The Citigroup Watch


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      ICP has published a (double) book on the topic of predatory lending.  The Pittsburgh City Paper of Dec. 11, 2003, says that the "novel Predatory Bender: A Story of Subprime Finance may, in fact, be the first great American lending malfeasance novel," and mentions CitiFinancial. Click here for that review; click here for sample chapters, an interactive map, and ordering information.

May 27, 2004 update: vindicating many of ICP's assertions, on May 27, 2004, the Federal Reserve announced a cease-and-desist order against CitiFinancial, for predatory lending and for what the Fed refers to as "misleading examiners" -- basically, as documented by ICP in real time throughout the Web site, Citigroup told employees to lie, threatened to sue whistleblowing employees, and tried to hide and shred documents. Click here for the Fed's 5/27/04 press release, click here for a PDF of the Fed's 14 page order; click here for ICP's current CitiWatch report (the May 27, 2004 Update describes how the world's biggest bank is still run by predatory lenders, document shredders, silencers of whistleblowers....For or with more information, contact us.

    ....Citigroup, formed by the 1998 merger of Travelers and Citicorp, is the largest U.S.-based bank holding company. It engages in questionable high interest rate lending in low income communities across the United States, through its CitiFinancial unit.  On September 6, 2000, Citigroup announced that a deal to acquire another large subprime lender, The Associates (see Update of September 11, 2000, below).    Though its investment bank, Citigroup underwrites and trades in pools of loans issued by other predatory lenders. And globally, Citigroup finances and is involved in such environmentally destructive projects as the Chad-Cameroon pipeline, and China’s planned Three Gorges dam (which would displace two million people, creating a 400 mile reservoir on top of polluted former industrial sites).

       Inner City Press / Community on the Move's (ICP's) initial focus on Citibank was on its branch closings, and disparate mortgage lending.  ICP filed an extensive opposition to the Citicorp - Travelers merger application (click here to view).  ICP continued to watchdog and document Citigroup's record, in connection with Associates First Capital, European American Bank, Banamex and Golden State Bancorp.  This is the 2000 - 2001 archive; Inner City Press / Fair Finance Watch's Citigroup Watch continues, here.  For or with more information, contact us.

Update of January 7, 2002: Last week Citigroup's Deryck Maughan was named a knight of the British Empire by Queen Elizabeth II. Various media accounts noted that Mr. Maughan "is believed to be a possible successor to Sanford Weill, Citi's chairman and chief executive." Citigroup quickly fired back: "Sandy plans to continue running this company for the next several years. He has also indicated that when the time comes his successor will come from the top ranks of the company."

   Meanwhile, at a holiday party in Brooklyn attended by too many Citigroupies to count, ol' Sandy was repeatedly referred to as "Sandy Vile" -- that's with a "V," as in villainous. This moniker, widely used within Citigroup, has not yet appeared in Citigroup's promotional materials. Nor does Citigroup's continuing environmental woes. In Colorado, the Denver Post of Jan. 2 editorialized that "[t]he proposed Shattuck settlement lets the property owner, a Citigroup unit, off the hook too lightly... The public has until mid-January to comment on the settlement... If enriched uranium or other highly radioactive materials are found at the site, the settlement says Shattuck will pay more of the clean-up's costs... These provisions must be iron-clad; taxpayers must not suffer if Shattuck was wrong about what's at the site." Citigroup lobbies; Citigroup's too-big-too-fail.

Update of December 31, 2001: The week between Christmas and New Years being slow, even for Citigroup, we'll focus this report on Citigroup's campaign contributions. The Los Angeles Times of December 30 names Citigroup as California governor Gray Davis' largest out-of-state supporter, at $250,000. Meanwhile, federal "soft money" reports for September, the release of which were delayed by the various rounds of anthrax scares in Washington, reveals that "Citigroup, Inc., Sioux Fall, S.D." donated $40,000 to the National Republican Senatorial Campaign on September 25, 2001. A response to the events of 9/11, no doubt....

Update of December 24, 2001: On December 19 Citigroup announced that it plans to sell about 20 percent of Travelers Property Casualty to the public in a stock offering by the end of March. The rest of the company would be distributed to Citigroup shareholders by the end of 2002. Sandy Weill explained the spin-off plan: "because the property-casualty insurance business still has lower growth rates and returns than Citigroup's other businesses." Yep -- businesses like still-stardardless subprime lending.

   Citigroup has now submitted to the FDIC its second response to ICP's comments on Citi's application to shift $2 billion in overseas deposits to its savings bank, Citibank FSB. On the issues surrounding CitiFinancial, their response is that

the Federal Reserve Board required, as a condition of its [EAB] approval, an examination of CitiFinancial, to confirm implementation of the progressive lending initiatives adopted by CitiFinancial in connection with its acquisition of Associates. That examination should not delay these applications, however, as suggested by ICP... The Federal Reserve Board will conduct that examination and take action following that examination as appropriate.

   From this phrasing, in a December 14 letter from Citigroup's Carl Howard to the FDIC, it appears that the Fed has still not completed the examination of CitiFinancial that it announced in mid-2001.

     On December 20, Citigroup announced it is hiring ex-IMF managing director Stanley Fischer. Reuters reported that "Fischer, 58, follows a long line of Washington D.C. insiders who have migrated to Wall Street, and will report to former U.S. Treasury Secretary Robert Rubin in his new post at Citigroup." We'll add to the list: ex-Federal Reserve money laundering specialist Richard Small, and ex-Secretary of Energy Bill Richardson. Citigroup's CEO Sandy Weill gushed, "Stan's keen intellect and unique perspectives will be invaluable as we work with governments and clients around the world. His demonstrated ability to manage complex policy negotiations at the IMF and his highly successful work as a strategic adviser to governments will make him an invaluable resource as Citigroup continues to build its global franchise" We're sure Stan will be "invaluable." He did a great job with Argentina, right? Click here for BBC's account; click here for ICP's analysis of banks, including Citi, and Argentina.

     From the mailbag:

Subj: Bill Richardson and Citigroup
Date: 12/17/01 10:32:15 AM Eastern Standard Time
From: [Name withheld]
To: CitiWatch [at]

I'm a Citigroup employee, and I'm interested in finding out what influence Bill Richardson, and former Clinton lawyers are having on the Enron situation. Please look into the court cases for me and see if anything interesting pops up.

     In the archived written press, the most recent reference to former Energy Secretary Richardson and Citigroup is this:

"Bill Richardson, former secretary of energy, has been hired by Salomon Smith Barney (SSB) to be a consultant in the global energy and power group. SSB is a subsidiary of Citigroup." Nuclear Waste News, July 26, 2001

    It's a sad day for the concept of an active and investigative press, financial and otherwise. We will continue our research; all leads are welcome. Bill, where are you now? Houston?

Update of December 17, 2001: This week's Citigroup news includes lobbying, settling environmental cases on the cheap -- and dodging bullets post 9/11. In reverse order:

    Last week, the U.S. government indicted Zacarias Moussaoui as the "20th hijacker." As relates to finance, the 31-page indictment names only two financial institutions -- neither is Citigroup. SunTrust Bank in Florida first appears in paragraph 22 of the indictment, in connection with a $9,985 wire transfer from the United Arab Emirates; thereafter, SunTrust is named in paragraphs 24, 25, 26, 52 and 91. Standard Charter's Dubai branch first appears in paragraph 57 (Mustafa Ahmad opening an account, in June 2001); thereafter, StanChart appears in paragraphs 76, 91, 97, 98 and 99.

    Our Citigroup question this week: why was Citi not named in the indictment? For example, the (London) Independent of November 20, 2001, reported that Ramzi Muhammad Abdullah bin al-Shibh, one of the "flatmate" at 54 Marienstrasse in Hamburg (and the prospective hijacker that Moussaoui allegedly replaced), "transferred $2,200 (pounds 1,500) from his account at Citibank in Hamburg to a Florida bank on 15 August," 2001. This would seem to be one of the key wire transfers. And it has been widely reported that other transfers were routed through Citi in New York, as a correspondent bank (which also happens to be the largest single user of the global SWIFT money transfer system). So why was Citibank not named in the indictment?

    Is it just a matter of Citigroup's lobbying strength? Who at the Department of Justice (or elsewhere) decided on the specifics of the indictment -- including which banks to name -- prior to its filing and release? We note, as simply another example of Citigroup's "access," that on December 13 Treasury Secretary Paul O'Neill met with seven "industry representatives," including Citigroup senior vice president (and lobbyist) Roger Levy. Also, Citigroup in 2000 hired the Federal Reserve Board's money laundering "guru," Richard Small. Any reader with more insight or information is encouraged to chime in.

    In environmental news, Citigroup last week reached a sweetheart agreement to pay only one-fifth of the $ 35 million it will take to move radioactive waste out of its Shattuck superfund site, a former radium processing plant in the Overland Park neighborhood in South Denver. The investigator initially assigned to the case by the EPA Ombudsman's office noted that the agreement still doesn't call for contaminated soil or groundwater to be cleaned up, and that, under the agreement, Citigroup will pay only a fraction of the damage it has done to the environment. "This is chump change compared to what it's going to cost to do it right," he said...

Update of December 10, 2001: From the general to the practical. At the beginning of last week, Inner City Press stumbled across a notice for two applications to the FDIC by Citibank FSB. ICP requested copies of both applications, and they arrived at week's end. They're a doozy: in the first, Citibank FSB is seeking to acquire two branches of Citibank International, and the $1.1 billion in currently-uninsured deposits they hold; in the second, Citibank FSB is seeking to acquire $1 billion in (again uninsured) "International Banking Facility" deposits currently held by Citibank, N.A.. Why might this be of interest? Well, Citigroup has already been undermining not only CRA, but also the whole FDIC insurance regime, by shifting Salomon Smith Barney's accounts into Citi's FDIC insured banks, while not paying any more FDIC premiums or concomitantly expanding its CRA programs. Now it proposes to shift $2 billion more into its saving banks -- and again, no projected expansion or improvement in its CRA programs. ICP has submitted comments, in the brief extension granted by the FDIC, on issues ranging from money laundering to Citigroup's 2000 lending record.

    For example, in the New York City Metropolitan Statistical Area ("MSA") in 2000, for conventional home purchase loans, Citibank denied loan applications from African Americans more than five times more frequently than applications from whites. Citibank denied Latinos 3.5 times more frequently than whites. This is much worse than other lenders here: the denial rate disparities for the industry as a whole in 2000 were 2.20 for African Americans, and 1.97 for Latinos. [snip - contact ICP for more recent data]

     Citi is expanding in Kenya, with no scrutiny. As previously reported in this space, it was announced in mid-November that ABN Amro wants to sell its two Kenyan branches to Citigroup. Last week ICP learned that the Federal Reserve Board will not be requiring any application for regulatory approval for the deal. This is a loophole that need to be closed...

Update of December 3, 2001: The banking -- and Citigroup -- story of the week is clearly the implosion of Enron, to which Citigroup has a reported exposure of $800 million. The Wall Street Journal of November 30 notes that Citigroup ""won an investment-banking mandate on the failed Enron-Dynegy Inc. deal only after agreeing to extend fresh loans to the troubled energy trader," and reports that a "Citigroup spokesman declined to comment." Rather, Citigroup continues to set its sights overseas, including continuing to move in on the Anglo-Asian bank Standard Chartered, whose CEO resigned last week, to be replaced by Mervyn Davies, who until 1993 worked for Citibank... In Cairo, Egyptian American Bank (EAB -- now the main EAB, after Citigroup's Long Island, NY acquisition earlier this year) announced that it's in talks to be sold to, you guessed it, Standard Chartered. Citi's global deal making goes on -- the Fed, for example, claims that no public comment will be allowed on Citigroup's proposal to acquire branches in Kenya -- while, in the aftermath of Enron's imposition, it's increasingly clear that the deregulatory emperor has no clothes. Citigroup can (and does, but that's another story) cost taxpayers billions of dollars, and yet it's scarcely regulated....

    The Financial Times reported on November 29 that ""U.S. investigators believe about half the $500,000 that the hijackers spent on the September 11 plot was sent by Mustafa Ahmad, who is today regarded by investigators as bin Laden's finance chief, via Dubai money exchanges through Citibank in New York and on to Florida." Citigroup has not stated whether it filed a Suspicious Activity Report when this money passed through it. The Federal Reserve Board's ex-head of anti-money laundering, Richard Small, is now co-head of the same terrain at Citigroup. Citi was hiring not only expertise, but access... For more coverage of these issues, click here.

Update of November 26, 2001: The Turkish newspaper Finansal Forum last week predicted that Citigroup will buy a majority stake in Turk Ekonomi Bankasi AS, a midsize Turkish bank, as early as December. A bigger rumor has Citigroup looking to acquire Standard Chartered, with branches throughout Asia, Africa and the Middle East. Already, and of increasing interest, Citigroup owns 23 percent of Saudi American Bank, the second- largest Saudi bank, known as Samba...

    Last week the SEC charged Citigroup will selling unregistered securities; Citigroup settled the charges. The SEC charged that in August 1998, Citigroup and State Bank of India raised about $532 million by selling "Resurgent India Bonds" in the United States. Citi sold about $160 million of bonds. "The order finds that the RIBs are securities and that SBI and Citibank violated U.S. securities laws by offering and selling the RIBs when the offering of such securities was not registered with the SEC."

    Also last week, the U.S. Court of Appeals for the Second Circuit dealt a blow to Citigroup's defense of sexual harassment charges at its SSB unit. This is the "Boom Boom Room" case, begun in 1996 after Pamela Martens alleged that crude talk and suggestive behavior took place regularly where she worked at the Garden City branch of what was then Smith Barney. The case grew to class action status; the part of the case ruled on last week concerns Citigroup's imposition of mandatory arbitration on employees (and, as previously reported, customers). Ms. Martens told Newsday (11/22): "Mandatory arbitration allows companies to convene secret corporate tribunals that do not have to follow the law." Last week's ruling found that 900 potential claimants had not been provided with required access to lawyers who could help them decide whether to mediate their cases or to accept the SSB offers, as well as reversing U.S. District Judge Constance Baker Motley's earlier dismissal of Martens' and Judith Mione's cases, once they opted out of SSB's proposed settlement. Martens' will now further oppose Citigroup's use of mandatory arbitration....

Update of November 19, 2001: Citi-Banamex fallout continues. On November 14, Citigroup announced that it will cut 7,800 jobs, mostly in Mexico, to reduce costs. 4,200 jobs would be slashed from Citigroup, and 3,600 would be eliminated from the Banamex work force. This is on top of close 101 Banamex branches. So what was that, about the deal being good for Mexico?

    Meanwhile, Citigroup announced last week it is buying the Kenyan banking operation of ABN Amro: "two branches catering to both local and international clients." In Brazil, Citigroup plans to start up insurance activities at the end of the first quarter of next year, though Citiinsurance do Brasil Vida e Previdencia SA. Citi's request is being "analyzed" by Brazil's insurance sector regulator Susep, said Citigroup's Latin America insurance director Umberto Fabbri. Citiinsurance will start by offering life and personal accident insurance. In a "near future", Fabbri said it will expand into the private pension sector. Great...

    Cutting back to the U.S., Citigroup's subprime lender CitiFinancial is one of the largest campaign contributors to Baltimore mayor Martin O'Malley, who's reportedly drooling to become Maryland's governor. Baltimore is giving CitiFinancial tax breaks and subsidized parking spaces downtown. In August, Baltimore approved a $1 million low-interest loan for CitiFinancial to renovate its 300 St. Paul St. headquarters. In May, CitiFinancial, its president and two political action committees of CitiGroup Inc., the parent company of CitiFinancial, had given a total of $9,000 to O'Malley's campaign fund. CitiGroup spokeswoman Maria Mendler said: "We're a company that has been headquartered in Baltimore for quite a while, and we have the responsibility to participate in the political process. The campaign contributions and contributions to other officials are part of our doing business." Yep...

     And while the Federal Reserve Board has yet to announce any results from its onsite examination of CitiFinancial, it might want to check out Ross, et al., v. Citifinancial Inc., et al., No. CIV.A. 5:01-CV-185BN (S.D. Miss. 10/5/01), before District Judge William H. Barbour Jr..

     In West Virginia, Citigroup has lost a trademark infringement fight it picked with City Holding Co., parent of City National Bank. Citi had sued City Holding in a bid to block the company from using the word "City" to identify its financial products. But U.S. District Judge Robert Sweet ruled that Citi has solicited customers for credit cards and travelers checks since the 1980s, while City National has used the name since 1957....

Update of November 12, 2001:  This week -- focus on Citigroup in Asia. In a November 6 presentation to stock analysts, Citigroup talked-up its consumer finance (including subprime lending) units. The head of Citifinancial International, Roy Guthrie, said that Citi's high-rate lending business in Japan is booming. Buying Associates has made Citi the fourth largest consumer finance lender in Japan, behind only Takefuji, Acom, and Promise. Citi CEO Sandy Weill was present, but let those in charge is this (dirty) business take in the lead in the presentation.

    Meanwhile, the Taiwanese conglomerate Fubon, of which Citigroup owns 15 percent, is on the hunt for acquisition since Taiwan's financial deregulation law went into effect on November 1. High-cost lending in Taiwan? Why not? In South Korea, Citi has 12 branches -- nine in Seoul, two in Pusan and one in Pundang... In a speech in Vietnam earlier this month, John Beeman, "country corporate officer of Citibank in Vietnam," called for "improved competitiveness" and "eliminating the structural issues of banking system and state-owned enterprises." Yes, Citigroup has a foreign policy...

     And a labor policy, too: Citigroup's investment bank, SSB, is planning to lay-off 300 people, as early as this week.

     For those interested in Citigroup's effect on the environment -- the growing interest was evident in actions at Citi branches around the U.S. on Nov. 7 -- note that Citigroup's Ilene Fiszel Bieler will be speaking (on the topic of "Financial Market Views of Carbon Risk") at a conference held by Redefining Progress, at 3:30 p.m. on Thursday, Nov. 15, 2168 Rayburn House Office Building in D.C...

Update of November 5, 2001: ICP has received more detailed information regarding Citigroup's lobbying against post-S11 money laundering laws. Faced with legislation which would have barred it from doing business with offshore shell banks, Citigroup kicked into high gear. Publicly, the process resulted in a compromise in which only shell banks not affiliated with a "real," onshore depository bank would be targeted. But behind the scenes, Citi tried to go further and expand this exemption to include any shell bank with a "financial institution" as its parent. Any financial institution -- i.e., including brokerages with few money laundering controls, etc.. The wording change -- the provenance of which no one sees to know or want to admit -- was caught at the last minute by Congressional staffers. Oh, well.

   Meanwhile, through the American Financial Services Association, Citigroup has opposed anti-predatory lending ordinances from Oakland to Georgia to Connecticut. In Georgia, Superior Court Judge Edward Wheeler last week threw out the DeKalb County ordinance, in response to AFSA's lawsuit. AFSA had relied on the changes the ordinance would require at Citigroup's CitiFinancial (and AIG's American General Finance) -- the largest U.S. bank and insurance company, respectively, by market capitalization. Money talks, and consumers walk. Democracy and local control, you ask? They're in a wheelchair.

Update of October 29, 2001: On October 24, Citigroup announced that it will close 90 bank branches in Mexico, and lay off over two thousand employees, following its acquisition of Banamex. In Kansas City, Citigroup-owned Delco Remy International Inc announced it will next month close Engine Master Inc., an automotive engine rebuilder, and lay off 74 employees.

    In environmentally-related news, Enron has asked Citigroup Inc. to arrange a $750-million loan. Citigroup's Anne Costin, "deputy head of global project and structured trade finance, brags to the oil industry press that in the past year Citi has closed over $11 billion of project financing for the U.S. power market, including for two large power plants sponsored by Teco Power Services and Panda Energy International.

     Citigroup's role in the pre-September 11 transfer of hijackers funds continues to come into focus, even as Citigroup dodged a bullet in the money laundering legislation signed by U.S. president Bush on October 26. The Washington Post of October 25 reports that a $70,000 wire transfer from the United Arab Emirates to hijacker Atta passed through Citibank in New York. Contacted to respond to the Los Angeles Times' report that Atta had an account at Citibank in the UAE, Citigroup's all-purpose spokeswoman Leah Johnson said: "We are committed to cooperating in any way possible with the government's far- reaching investigation and the ongoing battle against terrorism. However, we do not comment publicly on what if any information is being shared with law enforcement.''

      As reported in previous weeks (below and here), Citigroup lobbied extensively against the anti-money laundering bill. To the end, Citigroup conducted business with shell banks. The Sun-Sentinel of October 27 provides Citigroup's reaction to the new legislation, reporting that Citigroup "has said it permits business with a shell bank if its parent is a financial institution, not necessarily a bank. But that policy, as well as its liberal use of correspondent accounts, might have to end under the new anti-money laundering law. Citibank officials reiterated Friday their position that it has limited its contacts to 'reputable and financially robust institutions.'"   Such as, until quite recently, the Sudan-based Al-Shamal Islamic Bank...(Click here for more on this).

     Also of benefit to Citigroup was a little-noticed change in the final bill, which removed a provision that made fraud against a foreign government a predicate offense to money laundering. So business with the Sani Abacha's and Raul Salinas' of the world can continue apace...

Update of October 22, 2001: We begin with -- what else? -- the September 11 connection(s). The Los Angeles Times of October 20 quoted the head of the central bank of the United Arab Emirates that S11 hijacker Mohamed Atta maintained an account at a Citibank branch in Dubai. Sultan bin Nasser al Suweidi characterized Atta's Citibank account as "busier" than normal, with frequent transfers of $10,000 to $15,000. 

     U.S. News & World Report of October 22 reports that "according to congressional staffers, lobbyists for giant Citigroup had urged lawmakers to make an exception for shell banks affiliated with financial services companies... Citigroup has taken heat... for opening a $7.7 million account for a Cayman Islands shell bank whose assets were eventually seized in an illegal-drug investigation."

      As before S11, so after: Citigroup's high-interest rate consumer finance lending is more important to it that it's normally-priced retail bank network. In the third quarter of 2001, "profit at Citibanking North America, the U.S. branch bank, rose 25% to $151 million. Profit at CitiFinancial, the division that lends to borrowers with poor credit histories and includes Associates First Capital Corp. of Dallas, a large subprime lender that Citigroup acquired in November, rose 45% to $308 million." WSJ 10/18.

     To protect CitiFinancial's profits, Citigroup lobbies extensively against local anti-predatory lending laws. The Cleveland Plain Dealer of October 19 reports on the "fast tracking of an Ohio bill that would take away local government's ability to make consumer-lending laws... The bill was written with the help of the Ohio Consumer Finance Association, which represents so-called subprime lenders such as Household International, CitiFinancial and Wells Fargo Corp."

     Of course, Citigroup's lobbying power is global, too. On October 15, regulators in India permitted Associates India Holding Company Pvt Ltda to retain 100% holding in its downstream subsidiary, Associates India Financial Services Pvt Ltd -- the regulators waived the otherwise-applicable requirement of divesting 25 per cent equity through a public offering. Even before buying Associates, Citigroup's presence in India included Citicorp Finance India Ltd, Citicorp Maruti Finance Ltd, a 74:26 joint venture with Maruti Ltd, and Citi Financial Retail Services India Ltd, a 74:26 joint venture with SAK Industries...

     Meanwhile, in Maryland since September 11, consumers have filed a class action suit charging that Citigroup disseminated their personal financial information, invaded their privacy and impaired their ability to obtain credit in violation of the Fair Credit Reporting Act and Maryland law...

     But there'll be more: during the October 17 earnings conference call with reporters, Sandy Weill said that Citi's deal-making come in "extremely good times" and in "extremely bad times," and this "would qualify as one of those extreme times." 

Update of October 15, 2001: Along with its lobbying against anti-money laundering proposals in Congress (see Washington Post of Oct. 11, and see below), Citigroup is already speculating that the U.S.'s foreign policy objectives will make IMF bailouts of countries around Afghanistan more likely. Desmond Lachman, director of emerging-markets economic research at Salomon Smith Barney, gushes: "The money will be a lot more forthcoming, especially to front-line states, especially Turkey but also Indonesia and Pakistan." NYT 10/12. Which means: speculate, baby, you'll get bailed out...

   In Russia, Citibank T/O on October 8 announced a new credit facility with Rostar, wholly-owned subsidiary of Russian Aluminum...  In the U.K., Citibank has been pitching its "My Accounts" feature, which required customers to enter their personal identification numbers and passwords for all their accounts, to aggregate them. As noted by the London press, Citibank's U.K. website named "Halifax and Abbey National among the financial institutions whose accounts can be aggregated. But the two said yesterday that they neither endorsed the service nor wished to participate. Ambrose McGinn, e-commerce director at Abbey National, said it would urge its one million online customers 'in the strongest possible terms' not to sign up to My Accounts. 'If you give away Pins and passwords it will invalidate the terms and conditions of the accounts and leaves our customers wide open to potential malpractice,' he added. Halifax, which has 630,000 online customers, said it had asked for its name to be removed from the Citibank site. 'The basic principle is that you should not give your personal details to a third party. It is like giving the keys of your house away to someone you have never met.'" Question: if Citigroup is willing to use other banks' names without their consent, how much protection would Citigroup give to the personal information of an individual customer?

