Inner City Press Bank Beat Archive #2 2001 (April 1-September 10, 2001)

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September 10, 2001

    This week: a micro-deal, some preliminary Washington Mutual - Dime analysis, and updates on Mellon-Citizens, and AIG.

   On September 4, Hudson River Bancorp announced a plan to buy Ambanc for about $100 million, which would make it the biggest bank based in the Albany, N.Y. area.

     Mellon, which is trying to sell all of its bank branches to Citizens Financial Group, on September 5 announced a deal to buy private investment-management software developer Eagle Investment Systems. Terms were not disclosed. Eagle, with 200 workers in Connecticut, Massachusetts, New York, London and San Francisco, would operate as a separate unit within Mellon Global Securities Services. Citizens Financial Group has yet to respond in writing to ICP's August 27 comments on its applications to acquire the Mellon branches (see Report of August 27, below). Citizens' and its parent Royal Bank of Scotland's responses are due September 10 to the Federal Reserve Board, and September 13 to the FDIC. In the interim, ICP has submitted supplemental comments, and a reply to the Federal Reserve, which is summarized at the bottom of this week's Report.

    Washington Mutual, which has just applied to the Office of Thrift Supervision to acquire Dime Bancorp, is reported by Dow Jones to be moving in on HomeSide Lending, currently owned by National Australia Bank. WaMu made a huge-seeming lending pledge last week, but did not disclose in its press release that it would be counting its subprime loans toward the pledge. For ICP's preliminary critique, click here.

   AIG, which while applying to acquire American General downplayed any layoffs that would ensue, last week announced 1,500 layoffs. American General's CEO Robert Devlin, who was slated to become AIG's Vice Chairman, has departed. This is called hard-ball. As has been AIG's strong-arming of Hyundai Securities and the Korean government, to lower an already-agreed upon price. AIG won that fight on September 9; earlier in the week, AIG announced that its and the U.S. Trade Representative's pressure on China has resulted in a continued special deal for AIG in China: AIG says it will not be required to reduce ownership of any of its 100%-owned operations, and will remain the only foreign insurance company in China allowed 100% ownership. One wonders why AIG has not yet joined Nike, McDonalds and other companies as acknowledged poster-children of the corporate domination of the globalization process. Perhaps it's that insurance is not as in-your-face as sneakers and hamburgers. But neither Nike nor McDonalds could have pulled off what AIG has, in China. Without a successor, though...

     Finally, for this week, here are summaries of ICP's September 10 and 11 timely supplemental comments to the Federal Reserve Board on Citizens' and Royal Bank of Scotland's applications to acquire the banking business of Mellon [this is covered in ICP's Delaware Report].

September 4, 2001

     The merger rumor of the week is Italy and Germany. On September 3, UniCredito saw up to 1.5 billion euros wiped off its stock market value: investors are voting, in advance, against UniCredito's rumored tie-up with Germany's Commerzbank. In light of the heavy trading, UniCredito released a statement confirming that it is "in touch with potential foreign partners," but that there are "no concrete plans on the table."

   Under the radar, it's looking like Freddie Mac is in the market for the $1 billion in subprime mortgages that Bank of America is selling. A Freddie Mac spokesman told the National Mortgage News (8/27) that Bank of America is a Freddie Mac customer, and added that, "We're always looking to help customers improve the liquidity of their balance sheets... as long as [the loans] are not originated outside the Home Ownership and Equity Protection Act."

    An update: Royal Bank of Scotland and Citizens Financial Group have been given until September 10 to submit to the U.S. Federal Reserve a response to the protest filed on August 27. We will be reporting on (and replying) to this response -- watch this space.

      Until next time, for or with more information, contact us.

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August 29, 2001

     Action this week: the Inner City Public Interest Law Center on August 27 filed comments opposing the applications of Citizens Financial Group and its parent, Royal Bank of Scotland, to acquire Mellon's banking business in Pennsylvania, Delaware, New Jersey and Maryland. ICP reviewed Citizens' 2000 mortgage lending record in Rhode Island, Massachusetts, New Hampshire and Connecticut, and found many disparities. Additionally, Citizens' affiliate Greenwich Capital Markets is a major underwriter of securities backed by subprime mortgage loans, apparently without standards or safeguards for this business. ICP's Fair Finance Watch project researched Royal Bank of Scotland's human rights and environmental record, and adverse ("reputational harm") issues in this regard were included in the comments filed on August 27.

Interim Update of August 28, 2001: Citizens' response, as reported by the Associated Press and Reuters, is that Citizens Mortgage Corp. makes Citizens' lending record look better. We disagree. According to data filed by Citizens Mortgage Corp. (CMC) under the Home Mortgage Disclosure Act (HMDA), for conventional home purchase loans in the Providence, RI Metropolitan Statistical Area ("MSA") in 2000, CMC's denial rate for African Americans was 4.83 times higher than for whites; for Latinos, it was 4.48 times higher than for whites. For refinance loans in the Providence MSA, CMC's denial rate for Latinos was nine times higher than for whites. For refinance loans in the Boston, Massachusetts MSA in 2000, even cumulating CMC with Citizens Bank of Massachusetts, Citizens' denial rate disparity between African Americans and whites for refinance loans was higher than for the aggregate (all lenders) in this MSA in 2000. In fact, the comments filed on August 27 include an analysis of CMC in 19 MSAs. This analysis will be further elaborated in reply to the response that Citizens will be submitting.

      Citizens also responded that "while Greenwich Capital Markets and Citizens share a parent company, the two businesses are otherwise independent." Frankly, that's akin to saying that Citibank and Salomon Smith Barney are "independent," despite "sharing" Citigroup as a parent company. The American Banker of August 28 (Patrick Reilly) reports that "[a] representative of Citizens Financial who is knowledgeable about the challenge did not return telephone calls seeking comment."

August 20, 2001

     In Singapore, Morgan Chase "under-priced" Merrill Lynch, and won a piece of the lending for United Overseas Bank's $5.7 billion takeover of Overseas Union Bank, to create that country's largest bank. UOB is expected to fork out fees of between S$15 million and S$18 million in the deal. As part of the deal, JP Morgan won a mandate for UOB's S$750 million Singapore dollar bond issue, to be priced next week. Anti-competitive over-concentration, and layoffs, in one country is apparently not enough -- it must be exported!

     From the mail bag this week, regarding a previous (6/18/01) ICP report:

Your item for June 18, 2001: And, in Singapore, Oversea-Chinese Banking Corp. announced a $2.7 billion takeover bid for the nation's smallest bank, Keppel Capital Holdings Ltd.. This consolidation is being driven by inroads by HSBC, ABN Amro and Citigroup.

You have the causality reversed. Actually, what is happening is that the Singaporean government has been exhorting the "Big 4" + Keppel Tat lee Bank to merge into two large banks that could be major regional powers. It believes that Singapore is too small to support 4+ domesticbanks and if the banks remain independent they will be too small to be hold their own in the region. As it is, DBS, OCBC, UOB and OUB have been buying up family owned and distressed banks (the two often go together) in Hong Kong, the Philippines, and Thailand. It now looks like we will see a "Big 3" in Singapore: DBS, OCBC+KTL, and UOB+OUB. This is after the government arranged the merger of DBS (which it controls) with Postbank (which it controlled) and Keppel (which it controlled) with Tat Lee (which had fallen into difficulties).

The government is trying to encourage foreign banks to enter the retailmarket to offset the increased concentration that it has engineered. To that end, MAS (MonetaryAuthority of Singapore) recently created a new license category, "Qualifying Full Bank", to give selected foreign banks increased access to Singapore's retail market. (In the past the government had protected the local banks by restricting foreign banks.) The four foreign banks awarded a QFB license were (with their original date of entry into Singapore in parentheses): ABN-AMRO (1858), Standard Chartered (1859), Citibank (1902), and Banque Nationale de Paris (1971). All had been lobbying for improved access for some time. Still, the MAS blocked BNP Paribas' bid to take control of OUB. Also, as I understand it, MAS has been disappointed at the lethargy the lucky four have displayed in response to their new powers.

      We appreciate that further information. Keep it coming!

August 13, 2001

     CRA in the news: last week, after WesBanco was informed that it will receive a Needs to Improve CRA rating, and after WesBanco announced that the rating puts its two proposed acquisitions into jeopardy, WesBanco's CEO Edward M. George resigned, falling on his sword in the spirit of a Japanese samurai. Mr. George, it is noted, "began his 35-year banking career as a bank examiner at the Federal Reserve Bank of Cleveland." Apparently, he got some great CRA training there...

    We love to see a CRA rating taken serious, a la WesBanco -- but the larger banks are given free passes, even when they own banks with Needs to Improve CRA ratings. Citigroup continues to expand, despite owning a bank with a Needs to Improve CRA rating. And last week, Bank One announced that it had finally gained Financial Holding Company status from the Fed. Bank One had owned a bank with a Needs to Improve CRA rating - but sold everything in it to J.P. Morgan Chase, and then "dissolved" the bank, and its rating, into thin air... In other Morgan Chase news, the company is leading the financing for Heartland Industrial Partners LP's proposed takeover of textile manufacturer Springs Industries (which sells sheets, towels and comforters under the brand names Wamsutta, Springmaid, Regal, Graber, Bali, Nanik and Dundee). Question: did Morgan Chase make any inquiry into the underlying employment conditions?

   Click here for an update on the continuing fireworks around AIG - American General.

