SAN FRANCISCO - U.S. Bancorp, the largest trustee last year for California municipal bond business, appears to have won its way back into the bidding for $809 million worth of trustee business for the city of Los Angeles after reaching a community reinvestment pact with local officials.

The Linked Banking Community Oversight Board, set up last year to evaluate the reinvestment initiatives of banks doing business with the city, voted late Tuesday to include U.S. Bancorp among the institutions competing for Los Angeles' bond trustee business, ending a threat to shut the bank out of city business.

U.S. Bancorp's corporate trust services unit, U.S. Bank Trust, was the largest trustee last year for California municipal bond business, managing nearly $7 billion of issues, according to Thomson Financial Securities Data. It handles most of the city of Los Angeles' bond trustee business.

The case highlights the degree to which municipalities are finding ways to leverage city contract opportunities for community reinvestment from banks above and beyond levels mandated by the federal government. The additional commitment follows federal government approval of U.S. Bancorp's acquisition of Western Bancorp in November.

"It's very unusual to get this kind of commitment after regulatory approval has occurred," said Alan Fisher, executive director of the California Reinvestment Committee, the San Francisco-based nonprofit organization that led negotiations with the bank.

The board's approval was based on a commitment - expected to be made official by the Minneapolis-based banking company within a few weeks - to open three branches in low-income areas of Los Angeles over two years. It also calls for the company to allocate an amount equal to at least 12% of its California deposit base, or about $700 million, to lending and investments in California's low-income communities every year.

"We feel like most of the issues have been resolved at this point and we're looking forward to building a strong relationship with the city of Los Angeles as we implement our enhanced community development program," said Marika Cronin-Rose, a spokeswoman for U.S. Bancorp.

The company's planned investments in Los Angeles stem from its entry into the area with the acquisition last year of the Newport Beach-based holding company, Western, owner of Santa Monica Bank and Newport Beach-based Southern California Bank, which have combined assets of $2.5 billion.

From U.S. Bancorp's presence in Northern California, where it entered in 1989, the company already had an agreement to make lending and investments in low-income areas that were equal to 17% of its deposit base. But when its deposit base doubled to about $6 billion as a result of buying Western Bancorp and two San Diego banks, Peninsula and Bank of Commerce, during the past year, community groups started to press for an extension of the 17% reinvestment commitment to the whole state.

The new agreement is a compromise: a lower proportional investment than 17% but, crucially for the community groups, the opening of offices in what they say are underbanked neighborhoods.

The physical reach of Santa Monica Bank and Southern California Bank, both middle-market business banks, is confined mostly to the higher-income bracket communities of Santa Monica, certain parts of Los Angeles, and Orange County.

The agreement also includes a goal by the bank to increase its lending and investment in low-income areas of the state over time.

"Too often the people in these neighborhoods can only choose between pawnbrokers and check-cashers" for their financial needs," said Mr. Fisher.

U.S. Bancorp, which just completed the Los Angeles area acquisitions in November, has already taken some outreach steps to poorer areas of its new city. As part of its overall retail strategy in California, the bank also is set on expanding its physical presence, either by de novo branches or by acquisitions, throughout the state.

The nine-member oversight board of community leaders that include a reverend from the 15,500 member First AME Church as well as representatives from Washington Mutual Inc. and Bank of America Corp., does not have the final say on whether the city uses U.S. Bancorp services. But the decision counts as an important vote of support for the bank.

Next Tuesday, the board will pass its recommendation to the City Council's Community Economic Development Committee, which gave its tacit approval for allowing U.S. Bancorp back in the bidding process in a report on the issue two weeks ago.

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