From the mail bag:

Subj: AWFUL PEOPLE.........
Date: 10/7/01 7:17:58 PM Eastern Daylight Time
To: CitiWatch [at]





                        -- ALMA YOUNG SALAS AND BETTY JONES

      And the beat goes on...

Brief (but necessary) update of October 12, 2001:  The Washington Post of 10/11 reported that "Citigroup executive Rick Small has proposed language that would soften a provision barring U.S. banks from doing business with offshore shell banks that have no physical office and no affiliation with an established bank. Until recently, Small was one of the Federal Reserve Board's top money-laundering experts. He didn't return calls." 

     So: Citigroup's public spin was that it was putting its money-laundering past behind it, by hiring the Fed's expert. Now Citigroup uses this hired gun to lobby against anti-money laundering proposals....

Update of October 8, 2001:  Nothing slows Citigroup down. Widely documented to have been at the forefront of money laundering and private banking shenanigans, Citigroup now wheels out ex-Treasury Secretary Robert Rubin, as statesman-in-residence, briefing the U.S. Senate and penning an op-ed for London's Financial Times (10/1), on the importance of anti-money laundering laws. Meanwhile: business, business. Hal Ritch, co-head of global M&A at Citigroup's SSB, said his "clients are going ahead with their M&A projects... 'My clients are more steely than the market place.'"

     But in Seoul on October 4, Korea Exchange Bank announced that Citigroup had withdrawn from talks to buy its credit card unit because of the September 11 attacks. "Citibank said fallout of the September 11 aerial attacks on the U.S. led the American bank to stop new investment," said Hong Young-hwan, a KEB spokesman. Reuters, 10/4/01. Citigroup also sold off, to Prudential, CitiCapital Relocation, which it described as part of its commercial finance arm, CitiCapital, based in Irving, Texas. That is to say, another piece of Associates First Capital Corp. is gone...

     Relatedly (to Associates, that is), the American Banker of Oct. 5, analyzing Citigroup's dropping of single premium credit insurance, claims that Citi's move was prompted by Sen. Chuck Schumer, and provides no explanation at all for AIG's move. But see numerous press accounts detailed the nationwide (continuing) advocacy around Citigroup. Citi spins, and the industry press (often) mystifies. And the beat goes on...

     Litigation against Citigroup by its (former) employees continues. In August, Los Angeles Superior Court Judge Aurelio Munoz granted class-action status to a lawsuit filed against Citigroup by former employees. Judge Munoz's certification of the California case means the lawyers for the plaintiff have the right to represent 535 former Citigroup employees in California. At issue are Citigroup's conflicting policies of offering employees, as compensation, the ability to buy company stock at a discount, but then refusing to pay-out to an employee who leaves before serving for two years. The ex-Citi employees call that policy an illegal confiscation of wages. Another similar class action against Citigroup being heard by judge Edith Payne at Superior Court in Essex County, N.J.. In Boston, U.S. District Court Judge Robert Keeton is overseeing a consolidated action that incorporates class-action lawsuits filed against Citigroup in federal courts in Connecticut, Massachusetts, Mississippi and Florida. Citigroup is opposing a motion to grant nationwide status to CAP lawsuits. Does it sound like Citigroup's ongoing fight-off of predatory lending litigation? Yes. And we'll have more on that (Citigroup's predatory lending) in coming weeks. Until next time, for or with more information, contact us.

Update of October 1, 2001: ICP continues to focus on September 11 aftermath, Citi-related and otherwise. Click here to view ICP's Second Special Report on banking connections to the plane-bombings, and terrorism more generally. Among the Citi connections:

     On September 26, the U.S. Senate Banking Committee held a hearing on "Money Laundering and the Funding of Terrorist Activities." Detailed testimony named Khartoum's Al-Shamal Islamic Bank as having been founded by Osama bin Laden, and still owned by him in 2000. Among the "correspondents" of this bank is... Citigroup.

     Immediately the spinning began. Citigroup spokeswoman Christina Pretto said the Al Shamal account has been "dormant for the last several months," and now had only "a small balance" in it.

     But the U.S. State Department had publicly issued a "Fact Sheet on Bin Laden" as early as August 14, 1996, which stated that "Bin Ladin and wealthy NIF members capitalized Al-Shamal Islamic Bank in Khartoum. Bin Ladin invested $50 million in the bank."

    Citigroup, by its own admission, continued to do business with Shamal Bank until "several months" ago, in 2001. Given Citigroup's business with Raul Salinas, the family of Nigerian ex-dictator Sani Abacha, the daughters of Indonesia's Suharto, and former Venezuelan president Jamie Lusinchi, this may not be surprising. An aside: at that Senate hearing, the head of Citibank's private bank, Shaukat Aziz, defended Citi. Mr. Aziz is now... the finance minister for Pakistan's military ruler. Also, The Times of London of Sept. 25, 2001 reported that "[t]he Bank of England list includes Ariana Afghan Airlines, the country's national carrier, and its bank accounts. One of the company's accounts is held at the New Delhi branch of Citibank, the US financial giant."

     And the beat goes on: last week Citigroup Private Bank's chief strategist Clark Winter blabbed to the Financial Times: "Clearly, clients should eliminate obvious risks, such as cross-currency borrowing and susceptibility to margin calls, because they will be called. They should also be ready for more pressure on the dollar as investors switch to the Swiss franc and more trouble for the airlines and the leisure industry... Also, we have probably seen the pop in defense stocks. But this is the time to put money into great names - companies with great brands, top quality products, strong balance sheets and global franchises." Like... Citigroup?

     A follow-up on Citigroup's November 30, 2000 acquisition of Associates First Capital Corp.: last week, the Securities and Exchange Commission settled charges against Citigroupers for insider-trading on the deal. David Kenneth Tomney, vice president in Citibank's corporate tax group, was accused of making $11,600 in illegal profits by purchasing Associates stock one day before Citigroup's announcement of the proposed acquisition in September 2000. Tomney learned of the acquisition at a company meeting, the S.E.C. said. He agreed to pay $23,600 to settle the charges.

     The S.E.C. also accused three Canadians of trading ahead of the Citigroup-Associates merger using information they obtained through a former Salomon Smith Barney (Citigroup) analyst, Michael Andrew Petrescu-Comnene. The SEC filed a complaint against Mr. Petrescu-Comnene in October 2000. The former analyst settled the charges in May without admitting wrongdoing and was barred from the industry. Related criminal charges against him are pending...

   Finally, the Citi / predatory lending lobbying watch: on September 28, DeKalb County, Georgia, which enacted an anti-predatory lending ordinance which was sued by the American Financial Services Association, filed a motion to dismiss AFSA's suit, on the grounds that it has no standing to sue over the ordinance because the group does not pay taxes in the county or do business there. AFSA's lawyer Tony Powers quickly cited to two AFSA members with offices in DeKalb County --- Citigroup's CitiFinancial and AIG's American General Finance. So in essence, it's these two subprimers (owned by the largest bank and insurer, respectively) that are opposing anti-predatory lending safeguards. Ah, Citi...

Update of September 24, 2001: In the wake of the September 11 plane-bombing of the World Trade Center, published reports detailed the response of Travelers Insurance, a subsidiary of Citigroup. Travelers customer Jeff Shapiro, who both lives and works near the Trade Center, was quoted that Travelers "has been so unsupportive. They should be saying, 'Don't worry. We're going to help you,' versus, 'Hey, you're limited to just two weeks' coverage in this situation.' It just makes me feel worse."

    Less anecdotally, Inner City / Finance Watch has prepared a report on bank links to Al Qaeda and other state- and non-state terrorist groups. As the world's focus shifts to Pakistan (and its neighbor Afghanistan), it's worth remembering the banking business Citigroup has done with recent rulers of Pakistan. The Business Recorder of March 22, 2001, reported that "Syed Muhammad Zafar, the counsel for the [Pakistani] National Accountability Bureau told the Supreme Court here on Thursday that a US Senate's Sub-Committee on Private Banking and Money Laundering had referred to Asif Ali Zardari's financial and legal connections in Switzerland and also listed three accounts in Citibank there of which he was a beneficiary. The former Law Minister told a Special Bench of seven judges hearing appeals of Benazir Bhutto and Zardari against their convictions by an Ehtesab Bench that Zardari had established contacts with the Citibank in Switzerland in 1984 through a private banker, Kamran Amouzgar, and a lawyer who had represented the Bhutto family in Europe for over 20 years, and was also its close friend. He identified the Swiss lawyer as Jens Schlegelmilche, who was mentioned in several documents and referred to by some witnesses during the trial of Benazir Bhutto and Asif Ali Zardari before the Ehtesab Bench of the Lahore High Court."

    Note: Asif Ali Zardari also raised money selling looted Afghani heritage items on the black market. Citigroup other private banking clients have included Nigeria's ex-dictator Sani Abacha, Bongo of Gabon, Stroessner of Paraguay, and Mexico's Raul Salinas. A November 9, 1999 Senate staff report, "Private Banking and Money Laundering: A Case Study of Opportunities and Vulnerabilities," details how Raul Salinas employed Citibank's private banking department to launder over $ 240 million into Swiss accounts. Regarding September 11, Citigroup proffered one of its longest media-responses to date, stating that "[w]e provide typical banking services to the Saudi Binladin Group which has denounced and completely disowned Osama bin Laden. We can't comment on activity with respect to specific accounts. However we are monitoring the situation closely. In addition, we are committed to cooperating in any way possible with the government's far-reaching investigation and the on going battle against terrorism."

     Citigroup in 2001 hired the Fed's money laundering expert Richard A. Small -- click here to read Mr. Small's 1999 Senate testimony, blithely concluding that "[t]he banking system has a significant interest in protecting itself from being used by criminal elements. Individual banking organizations have committed substantial resources and achieved noticeable success in creating operational environments that are designed to protect their institutions from unknowingly doing business with unsavory customers...". The issue with Citigroup: Citi's business with unsavory customers does not appear to be "unknowing"....

    And, in the chaos of last week, Citigroup continued to expand. Citigroup's new Mexican subprime lending unit Grupo Financiero Associates bought the 51% of Mexican finance company Credito Familiar that Citigroup didn't already own. Dow Jones (9/17) euphemistically called Credito Familiar a "low-income lender."

    In Japan, Citigroup announced an insurance (or variable annuity) joint venture with Mitsui Marine & Fire Insurance Co. and Sumitomo Marine & Fire Insurance Co.. Citigroup is already the biggest shareholder in Nikko Securities Co., Japan's third-biggest brokerage firm, with a 20% stake. It also has 49% of a joint-venture investment bank with Nikko, called Nikko Salomon Smith Barney Ltd. And, of course, Citigroup owns Associates First Capital Corp., which has a large (subprime) consumer finance operation in Japan...

Update of September 17, 2001: Following the September 11 plane-bombing of the World Trade Center and the U.S. Pentagon, it is likely (and to some degree understandable) that issues of economic justice will take a back seat for the foreseeable future. Most countries in the world have suffered the bombing of cities and civilian casualties -- but this has, gratefully, been rare in the United States. President Bush has said that responding to the attacks will become the focus of his administration. And today's reopening of the stock markets (and of professional baseball, et al.) exemplify the efforts that will be made to show that life in the U.S. goes on. This is understandable, appropriate, laudable.

Economic justice advocates have shown, and will undoubtedly show, restraint -- that they take the events of September 11 seriously. We suggest that financial institutions do the same. In Inner City Press' daily coverage of the plane-bombing's aftermath from September 12 - 14 (to view, click here and scroll down), we noted several self-serving announcements by financial institutions. One New York-based bank, HSBC, told a reporter that it would be waiving fees -- then, the next day, called the reporter to explain that the fee-waived would be extremely limited, and to request that a clarification be published. Citigroup issued a statement that "For the most part, it is business as usual for many of our businesses in North America and around the world." Business as usual? Among post-September 11 tasks is to inquire into how attacks like these are financed, how the money is moved. Banks with notably lax money laundering policies -- see below -- will be examined particularly closely. Sometimes, it's been a matter of direct solicitation: the London Observer of December 13, 1998, reported the visit to Afghanistan of Mark Warner, a director with Barclays Private Bank Ltd., to drum up business... In testimony in federal court in Manhattan in February 2001, Osama bin Laden's paymaster Jamal Ahmed Al-Fadl testified that al-Qaeda had various bank accounts, including with Barclays Bank. While Barclays now tells reporters that it is "fully aware of [its] legal obligations," the reports become more specific: the account was at the Barclays branch in Notting Hill, west on London... See also, as to Citigroup, the Minority Staff of the U.S. Senate Permanent Subcommittee on Investigations, Report on Correspondent Banking: A Gateway to Money Laundering, February 2001, and the documentary evidence for Senate Hearing 106-428.

    Of some relevance, if only by analogy, in Europe the economic justice network Attac issued a press release condemning the plane- bombings "in the firmest possible terms, particularly because terrorism has always been used to suppress and suspend democratic freedoms." Later in the week, ATTAC confirmed that it would not cancel its next planned protest, stating that "we understand the shock in the U.S.... But, in Europe and the rest of the world, we are not in a state of shock. Life goes on -- and we see no reason to change our analysis or our actions."

   Regarding the issues raised in the Reports below on this page, is there a reason to change analysis or actions? Fundamentally, no. But there is a wider picture, there is work to be done, and assistance to be rendered...

Update of September 10, 2001: Last week brought nothing positive for Citigroup's image. The week began with the shut-down of Citigroup's 2000 automatic teller machines; the week ended with the North Carolina Attorney General announcing a $20 million fine, to recompense borrowers would were gouged with credit insurance on subprime loans.

   Last week, in reviewing Citigroup's August 30 dissemination of a purportedly internal memo on reforms to its subprime lending -- largely the de-certification of certain mortgage brokers and correspondents -- we mused that Citigroup was releasing this memo in an attempt to "spin" a more negative forthcoming story. Well, on September 6 the other shoe dropped. The North Carolina Attorney General announced that Citigroup will pay up to $20 million to reimburse customers gouged with single premium credit insurance. Various journalists informed ICP that Citigroup's spokeswoman Leah Johnson refused to answer their questions about this North Carolina fine, an approach decidedly different from Citigroup's willingness to brag out its internal memo the week previous.

    North Carolina is only one of over 40 states in which consumers were subjected to these practices; there is little rationale for similar refunds not being made or ordered in other states. Also, single premium credit insurance is only one of the predatory practices at CitiFinancial; many of the practices (including but not limited to absurdly high "loan discount" fees) continue today at CitiFinancial. So this is a developing story...

   The American Banker of September 10 quotes Citigroup SVP Pam Flaherty: "Are we perfect? No, but we're on track to keep all our commitments by the end of the year, and we continue to learn." As reported on ICP's CitiWatch, Ms. Flaherty asked that complaints about practices at CitiFinancial branches be transmitted to her -- but when she was asked about lifelong gag orders CitiFinancial has sought from ex-employees, prohibiting them from providing any derogatory information about any Citigroup employee or practice, she responded that these gag orders are "customary," and then stopped responding. So our question remains, about what exactly it is, that Citigroup is learning...

Update of September 4, 2001: Last week Citigroup continued it global wheeling-and-dealing, while trying to spin the U.S. press that it is cleaning up its subprime lending business. Citigroup raised its stake in Japan's Nikko Trust and Banking Corp from 20% to 50%, and sold Associates' vehicle leasing business in Canada to GE Capital. The Seoul press on September 4 reports that Korea Exchange Bank has agreed to sell a controlling stake in its credit card operations to Citibank for $516.4 million.

      In New York on August 30, Citigroup sent 18 Citi-selected journalists a supposedly "internal" Citigroup memo announcing the progress of reforms at Associates First Capital Corp.. This is Citigroup's fourth round of spin concerning its subprime lending practices. In this round, the sound byte that Citi chose to highlight is that it is "suspending relationships with 3,600 brokers and 300 correspondents."   But more than two-thirds of these "suspensions" are of brokers who did not return to Citigroup its purported "Code of Conduct." Why they didn't return it is unknown. It can only dubiously be attributed to Citigroup's self-proclaimed leadership status in the subprime lending industry.

     The reality "on the ground" is quite different than the portrayal in the Citigroup memo. As reported below, in July ICP obtained a sworn affidavit from a person who had worked at CitiFinancial until May 24, 2001, stating that up until the time he left, documents were being forged, RESPA disclosures were being back-dated, and the true cost of loans were not being disclosed. ICP has obtained documentation of a CitiFinancial loan made in mid-June 2001: to finance $73,000, the borrower pays Citi $92,000 in finance charges.

      The memo claims that CitiFinancial has an "Ethics Hotline" for employees. But the sworn statement obtained by ICP in July 2001 recounts complaints to this Ethics Hotline that were ignored by Citigroup. The complainant was told that Citigroup would not begin an investigation based on the word of an employee. And once ICP filed the affidavit with the Federal Reserve Board, Citigroup sent lawyers from the Skadden Arps law firm down to South Carolina, to threaten to sue whistle-blowers under lifelong non-disparagement agreements it had strong-armed them into signing upon leaving the company. In this light, it's hard to view Citigroup's August 30 memo as anything more than spin...

      Notably, when the Federal Trade Commission filed its predatory lending lawsuit against Citigroup in March 2001, the American Banker newspaper (3/8/01) ran the following quote: "'My impression is that Citigroup has been working overtime trying to ensure that all of their business units, including Associates, operate in an appropriate manner,' said Wright Andrews, Washington counsel for the National Home Equity Mortgage Association. 'The FTC's action here may undercut Citi's good-faith efforts.'"

     Reporting on Citigroup's memo last week, the American Banker ran this quote: "Wright Andrews, the chief lobbyist for the National Home Equity Mortgage Association said, 'This announcement certainly shows that Citigroup is making a monumental effort to improve the practices of Associates and to integrate it into Citi’s operations. Time will tell what additional steps may have to be taken, but they’ve certainly done an awful lot.'"

     So let's get this straight: in March 2001, Citigroup had already been "working overtime" to improve its lending practices, and supposedly the FTC's lawsuit might "undercut Citigroup's good-faith efforts." In late August 2001, Citigroup's three spin-round of the year supposedly "shows that Citigroup is making a monumental effort to improve the practices... they’ve certainly done an awful lot." Apparently, even in this subprime industry spokesman's view, the FTC lawsuit did not "undercut" Citigroup's efforts. We're left wondering what the relation is between Citigroup's sending its supposedly internal memo to journalists last week, and the Federal Reserve's announced on-site examination of CitiFinancial, and the upcoming ruling (on Citigroup's motion to dismiss) in the FTC v. Citigroup case... 

Update of August 27, 2001: From IMF lending (with all the attendant "conditionalities," including cuts in social services) to subprime mortgage lending, Citi is there. The Wall Street Journal of August 24 reports that U.S. Treasury Secretary O'Neill "and Citigroup Vice Chairman Bill Rhodes talked repeatedly the night the International Monetary Fund's $8 billion compromise aid plan [for Argentina] was announced." The American Banker of August 22 quotes Damian Kozlowski, Citigroup Private Bank's new CEO, that this unit "for high-net worth individuals" will be expanding its office in... Buenos Aires.

    South Carolina CitiFinancial interim update: sources tell Inner City Press that Tim Delapaz, the CitiFinancial supervisor whose "resignation" Citigroup accepted, after investigating Steve Toomey's July 8, 2001 affidavit (reported here) got... a $29,000 severance check, and was asked to sign a (modified) non-disparagement agreement. A connection to the above? Mr. Delapaz (and his supervisor, Steve Diubaldo) used to work at HomeGold (the subprime lender referenced in the foreclosure sale notice above, as selling loans to CitiFinancial).

Update of August 20, 2001: On August 14, Citigroup announced that it will be laying off 3,500 employees. But in Baltimore, Citigroup's subprime lending unit, CitiFinancial, said it will be adding 500 jobs (Baltimore Sun, 8/15). Why? Well, Citigroup loves subprime: it's a profit-engine, and Citigroup believes it has enough political sway, bought with campaign contributions and otherwise, that recent calls for a crack-down on predatory lending will not force it to change its practices.

    Citi certain has such sway with the Federal Reserve Board. The most recent example is the slapdash way in which the Fed, in an August 17 letter denying ICP's request for reconsideration of the Fed's Citi-Banamex approval, addresses the sworn allegations of predatory practices at CitiFinancial, and the gag order issue which we've covered here for the past five weeks.

    The Fed's denial comes in the form of a seven-page letter from the Board's Deputy Secretary Robert deV Frierson. Mr. Frierson writes that:

The members of the Board have carefully considered your request... You assert that your request raises several matters that were not presented to the Board during the comment period. These matters include the following:

--You claim that, since the Citigroup/Banacci Order was issued, various media sources have reported that (i) Citigroup has partially corroborated certain consumer-compliance-related allegations made by Vincent Toomey, a former loan officer of Citigroup's subprime lending subsidiary, CitiFinancial Credit Company ("CitiFinancial"); and (ii) Citigroup's outside counsel has met with some present and former CitiFinancial employees regarding nondisparagement clauses in agreements between CitiFinancial and the employees to prevent disclosure of adverse information about CitiFinancial. [FRB footnote: You assert that the Board should have required Citigroup to discuss on the record of the proposal the substance of the allegations by Mr. Toomey and its use of nondisparagement clauses and that the Citigroup/Banacci Order should have included a more detailed discussion of these two matters]. [ICP footnote -- it's STEVEN Toomey, not "Vincent" Toomey, as the affidavit ICP submitted clearly reflects. So much for "careful consideration"...].

--You believe that Citigroup's July 12, 2001, amendment to the structure of its proposed acquisition of Banacci should have been subject to the notice and comment provisions of the Bank Holding Company Act ("BHC Act").

--You argue that the Board should not have acted on this proposal until it had conducted the examination of CitiFinancial's subprime lending activities that was announced in the Board's approval of Citigroup's acquisition of European American Bank ("EAB"). You also criticize the Board's decision to consider the case before the initial 60-day processing period expired.

--You claim that, since the close of the comment period for this proposal, ICP has received material indicating that Board or Federal Reserve System ("System") staff did not comply fully with the Board's ex parte policy during the processing of Citigroup's proposal.

With regard to the first matter, the Board carefully considered the substance of Mr. Toomey's allegations before it acted on Citigroup's proposal. [FRB footnote: ICP made Mr. Toomey's statement a part of the record on July 9, 2001. Mr. Toomey's statement was considered in the convenience and needs analysis in the Citigroup/Banacci Order. See Citigroup/Banacci Order, footnote 45]. [ICP footnote: the only reference therein is to "concerns about...matters raised in affidavits or statements by former or current employees of these subsidiaries," then a reference to "the affidavit of a former CitiFinancial employee filed in the FTC litigation." Apparently Mr. Frierson is saying that the use of the plural ("affidavits") and then the singular ("affidavit") means that the second affidavit, Mr. Toomey's, was "carefully considered"...].

     Mr. Frierson's letter goes on to state that the Fed's "examination will include an interview of Mr. Toomey if he is available." Great -- more than six weeks after the affidavit was submitted, and after Citigroup has conducted interviews and more... Mr. Frierson continues:

You also request reconsideration in light of press reports that Citigroup's outside counsel recently met with some present and former CitiFinancial employees to discuss adherence by the employees to the nondisparagement clauses in their agreements. According to these press reports, the nondisparagement clauses prohibit employees from making derogatory statements about CitiFinancial. Citigroup reportedly had denied allegations made in press articles and by ICP that the purpose of the meetings between its outside counsel and the present and former CitiFinancial employees was to intimidate or frighten the employees into silence, noting that the nondisparagement clauses are standard industry practice and that the clauses do not prevent employees from reporting concerns about allegedly unethical or illegal activities. The impending examination of CitiFinancial discussed above will include a review of these alleged contractual agreements.

    First, the lifelong "nondisparagement clauses" have no exemption for reporting concerns of unethical or illegal activities. The agreement simply provide that they extends as far as permitted by law -- meaning, presumably, that if an individual was subpoenaed to provide evidence, it would not violate the agreement. But a person would and could not be subpoenaed until they voluntarily "reported" their concern -- which would violate the terms of CitiFinancial's gag orders. Second, the gag orders that ICP quoted to the Fed are by no means "standard industry practice," as ICP has been informed by others in the subprime lending industry. The Fed could easily have asked: did ex-Citigroup employees John Reed or Bob Lipp sign anything like this? We doubt it... Third, the time for the Fed to have "review[ed] these alleged contractual agreements" was before giving Citigroup an approval to acquire the second-largest bank in Mexico, and to expand CitiFinancial there. Given the Fed's past and recent practice, it is difficult to have much confidence in this "impending examination" -- adverse findings would remain confidential, any positive findings would be trumpeted by the Fed in future Citigroup approval orders.

    The largest bank in the United States (and now, in the world) is acquiring one problematic business after another. The Fed rubberstamps the acquisitions, but stands ready, if the past is any guide, to cover up or bail out any ensuing problems. Where's it all headed? Time will tell.

Update of August 13, 2001: We begin this week with a review of Citigroup in five countries -- and then return to U.S. predatory lending issues.

    In Japan, the Financial Services Agency has ordered Citibank's branch to suspend operations, for at least a week, for "offer[ing] products to around 40 clients that allowed them to conceal losses on securities trades"... In Argentina, Congresswoman Elisa Carrio released a 1,500 page report on August 10, reiterating Citigroup's involvement in money laundering for ex-president Menem, including through Raul Moneta of CEI Citicorp Holdings... In Mexico, bombs went off at five branches of Banamex, Citigroup's most recent acquisition, late on August 8. The Financial Times (8/10) quotes a Mexico City analyst that "there is a sense that Mexico has sold off its financial system and this is causing a great deal of resentment"....

