Tuesday, February 18, 2003
Copyright © Las Vegas Review-Journal

GAMBLING BEYOND NEVADA: Lender backing lifts tribes' casinos

Big banks in Nevada building business by supporting development of California gambling halls

The Pala casino near Temecula, Calif., is one of many tribal properties to receive a major bank loan. Photo by Associated Press

After years of benign neglect, the two major banks in Nevada are actively building business with American Indian tribes and backing their development of casinos.

Banks are becoming major financial backers for Indian developers as tribal casinos mature past being startups and as state regulators lend them legitimacy, said Dan Lewis, senior vice president at Bank of America.

Already, annual bank lending for the development of Indian casinos, especially in California, is in the hundreds of millions of dollars, industry sources say.

"Banks are becoming very active lenders to national Indian casino developers, especially Wells Fargo, Bank of America and US Bank," said Brad Peterson, senior vice president at Wells Fargo Bank.

Fleet Bank, Commerce Bank, Bank of Boston and National City Bank (Michigan) also are becoming active lenders for American Indian casinos, Lewis said.

Bankers declined to disclose the volume of lending for tribal casinos, but Bank of America's Lewis said, on a syndication basis, major banks have provided $4 billion to Indian tribes for casinos and other development in the past few years.

Major recent loans have been made to the Chumash Tribe in Santa Inez, Calif., for $150 million and the Pala casino near Temecula, Calif., for $165 million.

Other major projects getting funding from Bank of America have included Mohegan Sun and Pequot casinos in Connecticut, and the Pachanga and Perona casinos in California, which Bank of America co-funded with Wells, Lewis said.

The most recent of these loans are for Las Vegas-style operations including casinos and hotels with proven cash flows.

Bankers said that three to five years ago, banks as a matter of policy would not make loans to Indian tribes to build casinos because they were startups without proven cash flow.

Also, the absence of state regulation and secrecy of tribal casino accounting raised issues for major banks that provide funding for mainstream casino operators with state gaming licenses.

The adoption of Proposition 1A in 2000 in California and the development of compacts between states and Indian tribes were driving forces in the increase in bank lending.

"As a federally chartered institution, we couldn't lend to anyone who is not in compliance with all laws," Lewis said. "We had to wait until Proposition 1A passed."

Finally, the Office of the Comptroller of the Currency grants banks Community Reinvestment Act credits for making loans to tribal interests developing casinos, although bankers said no loan has been approved that would not otherwise have qualified.

"Lending to Indian tribes helps banks comply with CRA regulations laid out in the Indian Gaming Regulatory Act," Lewis said.

The reinvestment act was enacted in 1977 to prevent redlining and to encourage banks to help meet the credit needs of all segments of their communities, including low- and moderate-income neighborhoods.

"We have recently had discussions with the (Office of the Comptroller of the Currency) about this. The primary purpose may be for gaming, but in accordance with the law, the funds are used to benefit the tribes for economic development purposes and to meet the goals of the CRA," Lewis said.

The act requires federal bank regulators to assess the record of each bank in helping to fulfill their obligations to the community and to consider that record in evaluating applications for charters or for approval of bank mergers, acquisitions and branch openings.

Still, bank regulators, congressional oversight committees and agencies responsible for overseeing American Indian interests declined to provide specific data on casino financing because they do not track bank lending to Indian tribes.

Although banks have moved into financing for the development of Indian casinos, the big question for tribal leaders is how to treat diversification such as a $43 million Marriott hotel that four tribes are building in downtown Washington, D.C., Lewis said.

"There is a (tribal) renaissance going on," he said. "And it's interesting that Republicans who argue for lower taxes and less regulation say they need more taxes and more regulation for Indian casinos that wouldn't apply to America as a whole. They need to let tribes lead the way and tell Washington how they want it to get involved," Lewis said.

Nevertheless, Wells Fargo's Peterson said American Indian gaming and bank lending for tribal casino development are still in growth modes.

"So much of gaming, whether tied to gaming in Las Vegas or not, is impacted by legal and political processes, it's hard to predict, but American gaming still has legs to grow even though you wouldn't expect to see the same growth (rates) as the past few years, at least not in California," Peterson said.