The Los Angeles City Council is finding that compiling a list of banks to boycott isn’t as simple as it sounds.

Los Angeles chief administrative officer Miguel Santana told council members in a memo that it could cost the city $28 million to renegotiate deals if officials limit the pool of bankers with which the city conducts business.

Under the proposed initiative, financial institutions would be scored based on their community investment and lending practices.

The council passed a resolution last week asking Santana to produce a report to be heard in committee on November 21. The issue would go before the entire council for discussion the following day.

Santana said he asked the council to put on hold a short-term bond financing of $100 million until the matter had been decided in order to avoid potential fees and other costs. Proceeds would be used to rebuild a bridge in East Los Angeles. Selection of an underwriter on the bonds for AEG’s proposed National Football League stadium also is on hold, Santana said. The city plans to go to market next summer on the bond issuances.

“The city is not a regulator of financial situations. It is not one of our core missions,” Santana said. “It is not something we know how to do, nor are we equipped to do. “

The potential criteria also apply more to retail banks than those focused on underwriting, which is who the city does the bulk of its business with, said Los Angeles City Councilman Bernard Parks.

So while banks that do traditional banking and underwriting could be evaluated based on levels of charitable giving or home foreclosure rates, it’s not clear how investment banks like De La Rosa & Co. would be evaluated, because they don’t do charitable giving or have a foreclosure rate, Parks said.

If the ordinance is limited to retail banks, it would only apply to the bank that handles what Parks called the city’s “checkbook” — currently Wells Fargo. Santana said the council could decide to disqualify a list of the country’s 35 largest banks that the city sued in 2008 on allegations of bid-rigging in an unresolved lawsuit.

“In the lawsuit, we listed every major bank in the country,” Santana said. “Most of the cities and counties in California as well as the federal government have sued the same banks, but no other lawmakers that I know of have disqualified any of those banks from doing business with their cities.”

The lawsuit includes Wells Fargo, the city’s retail banker, and JPMorgan, which was the underwriter on $1.2 billion in short-term notes Los Angeles issued to help balance the budget.

“The final issue is that we are in an environment where we are facing a $500 million shortfall next year,” Santana said. “Our primary responsibility is finding the best deal for the city and minimizing the interest we pay.”

Subscribe Now

Independent and authoritative analysis and perspective for the bond buying industry.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.