    Meanwhile, in Korea, Citibank is moving to buy the credit card unit of Korea Exchange Bank, according to the Chosun Ilbo of August 10. And in Brazil, Citigroup will resume its courtship of Banco Mercantil de Sao Paulo in September, according to the Gazeta Mercantil. Will there be appropriate regulatory scrutiny? You decide: the U.S. Federal Reserve Board last week mailed Inner City Press a memo, dated July 28, reciting a telephone conversation that Board staff had with Citigroup's lawyers on July 16 (the day the Board approved Citigroup - Banamex). According to the late-provided memo, Board staff "asked how Citigroup proposed to structure its indirect investment in Avantel, in light of the announcement... that Banamex must divest its controlling interest in Avantel within 90 days if Citigroup acquires control of Banacci." These memos must be provided to commenters, under the Board's ex parte rules. But here, the Fed "memorialized" its conversation with Citigroup twelve days after it happened, and mailed the memo out noticeably later than that -- after the underlying deal had been consummated....

   In the U.S., Citigroup's lead outside counsel in the Federal Trade Commission's predatory lending suit against CitiFinancial spoke at the American Bar Association's meeting in Chicago last week, drumming up business. He told those in attendance, mostly in-house bank lawyers, that "Every day, there are new class actions being filed against lenders alleging predatory lending... There is no backing away, at least from what we're seeing, on enforcement activity with respect to predatory lending." His message was clear: hire us!

    As previously reported, Citigroup's outside lawyers Mitch Ettinger and Ben Klubes had their meters running, during an investigation / intimidation mission to South Carolina that was triggered by the July 8 affidavit of ex-CitiFinancial employee Steve Toomey. This mission has resulted (so far) in Citigroup "accepting the resignation" of CitiFinancial supervisor Tim Delapaz. Citigroup has not modified the life-long gag orders it obtained from ex-CitiFinancial employees. In fact, Citigroup is trying to get more of those agreements. Why? Well, here's another account, which a CitiFinancial customer in Sacramento, California directed to ICP last week. We'll quote from the customer's August 2, 2001, letter to CitiFinancial Customer Service VP Richard Carroll, in Dallas:

This letter will respond to your deceptive correspondence, which suggests that my purchase of insurance was a choice of mine and that it was optional. The purchase of this insurance was in fact made a requirement for me to obtain the loan from your CitiFinancial office located in Sacramento, California on July 20, 2001, by Mia and the branch manager. Furthermore, I believe that my loan documents have been altered by your office to include a page in which I acknowledged that I requested insurance. I signed the documents in the presence of a witness who will recall that I signed two sets of documents, the first of which Mia pretended to destroy upon my questioning the insurance after partially signing. The second set of documents indicated that I did not want insurance at all, yet included the insurance you have detailed as optional in your form letter to me. I will be my testimony that portions of the first set of loan documents were interchanged with the final copies, which that office has refused to produce to me...

    This customer began complaining to CitiFinancial three days after the loan closing, stating that "I recently applied for a loan and was lied to and told that I had to pay for insurance on my items at home: a TV, a VCR and my bedroom set. After reading the sign on the desk, I am sure I was lied to and forced into signing up for insurance and it is not a requirement...". This complaint resulted in the above replied-to form letter, and the customer's second letter, directly to the CitiFinancial branch manager Angela:

Having received nothing by July 31, 2001, I again called your office and spoke to Tiffany... Tiffany reviewed my file and told me that the personal property insurance was in fact a requirement and that it could not be cancelled...

    The amounts at issue here are less than in the previously reported mortgage / home equity cases. But the pattern -- of loan officers making statements, presumably at management's direction, that contradict CitiFinancial's purportedly reformed policies -- is the same. Want to be strong-armed into taking out high-cost and needless insurance on your bedroom set? Call CitiFinancial....

Update of August 6, 2001: Now that Citigroup has begrudgingly acknowledged "corroborating" at least two of the allegations in the July 8, 2001 affidavit of ex-CitiFinancial employee Steven Toomey (see last week's Report, below), and now that the gag order issue has taken on something of a life of its own, we'll re-expand our focus, on Citigroup's worldwide activities.

   In an August 4 article in Canada's National Post, W. Alston Beinhold of Citigroup Private Bank is quoted: "A client deals with only one advisor at Citigroup, who discreetly handles the client's affairs for a fee based on assets invested. 'Our bankers are able to reach through organization and pull out the right products from the financial warehouse and tailor it to the needs of wealthy individuals.'" They sure did a good job for Raul Salinas, et al... As Citi's Peter Scaturro was trumpeting last week (see FT of August 3), "Citigroup Private Bank is the world's sixth biggest private bank with 90 offices in 31 countries and Dollars 153bn of assets under management." The FT went on to note: " However, its success in private banking in Asia and Latin America has not been matched in Europe." In development: a dictator-concentration index...

    On August 3, Citigroup "consummated" its acquisition of Banamex. The fast time-table was attributable to the U.S. Federal Reserve Board's "shameless capitulation" to Citigroup -- disregarding timely comments and evidence submitted in opposition to the deal, approving Citigroup's application in a mere 45 days (compared to 60 days and more in other cases, including smaller deals with fewer issues raised in opposition). When the Fed approved Citigroup's application on July 16, it informed ICP and other commenters that they could request reconsideration of the approval, within 15 days. ICP submitted such a request, summarized below, on July 30, 2001. The request for reconsideration noted to the Fed that Citigroup had, since the Fed's approval, "corroborated" at least two allegations in an affidavit by ex-CitiFinancial employee Steve Toomey, which described systemic predatory lending and consumer compliance violations at CitiFinancial. But ICP has not heard anything back from the Fed; Citigroup went ahead and consummated the deal on the first day it could...

    From the mail bag:

Subj: Citifinancial Code of Ethics
Date: 7/31/01 7:38:52 PM Eastern Daylight Time
From: [Name redacted at correspondent's request]
To: CitiWatch [at]

At this time, I am unable to come forward with my real name. CitiFinancial is guilty of everything that Associates First Capital has been accused of, and has been doing it for a long time. The Operations manual reads like a consumer's dream, but I was told "not to overcomply or you will not meet your goals".... CitiFinancial's bonus program revolves mainly around insurance "sales" and I use the term "sales" very lightly. The minimum requirement is $100/1000. What that means is, if for example I make you a loan in which the total of payments is $4500, there had better be AT LEAST $450 of insurance premiums included. The superior level would be $504 in premiums, $112/1000. I have been told to put off loans that were below minimum, or find a reason to turn down, or make it so difficult that the customer would turn us down... I think you can find wrong doing in any large company, but it is running rampant at CitiFinancial. I decided that my own integrity was more important than my seniority and I left... I refused to take advantage of my customers. I think Citifinancial will be seeing more longtime employees like myself leave because of this..

Ask CitiFinancial about their "closed folder presentation". Anyone looking will have a hard time finding evidence to support most claims, because it is very rarely in written form. I may have some documents to back up what I have just told you, if you would be interested.

     We are (interested)....

Update of July 30, 2001: Three weeks after ICP filed the affidavit of ex-CitiFinancial employee Steven Toomey, more than two weeks after ICP made the Federal Reserve Board aware of Citigroup's gag order policy, and use of corporate attorneys to intimidate possible predatory lending witnesses, the story is finally being reported elsewhere. Reuters' Brinley Bruton on July 27 reported that

Citigroup has hired Mitchell Ettinger, the prominent Washington lawyer who defended Bill Clinton against sexual harassment charges, to help fight allegations of illegal lending practices and prevent former employees from bad-mouthing the financial services giant... Ettinger, who did not return phone calls to his office, impressed on former workers that Citigroup will enforce so-called non-disparagement clauses, which keep employees from making derogatory statements about the company, according to the person who was questioned by Ettinger's legal team... Ettinger has a "very folksy" manner but played up his impressive resume to those he interviewed when he visited Charleston and Columbia, South Carolina, said one of the people Ettinger's team interviewed. Ettinger encouraged them to search the Internet to find out about him, the source said. "He wanted everybody to know that he was the lawyer on the Paula Jones case and invited everybody to check him out so they would know who they were dealing with, trying to intimidate them," the source said. "It's like David and Goliath. He let (people) know that if you do stray from any agreements that you're going to be up against the full resources of a trillion dollar company."

     A media-watch aside: Ms. Bruton's protection of sources was exemplary, given the threats that Citigroup has been making... Her Reuters article appeared Saturday July 28 in (New York) Newsday and the Houston Chronicle, among others. The American Banker of July 30, in a hard-won article by Rob Garver, reports [snip]

    Now that this has been elsewhere reported, ICP can add some details: the affidavit that ICP filed with the Federal Reserve Board on July 9, in a timely comment opposing Citigroup's application to acquire Banamex, named Mr. Delapaz has having told loan officers to disregard Citigroup's announced "reforms," and the recommendations of the one CitiFinancial auditor who visited South Carolina from November 30, 2000, through May 24, 2001. The affidavit states that Mr. Delapaz cited the authority of his supervisor, Steve Diubaldo, with jurisdiction over more than one state, in directing loan officers to continue to close loans at applicants' houses, and to continue to report Home Mortgage Disclosure Act data in a way since found to violate the statute by the New York Banking Department, and referred to HUD by the Federal Reserve Board.

    Early in the week of July 23, Mitch Ettinger traveled to Columbia, S.C. to interview another CitiFinancial employee who, sources tell ICP, repeatedly raised cautions about violations of the Real Estate Settlement Procedure Act, to no avail. What will happened to Steve Diubaldo is not yet clear. Nor is what actions will be taken responding to the clear break-down of Citigroup's supposed "Ethics Hotline," to which CitiFinancial employees complained through out the Spring of 2001, to no avail. Only after ICP filed a sworn affidavit on these matters was anything done.

     Citigroup spokeswoman Leah Johnson (who bad-mouthed ICP to reporters who called her last week, trying to convince them that this story was... no story at all) issued a statement on July 26, that

We interviewed Mr. Toomey and among the many allegations he described, we were able to corroborate only two isolated incidents and have taken appropriate corrective action. Based on our full review, we believe that the behavior described by Mr. Toomey is not the way employees at CitiFinancial treat their customers.

Our severance agreements, like those of most companies, include a standard non-disparagement clause. Because of our desire to assure that our stringent standards of conduct are upheld, such clauses at CitiFinancial never apply to employees bringing any concerns about illegal or unethical activity they believe they have witnessed to the appropriate authorities inside and outside the company.

Our outside counsel conducted a proper and thorough review. No one was threatened with criminal action.

     The first paragraph begs the question: WHICH two allegations is Citigroup acknowledging were "corroborated"? The second paragraph, claiming that these gag orders are customary, leads logically to asking whether other ex-Citigroupers like John Reed and Bob Lipp (or Richard Goldman, who just left Citigroup Asset Management to take over the Guardian Park Avenue Fund) have signed life-long non-disparagement agreements. This paragraph is also patently untrue: the agreements at issue prohibit disparaging, "to any person," any Citigroup employee or business practice. The third paragraph is, as the cable television pundits would put it, "Clintonesque." ("Carefully worded" wouldn't quite capture this). Individuals were told that the loan practices they were saying they were ordered to engage in were "criminal," and that they should think serious about that (before participating in any further whistle-blowing). And the gag orders... have still not been removed. ICP has raised these issues to the Fed, in a timely request for reconsideration of the Fed's Citi-Banamex approval order of July 16....

     At week's end, the choice of Skadden Arps partners Mitch Ettinger and Ben Klubes to conduct Citigroup's investigation / intimidation mission to South Carolina became clearer: both Mr. Ettinger and Mr. Klubes are listed as Citigroup's counsel of record in the Federal Trade Commission's predatory lending lawsuit against Citigroup. Developing...

      In other Citigroup news-of-the-week, Malaysia's fifth-largest bank, AMMB Holdings Bhd, announced on July 26 that it has won central bank approval to begin sell-out talks with Citigroup... On July 24, Citigroup announced that its investment bank has hired former U.S. Energy Secretary Bill Richardson as "a consultant for its global energy and power group." 

Update of July 23, 2001 -- This week: more correspondence from Citigroup (and Inner City Press' reply); Citi dodges the Senate Banking Committee's hearings on predatory lending, bends laws in Mexico, applauds Ecuadorian bank privatization. In that order:

     Following the Federal Reserve Board's July 16 rushed approval of Citigroup's applications to acquire Banamex, for the first time in four months, Citigroup does not have an application subject to public comment pending at the Fed. For the past four months, ICP has weekly provided the Fed with evidence of problematic business practices at Citigroup, particularly (but not only) in its subprime lending unit, CitiFinancial. On July 2, the Fed committed to conduct -- for the first time -- a "thorough examination" of CitiFinancial. However, for the reasons explained in ICP's Citigroup - Banamex Watch of July 17 (click here to view), questions have arisen about whether the Federal Reserve is truly interested in getting to the bottom of CitiFinancial's practices (including by speaking with current and former employees with personal knowledge of illegal practices). Going forward, we will be identifying other forums with which to file Citigroup-related evidence. This week, however, we received another letter from the head of Citigroup's "Global Community Relations," which, in its entirety, stated:

We received the Toomey affidavit the day it was filed, and, as you have noted, have commenced a careful review of his allegations. We take such allegations very seriously and will take appropriate action when the review process is completed.

We remain concerned that you may have information that indicates violations of our policies in other locations. In your last letter, you say that you "will happily respond" to our "request for further information" once we have addressed your belief that we might take action against an employee or former employee who reports concerns about our practices or violations of our policies.

Please rest assured: we will not penalize or take action against any employee or ex-employee who reports concerns to us about our practices or violations of our policies. We have made this clear to our employees numerous times, and, indeed, non-retaliation is embedded in our policies and procedures.

The concerns you raise about the terms of a former employee's severance agreement are unfounded. Those terms, in which the form employee agrees not to disparage the Company, do not apply in circumstances in which a former employee reports to us any knowledge that he or she may have regarding ongoing violations of law or our policies and procedures. Indeed, we have had a confidential ethics hotline in place for years to ensure that employees can report any violations or concerns without fear of retaliation.

       ICP has replied:

...Your letter of July 20 argues that concerns about Citigroup's policy of seeking and obtaining gag agreements from ex-employees are "unfounded." With all due respect, our organization disagrees. While your letter claims that gagged ex-employees are free to complain to Citigroup, it does not address the larger issue: that they are prohibited from providing evidence (that is, whistle-blowing) to government authorities, or independent monitors. The recently reiterated penalty provisions in these gag orders are, despite your letter's claims, retaliatory.

The agreements in question provide that ex-CitiFinancial employees "will not make any statements to any person regarding the Company and its agents of a derogatory nature or which disparage the reputation, business or integrity of the Company or any of the executives or employees of the Company." Emphasis added. By these terms, the agreements prohibit ex-employees from providing adverse information about any employee of Citigroup (or about Citigroup's business practices) to "any person." Contrary to your letter's claim, there is no exception, even for providing information to Citigroup itself.

The agreements specify a retaliatory penalty for "a breach of any of the terms" -- "all remedies or damages at law, and in addition thereto... all costs and expenses, including reasonable attorney's fees, incurred in enforcing any rights hereunder." There is hardly a limit to the damages Citigroup could claim, for harm to its reputation. The mere threat of paying Citigroup's claimed attorneys fees is enough to intimidate ex-employees to whom Citigroup presents such agreements.

The third and fourth paragraphs of your letter refer to hypothetical situations in which employees or ex-employees report "to us" (that is, to Citigroup) "any knowledge that [they] may have regarding ongoing violations of law or our policies and procedures." This blurs an important distinction, and seems to limit even the claimed non-retaliation policy to instances where ex-employees only provide information to Citigroup internally. We are not only concerned that ex-employees cannot, by the above-quoted terms of the agreements, provide information to Citigroup itself (that is, to "any person"). We are even more concerned that the agreements, and recent actions by Citigroup, are designed to prevent ex-employees from speaking to government authorities like the Federal Trade Commission and the Federal Reserve Board, to journalists and independent monitors.

Last week, Citigroup sent lawyers down to South Carolina, purportedly as part of the "careful and thorough review" referenced in your letter. The focus of Citigroup's interrogations was as much on identifying to whom those being questioned had spoken, as on the sworn allegations (and earlier internal complaints) that gave rise to the "review process"... The threat remains that Citigroup WOULD sue under the above quoted gag orders. I find it impossible to reconcile this with your letter's claim that "non-retaliation is embedded in our policies and procedures," and with your renewed invitation that our organization, with which Citigroup has previously and recently prohibited ex-CitiFinancial employees to speak, provide you with any "information that indicates violations of our policies." We would appreciate your attempt to explain (or resolve) this inconsistency.

We found it significant that the outside counsel Citigroup sent to conduct the interrogations invited those to be questioned to "check him out on the Internet" -- a cursory Web search revealed public reports that this attorney had in previous cases sought to dig up damaging personal information against Paula Jones (see, e.g., "Clinton Team Picks Apart Jones's Life; Aggressive Tactics Decried By Lawyers for Accuser," Washington Post, February 23, 1998), had cross-examined Gennifer Flowers (see, e.g., "Bennett Decries 'Smear'; President's Lawyers Scrap Plan to Target Jones's Past," Washington Post, March 21, 1998), and was involved in attempts to procure affidavits to bury the allegations of Kathleen Willey. See, e.g., Citigroup's selection of counsel to conduct this inquiry, and this counsel's tactics and underlying mission, we'll leave for another time, or another forum.

The terms of the above-quoted gag orders are factual, and, for the reasons expressed above, your July 20 letter does not allay our concerns. In my July 15 letter, ICP asked among other things you "to inquire into and make appropriate disclosures regarding this issue... and, more specifically, to have Citigroup void all such 'gag order' clauses, and to inform employees who have left CitiFinancial since November 30, 2000, that the gag order clauses have been voided." But your July 20 letter does not address these requests...

We are left, for these and other reasons, with serious doubts about Citigroup's commitment to investigate, much less reform, problematic practices within its subprime lending and other units.

All of this has pernicious effects on consumers. As simply one example, we are aware of a loan made by CitiFinancial in mid-June, 2001, in which, for less than $75,000 of credit provided to the borrower, at an interest rate over 12.5%, finance charges of over $92,000 are being imposed, including fully 400 basis points as a purported "loan discount," and a credit life insurance premium to American Health and Life of over $7,500, and a disability insurance premium of over $1,500. This is the type of loan, being made this summer by CitiFinancial, which troubles us. We have forwarded to you sworn allegations of routine forgery, back-dating of RESPA disclosures, falsification of borrowers' files, etc., and have yet to be informed of any action taken thereon. Again, for these reasons, we are left with serious doubts about Citigroup's commitment to investigate, much less reform, the problematic practices within its subprime lending and other units.

I'll conclude by reiterating ICP's July 15 request, with regard to the gag orders: ICP is asking Citigroup "to inquire into and make appropriate disclosures regarding this issue... [to] void all such 'gag order' clauses, and to inform employees who have left CitiFinancial since November 30, 2000, that the gag order clauses have been voided." We would appreciate a direct yes-or-no response to this request.

                                                     This will be updated...

       The Senate Banking Committee has scheduled two days of hearings on predatory lending, June 26 and 27. Citigroup should be a logical focus on these hearings, particularly in light of the pending Federal Trade Commission lawsuit against the company, the detailed affidavits of ex-CitiFinancial employees Gail Kubiniec and Steven Toomey, and the type of loans, and the emerging CitiFinancial "gag order" issue, recounted above. But it's not to be: among the witnesses on June 26 will be a representative of subprime lender Ameriquest, and a libertarian "scholar" from the American Enterprise Institute. No Citigroup. There's a phrase in Spanish: "con la plata, baila el perro." "For money, the dogs will dance." 'Nuf said...

      Relatedly, the mainstream media's uninformed, kid-gloves approach to covering Citigroup never ceases to amaze. In more predatory lending related news, that Citigroup's subprime lending units in May 2001 had "14,980 foreclosures in the pipeline" -- a figure disclosed in a Citigroup report to the New York Banking Department which ICP obtained under the Freedom of Information Law, then sought to disseminate -- has finally, after more than a month, been reported in another venue that this site: the industry publication "Origination News" on July 20 recites the figure, and concludes: "A spokeswoman for Citigroup declined to comment." At least Origination News decided to proceed with its report, regarding of Citigroup's "cooperation." In some other instances, Citigroup's refusal to confirm or deny simple factual questions results in Citi-skeptical stories never running at all. That may, however, end this week, on an issue recounted above...

   It's as if the mainstream financial press thinks that Citi's subprime lending is small side business for it. But it's not: reporting on Citigroup's earnings, the Baltimore Sun of July 17 noted that Citigroup's "profit was propelled by a 40 percent gain from consumer lender CitiFinancial, formerly known as Commercial Credit Co., which made $286 million in the quarter compared with $205 million a year earlier. In the first six months of the year, CitiFinancial made $498 million, up 30 percent from a year earlier." Which makes the mainstream press' slap-dash coverage of CitiFinancial even more difficult to understand...

       From the where-are-they-now department: Sandy Weill's former co-head of Citigroup, John Reed, is being named senior advisor to the board of directors of Japan's Shinsei Bank (f/k/a the Long-Term Credit Bank of Japan, before its bail-out by the government).

      Now, two Latin American news items on Citigroup: in Mexico, Citigroup is already using a technique it fine-tuned in the United States: getting regulatory agencies to waive provisions of law, for long enough for Citigroup to lobby (that is, pay) to have the law changed. It happened in the U.S., with the Federal Reserve Board's 1998 approval of the Citicorp - Travelers merger (the Fed gave Citi 2 years to have the Glass-Steagall Act repealed, which was accomplished, after millions in campaign contributions, in 1999). Among Citi's problems in Mexico is how to hold on to the telecommunications company Avantel, which is 45% owned by U.S.-based WorldCom, and 55% owned by Banamex, which Citigroup is buying. Mexican law prohibits foreign stakes of over 50% in telecommunications companies - Avantel would be 100% owned by companies based in the U.S.. But on July 17, Banamex president Roberto Hernandez told reporters that Mexican authorities were "allowing Banacci to break the rules for a period while it figured out a scheme that would work." The regulator who's allowing Citigroup to "break the rules" is Jorge Nicolin, president of the Federal Telecommunications Commission (Cofetel), who has said that the Mexican Congress will "have the last word on whether the rules on foreign majority ownership could be modified." Let the campaign contributions begin!

     In Ecuador, as the government moves to finalize the re-privatization of the bailed-out Filanbanco, economics minister Jorge Gallardo says that this "market solution" puts an end to the banking crisis. In a television interview on July 17, Gallardo thanked the private banking sector for its "patriotic intervention" in the planned purchase of Filanbanco's assets. The bail-out money will never be paid back, while Ecuador continues to cut subsidies and otherwise "structurally adjust," under the watch of the International Monetary Fund. On July 17, 40,000 government employees went on strike, to protest these austerity and privatization moves. But from Wall Street, this pronouncement -- "This is in everybody's best interests" -- from Leo Goldstein, an economist at Citigroup's investment bank Salomon Smith Barney...It all depends on how you define "interest" -- and in how you define "everybody".... 

Note of July 17, 2001: In a shameful capitulation to Citigroup's hunger to expand, this time in Mexico, the U.S. Federal Reserve on July 16 approved a portion of Citigroup's proposal to acquire Banamex.   See, e.g., "Fed Clears Citigroup Buy of Banacci," Reuters, July 16, 2001.  Citigroup radically amended its Banamex application on July 12, to get the Fed to vote on the bare-bones of the proposal on July 16. ICP's Citi - Banamex Report explains why (click here for analysis). But these investigations continue. While Citigroup has yet to respond to the letter set forth in the Update of July 16, below, Citigroup has sent several $400 an hour lawyers down to South Carolina, to investigate (some say, "intimidate").  So -- watch this space."

Update of July 16, 2001: This week: CitiFinancial, with a focus on the South; and then related environmental and electronic benefits transfer news. In that order:

     Following the revelation on July 9 of serious irregularities at CitiFinancial -- irregularities that were brought to Citigroup's attention weeks ago, through internal complaints to Citi's purported "Ethics Hotline" -- Citigroup moved into high gear, sending in a team of auditor's to CitiFinancial's Columbia and Charleston, South Carolina offices, and sending down a team of lawyers from its outside counsel, Skadden Arps. Questions have arisen about loans for which CitiFinancial falsified documents (in one instance, using a photograph of one house to obtain property insurance on an entirely different house which, because it didn't and doesn't have front steps, was ineligible for the homeowner's insurance policy). An emerging issue is a boilerplate "gag order" -- prohibiting ex-employees from providing evidence or in any way "disparaging" Citigroup -- that Citigroup has apparently sought from ex-employees, as a matter of policy, since acquiring Associates on November 30, 2000. Regulatory experts whom ICP has consulted have used words like "obstruction of the regulatory process" when questioned about the propriety of these gag orders. The Federal Trade Commission sued Citigroup for predatory lending on March 6, 2001, and, since then, the Federal Reserve has begun an inquiry into CitiFinancial, and has announced it will be conducting a "thorough" examination of the company. Citigroup was asking people to sign the gag order well after March 6, 2001... There more to report on all this, but, in an excess of caution, it will have to wait.

