**Corporate Decision #2001-06**

**April 2001**

# DECISION OF THE COMPTROLLER OF THE CURRENCY

#  ON THE APPLICATION BY

# CHASE MANHATTAN BANK USA, N.A., WILMINGTON, DELAWARE

# TO PURCHASE SUBSTANTIALLY ALL THE ASSETS AND ASSUME CERTAIN LIABILITIES OF FIRST USA FINANCIAL SERVICES, INC., ("FUSA-Utah") SALT LAKE CITY, UTAH 

# 

# MARCH 13 , 2001

## I. INTRODUCTION

On November 28, 2000, Chase Manhattan Bank USA, N.A. ("Chase"),
Wilmington, Delaware, applied to the Office Comptroller of the Currency
for approval to purchase substantially all the assets and assume certain
liabilities of First USA Financial Services, Inc. ("FUSA-Utah"), Salt
Lake City, Utah, under 12 U.S.C. 24 §§ (7) and 1828(c). Both banks are
FDIC-insured and members of the Bank Insurance Fund. The banks are not
affiliated. This application was based on an agreement entered into
between the proponents on November 16, 2000. As of September 30, 2000,
Chase had approximately \$34.8 billion in assets and \$15.8 billion in
deposits. As of the same date, FUSA-Utah had approximately \$205 million
in assets and \$173 million in deposits.

The transaction involves Chase's acquisition of approximately \$188
million in FUSA-Utah assets, consisting primarily of commercial credit
card receivables and other related assets. Included in these related
assets is FUSA-Utah's leased processing office. Chase will not have any
branch presence in Utah.

II\. THE PURCHASE AND ASSUMPTION TRANSACTION IS AUTHORIZED UNDER
12 U.S.C. § 24(7).

National banks have long been authorized to purchase bank-permissible
assets and assume bank-permissible liabilities from sellers, including
assuming the deposit liabilities from other depository institutions, as
part of their general banking powers under 12 U.S.C. § 24(7).
[See]{.underline}, [e.g.]{.underline}, [City National Bank of Huron v.
Fuller]{.underline}, 52 F.2d 870, 872-73 (8th Cir. 1931); [In re
Cleveland Savings Society]{.underline}, 192 N.E.2d 518, 523-24 (Ohio
Com. Pl. 1961). [See]{.underline} [also]{.underline} 12 U.S.C.
§ 1828(c)(3) (purchase and assumption transactions included among
transactions requiring review under the Bank Merger Act). Such purchase
and assumption transactions are commonplace in the banking industry[^1].
Accordingly, Chase may purchase assets and assume liabilities of
FUSA-Utah.

### III. ADDITIONAL STATUTORY AND POLICY REVIEWS

A. The Bank Merger Act.

The Bank Merger Act, 12 U.S.C. § 1828(c), requires the OCC\'s approval
for any merger transaction, including purchase and assumption
transactions, between insured banks where the resulting institution will
be a national bank. Under the Act, the OCC generally may not approve a
merger transaction which would substantially lessen competition. In
addition, the Act also requires the OCC to take into consideration the
financial and managerial resources and future prospects of the existing
and proposed institutions, and the convenience and needs of the
community to be served. For the reasons stated below, we find the
application may be approved under section 1828(c).

1\. Competitive Analysis.

The acquisition of the commercial card portfolio of FUSA-Utah by Chase
will not materially reduce competition in the commercial card issuance
business. The relevant geographic market for commercial card
solicitation and issuance is national in scope and is served by many
bank and non-bank companies. Chase and FUSA-Utah market commercial card
services to small businesses and corporate customers across the United
States. Chase and FUSA-Utah issue small business cards, corporate travel
and entertainment cards, and corporate purchasing cards; FUSA-Utah also
issues fleet cards for vehicle-related expenses. Based on the most
recent and available data for the top 50 Visa and MasterCard commercial
card issuers, the post-merger market share of the combined parties would
approximate 3%. The Department of Justice reviewed the impact of the
proposed transaction and concluded that the application presents no
significant anti-competitive concerns.

2\. Financial and Managerial Resources.

