In micro M&A, in Ohio, Sky Financial announced a proposal to buy Belmont National Bank, for $69.2 million. Oklahoma-based BOK Financial announced a deal to buy Valley Commerce Bancorp Ltd. of Phoenix for $32 million. In bigger ticket (and more shameless) news, in the same week UBS acknowledged an SEC inquiry into its dealings with HealthSouth, announced a proposal to buy Dresdner’s Latin American private banking business...

            BBVA: ICP has opposed, in two December 5-6 filings, the BBVA-Laredo National proposal under the Community Reinvestment Act, including based on Laredo National’s (and BBVA’s Valley Bank’s) enabling of high-cost fringe financiers, including pawn shops, rent-to-own and others.  ICP’s research in publicly-available Uniform Commercial Code (“UCC”) filings has found Laredo National Bank funding and enabling for example Kwik Cash Pawn Corp. and Minita Pawnshop, Inc.; Laredo’s South Texas Bank enables Big Cash Pawn, Inc., Pronto Pawn, and Valdez Pawn Shop; BBVA’s Valley Bank enables rent-to-own business.

           On December 16, BBVA’s outside counsel submitted a response. The response is, unfortunately, largely procedural. It begins by arguing against any extension of the comment period, despite the FFIEC’s / FRB’s HMDA web site being down; it claims that ICP has no need for information about the ownership of LNB’s majority-owned subprime lender, nor about its presentation about Spanish money laundering law (despite the claims about the law made by Spain’s largest bank, quoted in ICP’s initial comment and in the Senate report cited therein).  BBVA is claiming that while such information is required, and BBVA submitted it as part of its application, the public either doesn’t need it or has no right to it.  The position is far from transparent (see infra), and is incorrect. BBVA for example argues that “ICP has not presented any evidence suggesting that information regarding the minority owners of HLC or Fintegra is relevant to any of its apparent concerns.”  While the onus (or burden to present evidence) is not on ICP, it is strange to claim that information about the target bank’s partnership in a nationwide subprime mortgage lender is not relevant to the issues ICP has timely raised. To be clear, note for the record that the FRB, through counsel, has stated in pending FOIA litigation with ICP that

“In a number of past applications, where public commenters have raised the issue, the Board has taken into accounting information on the acquiring and target institutions’ relationships with commercial customers who are engaged in subprime lending in assessing financial and managerial resources. In these applications, such information was necessary to the Board’s assessment of financial and managerial factors because lending to commercial customers who engage in subprime lending can present legal, credit and reputational risks to the lending institutions.”

            Affidavit of Federal Reserve Board Counsel Andrew Baer, filed this week in ICP v. FRB, Civ. No. 04 CV 8337 (DLC), Southern District of New York. The affidavit says the same of those providing alternative products including pawnshops, and also note that the risks are NOT only, or even mostly, about anti-money laundering safeguards, but rather reputations, anti-predatory lending, etc, safeguards not even purportedly addressed in BBVA’s response.  And yet, to ICP’s knowledge, the FRB has yet to pose (or, BBVA has yet to answer) an Additional Information letter of the type directed to nearly all other applicants, including as one recent example Synovus, with questions about support for fringe financiers, a matter only partially addressed (if that) in BBVA’s response.

            BBVA disavows any responsibility for the activities of its subsidiary Valley Bank, claiming that if ICP did not comment when BBVA bought Valley Bank, it is henceforth issue-precluded.  This approach to buying banks in the U.S. is contrary to the letter and spirit of CRA, and does not portend well for BBVA’s currently-proposed acquisitions, including a nationwide subprime lender (see infra). Note that BBVA Puerto Rico received a Low Satisfactory CRA rating on the Lending (and Investment) Tests of its most recent CRA Performance Evaluation (the “Exam”). For the record, the Exam at 24 states that

BBVAPR’s performance of lending to low-income census tracts when compared to the aggregate is adequate. Its performance in moderate-income census tracts is not as good. Aggregate lending data reflects a total of 15.1 percent of all HMDA loans made in 2000 were made in moderate-income areas, and 13.1 percent of all HMDA loans made in 2001 were made in moderate-income areas. The percentage of total aggregate dollars loaned to borrowers in moderate-income census tracts in 2000, and 2001 were 12.9 percent and 10.7 percent respectively... BBVAPR was not as successful in lending to small businesses located in moderate-income geographies. (Emphasis added).

            Regarding mortgage lending, the Exam at 26 states that “BBVAPR has not been successful in making HMDA loans to low-income borrowers. The institution did not make a HMDA loan to low-income borrowers during the rating period.”

            Regarding LNB’s Homeowners Loan Corp., BBVA states that HLC has represented that in 2003 it originated approximately 85 percent of its loans through direct marketing challenges, with almost 75 percent of all loans through direct mail marketing.  Questions must now be asked about how HLC develops its lists for direct marketing -- because the demographics of its lending are so strikingly directed at African Americans.  Again, reviewing just two of the ten MSAs analyzed in ICP’s initial comment:

In the Chicago, Illinois MSA in 2003, for mortgage refinance loans, HLC reported originating 29 loans to African Americans and four loans to whites: 7.25 loans to African Americans for each loan to a white.  The aggregate in this MSA made 0.10 refinance loans to African Americans for each loan to a white.  HLC targets its higher cost loans at African Americans over SEVENTY TWO TIMES more frequently than whites -- a targeting index of 72.5. 

            How, given the demographics of Chicago, could such a pattern legally arise from direct mail marketing of subprime loans? 

        In the Atlanta, Georgia MSA in 2003, for mortgage refinance loans, HLC reported originating 64 loans to African Americans and 39 loans to whites: 1.64 loans to African Americans for each loan to a white.  The aggregate in this MSA made 0.22 refinance loans to African Americans for each loan to a white.  HLC targets its higher cost loans at African Americans over SEVEN TIMES more frequently than whites -- a targeting index of 7.45).

            How, given the demographics of Atlanta, HLC’s headquarters city, could such a pattern legally arise from direct mail marketing of subprime loans?  ICP reiterates its request for a hearing, given that BBVA’s response raises more questions that it answers.