     Ironically, in light of these gag orders, Citigroup's "Senior Vice President for Global Community Relations" faxed ICP a letter on June 11, clearly triggered by ICP's submission to the Federal Reserve Board of the sworn declaration of ex-CitiFinancial employee Steven Toomey (quoted in last week's Report, below), asking ICP to provide such complaints to Citigroup. The letter begins:

On a number of occasions you have spoken publicly about specific Citifinancial employees who have participated in actions that are contrary to Citifinancial's stated policies.

As we have stated many times, we are very serious about maintaining high ethical standards. If you know of specific cases where current or former employees have violated the law or our procedures, we would like to know about it so that we can investigate and fix whatever problems are surfaced.

As you know, we have announced a number of initiatives over the past few months to ensure that our standards are the highest in the industry. We have compliance processes and procedures, employee training and third party mystery shopping of our sales people to be sure that we, in fact, are living up to those standards. We would welcome any specific information you have that would help us identify any problems we should address.

    We call the letter ironic, because it implies that ICP has not provided specific information -- Steve Toomey's affidavit, faxed to the Federal Reserve and to Citigroup's counsel on July 9, is eminently specific. It names CitiFinancial branch managers who instructed employees not to implement the reforms that Citigroup was presenting to its regulators. The letter is doubly ironic is that Citigroup has been seeking agreements from ex-CitiFinancial employees prohibiting them from providing evidence or "disparaging" Citigroup in any way... Nevertheless, further detailed information has been provided, to regulatory agencies and to Citigroup, since the above-quoted July 11 letter, to which ICP has now replied:

    We are in receipt of your letter of July 11, encouraging Inner City Press to provide further information to Citigroup. We were somewhat confused: while your letter begins by noting that "on a number of occasions [we] have spoken publicly about specific CitiFinancial employees who have participated in actions that are contrary to CitiFinancial's stated policies," our organization's approach has not been to scapegoat specific employees, and has not been limited to "sp[eaking] publicly." On July 9, we submitted to the Federal Reserve Board, and to Citigroup's counsel at Skadden Arps, a copy of a sworn declaration by an ex-CitiFinancial employee, Steven Toomey, stating among other things that he witnessed illegal acts in the Charleston, S.C., office of CitiFinancial, and that several of the "reforms" regarding which Citigroup has publicly made representations were not, in fact, carried out. I trust that you have a copy of Mr. Toomey's declaration; in case you don't, I am attaching a copy of it to this letter.

    Your letter implies that we have not provided Citigroup with specific information. But as the attached attests to, we have. And, to date, Citigroup has made no formal response, to the Federal Reserve Board or elsewhere, to Mr. Toomey's statement. In the American Banker of July 10, 2001, Citigroup was quoted that "Mr. Toomey, an Associates employee for just six months, only in the last few weeks raised issues related to branch sales practices when he concluded that the company would not pay him monies that he demanded to resolve an employment dispute." If Citigroup is going to malign the motives of employees or ex-employees who do come forward, your statement that "we would welcome any specific information that would help us identify any problems we should address" cannot be taken at face-value.

    Worse, we have become aware that Citigroup, since acquiring Associates First Capital Corp. on November 30, 2000, has been requesting and obtaining "gag orders," barring ex-CitiFinancial employees with knowledge of illegal and otherwise materially adverse practices at CitiFinancial from providing such information, not only to Inner City Press, but also to the Federal Reserve Board (Citigroup's and CitiFinancial's primary supervisor, which as you know has committed to conduct a thorough examination of CitiFinancial) -- or to the Federal Trade Commission, which on March 6, 2001, filed suit against Citigroup for predatory lending.

   If you were not yet aware (see below), these Agreements have sections which prohibit ex-CitiFinancial employees from making

any statement to any person regarding the Company and its agents of a derogatory nature or which disparage the reputation, business or integrity of the Company or any of the executives or employees of the Company.

   The first paragraph of these Agreements define "the Company" as CitiFinancial Mortgage Company and its parent, affiliates and subsidiaries: that is, Citigroup as a whole (including, ironically, its "Global Community Relations" unit). Another paragraph of the Agreements is even more specific, prohibiting ex-CitiFinancial employees (and any person they "now or hereafter may control, directly or indirectly") from promoting, instigating, assisting or participating "in any claim, proceeding or litigation charging the Company with any act or omission." Emphasis added.

    While various experts consulted by ICP have opined that Citigroup's gag order would probably not be enforced by a court, due to unconscionability, the Agreement have nevertheless created fear (as they were apparently intended to) among ex-CitiFinancial employees, that if they come forward with information, they will be sued by Citigroup. Our organization hereby asks you, in the spirit of your letter, to inquire into and make appropriate disclosures regarding this issue -- ironically, Citigroup is not barred, by the terms of the Agreement, from disclosing the agreements -- and, more specifically, to have Citigroup void all such "gag order" clauses, and to inform employees who have left CitiFinancial since November 30, 2000, that the gag order clauses have been voided. Only then could we take your invitation to submit to you the information that your letter requests.

    We are aware that Citigroup and its counsel are now requesting meetings with various current and former CitiFinancial employees in South Carolina. While we hope that this is an inquiry undertaken in good faith, to "identify any problems [Citigroup] should address" (as your letter puts it), concerns have been expressed to us that these "visits" are either misleading, or intended to intimidate, or both... These communications have been inconsistent with Citigroup's previous statements about serious, objective investigation of claims; they are doubly troubling in light of your letter's attempt to focus on "specific cases where current or former employees have violated the law." In any event, as Mr. Toomey's declaration makes clear, the direction to violate law, Citigroup's announced commitments, and even the recommendation of CitiFinancial auditors, came from supervisory personnel, and not from the loan officers themselves.

Beyond the sworn statements in Mr. Toomey's July 8, 2001, declaration, Citigroup had previously been made aware of a plethora of compliance and other problems at the Charleston CitiFinancial Mortgage office. By, at latest, July 3, Citigroup had been directed to particular loans files...  ICP has been told of loans that CitiFinancial Mortgage made in December 2000 (that is, after Citigroup acquired The Associates) that were refinanced, with all the attendant fees (that is, "flipped") less than four months later. While Citigroup headquarters alluded to a document it said should be signed by prospective "flippees" (disclosing, in paraphrased form, that "we are refinancing your loan, there is a chance it will cost you more"), this document was rarely if ever provided to those targeted with refinance loans, much less signed by them. This, too, can be easily verified. ICP has also learned that, while Citigroup's headquarters were e-mailing loan officers to restrict certain business with brokers, management in the Charleston office explicit told employees to continue all broker business, and to disregard the other Citigroup instructions... We do not believe that these practices were or are limited to South Carolina.

We continue to await Citigroup's substantive response to the issues raised under oath by ex-CitiFinancial employee Steven Toomey, and we await your response to the gag order issue raised above, including a commitment to void all such gag orders, and provide appropriate notice to current and former CitiFinancial employees. Following this, we will happily respond to your request for further information.

Sincerely, etc.

    Citigroup is asking the Federal Reserve for yet another favor, to expedite approval of its application to acquire Banamex (click here for an update). Now, the abbrieviated Citigroup report-of-the-week: in environmental news, Citigroup's insurance division, Travelers, is a major stakeholder in Texas-based Matador Petroleum, according to a prospectus filed with the SEC on July 11... In electronic benefits transfer news, Citigroup is moving forward with its sole-source contracts in Indiana, Iowa, Nebraska, Nevada, Virginia, and California: on July 9, it announced it will use VeriFone's Omni 3200 countertop payment terminals in those states...

Update of July 9, 2001: We want to -- and soon will -- return to a wider-scope CitiWatch Report, but the allegations against CitiFinancial continue to come in, fast and furious. On July 8, another ex-CitiFinancial employee sworn out an affidavit, which ICP has now submitted into the record before the Federal Reserve Board on Citigroup's applications to acquire Banamex. In pertinent part, this now-on-the-record source, Steven Toomey, who worked at CitiFinancial's Charleston, South Carolina office until May 24, 2001, declares under oath that [available elsewhere on this site -- including in ICP's comments on Citigroup's merger applications].

    Meanwhile, Citigroup is buying up high-interest rate consumer finance lenders all over the world. In the United Kingdom, Citigroup has just reached a deal to buy one of the U.K.'s few subprime lenders, "Future Mortgages." And the American Banker reported last week that Citigroup has surpassed Deutsche Bank, as the largest bank holding company in the world. Citigroup has responded to the Fed, regarding the numerous confirmed instances of money laundering at Citigroup, that "the seriousness of Citigroup's commitment is reflected in the recent announcement that Richard Small, the Federal Reserve's leading anti-money laundering enforcement officer since 1989, will join Citigroup...".  Rest assured: the conflict-of-interest and revolving-door problems this raises have been put to the Fed, on Citigroup's Banamex application.

Update of July 2, 2001: Late on the afternoon of July 2, the Federal Reserve Board announced that it had approved Citigroup's long-pending application to acquire European American Bank. At first (and subsequent) blush, it was inappropriate for the Fed to grant approval while, for example, the sworn allegations of systemic predatory lending at CitiFinancial, by long-time CitiFinancial Gail Kubiniec, remain unresolved. The Fed latches on to two Citigroup announcements, both in the last week (and reported here), on which the public had no opportunity to comment to the Fed.      There's one positive development, buried in the Order at page 30: the Fed will conduct a "thorough examination" of CitiFinancial (or, more precisely, of CitiFinancial's operations of, and changes to, The Associates), and, the Fed will require Citigroup to file quarterly updates on subprime lending-related litigation against it, for the next two years. This examination process, however, will be presumptively confidential, and in effect moves these troubling issues out of the applications process, to a behind-closed-doors process that Citigroup can dominate.   In the only part of the Order addressing Citigroup's lack of environmental, social and human rights standards, the Fed blandly states that the issues raised don't impact on Citigroup's "safety and soundness."   That's disputable - and will be disputed, in connection with Citigroup's still-pending Banamex application (the comment period on which extends until at least July 9, 2001).

   The Fed's Citi-EAB Order is available, in PDF format, by clicking here.   ICP's more detailed critique of the order is here

Update of July 2, 2001: There were two Citigroup announcements last week (reviewed, in "real time," in our June 28 midweek Report, below). Neither announcement -- a new lending pledge in New York State, and a vague commitment to cease offering single premium credit insurance, as some unspecified date in the future -- resolves the problems with Citigroup's applications to acquire Banamex. Click here to view ICP's July 1 comments on Banamex. Citi's cynical spinning of the media is review in this week's ICP Community Reinvestment Report; Citigroup's dominance of the Federal Reserve Board is exemplified by the fact that the FRB placed Citigroup's application to acquire EAB on its agenda for action on July 2, despite, among other things, the New York Banking Department's June 22 finding that the Home Mortgage Disclosure Act data that Citigroup filed on March 1, 2001, is "erroneous." The Fed has a duty to act on this issue, nationwide -- but apparently the urge to approve another Citigroup's expansion application, regardless of Citigroup's record and recent revelations, was too strong... Now, a detour into other Citigroup issues (with a focus, for this week, on the U.S.):

   In U.S. environmental news, residents of South Denver are protesting the EPA's closed-door negotiations with Citigroup, which owns the Shattuck Superfund site. As reported in the Denver Post (6/28), "they don't like the idea of Shattuck and Citigroup being released from all future liability without getting a say in the decision. Citigroup was one of the top campaign contributors to President Bush (and Democratic candidate Al Gore). And EPA chief Whitman has family financial ties to the company" (reported on in earlier this year, below).

     In "free trade" news, on June 26 a bill to give President Bush "trade promotion authority" (a/k/a "fast track") was introduced in the U.S. Senate. A corporate lobbying group for the bill has already been formed, called "U.S. Trade." Among the members is... Citigroup, which is taking a lead role. On July 29, Citigroup's Lionel Johnson was one of nine presenters at the Heritage Foundation's Washington shin-dig on "Advancing Free Trade," along with U.S. Trade Representative Robert Zoellick....

     Meanwhile, Citigroup is praising (and stands to benefit from) "reforms" imposed on Turkey by the International Monetary Fund. "If this deal does not happen . . . we will still be talking about the old (unreformed) Turkey," said Citigroup's Haluk Akdogan, adding that "foreign capital has got to come in because it will bring know-how, genuine competition, and proper banking products." Citigroup has been in talks to acquire Turkish bank TEB...

   Finally, for this week, some recent "insider trading" news:

Jay S. Fishman, Citigroup chief operating officer, sold 10,000 shares of common at $ 52.56 each on May 24 and now directly and indirectly holds 684,856.

Michael A. Carpenter sold 103,462 shares of common at $ 52.09 each on May 23 and now directly and indirectly holds 868,772.

Victor J. Menezes exercised an option for 39,400 shares of common at $ 3.30 each on May 24 and sold 39,400 shares at $ 53 each on May 24 and now directly holds 1,371,856...

    On the regulatory front, the U.S. Federal Reserve has still not provided any documents about its communications with Citigroup (and Citi CEO Sandy Weill) just prior to Citi's May 17 announcement of its Banamex deal. ICP requested a summary, and documented under the Freedom of Information Act, on May 23. A month later, on June 25, the Fed wrote to ICP, extending the time for its response until July 9 -- the expiration of the Citi / Banamex comment period...

Update of June 28-29, 2001: On June 28, Citigroup e-mailed journalists to announce that "in the coming weeks, we are going to stop offering single premium credit insurance on mortgage loans." Some of the resultant press coverage accepted Citigroup's spin, that the announcement was simply one in a series, directed at bringing the operations of Associates First Capital up to CitiFinancial's standards.  Reuters said that Citigroup "already took other steps to clean up lending practices at Associates, which it merged into its CitiFinancial arm." Dow Jones reported that "in March the Federal Trade Commission sued Associates First and its owner, Citigroup, for alleged predatory lending." What these articles missed is that the FTC sued Citigroup's pre-Associates subprime lender, CitiFinancial, as well, and that through the FTC litigation, a sworn affidavit by long-time CitiFinancial employee Gail Kubiniec, reproduced below on this page, has provided a road-map of CitiFinancial's predatory practices, which go well beyond single premium credit life insurance. The American Banker quoted praise for Citigroup from New York politicians Chuck Schumer and John LaFalce, neither of whom addressed Ms. Kubiniec's detailed description of CitiFinancial predatory practices not related to insurance. In the N.Y. Times, Sen. Schumer was quoted: "Citigroup really deserves a pat on the back...". The Financial Times ("Citigroup Bows to Pressure" -- click here to view) reported that "consumer groups were unconvinced, suggesting that the move was an attempt by Citigroup to stem the flow of negative attention... New York state regulators [a]re applying pressure on Citigroup to honor a pledge to expand 'meaningful' lending to minority groups."  Some background on that:

    On June 26, the New York Banking Department released a commitment letter it has obtained, signed by Citigroup CEO Sandy Weill, promising an increase in Citi's "prime" mortgage lending in majority-minority sections of New York State. Citi had made a similar commitment in 1998 (during the Citicorp-Travelers merger) -- but then complied with (or evaded) the commitment by making a slew of $1,000 home improvement loans in the targeted areas. The new NYBD commitment extends the commitment (or remediation) through 2003, and provides that only loans over $3,500 (upstate) and $5,500 (downstate/NYC) will be counted.

    In an as-yet unreported-on section of the commitment letter, the NYBD states that the 1999 and 2000 Home Mortgage Disclosure Act (HMDA) data of Associates Home Equity Services, Inc. and Associates Consumer Discount Corporation were "erroneous." Citi has committed to address its HMDA mis-reporting with HUD -- but only regarding New York State loans / HMDA data. Community groups will be raising these HMDA violations in other states. It was Citigroup which filed the "Associates" 2000 HMDA data, on March 1, 2001, three months after purchasing The Associates. The Wall Street Journal, reporting on the NYBD commitment letter (and not mentioning the HMDA mis-reporting), recited that "Citigroup played down the announcement, noting that the commitment letter is the 'lowest level of possible enforcement,' the bank said."  In essence, Citigroup evaded a previous fair lending commitment, and, when caught, simply made a new commitment, which it then characterized as unimportant, bragging that it had gotten by with the "lower level of possible enforcement." For or with more information, contact us.  

Update of June 25, 2001: On June 23, Inner City Press obtained a copy of Citigroup's response to the Federal Reserve Board's June 18 questions about the Citi's spokeswoman's June 15 statement that "(a)s soon as we learned of [Ms. Kubiniec's] allegations, we commenced a thorough review that has reassured us that these alleged practices are in no way characteristic of how CitiFinancial employees treat their customers or offer and sell products." Gail Kubiniec's affidavit, and the Fed's questions, are set forth in the Reports below (and in ICP's comments opposing Citigroup's Banamex and European American Bank applications). Citigroup's response, dated June 20, tersely states that

the Kubiniec declaration prompted the immediate attention of senior management, who initiated a full review of the allegations to determine their merit. Accordingly, counsel from Skadden, Arps, Slate, Meagher & Flom LLP, together with in-house counsel knowledgeable about CitiFinancial's policies and practices, interviewed 10 employees in the three New York branches where Ms. Kubiniec worked over the last four years, as well as relevant supervisory personnel, including 3 branch managers, the relevant district manager, regional manager, human resources manager and 3 insurance sales managers. In addition, counsel reviewed relevant documentation, including training materials, complaint files, audit and compliance reports and a sample of Ms. Kubiniec's loan files.

On the basis of this review, Citigroup was unable to find evidence that the conduct that Ms. Kubiniec ascribes to herself was practices by others, and we have been unable to meet with her to discuss her declaration.

This review reassured CitiFinancial that the practices alleged by Ms. Kubiniec are in no way characteristic of how CitiFinancial employees treat their customers or offer and sell products: CitiFinancial's polices and procedures require that its employees abide by all applicable laws and regulations as well as the Company's stringent internal policies. CitiFinancial has extensive audit procedures that monitor compliance with its policies. The audits of the branches where Ms. Kubiniec worked do not support her allegations.

CitiFinancial has an extensive training program to ensure that its policies and procedures are effectively communicated to all employees. Ms. Kubiniec, as well as all branch employees interviewed, received extensive training on CitiFinancial's policies and procedures, including training that the kind of behavior described by Ms. Kubiniec is prohibited.

CitiFinancial uses a comprehensive, sate of art computer system, Maestro, which automates the lending process to ensure that no customer is offered a loan or other product for which the customer is not eligible. In addition, Maestro automatically calculates payment amounts with and without insurance coverage and it ensures that credit factors drive the loan approval process. Maestro cannot be overriden and provides another means of ensuring that CitiFinancial loans comply with federal and state law as well as CitiFinancial's policies and procedures.

CitiFinancial encourages all employees to raise any concerns they have about business practices and policies through a variety of means, including employee questionnaires, one-on-one meetings with auditors and managers, and an anonymous 800 number Ethics Hotline that is designed to eliminate the fear of retaliation. CitiFinancial also requires all employees to certify periodically whether or not they have knowledge of improper sales practices. There is no record that Ms. Kubiniec reported any violations of the nature alleged in her declaration or that any employee of the branches where Ms. Kubiniec worked did so.

     This response is a white-wash, an evasion, contradictory on its face. If, for example, the "1-800" Ethics Hotline is "anonymous," what's the point of Citigroup's jibe that "there is no record that Ms. Kubiniec reported any violations"? Notably, Citigroup's response does not confirm or deny the existence of the Loan Blitz nights -- a frenzy of flipping -- that Ms. Kubiniec's declaration describes; nor does it confirm or deny the compensation systems, and pressure to impose credit insurance, that Ms. Kubiniec describes.

    Another CitiFinancial employee has contacted ICP, describing how CitiFinancial judges each office based on how many "opportunities to sell credit insurance" are missed -- the CitiFinancial forms, this individual states, are called the "Insurance Tracking Reports. The individual describes in detail CitiFinancial offices' attempts, at the end of each month, to drive down the loan delinquencies they have to report.  The individual states that he called in complaints to the 1-800 "Ethics Hotline," and then called back, when it was clear that no inquiry had ensued (none ever did). This source has, to date, been unwilling to speak for attribution, in light of litigation being prepared for filing. But since many of the individual's allegations, complete with names of internal CitiFinancial tracking forms, have now been submitted by ICP into the record before the Federal Reserve Board on Citigroup's applications to acquire EAB and Banamex: the individual's allegations can be confirmed or denied, proved or disproved, by the Federal Reserve -- and should be.

    Rather than squarely address the mounting allegations of systematic predatory lending, Citigroup last week was engaged in spin: it announced a deal with Fannie Mae to make mortgages in the Bay Area, and put out a press release about opening a financial services kiosk in Los Angeles. Citigroup's purchase of recent political leaders also continued: Citi's investment bank announced that John Danforth, Missouri Senator from 1976 to 1995 is becoming the vice chairman of its international advisory board...

Update of June 21-22, 2001: The issues raised by ex-CitiFinancial employee Gail Kubiniec's affidavit, and Citigroup's response to her sworn allegations (reported on and quoted below) continue to reverberate. Inner City Press has just obtained a copy of questions the Federal Reserve asked Citigroup on June 18, specifically about Citigroup's spokeswoman June 15 statement, in the American Banker (and Reuters), that "(a)s soon as we learned of [the] allegations, we commenced a thorough review that has reassured us that these alleged practices are in no way characteristic of how CitiFinancial employees treat their customers or offer and sell products." Fed staff, in an Additional Information request faxed to Citigroup's lawyers on June 18 [snip]

     Meanwhile, another CitiFinancial employee has contacted ICP, describing how CitiFinancial judges each office based on how many "opportunities to sell credit insurance" are missed -- the CitiFinancial forms, this individual states, are called the "Insurance Tracking Reports. The individual describes CitiFinancial offices' attempts, at the end of each month, to drive down the loan delinquencies they have to report, including by saying that loan due-dates were extended due to tornadoes (even where no contact had been made with borrowers to that effect). This source has, to date, been unwilling to speak for attribution, in light of litigation being prepared for filing. But many of the individual's allegations, complete with names of internal CitiFinancial tracking forms, are being submitted by ICP into the record before the Federal Reserve Board on Citigroup's applications to acquire EAB and Banamex: the individual's allegations can be confirmed or denied, proved or disproved, by the Federal Reserve -- and should be. Developing...

Update of June 18, 2001: Our focus this week remains on the sworn affidavit of Gail Kubiniec, a long-time employee of Citigroup's high rate consumer finance lender, CitiFinancial. The affidavit, which Inner City Press received last week in response to a Freedom of Information request, is quoted extensively below, in the Report of June 13-14, 2001. Its contents have now been reported by Reuters (in the U.S. and Mexico, and by the American Banker, which quotes spokespeople for both Senator Sarbanes and Rep. LaFalce as saying they are concerned, and will require answers from Citigroup, including in upcoming Congressional hearings. But what will the Federal Reserve Board, the primary supervisor of both Citigroup and CitiFinancial, do? ICP on June 18 formally submitted the affidavit and other material to the Fed, in opposition to Citigroup's pending European American Bank and Banamex applications (click here to view the most recent Banamex developments, including concern in Mexico's Congress about Citigroup's money laundering for ex-Argentine president Menem, and, apparently, for the Juarez drug cartel). From time to time, evidence arises that militates particularly strongly for expanded scrutiny of Citigroup, including by its purported regulators. Will this happen now?

Update of June 15, 2001: As dissemination of the below-quoted affidavit of ex-CitiFinancial employee Gail Kubiniec continues, Inner City Press has received confirmation of the practices alleged by Ms. Kubiniec, from other CitiFinancial employees. For example:

Date: 6/14/01 8:34:20 AM Eastern Daylight Time
From: [Name withheld for now due to retaliation concerns]
To:  CitiWatch [at]

...What she says is consistent with my experience. Every state has an insurance person who travels around the state and puts the heat on offices and individual employees to sell insurance. They even have a form to track employee individual insurance sales.

As for the direct mail they did stay away from the high income areas since that was not their customer base.

The visiting of people at their homes was excessive in areas like here in [   ]. You might be interested to know that a memo came out in March stopping "field calls".

However district managers now send people out to "inspect our collateral" meaning personal property taken as collateral on a loan. However on the conference call rolling this new policy out a district manager in [ ] laid it out by saying that is the new term for "field call". This same district manager...told me to plant myself on a customers door until 9 pm once to get the payment...

As for renewing loans also referred to as flipping, yes they did track the percentage and we were told to do RBO's (refinance balance only) to cure delinquency. Most of the time this was not to the customers' advantage. We told them we had to have 2 payments or rewrite the loan. By doing the RBO we hit them with more fees and even raised their payment. We had the ability to do a personal loan without fees (the product was available on the system) but were told to never use it.

As for insurance I have told you before, insurance is preached at every meeting and conference call. They push it everyday. If you don't hit a certain level of insurance you can lose anywhere from 66% to 100% of any bonus check...

    The above, and more, will be submitted to the Federal Reserve Board in ICP's upcoming June 18 supplemental comments opposing Citigroup's applications to acquire Banamex. ICP on June 14 received a copy of Citigroup's application -- and it does not address the FTC's expanding predatory lending case against Citigroup. (Nor, to get arcane, has the Fed provided ICP with copies of Citigroup's "Regulation K" applications, acquire Banamex's non-U.S. operations, in Mexico, Argentina, the U.K. and elsewhere).