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August 6, 2001

     Deal of the week was announced on July 30: GE Capital's agreement to buy Heller Financial, for $5.3 billion. Heller's largest shareholder, with a 52% stake and 77% voting power, is the Japanese holding company Mizuho....

    On August 3, First Union declared victory in its battle with SunTrust, to take-over Wachovia, and SunTrust didn't dispute that they've lost. Ol' L. Phillip Humann said, he'll close the "book on Wachovia and continue with the successful implementation of our ongoing growth and performance plans. Clearly we would have preferred a different outcome to this contest, but not if it meant abandoning our business discipline to pursue an acquisition at a price that did not make sense for our shareholders." In SunTrust's headquarters city, the Atlanta Journal-Constitution of August 3 hopefully reported, " SunTrust takeover attempt raises profile of bank." Yeah -- its profile as a take-over target...

   The OTS on July 31 "waived" its formal meeting requirements, and approved AIG's application to acquire American General (click here for more detail on that merger; this week's ICP Federal Reserve Watch more colloquially recounts the advocacy strategies of AIG's general counsel, who worked for 30 years at the Federal Reserve Bank of New York, until joined AIG in 1998).  

      The OTS officials who telephoned ICP (which had requested a formal meeting) emphasized a condition in the approval order, that the OTS will provide public notice in three months of a new AIG CRA plan, and will grant requests for formal meetings on that. It's an illusory condition. But looking forward (for purposes of this Bank Beat report): when the OTS called ICP on July 31, saying they'd "waived" their formal meeting regulations, ICP asked whether it was their position they could issue the same waiver, in connection with a more conventional thrift merger like Washington Mutual - Dime. "No," came the answer, "we wouldn’t do it then." We'll see... For now, we note a recent jury award in Holmes County, Mississippi, against Washington Mutual Finance Group for "convincing customers to refinance loans at a rate nearly seven times higher than other loan offices in the state... on June 13, a Lexington, Miss., jury awarded the plaintiffs $ 69 million in punitives and $ 2.27 million in compensatories." Ouch! Watch for the OTS to argue that it need not look into this WaMu subsidiary, or WaMu's other subprime lending unit, Long Beach Mortgage. But WaMu's position is that "Washington Mutual Finance Corporation has been an active participant in Washington Mutual's efforts to meet the credit needs of low- and moderate-income individual and communities...". Developing / to-be-developed...

* * *

July 30, 2001

    This week's focus: an update on AIG's applications to acquire American General, which are heating up. But first, the news: the U.S. banking deals announced last week were micro, along the lines of Indiana-based Union Community Bancorp's July 24 announcement of a deal to buy Montgomery Financial Corp. for about $18.5 million. In Argentina, Morgan Chase is part of a consortium bidding on Banco de Cordoba, which is being privatized... In Malaysia, AMMB Holdings Bhd, the country's fifth largest bank, announced on July 26 that it has won central bank approval to begin sell-out talks with Citigroup... The Wachovia fight is moving toward end-game, with the Wachovia shareholders slated to vote on First Union's bid on August 3. Both First Union and SunTrust continued to pelt the Federal Reserve Board with filings last week; each requested confidential treatment for most of the substance of the filings. On July 26, the Justice Department announced its satisfaction with First Union's divestiture plan: to sell off 38 branches in four states. Meanwhile, First Union would close 325 branches on top of that. Wachovia's sale of its credit card unit to Bank One is resulting in the closure of all three Wachovia card processing centers, in Chesapeake, Va., New Castle, Del., and Atlanta... The layoffs have begun; the branch closures will soon follow...

      AIG's applications to the Office of Thrift Supervision and to the New York Banking Department to acquire American General and its questionable subprime lending operation have been challenged, from July 2 onwards. On July 24, the OTS informed ICP that it would be holding the "informal meeting" which ICP had requested on AIG's application the next day, July 25. ICP complained that this was less than reasonable notice, that AIG would not, in all probability, have been able to sufficiently inquire into the high-rate American General loans which ICP put into the record on July 23, and that the only plausible explanation for this timing was AIG's desire to start the clock running on the OTS' formal meeting process.

      The informal meeting was held from 2 to 3:30 p.m. on July 25. AIG's representative, Ernest Patrikis, stated with regard to American General's lending practices that "I won't see the problems... there is nothing to correct." Some of the loan documents ICP submitted are for loans at 40% and 36% interest... Another of the applicants' lawyers, Jeffrey Naimen of Goodwin Proctor, claimed that all of the loan documents ICP had submitted were for non-real estate secured loans; the OTS then pointed to ICP-submitted loan notes for real estate secured loans. Some of the issues discussed are summarized in ICP's request for a formal meeting, available elsewhere on this Web site.

July 23, 2001

     Who watches the watchers? The Wall Street Journal's much-heralded M&A reporter Steve Lipin is cashing in: he's leaving the Fourth Estate to join a public relations company, Brunswick Group. So: who spins the spinners? In this case, the spun scribe joins the spinners, and brags: "My skills, my experience and my contacts give me a good chance to become one of the go-to players in this field... After 16 years in the field, seven in M&A, I have a good sense of how companies should communicate with Wall Street and the media."  Yeah -- mutual manipulation. We'd become increasingly skeptical about Mr. Lipin's purported scoops. In many instances, the merging companies had simply leaked their deals to him exclusively, in exchange for commitments not to call critics of the deals (including consumer advocates)...

   Following ICP's July 2 and 9 comments against AIG's applications to acquire American General, which focused on American General's subprime lending and imposition of single premium credit insurance, AIG's general counsel Ernest Patrikis submitted a letter on July 19 stating that American General will cease offering single premium credit insurance by August 31, 2001. See, e.g, "Third Insurer to Stop Selling Single-Premium Credit Life Policies," by Patrick McGeehan, New York Times, July 21, 2001. ICP is still going forward: the Office of Thrift Supervision granted ICP an extension of the comment period until July 23, and has stated it will be granting ICP's hearing request. On July 22, ICP submitted further comments, including 27 sample American General loan notes, with interest rates up to 40% (in Mississippi) and 24% (in Alabama). Click here for updates.

July 16, 2001

    We thought we'd found the cynical story of the week, in Household International's July 10 claim that "We are under no regulatory pressure whatsoever to stop marketing single-premium insurance" (American Banker, July 11, quoting Household's Gary Gilmer). But it was soon superceded, by First Union's campaign of getting Congress members to comment in favor of its proposed acquisition of Wachovia, which would result in the closing of 325 bank branches. Fully 21 members of the House Financial Service Committee commented to the Federal Reserve, purportedly against SunTrust's Community Reinvestment Act record. SunTrust received a "Satisfactory" CRA rating, with a "Low Satisfactory" sub-rating under the Lending Test. We're no fans of SunTrust (click here to view ICP's comments against SunTrust's application) -- but cannot ignore the incongruity between 21 Congress members jumping on a "Low Satisfactory" sub-rating, when the largest bank holding company in the nation, Citigroup, owns a bank with a lower, "Needs to Improve" overall rating... Like they say, money talks, and... the principle of consistency, walks.

    In light of Household's announcement, moving away from single premium credit insurance, American General's continued marketing of the product, while AIG applies to agencies including the N.Y. Banking Department and the Office of Thrift Supervision, appears more and more untenable. AIG has still not submitted its response to ICP's July 2 comments; ICP is preparing its timely supplemental comment to the OTS (due July 23, after which the OTS will schedule an informal meeting). This will be updated...

* * *

July 9, 2001

    In the Wachovia fight, the sparks are flying. SunTrust has protested First Union's application to the Federal Reserve Board; First Union has protested SunTrust's application. Last week, the conflict escalated. SunTrust, in a July 2 submission that SunTrust has still not provided to other commenters, accused First Union of accounting tricks related to "lease-in, lease-out" (or "LILO") transactions. First Union's lawyers at Sullivan & Cromwell shot back on July 5, accusing SunTrust of "hypocrisy and bad faith," of "due diligence failures in [SunTrust's previous] acquisition of Equitable Securities," and questioning "the adequacy of SunTrust's managerial resources given this desperate act." While First Union is relying on the Sullivan & Cromwell law firm, SunTrust had to go in-house to make its July 2 allegations. First Union's July 5 letter guesses why: "First Union understands that SunTrust's own law firm has given tax opinions to various parties for LILO transactions... This could explain why, for the first time in the proceeding on First Union's application, the communication from SunTrust was not signed by its law firm, in an effort not to impeach its own opinions."

    The World Wrestling Federation, at this point, has nothing on the world of bank regulatory lawyers. In this corner.... William Sweet of Skadden Arps (whose team most recently defended Citigroup, against predatory lending allegations), tossing hand grenades into First Union's financial statements. And in this corner... H. Rodgin Cohen, more accustomed to genteel requests (and grants) of exemptions, accusing SunTrust's unnamed lawyers (i.e., Bill Sweet) of "hypocrisy and bad faith." The money's on the table, the gloves are off. For now, you'll find more civility in the much-maligned South Bronx than on Washington's New York Avenue, or lower Manhattan's Broad Street...

      The Fed has extended the comment period on SunTrust's application until July 13 (at which time ICP will be commenting). While the Fed (unwisely) closed the comment period on First Union's application, after this comment period expired, First Union mailed ICP its response to the Federal Reserve's June 27 questions, including: "regarding the commitment to eliminate single premium credit life insurance, indicated the extent to which this commitment has been fully implemented and, if not, the timetable for doing so...". First Union, in a response dated June 29 (but mailed to ICP after the July 2 expiration of the comment period) states that "this will be fully implemented upon integration of systems, which will likely occur by mid-year 2003."   So the "commitment" doesn't take effect for two years -- a material fact not disclosed in First Union's and Wachovia's "Power Point" presentation of their "Community Commitment." What was that, about "bad faith"? Developing...