           As another managerial / compliance issue that should be explored, including at the hearings ICP has timely requested, note for the record Il Sole 24 Ore of December 11, 2004, "BBVA TO DEFEND STAKE IN BNL (BNL, BILBAO SI AFFIDA A BANKITALIA)" --

"Spanish bank BBVA signaled yesterday that it would defend its investment in Italian banking group Banco Nazionale del Lavoro (BNL) against the challenge posed by a rival shareholder syndicate. The Spanish bank's representative on BNL's board, Juan Perez Calot, declined to comment on rumors that the Spanish bank had appealed to European antitrust authorities over the Bank of Italy's decision to refuse BBVA permission to raise its stake in BNL. However, he said, there would be time to do something else beforehand. BNL's share price rose by 1.33 per cent in Milan.

"BBVA reportedly hopes that the Italian central bank will discipline the rival syndicate, based on regulations that prevent any industrial shareholder from owning more than 15 per cent of a bank. No member of the syndicate, led by industrialist Francesco Gaetano Caltagirone with a group of entrepreneurs, holds more than 5 per cent of BNL, but the syndicate itself announced last week that it would rise to 24.2 per cent with the addition of a new member, and could reach 28 per cent. In this case, its weight would be equal to the stake controlled by BBVA's pact with Italian insurer Generali and entrepreneur Diego Della Valle. However, the central bank could choose to consider the Mr Caltagirone's syndicate as a single industrial shareholder, in which case its stake would be above the legal limit. The bank's trade unions have announced their support for BBVA and Generali's syndicate, seen as the more stable shareholder."

            And, as an update, note for the record El Pais of December 17, 2004, "BBVA FORECASTS SYV BID WILL END UP IN COURT (EL BBVA PRONOSTICA QUE SI SACYR VA A LA JUNTA ACABARA UN EN PLEITO)" --

“In Spain, leading bank Banco Bilbao Vizcaya Argentaria (BBVA) has released a statement inviting construction group Sacyr Vallehermoso (SyV) to attend the BBVA shareholders' meeting on February 26 to formally apply for a seat on the bank's board of directors. BBVA predicts, however, that the application will be rejected and that the two companies will end up fighting the issue in court.

“Earlier in the week, SyV said that it planned to continue with its bid to acquire a 3.15 per cent stake in BBVA and gain seats on the bank's board of directors. The construction group also denied that it intended to unseat BBVA's chairman, Fransisco Gonzalez. BBVA's board has 16 members, meaning that SyV would nominally have to acquire a 6.25 per cent stake in order to qualify for a seat. However, only 1.3 per cent of BBVA's capital is actually represented on the bank's current board of directors.”

 Again, on important compliance issues on which ICP is requesting a hearing, including in light of the FRB’s previous history with Laredo National:

Expansion of August 2, 2002, "GARZON TO QUESTION NELSON RODRIGUEZ FOR THIRD TIME (GARZON INTERROGARA A NELSON RODRIGUEZ Y MARIO FERNANDEZ Y PIDE MAS INFORMACION A BBVA)" --

“Baltasar Garzon, the Spanish high court judge, has agreed to question, for the third time, Nelson Rodriguez, a protected witness in the case focusing on Spanish bank BBVA, upon the request of drugs prosecutor Javier Zaragoza, responsible for the part of the case regarding alleged money laundering from drugs trafficking in Mexico and Columbia. Mario Fernandez, former head of legal affairs at BBVA, Enrique Arans, of BBV Gran Caiman, Alfredo Rosello of BBV Privanza Suiza, and Antonio Colomer, chairman of BBVA Peru, will also be interviewed by the judge. Mr Garzon has also asked BBVA for all documentation concerning the purchase of Banco Ganadero of Colombia, all of its former directors and Eduardo Perez Montoya and Jose Madariaga, shareholders of Probursa of Mexico.”

         And see the Financial Times of January 17, 2003,"BBVA admits secret offshore bank account" --

BBVA, Spain's second largest bank, has admitted that it paid a top Mexican banker from the proceeds of a secret offshore bank account, adding a new twist to a judicial inquiry into its alleged use of slush funds to expand in Latin America.

BBVA is being investigated by Spain's leading investigative magistrate in connection with unconsolidated funds held in accounts in Lichtenstein, Switzerland and Jersey. It is also being probed in the US for alleged money-laundering.

The bank last year owned up to keeping Euros 225m (Dollars 239m) in secret funds. These were used by Banco Bilbao Vizcaya (BBV), before its merger with Argentaria in 1999, to trade in its own shares, bribe politicians in Latin America and top up the pay of its board members. The embarrassing admission led to the resignation of the chairman, chief executive and several board members that had come from the BBV side of the merger. BBVA said it was co-operating with Spanish authorities and admitted, in a new disclosure, to the existence of another secret bank account held in Switzerland. The account was closed in 1998 and funds totaling Dollars 800,000 were paid to a company in Jersey owned by Jose Madariaga, who retired late last year as deputy chairman of BBVA Bancomer, BBVA's Mexican subsidiary.

BBVA said the payment was for "services rendered by Mr Madariaga". Mr Madariaga sold his bank, Mercantil Probursa, to BBV during Mexico's financial crisis in the mid-1990s. BBVA bought the much larger Bancomer in 2000 and merged it with Probursa to create Mexico's largest bank. The new disclosure raises questions about the extent to which the Spanish bank used secret funds to curry favor as it consolidated its empire in Latin America.

  And see, "BBVA Ex-Chairman Ybarra To Stand Trial In April," DOW JONES NEWSWIRES of December 21, 2004---

Emilio Ybarra, former chairman of Spanish bank Banco Bilbao Vizcaya Argentaria SA (BBV), and four other former bank executives will stand trial in April, a court official said Tuesday. Ybarra and former BBVA director Juan Urrutia face embezzlement charges in a case linked to the discovery of secret offshore accounts held by one of the banks that later merged into BBVA.

According to court officials, who confirmed local media reports published Tuesday, the trial may take place between April 4 and April 13. The offshore accounts were allegedly used in 1999 for $19.24 million in pension payments for board members, the court official added. Ybarra could face up to four years in prison, while the state attorney is asking for up to three years of imprisonment for Urrutia. Three other former executives will stand trial as accomplices, and could face prison terms of between two and a half and three years. A spokesman for BBVA declined to comment.