The financial and managerial resources of Chase are presently
satisfactory. Chase is experienced in dealing with the types of assets
it will acquire from FUSA-Utah. We find that the financial and
managerial resources of Chase and FUSA-Utah do not raise supervisory
concerns.

3\. Convenience and Needs.

The convenience and needs of the public will not be adversely affected
by the proposed transaction. The banks currently lend on a nationwide
basis. There will be no reduction in products or services as a result of
the purchase and assumption. In addition to the scale efficiencies that
are ordinarily achieved through integration, Chase customers will have
access to FUSA-Utah product offerings not currently offered by Chase,
including card services for vehicle-related expenses and the customer
data capabilities of FUSA-Utah's web-enabled customer delivery system.
FUSA-Utah customers, in turn, will benefit from the expanded service and
product offerings afforded by Chase's larger size and greater resources.

Upon consummation of the purchase and assumption, Chase will not have a
branch presence in Utah, but will assume the lease for an administrative
office located in Utah. FUSA-Utah's office currently has no public
access and does not take deposits from walk-in customers. Therefore, the
transaction will have no effect upon FUSA-Utah's Salt Lake County, Utah,
market area or upon Chase's New Castle County, Delaware market area
community service or convenience.

# 

B. Community Reinvestment Act

The Community Reinvestment Act (the "CRA") requires the OCC to take into
account each applicant bank's record of helping to meet the credit needs
of its entire communities, including low- and moderate-income
neighborhoods, when evaluating certain applications.[^2] The types of
applications that are subject to review under the CRA include purchase
and assumption transactions between insured depository institutions.[^3]
The OCC considers the CRA performance of each depository institution
involved in the transaction. Under the CRA regulation, when evaluating a
bank's performance, the OCC considers the institution\'s capacity and
constraints, including the size and financial condition of the bank and
its subsidiaries.

Chase's most recent CRA Performance Evaluation, dated May 17, 1999,
reflected an "Outstanding" rating. The OCC evaluated Chase's performance
using criteria relative to the bank\'s lending, investments, and
services. That Performance Evaluation also disclosed no violations of
anti-discrimination laws or regulations during 1998 and 1999 fair
lending examinations of Chase's subsidiary, Chase Manhattan Mortgage
Corp. ("CMMC").

FUSA-Utah's most recent CRA Performance Evaluation performed by the
Federal Deposit Insurance Corporation ("FDIC"), dated September 27,
1999, reflected a "Needs to Improve" rating. The FDIC noted that
FUSA-Utah is a limited purpose institution engaged in providing
commercial credit cards, with one office in Salt Lake City, Utah. Its
assessment area is Salt Lake County. As a limited purpose institution,
it was evaluated solely on its record of making community development
loans and qualified investments, and participating in community
development services ([See]{.underline} 12 CFR 345.25). The FDIC found
that, subsequent to its previous CRA examination, FUSA-Utah had not used
its resources to provide community development lending or perform
community development services. Further, its qualified investments were
found to be insufficient.

Under the circumstances, the OCC does not find that FUSA-Utah's CRA
rating is inconsistent with approval of the transaction at issue. First,
although the OCC understands that FUSA-Utah will at some point cease
operations and voluntarily liquidate, FUSA-Utah will remain a separate
legal entity after the transaction and will not be affiliated with
Chase. Second, after the proposed purchase and assumption, Chase's
current assessment area for CRA purposes ([i.e.]{.underline}, New Castle
County, Delaware) will remain unchanged. Chase's assessment area will
not include Salt Lake County, because Chase does not anticipate
operating any branch offices in Utah after the acquisition. FUSA-Utah's
failure to achieve a satisfactory CRA rating does not, therefore,
reflect on [Chase's]{.underline} future ability to help meet the credit
needs of its New Castle County assessment area. OCC notes that Salt Lake
County should not be significantly adversely affected by the loss of
FUSA-Utah. There are 38 insured depository institutions with total
deposits of \$12 billion remaining in the county which have obligations
under the CRA to help meet the credit needs of the community.

