Orders Issued under Sections 3 and 4 of the Bank Holding Company Act

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Banc One Corporation Columbus, Ohio

First Chicago NBD Corporation Chicago, Illinois

Order Approving Merger of Bank Holding Companies

Banc One Corporation ("Banc One"), a bank holding company within the meaning of the Bank Holding Company Act ("BHC Act"), has requested the Board's approval under section 3 of the BHC Act (12 U.S.C. [sections] 1842) to merge with First Chicago NBD Corporation ("First Chicago"). The resulting bank holding company would be named Bank One Corporation ("New Bank One") and have its headquarters in Chicago, Illinois. New Bank One would acquire control of First Chicago's subsidiary banks, including its lead bank subsidiary, First National Bank of Chicago, Chicago, Illinois ("First Chicago Bank"),(1) and retain control of Banc One's subsidiary banks. Banc One also has requested the Board's approval under section 4(c)(8) of the BHC Act (12 U.S.C. [sections] 1843(c)(8)) and section 225.24 of the Board's Regulation Y (12 C.F.R. 225.24) for New Bank One to acquire the domestic nonbanking subsidiaries of First Chicago.(2) In addition, Banc One has filed notices under section 4(c)(13) of the BHC Act (12 U.S.C. [sections] 1843(c)(13)), sections 25 and 25A of the Federal Reserve Act (12 U.S.C. [sections] 601 et seq., [sections] 611 et seq.), and the Board's Regulation K (12 C.F.R. 211) for New Bank One to acquire the Edge Act corporations and foreign operations of First Chicago.(3)

Banc One, with total consolidated assets of approximately $116.9 billion, is the eighth largest commercial banking organization in the United States, controlling approximately 2.5 percent of total banking assets of insured commercial banks in the United States ("total banking assets").(4) Banc One operates subsidiary banks in Arizona, Colorado, Illinois, Indiana, Kentucky, Louisiana, Ohio, Oklahoma, Texas, Utah, West Virginia, and Wisconsin. Banc One also engages in a broad range of permissible nonbanking activities nationwide.

First Chicago, with total consolidated assets of approximately $114.8 billion, is the ninth largest commercial banking organization in the United States, controlling approximately 2.3 percent of total banking assets. First Chicago operates subsidiary banks in Indiana, Illinois, Michigan, and Florida.(5) First Chicago also engages nationwide in numerous permissible nonbanking activities.

The proposal would create a combined organization that, after accounting for proposed divestitures, would be the fifth largest commercial banking organization in the United States. New Bank One would have total consolidated assets of approximately $231.7 billion, representing approximately 4.8 percent of total banking assets, and would have a significant presence in the Midwest.

Factors Governing Board Review of the Transaction

Under the BHC Act, the Board must consider a number of specific factors when reviewing the merger of bank holding companies or the acquisition of banks. These factors are the competitive effects of the proposal in the relevant geographic markets; the financial and managerial resources and future prospects of the companies and banks involved in the transaction; the convenience and needs of the community to be served, including the records of performance under the Community Reinvestment Act (12 U.S.C. [sections] 2901 et seq.) ("CRA") of the insured depository institutions involved in the transaction; and the availability of information needed to determine and enforce compliance with the BHC Act.(6) In cases involving interstate bank acquisitions, the Board also must consider the concentration of deposits in the nation and certain individual states, as well as compliance with other provisions of the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 ("Riegle-Neal Act").(7)

Public Comment on the Proposal

To give interested members of the public an opportunity to submit comments to the Board on the statutory factors that it is charged with reviewing, the Board published notice of the proposal and provided a period of time for public comment.(8) The Board extended the initial period for public comment by 30 days to accommodate public interest. The extended public comment period provided interested persons more than 70 days to submit written comments on the proposal.

Because of public interest in the proposal--particularly in the Midwest, where the combined organization would be a significant competitor--the Board also held a public meeting in Chicago, Illinois, on August 13, 1998. The public meeting gave interested persons an opportunity to present oral testimony on the various factors the Board is charged with reviewing under the BHC Act. More than 85 people appeared and testified at the public meeting, and many of the commenters who testified also submitted written comments.

In total, approximately 330 organizations and individuals submitted comments on the proposal, through oral testimony, written comments, or both. Commenters included federal, state, and local government officials; community groups and nonprofit organizations; small business owners; union representatives; customers of Banc One and First Chicago; and other interested organizations and individuals from Colorado, Delaware, Illinois, Indiana, Louisiana, Michigan, Ohio, Texas, and other states.