            These issues are important, and BBVA is admittedly being far less than transparent (“‘We acted without transparency,’ BBVA President Francisco Gonzalez declared in late June,” as quoted in ICP’s initial comment); the response simply alludes to BBVA reaching out to its regulators (the response is hardly transparent). BBVA is seeking to withholding its anti-money laundering policy (required to be considered in this proceeding) and even the laws applicable to it. ICP requested the complete applications on November 23, 2004, under FOIA.  On December 2, ICP received a portion of the applications, with fully 13 exhibits withheld. Since BBVA submitted this application on November 3, and a month later the FRS responded to a FOIA request by withholding 13 exhibits, ICP on December 5 made known that it contested these withholdings. By letter dated December 14 (faxed to ICP on December 17), some few additional documents were provided, behind a formal letter of Denial.  ICP has now submitted a formal appeal -- ICP wants the improperly withheld information as quickly as possible, to comment on BBVA’s application during the comment period, which should be extended.        

  ICP also notes BBVA’s statement on its web site about its “adherence to two important United Nations initiatives: the United Nations Environment Programme for financial institutions and the Global Compact for business leadership, which is intended to encourage companies to make a contribution to a better and more environmentally-sound society.”  The Global Compact, with its focus on human rights, applies to (needed) fair lending and anti-predatory lending standards...

* * *

            TD-Banknorth: ICP is surprised that, to its knowledge, the FRB has yet to pose (or, TD has yet to answer) an Additional Information letter of the type directed to nearly all other applicants (a simply one current example, to Synovus, including a question about support for fringe financiers, needed here).  ICP commented in detail on November 15; on December 2, TD’s outside counsel purported to respond. 

            The Response is insufficient. It first claims, as to Banknorth’s not-denied lending to fringe financiers, that “many of them are locally-owned businesses and Banknorth has opted to serve these type of businesses provided that they meet Banknorth’s stringent standards.” These standards, however, are described ONLY in terms of anti-money laundering laws (the BSA, “the Patriot Act and related regulations”), and not in terms of any consumer protection much less anti-predatory lending safeguards.  Apparently, Banknorth does not apply any such standards to its funding of fringe financiers.

            Note for the record that the FRB, through counsel, has stated in pending FOIA litigation that

“In a number of past applications, where public commenters have raised the issue, the Board has taken into accounting information on the acquiring and target institutions’ relationships with commercial customers who are engaged in subprime lending in assessing financial and managerial resources. In these applications, such information was necessary to the Board’s assessment of financial and managerial factors because lending to commercial customers who engage in subprime lending can present legal, credit and reputational risks to the lending institutions.”

            Affidavit of Federal Reserve Board Counsel Andrew Baer, filed this week in ICP v. FRB, Civ. No. 04 CV 8337 (DLC), Southern District of New York - the affidavit says the same of those providing alternative products including pawnshops, and note that the risks are NOT only, or even mostly, about anti-money laundering safeguards, but rather reputations, anti-predatory lending, etc, safeguards not even purportedly addressed in TD’s response.  And yet, to ICP’s knowledge, the FRB has yet to pose (or, TD has yet to answer) an Additional Information letter of the type directed to nearly all other applicants, including questions about support for fringe financiers, a matter only partially addressed (if that) in TD’s response.

            Regarding disparities made clear by HMDA data, the Response disingenuously claims that Banknorth is not much present in Boston (meaning, presumably, the city of Boston).  But HMDA data is reported by (much larger) MSA, and note that in 2003, Banknorth reported fully 753 refinance loans to whites in the Boston MSA (and only 10 to African Americans, and only 10 to Latinos).  Banknorth is present, but disparate. The same holds true for the other MSA the Response tries to disavow.

            In fact, TD’s purported response only even mentions HMDA data and fringe finance (and that, only as regarding anti-money laundering). ICP reiterates the following, left entirely unaddressed by TD:

            There’s Toronto Dominion’s enabling of Enron’s fraud (see, e.g., the Houston Chronicle of December 03, 2003, “THE FALL OF ENRON: Banks added to shareholder suit;” note that evidence submitted to the Senate Permanent Subcommittee on Investigations’ hearings identified Toronto Dominion as actively engaged in illegitimate trades with Enron to disguise loans received by the company, allowing Enron to hide this debt from credit rating agencies and investors, inflating profits substantially. [Etc.] And, as yet another managerial / compliance issue that should be explored, including at the hearings ICP has timely requested, note for the record the Canadian Press NewsWire of December 3, 2004, "TD Waterhouse brokerage and online banking website down for about an hour" --

"TD Bank's online banking and its TD Waterhouse brokerage website were down for about an hour Friday morning, forcing customers to make trades over the phone instead of online.  Bank spokesman Jeff Keay said it was a problem with the servers... Keay said about three to four million of the bank's 10 million customers use the banking website."
        More needs to be (and will be) said, but ICP will await copies of the FRB's correspondence with and about Toronto Dominion and Banknorth, and the banks' responses -- including to the much needed Additional Information letter(s). Until next time, for or with more information, contact us.

December 20, 2004

            Here’s what BBVA had to say last week, in response to ICP’s comments on its and its target Laredo National Bank’s support of fringe finance:  “such loans are extended in the ordinary course of their lending to small businesses.” And that’s one of the problems, that no additional due diligence is done before supporting a business engaged in high-cost lending, in the banks’ Community Reinvestment Act service area.  BBVA claims that as to the practices of Valley Bank, which it acquired earlier this year, “that application was the proper forum in which to raise [those] concerns. In fact, neither ICP nor any other community organization submitted any comments in connection therewith.”  So the bank’s argument is that it is not responsible for anything it acquired, unless that acquisition was challenged.  By that logic, community and consumer organizations should comment much more than they currently do, in order to avoid what’s called “issue preclusion.” Something to keep in mind, in 2005 -- with regarding to many institutions (and on BBVA, with regard for example to any further moves on Banca Nazionale del Lavoro).

