First Union boosting stake in Philadelphia rival Minority-owned United Bancshares is beneficiary

Banking

July 28, 1998|By KNIGHT RIDDER/TRIBUNE

CHARLOTTE, N.C. -- First Union is investing an additional $1 million in a Philadelphia minority-owned bank, a move typically encouraged by bank regulators because it can spark development in inner-city neighborhoods.

The Charlotte, N.C.-based bank plans to buy 80,000 shares of stock in United Bancshares Inc., the parent of United Bank and one of First Union's competitors in Philadelphia.

Why the nation's sixth-biggest bank wants to put its money into a competitor's pocket is largely explained by the federal Community Reinvestment Act (CRA), which prods banks to meet the borrowing needs of poor and working class neighborhoods.

Banks can earn CRA credit by investing in a minority-owned savings institution if that institution's main line of business is serving low- and moderate-income borrowers, federal regulators say. NationsBank, for example, has invested $3.1 million in 11 minority-owned banks across the country. It put $450,000 in United Bank of Philadephia.

First Union has about $500,000 invested in United Bank. The original investment traces back to New Jersey's First Fidelity Bancorp., which First Union bought three years ago. It will invest the $1 million after getting clearance from federal regulators, who are evaluating the bank's plans.

"Our investment is part of our overall strategy of helping these minority-owned banks grow," said Lenny Springs, a senior vice president in First Union's community investment division. "When we invest, they're able to make loans to meet needs of the community.

"When those banks grow, the community grows, and we grow as well."

First Union is about 2,000 times the size of United Bank, which has assets of $118 million.

Springs said First Union is developing a partnership with the bank in which it will make loans jointly with United, offer training to loan officers and tellers, and donate used automated teller machines so that the community bank can expand its services.

First Union got a huge public relations black eye in Philadelphia after it announced its buyout of CoreStates Financial last year. Critics assailed the bank for swallowing an old local institution and promising jobs to Philadelphia that it didn't plan to move there.

Springs said plans for the partnership with United were in the works long before the CoreStates purchase.

During the uproar over the CoreStates merger, community groups and politicians urged First Union to sell some of it Philadelphia branches to minority-owned banks (branch sales are common to meet anti-competitive concerns). United Bank did not say yesterday how it would use First Union's capital, but it might buy additional branches in Philadelphia.

Pub Date: 7/28/98

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