   Finally, for this week, ICP has obtained and submitted a sworn affidavit from another ex-CitiFinancial employee, alleging a variety of predatory practices, up until at least his departure from the company on May 24, 2001. Click here to read the affidavit.   And, on AIG's applications to acquire American General, the New York Banking Department extended the comment period to July 10, and the Office of Thrift Supervision has extended the comment period for ICP until at least July 23, and states that it plans to schedule an informal meeting on AIG's application, after ICP's supplemental comment. A central issue, at this point, is American General's subprime lending, and credit insurance practices...Click here for updates.

July 2, 2001

    U.S. deal of the week, hands-down, was Washington Mutual's proposal, announced June 25, to acquire Dime Bancorp, for $5.2 billion. WaMu CEO Kerry Killinger went on CNBC, here's a squib:

CNBC: Do you have any expectations that there might be a rigorous regulatory review that could delay it at all? KILLINGER: Well, we will naturally go through all of the regulatory filings and we've had excellent relationships with the OTS, who is our primary regulator on this. We are also blessed in that both Washington Mutual and Dime have outstanding CRA ratings. So we look forward to working with the community groups to show why this is a very positive transaction for the greater New York area. CNBC: CRA, for those of you who don't know this, is Community Reinvestment Act, I believe. Isn't that right? KILLINGER: Yes, that's right.

    With virtually all of the top-20 banks and thrifts in the United States having been granted "Outstanding" CRA ratings by their (compliant) compliance regulators, the rating doesn't mean much. A "straight-CRA" issue that's sure to arise is whether WaMu will expand its 1998 lending pledge, given that it would be collecting deposits in new states. Another issue will be WaMu's subprime lender, Long Beach Mortgage, which was previously sued by the Department of Justice for racial discrimination...

    Another interest deal last week was E*TRADE Bank's announcement that it will buy the deposits of Advanta (which previously sold its subprime lending operation to J.P. Morgan Chase). When E*TRADE acquired Telebanc in 1999, it fought to keep its CRA assessment area limited to Arlington County, Virginia, but committed to buy low- and moderate-income mortgage loans nationwide. Now that it's expanding its deposit level, one might assume that the lending (well, buying) commitment should also increase... Meanwhile, Bank One is folding its Internet bank, "Wingspan," back into it main brick-and-mortar bank. Back to the drawing board...

    Were there other deals? Sure: on June 27, Alabama-based Regions Financial Corp. announced a deal to acquire Park Meridian Financial Corp. and its three branches in Charlotte, N.C., for approximately $50 million.

    Was there (ICP) action? Sure: in follow-ups, click here for ICP's timely supplemental comment on First Union - Wachovia (the Fed extended the comment period to July 2); click here for ICP's comments on Citigroup's application to acquire Banamex.

    And finally, for this week, click here to view ICP's preliminary comment on AIG - American General, filed July 1 with the New York Banking Department.

June 25, 2001

   French bank Crédit Lyonnais, and the French government, have asked U.S. Secretary of State Colin Powell to somehow quell the criminal and civil proceedings underway about Crédit Lyonnais' shady purchase in early 1990s of Executive Life, a failed Californian insurance company. The charge is that Crédit Lyonnais, then fully owned by the French government, structured the deal to circumvent the then-applicable prohibition on mixing banking and insurance, and violated California laws barring government-owned entities from involvement in the insurance industry. The Federal Reserve is investigation whether CL executive Jean Peyrelevade knew about the illegal arrangement once he stepped in, as a clean-up artist, in 1993... "It's too late to say you're sorry...". But CL is bragging that damages awarded in any of the civil lawsuits will be paid by the government-owned Consortium de Realisation. Now that's... insurance.

     American General -- an insurer with a questionable subprime lending unit -- has set an August 15 shareholders meeting on AIG's take-over bid. On June 12, AIG applied to the New York Banking Department to acquire American General's subprime lending operations in New York State. ICP has requested the application, and will be reporting on this piece of the proposed deal: watch this space (and, ICP's updates on the Wachovia fight, and on Citigroup's applications for Banamex and ABN Amro's European American Bank).

June 18, 2001

    ICP's focus right now is on the ramifications of just-released allegations of predatory lending at Citigroup, made in a sworn affidavit by a long-time employee of CitiFinancial. The affidavit, which Inner City Press received last week in response to a Freedom of Information request, is quoted extensively on ICP's CitiWatch page, in the Report of June 13-14, 2001. Among the wider questions: when will the Congressional inquiries, promised in the American Banker of June 15 by spokespeople for both Senator Sarbanes and Rep. LaFalce, begin?

   It's reported that Sen. Sarbanes will be holding hearings on predatory lending, in the third week of July. This coming week, he's convening representatives of the four federal bank regulatory agencies, for an open-ended hearing on the condition of the banking industry, with a focus on the "too big to fail" doctrine. Why not ask the Federal Reserve about Ms. Kubiniec's sworn allegations about CitiFinancial at this week's hearing? CitiFinancial is a holding company subsidiary, which the Fed has had a right (we'd argue, a duty) to examine, on-site, since 1998...

    An aside about "too big to fail:" rather than speaking in code words about whether the Fed would step in to save a large failing non-bank (it apparently would -- take the example of Long Term Capital Management in 1998), the Senators might want to question why the Fed allows the creation of ever-larger banks: Citicorp - Travelers in 1998, J.P. Morgan Chase in late 2000. And what oversight is being done of these "too big to fail" behemoths' operations overseas... For example, few social or environmental standards appear to apply to Morgan Chase's venture capital and private equity lines of business; nor to its investment banking activities. The Chemical Business Newsbase of June 14 reports that the Indonesian company Salim's chlorine and polyvinyl chloride subsidiary Sulfindo Group has been put up for sale, with J.P. Morgan Chase as the advisor. Sulfindo has a 450,000 tons-per-year caustic soda unit and an 80,000 tons-per-year polyvinyl chloride unit in Serang. Well, that's chemicals. In woods- and forest-related news, the Canadian firm Domtar will receive a loan of $1.85 billion from "sole lead arranger and bookrunner" JP Morgan Chase. The facility will be used to finance Domtar's purchase of four large paper mills from Georgia Pacific... The American Banker of June 15 ran a "Viewpoints" piece which urged banks to pay more attention to their environmental and social standards, or suffer the consequences. Morgan Chase does not appear to be paying attention. Finally, for this week: Morgan Chase CEO William Harrison, speaking in Boston on June 13, stated that "I'm really the resident psychiatrist in the firm." Well, good luck..

June 11, 2001

   The last stages of the sell-off of the Mexican finance system, heated up by Citigroup's May 17 Banamex announcement, have set in: on June 4, Dutch conglomerate ING Group announced a deal to buy an additional 45% stake in Mexico's largest insurer, Seguros Comercial America S.A. de C.V.. ING bought an initial 42% stake in SCA last year, and will now pay $791 million for 45% more.

    Also on June 4, Fleet announced it's buying the asset management business of Liberty Financial, for over $1 billion; and the tight-lipped FBOP Corp. of Oak Park, Illinois revealed that it's buying Bank Plus Corp. (crippled by subprime credit card losses) for about $141 million.

    On June 5, U.S. Bancorp announced it will apply to buy 20 branches in southern California from Pacific Century Bank. "Terms were not disclosed," but U.S. Bancorp is trying to get $640 million in deposits, $570 million in loans and 300 employees. If its cost-cutting after merging with Firstar is any guide, U.S. Bancorp won't be keeping all 300 employees, by any means...

    Also on June 5, Ohio's Camco Financial Corp. announced that it has agreed to buy Columbia Financial of Kentucky Inc. for $30.2 million.

   On June 6, New York Life announced an agreement to acquire McMorgan & Co. of San Francisco, which has $27 billion of assets under management.

    And in upstate New York on June 8, Community Bank System Inc. announced a deal to buy 36 branches with deposits of about $484 million from Fleet... CBSI picks up when the big banks want to leave: previously, CBSI bought branches from Chase...

     SunTrust is aiming to amend Wachovia's bylaws, at the August 3 Wachovia shareholders' meeting. The amendment would make it easier for Wachovia's shareholders to convene a special meeting on SunTrust's bid. For now, Wachovia's board of directors (except for Mr. Offit, presumably) crow loudly that SunTrust's bid is not even on the agenda on August 3. "Take the bird in the hand, or pay $780 million dollars" appears to be Wachovia's board's approach to the shareholders, on August 3.

     Some banks come right out and say it: in an interview published in the Financial Times earlier this month, HSBC's Youssef Nasr "said the company... was keen to expand its banking presence in Florida and the U.S. west coast."

    Citigroup's next target? Brazil, apparently. At a press conference on June 4 in Sao Paulo, Citibank Brazil's incoming chief Gustavo Marin pronounced: "To amplify our scope ... we need to buy an infrastructure." So get ready...

