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Last week, the Federal Trade Commission filed suit to block Microsoft’s acquisition of Activision, a tie-up that would combine a leading video game console maker with a leading video game developer. The agency is concerned that Microsoft could withhold top franchises like Call of Duty from other gaming systems.
But there was one notable detractor to the FTC challenge: the Communications Workers of America. CWA used the pending merger to negotiate a neutrality deal with Microsoft, giving Activision workers (who are organizing through CWA) the ability to fight for union recognition without interference. “Approving this merger with the labor agreement … would send a game-changing message to corporate America that workers do indeed have a seat at the table,” said CWA’s Chris Shelton last week.
Membership organizations should obviously use whatever leverage is available to win victories. But in the grand scheme, this substitutes an important but narrow set of interests for Activision workers in place of a broad set of interests for millions of gamers. Advancing worker rights on the backs of a harmful merger just turns would-be adversaries of corporate power into cheerleaders.
More important, a third-party agreement is simply not an ironclad guarantee that a company won’t, after securing the merger, renege on the agreement. In fact, there’s a recent real-world example of a company doing just that.
In 2016, the National Community Reinvestment Coalition (NCRC) established a community benefits plan with KeyBank, a Cleveland-based large regional, during deliberations over the company’s merger with First Niagara, which was based in Buffalo. KeyBank promised to increase its lending to low- and moderate-income (LMI) borrowers, particularly in First Niagara’s footprint. But an NCRC report issued last week shows that not only did KeyBank fail to keep its promise, it in fact reduced its share of home purchase lending to LMI borrowers. Out of the top 50 mortgage lenders, it issued the lowest percentage of loans to Black borrowers. NCRC presents evidence the bank engaged in “systemic redlining,” cutting off mortgage credit to Black neighborhoods.
This speaks to a core problem with the current practice for securing corporate promises: the lack of enforceability. KeyBank’s support from a community organization helped it swallow First Niagara. But there was no penalty if it double-crossed the organization. Actual punishments are called for—such as the threat of unwinding the merger. That would be a new posture for the antitrust agencies over the past 40 years.
“This example is exactly why we need to re-evaluate the merger approval process,” said Jesse Van Tol, NCRC’s president and CEO. A review of the historically permissive bank merger procedures is under way, and sorely needed. For outside groups like NCRC, it’s the only way to end this cycle of companies saying one thing and doing another.
KEYBANK WAS THE FIRST TIME NCRC decided to approach a bank to secure a community benefits plan, as other community organizations have done previously. (NCRC has since secured 20 other CBPs.) Part of the reason was that bank mergers were so often rubber-stamped that the organization felt little chance of success in opposition, and decided to try to get something out of the deal.
NCRC’s key ask of bank regulators as they review merger policy is to write hard requirements into the approval orders.
Rather than judging KeyBank based on its past actions, the plan tried to hold it to future commitments. KeyBank was explicitly trying with the deal to re-enter mortgage markets after exiting during the financial crisis. “Our framework was, you should be making more loans to small business and low- and moderate-income borrowers,” Van Tol said. NCRC tried to add race-based goals, but KeyBank declined.
Nevertheless, the two sides reached agreement, and the plan was referenced repeatedly in the regulatory approval for the KeyBank-First Niagara merger. KeyBank said the plan “will place it at or above its peers” on low-income mortgage lending. Once the deal went through, it quickly moved to reward investors, increasing dividend payments from 38 cents to 56 cents per share.
Troubling signs were quickly apparent. NCRC making so many community benefit deals led to difficulty in maintaining the resources to monitor them all. In addition, the top executives at KeyBank who negotiated the deal, including CEO and Executive Vice President and Head of Corporate Responsibility and Community Relations Don Graves, who is now the deputy secretary of commerce, all left the firm.
The report, based mostly on data from the Home Mortgage Disclosure Act, shows that KeyBank ramped up its mortgage lending considerably between 2018 and 2021, but mainly through high-income customers. By contrast, KeyBank decreased its share of home purchase lending to Black borrowers in all but three of its major metropolitan areas. Out of nearly 47,000 home loans in 2021, just over 1,000 included a Black applicant. Applications from lower-income white buyers were more likely to be approved than applications from higher-income Black buyers.
