April 23, 2000

$14 Million Every Hour

By AUDREY Y. WILLIAMS

In 1989, Cathy Bessant made a decision that went against the advice of some of the people she trusted most: She took the job that launched her career in community development lending.

"People told me I was committing career suicide. There was no business model back then for how community development was supposed to work," said Bessant, who was then working in corporate lending for Bank of America predecessor NCNB. "But at the time, I was ready for a change. It was the first time in my life I made an intuitive decision."

Today, Bessant is the president of Bank of America's community development banking group, a division that works to invest money in low-income and minority communities and make loans to the people who live in them. Bessant was named to the post a few months after the bank made a May 1998 community reinvestment pledge of $350 billion nationwide over a decade. And in December, the bank added consumer real estate executive to her title, a move it says now gives Bessant decision-making power in two closely related areas.

Bessant's challenges are many. She must make community development lending work effectively in what is now the nation's largest bank. Meanwhile, the new financial reform law outlines new community reinvestment guidelines banks must follow, and regulators are watching closely to see how banks - especially those that want to merge with securities or insurance firms - will measure up.

Bank of America also has to build credibility among fair-lending advocates who live in California, where the Charlotte-based bank now operates after merging with San Francisco-based BankAmerica. And making good on the bank's $350 billion commitment - the largest ever by a U.S. bank - is key..

"Sometimes when you think of a 10-year goal, it can seem really intangible. But the way I talk about that $350 billion is that that's $14 million in loans and investments every business hour," said Bessant, 39. "My goal when we get to the end of the $350 billion commitment would be to be ahead of schedule and have it truly visible in a lot of communities across the country."

Bessant got her start in community development lending when Bank of America President Ken Lewis, then in charge of NCNB's Texas operations, asked Bessant to head the business in Texas. That was back when community reinvestment wasn't widely done by banks. And when it was, banks didn't see lending to poor people as a moneymaking business.

The Community Reinvestment Act, a federal law that began as a national attempt to curb red-lining in poorer neighborhoods, requires banks to make loans and investments in low-income and minority areas in which they operate. Before the law was passed in 1977, financial institutions didn't recycle money back into poor neighborhoods, but spent their customers' deposits elsewhere and essentially blocked community development.

Banks paid only limited attention to CRA until the early 1990s. That's when regulators and the Clinton administration began to scrutinize whether banks were breaking the law, and community groups began stepping up protests of mergers involving banks whose fair-lending records were spotty.

At first, Bessant wasn't certain that community development would turn into a viable business line for the bank.

"I think I started out believing that it could be. But this wasn't an industry 10 years ago. If I had done a pros-and-cons list, I wouldn't be here today," Bessant said. "Would I have bet the bank on community development? Probably not. But today we know."

Bank of America's community development lending and investment business posted a 13 percent return on equity in 1999. The figures aren't as good as last year's 17.7 percent return for the entire bank, but the unit performs better than many lines of business the bank has. Bessant estimates community development will have a return this year of more than 13 percent.

" 'Can you make money?' is what a lot of people are saying," Bessant said. "But we evaluate deals on three things: impact, risk and return. Not many deals have all three."

The bank, Bessant said, most often judges its community development lending success by the impact in a community. Projects that have a high impact often have "a low profit opportunity." Bank of America officials say the bank's investment in First Ward Place, a Charlotte inner-city neighborhood that is a mix of housing for low- and moderate-income families, is an example. Some housing activists say the redevelopment project displaced many of the residents who lived in what was formerly public housing called Earle Village. But the bank, which has acknowledged there were glitches in the project, said positives include an increased tax base for First Ward and the stabilization of an inner-city community.

Said Bessant: "We have to be keenly focused every day on impact."

In 1991, the year Bessant began heading community development lending efforts for the entire bank, she pitched the 10-year, $10 billion pledge that NCNB announced when it wanted to buy Atlanta's C&S/Sovran Corp. to form NationsBank. The bank agreed to do it and met the goal six years ahead of schedule.