June 4, 2001

    We step back from deal-a-thon this week, to ask: where's it all headed? One indicator is Citigroup's proposal to acquire Banamex, and come to control 25% of banking assets in Mexico. (ICP has now filed comments, available here). A more generic answer is contained in the Basel Committee on Banking Supervision's proposed new Capital Accord, the comment period on which ran out on May 31. Under the BSBC's proposal, the largest banks could essentially negotiate their required level of capital with their "supervisors." Surprisingly absent, from the proposal and the publicly-reported comments it has occasioned, have been the issues raised by the wider debate around (and here's another elite word) the "global financial architecture." Not only are social, environmental, human rights, sovereignty and other concerns largely ignored: the proposal breezes over the role bank deregulation has played in the quickening cycle of regional-then-global financial crises (Mexico 1994, Asia 1997, Russia 1998, etc.); its one tip-of-the-hat is the inclusion of a new category, "operational risk," which we might call the Nick Leeson / Barings factor. To view our hastily-prepared, more-than-financial comment on the new Capital Accord (in PDF format), visit

     What's sometimes called the "Washington Consensus" turns out to have no geographic center at all: in a speech last week in Columbus, Ohio (once a major banking town, since largely abandoned by high-flying Bank One), Cleveland Fed president Jerry Jordan echoed, in stronger form, the Governors' recent calls for the end of bank regulation: "You as the bankers are dictating the change and shaping the landscape of the financial services industry... We're rapidly moving to an environment of less regulation and greater reliance on supervision." Mr. Jordan's simply reading from sheet music provided by the Fed Governors in Washington, music echoed in Basel, and at bank "supervisory" agencies around the world...

     In news the Basel Committee ought to take note of, JPMorgan Chase's (and others' -- Goldman, Morgan Stanley, Deutsche Bank, Barclays, BNP Paribas, et al.) planned underwriting of bonds for the Chinese government is coming under fire, from environmental and human rights critics who charge that the proceeds will go toward the Three Gorges Dam. The World Bank has refused to lend to this dam, which would displace more than a million people in Sichuan and Hubei provinces, and put 657 factories, hundreds of archaeological relics, and 28,400 hectares of farmland and orchards under water. Earlier this year, five villagers from Yunyang Country, an area scheduled to be submerged by the dam, were arrested after organizing petitions detailing inadequate compensation and mismanagement of resettlement funds. The five men remain in detention and have been charged with disturbing public order, leaking state secrets and "maintaining illicit relations with a foreign country." The investment banks are competing for this work, and competing to buy up banks all over the world...

May 29, 2001

     ...First Union's May 24 "Community Commitment" does not address the 250 to 300 branches that First Union has said it would close, if it acquires Wachovia.  ICP's May 29 comment to the Fed is available here.

     Finally, for this week, opposition has begun, on both side of the border, to Citigroup's proposed acquisition of the second largest bank in Mexico, Banacci / Banamex. This $12.5 billion proposal raises a slew of questions, about sovereignty, branch closings, the allocation of bail-outs, the spread of predatory lending, the (in)adequacy of global bank regulation -- as well as, of course, Citigroup's expansion into the seediest side of the subprime lending industry, with its purchase last Fall of Associates First Capital Corporation.

     On that front, ICP received last week from the New York Banking Department a six-page chart, dated May 11, 2001, entitled "CitiFinancial Real Estate Lending Initiatives, Status of Implementation," which reveals the following:

"Referral-Up Program... Remainder of states['] implementation T[o] B[e] D[etermined]...;"

"Graduation Loan Program... Full program implementation date TBD;"

"Sales Practices Compliance Programs... TBD...";

"Broker Sourced Loans: Perform due diligence and background checks... Will be completed 5/30/01";

"Foreclosure Review... 14,980 total foreclosures in pipeline; 3,965 met criteria and have all been reviewed; 331 foreclosures suspended -- pending resolution"; etc..

     ICP has submitted this chart to the Federal Reserve and OCC, both of which continue to review Citigroup's applications to acquire European American Bank, noting that the volume of pending foreclosures -- "14,980 total foreclosures in pipeline; 3,965 met criteria and have all been reviewed; 331 foreclosures suspended -- pending resolution" -- is extraordinary, and should give pause to the Fed and OCC even considering approving additional expansion by Citigroup...

       And expanding is what Citigroup is all about. Citigroup has been making inroad globally: it now controls 12% of the banking market in Poland, 5/9% in Argentina, 3.6% in Singapore, and 1.3% in both South Korea and Brazil (among many others). But Mexico is of particular interest to Citigroup. On May 17, Sandy Weill appeared at a press conference in Mexico City, to announced Citigroup's $12.5 billion deal to acquire Banacci / Banamex, the second largest bank in Mexico. Combined with Citi's Confia operation, Citigroup would control 26.4% of the Mexican banking market, and over 21% of all Mexican bank accounts.

    Strikingly, both Sandy Weill and Robert Rubin bragged that the Citi-Banamex proposal had already been presented to U.S. Fed chairman Alan Greenspan, and that he had "reacted favorably" to it. Weill's and Rubin's comments were mentioned, without any questioning of their propriety, in some press accounts, for example, New York Newsday of May 18, 2001, and Agence France Presse of May 17, 2001: "Sanford Weill, chairman and chief executive of New York-based Citigroup... said he discussed the merger with... Federal Reserve Chairman Alan Greenspan. 'They had a very favorable reaction,' Weill said at a news conference in Mexico City."

       Beginning regulatory opposition to the proposal, ICP has written to the Federal Reserve Board, contending that the pre-announcement review (and "favorable reaction") by Fed chairman Greenspan was inappropriate, given that Mr. Greenspan and the other Fed Governors will soon be faced with Citigroup's application, subject to public comment, to acquire Banamex. The Fed has prohibitions against "ex parte" communications -- it is akin to a judge discussion a lawsuit about to be filed, without the other side (in this case, the public) being present. ICP has demanded a summary of Citigroup's communications with Fed chairman Greenspan, and other Fed staff, including the Fed's money laundering "guru" Richard Small, hired May 14 by Citigroup.

       In Mexico, the opposition parties in Congress have demanded hearings, including into whether Citigroup should have to assume the non-performing loans that Banamex foisted off on the Mexican government (and people) during the 1995 bailout. The governor of Mexico City has alleged that Citigroup is seeking to evade $3 billion in taxes on the deal, by seeking a listing on the Mexican stock exchange prior to consummation (Sandy Weill was asked, on May 17, which Citi was seeking the listing on the Bolsa; so that more Mexican nationals can hold our shares, he replied). Other inquiries are beginning... This first ICP Report on Citigroup - Banamex is but a summary, of the issues that will arise.  ICP is today beginning a Citigroup - Banamex Watch.

May 21, 2001

    Deal of the week is cross-border: Citigroup's May 17 announcement it will seek to acquire Banacci / Banamex, the second largest bank in Mexico. We'll be getting to that, in coming reports, on this page and as part of ICP's ongoing CitiWatch. But our focus this week is on the emerging duel / dual duel set off by SunTrust's May 14 announcement of a bid for Wachovia. The pundits (and institutional investors) are all over the map on this one: some predicting that SunTrust's now-only-slightly-higher bid will prevail; others noting that First Union has an agreement (complete with massive break-up fee), and an application already pending with the Federal Reserve. "We're going directly to the Street with this," said Barry Koling, a SunTrust spokesman.

   ICP had commented on First Union's proposal, on May 13-14; on May 21, ICP submitted a second comment, including on SunTrust's proposal. ICP's comment is available on ICP's Wachovia Page.

      In the ongoing Citigroup - EAB proceeding, ICP last week received a copy of Citigroup's list of the 24 branches it would close. The list, and ICP's comments thereon, are on ICP's Citigroup-EAB page.

    Finally, for this week: Tyco has responded, in its fashion, to ICP's comments to the New York Banking Department; the FDIC, while not addressing why it has yet to implement its internal commitment last Fall to begin provide Web-notice of pending Change in Bank Control Act applications (which are subject to public comment, by law), granted ICP until May 21 to submit a further comment. Here it is:

                                                                                                         May 21, 2001

Federal Deposit Insurance Corporation
Attn: Mr. John M. Lane, Associate Director, DOS
550 17th Street, NW
Washington, DC 20429

Re: Timely supplemental comment on the applications of Tyco International, Ltd. to acquire control of CIT OnLine Bank

Dear Associate Director Lane, others:

    On behalf of Inner City Press/Community on the Move and its members and affiliates, including the Inner City Public Interest Law Center, and in my personal capacity (collectively, "ICP"), this is a timely supplemental comment on the proposal of Tyco International, Ltd. and its affiliates ("Tyco") to acquire control of CIT OnLine Bank (with its affiliates, "CIT").

     ICP submitted an Initial Comment opposing this proposal, dated May 4, 2001. On May 11, ICP telephoned the FDIC's San Francisco office with a status inquiry. ICP was informed that the FDIC's New York office was coordinating review. Last week, ICP telephoned the FDIC's New York office, and was informed that Tyco's proposal is now being reviewed in the FDIC's Washington office. By letter dated May 17, 2001, the FDIC informed ICP that "we will review and consider any comment that you submit by May 21, 2001," that "we have decided not to extend the comment period," and that "we mailed you a copy of the Notice on May 14, 2001."

   As of this writing, on May 20, ICP has yet to receive a copy of Tyco's Change in Bank Control Act ("CIBC Act") notice. ICP has, however, reviewed a copy of Tyco's related application to the New York Banking Department ("NYBD"), Tyco's two responses to the NYBD, and one response to the FDIC. Hereinbelow, ICP will comment on each of these, and then address the need for an extension of the comment period and other actions by the FDIC.

