WASHINGTON - Chase Manhattan Corp.'s bid to buy U.S. Trust Corp.'s securities processing business has run into a Community Reinvestment Act protest.

But representatives of the two banking companies say the trouble won't delay the $363.5 million transaction, which is scheduled for midyear.

"We don't expect it to interfere," U.S. Trust spokeswoman Allison Kellogg said.

U.S. Trust is creating a new holding company, which will operate its core private banking and asset management businesses. It then will sell the old holding company, and the remaining securities processing business, to Chase.

The complicated structure of the deal ensures that the transaction is tax-free to both organizations.

Inner City Press/Community on the Move, a Bronx, N.Y.-based community group, is challenging the first half of the transaction, complaining to the Federal Reserve Bank of New York and the New York State Banking Department that U.S. Trust has an inadequate CRA record.

The group said the banking company's Florida savings bank affiliate received a "needs to improve" rating in its most recent CRA exam.

Also, the group said regulators downgraded the parent company's CRA rating from "outstanding" to "satisfactory." Parts of that CRA report, which the group included in its protest, criticize the institution's involvement in its community, noting that its commitment is not commensurate with the $3.2 billion company's size.

Ms. Kellogg said Inner City's complaint is baseless, adding that U.S. Trust is committed to community reinvestment. "Our CRA ratings are satisfactory, and always have been," she said.

Matthew Lee, Inner City's executive director, said his group is not as interested in punishing U.S. Trust as it is in blocking Chase's acquisition.

"We want to be up front that our primary concern is Chase," Mr. Lee said. "But, we wouldn't raise (the charges) if we didn't find these things."

Mr. Lee said he feared the regulatory momentum from this stage of the deal would sweep away his group's protest if it waited for Chase's application.

Inner City has challenged nearly all of Chase's applications on CRA grounds since last fall. It claims that Chase artificially inflates its CRA record by steering minority applicants to the bank and white applicants to its mortgage companies, which are not covered by CRA.

The Office of the Comptroller of the Currency specifically rejected all of Inner City's charges last month when it gave the company permission to merge its New York and Connecticut operations.

Inner City Press, which has used the applications process to convince a half-dozen New York banks to expand into the Bronx, is appealing that decision.

Chase and U.S. Trust Corp. announced the deal last November.

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