IT Value

Did B of A Attack Big Mac after All?

Bank's tame "denial" to a Bloomberg report leaves open the question of how much McDonald's franchisees have been squeezed by their lender.
Roy Harris and Stephen TaubSeptember 24, 2008

Is Bank of America really putting the financing squeeze on some McDonald’s franchisers as they seek funding to sell lattes, mochas, and other beverages in competition with Starbucks?

Some details of a Bloomberg News article reporting that the bank had declined to increase lending to a number of franchisees — forcing them to find alternative financing — has been challenged by a spokesman for B of A.

According to an Associated Press report, B of A spokesman Larry DiRita flatly denied that the bank had frozen credit to franchisees. The comment that the wire service quoted, however, was relatively mild, calling into question the veracity of an internal McDonald’s memo that Bloomberg said was the basis of its Monday story. “It’s not for me to speak to an internal memo, but any memo that says we’re freezing credit is factually inaccurate,” DiRita told the AP. DiRita said that B of A would continue to honor its obligations as McDonald’s franchisees seek to remodel and update restaurant drink options.

McDonald’s had declined to verify the memo’s authenticity for the Bloomberg reporter. And McDonald’s spokesman Walt Riker was quoted in the original story as saying that while the company recognizes “current trends…we want to make it clear that McDonald’s and McDonald’s franchisees have a variety of sources to get cash.” In the subsequent AP story, Riker again played down the B of A element, but said, “There are no credit issues at McDonald’s,” and there is “more than sufficient liquity available to our franchisees.”

Asked why Bloomberg did not publish a denial from B of A, or remarks similar to those appearing on the AP, Bloomberg spokeswoman Judith Czelusniak responded to by E-mail: “Neither McDonald’s nor Bank of America asked us to correct our story. We see no reason to correct based on the AP story. We never reported that there was a “freeze” on loans from Bank of America. We said that B of A wouldn’t increase the loans it had outstanding. We stand by our story.”

Another Bank of America spokesman referred to DiRita for comment, but attempts to reach him were unsuccessful.

On Tuesday, reported on the Bloomberg account, saying that the world’s largest fast-food chain had told some U.S. franchisees through the internal memo to seek alternative ways to finance store improvements, after the bank had declined to increase its lending. The memo said that B of A wasn’t providing more money while it works on its planned purchase of Merrill Lynch. “Bank of America has been taking steps to increase capacity to fund additional growth,” the treasury department of McDonald’s reportedly wrote in the Sept. 19 memo to franchisees in the Rocky Mountain region.

If McDonald’s franchisees do have trouble lining up financing, it would be a big blow for many of them who are currently spending upwards of $100,000 to upgrade their stores and buy equipment for new products such as lattes and espressos. And, of course, such difficulties in winning financing from banks that are distracted or otherwise tightening the purse strings would be major news for banking clients.