Commenters filed information and expressed views supporting and opposing the proposed merger. Commenters supporting the proposal commended Banc One and First Chicago for their commitment to the communities in which they do business and their leadership role in various community activities and civic organizations. These commenters praised the records of the two banking organizations in providing affordable home mortgage loans, particularly in low- and moderate-income ("LMI") communities and in communities with predominantly minority populations ("minority communities"); making investments, grants, and loans supporting neighborhood housing and community development projects; and making charitable contributions. These commenters also noted favorably the small business lending activities of Banc One and First Chicago and complimented the banking organizations for providing financial, educational, and technical assistance to small businesses and to nonprofit groups that support small businesses. Many commenters also praised First Chicago's community reinvestment record and pledges in Detroit and Chicago, noting that First Chicago had increased the availability of loans and investments to support community development and affordable housing activities and had fostered a good partnership with the community groups in those two cities. In general, the commenters supporting the proposal expected that the merger of Banc One and First Chicago would create a company with greater financial, operational, and managerial resources that would benefit the communities that New Bank One would serve.

Commenters opposed to the merger proposal expressed concerns about the performance records of Banc One and First Chicago under the CRA, particularly with respect to their records of lending to small businesses and minorities, to LMI communities, and in rural areas. The commenters questioned the fair lending record of the two banking organizations and expressed concerns about disparities in the denial rates of credit applications at both institutions. Commenters also criticized Banc One's decision not to make community reinvestment pledges nationwide or in specific communities.

Several commenters opposed to the proposal believed that the merger would reduce competition for banking services substantially, particularly in Indianapolis and other communities in Indiana, or would result in the loss of local control of lending and investment decisions. Commenters also expressed concern about branch closings, the level of lending to small businesses and first-time home buyers, job losses, fees for banking services, and the potential for dislocations or other adverse effects from the integration of the two bank holding companies.

In evaluating the statutory factors under the BHC Act, the Board carefully considered the information and views presented by all commenters, including the testimony presented at the public meeting and the information submitted in writing. The Board also considered all the information presented in the application, notices, and supplemental filings by Banc One and First Chicago, as well as various reports filed by the relevant companies, publicly available information, and other reports. In addition, the Board reviewed confidential supervisory information, including examination reports regarding the bank holding companies and the depository institutions involved, and information provided by the other federal banking agencies and the Department of Justice ("DOJ"). After a careful review of all the facts of record, and for the reasons discussed in this order, the Board has concluded that the statutory factors it is required to consider under the BHC Act and other relevant banking statutes are consistent with approval of the proposal, subject to the conditions noted in this order.

Interstate Analysis

Section 3(d) of the BHC Act, as amended by section 101 of the Riegle-Neal Act, allows the Board to approve an application by a bank holding company to acquire control of a bank located in a state other than the home state of such bank holding company if certain conditions are met. For purposes of the BHC Act, the home state of Banc One is Ohio,(9) and Banc One proposes to acquire banks in Florida, Indiana, Illinois, and Michigan.(10)

Section 3(d) of the BHC Act provides that the Board may not approve a proposal if, after consummation, the applicant would control more than 10 percent of the total deposits of insured depository institutions in the United States.(11) In addition, the Board may not approve a proposal if, on consummation, the applicant would control 30 percent or more of the total deposits of insured depository institutions in any state in which both the applicant and the organization to be acquired operate an insured depository institution, or such higher or lower percentage established by state law.(12)

On consummation of the proposal, New Bank One would control approximately 3.9 percent of total deposits of insured depository institutions in the United States. New Bank One would control less than 30 percent, or the appropriate percentage established by applicable state law, of total deposits held by insured depository institutions in the states in which Banc One and First Chicago both operate an insured depository institution, including in Indiana and Illinois.(13) All other conditions for an interstate acquisition enumerated in section 3(d) of the BHC Act are met in this case.(14) In view of the facts of record, the Board is permitted to approve the proposal under section 3(d) of the BHC Act.