During the public comment period, the OCC received and considered
comments from a community organization ("commenter") that opposed the
proposed transaction, in part, because of FUSA-Utah's CRA rating. The
commenter stated that approving the application would result in an
evasion of the CRA requirements of the Gramm-Leach-Bliley Act ("GLBA").
According to this commenter, Bank One Corporation, FUSA-Utah's parent
corporation, will now be free to become a financial holding company,
because it will not be constrained by FUSA-Utah's "Needs to Improve" CRA
rating. Under GLBA, an election by a bank holding company to become a
financial holding company is not effective unless all of a bank holding
company's insured depository institutions have received at least a
satisfactory CRA rating.[^4] 12 U.S.C. §§ 1843(e)(2), 2903(c)(1). The
OCC has carefully considered this comment. The transaction requiring OCC
review is Chase's application to acquire assets of FUSA-Utah and not the
impact of the transaction on another bank holding company. Nothing in
GLBA's provisions regarding financial holding companies prohibits
approval of Chase's application. Moreover, after the proposed purchase
and assumption transaction, Bank One Corporation will continue to
control the FUSA-Utah charter.

The commenter expressed concern under the Home Mortgage Disclosure Act
("HMDA") about CMMC's the denial rate of conventional home purchase
loans to certain minorities in 20 different Metropolitan Statistical
Areas ("MSAs").[^5] Additionally, using the same HMDA data, the
commenter expressed concern with refinance lending to minorities in
three MSAs.[^6]

While the OCC was unable to confirm several of the numbers cited by the
commenter, the OCC generally found that CMMC's 1999 denial rates on
conventional home purchase mortgages for minorities were greater than
denial rates for whites in the 20 specified MSAs. When the OCC analyzed
the data using loans made by CMMC and Chase (collectively referred to as
"Chase Group"),[^7] the OCC found that in all but six MSAs, Chase
Group's denial rates for conventional home purchase mortgages were
comparable to or better than the denial rate for all lenders within the
MSA.[^8] When the OCC analyzed all HMDA-reportable applications for
Chase Group in each of the MSAs, the OCC found that the Chase Group's
denial rates were comparable to or more favorable to minorities than the
denial rate for all lenders within each of the MSAs, with one
exception.[^9]

With respect to refinance loans, the OCC found that Chase Group's ratio
of denials to African Americans versus denials to whites for refinance
loans in the New Haven, Connecticut MSA, was comparable to the denial
ratio for all lenders in that market. In the McAllen, Texas MSA, the OCC
found Chase Group's ratio of Hispanic denials to white denials for
refinance loans (of 1.73) to be less favorable than the average for all
lenders in that MSA (of 1.39). In the Los Angeles MSA, the OCC found
Chase Group's origination rate to African Americans (of 0.83) to be
comparable to the origination rate of all lenders in that market to
African Americans (of 0.69).

It is important to note that HMDA data alone are inadequate to provide a
basis for concluding that a bank is engaged in lending discrimination or
in indicating whether its level of lending is sufficient. HMDA data do
not take into consideration borrower creditworthiness, housing prices,
and other factors relevant in each of the individual markets, nor do
they fully reflect the range of the bank's lending activities or
efforts. Nevertheless, denial disparity ratios are of concern to the OCC
and, in addition to being reviewed in connection with this transaction,
will be evaluated in fair lending examinations.

Finally, the commenter expressed concern with Chase's increasing level
of subprime lending and alleged that this lending is "standardless."
However, the commenter did not provide any specific information
indicating that Chase does not conduct this activity in accordance with
applicable law and safe and sound banking practices. The Chase Manhattan
Corporation ("Chase Manhattan"), Chase's parent corporation, represented
that its subprime mortgage lending is a small part of its mortgage
business.[^10] In addition, it stated that CMMC's subprime lending
division is fully integrated into Chase Manhattan's fair lending
program. Further, for direct subprime mortgages, a business unit of CMMC
reviews applications from applicants purchasing or refinancing loans in
low- and moderate-income census tracts to determine if they might
qualify for prime credit. If the application appears to meet
underwriting standards for prime credit, CMMC offers the applicant the
option to be considered for prime credit at the better pricing. In the
last two years under this program CMMC reviewed 8,191 subprime mortgage
applications, of which 94 applicants were offered prime credits with the
better pricing.