            Last week in Boston at the U.S. House Financial Services Committee hearing on fall-out from mergers, Bank of America was evasive, and, as reported by the Toronto Star of December 17 with regard to ICP’s challenge to TD-Banknorth, “Inner City made the same charges at a hearing of the House of Representative's financial services committee held in Boston this week to look into bank mergers. It was joined in its concerns by John Quinn and Andrea Nuciforo, members of the Massachusetts legislature who submitted testimony to the hearings.”

In Bay State micro M&A, on Dec. 17 Berkshire Hills Bancorp announced a proposal to buy Woronoco Bancorp for about $144.5 million. In South Carolina, SCBT Financial Corp. announced a proposal to buy New Commerce BanCorp for $20.2 million...

  And globally, beyond dodging the unfolding oil-for-food scandal, BNP Paribas is bulking up its consumer finance business in Brazil. Last week it announced a deal to buy 6 billion reais ($2.2 billion) of loans from Brazil's Banco BMG over the next five years. The BNP unit, Cetelem, will purchase at least 100 million reais a month in credits administered by the Brazilian bank until it reaches the 6 billion reais total.  Cetelem will specifically buy BMG loans being paid back by direct discounts from government pension payments. A nearly guaranteed funding stream, they figure...

December 13, 2004 - This week's CRA Report includes ICP's testimony including on TD-Banknorth, click here to view. Regardin the below, see also “Group Protests BBVA Deal for Texas Bank,” by Hannah Bergman, American Banker, December 14, 2004 and “Community group seeks to block Laredo National deal,” by David Weidner, CBS MarketWatch / AFX, December 13, 2004

   Inner City Press / Fair Finance Watch has filed a timely challenge to the application by Banco Bilbao Vizcaya Argentaria (BBVA) to acquire Laredo National Bancshares, its banks and its nationwide subprime lender, Homeowners Loan Corp..  ICP's timely comments, summarized below, are based on lending disparities, on managerial issues at BBVA including off-shore banking and political contributions scandals, and on Laredo National’s and BBVA’s funding of high-cost pawnshops, rent-to-own, check cashers and other predatory fringe finance.

            ICP's ongoing review of Uniform Commercial Code (UCC) filings has found Laredo National Bank funding and enabling for example Kwik Cash Pawn Corp. and Minita Pawnshop, Inc.; Laredo’s South Texas Bank enables Big Cash Pawn, Inc., Pronto Pawn, and Valdez Pawn Shop; BBVA’s Valley Bank enables high cost rent-to-own businesses such as Nations Rent-to-Own, to go along with BBVA’s remittance and check cashing in the U.S., through Bancomer Transfer Services.

            Mortgage lending (HMDA) data reported for 2003 show that Laredo National’s subprime / high-cost mortgage lender, Homeowners Loan Corp., targets its high-cost loans disproportionately at protected classes, particularly, African Americans, in presumptive violation of the fair lending laws.

In the Los Angeles, California MSA in 2003, for mortgage refinance loans, HLC reported originating 37 loans to African Americans and 51 loans to whites: 0.72 loans to African Americans for each loan to a white.  The industry as a whole (the “aggregate”) in this MSA made 0.12 refinance loans to African Americans for each loan to a white.  HLC targets its higher cost loans at African Americans SIX TIMES more frequently than whites (a “targeting index” of 6.0).

        In the Atlanta, Georgia MSA in 2003, for mortgage refinance loans, HLC reported originating 64 loans to African Americans and 39 loans to whites: 1.64 loans to African Americans for each loan to a white.  The aggregate in this MSA made 0.22 refinance loans to African Americans for each loan to a white.  HLC targets its higher cost loans at African Americans over SEVEN TIMES more frequently than whites -- a targeting index of 7.45).

        In the Baltimore, Maryland MSA in 2003, for mortgage refinance loans, HLC reported originating 27 loans to African Americans and 44 loans to whites: 0.61 loans to African Americans for each loan to a white.  The aggregate in this MSA made 0.13 refinance loans to African Americans for each loan to a white.  HLC targets its higher cost loans at African Americans over FOUR TIMES more frequently than whites -- a targeting index of 4.69).

        In the Washington DC MSA in 2003, for mortgage refinance loans, HLC reported originating 71 loans to African Americans and 69 loans to whites: 1.03 loans to African Americans for each loan to a white.  The aggregate in this MSA made 0.23 refinance loans to African Americans for each loan to a white.  HLC targets its higher cost loans at African Americans over FOUR TIMES more frequently than whites -- a targeting index of 4.48. 

        In the Chicago, Illinois MSA in 2003, for mortgage refinance loans, HLC reported originating 29 loans to African Americans and four loans to whites: 7.25 loans to African Americans for each loan to a white.  The aggregate in this MSA made 0.10 refinance loans to African Americans for each loan to a white.  HLC targets its higher cost loans at African Americans over SEVENTY TWO TIMES more frequently than whites -- a targeting index of 72.5.

        In the Memphis, Tennessee MSA in 2003, for mortgage refinance loans, HLC reported originating 22 loans to African Americans and nine loans to whites: 2.44 loans to African Americans for each loan to a white.  The aggregate in this MSA made 0.26 refinance loans to African Americans for each loan to a white.  HLC targets its higher cost loans at African Americans over NINE TIMES more frequently than whites -- a targeting index of 9.38).

        In the Montgomery, Alabama MSA in 2003, for mortgage refinance loans, HLC reported originating 1.33 loans to African Americans for each loan to a white.  The aggregate in this MSA made 0.21 refinance loans to African Americans for each loan to a white.  HLC targets its higher cost loans at African Americans over SIX TIMES more frequently than whites -- a targeting index of 6.33.

        In the New York City MSA in 2003, for mortgage refinance loans, HLC reported originating 1.92 loans to African Americans for each loan to a white.  The aggregate in this MSA made 0.24 refinance loans to African Americans for each loan to a white.  HLC targets its higher cost loans at African Americans EIGHT TIMES more frequently than whites -- a targeting index of 8.0.

        In the Philadelphia MSA in 2003, for mortgage refinance loans, HLC reported originating 0.68 loans to African Americans for each loan to a white.  The aggregate in this MSA made 0.07 refinance loans to African Americans for each loan to a white.  HLC targets its higher cost loans at African Americans over NINE TIMES more frequently than whites -- a targeting index of 9.71.