Loans to Black borrowers weren’t explicitly stipulated in the plan, but loans to LMI neighborhoods were, with the promise of 20 percent growth over a five-year period in each of its major markets. But KeyBank decreased lending to LMI borrowers as a share of overall loans in all but one market, and ranked 49th out of the 50 largest mortgage lenders, according to the report’s analysis. Overall, KeyBank went from 35 percent of home purchase loans to LMI borrowers in 2018 to 17 percent in 2021. Lending to LMI (as well as Black) borrowers has decreased each year since 2018.
KeyBank did substantially worse on these metrics in Buffalo, which was the home of First Niagara, where other leading banks were more than twice as likely to originate a mortgage to a Black borrower. KeyBank decreased home purchase loans to LMI borrowers in Buffalo, even as its competitors increased them. This is key because more lending in First Niagara’s footprint was a top commitment of the CBP.
Maps of Philadelphia, Cleveland, Seattle, Buffalo, and New York City look like redlined maps from the 1940s and ’50s, with gaps in lending in poor and majority-Black neighborhoods. Maps in Hartford, Connecticut, and Denver do show loans in Black and LMI neighborhoods, but decreases in lending to Black and LMI borrowers, suggesting gentrification and displacement.
In a lengthy rebuttal, KeyBank said that it followed through on 50 out of 53 commitments in the plan, with the final three to be completed by year’s end. One of the three KeyBank admits missing was the loans in the First Niagara footprint. Van Tol had many problems with this claim, but told the Prospect, “Even on its own grounds, the three things they didn’t do were the three biggest things in the agreement.”
The rebuttal asserts that KeyBank increased home lending to African American borrowers by 24 percent from 2018 to 2021, but those are overall numbers that reflect KeyBank’s return to the mortgage business. NCRC’s point was that Black loans as a relative percentage of all loans went down. NCRC added that KeyBank goosed their numbers with second homes, investor properties, and even Paycheck Protection Program loans.
KeyBank spokesperson Jeff Kew declined to respond to NCRC’s allegations about the rebuttal, saying, “We won’t have any further comment at this time.”
Last year, KeyBank expressed interest in a renewal of the CBP, and eventually announced a “$40 billion” expanded plan. The $40 billion included what they calculated as $26.5 billion in investments over the previous five years. It also included environmental, social, and governance (ESG) commitments that NCRC never asked for. Removing those extras, the new commitment calls for a decrease in lending to LMI borrowers relative to the prior five-year plan. NCRC found out about the expanded plan the night before the announcement.
NCRC would eventually cut off contact with KeyBank and go public about its record. “KeyBank won regulatory approval for a merger that it claimed would benefit underserved communities in affected markets,” the report concludes, “then focused on wealthier white borrowers and neighborhoods as it aggressively expanded its overall home mortgage line of business.”
THE COMMUNITY BENEFITS PLAN WAS NOT an explicit regulatory requirement. NCRC’s key ask of bank regulators as they review merger policy is to write hard requirements into the approval orders. As the Office of the Comptroller of the Currency’s approval of the First Niagara merger states, “the OCC does not monitor nor enforce such agreements.” The approval does point out some of the highlights of the plan, including the promise for a high level of lending in the First Niagara footprint. Those could be construed as conditions of the merger, Van Tol believes.
“We will be calling on the regulators to investigate and re-evaluate that approval,” he said. “It appears to us that the banks didn’t just make a commitment to us, it made a commitment to the regulators that we don’t think they fulfilled.”
However, the Federal Reserve has never unwound a bank merger over failures to comply with a community benefits plan, nor has the Fed even imposed serious conditions over such a failure.
Organizations like NCRC rely on the reputational damage of a bank failing to lend to low-income or Black borrowers. But on the front end, organizations like this really matter as a character witness for a company trying to merge, just as CWA will matter in the Microsoft-Activision case. The question, ultimately, is whether a group should take advantage of a pending merger to win commitments from the company if the enforceability of those commitments is limited.
Van Tol thinks that a bank’s commitments should be written into the merger application. In that scenario, a bank would have to state specifically the effects of the merger on branch closures, job losses, and community lending. Cost savings and financial analysis are delivered to investors; if they were delivered to regulators, they would have a more informed position on whether or not the merger should go through. CWA would be wise to seek similar guarantees.