In summary, the OCC's investigation of the commenter's concerns
disclosed no information inconsistent with approval of Chase's
application.

## IV. CONCLUSION AND APPROVAL

For the reasons set forth above, including the representations and
commitments made by the applicants, we find that Chase's proposed
purchase and assumption transaction is legally authorized under
12 U.S.C. §§ 24(Seventh) and 1828(c). Accordingly, this application is
hereby approved.

[/s/]{.underline} [March 13, 2001]{.underline}

Alan Herlands Date

Director

Licensing Operations

Application Control Number: 2000-NE-02-0039

[^1]: The fact that this involves the acquisition of assets by a bank
    located in a state other than the acquirer's does not change the
    result. While the Riegle-Neale Interstate Banking and Branching
    Efficiency Act of 1994 ("Act") provides a source of authority for
    interstate mergers, consolidations and purchase and assumption
    transactions, effective June 1, 1997, (unless the States involved in
    the transaction opt out prior to that date), nothing in that Act
    provides that it is intended to supplant existing sources of
    authority that do not involve the acquisition of interstate
    branches. No interstate branches are proposed to be acquired in this
    transaction. [See]{.underline} 12 USC §§ 1831u and 36(d) and (e);
    OCC Corporate Decision No. 97-94 (October 22, 1997).

[^2]: 12 U.S.C. §§ 2903.

[^3]: 12 CFR 25.29(a)(3).

[^4]: There is a limited exception to this requirement. 12 U.S.C. §
    2903(c)(2).

[^5]: Listed below are the MSAs that the OCC reviewed with the specific
    minority group at issue noted in parentheses: Atlanta, GA (African
    American); Baltimore, MD (African American); Boston, MA (African
    American); Brownsville, TX (Hispanic); Charleston, SC (African
    American); Cleveland, OH (Hispanic); Dallas, TX (African American);
    Indianapolis, IN (African American and Hispanic); Jackson, MS
    (African American); Kansas City, KS (African American); Milwaukee,
    WI (African American); Nashville, TN (African American); Norfolk, VA
    (African American); San Antonio, TX (African American); San
    Francisco, CA (African American); Seattle, WA (African American);
    St. Louis, MO (African American); Stamford, CT (Hispanic): and
    Toledo, OH (African American).

[^6]: Listed below are the MSAs that the OCC reviewed with the specific
    minority group at issue noted in parentheses: McAllen, TX
    (Hispanic); New Haven, CT (African American); and Los Angeles, CA
    (African American).

[^7]: During the last CRA performance evaluation of Chase, Chase
    requested the OCC to include CMMC, a subsidiary of Chase, in
    assessing the bank's CRA record.

[^8]: The six MSAs mentioned in the text are: Brownsville (Chase Group's
    denial ratio of Hispanic borrowers as compared to white borrowers
    was 3.00 versus 1.89 for all lenders); Dallas (Chase Group's denial
    ratio of African American borrowers as compared to white borrowers
    was 2.01 versus 1.59 for all lenders); Gary (Chase Group's denial
    ratio of African American borrowers to white borrowers was 6.75
    versus 2.34 for all lenders); Kansas City (Chase Group's denial
    ratio of African American borrowers to white borrowers was 2.75
    versus 1.38 for all lenders); San Antonio (Chase Group's denial
    ratio of African American borrowers to white borrowers was 2.12
    versus 1.70 for all lenders); St. Louis (Chase Group's denial ratio
    of African American borrowers to white borrowers was 2.02 versus
    1.44 for all lenders).

[^9]: In the Gary MSA, Chase Group's African American to white denial
    ratio for all HMDA-reportable applications was 2.95. All lenders in
    Gary MSA had a 2.23 African American to white denial ratio for all
    HMDA applications.

[^10]: Chase submitted excerpts of Chase Manhattan's filings with the
    Federal Reserve Board in connection with a merger that occurred in
    2000 to respond to the commenter's concerns regarding subprime
    lending.