        In the Wilmington, Delaware MSA in 2003, for mortgage refinance loans, HLC reported originating 0.67 loans to African Americans for each loan to a white.  The aggregate in this MSA made 0.09 refinance loans to African Americans for each loan to a white.  HLC targets its higher cost loans at African Americans over SEVEN TIMES more frequently than whites -- a targeting index of 7.44.

            This is a nationwide pattern, sketched with ten metropolitan areas, of targeting protected classes with higher-than-normal cost loans, in presumptive violation of the fair lending laws.  ICP has asked for public hearings, on these disparities and on BBVA’s spotty compliance record, in terms of off-shore accounts (and attempt to withhold information about its anti-money laundering policies, and even about applicable law; affordability and abuse in remittances; and BBVA’s current controversy, the battle for its control by a construction company. See, e.g., the El Pais newspaper of December 3, 2004:

“In Spain, construction, motorway concessions and property group Sacyr Vallehermoso (SyV) yesterday declared that it would continue with its plan to acquire a 3.6 per cent stake in banking group BBVA, in conjunction with other shareholders, despite the bank's stated opposition to the proposal. SyV, which would become BBVA's leading shareholder, commented that the BBVA board did not have full knowledge of the construction company's intentions when it pronounced its opposition. SyV believes that its presence in the BBVA board of directors would be beneficial to the bank. Regarding the presence in the SyV of Juan Abello, a director of Spanish banking group Santander Central Hispano (SCH), SyV added that the potential conflict of interest would be avoided as Mr Abello would give up his seat on the SCH board if the BBVA operation went ahead.”

            This is a still-developing story, one on which ICP is requesting public hearings, including on the issue of whether and when Sacyr Vallehermoso would be required, under the U.S. Bank Holding Company Act, to file an application with the FRB, before imposing this current chaos on a bank such as LNB.

            On remittances, the publication Electronic Payments International of August 19, 2004 reports on a report published in June by the Pew Hispanic Center which found that the “cost of sending an average remittance (currently around $400) by a bank is 4.1 percent compared to a market average of 4.4 percent, the study says, which means the banks and credit unions, ‘offer no significant advantage’ to the consumer. According to the report, the price of sending $200 from the US to Mexico has almost halved since a high of 15 percent in the late nineties, but the report author Manuel Orozco notes that since 2001 declines in price have been minimal and that, ‘further price reductions might be difficult to achieve under current market conditions.’”  BBVA has much to explain, given its BTS unit’s market share, as well as check cashing operations.

On important compliance issues on which ICP is requesting a hearing, including in light of the FRB’s previously history with Laredo National (see, e.g., San Antonio Express-News of June 1, 2001: “The Federal Reserve Bank's Board of Governors put aside its claims that Hank Rhon broke the law by surreptitiously funneling partial ownership of Laredo National Bancshares to business associates and his father”)

 “The case of Spain's Banco Bilbao Vizcaya Argentaria embroiled in Latin American charges of questionable cash transfers, money-laundering and secret political campaign contributions illustrates how the highway to democracy and global commerce is still pocked with holes, some of them deep. BBVA, with US$276 billion in assets, is under investigation for allegations linked to multibillion-dollar bank privatizations in Mexico, Venezuela, Colombia and Peru. It denies wrongdoing but admits one mistake. ‘We acted without transparency,’ BBVA President Francisco Gonzalez declared in late June... [D]uring its acquisition of privatized Banco Continental de Peru, then-Banco Bilbao Vizcaya is alleged to have shelled out millions of dollars in loans and other payments to former Peruvian President Alberto Fujimori and his videophile security chief Montesinos. The accusations, which BBVA says are baseless, range from claims that $112 million in bribes were paid to Fujimori to questions over the sale of Fujimori's $670,000 house. In Colombia, BBVA is fending off money-laundering charges in connection with its successful bid to control Banco Ganadero. BBVA-Ganadero executives vehemently deny the charges. Officials in Mexico, meanwhile, are looking into whether money laundering played a role in BBVA's takeover of financial group Mercantil Probursa and if offshore funds were inappropriately used to buy shares in Bancomer... BBVA had $227 million in a secret account in the British isle of Jersey.” (Latin Trade, October, 2002).

  And see World Markets Analysis of January 30, 2004:

“The Swiss public prosecutor investigating the case against Paraguay's ex-President Luis Gonzalez Macchi (1999-2003) arrived in the Paraguayan capital, Asuncion, yesterday to share information with local authorities. Thomas Wiser is progressing the case after Swiss authorities froze two secret bank accounts of the former leader, who is wanted in his home country for alleged skimming off state funds. Paraguayan District Attorney Oscar Latorre made the decision to open an inquiry after Swiss authorities began their own investigation into Macchi's private accounts held with Spanish bank BBVA in the Swiss city of Geneva.”

            These issues are important, and BBVA is being far less than transparent, seeking to withholding its anti-money laundering policy (required to be considered in this proceeding) and even the laws applicable to it. ICP requested the complete applications on November 23, 2004, under FOIA.  On December 2, ICP received a portion of the applications, with fully 13 exhibits withheld.    Since BBVA submitted this application on November 3, and a month later the FRS responded to a FOIA request by withholding 13 exhibits, ICP has now submitted a FOIA appeal / request -- ICP wants the improperly withheld information as quickly as possible, to comment on BBVA’s application during the comment period, which must be extended. Amazingly, BBVA’s application lists as “Confidential” exhibits the following:

“information regarding ownership of shares of Homeowners Loan Corp., Rate Star Inc and Fintegra, LLC by persons other than LNBI and its subsidiaries” -- “Confidential” exhibit 8; note that Homeowners Loan Corp is a nationwide subprime lender, and LNBI’s partnerships / shareholding interlocks with respect thereto should be made public;

- information regarding LNB’s Financial Subsidiaries;

-the stock purchase agreement; information regarding LBNI and LNBD as financial holding companies; and, most outrageously,

“Information Regarding BBVA’s Anti-Money Laundering Policies and Spanish Anti-Money Laundering Law” -- “Confidential” exhibit 11.