     Today's American Banker, reporting on the below-quoted affidavit of Ms. Kubiniec, quotes Citigroup spokeswoman Christina Pretto that "[a]s soon as we learned of her allegations, we commenced a thorough review that has reassured us that these alleged practices are in no way characteristic of how CitiFinancial employees treat their customers or offer and sell products." This is an interesting modification of Ms. Pretto's June 14 quote: "As soon as we learned of the allegation we began a thorough investigation. Neither our investigation nor routine audits have yielded any substance to support the allegation." First Citigroup said that there was not "any substance," then modified it to "in no way characteristic" of CitiFinancial's practices. The Report below includes a complaint about pressure on CitiFinancial's employees to "flip" (repeatedly refinance) customers' loans -- a complaint that ICP formally submitted to the Fed, and to Citigroup's lawyers, in April 2001, urging the Fed to require Citigroup to confirm or deny this practice. The Fed has not done that (under the Fed's ex parte rules, correspondence to this effect would have to be provided to ICP). The specifics of CitiFinancial's practices are being shown in an ever uglier light. As set forth in ICP's comment to date opposing Citigroup's applications to acquire Banamex (click here to view), Citigroup should not be permitted to expand these practices, including in Mexico, where Citigroup proposes to acquire over 25% of the banking system.

Update of June 13-14, 2001: Inner City Press on June 12 received a copy of a sworn affidavit, by long-time CitiFinancial employee Gail Kubiniec, that has been filed in the Federal Trade Commission's predatory lending lawsuit against Citigroup, currently pending in Federal District Court in Atlanta. In that case, Citigroup has claimed that CitiFinancial is well-run, that the FTC case is only about Associates, and that Citigroup is not liable for anything Associates did before Citigroup bought it. Ms. Kubiniec's affidavit contests that CitiFinancial is not predatory, and the FTC's filing of the affidavit now means that the FTC v. Citigroup case is NOT only about Associates.

    The affidavit was provided by the New York Banking Department, in response to a Freedom of Information request that ICP made on May 23, 2001. Ms. Kubiniec avers a variety of presumptively predatory practices at CitiFinancial, both before and after Citigroup's acquisition of Associates on November 30, 2000. Here are portions of Ms. Kubiniec's affidavit: [snip]

     The above-quoted affidavit -- which provides a working definition of predatory lending -- was filed in Federal District Court in Atlanta on May 16, 2001, as Exhibit K to the FTC's opposition to Citigroup's motion to dismiss.   In response to a Freedom of Information request Inner City Press made on May 23 to the New York Banking Department, the NYBD sent the affidavit to ICP on June 8, by regular mail. While there is much that should and will be said about the affidavit (including in ICP's next round of comments in opposition to Citigroup - Banamex), particularly noteworthy, as fair lending matters, are the sworn allegations about pushing more credit insurance on "minorit[ies]," and targeting mailings to zip codes based on income (and presumably, or statistically-demonstrably) based on race...

   A little media-critique:  Late on June 13, the trade newspaper American Banker informed ICP that it would run an article, based on the affidavit that ICP had just faxed to the American Banker's Washington bureau. This is to the AB's credit, and to other outlets' loss. ICP was and is surprised that the mainstream press is not tracking the Federal Trade Commission's predatory lending lawsuit against the largest U.S.-based bank. Citigroup, it appears, has convinced most journalists who cover it that the FTC's lawsuit only relates to Associates First Capital Corporation.  A week previous, ICP had distributed another document it obtained, in which Citigroup disclosed among other things "14,980 foreclosures in the pipeline." That high foreclosure volume has not yet been reported in the mainstream press.  Here's hoping that Ms. Kubiniec's detailed affidavit about CitiFinancial's practices under Sandy Weill's management triggers more substantive coverage of Citigroup and its practices, and of Citigroup's current proposal to take control of over 25% of banking assets, and expand CitiFinancial, in Mexico...

        One final note, for this mid-week update: in April 2001, ICP submitted the following e-mail to Citigroup's regulators -- the Federal Reserve Board, the NYBD, and the Office of the Comptroller of the Currency -- it does not appear that the allegations, which jibe with Ms. Kubiniec's, were ever inquired into by these agencies:

Subj: inside citifinancial
Date: 3/30/01 12:13:13 PM Eastern Standard Time
From: [Name redacted here, but offered to the regulatory agencies]
To: CitiWatch [at]

If you are interested, I can put you in contact with a former CitiFinancial branch manager. He has told me that he was fired for failing to engage inpredatory lending practices.

Prior to being fired, he was told that his RBO (Refinance Balance Only) volume had decreased from the previous year. He was encouraged to increase the RBO's. An RBO is what is sometimes called "flipping." The company actually keeps records of the number of RBO's at each office. He knows of one case where a personal loan made in August was flipped twice in three months...

    When ICP submitted this e-mail to the regulators, ICP explicitly urged them to ask Citigroup about the above-described "Refinance Balance Only" practices; it does not appear that the agencies required any response from Citigroup to this issue. So here's hoping, too, that Ms. Kubiniec's detailed affidavit about CitiFinancial's practices under Sandy Weill's management triggers more regulatory scrutiny of Citigroup and its practices, and of Citigroup's current proposal to take control of over 25% of banking assets, and expand CitiFinancial, in Mexico... Despite the fact that Citigroup and its subprime consumer finance lender CitiFinancial are charged with predatory lending by the U.S. Federal Trade Commission, Citigroup blithely continues its global spread. On June 13, Brazil's Banco Mercantil de Sao Paulo confirmed that it is in deal-talks with Citigroup, which has said it wants to buy more of Brazil's banks... For or with more information, contact us.  

Update of June 11, 2001: 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...

    In Mexico, opposition to Citigroup's proposed tax-free takeover of Banamex continues to grew. In the Mexican Congress, opponents are preparing to introduce a bill challenging Citigroup's proposal: demanding that Banamex repay the government the $3.8 billion bail-out it received six years ago, and inquiring into the money laundering allegations (and findings) surrounding both institutions. In the United States, community-based groups are commenting to the Federal Reserve Board (e-mail address for comments is below); the Fed has yet to release a "public" copy of Citigroup's application (which will be reviewed in ICP's Citigroup - Banamex Watch, upon receipt).

Update of June 4, 2001: Citigroup, moving with a speed that amazes even us, filed a Form S-4 with the Securities and Exchange Commission on June 1, stating that they have already applied to the Federal Reserve Board to acquire Banamex, a deal announced on May 17. Yes, they can be foreclosing on 15,000 families (see below), and meanwhile prepare regulatory applications for a $12.5 billion cross-border deal in two weeks. We've tried to meet the challenge: on June 3-4, we filed comments opposing, and requesting hearings on, the deal, with the Fed, state and international regulators. Click here to view.

    Last week we reported on a document that had been mailed to us by the New York Banking Department, reflecting "14,980 foreclosures in the pipeline" at Citigroup. We were unable, by last week's deadline, to put that number in context. On May 30, we were informed that Citigroup's chart had been mailed to us by mistake: no request, however, was made for its return (we'd already submitted it to the Fed, the OCC, and elsewhere). And so now, here's some context: according to the National Mortgage News of May 21, in Baltimore in 2000 there were 5,197 foreclosure actions filed (up from 1,900 in 1996). So, Citigroup / Associates equals three Baltimores. Some context...

     In a further sampling of Citigroup news-of-the-week, Citigroup Venture Capital has bought a 30% stake in Chilean salt maker Sociedad Punta del Lobos for about $100 million. Punta del Lobos makes about 90 percent of the salt sold in Chile and also exports to the U.S., Canada and elsewhere...

   In Brazil, Alcides do Amaral, President of Citibank Brasil, announced last week that Citigroup's on the prowl there, as well: "We are interested in investing (in acquisitions), but a union requires that both parties be interested." How nice... No, apparently, means no. At least for now...

    In Japan, Nikko Securities, in which Citigroup owns a stake, and with which it has a joint venture, bragged that "two years ago we were in a bit of an unhealthy position, but we are cash-rich now, and we can use this pile of cash to acquire other financial companies. If an attractive, large-scale asset management company was to be sold, [we] would like to buy it." Everything, you see, is for sale...

    Media spin: We have been covering, since March, the Fed's questioning of Citigroup in connection with Citi's application to acquire European American Bank.    Last week, the American Banker newspaper ran an overview, replete with anonymous quotes from lawyers who appear before the Fed. The article concluded: "Several banking lawyers who requested anonymity said the predatory lending issue has become so hot politically that the Fed may also be trying to insulate itself from criticism that it is not doing enough to fight the problem...'I think they are doing both: covering their backsides politically and making sure there is nothing untoward going on at Citigroup,' one of these lawyers said."

   We'd LIKE to believe that the Fed is concerned that the new chairman of the Senate Banking Committee will haul them in, to account for the Fed's failure to even conduct on-site examinations of questionable subprime lenders held as subsidiaries of financial holding companies. For the reasons set forth in our weekly Federal Reserve Watch, we're dubious. More to the point, some have begun to note the windfall to Citigroup, that these (largely unanswered) Associates-related questions are being asked in connection with Citigroup's $1.9 billion acquisition of EAB, and will probably NOT be asked by the Fed in connection with Citigroup's larger, $12.5 billion Banamex proposal...For or with more information, contact us.  

Update of May 29, 2001: We begin this week (with) a focus on Citigroup's proposal to acquire 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, and the (in)adequacy of global bank regulation.   Accordingly, we are today beginning a Citigroup - Banamex Watch (click here to view, and bookmark, if appropriate). Here's some of the background to Citi's May 17, 2001, proposal to acquire Banamex:

   In December 1994, the value of the Mexican peso collapsed, and Mexican banks, like most other industries in Mexico, were in turmoil. The United States, with Clinton's Treasury Secretary Robert Rubin expressing concerns about "our neighbor to the south," orchestrated a $20 billion bail-out, much of which was devoted to relieving Mexican banks, including Banacci / Banamex, of their non-performing loans.

    In 1998, Citicorp bought a bank, Confia, from the Mexican government. 1998 also saw the merger of Citicorp and Travelers, in apparent violation of the U.S. Glass Steagall Act, a law enacted after the 1929-1933 Depression which, among other thing, prohibited the merger of banking and insurance underwriting. The Federal Reserve Board, which met with Sandy Weill and his lawyers prior to the deal's announcement on April 6, 1998, eventually approved the deal, giving Citigroup two years to divest Travelers insurance operations, or to have the Glass Steagall Act repealed. The propriety of the Fed's pre-announcement meetings with Weill and his lawyers was raised, and litigated [full disclosure: ICP sued, under the Freedom of Information Act, for all documents reflecting the meetings; the Fed released a brief summary, and claimed that all other documents were not "records of the Board," a position accepted by the U.S. District Court for the Southern District of New York].

  In late 1999, after extensive lobbying by Citigroup, the U.S. Congress repealed the Glass Steagall Act, and Citigroup soon thereafter hired Robert Rubin, to join its CEO Sandy Weill in its "Office of the Chairman."

    In September 2000, Citigroup announced it was buying the largest high-interest rate consumer finance company in the United States, Associates First Capital Corporation, which was being sued for racial discrimination (against Latinos) by the Justice Department. Despite the opposition of many consumer and community organizations, including ICP, the deal was approved. On March 6, 2001, Citigroup and the Associates were sued for predatory lending by the U.S. Federal Trade Commission. Citigroup has responded that it is not responsible for Associates' pre-acquisition activities, and Citigroup is in the process of acquiring another bank in New York, European American Bank, and closing 24 of its 97 branches.

   Meanwhile, 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, "our neighbor to the south," is of particular interest to Citigroup. In 2000, the Mexican government proposed accelerating its pay-off of the bailout loans, and Citigroup objected, as this would cut into the profits it (though its previously acquired Confia) would be making off interest payments.

   Confia had been charged with money laundering, along with three other Mexican banks, by Clinton's attorney general Janet Reno. On May 14, 2001, Citigroup announced it had hired the U.S. Federal Reserve Board's money laundering expert, Richard Small.

   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. U.S. banking law caps the percentage of nationwide deposits any one bank is permitted to have at ten percent. Mexican banking law has no such cap, although Citigroup's proposal will be reviewed by the Mexican Commission on Competition.

    The questions asked at Citigroup's May 17 teleconference with investment analysts were generally superficial and congratulatory (from analysts from Merrill Lynch, Morgan Stanley, among others). Asked about Banacci's 55% holding in the telecommunications firm Avantel, and whether continued ownership by Citigroup would be legal, Sandy Weill said "we're confident we can handle that." A question asking for an elaboration on Citigroup's planned use of Banamex in the United States was not answered. To a final question about "regulatory and political risks," Weill said Citi hopes to close in the third quarter of 2001, since "initial reactions on both sides of the border have been positive," but the closing has been set for the fourth quarter, since "you never know what comes up... we hope not too many hurdles."

   Banamex also owns a bank in the United States, California Commerce Bank, with $2.1 billion in assets. This will trigger a need for regulatory approval from the U.S. Federal Reserve Board. In an interview on May 17, Robert Rubin hinted that Citigroup would move to open more branches in the United States under the Banamex name, targeting Mexican-American communities. Whether this targeting would include the allegedly predatory products of Associates / CitiFinancial was not disclosed. Nor were specifics given about branch closings in Mexico, as cost would be wrung out of Confia's and Banamex's operations.

   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... We'll appreciate from readers of this page any further information about the regulatory process in Mexico (or, going forward, in other nations). This first ICP Report on Citigroup - Banamex is but a summary, of the issues that will arise.  Again, we have today begun a Citigroup - Banamex Watch (click here to view, and bookmark, if appropriate).

Update of May 21, 2001: Ah, Citigroup. While its application to acquire European American Bank continues to pend, Citi on May 17 announced its intention to acquire Banacci / Banamex, the second largest bank in Mexico. Can you say, "NAFTA"? ICP had previously raised issue to the Federal Reserve about Banacci / Banamex, in 1996: we'll be watchdogging (and intervening in) Citigroup's proposal to become the largest bank in Mexico, in the coming weeks and months. Citigroup, perhaps in preparation for its Banacci announcement, loudly hired the Federal Reserve Board money laundering expert last week, as well as another regulator from the Securities and Exchange Commission. "Watch this space."  For now, here's a list of the 24 branches Citigroup intends to close, if it acquires EAB, and ICP's May 21 comments on Citi-EAB.

Update of May 14, 2001: Citigroup's acquisitive ways continue. At week's end, Citigroup was rumored to be considering a bid for Israel's Bank Leumi. From Tokyo, Citigroup crowed that its SSB-Nikko unit is outperforming all other U.S. banks in the Land of the Rising Sun -- and SSB is planning to "go retail" in Singapore in the next two years, according to SSB's managing director and head of equities in Singapore, Nels Friets. The financial press' scrutiny of this global (and standardless) behemoth, meanwhile, is nil. Fortune magazine of May 14 recycles an anecdote from the April 11 shareholders' meeting, where CEO Sandy Weill, in a fit of (false) disclosure, told the audience his blood pressure and cholesterol readings, and that no successor is needed at this time. Fortune makes no reference to predatory lending, environmental destruction, Citi's earnings, or anything else. Communities cannot rely on this bought-in "Fourth Estate" for scrutiny, or even for information...

    Meanwhile, Citigroup's applications to acquire EAB continue pending at the Federal Reserve, the NYBD and the OCC. ICP last week received documents from the Fed and NYBD, showing the continuing review. On May 9, the Fed asked Citigroup a series of 12 questions, to be answered by May 17, 2001. The Fed's questions essentially ask for updates on Citigroup's claim to have imposed its "compliance programs" on the operations (and 800 offices) it acquired along with The Associates, last Fall. Notably, the Fed has not yet asked Citigroup to explain the position it has taken in federal court in Atlanta: that Citigroup is not responsible for The Associates. Unless the Fed has entirely capitulated to the largest institution it "supervises," we expect another round of Fed questions, including this one.

    The Fed also finally answered one of ICP's Freedom of Information Act (FOIA) requests, and provided, among other things, a copy of a March 6, 2001, e-mail from the Federal Reserve Bank of New York's chief of supervision, William Rutledge, to various FRBNY big-shots, including Bill McDonough. Mr. Rutledge writes: "Carl Howard of Citi just called to tell me that the FTC has filed a civil complaint against Citi -- alleging unfair and deceptive practices in lending (predatory lending) and credit insurance. Carl's understanding is that the complaint focuses exclusively on practices up to the date of Citi's acquisition (11/30/00)...". After that, the Fed redacts an entire paragraph.

    In another Fed e-mail, the Fed opines that various comments on Citi - EAB "were prompted by ICP's web site;" all discussion of whether or not to hold a public meeting on the now-sued Citigroup has been withheld.

    It's from the NY Banking Department's long-delayed May 9 response to ICP's December 4, 2000 FOIA request that the tenor of "relations" between Citigroup and its regulators becomes clear. In a September 14, 2000, e-mail, an NYBD staffer recites that "we had brief teleconference with Stacie McGinn of Skadden Arps and Jeff Wittiker (?) of Citigroup... Stacie was looking for an oral commitment I would be receptive to waiving the submission of fingerprints, personal histories and other data on the directors and the relevant layers of management at Citigroup. She said she had been led to believe that Citigroup could expect a certain degree of flexibility in the application process from the Banking Department." Then, the NYBD begins redacting (blacking-out) the e-mail...

    There were other NYBD discussions with CitiFinancial's general counsel Martin Wong and his assistant, Linda Davies (each heavily redacted); one NYBD staffer reports that Citigroup's other outside counsel, Bill Sweet "was very gracious... He did request that we tell him on the telephone what we wanted to discuss beforehand so that they would be prepared. This is an effort on their behalf not to waste time...". The response to this is entirely blacked-out. Just prior to the NYBD's November 30, 2000, approval, there's an e-mail reporting that "I just spoke to Sweet and Wong. They are making a concession on the single premium (90 day moratorium) and [REDACTION]... this may be as far as we can push." There was an April 19, 2001, meeting between CitiFinancial and the NYBD, from which less than a half-page of notes are provided. As noted above, Citigroup and its various lawyers "expect a certain degree of flexibility" from their regulators...

Update of May 7, 2001: In global casino news, Citigroup was re-confirmed as the number one trader in foreign exchange, the day-trading in countries' currency that makes up the vast majority of reported "international trade," and which has led to crises and austerity from the Far East, to Russia, to Latin America. See how we earn it!

     In Tel Aviv, the daily newspaper Yediot Ahronot has reported that Citigroup is trying to hire ex-Israeli president Ehud Barak as a "consultant" (make that, "lobbyist" -- similar to Citigroup's hiring of Robert Rubin, straight from the Treasury Department, after passage of the financial deregulation / "Save Citigroup" Gramm-Leach-Bliley Act in late 1999). Mr. Barak denies it; Citigroup did not comment (Bloomberg, May 3).

    Citigroup's penetration of politics, and corruption of democracy, begins in its headquarters city. Below in this Report, we've analyzed the lending of Associates First Capital Corp., the high interest rate, subprime lender that Citigroup acquired last year. We've found that Associates', now Citigroup's, high cost loans are disproportionately directed at people of color; this has become known as predatory lending, and there's a groundswell of legislation against such practices, at the federal, state and local level. There are a lot of politicians suddenly interested in the issues as well. The most recent example is NYC Comptroller Alan Hevesi, who hyped to the media his May 2 visit to a seniors' center in Queens, to warn area homeowners to stay away from predatory lenders. But if Mr. Hevesi is truly concerned about predatory lending, he might want to talk to Citigroup, whose Political Action Committee (PAC) has given Mr. Hevesi three contributions for his already-begun mayoral campaign, including a $3,000 contribution on January 11, 2001 -- after Citigroup had acquired The Associates. The Federal Trade Commission sued Citigroup for predatory lending on March 6, 2001. Citigroup has also contributed (so far) to NYC mayoral candidate Peter Vallone, though not as recently (the last was $3,500 on December 14, 1999)...

    Meanwhile, the Citigroup / EAB (and Citigroup / predatory lending) sagas continue. On May 1, the New York Banking Department finally provided ICP with portions of Citigroup's April 12 responses to the NYBD's March 21 questions. But Citigroup and the NYBD are withholding even the names of the subprime lenders that Citigroup with which does business, including underwriting business. The NYBD's letter to ICP granted until May 4 to submit further comments: click here to view ICP's comment, which shows why the withholding of information is illegitimate, and why the comment period must be further extended. ICP submitted this, as while as a comment on Citigroup's April 16 response to the FTC's predatory lending lawsuit (Citigroup claims it has no liability for Associates' practices) to the Federal Reserve and OCC as well....

Update of April 30, 2001: It never stops, with Citigroup. On the mergers-and-acquisitions front, Citi is moving to sell the investment banking units of Robinson-Humphrey to SunTrust. Citi is also reviving its bid for the credit card unit of Korea Exchange Bank, according to the Seoul Economic Daily, and is a possible bidder for the news outlet Bridge. Just what we need: Citigroup owning the media... Citigroup's Salomon Smith Barney unit is the subject of a new lawsuit, filed April 27 in federal court in New York, for selling bonds in the struggling telecommunications company World Access after SSB gained confidential information that the company might go bankrupt. So if Citigroup learns that one of its borrowers (or an insured of Travelers) is getting sick, look for them to act on the information...

    In the Citi-EAB proceeding, Citigroup has now submitted a curt and evasive response to the challenges that ICP and others have filed. Citigroup begins by reciting contested issues to which it does not even claim to be responding, including "the CRA rating of Associates National Bank (Delaware), HMDA reporting compliance by Citigroup entities, potential branch closings (discussed in the application), securitization activities of Citigroup affiliates and Citigroup compliance with the money laundering laws."

   In purporting to rebut the allegations that Citigroup's high interest rate lenders, including the allegedly "fully integrated" Associates units, disproportionately target protected classes, Citigroup's Response presents tables that do not even include Associates lending. The table do, however, prove the degree to which Citibank's claimed lending improvements are based on home improvement loans, many of them for $2,000 or less. One table, on page 9 of the Response, claims 3,623 Citibank loans in "majority-minority" census tracts in the New York City MSA in 2000 -- but the next table, on page 10, shows that only 1,606 of those loans, less than half, were home purchase or refinance loans. More than half, then, were the "micro-mortgages" with which Citigroup tried to simultaneously comply with and evade a commitment it made to the New York Banking Department in 1998, to improve its lending to people of color.

    Citigroup's purported Response does not addressed or mention the New York Attorney General's recent finding that Citibank does not have sufficient branches and ATMs in low- and moderate-income neighborhoods to fulfill its EBT contract, nor the details of Citibank's plan to comply, nor another issued that ICP timely raised: that CitiFinancial, even pre-Associates, kept "Refinance Balance Only" figures for each office, to encourage loan flipping.

    The New York Times of April 25, 2001, reported on a memorandum from Robert Willumstad, head of Citigroup's consumer business group, to CitiFinancial employees, claiming that Citi has "stopped doing business with about 20 percent of the loan brokers at its Associates Home Equity Services unit, or about 1,000." The Times reported that "Mr. Willumstad also said CitiFinancial's pilot program in Illinois and Maryland to limit brokers' fees and certain other upfront fees to 3 percent of the loan value appeared to be failing badly. Only one loan closed in either Maryland or Illinois during March, as brokers are clearly taking business to competitors, he said. The pilot project was intended to incorporate specific recommendations from consumer advocates, he said."

     Citigroup's executives' tack is to tell CitiFinancial's (and Associates') employees that the "recommendations from consumer advocates" are failing, and it's time to go back to the old (and oh-so-profitable) way of doing business. This approached was telegraphed in CEO Sandy Weill's interview with the Times on April 16 about Citi's earnings, where, on predatory lending, he said, "Some people you can never make happy," adding, "I personally have a pretty good record of being a socially responsible person." What would that be: paying to renovate Carnegie Hall, so he can stand alone on the stage and evade questions at Citi's shareholders' meeting? (See April 23 Report, below. While the Times' continued coverage of Citigroup's "integration" of Associates is heartening, advocates should beware of relying on the "Gray Lady" (as it's sometimes called here in New York) to get to the bottom of Citigroup's lending practices. At a certain point, we predict, the Times will begin implying that it's all been cleaned up.

     To put the April 25 story in context, consider the Bank One also announced it's stopping doing business with home equity mortgage brokers (Bloomberg, April 27) -- and it was pitched entirely as a business decision, nothing to do with consumer protection: "Bank One Corp., the fifth- largest U.S. bank, has pulled back from doing business with home equity loan brokers because too many of the loans they funnel to the bank have gone bad. Chief Executive Jamie Dimon told investors last week the bank has 'closed down or modified dramatically' its dealings with the brokers... 'You're seeing banks pull back from the brokered loan business because they want to better control the quality of their loans,' said Nancy Bush, an analyst at Ryan, Beck & Co.." Just to put it in context... ICP has submitted replies to the agencies, and is pursuing the withheld documents. And the beat goes on..