    ICP's Initial Comment to the FDIC focused on CIT's and its affiliates' subprime lending, adding that "the proposed acquisition of an FDIC-supervised bank, and a major subprime lender, by a conglomerate based in the off-shore banking haven of Bermuda may raise issues that the FDIC has yet to consider" and that "ICP will await receipt of the application / notice, at which time it will submit further comment, including regarding Tyco."

      While, as noted above, ICP has yet to receive a copy of Tyco's CIBC Act notice to the FDIC, ICP has received certain portions of Tyco's application to the NYBD. These show that there is a high volume of securities fraud litigation against Tyco: as recited in a U.S. District Court for the Southern District of New Hampshire's August 17, 2000, decision, "[p]laintiffs in most of the underlying actions allege that Tyco International Ltd., along with two of its top officers, L. Dennis Kozlowski and Mark H. Swartz (the 'individual defendants') made material misrepresentations and/or omitted to disclose material, non-public information concerning Tyco's accounting practices and financial condition.... plaintiff Harold Landau claims that the individual defendants violated the Insider Trading and Securities Fraud Enforcement Act, §20A of the Exchange Act, as amended, by selling large amounts of Tyco common stock while in possession of material, non-public information." See also, the Union Leader (Manchester, New Hampshire), December 11, 1999; and CFO Magazine, October 1, 2000 ("Mark H. Swartz: Not Even Investor Scrutiny or an SEC Investigation Could Slow Tyco's Frenetic Deal Making").

     The Patriot of October 25, 2000, reported that "Kozlowski said Tyco won't deviate from its strategy to buy companies that fit into its business categories of electronics, telecommunications, health-care products, flow-control valves and fire and security services." Notably, subprime mortgage lending is NOT in these "categories." Tyco's application to the NYBD acknowledges that it does not have experience in consumer finance (and that "Tyco does not have a taxpayer identification number" -- April 10 letter, at 4). The investigative report submitted to the NYBD reads as is designed to reach a particularly conclusion (qualifications under applicable NYBD and N.Y. Banking Law standards), rather than to objectively assess the significance of, for example, the slew of securities fraud and insider trading litigation against Tyco and Mr. Swartz.

    ICP has appealed the withholding of material portions of Tyco's application to the NYBD; as noted above, ICP has yet to receive any portion of Tyco's CIBC Act notice to the FDIC.

    ICP has received a copy of Tyco's May 15 submission to the FDIC (the "First Response"), which purported to respond to the CIT issues raised in ICP's Initial Comment. Tyco's first response makes much of the CIBC Act standard, quoting it in its entirety and claiming that "the CIT-related issues raised by the ICP Comment are not relevant to the pending Notice." First Resp. at 3. Above, ICP has now timely commented on Tyco, directly under the CIBC Act factors, including competence, experience and integrity, and, relatedly, home country supervision. And see infra.

     The First Response claims, at 3, that "there is no evidence cited in the ICP Comment that the Bank's affiliates impose... prepayment penalties more than other subprime lenders." ICP directs the FDIC(and Tyco) to the National Mortgage News of December 28, 1998 which quoted the president of CIT Group’s "subprime mortgage lending unit," Tom Hallman, that "about 70% of CIT Consumer Finance's total existing portfolio carries some kind of prepayment protection and 75% of its new originations are similarly protected," as are "more than 90% of CIT's home equity loans." This figures are all higher than industry averages, as reflected by securitization documents filed with the SEC.

    Tyco does not respond to ICP's analysis of CIT's 1999 HMDA data, but rather argues "the Bank does not make loans subject to HMDA" and that "HMDA data related to a small sample of the MSAs in which CIT makes loans is an insufficient basis to support ICP's claims that members of protected classes are targeted for certain lending practices." Id. at 4, and n.4 But lending disparities in a single MSA -- or smaller geographic area -- are legally cognizable, and can (and should) give rise to FDIC review, and possible enforcement actions, including referral to the DOJ and/or FTC. For example, it has been widely reported that the Department of Justice and FTC were (and presumably still are) reviewing Associates First Capital Corp.'s pricing practices in a single MSA: Detroit. In any event, ICP's timely First Comment analyzed CIT in a number of MSAs larger than the Detroit MSA.

CIT and its affiliates have provided loans to other subprime lenders; rather than explain particular loans, or explain the standards (if any) that CIT has in place, Tyco's response is that "sub-prime lending is not a prohibited activity" and that the loans were made by CIT OnLine Bank's affiliates, not CIT OnLine Bank. But the FDIC's sister-agencies, including the FRB and the NYBD, have made inquiries about the standards for dealing with subprime lenders of the affiliates of other applicants, for example Chase, Morgan, DLJ, CSFB, and Citigroup. Similar inquiries much be made here; Tyco, which says it wants approval by June 1, is apparently counting on receiving different treatment by the FDIC (which would not be merited, see infra).

   Because so much of Tyco's First Response to the FDIC is based on the position that only Tyco, and not CIT, is relevant to the Notice, ICP turns now to Tyco's second May 15, 2001, submission to the NYBD (it is unclear to ICP why Tyco did not submit a copy of this Second Response to the FDIC, since on May 15 it was already on notice of the issues ICP had raised, about Tyco, to the NYBD).

    In its submission to the NYBD (hereinbelow the "Second Reponse"), Tyco does not, as it cannot, dispute the volume of securities fraud and insider trading litigation against Tyco and its officers, including one officer particularly relevant to the applications (Mr. Swartz). In Appendix A to the Second Response, Tyco implies that a long-time writer for the New York Times is manipulated by "bear funds" and "notorious short-sellers." Tyco complains that it "has been subjected to more probing scrutiny of its accounting practices than perhaps any other public company in the history of finance" -- quite a claim. None it is changes the volume of securities fraud and insider trading litigation against Tyco, the applicant here; the SEC's determination (as presented by Tyco) does not change that, either.

   The Second Response appears to explain Tyco's headquarters location on Bermuda as related to "a special tax treaty [between] the U.S." and Bermuda. Since Tyco, in its Second Response, calls ICP's comments on Tyco's "home country supervision" (an entirely relevant and legitimate inquiry in connection with these applications) a "casual... characterization of Bermuda," consider for the FDIC"s record on the Notice the following three less-casual sources / citations:

--"Bermuda in Clash with U.K. on Reporting," Reinsurance Magazine (Timothy Benn Publishing), March 1, 2001

--The Arkansas Democrat-Gazette of February 8, 2001: "Federal prosecutors in Los Angeles have filed court documents declaring they are moving forward with a new criminal investigation into one of the 140 people pardoned by Bill Clinton in the waning hours of his presidency.

Almon Glenn Braswell, a multimillionaire peddler of mail-order pills and potions, was convicted of fraud, perjury and tax evasion in 1983... The current investigation into Braswell centers on allegations he used a Bermuda-based shell corporation as part of an elaborate tax-evasion scheme."

--New Jersey Law Journal, November 13, 2000, "Feds' Zeal in Pursuit of Donors to Torricelli Extends to Defense Bar:" "Court papers show that after a hearing last March, U.S. District Judge John Lifland agreed with prosecutors and ordered the release of documents 'relating to a Bermuda bank account opened by Michael Kimm and (Chang business associate) Chris Kim at David Chang's direction.' The government charged that Chang had laundered $80,000 by giving a check to Kim, an officer in a Chang-controlled firm called Panicom, for deposit in the Bermuda bank for Kensington Capital Ltd., which was set up by Kim. In turn, Kim deposited $80,000 in South Korean currency in a South Korean bank account controlled by Chang."

                                                 --Emphases added

       As previously noted, ICP continues to await a copy of the Notice, and will comment thereon upon receipt. While the FDIC's May 17, 2001, letter to ICP states that "the FDIC began an effort to study the nature and type of information that may be posted on our Web site regarding applications and notices subjec to comment other [than] those subject to the Community Reinvestment Act... a final determination as to how to modify the site has not been made," ICP notes that the previously quoted FDIC e-mail from during the FDIC's processing of the Citigroup - Associates notices last Fall stated:

Within the next two weeks or so, the front page of the FDIC's external web site will contain a new addition -- a permanent 'home' for information about what items the FDIC currently has open for public comment... [including] applications by financial institutions and other specific items where comment is required by law.

   --emphasis added.

    Further note that the FRB, for example, includes notices of CIBC Act notices in its twice-weekly updated Form H2A on its Web site. ICP reiterates its request that appropriate notice of Tyco's proposal be posted on the FDIC's Web site, and that the comment period be extended.

        On the current record, Tyco's notice could not legitimately be approved.   If you have any questions, please telephone me at (718) 716-3540. Thank you for your attention.

Very Truly Yours,

Matthew Lee
Executive Director

cc: Tyco International, Ltd. c/o Schulte Roth & Zabel LLP

      Until next time, for or with more information, contact us.

* * *

May 14, 2001

    The deal of last week was cross-border: the $2.5 billion bid of BNP Paribas, already the world's tenth largest back, for the stock of BancWest that it does not already own. BancWest shareholders have already sued, and BNP Paribas' applications for regulatory approvals will raise interesting issues...