   Note the U.S. Senate’s July 2004 report, expressing concern at a claim that Spanish banking law does not allow Spanish banks to identify the beneficial owners of accounts, including to their own U.S. subsidiaries:

"On February 10, 2004, in an attempt to gather additional information, Riggs sent letters to several banks sponsoring accounts to which questionable wire transfers had been sent from the E.G. oil account. These letters requested information about the accounts under Section 314(b) of the Patriot Act, which allows financial institutions to share client and transaction information to guard against money laundering and terrorist financing. The Riggs letter to Banco Santander, for example, requested information about the identity of the owners or authorized signatories for accounts belonging to Apexside and another company. [FN 197: Letter from Riggs Bank to Banco Santander (2/10/04).] ...

"The New York office of Banco Santander responded with information that the Kalunga account had been opened by its parent bank in Madrid, Spain, but that its parent bank could not disclose the account's beneficial owners due to Spanish statutes barring disclosure of bank information, even in a case of suspected money laundering. In discussions with the Subcommittee, Banco Santander indicated that its parent bank had interpreted Spanish law to mean that it was barred from disclosing this account information not only to any third party, but also to its own subsidiary banks located outside of Spain.

"The position taken by Banco Santander... USA means, in essence, that banks in the United States attempting to do due diligence on large wire transfers to protect against money laundering are unable to find out from their own foreign affiliates key account information. This bar on disclosure across international lines, even within the same financial institution, presents a significant obstacle to U.S. anti-money laundering efforts."

      www.senate.gov/~govt-aff/_files/071504miniorityreport_moneylaundering.pdf 55-56

   The final sentence quoted above is an understatement.  ICP asks: how can BBVA (or Banco Santander) be said to be complying with U.S. anti-money laundering laws, if it refuses to disclose any information about the beneficial owners of accounts, to a U.S.-based insured financial institution like Riggs, or even to its own U.S. affiliates? ICP has requested public hearings. 

     In other M&A news, last week UBS announced a proposal to buy the U.S. wealth management division of Julius Baer, based in New York... KNBT Bancorp announced on December 9 a proposal to acquire Northeast Pennsylvania Financial Corp. for $98 million... Again, this week's CRA Report includes ICP's testimony including on Toronto Dominion - Banknorth, click here to view.

December 6, 2004

   PNC’s now-troubled proposed acquisition of money-laundering Riggs was supposed to be for $24.25 per Riggs share. Riggs' stock recently dipped below $20... In micro-M&A, Seacoast Banking Corp. of Florida on November 30 announced a proposal to buy Century National Bank for $46.2 million.   New Jersey’s Valley National Bancorp on December 2 announced a proposal to acquire Shrewsbury Bancorp for $136 million.

            Beyond its subprime consumer finance buy in Brazil last week, HSBC is hoping to set up in both Iraq and Libya, according to CEO Stephen Green. He said the bank was currently negotiating with authorities and banks in both countries to build a presence there. HSBC is also setting up a new investment bank in Saudi Arabia in a joint venture with the Saudi British Bank, in which HSBC already owns a 40 per cent stake. (Article 98 accounts -- heard of them?) HSBC is licensed to operate in Iraq and sources told the FT it will be operational by the first quarter of 2005.  It’s not impossible -- HSBC operates in the contested part of Cyprus, while gunning now for the ex-Riggs embassy business in Washington...

November 29, 2004

Even in Serbia, the banks are up for sale. Bank Austria Creditanstalt AG on Nov. 22 announced a proposal to buy a controlling 58.7% stake in Serbian bank Eksimbanka, headquartered in Belgrade.   Bank Austria has been active in Serbia since December 2001 through its subsidiary HVB Bank Serbia and Montenegro... Meanwhile, the Bosnian bank regulators, split on the ethnic lines, are now merging themselves. The banking agencies of the Muslim-Croat federation and the Serb Republic have supervised banks in their respective turfs since the end of the 1992-95 Bosnian war. But more and more banks, most of them foreign-owned, now operate across the entire country. Central bank governor Peter Nicholl said on Nov. 22 that a shift to a single structure was needed to supervise a banking system that has become mostly unified. "We are already working with banking agencies on the merger plans and we will continue to do that and implement that as soon as we can," Nicholl said, adding that relevant legislation was before parliament that he hoped would be passed in time for the merger to kick-off in January. He also said state-level banking supervision would help coordination with the headquarters of foreign banks operating in Bosnia and ease the adoption of international standards. Vice-Governor Kemal Kozaric added that pending the passing of relevant legislation, the central bank would this year transfer some 12 million Bosnian marka ($8 million) to the state budget for the first time ever. So the answer to the question, Can’t we all get along, might in this case be Yes, at least in the field of bank regulation...

Scandal-echo sell-off: ING Group proposed last week to sell the activities of Baring Asset Management nearly a decade after it purchased the remains of the bankrupt British bank Barings, brought down by the Nick Leeson trading scandal in 1995.  Northern Trust would purchase Baring Asset Management's Financial Services Group, for about $480 million. MassMutual Financial Group would buy the investment management activities of Baring Asset Management, with $32 billion in assets under management, and the rights to the Barings name. ICP wonders: how would MassMutual propose to use the name? Note that the business being sold operates from offices in London, Guernsey, Dublin, the Isle of Man and Jersey -- and that’s NOT New Jersey...  (Northern Trust until now has been performing from Dublin, Luxembourg and London.)
  In micro / mundane M&A, Montana-based Glacier Bancorp last week announced a proposal to buy Wyoming’s First National Banks - West Co. for $41 million. And in a Turkey of a deal, scandal-plagued BNP Paribas last week announced a proposal to buy a 50% stake in holding group TEB Mali Yatirimlar A.S. for $217 million. BNP said-in-a-statement that TEB Mali controls 84.25% of Turk Ekonomi Bankasi (TEBNK.IS), or TEB, the tenth-largest private Turkish bank in terms of assets.  Bonne chance... See this week’s ICP Fed Watch report, on the Federal Reserve’s duties with regards to major banks’ funding of payday lenders. More, soon, on TD-Banknorth - the comment period's been extended to December 8 .. Update Dec. 6, 2004: Now the TD-Banknorth comment period has been extended through December 24, 2004, according to the FRBNY's Weekly Bulletin. We'll have more to say at that time, or the Monday afterwards.

