Extricating Itself From Gun Maker Not An Easy Business For Bank Of America
Bank of America said last month it would stop doing business with companies that make “military firearms for civilian use.” But now the bank is lending to Remington Outdoor, the company that makes the same type of military-style guns used in many of the recent mass shootings.
According to court documents, Bank of America will lend $43 million to Remington as part of a pre-packaged, fast-track bankruptcy plan. The deal was inked sometime in late March, about the same time Bank of America starting discussing its new firearm policy.
But according to Sarah Foss, a legal analyst for the research firm Debtwire, the deal “had been in the works for some time, so it really wasn’t something that I think they could have easily gotten out of.”
Remington was already in debt to Bank of America. This extra bankruptcy funding was a way to get the gun maker back on its feet so Bank of America could avoid taking a loss on its original loan. Plus, there would have been other costs in backing out at the last minute.
“So they would have subjected themselves to lawsuits, perhaps their reputation. I think this would have cost their shareholders quite a bit of money,” Foss said.
Bank of America declined to comment other than to say that "going forward" it will honor its pledge to stop providing financing for the manufacture of assault-style weapons.
Still, there are plenty of banks willing to lend to the gun industry, in part because most of the time it makes money.
Brian Rafn, a stock analyst for Morgan Dempsey Capital Management, says Remington’s bankruptcy was an outlier.
“If you looked at Heckler & Koch, SIG Sauer, or Glock, or Sturm Ruger, they are highly profitable, and they manufacture and manage the company for the long-term strategic outlook.”
While gun sales have dropped since Donald Trump’s election, it’s a small dip compared to the boom the industry has seen since 2001.
Rafn says if a bank chooses not to do business around guns, “it really has nothing to do with manufacturing or the profitability of the industry.”
Following the school shooting in Parkland, Florida, both Citibank and Bank of America said they would place restrictions on doing business with the gun industry. This ignited the fury of Republican lawmakers who saw it as private companies taking taxpayer bailouts and then financially excluding perfectly legal businesses. Then Democrats came out and pushed banks from the other side, urging them to restrict certain types of gun sales.
Bank lawyer Matthew Dyckman says it’s a no-win situation.
“Banks that take sides in a political issue run the risk of alienating important constituencies, whether they be regulators, shareholders, or customers.”
There have been reports of regulators and lawmakers making thinly veiled threats of extra scrutiny on banks for taking a stand against guns. On the other side, New York’s Department of Financial Services, which regulates several large institutions, has fined insurance companies for doing business with the NRA and has warned banks for doing the same.
“Political winds change. Power in Washington and the states change all the time. I think it would be bad for the banking industry if it became a political pawn for politicians.”
Dyckman says when politicians start picking the companies banks can do business with, there’s no telling which industry will fall in or out of political favor.