Update of April 23, 2001: Citigroup's annual shareholders' meeting, held April 17 at Carnegie Hall in Manhattan, was surreal. Beginning at 8 a.m., the sidewalk outside the concert hall began filling with both protesters and shareholders eager to hear Sandy Weill explain Citigroup's seven percent decline in earnings, announced the previous day. Citigroup staffers came out onto the sidewalk, and soon several dozen police officers arrived, and told the protesters that if they did not cross 57th Street, to a "protest pen" set up in front of a luggage shop, they would be arrested. When asked, "What happened to the First Amendment," the officer in charge, Inspector Callahan, said, "Call whoever you want -- you'll go across the street because I say so." Pam Martens, who blew the whistle on the (Salomon) Smith Barney "Boom Boom Room" scandal, and on mandatory arbitration more generally, was arrested, and charged with "refusing to disperse," according to Lieutenant Kevin Mullen. Another cop, Officer Cullen told Ms. Martens, while in custody, that "the police write the law." In this case, apparently Citigroup write the law: from the Financial "Modernization" Act of 1999, down to the erosion for First Amendment rights on the streets of New York...

      Even after being forced across 57th Street, the protesters got their message out, with fliers, "Citigroup fortune cookies," and red umbrella with a slash through Citi's symbol. By now, the shareholders' meeting had begun. A representative of the Rainforest Action Network spoke from the audience, eloquently, until escorted out; representatives of the AFL-CIO questioned Weill about Citigroup's standardless financing of the Ratchaburi Electricity Generating Company of Thailand, which is building a plant that will benefit a pipeline part owned by the repressive government of Myanmar. "We'll get back to you," Weill responded, and rejected a request that Robert Rubin, chairman of Citigroup's executive committee, answer the question. "We all have a lot to do," Weill said. Strangely, none of the other Citigroup board members were on the stage: only Sandy Weill, in a pink tie, in front of a small banner with Citigroup's logo on it.

      Discussion turned to a shareholders' resolution addressing, among other things, Citigroup's involvement in predatory mortgage lending. A representative of the Self-Help Credit Union in Durham, North Carolina spoke; Weill's primary response was that Citigroup has applied "in 49 states" for permission to sell monthly premium, as well as single (upfront) premium, credit life insurance. Mr. Weill was then questioned [full disclosure: by an ICP representative] on three topics. The ICP representative asked Citigroup's CEO why, despite his claim that Citigroup is a "leader" in consumer protection, Citigroup has expended significant shareholder funds lobbying against anti-predatory lending legislation, most recently in Philadelphia and Chicago. Weill shrugged; no response was proffered.

      The second question involved the settlement Citigroup reached earlier this month with the NYS Attorney General, regarding Citigroup's lack of automatic teller machines in low-income sections of New York, where Citigroup has the contract to distribute public assistance and other government benefits. The ICP representative asked whether Citigroup now intends to install new ATMs in these low-income neighborhoods, or simply contract with other institutions to waive their fees. Mr. Weill's response was opaque, though he seemed to indicate that Citigroup will comply by opening new ATMs. But Thomson Financial's publication "CardLine," of April 13, 2001, reported that

Attorney General Eliot L. Spitzer found that Citigroup had few ATMs in neighborhoods with high concentrations of beneficiaries, according to a Wednesday announcement by Spitzer. The agreement gives Citigroup the option of deploying new ATMs that impose no surcharges on EBT cardholders or contract with local ATM deployers to provide surcharge-free ATM access.

     The answer to this question, then, will only become clear through time. Finally, the ICP representative asked Weill why, if Citigroup claims to be a leader, it is seeking to withhold even the list of subprime lenders with which it and SSB do business, in the Federal Reserve's proceeding on Citigroup's application to acquire EAB. Mr. Weill shrugged, and indicated that he was unaware of his company's requests that this information be withheld from the public. ICP is pursuing it: click here for an update.

     And the beat goes on: in Asia last week, Citigroup hired two more traders, for its (speculative and destabilizing) derivatives business. They'll be based in Hong Kong and will report to Justin Kennedy and Harold Kim, co-heads of Asia-Pacific equity derivatives for Citigroup. Smell another Asian financial crisis coming on?  Citigroup will be right there, to profit...   In Colorado, as the Denver Post reported last month, when "Whitman makes decisions on Denver's most notorious Superfund site, the Shattuck Chemical Co., her choices might also affect her family finances. Her husband, John Whitman, is managing partner of a venture capital firm spun off and backed by Citigroup, the banking giant that owns Shattuck. The company's south Denver location is a Superfund site where EPA officials are deciding how they should remove tons of radioactive waste encased in concrete... John Whitman worked for Citigroup from 1972 to 1987, and still has as much as $ 250,000 in stock in the company... John Whitman is now a managing partner of Sycamore Ventures. Last year, John Whitman got a bonus of unspecified size from Citigroup for past work. The EPA says it's not a conflict, because Christine Whitman doesn't have a direct hand in local Superfund decisions."

   But it's not that simple. Earlier this month, EPA investigator Hugh Kaufman filed a 'whistle-blower' complaint with the Department of Labor, stating that Whitman "has bad-mouthed him to key members of Congress" and that "her decisions may have been influenced by her husband's close corporate ties to Citigroup, owner of the Shattuck Chemical Co. site in south Denver where a toxic-waste cleanup is planned." And the beat goes on... Again, click here for an update on the Citigroup - EAB proceeding.

Update of April 16, 2001: This week, a bit of Citigroup business news -- and then, news from the (anti-) Citigroup Campaign, leading in to the shareholders' meeting scheduled for April 17:  In Taiwan, Citigroup announced last week that it has completed its "share transactions" with the Fubon group, taking a 15% stake in Fubon group's five business entities involved in non-life insurance, life insurance, banking, securities, and asset management. Citi's on the move in Hong Kong, too: Citigroup Taiwan public affairs officer Joyce Chen announced last week that Citi has secured approval from the Hong Kong government to establish a 50-50 life insurance joint venture there...

     On Citigroup's pending applications to acquire European American Bank, Citigroup has finally responded to the Federal Reserve Board's questions about its involvements in subprime lending. But Citigroup has requested "confidential treatment" for the most material portions of its response. The following quotes capture the flavor of Citigroup's "response":

"A list of the lenders with whom SSB entered into warehousing relationships in provided in the Confidential response"

"Citigroup acquired Associates businesses that do not engage in subprime lending, but which purchase subprime loans, such as correspondent lending and bulk purchases. One such business purchases privately-originated mortgages that arise out of seller-financed sales of homes. The home seller is the originating lender and sets the terms and selects the customers to which it provides financing. These loans may be (and typically are) originated by the home seller as subprime mortgages. The business buys the loans only after they have been originated and closed by the home sellers... [T]he activities of this business unit do not appear to be responsive to Question 11. This business currently has receivables of approximately several hundred million with respect to such mortgages outstanding."

"Associates Commercial Corporation d/b/a First Collateral Services ('FCS') is engaged in mortgage warehouse lending... FCS began operations in 1985 and was acquired by Associates in 1995... A list of the mortgage banking customers with whom FCS did business in 2000 is included at Confidential Exhibit P."

     This hide-the-ball approach is inconsistent with Citigroup's portrayal of itself as a company that is "cleaning up" the Associates, and trying to convey these improvements (such as they are) to the public...Click here for an update on the Citigroup-EAB proceeding.

    In London, Citigroup's Schroder Securities unit, part of SSB, found Citi guilty of sex discrimination in employment last week. The Stratford, East London, Employment Tribunal found that Citi's Schroder Securities operated a "wholly opaque" bonus system and failed to adhere to equal opportunities codes on pay. It criticized the "sexist air" of some corporate entertaining. A hearing will be held to decide the level of compensation - expected to run into hundreds of thousands of dollars - to be awarded to the complainant, Julie Bower. (See below, re involvement of the NYC Chapter of the National Organization of Women in the upcoming protest at the April 17 shareholders meeting. But first:)

      On April 11, protests against Citigroup were held in 80 cities, in 12 countries. In New York City, activists marched down Lexington Avenue toward Citigroup's headquarters. Four pall bearers, each with masks resembling Citigroup chairman Sandy Weill, carried an open coffin, from which a globe, three feet in diameter, protruded.  "Don't mourn -- organize!" chanted the marchers. "This is what orangutans look like!" college students from Connecticut chanted, from inside orangutan suits. Citigroup is funding the destruction of Indonesian rainforests, the habitat of endangered orangutans; on March 6, 2001, Citigroup was sued for predatory mortgage lending in the U.S., by the Federal Trade Commission. In New York City in 1999, Citicorp Mortgage made 1236 conventional home purchase loans to whites, and only 56 such loans to African Americans, and only 58 to Latinos. Meanwhile, Citicorp Mortgage denied 14.9% of applications from African Americans, versus a 4.5% denial rate for whites. Citicorp Mortgage denies African Americans 3.31 times more frequently than whites (other lenders in New York deny African Americans 2.0 times more frequently than whites).

     The campaign for accountability at Citigroup, North America's largest bank, active in over 100 counties, continues to grow. Also on April 11, in Charleston, South Carolina, dozens of protesters (including one dress in an orangutan suit...) descended on Salomon Smith Barney's downtown office. In Portland, Oregon, anti-Citigroup demonstrations were held on the campuses of three universities -- Reed, Lewis and Clark, and Portland State. A banner was hung, proclaiming: "Practice What you Teach: Invest Responsibly, not in Citigroup destruction." Citi's involvement in the prison industry was a particular focus. In Salt Lake City, the headquarters of Citigroup's new subsidiary Associates Capital Bank, demonstrators handed out information about the Federal Trade Commission's March 2001 lawsuit against Citigroup and Associates, for predatory lending. In San Francisco, dozens of activists conducts a tour of four Citigroup branches, stopping at each branch to make a symbolic deposit, including a deposit of a red ribbon to highlight Citi's redlining and predatory lending practices. Citi's response, according to the Rainforest Action Network (and thanks to RAN for many of the above citi-by-city items), was: "No comment." Similarly, at Citigroup's Manhattan headquarters, one protester was briefly allowed inside, to speak with a Citigroup representatives who declined to give his name...

     Names will be taken, however, at Citigroup's shareholder meeting on April 17. NOW-NYC, and others, will be there; in 1997, NOW-NYC "and its National parent organization spotlighted Salomon Smith Barney as its 'Merchant of Shame.' At that time, women from 11 states charged the firm with tolerating sexual assaults and physical attacks against women in the workplace. Eventually, 2000 women came forward to make charges against the firm for egregious acts of harassment, discrimination and retaliation. The case was eventually settled in what NOW-NYC calls a sham settlement that formalized Salomon Smith Barney's denial of court access to its workers. The case is currently on appeal. Since that time, Citigroup and its roster of companies have faced continuous charges of rampant lawlessness: money laundering, bribing the former U.S. Agriculture Secretary; an EEOC charge of racial discrimination; price fixing against its investors on the NASDAQ stock market; failing to pay overtime to its clerical workers; theft of employees' deferred compensation; illegally merging a bank, insurance company and brokerage firm; illegally over-charging municipalities on municipal bond refinancings; seeking kickbacks via inflated commissions on initial public offerings of stock; and offering call girls to elected officials in California." Whew!

    On the agenda for a vote at the meeting is a shareholders' resolution against Citigroup's continued involvement in predatory lending. Citigroup's response, in its proxy statement, is that it "believes that the recommendations called for by this proposal have already been implemented." Many, including shareholders, disagree. Again, click here for an update on the Citigroup - EAB proceeding.

Update of April 9, 2001:   First the news, then some notes. Citigroup last week made yet another acquisition: this time, of People's Bank's credit card business in the United Kingdom, for $526 million. Citigroup's "Global Consumer" chief executive, Robert Willumstad, said in a canned statement that "this transaction represents a further step in our efforts to expand our consumer business globally." As was the case with Citigroup's November 2000 acquisition of Associates First Capital Corp., and its high interest rate lending operations in Japan as well as in the United States.

     That acquisition has led Citigroup to take a more visible role, in lobbying against consumer protection legislation, wherever it's proposed. Last week, in Philadelphia, a pared-down anti-predatory lending proposal passed, 16-0. But subprime lending by banks was excluded from coverage, at Citigroup's request. The Philadelphia Daily News (4/5) reports that "[f]or the last three months, a Citigroup lobbyist has been trying to get city lawmakers to kill the pending bill. The lobbying effort included retaining two close friends of Mayor Street -- public-relations executive Bruce Crawley and attorney Carl Singley -- to press the issue. Lobbyist Nick Maiale, a South Philadelphia ward leader with ties to Council President Anna Verna, was hired as well.... The lobbying effort also includes telling lawmakers about Citigroup's business contributions to the city." Philly Mayor John Street has implied he may veto the bill. And the Daily News of April 7 quotes an "uninvolved" lobbyist that he'd "like to say that democracy triumphed, but what happened was the [Citigroup] lobbyists were no good."

     Citigroup had more success in Chicago, where it hired John Satalic, Mayor Daley's former chief of staff, to lobby the Cook County Board Finance Committee, leading last week to the rejection of two amendments to its pending Predatory Lending Ordinance that would have included single-premium credit life insurance within the definition of predatory practices. Citigroup profits extensively from this product, and has become its most prominent defender. The Chicago Tribune of April 7 reports on Satalic's lobbying, "on behalf of Citigroup," and says that "officials of New York-based Citigroup could not be reached for comment." Not surprising, that Citigroup wouldn't comment...

     Nor has Citigroup yet answered the Federal Reserve's and New York Banking Department's questions about its subprime lending, in connection with its applications to acquire European American Bank (click here for an update on that).

     And so where will Citigroup comment, or at least be present, to be asked questions? Well, on April 17, Citigroup holds its annual shareholders' meeting, at Carnegie Hall at 9 a.m.. Other questions will be asked in front of the Citicorp Center, 53rd Street and Lexington Avenue in Manhattan, midday on April 11. Two other opportunities, from last week's voluminous Citigroup self-promotion:

     From an April 6 Citigroup press release, we learn that "on Tuesday, April 10, 2001, at 12:30 p.m. ET, Victor Menezes, Chairman and CEO of Citibank with responsibility for Citigroup's Emerging Markets Business, will present Citigroup's business in emerging markets at a luncheon sponsored by J.P. Morgan Chase & Co.."

      And from another April 6 press release, we learn that Robert Rubin, who has refused to answer questions about Citigroup's acquisition of The Associates, even after the Federal Trade Commission's March 6, 2001 predatory lending lawsuit against Citigroup, will be delivering the commencement address later this Spring at Harvard University. Might they erect a metal wall similar to that already up in Quebec City, for the "Free Trade Area of the Americas" summit? In the press release, a professor at Harvard's Kennedy School of Government "speculated that Rubin would probably discuss world financial issues, adding that 'since he's out of office, he's not controlled in any way [on] what he could talk about.'" Hey -- maybe he'll talk about predatory lending...

Update of April 2, 2001:  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 March 6, 2001 predatory lending lawsuit, arising from Citigroup's acquistion of Associates First Capital Corp., or any response to the Federal Reserve's and New York Banking Department's questions of March 21, 2001. They call themselves "pro-active," but stonewalling appears the more accurate term, here... Meanwhile, the financial press is abuzz with the rumor that Citigroup will move to acquire American Express. For now, this is just... a rumor. But it would not be surprising.

   As we've said, April will be an active month, in the Citigroup Campaign. In Citigroup's headquarters city, there will be a teach-in on April 6, 2001, at New York University (Citigroup workshop at 6 p.m.; gentrification (and Citigroup), 7:30-9 p.m..   On April 11, expect a demonstration against Citigroup's lack of environmental and other standards. Same at the Citigroup shareholders' meeting, April 17 at Carnegie Hall. There will be actions elsewhere, some of which will be reported here...

Update of March 26, 2001: For an update on the Citigroup - European American Bank proceeding (comments are due by April 2), click here.   Of environmental import: in a March 21 announcement in Washington, Citigroup's Salomon Smith Barney threw its weight behind the push to open the Arctic National Wildlife Refuge (ANWR) to oil and natural gas exploration / exploitation. Solomon joined Phillips Petroleum, Yukon Pacific Gas, Enstar Natural Gas, and VECO Corp in establishing the Energy Stewardship Alliance....

     Citigroup not only abuses the environment, and low-income communities of color, etc. -- even those who invest through Citi end up complaining. Last week it was reported that a group of 23 investors was awarded $3.5 million in a complaint against Citigroup's Salomon Smith Barney office in Houston. The investors stated that they were placed in unsuitable investments that included high-yield bonds and margin trading. A panel of arbitrators ruled last month that SSB must repay them $4.5 million...

     Citigroup is rumored to be moving to acquire Wachovia's $8 billion portfolio of credit-card loans. This was reported by David Berry, bank analyst at Keefe, Bruyette & Woods, after he attended a by-invitation-only presentation by Steven Freiberg, CEO of North American cards for Citibank. How these type of presentations comply with SEC rules -- is unclear.

    Citigroup's SSB continues to underwrite questionable subprime (high interest rate) loans, for other lenders. At week's end, SSB did an underwriting for GreenPoint Financial Corp., of $133 million manufactured housing loan asset backed securities...

     April will be an active month, in the (emerging) Citigroup Campaign. Actions are planned for April 6-8, April 11, and around the Citigroup shareholders' meeting on April 17. With regard to this last, the following is from the National Organization of Women's NYC chapter:

The Founding Chapter of the National Organization for Women-New York City, salutes the work of the Rain Forest Action Network, Student Alliance to Reform Corporations, and Inner City Press to tell Citigroup and Salomon Smith Barney that they are not above the law. NOW-NYC has spent the last five years asking Citigroup and Salomon Smith Barney to obey the 1964 and 1991 anti-discrimination laws and to allow female employees access to the U.S. court system. For five years, their answer has been to flaunt the laws of America. It's time to tell Citigroup and Salomon Smith Barney that they will face the collective wrath of all consumer, environmental, student and women's groups if they continue on their current course.

Please join with us to protest the actions of this bloated corporate tyrant on April 17, 2001 outside the Citigroup Shareholders' Meeting, 8:30 A.M., Carnegie Hall, New York City.

   Again, for an update on the Citigroup - European American Bank proceeding (comments are due by April 2), click here.  

Update of March 19, 2001: Our focus, for the coming weeks, is on Citigroup's applications for regulatory approval to acquire European American Bank. We've created a separate page for this proceeding; click here to view ICP's second comment, of March 19, 2001. See also,  "Citigroup's Purchase Of EAB Challenged," by Tania Padgett, Newsday, March 13, 2001, Pg. A46;  "Group Launches Challenge to Citi-EAB," by Liz Moyer, American Banker, March 13, 2001, Pg. 3;  "EAB-Citigroup Merger Plans Questioned," by Tania Padgett, Newsday E-dition, March 12, 2001;   "Consumer Group Challenges Citigroup's EAB Acquisition," Reuters, March 12, 2001; "Community Group Challenges Proposed Citigroup-EAB Deal," by Eileen Canning, Bridge News, March 12, 2001. 

Update of March 12, 2001: On March 6, the U.S. Federal Trade Commission sued Citigroup and its subsidiaries (including Associates First Capital Corp., which Citigroup acquired on November 30, 2000) for predatory lending. On March 12, Inner City Press / Community on the Move filed comments opposing Citigroup's applications to acquire European American Bank, with the Federal Reserve Board, the Office of the Comptroller of the Currency, and the New York Banking Department. Click here to view ICP's comments.  

Update of March 5, 2001: Citigroup has confirmed it's buying 50% of Nikko Trust & Banking Corp. (Reuters, 2/26). Citigroup also last week completed its tender offer for car engine and parts maker Delco Remy International Inc., through Citi's "venture capital" unit, Court Square Capital Ltd.. Meanwhile, the conflicts created by Citigroup's "conglomerate" structure are becoming more apparent: most recently, in connection with the bidding war for ANB Amro's European American Bank, "won" by Citibank, N.A. on February 12. Citigroup's Salomon Smith Barney had been advising North Fork Bank on NFB's bid for EAB, and only withdrew, citing the (obvious) conflict, late in the process. Citigroup claims that Citibank used "in-house" M&A analysts, and not SSB. Is that credible? What's the purposes of a conglomerate merger, if you don't even use your investment bank affiliate?

     The Senate Government Affairs Committee last week criticized Citigroup (and Chase) for money laundering. As to Citigroup, the Committee found that a correspondent account held at Citibank by M.A. Bank, a subsidiary of Argentine financial group Mercado Abierto, was used to launder $7.7 million in drug money for Mexico's Juarez cartel between 1997 and 1998. Even though the U.S. government filed seizure warrants seeking to attach those funds in May 1998, Citibank kept the account open until March 2000. In the intervening 22 months, more than $302 million moved through the account... Obliviously (or relatedly), Citigroup's "private banking" unit chief Peter Scaturro told journalists in Singapore on March 1 that "[w]e honestly believe our ability to grow our business at 20-30 percent a year from two factors -- new wealth in the market place and by growing our market share. That's a strategy we have executed extremely well during the last 12-24 months and we will continue to go down that road."

      Bloomberg's Vernon Silver filed a detailed story on Citigroup's cross-selling woes last week. As with his previous work, about Citi's Boca Raton love-fest last November, it's full of telling details: Travelers' Kate Preston bragging about Citigroup's "Sikorsky S-76 helicopter -- outfitted like a corporate jet, with leather seats and a coffee dispenser -- that shuttles executives back and forth from Manhattan to Hartford three times a day;" the deadpan report that "[i]n some countries, politicians and customers see Citi as a flag bearer for the U.S. ``We make the State Department blush,'' says Sujit Banerji, who oversees Citi's corporate banking on the Indian subcontinent." Walter Wriston, even at 81, still maintains his office in 399 Park Avenue; down on Greenwich Street, Salomon's conference rooms are adorned with "Proof of the Pairing posters that advertise transactions for which Citibank loaned money and Salomon underwrote bonds or provided merger advice." One example given is Sovereign Bancorp Inc.'s purchase of the 285 Fleet - BankBoston divestiture branches (a great deal from Fleet; less so, for Sovereign, which just took another charge). Silver concludes with a summary of the many money laundering charges against Citigroup; what's missing in the analysis -- and that of most Wall Street analysts and reporters -- is an awareness of consumer compliance problems in the Citigroup "family," both pre- and post-Associates. On that front, from this week's mailbag:

Subj: Citigroup
Date: 2/26/01 3:57:31 PM Eastern Standard Time
From: [ ] (deleted at correspondent's request)
To CitiWatch [at]

Dear Inner City Press

    ...We recently refinanced using someone in our church body who passed themselves off as a "personal financial analyst," but was really a salesman for Primerica / Travelers. The interest rate offered was higher than the one we already had and we have a spotless credit record. When we questioned this, the rep told us that "interest rates don't matter," "it's all smoke and mirrors," and "this bank calculates the interest differently." To make a long story short, we have come to realize that this bank does nothing differently but scam people, and if we want to get refinanced yet again, we are subject to a stiff prepayment penalty...

     How to reconcile this with Citigroup's claims -- for example, to the Cincinnati Enquirer of February 21, 2001: "We have gone across the country, talking with community groups to help develop the best policy. We disagree that we should not be in the communities, because we have been the one to pave the way to give loans to people who don't qualify for prime rates" -- Leah Johnson, director of public affairs for Citigroup. Those "go[ing] across the country talking with community groups" have included Citigroup "Chief Administrative Officer" Charles Prince, and Citifinancial general counsel Martin Wong (who most recently has declined the settle the case of a Texas woman who hung herself, after being subjected to Associates First Capital's harassing collection practices -- more on this in coming weeks). Noticeably absent from the road show / outreach has been ex-Treasury Secretary Robert Rubin. A March 2 SEC filing by Citigroup disclosed Mr. Rubin's 2000 compensation: $45.3 million. Sandy Weill got $127.8 million in salary, bonus, stock and stock options...

Update of February 26, 2001: On February 20, Citigroup announced it has agreed to acquire Argentine pension fund Generar AFJP, for about $220 million. Citigroup already controls local fund Siembra AFJP...

   On Feb. 22, Brazilian oil company Petrobras announced it has selected Citibank as depositary for its American Depositary Receipt (ADR) program representing preferred shares listed on the New York Stock Exchange. Pertrobras describes itself as "one of the world's largest integrated oil and gas companies and the largest corporation in Brazil."

    Some pertinent background statistics, from the Journal's Paul Beckett's piece last week on Citi's business in "emerging markets:" currently, 18% of Citigroup's earnings come from the 79 counties that Citi defines as "emerging" (these include Latin America, Asia -- apparently excluding Japan -- and Eastern European counties like Poland). That figure "could reach 30% in five years, company executives say... Profit last year rose 37% to $2.4 billion. Just in Asia, excluding Japan, profit rose 50% to just over $1.1 billion."

     On the Citi/U.S. beat, documents reflecting the agencies' consideration of Citigroup's applications to acquire Associates First Capital Corporation, which ICP requested on December 4, 2000, under the Freedom of Information Act, continue to trickle in. On Feb. 5, we reviewed the OCC documents; last week, the FDIC's first response. Now, the FDIC has forwarded 254 more pages, some of them blacked-out with a magic marker. For example, an October 13, 2000, e-mail from FDIC staffer to Mira N. Marshall, to the FDIC's New York office, asks: "Are you keeping a count of how many commenters are requesting a hearing? Kevin [Hodson] thought you were, but just wanted to be certain. The first issue DOS [Division of Supervision] is trying to decide is whether there is any basis to hold a public hearing." This is followed by two lines entirely blacked out. The FDIC's New York office responded: "Yes, we are tracking the issues presented in the comment letters. Another individual in the Regional Office reviewed 26 of the 28 comment letters and summarized the issues... The other 2 comment letters are from Inner City Press and are, by far, the most comprehensive in scope. I am reviewing those 2 comment letters separately to highly the numerous issues raised." From this e-mail, an entire paragraph has been redacted (our ears are burning, even as we prepare to appeal the redaction).