November 22, 2004

 While Riggs explains delays in its proposed sale to PNC in terms of systems conversion, the Chilean newspaper El Mercurio on Nov. 16 reported that “Augusto Pinochet has assets of doubtful origin worth 13 million US dollars in offshore bank accounts, primarily in the US-based Riggs Bank. The assets include three million dollars to the name of Pinochet's wife Lucia Hiriart, according to the report of Chilean police's Money Laundering Investigative Brigade (Brilac).  The report was required by Judge Sergio Munoz, who was assigned to look into possible corruption of Pinochet. Brilac gave the figure after months of studies of materials from Riggs Bank... Brilac's figure is close to that presented by Pinochet's personal financial advisor Oscar Aitken, who claimed Pinochet's assets could amount to 15 million dollars.”  Developing...

   Toronto Dominion and Banknorth have yet to respond to the comments ICP/Fair Finance Watch filed on November 15 (see last week’s Report, below). The Toronto Star of November 21 opines that ICP’s opposition “cannot be taken lightly,” and quotes TD CEO Ed Clark that "We do not have the management team at the Toronto Dominion Bank in Canada to run a bank in the United States. We were attracted to Banknorth because it had that management." First, Banknorth’s management is reflected in the disparate lending ICP has documented in the Home Mortgage Disclosure Act data analyzed in last week’s Report.  And second, what does Clark’s statement say about the “managerial factors” that the Federal Reserve must review, in connection with the proposal?   This will be updated.

 Meanwhile, in micro M&A: in Pennsylvania, Community Banks Inc. on Nov. 16 announced a proposal  to buy PennRock Financial Services Corp. for $326 million, pushing shares in PennRock up 33 percent... In Illinois, Wintrust Financial Corp. on Nov. 17 announced a proposal to buy First Northwest Bancorp Inc. which has two banks in Arlington Heights and assets of about $267 million.

November 15, 2004

  On November 15, Inner City Press / Fair Finance Watch filed a timely comment on Toronto Dominion’s application to the Federal Reserve to acquire a controlling 51% stake in Banknorth, summarized below. See also, ”Group Challenges Banknorth-TD Bank Merger,” by Clarke Canfield, Associated Press (via Canada.com, Boston Globe, WLBZ-TV Maine, etc.).

Board of Governors of the Federal Reserve System
Attn:  Chairman Alan Greenspan, Governors, Secretary Johnson
20th Street and Constitution Avenue, N.W.
Washington, DC 20551

Re:       Timely comment opposing and requesting public hearings on Toronto-Dominion’s proposal to acquire a controlling stake in  Banknorth Group, Inc. and Banknorth, N.A.

Dear Chairman Greenspan, Governors, Secretary Johnson, FRB: 

            On behalf of Inner City Press/Community on the Move and its members and affiliates, including the Fair Finance Watch (collectively, “ICP”), this is a timely comment opposing, requesting public hearings on Toronto-Dominion’s proposal to acquire a controlling stake in  Banknorth Group, Inc. and Banknorth, N.A..

            ICP is opposed to the Toronto Dominion - Banknorth proposal under the Community Reinvestment Act, based on systemic lending disparities, and, particularly, Banknorth’s enabling of high-cost fringe financier, including pawn shops, check cashers and others.  ICP’s research in publicly-available Uniform Commercial Code (“UCC”) filings has found Banknorth funding and enabling for example PAWN DEPOT, INC., and GRAHAM'S CHECK CASHING, INC. (see attached).

            Note that in recent FRB proceedings, SunTrust has made commitments to cease funding certain fringe finance businesses, and Citigroup has made representations concerning not funding, for example, check cashers. What standards does Banknorth have?  Apparently none. At an absolute minimum, the FRB must ask Banknorth and Toronto Dominion the same questions as to standards (and full disclosure of fringe financial links) that it has asked, inter alia, Huntington, Wachovia and SouthTrust, BNP, North Fork (including regarding check cashers, rent-to-own and pawn shops), etc.. ICP is requesting a hearing and that the TD-Banknorth applications be denied.

Beyond Banknorth’s troubling enabling of predatory fringe finance, here is an analysis of the mortgage lending of Banknorth, N.A. in the most recent year for which HMDA data is available: 2003.

In the Hartford Metropolitan Statistical Area ("MSA") in 2003, for mortgage refinance loans, Banknorth denied African Americans’ applications 3.68 times more frequently than whites, and also denied Latinos’ applications 3.68 times more frequently than whites.  Banknorth's higher-than-aggregate denial rate disparities are not explained by any greater-than-normal outreach with normal-priced credit to African Americans or Latinos.  In 2003 in the Hartford MSA,  Banknorth made 781 refinance loans to whites, only eight to African Americans, and only eight to Latinos.  By contrast, the aggregate industry in the Hartford MSA in 2003 made 2397  such loans to African Americans, 1484 to Latinos, and 52,652 to whites.  For these three groups, the aggregate made 4.2% of its loans to African Americans, and 2.6% to Latinos.  For Banknorth, the figures were notably lower: only one percent of Banknorth’s loans were to African Americans, and only one percent to Latinos (while the aggregate made 4.2% and 2.6% respectively).  The same disproportionate exclusion is evident in Banknorth’s conventional home purchase lending in this MSA: using the methodology above, 3.3% of Banknorth conventional home purchase loans were to African Americans (lower than the aggregates’ 5.5%), and only 1.7% of Banknorth’s loans were to Latinos (much lower than the aggregates’ 5.4%).

Banknorth’s denial rate disparity to Latinos is systematic.  In the Albany, New York MSA for refinance loans in 2003, Banknorth denied Latinos 4.31 times more frequently than whites, and denied the conventional home purchase loan applications of  Latinos 4.83 times more frequently then whites.

