The governor of Massachusetts is urging regulators to give small banks a crack at the huge volume of deposits and branches to be cast off in Fleet Financial Group's deal for BankBoston Corp.
Gov. Paul Cellucci sent a letter to U.S. Attorney General Janet Reno last week, asking the Justice Department to open the bidding to community banks. Because no small bank could swallow such a large chunk of deposits on its own, the governor has asked Justice to break the deposits and loans into pieces that smaller banks could handle.
"The Massachusetts community banking industry has proven to be an effective competitor to large and regional banking organizations," Gov. Cellucci wrote.
To win approval from the Justice Department, Fleet is planning to sell some $13 billion of deposits and 270 branches in Massachusetts, Connecticut, and Rhode Island. The sale, one of the largest of its kind, would come before the close of the deal, which is slated for the fourth quarter.
The call by Gov. Cellucci, coming on the heels of similar urging from members of Congress, could well influence the Fleet divestiture, experts said. Local officials around the country are playing a stronger role in issues related to bank mergers, and Massachusetts has a tradition of activism.
Community bankers in Massachusetts swiftly applauded the governor's support.
"This is terrific-it is exactly what we need," said David L. Grey, president and chief executive officer of Ipswich (Mass.) Bank. His $271 million-asset institution has grown by moving into branches abandoned by Fleet and BankBoston, but has never won anything in a divestiture.
Past branch sales "have been very closed, and I welcome anything anyone can do to see it open up," he said. For example, when Fleet bought Shawmut National Corp. in 1996, the buyers were companies with assets in the billions, such as Webster Financial Corp. in Waterbury, Conn., and Peoples Heritage Financial Group in Portland, Maine.
The governor joins a growing number of New England politicians who have publicly lobbied for small banks in the planned divestitures by Fleet and BankBoston. Earlier this month, a group of Massachusetts congressmen, including House Banking Committee member Barney Frank, urged Justice to require Fleet to sell deposits only to "institutions that have demonstrated a sincere commitment to serving local communities."
The congressmen said they would "oppose vigorously" selling everything to one company, because that would not "truly promote a diverse, competitive environment."
Rhode Island's senators put out a similar statement.
A Justice Department spokeswoman declined to comment on the letters. She said the department has not made any decisions on what it would require to be sold, or how the process would be organized.
A Fleet spokesman could not be reached for comment.
But Donald S. Glass, president of the Community Bank League of New England, said he believes small banks will not be left out. Mr. Glass met with Justice officials in Washington last week to outline the concerns of his members.
"I left with the impression that they understand our concerns, and they will consider them," he said.
Politicians in other parts of the country have waged similar campaigns after other megamergers. Last year, Indianapolis Mayor Stephen Goldsmith asked regulators to consider local competitors when ruling on the merger of Banc One Corp. and First Chicago NBD Corp. into what is now Bank One.
The Indianapolis branches ended up going to Union Planters Corp. of Memphis, but the city was able to minimize job losses by landing Union Planters' regional headquarters, and getting promises from Bank One of job creation.
Gilbert Schwartz, a Washington-based antitrust attorney, said he considered Mayor Goldsmith's campaign a mild success.
"Someone has to set the tone," he said. "If there isn't someone out there talking about it, local banks may not get the same consideration."
In New England, "if there is a strong local candidate for some of the deposits, I would think the administration would try to accommodate" the local politicians, Mr. Schwartz added.
Kenneth H. Thomas, a Miami-based bank consultant who has lobbied Justice on divestitures from several large bank mergers, said the regulators do consider what the locals have to say.
"They absolutely listen," he said, adding that he believes Florida could have fared better from NationsBank Corp.'s deal for Barnett Banks Inc. if more local politicians had gotten involved.
"We could not get any interest from community groups or politicians here in the divestitures, and I think it hurt us," he said. Those deposits went primarily to Huntington Bancshares in Ohio, but a St. Petersburg, Fla., company also won a small portion.
"Boston is more of a hotbed of consumer activism than Florida, though," he added, "so there may be more of a chance there."
Still, some experts question whether selling everything to small banks is really in the region's best interest. John S. Carusone, president of Bank Analysis Center in Hartford, Conn., noted that unless another large bank is brought into the area, businesses could suffer.
Fleet and BankBoston are the only two banks in New England offering many commercial banking products, and they have much larger lending limits than any other bank in the region, he said.
"I would love to see community banks sitting at the table for deposits and branches," Mr. Carusone said, "but this is also about Internet banking, cash management, stock transfers, and a whole continuum of other commercial banking products. For those services, the choices would be Fleet, Fleet, or Fleet."
There could be a compromise, he added. For example, Justice could sell deposits and consumer loans to community banks, and commercial loans to larger ones. "I am not sure how appealing that would be for the larger banks," Mr. Carusone said.