    In the spirit of minutiae, the FDIC/DC's interest became on October 4, 2000: Steven Fritts e-mailed Tim Burniston (ex of the OTS) and Bob Mooney: "DOS is inquiring as to what DCA Washington staff person is assigned to the case? Do you have someone in mind?" Mr. Mooney replied on October 6: "I don't think this is my call to make .. Is it?" Mr. Burniston chimed in on October 10: "Bob, you certainly can choose to assign this to a staff member if you like. If you would rather handle it yourself, that is fine also. I just wanted to give you the option." Mr. Mooney then e-mailed Mira Marshall: "Steve F. and Tim are handling the Citigroup Notice of Change in Control concerning Associates. I have not received any written materials on it... Can you make yourself available to Steve Fritts and Tim to work on whatever may arise concerning this transaction? I presume any media contact or contact with DOS would be made only through Steve Fritts." Mr. Fritts then e-mailed Mira Marshall: "I will forward the results of the S. Dakota hearing as soon as I receive them." Bit the FDIC's "memorandum which recaps the outcome of the public hearing in Pierre, South Dakota, on the application of Citigroup to acquire Hurley State Bank" -- is withheld in full... The FDIC's cover letter states that it is withholding 131 pages, and that "some additional records that may be responsive to your request presently are under active review." 

Update of February 20, 2001: Citigroup made two billion-dollar acquisitions last week: one in New York, and one in Brazil. In that order: On February 12, Citigroup announced that it intends to apply for regulatory approval to buy European American Bank (EAB), and its 97 branches. Thirty of these branches are in New York City; 67 are in the NYC suburbs of Long Island. The deal would further concentrate the New York market, making Chase and Citi far and away the largest banks, reducing competition and raising prices and fees. Citi would also close a number of branches.

      Soon -- anywhere from one to four weeks from now -- Citigroup will submit applications, subject to public comments, to regulators. It is anticipated that Citigroup will file its applications at the Office of the Comptroller of the Currency (OCC) and the New York Banking Department, and perhaps elsewhere.

     When Citigroup acquired the subprime lender Associates First Capital in the Fall of 2000, over 100 groups commented to the OCC, opposing the deal. The OCC said that is was constrained, and could not consider Citi's or Associates' records under the Community Reinvestment Act, which requires fair lending in low- and moderate-income neighborhoods. This Citi-EAB transaction IS subject to the CRA. The unresolved Associates issues will be raised, along with branch closures, antitrust, and the so-called "micro-mortgage" issue. When Citicorp and Travelers proposed to merge in 1998, ICP and others documented Citicorp's disproportionate exclusion of communities of color, including in The Bronx. The New York Banking Department (the "NYBD") required a commitment from Citigroup, to increase its lending in majority-minority census tracts in New York State.

    Citigroup claims to have increased its lending dramatically in majority-minority census tracts, and to have complied with the 1998 commitment. However, a close review of Citigroup's 1999 HMDA data shows that the vast majority of these purported improvements consist of loans, under $1,000, reported as home improvement loans.

    Citibank, N.A., Citigroup's bank in New York City, supervised by the Office of the Comptroller of the Currency, reported making 1,931 HMDA-reportable loans in The Bronx in 1999. But fully 1,751 (or over 90%) of these were home improvement loans.

     These 1,751 home improvement loans in The Bronx were generated off 1,805 applications, for a total dollar volume of $4,064,000 -- an average of $2,252 per loan application, much lower than other lenders' average home improvement loan in The Bronx. This is clearly a program of "micro-loans" directed as majority-minority census tracts, in order to purportedly comply with Citigroup's 1999 commitment, in terms of number of loans, but not dollar volume. The $4 million that Citibank lent in The Bronx under this program in 1998, claiming thereon over 1,000 loans, is dwarfed by Citigroup's (and Citibank's) "real" mortgage lending, in Manhattan below 96th Street, for example. Even in The Bronx, note that Citicorp Mortgage, with normal-size loans, made, in 1999, 44 loans to whites, and only six to Latinos, and only five to African Americans.

    Citigroup's disparities in other markets are analyzed on this page.

      Citigroup has proffered an "explanation" of the micro-mortgages, claiming that in order to re-enter markets like The Bronx, it began to offer small home improvement loans, to establish "relationships." Also, Citigroup has been making presentations about its Associates "reforms," to religious organizations (including those which have filed shareholders resolutions for consideration at Citigroup's April 2001 shareholders' meeting), foundations, and others. It has been suggested that Citigroup squarely address the Associates issues in its EAB applications.  We will be running updates.

      At week's end, the Brazilian newsweekly Veja reported that Citigroup is buying Banco Mercantil de Sao Paulo SA from 81-year old Gastao Eduardo de Bueno Vidigal, Banco Mercantil's chairman, for $1 billion in stock. "The bank is beginning negotiations with a North American bank,'' said Raul Carlos Pereira Barretto, a Mercantil vice president, without naming a bank. The acquisition of Mercantil would allow Citigroup to more than double its number of accounts in Brazil to about 800,000 from today's 300,000...

Update of February 12, 2001: In Buenos Aires on February 8, Argentine Central bank president, Pedro Pou, said he's preparing a criminal accusation against Citibank officials due to conflicting reports from the bank about knowledge of Bahamas-based Federal Bank, a Citibank account holder under investigation for money laundering. Mr. Pou made the statement against Citibank after the U.S. Senate released a GAO report earlier this month on money laundering that named Federal Bank and Argentina's now defunct Banco Republica SA. Banco Republica, which was shuttered in April 1999, had transferred funds to Federal Bank through a Citibank account in New York, central bank documents show. Citibank said in 1999 it had no knowledge of Federal Bank's owners or possible links with Banco Republica. Last year, Citibank told the central bank a relationship may exist between the two banks, Argentine newspapers now say...

    Back in the U.S., Citigroup's separately traded subsidiary, Student Loan Corp. <STU.N>, based in Pittsford, N.Y, originating and holding "insured education loans," announced on February 5 that its chairman, Carl Levinson, resigned and it has elected President and Chief Executive Bill Beckman to fill the position., and moved up Yiannis Zographakis, the company's current chief operating officer, to the CEO position. Students -- now you know to whom all those loan payments are going... Or, how you get to school: on Feb. 7, Citigroup's "venture capital" unit, Court Square Capital, announced it's agreed to buy the 47 percent of auto-parts maker Delco Remy International Inc. it doesn't already own for $109.3 million...

    At week's end, word reached Inner City Press of a $1.3 billion predatory consumer practices lawsuit just filed in the Second Judicial District of Jones County, Mississippi, against First Family, Kentucky Finance, Associates -- and Citigroup. Citigroup moved to settle a class action that had been pending against Associates in Georgia, and settled the Department of Justice's discrimination lawsuit against Associates National Bank. But, clearly, there are more lawsuits coming...

Update of February 5, 2001: In the past week, Citigroup has arranged a $1.05 billion credit for Levi Strauss, and has been appointed as advisor to Volkswagen AG, according to Reuters (which reports speculation of a Ford - VW tie-up).

     Meanwhile, a follow-up on Citigroup's Nov. 30, 2000, acquisition of the subprime lender Associates First Capital:  on December 4, 2000, Inner City Press submitted a Freedom of Information Act (FOIA) request to the Office of the Comptroller of the Currency (the "OCC") and to the FDIC for documents related to Citigroup - Associates, which the OCC had approved on November 30, 2000. Under a cover letter dated January 29, 2001, the OCC has responded, providing over 1,000 pages of documents, while withholding others. The most interesting of the provided documents, at least as a legal matter, reflect that the OCC only made its (required) request for a "report on the competitive factors involved in th[is] notice" to the Federal Reserve System on November 17, 2000, stating "If your office could respond by December 1, 2000, it would be greatly appreciated." In fact, under the law, the Fed had more than the specified 13 days to respond. Nevertheless, after four p.m. on November 30, the Fed faxed its "no significant anticompetitive effects" letter to the OCC. Just before five p.m. on November 30, the OCC (and FDIC and NYBD) approved the noticed, and, in a filing made at 5:30 p.m. with the Delaware Secretary of State, Citigroup "consummated" the transaction.

     Similarly, while the Federal Reserve on November 17 "suspended" the 45 day review period on Citigroup's applications to acquire Associates' banks in Hong Kong and the United Kingdom, the Fed on November 30 suddenly "waived the remainder" of the notification period (letter from the Board's Associate Secretary to Citigroup's counsel, dated November 30, based on a November 30 memo from Joanna de Plas, large portions of which have been redacted).

      Interestingly, the Department of Justice's letter to the OCC stating that "we... do not conclude that any would have a significantly adverse effect on competition" was only faxed to the OCC at 8:05 p.m. on November 30, 2000 -- AFTER Citigroup has consummated the deal. And the DOJ's letter states, as to Citigroup - Associates National Bank, that "we concur in authorizing the consummation of the... transactions 15 days after the date of approval."

     In a parallel universe, in a Missouri court, Citigroup is arguing that ICP's petition for judicial review, filed December 1, is "moot." Citigroup, in a filing in the Missouri court, accuses ICP of "sleeping on its rights," of having "delay[ed] the filing of [its] appeal... probably intended to cause the maximum disruption of the merger." But Citigroup rushed to "consummate" the transaction, before even the date listed in the OCC's request for (required) comments from the Federal Reserve System -- and before the OCC had received the DOJ's (required) sign-off, which itself provided for a fifteen day waiting period before the deal could be consummated. Contrary to Citigroup's claim ("appellants' own conduct has allowed this set of events to come to pass"), it was the irregularities in the agencies' fast (and coordinated) approvals, and Citigroup's gun-jumping, that have created this situation.

Update of January 29, 2001 -- On January 23, Citigroup announced (news flash!) that it said on Tuesday it "never knowingly would do business with terrorists." Citigroup repeated this statement in a letter to the U.S. Office of Foreign Assets Controls. As summarized by Reuters, "[t]his is not the first time Citibank has been tied to suspicious funds. A U.S. government report on Russian money laundering said in November more than $1.4 billion in suspect, mostly overseas funds, passed through accounts at Citigroup and a California bank. Money laundering involves pushing ill-gotten profits through bank accounts to make them look legitimate. Citibank also was probed for its role in helping Raul Salinas, the brother of the former Mexican president, transfer $100 million in alleged drug money out of Mexico into Swiss bank accounts in the early 1990s. Two sons of former Nigerian dictator Sani Abacha also opened accounts at Citibank's private bank in the early 1990s."

     In a letter dated January 23, 2001, the Federal Reserve Board "responds" to ICP's December 20, 2000, Freedom of Information Act request "for all records reflecting Board communications... related to Citigroup Inc and Associates First Capital Corporation or Associates National Bank." The Fed writes (a month after the request) that "we are extending the period for our response until February 6, 2001, in order to consult with another agency or with two or more components of the Board having a substantial interest in the determination of the request." But such extension are NOT supposed to be routine... The documents will be reported, on this site, upon receipt.

Update of January 22, 2001: The Wall Street Journal of Jan. 19 speculates that Citigroup's Sandy Weill, 67, intends to stay on, despite an earlier announcement that a successor would be chosen by early 2002. The Journal's Paul Beckett quotes "[s]ome inside and outside the company... speculat[ing] that in the next two years Mr. Weill may make a legacy-defining play for American Express" - a combination which would form the first U.S.-based financial firm with assets over $1 trillion. When is enough, enough?

   In Japan, the Financial Services Agency has begun an unannounced examination of Nikko Salomon Smith Barney Ltd. and Citicorp International Securities Ltd.. In 2000, Citigroup and Nikko's investment banking joint venture, Nikko Salomon Smith Barney, arranged the largest value of Japanese share sales, according to Thomson Financial Securities Data Co...

   Also in Japan, the Nihon Keizai Shimbun reports that Citigroup has entered talks with ailing Japanese supermarket operator Mycal Corp to acquire its credit card subsidiary.

   Meanwhile, Citigroup claims to have "disengaged" from the U.K.-based animal testing firm Huntingdon Life Sciences Group (HLS). "Please note that all the HLS shares that were held in the name of Vidacos Nominees Limited ("Vidacos") on behalf of clients (not "own account") are no longer held in the name of Vidacos nor any other Citibank company and, therefore, any connection with HLS has ceased," Jennifer Scardino, Citigroup's director of corporate affairs in London, stated...

    Foreign policy comes full circle: Citigroup is setting up a real estate investment fund with Kuwait Finance House (KFH). KFH will contribute $25 million to the portfolio, Citibank will put up $16 million while the rest will come from institutional and individual investors. Citibank will act as portfolio advisor and asset manager in the U.S. while KFH will operate as marketing manager in Kuwait and other oil-rich Gulf Arab states..

    Readers may remember that, just after the FDIC, OCC and New York Banking Department approved Citigroup - Associates on November 30, and Citigroup immediately closed the deal, ICP made requests to the agencies, under the Freedom of Information Act, for all of their communications with each other, and with Citigroup. The timing of the approvals was clearly coordinated, and resulted in precluding meaningful judicial review (although the lawsuit about the Missouri Department of Insurance's approval, after denial of ICP's timely request to depose various Citigroup officials, continues).

    Well, ICP has just received the FDIC's FOIA response. The FDIC states that it has identified 476 pages of responsive documents. The FDIC, however, has yet to release these documents. When they do, they will be reported on in this space.  

        For now, from the mailbag:

Subj: Outstanding articles
Date: 1/18/01 10:25:12 AM Eastern Standard Time
From: [ ]
To CitiWatch [at]

     I found your site today and I was impressed by all the information you have on Citi and Associates.

     I was a Top manager for an Associates Consumer Finance office for 5 years. Everything in your articles is true about the questionable integrity of their lending practices. After 5 years you can no longer look yourself in the mirror and still have a conscience... Thanks again for all you are doing for Mankind.

    For or with more information, contact us.  

Update of January 16, 2001: On the Citigroup (global) Watch: on January 8, the Financial Times reported that Citigroup is among the lenders set to stop disbursements to a power plant in India's Maharashtra State. Citigroup's concerns were and not environmentally-related: rather, Citi is concerned that the power plant's main client, Maharashtra State Electricity Board, cannot afford to pay the tariffs for the electricity.

On January 9 in Manila, Bloomberg reported that Citigroup is among the banks vying to advise the Philippine government on the best way to get its money out of a its 27 percent stake in San Miguel Corp., the nation's biggest food and beverage company.

On January 10 in Istanbul, Turk Ekonomi Bankasi AS, a midsize Turkish bank known as TEB, said talks with Citigroup Inc.'s Citibank on the sale of a majority stake to the U.S.-based bank would likely conclude by May or June.

On January 11 in San Francisco, Levi Strauss said it's gotten a commitment for a $1.5 billion line of credit, from three banks, including Citigroup.

      Meanwhile, the Wall Street Journal, publishing on Martin Luther King Day, quotes Citigroup's Marge Magner (who was one of Citigroup's three witnesses, at the New York Banking Department hearing on Citigroup-Associates in November 2000), that Citibank has launched an advertising campaign costing as much as $100 million.. Citibank will be promoting its "brand" -- its bank branch network and its credit card company; the campaign would be managed by Fallon Minneapolis, part of the Fallon Worldwide unit of Publicis Groupe SA of France. "We're talking to a consumer who we would describe as a balance seeker,'' Ms. Magner said. The slogan adopted for the new campaign is "Citibank. Live Richly.'' The campaign will be accompanied by a new look for Citibank's branches, which will replace the bank's compass symbol with a red umbrella over the word "Citi."

    On the predatory lending beat, Citigroup, which enjoys much greater access to, and prestige with, government agencies than Associates First Capital did, is now buying its way out, on the cheap, from some of the legal problems it acquired along with the Associates. On January 8, Citigroup settled, for a mere $1.5 million, the pending discrimination case against Associates National Bank. Later in the week, Citi settled a pending class action against The Associates in Georgia. 

Update of January 6, 2001: Global, as ever: on Jan. 2, the Venezuelan newspaper El Nacional quoted the president of Citigroup's Venezuelan unit, Philip Henriquez, that Citi could buy a small or medium-size Venezuelan bank this year, to add more branches to the 24 it now has in Venezuela. Citi has an option to buy 8 percent of Banco Union SA, Venezuela's fifth largest bank, which expects to complete a merger in February with the Caja Familia savings and loan.

    In Chile on January 3, the oil company Enap announced it has signed a 3-year, $150 million syndicated led by Citibank and Salomon Smith Barney. Enap plans to spend the money on its oil refineries and on international exploration, Enap chief executive Daniel Fernandez told reporters...

      In Manila on Jan. 5, Citibank came up in the ongoing impeachment / corruption trial Joseph Estrada: the prosecuting attorney presented to the court a check for eight million pesos ($160,000) which he said was signed by provincial governor Luis Singson and deposited in the account of Estrada's wife at Citibank. Ah, Citigroup...

      In the U.S., Citigroup has become one of the president-elect's advisory on financial services issues. Citigroup gave $113,000 in contributions to the campaign, and is one of the beneficiaries of the House of Representatives' decision last week to dissolve the Banking Committee into a larger, "Financial Services" Committee, which will cover insurance as well as banking. Ah, Citigroup...

Update of January 2, 2001: Even in the week between Christmas and New Years, Citigroup was on the move. In India, Citi announced that it's opening two new "banking centers," one in the northern city of Ludhiana, the other in Coimbatore, in south India. These are just prefatory moves: Citi has also told the Reserve Bank of India that it is interested in acquiring a local bank. Current regulations bar outright acquisitions of Indian banks by foreign banks. Citi's thought? If it can violate, and then repeal, the Glass-Steagall Act in the United States, this India law shouldn't present many problems... In Prague on December 28, the newspaper Pravo reported that Citigroup is interested in buying Union Banka AS, the Czech Republic's No. 6 bank, and that Citi's representatives are set to inspect Union Banka's books in January... In news of possible interest to environmentalists (and anyone who has to breathe -- that is, anyone), Australian "natural resources" company BHP Ltd. has appointed Citi's Salomon Smith Barney to advise on its U.S. coal operations, including possible mine acquisitions. BHP's possible targets include U.S. steaming coal mines owned by the Peabody Group, the world's largest coal company, and the No.2 U.S coal company, Arch Coal Inc....

     Bloomberg of Dec. 27 contained a lengthy send-up of Robert Rubin, reciting that in May 1999, Rubin urged Congress to repeal the Glass-Steagall Act (and make "legal" the Travelers-Citicorp merger); in mid-1999, Sandy Weill began wooing Rubin to Citigroup, offering a $45 million a year salary, which was finalized in October 1999, just as Congress repealed Glass-Steagall. Bravo! Fed chairman Greenspan apparently responded to Bloomberg's questions about Rubin, in writing; the article also quote Weill, Rubin's old colleagues at Goldman Sachs, and ex-president Jimmy Carter (recounting a fishing trip with Rubin and four others in Argentina in March 2000. Connecting back up to the weekly news items, above, the article reports that "in India [Rubin] met with Central Bank governor Bimal Jalan to discuss Citigroup's desire to buy shares in a state- owned bank and its desire for an easing of restrictions on the number of foreign-owned bank branches there." Well, Citi's gotten two new branches, and is getting closer to repealing the prohibition on bank ownership by foreign companies. Corporate globalization, anyone?

Update of December 26, 2000: In this holiday week, we'll step back from a blow-by-blow of Citigroup's expansionism, to consider a major favor Citi received from the Federal Reserve on December 21. First, however, we must note the micro-shake up in Citigroup's consumer lending hierarchy. Bob Willumstad has taken the place of Robert ("don't-call-me-Bob") Lipp, as head of consumer finance. Citigroup claims that Lipp wants to "focus on his philanthropic interests," which include the New York City Ballet and Williams College. More quietly, Associates First Capital's Ken Hughes has been named head of consumer (read, subprime) finance, in "emerging markets." More in this in reports to come. The New York Post of Dec. 18 detailed how Sandy Weill used Citi "human resources" chief Michael D'Ambrose to "purge" most executives who had been part of John Reed's inner circle -- then Weill fired D'Ambrose. The Post's source concluded: "What does this tell you about Mr. Weill? Who's ever going to trust him?" Good question. One answer, sadly, is... the Federal Reserve:

      On December 21, the Fed issued a "final" rule, implementing the (deregulatory) Gramm-Leach-Bliley Act of 1999.   Included in the GLB Act, as its one supposedly "pro-Community Reinvestment Act" provision, were two ways in which a less than satisfactory CRA rating could have ramifications on a holding company.  Under the scenario relevant here, when a financial holding company (like Citigroup) comes to own a bank with a less than satisfactory CRA rating, it is supposed to lose  its GLB powers under 12 U.S.C. Section 1843(k) and (n).    As soon as Citigroup acquire Associates First Capital and its bank with a Need to Improve CRA rating, Associates National Bank, ICP wrote to the Fed, formally asking it to implement this provision of law, and prohibit Citigroup from exercising new powers. For three weeks, the Fed did not respond. Then, on December 22, ICP received a letter from the Fed, citing to the revised and final GLB rule, released December 21 in Washington. The Fed's Associate Secretary's letter recited that

"[b]y letter dated November 30, 2000,you petitioned the Board to prohibit Citigroup.. from engaging in additional financial activities after the acquisition by Citigroup of Associates First Capital Corporation... [S]ection 225.84 of Regulation Y sets forth the circumstances under which a FHC that controls an insured depository institution with an unsatisfactory CRA rating will be prohibited from expanding its financial activities under the GLB Act. As reflected in this section, the Board has interpreted the GLB Act to require the Board to prohibit a FHC from expanding its financial activities only when one of the FHC's insured depository institutions has received a poor CRA rating while the institution is under the FHC's control. This interpretation gives full meaning to the words of the GLB Act. It also facilitates an important public purpose of allowing FHCs that have insured subsidiary depository institutions with satisfactory ratings to acquire and enhance the CRA performance of insured depository institutions with unsatisfactory ratings.

Sincerely yours, Robert deV. Frierson, Associate Secretary of the Board"

      The Fed's letter has to say that "the Board has interpreted the GLB Act...giv[ing] full meaning to the words of the GLB Act... facilitat[ing] an important public purpose" -- because the Fed's "interpretation" IS NOT WHAT THE GLB ACT SAYS. (Inner City Press' Federal Reserve Reporter this week goes into more detail on this, including quoting the statutory language).  The Fed has CHANGED the law, in a way that benefit only one institution: Citigroup, the only FHC to have acquired a bank with a less than satisfactory rating. The Fed's January 2000 interim rule and preamble did not put forward this "interpretation" -- because Citigroup didn't need it then.  But who's going to (effectively) protest, now?   The Fed's Dec. 21 letter to ICP says that "third parties have no standing" to contest how the Fed enforces the law.   How about the Democrats that claimed so much credit for the inclusion of this provision in the GLB Act? Or are they conflicted, since the company the Fed has invented this loophole for is.. Citigroup, major donor? We'll see...For now, ICP's raised this issue to the Federal Reserve Board's Inspector General.  Results will be reported in this space. Happy New Year! 

Update of December 18, 2000: Another week, a few more incursions. On December 11, Citigroup participated, as "North American coordinator," in loan talks with government officials of Turkey, under the watchful eye of the International Monetary Fund. Back in the U.S., showing its friendlier face, Citigroup announced it will issue a Platinum MasterCard with... the Easter Seals campaign. In Sao Paulo on December 12, local Citibank president Alcides Amaral told reporters that Citi will total lending in the country between 30 percent and 50 percent next year, "as Brazilian companies are expected to export more next year and make new investments in their factories." Citigroup has $9 billion in assets in Brazil, with $7.5 billion in lending. Back in New York Citigroup hired Hamid Biglari, co-head of the Global Investment Banking consulting practice at McKinsey and Company, as Head of Corporate Strategy. Sandy Weill's statement gushed: "Hamid's ability to help financial services companies establish strategies to thrive in evolving business environments will be a tremendous asset to Bob and me as we continue to leverage Citigroup's formidable strengths to create the most profitable, highly diversified, financial services company." Citigroup also raised its stake in the "biomedical equipment company" Nanogen Inc. to 23.2 percent, up from 17.3 percent reported earlier in 2000... In Frankfurt on December 14, Citibank loudly (proudly?) announced that it expects to close about 800 accounts of U.S. citizens at its German retail branch as U.S. authorities increase pressure to comply with tax laws. Citibank says it has about 4,000 U.S. citizens as customers of its German branch. "We will have to close about 800 accounts or we will be in violation of U.S. law," said Citibank spokesman Mirko Kaminski. "This law has been on the books for some time but the pressure to enforce it by U.S. officials has increased. It is not an issue but it is regrettable because it created lots of administrative costs." Maybe that's why Citigroup has continued (according to the U.S. General Accounting Office) its involvement in money laundering -- stopping would "create lots of administrative costs"... In Mexico City on December 15, Citigroup took a piece of a $370 million loan to retail and industrial holding Grupo Carso. part of Mexican billionaire Carlos Slim's business empire. And on December 17, newspapers in Jerusalem reported the Citibank plans on opening six to eight new branches in Israel in the coming months. The apparent plan? Close branches in lower income parts of the United States (like the neighborhood surrounding the Parkchester housing development in The Bronx), and open them up overseas. Ah, globalization...