Bessant was viewed as a hero within the bank for community development work and was among the first recipients of the coveted crystal hand grenades that Bank of America Chief Executive Hugh McColl Jr. used to award to high-performing top executives.

Still, banks often battle skepticism about whether they're making CRA loans out of a need to meet the law, rather than because of genuine concern about the communities where their loans are disbursed.

Controversial relationships between banks and community groups are common.

"Our roles are adversarial, but I think she is very bright and good at what she does," said Jane Burts, the head of the Charlotte Organizing Project, who has known Bessant for a decade. CHOP is one of the many groups that protested the merger that formed NationsBank and later tried to get the bank to remedy what the group believes are predatory lending practices.

"She's somebody I enjoy talking to if the conversation is not about what the bank is doing," Burts said.

Bessant's first meeting with Bruce Marks, the Boston activist whose group is known for harassing banks that don't make loans in poor neighborhoods, ended with the bank giving the Neighborhood Assistance Corp. of America $500 million in home mortgage loans to disburse. At the time, the 1995 pledge was the bank's largest-ever partnership with a single community group.

But the 90-minute discussion between Marks, Bessant and McColl had its tense moments.

"I told (McColl) that I think we have a homebuyer's program that is top of the line, but we understand that all bankers are evil and all you care about is maximizing your profits," said Marks, who met with the executives the day before leading a protest in Charlotte against First Union's pending buyout of First Fidelity Bancorp. "Hugh McColl did not appreciate that comment."

The bank followed its first commitment to NACA with a 1999 announcement of a $3 billion no-closing-costs mortgage program - part of Bank of America's larger community development initiative - that would help poor and working-class neighborhoods over the next 10 years.

"(Bessant) has a mentality and Bank of America has a mentality that 'we're a bottom-line organization. That if you can show us the results, we'll be your best partner,' " Marks said. "She's got a track record of having the largest bank in this country setting a positive standard for community reinvestment. We would not say this about any other bank."

However, Bank of America and its predecessors, like many banks, have refused to sign some loan commitment agreements with fair-lending advocacy groups. Federal regulators also have heard hundreds of complaints about how the bank's proposed mergers would be harmful to minority and low-income borrowers. The NationsBank/BankAmerica deal drew more than 1,600 comments from organizations and individuals supporting and opposing both banks' lending practices.

Still, the bank's partnerships with hundreds of community groups on a local and national level are what make its community development lending efforts work, Bessant said.

"I fundamentally believe that all community groups have valid points. We both want what we think might be best for the community. We just may not agree on what that is and how to get there," Bessant said. "But when we're being honest about the business, we really have to admit that we don't know everything about the neighborhoods where we invest and loan money. They help give us credibility among a market that would naturally be skeptical of us."

In California, some housing and community activists aren't sure that Bank of America will have the same commitment to the state as its predecessor, San Francisco-based BankAmerica.

"We're still in a wait-and-see mode to see what the bank is really going to do," said Alan Fisher, executive director of the California Reinvestment Committee, a San Francisco-based coalition of more than 200 groups. "I came away from meetings (with Bessant) thinking she's a very capable person, but this is a whole new environment. We remain hopeful, but concerned."

Bessant said the bank has seen its affordable housing lending in California rise by more than 37 percent to $470.3 million in 1999.

"The results are happening and I understand where the skepticism comes from, particularly skepticism of a large bank," Bessant said. "But I'm hopeful that we'll do in California what we've done in other places, which is build credibility with the community groups that are skeptical of us."

Ultimately, community activists say, it's the bank's deeds and not its promises that make the difference. Bessant agreed.

"What I've learned about all my work is that doing what you say is hugely important," Bessant said. "Developing a record where people can count on you makes all the difference in the world."

This article is reprinted here for non-commercial, educational, fair use purposes only.