Competitive Factors

Section 3 of the BHC Act prohibits the Board from approving an application if the proposal would result in a monopoly, or would substantially lessen competition in any relevant banking market, unless the Board finds that the anticompetitive effects of the proposal are clearly outweighed in the public interest by the probable effect of the proposal in meeting the convenience and needs of the community to be served.(15)

The proposed merger of Banc One and First Chicago would combine two banking organizations that are among the largest providers of banking services in a number of banking markets in Illinois, Indiana, Michigan, Ohio, and Wisconsin. Accordingly, the Board has analyzed carefully the effect of the transaction on competition in the relevant banking markets and, in so doing, has carefully considered the public comments submitted on the competitive effects of the proposed transaction.

A number of commenters maintained that the proposed merger of Banc One and First Chicago would have significantly adverse effects on competition, especially in Illinois and Indiana, where subsidiary banks of Banc One and First Chicago compete. These commenters expressed concern that New Bank One would dominate banking markets in Illinois and Indiana and, therefore, would be able to engage in tying and other anticompetitive practices.(16)

Banc One and First Chicago each control a subsidiary bank in the following 16 local banking markets: Aurora, Chicago, Elgin and Rockford, in Illinois; Louisville, Kentucky; Milwaukee and Madison, in Wisconsin; and Gary-Hammond, Marion, Elkhart-Niles-South Bend, Bloomington, Corydon, Indianapolis, Lafayette, Lawrence County, and Rensselaer, in Indiana.(17) The Board has reviewed carefully the competitive effects of the proposal in each of these banking markets in light of all the facts of record, including the characteristics of the markets and the projected increase in the concentration of total deposits in depository institutions in these markets ("market deposits"),(18) as measured by the Herfindahl-Hirschman Index ("HHI") under the Department of Justice Merger Guidelines ("DOJ Guidelines").(19)

A. Banking Markets Without Divestitures

Consummation of the proposal, without divestitures, would be consistent with the DOJ Guidelines and prior Board precedent in ten banking markets: Chicago, Aurora, Elgin, and Rockford, in Illinois; Elkhart-Niles-South Bend, Gary-Hammond, and Marion, in Indiana; Louisville, Kentucky; and Milwaukee and Madison, in Wisconsin. After consummation of the proposal, all of these banking markets would remain unconcentrated or moderately concentrated, as measured by the HHI. Moreover, in eight of these ten markets, consummation of the proposal would increase market concentration, as measured by the HHI, by less than half of the 200-point threshold in the DOJ Guidelines.(20) Numerous competitors would remain in each of the ten markets after consummation of the proposal.

B. Banking Markets With Proposed Divestitures

Consummation of the proposal would exceed DOJ Guidelines in the remaining six banking markets in which Banc One and First Chicago compete, all in Indiana. To mitigate the anticompetitive effects of the proposal in these six Indiana banking markets, Banc One has committed to divest 39 branches, which account for approximately $1.47 billion in deposits and represent approximately 18.1 percent of the total deposits controlled in Indiana by First Chicago.(21) After accounting for the proposed divestitures, consummation of the proposal would be consistent with the DOJ Guidelines and prior Board precedents in four of the Indiana banking markets: Bloomington, Corydon, Lawrence County, and Rensselaer. These markets are discussed in Appendix D. Numerous competitors would remain in each market after consummation of the proposal.(22)

Indianapolis. Consummation of the proposal in the Indianapolis banking market would exceed the DOJ Guidelines after accounting for the proposed divestitures. Banc One is the largest depository institution in the Indianapolis banking market, controlling $3.5 billion in deposits, representing approximately 21.4 percent of market deposits. First Chicago is the third largest depository institution in the market, controlling $3 billion in deposits, representing 19.9 percent of market deposits.

Banc One proposes to divest 25 branches with deposits of approximately $890 million in the Indianapolis banking market to a banking organization that does not currently have a presence in the market. On consummation of the proposal and after divestitures, New Bank One would remain the largest depository institution in the market. controlling $5.8 billion in deposits, representing approximately 35.6 percent of market deposits.

In considering the competitive effects of the proposal, the Board has evaluated the competition provided by savings associations in the Indianapolis banking market and has concluded that the deposits controlled by three of the eleven savings associations that compete in the market should be weighted at 100 percent.(23) In this light, the post-merger HHI would increase by 441 points to 1881.(24)

The Board believes that several factors mitigate the potential adverse effects that may result from the proposal in the Indianapolis banking market.(25) The market has characteristics that make it attractive for entry. Indianapolis is the largest banking market in Indiana and the 35th largest Metropolitan Statistical Area ("MSA") in the United States.(26) The population of the Indianapolis MSA increased by approximately 9 percent from 1990 to 1997, more than almost all other MSAs in Indiana and more than the national average. Other measures indicate economic growth in the banking market. Since 1990, the number of jobs in the MSA has increased by 106,000, or approximately 15 percent. Per capita income in Indianapolis, which is greater than any other MSA in Indiana, has increased on average 6.7 percent over the last ten years, which is more than the national average.