For refinance loans in the Boston MSA in 2003, Banknorth denied Latinos 3.17 times more frequently than whites, while using the methodology above, only 1.3% of Banknorth’s refinance loans were to Latinos, lower than the aggregate’s 2.2%.  In this Boston MSA, Banknorth denied the conventional home purchase loan applications of African Americans 11.8 times more frequently then whites.    In the Lowell, Massachusetts MSA, Banknorth denied the conventional home purchase loan applications of African Americans 8.92 times more frequently then whites, and denied Latinos’ applications 10.8 times more frequently than whites.

In the New Haven, Connecticut MSA for refinance loans in 2003, Banknorth denied Latinos 6.25 times more frequently than whites, while using the methodology above, only 1.3% of Banknorth’s refinance loans were to Latinos, lower than the aggregate’s 3.2%.  In New Haven, Banknorth denied the conventional home purchase loan applications of African Americans 3.76 times more frequently then whites.

Banknorth’s disparities are income- (and geography-) based as well.  In the Portland, Maine MSA in 2003, Banknorth denied conventional home purchase loan applications from low-income census tracts 3.5 times more frequently than those from upper income census tracts (higher than the aggregates’ disparity of 2.09); Banknorth denied applications from moderate income census tracts 6.54 times more frequently than those from upper income census tracts (higher than the aggregates’ disparity of 2.83). In the Glen Falls, New York MSA in 2003, Banknorth denied applications from moderate income census tracts 3.73 times more frequently than those from middle income census tracts (much higher than the aggregates’ disparity of 1.23). ICP is requesting a hearing and that the Banknorth - Toronto Dominion applications be denied.

            Hearings are also needed on adverse issues at Toronto Dominion, including managerial issues.  There’s Toronto Dominion’s enabling of Enron’s fraud (see, e.g., the Houston Chronicle of December 03, 2003, “THE FALL OF ENRON: Banks added to shareholder suit;” note that evidence submitted to the Senate Permanent Subcommittee on Investigations’ hearings identified Toronto Dominion as actively engaged in illegitimate trades with Enron to disguise loans received by the company, allowing Enron to hide this debt from credit rating agencies and investors, inflating profits substantially.             Toronto Dominion’s standardless enabling of Enron stands in contrast to its arbitrarily harsh standards for retail customers, see, e.g., the Manitoba Portage Daily Graphic of December 23, 2003, “MAN WANTS COMPENSATION FROM BANK WHO WRONGLY CALLED HIS MONEY FAKE” --
 “Ajmal Muhammad said he still owes $5,000 in legal fees after a Toronto Dominion bank refused his cash and had him arrested.  Muhammad and his business partner, who asked not to be identified, went to the bank with enough cash to buy a $2,800 money order for first- and last-month's rent on a new retail business they were starting. But their cash, mostly in $100 bills, was refused and the pair were arrested, handcuffed and taken to a nearby police station. There, they say they were questioned, strip-searched and held in a cold cell without their jackets for most of the night... But after five months of legal wrangling, they were told it was all a mistake. Toronto police had sent the cash to a Royal Canadian Mounted Police lab in Ottawa that determined the bills were real. Even though the bank was wrong, the charges dropped and the money returned, Muhammad says he now owes $5,000 in legal fees. He is considering a civil suit and two weeks ago hired lawyer James Morton. ‘The police are quite within their rights to make an arrest if a bank says a bill is phony because really, who could tell you if a bill is phony better than a bank?' Morton said.”           

            Toronto Dominion also evidences a lack of environmental standards -- note for example Greenpeace’s November 2003 reporting on mining multinational Noranda and its aluminum smelter project proceeding in Chile  (which would release 1.5 million tons of solid and gaseous wastes every year into the heart of Patagonia). [Environmental litany abridged in this format.]

            In this transaction, it is widely predicted that TD will subsequently seek full 100% control. When it did this in connection with Waterhouse, it squeezed the remaining shareholders, see, e.g., Toronto Star of March 12, 2003, regarding

“shareholder lawsuits challenging the buyout of the bank's TD Waterhouse Group Inc. brokerage unit. TD Bank, Canada's second-biggest by assets, agreed in October, 2001, to add $22.5 million to its $409 million offer for the 12 per cent of the online brokerage that it didn't already own. Investors sued in Delaware Chancery Court to block the initial $9-per-share bid, contending it undervalued the stock. The bank, which sold the public stake in TD Waterhouse for $1.01 billion in 1999 when online brokerage shares were soaring, boosted its offer by 50 cents per share to resolve the suits. The company has said it's prepared to sell or close discount brokerage units in Europe, Asia and Australia if losses continue through this year.”

In fact, there’s been unusual trading in connection with this Toronto Dominion - Banknorth proposal. See, e.g., Financial Times of September 28, 2004, regarding “10 anomalies in Banknorth's trading on August 16, 10 days before the deal with Toronto-Dominion became public. Four stemmed from high volumes and six from an unusually large number of transactions.”

          The comment period should be extended, in light of all of the above, and of the House Financial Services Committee’s upcoming hearings, explicitly on this Toronto Dominion - Banknorth proposal and one other, slated for December 14, 2004 (see CBS MarketWatch of October 7, 2004).
           More needs to be (and will be) said, but ICP will await copies of the FRB's correspondence with and about Toronto Dominion and Banknorth, and the banks' responses. Specifically, based on prior FRS precedents, at a minimum the following question(s) should be asked, and publicly answered:

"For any business relationship (e.g. commercial lender, warehouse lender, purchaser, custodian, etc.) that Banknorth or Toronto Dominion or any of their affiliates have with any subprime lenders (including providers of non-traditional banking products, such as check cashers, title lenders, pawn shops, or rent-to-own businesses): (i) identify the relevant business parties and (ii) describe the nature of the business relationships... Additionally, to the extent not otherwise covered in your responses to the comments of the Inner City Press Community on the Move & Fair Finance Watch, describe any due diligence that Banknorth or Toronto Dominion typically conducts concerning any such subprime lender's compliance with applicable fair lending and consumer protection laws prior to Banknorth or Toronto Dominion entering into these business relationships, including... (c ) any monitoring or other ongoing procedures Banknorth or Toronto Dominion has adopted to access compliance with these laws. Provide a copy of such procedures that are used to determine whether third party originators are engaged in, or facilitating, abusive and/or predatory lending practices.