BAC Bank of America Corporation

By Rachel Louise Ensign 

Bank of America Corp. said last week it would stop dealing with private prisons. What the bank didn't say: it had recently agreed to lend $90 million to one of the largest companies in the business through 2024.

Bank chiefs today want to do more than make loans to creditworthy borrowers. Encouraged by employees, executives are using their trillion-dollar balance sheets to influence corporate behavior. Many big shareholders support that approach.

Activists also have leaned on banks to rebuff certain businesses, sometimes showing up outside of branches and at the homes of CEOs. Housing advocates turn up at annual meetings to press lenders to do more for needy communities. Environmental groups have taken issue with loans involving the Dakota Access Pipeline.

But cutting ties with entire industries has proven complicated. Bank of America's announcement last week followed pledges to stop lending to some fossil-fuel companies and gun manufacturers. But because of pre-existing relationships, the bank is on course to provide credit to some of them for years to come.

"The private sector is attempting to respond to public policy and government needs and demands in the absence of long standing and widely recognized reforms needed in criminal justice and immigration policies," the bank said in a statement. "Clients affected by the policy have unique circumstances and there are often long-term relationships involved"

At Bank of America's annual meeting in April, activists peppered executives with questions about its loans to private prisons. Andrew Plepler, the bank's head of environmental, social and governance, or ESG, said it was reviewing the business.

As the review was taking place, GEO Group Inc., which runs prisons and immigration-detention centers, was looking to tweak a $900 million loan. The revolving-credit line was so large that a group of banks, including Bank of America, had come together to make it, according to securities filings. That is a typical practice in commercial lending.

Bank of America's ESG team vetted and approved the deal, according to people familiar with the matter. The new revolver was finalized on June 12 and the bank agreed to cover a $90 million portion, according to a securities filing and people familiar with the matter. The loan was extended to May 2024 from May 2021.

Soon after, reports surfaced of unsafe and unhealthy conditions at immigration facilities that are holding migrant children.

On June 24, Sleeping Giants, an activist group that uses social media to target companies and industries that it opposes, told supporters to email Clayton Rose, a Bank of America director and president of Bowdoin College.

In a Facebook post, the group wrote: "At Bowdoin, he has taught 'The Moral Leader' and advocates for 'thoughtful engagement in civic life.' Can he comment on what's moral or ethical about Bank of America providing lines of credit to enable crimes against humanity?"

Two days after the email campaign to Mr. Rose began, Bank of America Vice Chairman Anne Finucane, who oversees the bank's ESG efforts, told Bloomberg News that the bank had "decided to exit the relationship" with companies running private prisons and immigration-detention centers. She said the bank would leave the sector as soon as possible after fulfilling its contractual obligations.

Rep. Alexandria Ocasio-Cortez, (D., N.Y.), tweeted in support of the move. GEO Group said the announcement wouldn't affect its recently renewed revolver.

The June deal means Bank of America could be tied to the private-prison business for another five years. Other companies in the industry also depend on the bank for financing, according to regulatory filings. Last year, it covered $140 million of a $1 billion loan to CoreCivic Inc. that expires in April 2023. The bank also extended $65 million of a $455 million loan to Caliburn International Corp.

CoreCivic CEO Damon Hininger said his company has had a relationship with Bank of America for about 20 years. Meetings with the lender became more frequent over the past two years and the company gave bankers a tour of a center holding immigrant families in Dilley, Texas, he said.

"Up until last week, we were getting a lot of positive feedback from them." he said. "It's clearly about politics."

CoreCivic and GEO Group run facilities for U.S. Immigration and Customs Enforcement but say they don't operate border-patrol holding facilities or centers for unaccompanied minors.

JPMorgan Chase & Co. in March said it would stop lending or providing banking services to private-prison firms when their current contracts expire. Wells Fargo & Co. two years ago started ending its relationships with the firms. Both of those banks used to be a part of the GEO Group loan but are no longer, according to filings and a person familiar with the matter. JPMorgan, however, remains a lender to Caliburn and CoreCivic.

Bank of America faces a similar situation with the gun industry. In April 2018, Ms. Finucane, a close adviser to CEO Brian Moynihan, told Bloomberg the bank would stop making new loans to some gun manufacturers. Mr. Moynihan later said the decision followed discussions with employees who had been affected by mass shootings.

Sturm Ruger & Co. was briefly without a line of credit when Bank of America let its loan to the gun manufacturer expire after the pledge, according to regulatory filings. Wells Fargo stepped in to take Bank of America's place.

Yet shortly before the gun pledge, Bank of America committed to provide $43 million as part of a large bankruptcy-financing package for gun maker Remington Outdoor Co., according to a court filing. The bankruptcy financing replaced an earlier loan in which Bank of America participated. Activists urged people to boycott the bank. The bank has since sold its portion of the loan.

The bank has continued to lend to Vista Outdoor Inc., which operates firearms division Savage Arms. Last November, Bank of America and other lenders extended a new $559 million loan to the company, according to filings. Vista Outdoor has said it plans to sell Savage Arms business but has yet to do so.

Write to Rachel Louise Ensign at rachel.ensign@wsj.com

(END) Dow Jones Newswires

July 02, 2019 05:44 ET (09:44 GMT)

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