       Our news of the week is a challenge just filed to First Union - Wachovia. (Click here to view - the page has been updated, based on SunTrust's May 14 hostile bid for Wachovia). As a Bank Beat aside, it struck us this week that the two dueling acquirers, Ed Crutchfield and Hugh McColl, have both left the bulbous banks they cobbled together -- and that NationsBank already lost its name, and First Union is running away from its name as fast as it can... And perhaps won't be able to shed it, in light of SunTrust's bid...  Some wild speculation: Wells Fargo's "successful" hostile campaign for First Interstate in 1996 resulted in Wells Fargo being weakened, and itself being acquired by Norwest in 1998. Is that what awaits Suntrust, if its hostile bid is successful?  Another scenario: Washington Mutual beat back Ahmanson's hostile bid for Great Western -- and then acquired Ahmanson later. Then again, First Union is not WaMu... But SunTrust's bid, in one view, puts all three banks in play...

    We've also filed a second comment with the NY Banking Department on Tyco - CIT. On April 30, ICP requested a copy of the applications; on May 4, ICP submitted an Initial Comment. Under cover letter dated May 8, the NYBD provided ICP with portions of Tyco's application, and stated that additional comments on the Applications "can be submitted to the NYSBD up until 5:00 p.m. on Tuesday, May 15, 2001."

     Tyco, which now seeks approval by June 1, 2001, improperly sought confidential treatment for material information about itself and its operations. There is a high volume of securities fraud litigation against Tyco: as recited in a U.S. District Court for the Southern District of New Hampshire August 17, 2000, decision, "[p]laintiffs in most of the underlying actions allege that Tyco International Ltd., along with two of its top officers, L. Dennis Kozlowski and Mark H. Swartz (the 'individual defendants') made material misrepresentations and/or omitted to disclose material, non-public information concerning Tyco's accounting practices and financial condition.... plaintiff Harold Landau claims that the individual defendants violated the Insider Trading and Securities Fraud Enforcement Act, §20A of the Exchange Act, as amended, by selling large amounts of Tyco common stock while in possession of material, non-public information." See also, the Union Leader (Manchester, New Hampshire), December 11, 1999; and CFO Magazine, October 1, 2000 ("Mark H. Swartz: Not Even Investor Scrutiny or an SEC Investigation Could Slow Tyco's Frenetic Deal Making").

    The Patriot of October 25, 2000, reported that "Kozlowski said Tyco won't deviate from its strategy to buy companies that fit into its business categories of electronics, telecommunications, health-care products, flow-control valves and fire and security services." Notably, subprime mortgage lending is NOT in these "categories." Tyco's application acknowledges that it does not have experience in consumer finance (and that "Tyco does not have a taxpayer identification number" -- Tyco's April 10 letter to the NYBD, at 4). The heavily-redacted investigative report on Mr. Swartz lists him as chairman of a Mississippi company (Ludlow Corporation) "chartered to do business in Mississippi on May 18, 1085;" the investigative report reads as is designed to reach a particularly conclusion (qualifications under applicable NYBD and N.Y. Banking Law standards), rather than to objectively assess the significance of, for example, the slew of securities fraud and insider trading litigation against Tyco and Mr. Swartz.

   ICP will be submitting a FOIL appeal for the withheld information, will await a copy of Tyco's and CIT's response(s) and will submit a reply. On May 11, the FDIC's San Francisco office confirmed that Tyco applied to the FDIC in late April. ICP resubmitted its comment, and will await FDIC response.... This will be updated.

* * *

May 7, 2001

       ...Now, (Bermuda-based) Tyco's applications to acquire CIT Group (which, among its operations, does high interest rate "subprime" lending): Tyco has applied for regulatory approval from the New York Banking Department, and, ICP believes, from the FDIC. On May 4, ICP submitted comments to the NYBD and FDIC, focused on CIT's questionable subprime lending, and the Community Reinvestment Act evasions of CIT OnLine Bank, based in Utah. A brief summary follows:

    On behalf of Inner City Press/Community on the Move and its members and affiliates, including the Inner City Public Interest Law Center (collectively, "ICP"), this is a timely comment on the applications of Tyco International, Ltd. and Tyco Acquisition Corporation XIX ("Tyco"), under Sections 594-b and 492-a of the Banking Law to acquire CIT Group/Consumer Finance, Inc. (NY) by means of the acquisition of the capital stock of The CIT Group, Inc. ("CIT"), public notice of which was published in the New York Banking Department's ("NYBD's") Weekly Bulletin of the week ending April 27, 2001, with a ten-day (initial) comment period.

Approval of these applications by the NYBD is not, and cannot be, automatic. The applications are under Section 492-a of the Banking Law, which incorporates the factors of Section 493, including whether "the business will be operated honestly [and] fairly." In this timely initial comment, ICP focuses on CIT Group, particularly its involvements in subprime lending that ICP contends is standardless. Also, as to the Community Reinvestment Act [to the FDIC]: CIT Online Bank seeks to collect insured deposits nationwide, while seeking to limit its CRA assessment area to one MSA in Utah. This is inconsistent with the spirit -- and, ICP contend, the letter -- of the CRA, which requires insured depository institutions to meet the credit needs of their communities. The proper reading of "communities," ICP contends, are the geographic areas from which a bank solicits and collects insured deposits. While in 1977 deposits were solicited through brick and mortar branches, now deposit can be, and are being, solicited without branches, using the Internet. This requires CRA assessment area broader, and less arbitrary, than CIT Online Bank's (which, ICP understands, is limited to "benefit[ting] low to moderate income individuals in Salt Lake County, Utah").

CIT Group Consumer Finance is a subprime lender. Thomson’s subprime industry publication Origination News of April 2000 lists CIT Group Consumer Finance of Livingston, NJ as the 14th largest wholesale subprime lender in the country: larger, in this channel, than Delta Funding, than National City’s Altegra unit, than (at that time) Chase’s Chase Home Finance unit. Origination News of October 2000 lists CIT as the 11th largest wholesale subprime lender in the country, in the first half of 2000. In terms of retail subprime presence, National Mortgage News of January 25, 1999 listed CIT Group Consumer Finance as the 30th largest retail subprime lender, by number of retail outlets, of which CIT has 31.

Given that the CIT Group is clearly a subprime (higher-than-normal interest rate) lender, it is relevant to examine the racial demographics of its lending, under the fair lending laws. The context for the analysis below is not only that CIT is a higher than normal interest rate lender, but also that it imposes pre-payment penalties on these loans, more than other lenders in the industry. National Mortgage News of December 28, 1998 reported that CIT "charg[es] prepayment penalties" -- among the practices now widely viewed as predatory, in connection with subprime loans -- and quoted the president of CIT Group’s "subprime mortgage lending unit," Tom Hallman, that "about 70% of CIT Consumer Finance's total existing portfolio carries some kind of prepayment protection and 75% of its new originations are similarly protected," as are "more than 90% of CIT's home equity loans."

So, CIT is a lender which charges higher than normal interest rates, and which, more than the rest of the subprime industry, imposes pre-payment penalties. As demonstrated below, CIT and its practices are disproportionately targeted at African Americans and Latinos, protected classes under the fair lending laws.

Consider the record of CIT Group Consumer Financial (NY) ("CIT-NY") in 1999, the most recent year for which data is publicly available. In the New York City Metropolitan Statistical Area ("MSA") in 1999, the aggregated industry made 5,385 conventional home purchase loans to African Americans, 4,841 to Latinos, and 36,467 to whites. Within these three race-specified groups, the aggregate industry made 11.5% of its loans to African Americans, and 10.4% to Latinos.

For CIT-NY, a subprime lender that imposes pre-payment penalties more than the rest of the subprime industry, 20% of CIT-NY's conventional home purchase loans in these three race-specified groups in the NYC MSA in 1999 were to African Americans, and 20% to Latinos: nearly double the targeting of protected classes, with subprime loans.

For refinance loans, using the same methodology as above, 20% of the industry aggregate's 1999 loans among these three race-specified groups were to African Americans. For CIT-NY, the figure was 27.6% (again, with high rate loans with pre-payment penalties).

For refinance loans in the Long Island MSA, using the same methodology as above, 6.3% of the industry aggregate's 1999 loans among these three race-specified groups were to African Americans, and 3.9% to Latinos. For CIT-NY, the figures were: 11.1 percent to African Americans, and 16.7% to Latinos (again, with high rate loans with pre-payment penalties.

ICP has begun this analysis, to the NYBD, with New York data. But CIT is a nationwide subprime lender. Here's its record in 1998, with some 1999 updates (the NYBD should request and analyze, and provide to ICP, CIT's 2000 HMDA/LAR data):

In the Philadelphia MSA in 1998, CIT Group Consumer Financial (NJ) ("CIT-NJ") made more conventional home purchase loans to African Americans (11) than to whites (10) (ratio of 1.1 to one). The aggregate industry in this MSA in 1998, for conventional home purchase loans, had a ratio of 0.077 to one. In Philadelphia, for conventional home purchase loans CIT, a high interest rate lender, that imposes pre-payment penalties more frequently than other subprime lenders, targets African Americans 14.3 times more frequently than the aggregate for these terms.

In 1999, CIT's targeting in Philadelphia grew more pronounced: 20 subprime conventional home purchase loans to African Americans, and 12 to whites.

In refinance lending in the Philadelphia MSA in 1998, CIT Group Consumer Finance made 87 refinance mortgage loans to African-Americans in 1998, and 115 such loans to whites, a ratio of 0.76 to one. The aggregate industry in this MSA in 1998 had a ratio of 0.091 to one. In Philadelphia, CIT, a subprime lender proud of its imposition of pre-payment penalties, targets African-Americans 8.35 times more frequently than the aggregate for these terms.

