8 billion, 26.2 percent of the market, while First Security has $904 million, 8.3 percent of the market. The new total would vault the combined banks ahead of Bank of America in the market.
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