Recent entries by depository institutions appear to confirm that the Indianapolis banking market is attractive for entry by depository institutions. Since 1996, five depository institutions have entered the Indianapolis banking market de novo. In addition, since June 1997, depository institutions that currently compete in the Indianapolis banking market with Banc One and First Chicago have opened or announced plans to open 29 new branches in the banking market.

The proposed divestiture of approximately 5.8 percent of market deposits to an out-of-market commercial banking organization would create another market entrant, and the number of depository institutions competing in the market would remain unchanged. The purchaser of the divested branches also would immediately become the fourth largest competitor in the market and would have sufficient assets and offices immediately to be an effective competitor to New Bank One.

In addition, after consummation of the proposal, 42 bank and savings association competitors would remain in the market, including at least four large multistate banking organizations, other than New Bank One. These large multistate bank holding companies would control at least 31.3 percent of market deposits and operate 163 branches in the Indianapolis banking market.(27)

Lafayette. Consummation of the proposal in the Lafayette banking market also would exceed the DOJ Guidelines after accounting for the proposed divestitures. In the Lafayette banking market, Banc One is the largest depository institution in the market, controlling deposits of $510.8 million, representing 32 percent of market deposits. First Chicago is the second largest depository institution in the market, controlling deposits of $408.8 million, representing 25.6 percent of market deposits. Banc One will divest seven branches with deposits of approximately $286 million in the Lafayette banking market to an out-of-market competitor. On consummation of the proposal, and after accounting for the proposed divestitures, Banc One would remain the largest depository institution in the market, controlling deposits of $633.6 million, representing 39.7 percent of market deposits. The HHI would increase by 217 points to 2306.

Several factors mitigate the potential adverse effects that may result from the proposal. After the proposed sale of the branches to an out-of-market competitor, eleven competitors would remain in the market. The acquiror of the divested branches would become the second largest depository institution in the market, controlling 17.9 percent of market deposits and, therefore, an effective competitor to New Bank One. In addition, another competitor in the market would control more than 16 percent of market deposits. Since 1996, one banking organization has entered the market de novo, indicating that the Lafayette banking market is attractive for entry.

C. View of Other Agencies and Conclusion

The DOJ has conducted a detailed review of the proposal and advised the Board that, in light of the proposed divestitures, consummation of the proposal would not likely have a significantly adverse effect on competition in any relevant banking market. The Office of the Comptroller of the Currency ("OCC") and the Federal Deposit Insurance Corporation ("FDIC") also have been afforded an opportunity to comment and have not objected to consummation of the proposal.

After carefully reviewing all the facts of record, including public comments on the competitive effects of the proposal, and for the reasons discussed in this order and appendices, the Board concludes that consummation of the proposal would not be likely to result in a significantly adverse effect on competition or on the concentration of banking resources in any of the 16 banking markets in which Banc One and First Chicago both compete, or in any other relevant banking market. Accordingly, based on all the facts of record and subject to completion of the proposed divestitures, the Board has determined that competitive factors are consistent with approval of the proposal.

Financial, Managerial, and Other Supervisory Factors

The Board has carefully considered the financial and managerial resources and future prospects of Banc One, First Chicago, and their respective subsidiary banks, and other supervisory factors in light of all the facts of record. In considering the financial and managerial factors, the Board has reviewed relevant reports of examination and other information prepared by the supervising Reserve Banks and other federal financial supervisory agencies. The Board also has reviewed information on the programs that Banc One and First Chicago have implemented to prepare their systems for the Year 2000, including confidential examination and supervisory information assessing the efforts of the two banking organizations to ensure Year 2000 readiness, both before and after the proposed transaction. As part of this review, the Board has considered concerns expressed by commenters about the financial and managerial resources of the bank holding companies and banks involved in the proposal.(28) Commenters also expressed concerns about the process by which the two organizations would integrate their operations.(29)

In evaluating financial factors in expansion proposals by bank holding companies, the Board consistently has considered capital …