In the Chicago MSA, CIT Group Consumer Finance in 1998 made 63 refinance mortgage loans to African-Americans, and 50 to whites, a ratio of 1.26 to one. The aggregate industry in this MSA in 1998 had a ratio of 0.120 to one. In Chicago, CIT, a subprime lender proud of its imposition of pre-payment penalties, targets African-Americans 10.5 times more frequently than the aggregate for these terms.

In the Cincinnati MSA, CIT Group Consumer Finance in 1998 made 54 refinance mortgage loans to African-Americans, and 271 to whites, a ratio of 0.20 to one. The aggregate industry in this MSA in 1998 had a ratio of 0.051 to one. In Cincinnati, CIT, a subprime lender proud of its imposition of pre-payment penalties, targets African-Americans 3.92 times more frequently than the aggregate for these terms.

ICP contends that the analysis above (which should be replicated by the agenies for other MSAs) raises a red-flag of fair lending violations by CIT Group Consumer Finance.

CIT is also involved with other questionable subprime lenders. CIT Group in 1999 stepped in to "save," via a $500 million debtor-in-possession loan and a warehouse line of credit to, the controversial subprime lender United Companies Financial Corp.. See, e.g., American Banker of March 2, 1999, at pg. 28. The next day’s American Banker reported that "[t]his is the third time CIT Group has arranged similar financing for a failing subprime company," and quoted an industry analyst that CIT Group "‘is uniquely positioned to take advantage of the fall of this industry.’" Emphasis added. For a description of United Companies’ questionable practices, see, e.g., Merchants of Misery, by Michael Hudson (1996, Common Courage Press), at 80-84, reporting for example that "United Companies also charge upfront fees of 7 percent, compared to a national average of 1.75 percent...," and a slew of pre-bankruptcy consumer and civil rights litigation against the company.

For further example, CIT stepped in with loans for the embattled Cityscape Financial Corp. of Elmsford, New York, both pre- and post-bankruptcy. See, e.g., Mortgage Banking magazine, May 1998, at 22 (pre-bankruptcy loan); Securities Data Publishing’s Bank Loan Report of December 7, 1998 (CIT as lead lender and agent for $250 million post-bankruptcy debtor-in-possession loan). See also Baton Rouge (La.) Advocate of May 2, 1999, Conflict Issue Raised in United Companies Deal: "In both bankruptcies... The CIT Group Inc.... [is] providing hundreds of millions of dollars worth of interim financing for the two troubled lenders. Midanek said she called upon the companies because they have expertise in lending to companies in bankruptcy and financing subprime lenders such as Cityscape and United Companies."

On May 16, 2000, Dai-Ichi Kangyo Bank and others now in the Mizuho Group submitted information on some of these issues to the Federal Reserve (this submission is referred to below at the "Joint Response," or the "JR").

The Joint Response made a number of acknowledgments, which should expedite the NYBD's review of these issues, and the NYBD's formulation of an appropriate additional information letter to CIT and Tyco:

--CIT Group/Consumer Finance "makes subprime mortgage loans and charges prepayment penalties" (JR at 7);

"CIT committed to $75 million of a $150 million credit facility mad with other lenders to United [Companies Financial Corp...." (JR at 5);

"CIT provided a $30 million pre-[bankruptcy] petition credit facility [to Cityscape Financial Corp.], and CIT committed to $75 million of a $150 million D[ebtor] I[n] P[ossession] credit facility made with other lenders" (Id.);

[CIT’s] "Newcourt [Financial] leased approximately $3 million of computers and equipment to Delta [Funding]" (Id.);

"CIT purchased... loans from L[ong] B[each] M[ortgage]..." (Id.);

CIT Group/Consumer Finance "makes subprime mortgage loans and charges prepayment penalties" (JR at 7).

On this last point -- CIT’s imposition of prepayment penalties, a practice described as predatory by numerous experts in the field, the Joint Response's defense (at 7) was that "ICP claims that CIT... imposes prepayment penalties on these loans more than other lenders in the subprime industry. ICP has no basis for this comment."

But the National Mortgage News article that the Joint Response quotes from (at 7) itself provides a "basis," reporting that "Tom Hallman, president and chief executive of the CIT Group’s subprime mortgage lending unit... said about 70% of CIT Consumer Finance’s total existing portfolio carries some kind of prepayment protection and 75% of its new originations are similarly protected. More than 90% of CIT’s home equity loans that are legally eligible for such protection have it." It is comparing these statistics, provided by DKB’s CIT itself, with disclosures in SEC filings for other subprime securitizations, that provide the basis for ICP’s comment. The quoted article itself says that CIT’s extensive imposition of prepayment penalties distinguishes it from its "peers." The NYBD should get to the bottom of this.

Furthermore, while JR acknowledged that CIT makes "C" loans, it emphasized a low percentage of "D" loans (JR at 7). But at 10, the JR bragged that CIT provides "disclosure for Section 32 loans under the Home Ownership and Equity Protection Act" ("HOEPA"). Given HOEPA’s high threshold for "high cost loans," it would appear that CIT is charging "D" prices to... "A, B and C" eligible borrowers. The NYBD should get to the bottom of this, with respect to Part 41 as well as HOEPA.

ICP is awaiting receipt of the application, at which time it will submit further comment, including regarding Tyco. The necessary extension of the comment period need not prejudice the applicants: the proposal could not even conceivably be consummated until, at least, CIT's special shareholders' meeting, currently scheduled for May 23, 2001. On the current record, these applications should not be approved. If you have any questions, please telephone the undersigned at (718) 716-3540.

Very Truly Yours,

Matthew Lee, Esq.
Executive Director

* * *

April 30, 2001

     Deal -- or near-deal -- of the week is Bank of Scotland's latest engagement, with Yorkshire-based Halifax. News of the talks, and the proposed $37 billion merger, leaked on April 25; emergency board meetings scheduled for April 29 were put off. There are rumored to be other bidders, waiting in the wings: Barclays, National Bank of Australia, perhaps HSBC. Bank of Scotland has been bungling for the last two years: first, an ill-fated proposed joint venture with televangelist Pat Robertson; then, BoS was spurned by NatWest, then Abbey National. Will this Halifax proposal work any better? We shall see...


    AIG, which is moving to acquire American General, announced on April 25 that it's buying Argentine life insurer Aetna Vida SA from ING Group NV. AIG currently offers consumer finance in Argentina through Compania Financiera Argentina SA...

    Newark, N.J.-based Prudential has purchased the former Kyoei Life Insurance Co. Ltd. of Tokyo for $1.2 billion and renamed it Gibraltar Life Insurance Co. Ltd.. Get it? "The rock" (Prudential's logo) and "Gibraltar"? May be a little too subtle, in the Japanese market...

     Prudential is seeking to demutualize (and probably buy or be bought). Under New Jersey law, a hearing will be held this summer. In preparation, ICP and others have been looking at Prudential -- ICP's focus, for now, has been on Prudential's not-insubstantial links to predatory lending. Prudential helped to underwrite mortgage-backed securities for First Alliance, a scandal-plague subprime lender. Prudential helped raise funds for California-based Goleta National Bank, which has essentially rented its national bank charter to ACE Cash Express, a pay-day lender. What standards does Prudential have, for this business? We'll have updates on this...

     On April 27, ICP received from Royal Bank of Canada's lawyers two heavily-redacted (that is, whited-out) documents, both dated April 26, 2001. The first is a response to the Fed's questions of April 12, 2001, which related to the fair lending and other issues raised in ICP's April 9 comments opposing RBC's Centura application. See also, "Regulators Scrutinize Royal Bank Acquisition: Centura Bank's Subprime Lending Practices Put Under Microscope," National Post, April 24, 2001. RBC's response states that Centura's compliance department "oversees Centura Bank, Centura Securities, Inc. and Centura Insurance Services, Inc." Apparently, Centura's compliance department does not even purport to oversee Centura's subprime lenders, NCS and First Greensboro. RBC's response quotes from the Richmond FRB's CRA performance evaluation of Centura Bank -- which did not mention or consider First Greensboro / Centura's subprime lending, even those RBC now states that "if... an applicant for a mortgage loans does not meet the criteria for any of Centura's loan products, then the applicant is given the option of having the loan application submitted to FGHE" (First Greensboro). Centura is referring denied applicants to its subprime affiliate, and yet does not oversee the compliance practices of this affiliate.

    RBC's Response as to its own mortgage company, Prism, is scarcely more compelling. How does one explain, for example, Prism's reported 100% approval rates? RBC appears to acknowledge that the data contained errors, referring to steps that have "enhanced the accuracy and credibility of Prism's HMDA data and reporting." But HMDA data are required to be accurate. The data either are or aren't accurate, and if inaccurate data have been filed, they must be withdrawn, corrected and refiled.

    As to its Internet bank, Security First Network Bank, RBC provides a table, which confirms that SFNB is far below the "benchmark" of lending to low income borrowers in Atlanta. The benchmark is 19.49%; SFNB's performance is only 12.3%. RBC notes that "almost eight percent of the families in this MSA are below the poverty level, which shows the difficulty of penetrating the low income segment." The purported proof is lost on ICP; what this shows, ICP contends, is that a pure Internet strategy disproportionately excludes low income borrowers, and that RBC's SFNB has not found other way to reach this segment that it is required, as a retail insured depository institution, to serve. ICP has submitted replies, to the Fed and the Canadian regulators, and is pursuing the withheld documents.

