2 Japanese Banks Seeking To Improve on Fed Ratings

Two Japanese-owned banks in New York recently received less-than-satisfactory federal ratings for their community lending records, and both are looking to improve their standing.

IBJ Schroder, a subsidiary of the Industrial Bank of Japan Ltd., and Mitsubishi Trust Co., a subsidiary of Mitsubishi Trust and Banking Corp. of Tokyo, were rated "needs to improve." That is the second-lowest rating on the four-tier scale.

Both banks have wholesale operations but lack retail banking activities. The lack makes it difficult for them to comply with the Community Reinvestment Act, the banks said.

Jack L. Adelson, first vice president and general counsel for Mitsubishi, said, "I assume this will be a recurring pattern for all wholesale banks.

"It is very difficult to fit in with the mandate of CRA. We don't take deposits, and we don't make consumer or small-business loans."

Mitsubishi, which has $350 million in assets, is drafting a letter of response to its regulator, the Federal Deposit Insurance Corp., Mr. Adelson said. He declined to be more specific.

But IBJ Schroder has written its regulator, the Federal Reserve Board, requesting another examination as soon as possible to reflect its recent actions. IBJ, which has $4 billion in assets, told the Fed it was disappointed with its rating.

The bank took some comfort in the announcement late last week that it had received fron New York State a satisfactory rating, the second-highest. The New York State Banking Department stressed that the grade "takes into account several initiatives recently put into place by management."

Donald H. McCree Jr., IBJ chief executive and president, stated in his letter to the Fed, "Management strongly believes that the bank has adopted and implemented a CRA program that goes beyond the letter and spirit of the law and is comparable to the efforts of other banks that have been evaluated more highly."

Peter Bakstansky, a spokesman for the New York Fed, declined to say whether the agency would reexamine IBJ soon. But the Fed is willing to review CRA evalutions if there are "material changes in circumstances," he said.

Specific Points Covered

The Fed criticized IBJ for limited community development lending. The bank made two loans totaling $40,000 to cover the operating expenses of a community lending organization and extended a $500,000 line of credit at a below-market rate to a low-income housing organization. The only other action that falls under the rubric of community lending is the bank's dedication of 22% of its investment portfolio to municipal bonds.

The Fed also said IBJ did not sufficiently document its efforts to assess the credit needs of the community, and its board was not sufficiently involved in CRA programs.

Noting that it is hard for the bank to make loans since it is a wholesale institution, IBJ asked the Fed to give it more credit for grants to community lending groups. Eric K. Tarlow, chief compliance officer, would not disclose the amount of such grants.

IBJ Schroder noted that since the evaluation, it had made several loan commitments, including $5 million to a fund for low-income multifamily housing. Calling the evaluation of its community assessment work "highly subjective," IBJ nevertheless said it would attempt to document its activities better.

Th bank is also taking several steps to heighten directors' participation. It is creating a CRA committee chaired by a board member, planning more frequent reports to the board on CRA activities, and establishing an annual board award to commend a nonprofit organization for its community activities.

More Critical of Mitsubishi

Although similar lapses were cited at IBJ and Mitsubishi, the FDIC's assessment of Mitsubishi appeared far more critical.

The FDIC noted that Mitsubishi's only community lending activity was underwriting the conversion of four large residential buildings to cooperative apartments.

The regulator said Mitsubishi participated in no government programs, its directors had almost no involvement in CRA activities, it had virtually no record of efforts to assess credit needs, and it had made no effort to communicate its willingness to help meet the credit needs of its community.

Mr. Adelson said the bank would be taking steps to improve its performance and was committed to complying with CRA "to the best of our ability."

The bank has formed a committee of top management to create a CRA program, is investigating making loans through third parties, and is trying involve the board of directors more directly.

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