     In the U.K., eFinancial News reported last week that J.P. Morgan Fleming Asset Management has lost $1.6 billion in U.K. pension assets since the beginning of the year: Unilever Plc and AstraZeneca Plc and Swiss firm Ciba Specialty Chemicals AG have all fired J.P. Morgan Fleming as manager of U.K. pension assets since January 1, 2001. Meanwhile, speaking at a New York investment conference on April 24, Morgan Chase's Donald Layton said that lay-offs are continuing apace, and that there are "lots of expense reductions in the pipeline"...

April 23, 2001

    In J.P. Morgan Chase's April 18 conference call with reporters, CFO Dina Dablon said that Morgan Chase will be cutting yet more jobs this year, more than originally projected. "We are looking for cuts that are larger than originally planned," Dublon said. "We're going to look for managing expenses to something lower than flat in comparison to last year ... I'm talking about expenses and, in part, about jobs as well. That's a major component of expenses." Later that day, the company's chief "Risk Officer" quit; the spin was that he's leaving to "pursue opportunities outside of J.P. Morgan Chase." Perhaps relatedly, the company disclosed that its non-performing assets at the end of March totaled $2.23 billion, up from $1.92 billion in the fourth quarter and $1.84 billion a year earlier.

   Rumors? Well of course there are. Barrons has named St. Louis-based brokerage A.G. Edwards as a take-over target. Speculation has grown that a higher bid than First Union's will emerge, for Wachovia. The possible "lurkers" include SunTrust, BB&T, Wells Fargo, and two institutions which would be interested in Wachovia's "private banking" and other Wall Street operations: Northern Trust, and Bank of New York. Also reportedly in the mix is Royal Bank of Canada, whose bid for Centura was at a 27% premium (the First Union - Wachovia deal involves no premium at all).

      The Federal Reserve has asked Royal Bank of Canada and Centura some questions -- in a letter dated April 12, 2001 (obtained by ICP last week), the Fed asks:

"Please list each organization engaged in subprime lending in which either RBC or Centura directly or indirectly has an ownership interest of five percent or more... Discuss any direct or indirect management interlocks between RBC or Centura and each of these subprime lenders... Indicate whether policies or procedures are in place at each subprime lender to refer applicants that appear to be qualified for traditional or 'prime' home mortgage or consumer loans to prime lending subsidiaries...

"Discuss whether RBC or Centura, or any of their subsidiaries, have other business relationships with any subprime lenders (e.g., as warehouse lender or trustee)... please discuss whether the RBC or Centura entities play any role, formal or otherwise, in the lending practices and credit review process of these subprime lenders."

Developing... Until next time, for or with more information, contact us.

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April 16, 2001

     On April 10, a long-time employee of J.P. Morgan Chase Securities filed a gender discrimination lawsuit against the company, following a finding by the U.S. Equal Employment Opportunity Commission in August that there was "reasonable cause'' to believe the firm had discriminated against her. The EEOC makes such a determination in fewer than 10% of the cases that come before it...

      Two slowed deals: in the U.K., Lloyds TSB's proposed $27.6 billion takeover of Abbey National would give it almost one-third of U.K. checking accounts and the largest share of mortgages. U.K. Competition Commission officials, led by Denise Kingsmill, are assessing whether that would mean higher prices, poorer service or less customer choice. The answer, in short, is "yes."

      And, on Royal Bank of Canada's applications to acquire Centura Banks and that company's high interest rate lending affiliates, First Greensboro and NCS, ICP has submitted supplemental comments to the U.S. and Canadian regulators; see also "U.S. Consumer Group Opposes Royal Bank - Centura Deal," Reuters, April 9, 2001

     In another story we've been following, in South Korea, Kookmin Bank and Housing and Commercial Bank last week confirmed and finalized their merger agreements. But the two banks' worker have vowed to derail the deal, which they state was engineered by the government, for the benefit of the banks' foreign shareholders (or "controllers"). Workers at South Korean financial institutions vowed on Friday to do whatever necessary to keep a planned merger of two of the country's biggest banks from being approved by their boards and shareholders. Goldman Sachs holds an 11.7 percent stake in Kookmin and ING Group owns 10 percent of Housing and Commercial....

April 9, 2001

    Below is a summary of ICP's comments to the Federal Reserve on Royal Bank of Canada's application to acquire Centura Banks. But first, a news round-up: the deal -- or potential deal -- announcement of the week was AIG's $23 billion bid for American General, which topped Prudential plc's previous offer by $3 billion dollars. From London, Prudential has indicated that it will not be offering more. So now Prudential itself is viewed as a target... [This is now covered on ICP's RBC Watch].

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April 2, 2001

    The deal of the week, or heavily rumored deal, was in Germany: Munich-based insurer Allianz to acquire Frankfurt-based Dresdner Bank, for $20 billion dollars.

    In the U.S., New York Community Bancorp (the recently renamed Queens County Bancorp) announced a merger of equals with Richmond County Savings Bank, for $802 million. GE Capital announced a $2.1 billion deal to buy Franchise Finance Corp. of America, which "offers mortgages and other loans, chiefly to chain restaurants, convenience stores and the car services industry." (Reuters, 3/30). American Express, now widely rumored to be in the cross-hairs of Citigroup, announced on March 30 that is had completed its $107.5 million acquisition of Inc., and its $1.5 billion in outstanding equipment loans. In Indiana, in straight bank-on-bank news, First Financial Corp., the parent of Terre Haute First National Bank, announced on March 30 a deal to buy Community Financial Corp. "for as much as $20 million, expanding its network of banks in Illinois." (Reuters, 3/30). Yes, micro M&A...

  And now, some bank-specific updates, Citigroup and Chase, and the world's largest bank, Mizuho:

     The Citigroup story of the week comes out of San Bernardino, California, in the form of sworn allegations that Solomon Smith Barney broker Peter Morrison offered call girls (less euphemistically, prostitutes) to three former county officials to attract lucrative securities business. Citigroup, which loudly claims to improve the compliance records of the companies it acquires, and to redress grievances, played defense on this one: spokeswoman Arda Nazerian told reporters that "[w]e continue to believe we have no liability. As a matter of policy we don't comment on specific unsupported allegations."

    Citigroup has yet to submit any response to the comments that have been filed against its applications to acquire European American Bank, any response to the Federal Trade Commission's predatory lending lawsuit, filed March 6, 2001, or any response to the Federal Reserve's and New York Banking Department's questions of March 21, 2001.

   And, on the employment discrimination front: the Chase Equal Employment Opportunity Commission investigation in Texas, which we alluded to in our Chase Report of March 5, 2001, is heating up.  One of the complainants wrote to Senator Phil Gramm (R-TX) on March 10, 2001, and received a reply last week, that Sen. Gramm has contacted the EEOC to look into the matter more completely. We will reproduce the complainant's letter, with name and certain other identifying information (for now) redacted, per request:

Dear Mr. Gramm:

I am writing you as I have written, Governor Rick Perry, Attorney General John Cornyn, Buster Brown and William Calagari.  I wanted to first let you know that I did vote for you and that I am a Conservative Republican who resides in [ ] Texas...To make a long, well documented story short, I was forced to file an action against both Mellon Bank and Chase Manhattan when I was asked to target a Black Man who was one of my Senior Project Analysts... My position was, in short, that I would not do what I knew to be was illegal... We have correspondence directly out of William Harrison's office (CEO of Chase)... The point of me writing to you in short is that I know your position is usually to favor the corporate position.  When the news of this breaks, I strongly urge you to look at all the facts before making a public statement or advising Chase now JP Morgan not to worry about the claim.  This investigation has been on going for 18 months now.  I would never have signed a charge with the EEOC had I not been totally confidant of my documentation... We have an opportunity to mend fences and not end up on the wrong side of the fence.  Our facts are incontrovertible; since my forced resignation they have released 3 levels of Management above me and the Human Resource Manager who precipitated the whole event along with the VP from Mellon then Chase.

    Senator Gramm states, according to the complainant, that he is inquiring with the EEOC about this matter. We'll see...

     The Japanese press reported that last that Mizuho and its constituent banks, Dai-ichi Kangyo, Fuji and Industrial Bank of Japan (IBJ), will take a 600 billion yen ($4.91 billion) loan loss charge in the year ending on March 31, up 50 percent from the previous estimate of of 430 billion yen. This has led to threats of litigation against 12 Mizuho officials, including chief executives Masao Nishimura, Yoshiro Yamamoto and Katsuyuki Sugita, if they fail to compensate the bank for the losses within one month. If the case goes ahead, it could set precedents on the liability of corporate directors under Japan's 1997 Antimonopoly Act revision, which allows corporate groups to restructure themselves into holding firms... Great merger, Mizuho...

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Click here for ICP's current Bank Beat Reporter

Click here for ICP's Bank Beat Archive #1 2001 (Jan. 1 - March 31, 2001)

Click here for ICP's Bank Beat Archive #4 2000 (Sept. 26-Dec. 31, 2000)

Click here for ICP's Bank Beat Archive #3 2000 (July 17 - Sept. 25, 2000)

Click here for ICP's Bank Beat Archive #2 2000 (April - July 17, 2000)

Click here for ICP's Bank Beat Archive 2000 #1 (Jan.-March 27, 2000)

Click here for ICP's Bank Beat Archive #4 (Oct.-Dec. 31, 1999)

Click here for ICP's Bank Beat Archive #3 (Aug.-Sept., 1999)

Click here for ICP's Bank Beat Archive #2 (July, 1999)

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