Add to this strategy Citigroup's increasing involvement in high interest rate, subprime lending. Citgroup has now swallowed Associates First Capital, and has ramped up its lobbying for the continued legality of (and lack of scrutiny on) its controversial practices. Most recently, Citigroup attempted to lobby the Federal Reserve Board against including single premium credit life insurance in the definition of "points and fees" that brings a loan under the 1994 Home Ownership and Equity Protection Act (HOEPA). The Fed nevertheless included this provision in its regulatory proposal announced on December 13. But the Fed has yet to respond to ICP's request that it "notify" Citigroup that, due to Associates National Bank's Needs to Improve CRA rating, it is precluded from certain future activities and acquisitions, under the Gramm-Leach-Bliley Act of 1999. Developing...

Update of December 11, 2000: Another week for the ultimate corporate globalizer, Citigroup: confirming our report of last week, Citigroup IS moving to buy a larger stake in the world's largest iron-ore producer, Brazil's Cia. Vale do Rio Doce. Opportunity Asset Management Ltda., a Rio de Janeiro fund manager, said on Dec. 5 that Citigroup has the right to buy up to $100 million of new shares in Valepar, a holding company that controls CVRD. Valepar's other shareholders said Citibank's option has expired....

  On December 6, Citigroup announced that it has struck an alliance with of Chile to provide online payment and other services. Citibank will offer financial services at, a business-to-business site for the selling and buying of raw materials, products and services. "Sweet," isn't it? As is this:

   In Australia on Dec. 7, Citigroup's "Asian investment arm" said it's in talks to buy CSR Ltd.'s 145-year-old sugar business, which produces one third of Australia's sugar, and which the company aims to sell for as much as $770 million.

     Not surprisingly, Citigroup's been ranked as the 57th largest economy in the world -- that's including countries. And so Citigroup has its own foreign policy: on December 7, Citigroup announced that Andrea Jung, CEO of Avon Products, Inc., has joined the International Advisory Board of Salomon Smith Barney. Other members of this board, which was formed after the Citicorp- Travelers merger, in May 1999, are:   chairman Donald Rumsfeld, Chairman of Gilead Sciences, Inc. and former U.S. Secretary of Defense; Umberto Agnelli, Chairman of IFIL S.p.A.; "Sir" Peter Bonfield, Chief Executive of British Telecommunications plc; John L. Clendenin, former CEO of BellSouth Corporation; Ralph Larsen, CEO of Johnson & Johnson; Goran Lindahl, CEO of ABB Ltd.; Thomas S. Murphy, former CEO of Capital Cities/ABC, Inc.; John Reed, former Co-CEO of Citigroup Inc. (yes, he's still hanging around); Robert E. Rubin, "Chairman of the Executive Committee of Citigroup Inc.;" Dr. Eisuke Sakakibara, former Vice Minister of Finance for International Affairs in Japan's Ministry of Finance (a good connection in order to not get indicted over there); Prof. Dr. Ekkehard Schulz, of ThyssenKrupp AG; Morris Tabaksblat, Former CEO of Unilever NV; Sanford I. Weill (who needs no introduction); Lorenzo Zambrano, CEO of CEMEX, S.A. de C.V. Alfred M. Zeien, former Chairman and CEO of The Gillette Company. Further analysis soon...

     Back in the United States, ICP has submitted Freedom of Information requests to the OCC, FDIC and NYBD, for each agency's communications with Citigroup in the days before the Nov. 30 approvals and instant closing of the deal. Each agency has now acknowledged receipt of the FOI request; the responses will be reported in this space upon receipt. The OCC's notice to commenters of the Nov. 30 approval -- was mailed out on December 5. Entirely precluding judicial review. ICP's lawsuit against the Missouri Department of Insurance's Citi - Associates approval has been docketed in the circuit court for Cole County, Missouri, and assigned docket number 00-CV-325638. Citigroup's attorneys appear to believe that since Citigroup immediately closed the deal (that is, signed the papers) on Nov. 30, the fight is over. Nothing could be further from the truth...See, e.g., Dow Jones Newswire of December 4, 2000. On December 8, ICP took part in mock caroling in front of the Citigroup headquarters on 53rd Street and Lexington Avenue in Manhattan. To the tune of Silent Night, the carolers sang: "Slee-ee-zy loans, Cut to the bone," and so forth. Much fun was had; and, it is said, Citigroup's "chief administrative officer" has begun receiving phone calls from unlikely sources, asking about Citigroup's supposed attention to "reputational risk." "Sleeeazy loans," indeed...

Update of December 4, 2000: The Citigroup (U.S.) news of the week was Citigroup's procurement of simultaneous approvals from three regulators of its applications to buy Associates First Capital, and "consummation" of the deal, two hours later. In the aftermath, several concerns have arisen. Many have questioned the timing: on November 29, the General Accounting Office released a report finding the Citibank has been engaged in money laundering, in the cases reviewed by the GAO, as recently as April 2000. The case was referred, on November 29, to the U.S. Department of Justice. Nevertheless, the OCC, FDIC and NYBD approved Citigroup's applications the next day. Also, it seems clear that these agencies gave Citigroup a "heads-up" of when to expect approval, so that Citigroup could close the deal immediately thereafter (there thereby avoid any meaningful judicial review of the OCC's, FDIC's and NYBD's approvals). ICP has just submitted Freedom of Information requests to each agency, for all of their communications with Citigroup during the time frame. The responses and results... will be reported in this space.

      The New York Banking Department's press release announcing its approval stated: "Citigroup will work with the Banking Department to resolve issues arising from a 1998 agreement." This is a reference to the "micro-mortgage" scandal that arose during the proceeding. Citicorp's regulatory counsel, Carl Howard, in a July 22, 1998 letter to the NYBD, had committed that for all of Citicorp's mortgage lenders,

"the percentage of their HMDA-reportable lending in 1998, 1999 and 2000 in the majority minority census tracts in the cities of Buffalo and Rochester, the counties of Erie and Niagara combined and the county of Monroe, respectively, will equal or exceed the percentage of such lending by them in these areas for the first six months of 1998," and that "the percentage of their HMDA-reportable lending in 1998, 1999 and 2000 in the majority minority census tracts in the following areas: 1. Nassau and Suffolk counties combined, 2. Westchester and Rockland counties combined, 3. Queens County, 4. Kings County, 5. Bronx County, 6. New York County and 7. Richmond County, will equal or exceed the adjusted Aggregates' percentage of such lending."

      The way Citigroup then tried to comply with this commitment was by making very small "micro-" home improvement loans, mostly below $1,000, and counting each as if it were a real / regular mortgage in a majority minority census tract. By dollar volume of lending, Citigroup still dramatically trails the aggregate. While the NYBD may have erred in not requiring a dollar volume commitment from Citigroup, Citigroup's actions amount to misleading its regulators. An emerging argument: the micro-mortgages made by Citigroup, based on direct mail, may not have been "HMDA-reportable" at all... Developing..

      ICP's lawsuit seeking judicial review of the Missouri Department of Insurance's approval of Citigroup's application to acquire an Associates insurer, North Field Insurance Company, was received by the circuit court for Cole County, Missouri, on December 1, 2000. These proceedings, too, will be reported in this space. The need for oversight (from below) of Citigroup is greater than ever before.

        Now, a review of just-another-week for Citigroup, globally: on November 28, Citigroup announced that it "expects expansion of its profit in Hong Kong to slow to 17 percent next year because of slack demand for new loans from companies and homebuyers." Citigroup's getting ready to deal bonds for Pakistan, in the next two weeks. Of interest to environmentalists, Citigroup at week's end confirmed that it wants to buy a stake in Brazilian mining giant Cia Vale do Rio Doce. And of interest to housing and homelessness advocates, inquiries have been received about Citigroup's Salomon Brothers Realty Corporation's purchase, in September 2000, of $480 million in mortgages from the U.S. Department of Housing and Urban Development. In the District of Columbia, 31-year old Nadine Brown, a mother of three with a HUD Section 8 certificate, moved into what she and her supporters thought was a "HUD home," at 1959 H Street, NW. HUD quickly tried to distance itself from the stand-off, saying it had sold the mortgage (and the problem) to Salomon Brothers. Turns out that's true, and is the case with $480 million worth of houses elsewhere. Developing...

Update of Friday, December 1, 2000:   Late Thursday afternoon, the OCC, FDIC and NYBD all approved Citigroup's applications to acquire Associates First Capital. The NYBD imposed some additional conditions, applicable only in New York State; the OCC and FDIC imposed no conditions at all. The approvals came just as legal papers seeking review of the Missouri Department of Insurance's approval of Citi-Associates were being finalized and filed, by overnight mail (updates to follow).   After 5 p.m., Citigroup announced it had closed (or "consummated") the deal.  See, e.g., "Citigroup - Associates Gets Regulatory OK's," by Marcy Gordon, Associated Press, November 30, 2000.

    This will all be analyzed in more detail in our Update of Monday, December 4.  It seems clear that (at least some of) the agencies gave Citigroup a "heads-up" as to when to expect approval, so that Citigroup could move to close the deal without any judicial review.  For now, here is a letter ICP has just faxed to the Federal Reserve Board, demanding action on Associates National Bank's "Needs to Improve" rating under the Community Reinvestment Act (which should now prohibit Citigroup from exercising or acquiring powers under the Gramm-Leach-Bliley Act of 1999), and asking the Fed to act on the mounting compliance problems at Citigroup. More on December 4....

                                                                                 Nov. 1 - Dec. 30, 2000

Dear Chairman Greenspan and others at the Federal Reserve:

     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 letter is a formal request for Federal Reserve Board ("FRB") action, under 12 Code of Federal Regulation 225.84(a). Citigroup, Inc. has just reportedly consummated its acquisition of Associates First Capital Corporation and Associates National Bank, an institution which has a "Needs to Improve" rating under the Community Reinvestment Act. Under 12 U.S.C. Sec. 1843(l)(2), Citigroup is now (see infra) prohibited from "[c]ommenc[ing] any additional activity under subsection 4(k) or 4(n) of the Bank Holding Company Act... or [d]irectly or indirectly acquir[ing] control of a company engaged in any activity under subsection 4(k) or 4(n) of the Bank Holding Company Act." 12 CFR 225.84(a)(1)(i) and (ii)....

    Citigroup has announced a number of proposed acquisitions recently; ICP asks for a review of whether they include companies engaging in "any activity under subsection 4(k) or 4(n) of the [BHC] Act." ICP also asks for confirmation that the Board has provided the notification now required under 12 CFR 225.84(a)(2).

      As you are undoubtedly aware, the General Accounting Office ("GAO") report issued on November 29, 2000 (GAO-01-120; "Possible Money Laundering Through U.S. Banks") finds that Citibank, until April of this year, handled at least $270 million for "Russian companies" as to which Citibank "did not conduct due diligence...". Id. at 9, also citing GAO/OSI-99-1, "Private Banking: Raul Salinas, Citibank and Alleged Money Laundering"). The Board should act on these recent revelations, as well as the following portion of Mother Jones magazine's December 2000 article, "Tax Cheater's Paradise:"

"Citibank's clients have included the family of Sani Abacha, the former Nigerian general who plundered billions of dollars from his nation's treasury, and dictator Omar Bongo of Gabon, for whom Citibank established a Bahamian shell corporation to stash his looted treasure. Citibank also helped Raul Salinas, brother of former Mexican president Carlos Salinas, by transferring tens of millions of dollars out of Mexico and depositing the money in European banks under the names of untraceable companies registered in the Cayman Islands. Citibank never used Salinas' name in bank communications, referring to him instead as 'Confidential Client 2,' or 'CC-2.'

'CC-1' was the code used to refer to Carlos Hank Rhon, who is currently facing civil charges by the Federal Reserve that he used secret offshore accounts to illegally hide his controlling interest in Laredo National Bank, the third-largest independent bank in Texas. A Mother Jones review of Fed documents reveals that Citibank handled more than $100 million for Hank Rhon, funneling his money through accounts in New York, Mexico, London, Zurich, the Bahamas, and the British Virgin Islands. According to one filing in the case, Citibank not only decided what offshore entities to establish, but designated its own employees as officers, directors, and trustees."

    ICP also hereby makes the Board aware of an issue, relevant to the managerial resources of Citigroup, that has arisen: Citigroup's illusory improvements in its lending in communities of color, low- and moderate-income ("LMI") neighborhoods, and to African Americans and Latinos have mispresented Citigroup's record, in The Bronx and other communities in New York State regarding which Citicorp made a formal commitment, to the New York Banking Department (the "NYBD"), in 1998.

    When Citicorp and Travelers proposed to merge in 1998, ICP documented Citicorp's disproportionate exclusion of communities of color, including in The Bronx. While the FRB approved Travelers' applications, without conditions on these issues, the NYBD required a commitment from Citigroup, to increase its lending in majority-minority census tracts in New York State.

     Citigroup claims to have increased its lending dramatically in majority-minority census tracts, and to have complied with the 1998 commitment. However, a close review of Citigroup's 1999 Home Mortgage Disclosure Act ("HMDA") data shows that the vast majority of these purported improvements consist of loans, under $1,000, reported as home improvement loans.

   Citibank, N.A., Citigroup's bank in New York City, reported making 1,931 HMDA-reportable loans in The Bronx in 1999. But fully 1,751 (or over 90%) of these were home improvement loans. These 1,751 home improvement loans in The Bronx were generated off 1,805 applications, for a total dollar volume of $4,064,000 -- an average of $2,252 per loan application, much lower than other lenders' average home improvement loan in The Bronx.

     It appears clear that Citigroup initiated this "micro-home improvement loan" program in order to create the misleading impression that it was complying with its 1998 commitment. This becomes apparent, for example, when one considers the racial demographics of Citigroup's marketing (mail solicitations) for these loans. Of race-specific applications for home improvement loans in The Bronx, based on Citibank's marketing, it reported in 1999 410 applications from African Americans, 590 applications from Latinos, and only 66 applications from whites. This is entirely inconsistent with the demographics of The Bronx, and with the marketing and lending patterns in the Bronx of other lenders, including home improvement lenders. This pattern would not have resulted from obtaining credit history information for all of The Bronx's residents and homeowners; this is clearly a program of "micro-loans" directed as majority-minority census tracts, in order to purportedly comply with Citigroup's 1999 commitment, in terms of number of loans, but not dollar volume. The $4 million that Citibank lent in The Bronx under this program in 1998, claiming thereon over 1,000 loans, is dwarfed by Citigroup's (and Citibank's) "real" mortgage lending, in Manhattan below 96th Street, for example (Citigroup's home purchase and refinance lending was analyzed in ICP's September 25, 2000, submission to the FRB, incorporated herein by reference). Even in The Bronx, note that Citicorp Mortgage, with normal-size loans, made, in 1999, 44 loans to whites, and only six to Latinos, and only five to African Americans. Again, it appears clear that Citigroup initiated this "micro-home improvement loan" program in order to create the misleading impression that it was complying with its 1998 commitment -- raising issues about Citigroup that ICP is hereby asking the FRB to inquire into and act on, under the managerial resources standards of the BHC Act and otherwise.

     On predatory lending issues, ICP hereby formally raises to the Board the Wall Street Journal's November 22, 2000 report that Citigroup's CEO's son (which directed Citigroup's investment in, and acquisition of, the questionable subprime lender IMC Mortgage) was, during the relevant time frame, on or addicted to cocaine, apparently crack cocaine. See, "Citigroup's Marc Weill Left Firm to Battle Drug Habit," by Charles Gasparino and Joann S. Lublin, Wall St. J., Nov. 22, 2000.

   This is particularly relevant in light of the FRB's November 21, 2000, letter to counsel for Chase Manhattan Corporation, including into safeguards in place for investment in, and other business with, subprime lenders. ICP is certainly not without sympathy for what has become known as "substance abuse." However, where apparent nepotism and lack of managerial oversight allow the substance abuser to place the nation's largest financial institution deeper and deeper into predatory lending (for example, through the investment in, and 1999 purchase of, IMC Mortgage), the issue moves beyond the realm of personal sympathy.

   Also on subprime lending issues, CitiFinancial (a Citigroup BHC subsidiary under the primary jurisdiction of the Board) on November 7, 2000 announced certain purported reforms of the practices of CitiFinancial. ICP finds these less than meaningful, often misleading, and full of loopholes. In summary, Citigroup currently charges up to nine percent -- nine hundred basis points -- in fees on brokered loans, much higher even than other subprime lenders. Citigroup's "reform"? To reduce it to eight percent.

    Citigroup intends to continue selling single premium credit life insurance, where this cost is rolled into the loan, and never recouped by the borrower. Citigroup intends to continue imposing pre-payment penalties, so that people it traps into high cost loans cannot get out from under them, by refinancing with another lender. Citigroup intends to continue imposing mandatory arbitration clauses on loans, so that those wronged can't even sue, as a class, or seek punitive damages.

    No explanation is given why "referral up" couldn't be done through CitiFinancial's "Maestro" computer system; the fees remains as high, single premium credit life insurance will continue to be offered. CitiFinancial supplemented these "commitments," in a separate commitment to the NYBD. The FRB, CitiFinancial's primarily regulator, should obtain copies of these commitments, and ensure CitiFinancial's compliance therewith, particularly in light of the weak compliance culture evidence supra...

    As to the proposed acquisitions that Citigroup has recently announced, and all Citigroup acquisitions until Associates National Bank receives a Satisfactory or better CRA rating, ICP is hereby formally asking for a review of whether these include companies engaging in "any activity under subsection 4(k) or 4(n) of the [BHC] Act." ICP also asks for confirmation that the Board has provided the notification now required under 12 CFR 225.84(a)(2).

       If you have any questions, please immediately telephone the undersigned, at (718) 716-3540.

Respectfully submitted,

Matthew Lee
Executive Director
Inner City Public Interest Law Center
& Inner City Press/Community on the Move

Update of November 27, 2000: Citigroup was again "on the move" last week. On November 21, Citibank Worldwide Securities Services announced its expansion into Eastern Europe with the appointment of two new agent banks: Bank Austria in Slovenia; and Hansa Bank in Lithuania. On November 22, the Indonesian financial press reported that Citigroup's Salomon Smith Barney is among banks seeking to underwrite an initial public share sale by that country's largest lender, PT Bank Mandiri. And on November 24, Citigroup's Mexican unit Citibank Mexico SA purchased the 9 percent stake it didn't already own in Mexico's pension fund Afore Garante. Citi, which is now Mexico's sixth-largest bank, boosted its stake in Afore to 91 percent in February, when it purchased the 51 percent owned by Grupo Financiero Serfin SA for $179 million.

    While Citigroup expands overseas, it is embroiled in scandals in the United States. Beyond the "micro-mortgage" scandal summarized in the Citi - Associates Update of November 22, yet another adverse issue has arisen. The Wall Street Journal of November 22 contained a long article, quoting multiple sources that Marc Weill, whose investment in the controversial subprime lending IMC Mortgage resulted in Citigroup taking ownership of the company -- was on drugs during the relevant time frame. See, "Citigroup's Marc Weill Left Firm to Battle Drug Habit," by Charles Gasparino and Joann S. Lublin, Wall St. J., Nov. 22, 2000.

      ICP is certainly not without sympathy for what's become known as "substance abuse." However, where nepotism and lack of managerial oversight allow the substance abuser to place the nation's largest financial institution deeper and deeper into predatory lending, the issue moves beyond the realm of personal sympathy. The Daily Deal of November 27 quotes a "government official" (at the OCC or FDIC) that a denial of Citigroup's notice might "spur an unjustified run on Citigroup's banks." Now that's what we call spin-control. The American Banker of November 27, 2000 quotes an official of the OCC that "the agency is looking only 'at issues involving management, experience, and competence, rather than CRA-type considerations.' The FDIC refused to comment on the deal." "Law Denies CRA Clout to Citi-Associates Foes; Federal Regulators Cannot Consider the Issues," by Rob Blackwell, American Banker, November 27, 2000, Pg. 1, which also quotes ICP's executive director: "What if a bank tries to buy the Medellin drug cartel to sell mutual funds, or to expand its private banking business? The argument that a bank could buy anything because it is just their own integrity and not that of the acquiree that matters -- that's ludicrous." The reference to a drug cartel might have seemed hype -- until the Wall Street Journal's November 22, 2000, above-cited article. ICP has just filed the comment below:

                                                                                                 November 24, 2000

Dear Regional Director Stum, Comptroller Hawke, Superintendent McCaul:

    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 supplemental comment, specifically on the integrity, competence and other required statutory factors, opposing and requesting hearings on the notices of Citigroup, Inc. (along with its subsidiaries, including the subprime lenders Citifinancial and IMC Mortgage) to acquire control of Associates First Capital Corporation and its subsidiaries ("Associates").

       ICP will not here reiterate its grounds for opposing Citigroup's notices to acquire the problematic subprime lender Associates -- ICP's previous comments are incorporated herein by reference. The purpose of this submission is to put into the record, in as timely a fashion as possible, a recent revelation that goes directly to the integrity, competence and other required statutory factors, particularly in connection with Citigroup's recent acquisition of other problematic subprime lenders.

As you know, ICP and others have commented on the record of IMC Mortgage, a subprime lender that Citigroup invested in, and then acquired, and, ICP contends, has not meaningfully improved. It is public record that the individual behind Citigroup's investment in, and subsequent acquisition of, IMC was Citigroup's CEO's son, Marc Weill.

The Wall Street Journal of November 22, 2000 contains a length article quoting multiple sources that, during the relevant time frame, Marc Weill was "on drugs," specifically cocaine, apparently crack cocaine. See, "Citigroup's Marc Weill Left Firm to Battle Drug Habit," by Charles Gasparino and Joann S. Lublin, Wall St. J., Nov. 22, 2000 (the entirety is incorporated herein by reference).

ICP is certainly not without sympathy for what's become known as "substance abuse." However, where apparent nepotism and lack of managerial oversight allow the substance abuser to place the nation's largest financial institution deeper and deeper into predatory lending (for example, through the investment in, and 1999 purchase of, IMC Mortgage), the issue moves beyond the realm of personal sympathy.

      ICP is also hereby entering into the record, as a supplement to the material near the end of ICP's September 25 comment directly relevant to the integrity and other required statutory factors, the following, from Mother Jones magazine's December 2000 article, "Tax Cheater's Paradise:"

"Citibank's clients have included the family of Sani Abacha, the former Nigerian general who plundered billions of dollars from his nation's treasury, and dictator Omar Bongo of Gabon, for whom Citibank established a Bahamian shell corporation to stash his looted treasure. Citibank also helped Raul Salinas, brother of former Mexican president Carlos Salinas, by transferring tens of millions of dollars out of Mexico and depositing the money in European banks under the names of untraceable companies registered in the Cayman Islands. Citibank never used Salinas' name in bank communications, referring to him instead as 'Confidential Client 2,' or 'CC-2.'

'CC-1' was the code used to refer to Carlos Hank Rhon, who is currently facing civil charges by the Federal Reserve that he used secret offshore accounts to illegally hide his controlling interest in Laredo National Bank, the third-largest independent bank in Texas. A Mother Jones review of Fed documents reveals that Citibank handled more than $100 million for Hank Rhon, funneling his money through accounts in New York, Mexico, London, Zurich, the Bahamas, and the British Virgin Islands. According to one filing in the case, Citibank not only decided what offshore entities to establish, but designated its own employees as officers, directors, and trustees."

     The American Banker of November 27, 2000 (an issue "put to bed" on November 22, due to the four-day Thanksgiving holiday) quotes an official of the Office of the Comptroller of the Currency that "the agency is looking only 'at issues involving management, experience, and competence, rather than CRA-type considerations.' The FDIC refused to comment on the deal." "Law Denies CRA Clout to Citi-Associates Foes; Federal Regulators Cannot Consider the Issues," by Rob Blackwell, American Banker, November 27, 2000, Pg. 1.

     The matters put into the record by this letter should make it clear that it is not just Associates First Capital Corp.'s, but also Citigroup's, integrity, competence, etc. that is being called into question. This matter, as well as the unaddressed Citigroup "micro-mortgage" scandal and unexplained incorrect answer(s) under oath at the Missouri Department of Insurance's October 18 hearing (see, e.g., ICP's November 22 submission), must be addressed, under the statutory factors, in this proceeding.

     The above-quoted American Banker article of November 27, 2000, reports community groups' concerns that, due to provisions of the Gramm-Leach-Bliley Act of 1999, there is no Federal Reserve application, subject to public comment and possible public meeting, in connection with Citigroup's over-all proposal to acquire Associates First Capital Corp. and its subsidiaries. For the record, and to cast light on the type of questions the OCC, FDIC and NYBD should be asking in their proceedings, annexed hereto is a recent Federal Reserve Board additional information request to applicants before it [Chase - Morgan], under the "managerial resources" standard of the Bank Holding Company Act, which is a standard quite similar to the standards the NYBD, and FDIC and OCC must use (under the Change in Bank Control Act, including its broad "integrity" factor). The FRB inquires into not only subprime lending issues (Questions 1, 3 and 4), but also the applicants' reported involvement in the Holocaust (Question 5), slavery in the United States (Question 6), a copper trading scandal (Question 8), etc.. Clearly, the matters raised above (and in ICP's previous comments) need to be inquired into by the agencies, in this proceeding.

     On subprime lending issues, Citigroup on November 7 announced certain purported reforms of the practices of CitiFinancial. As previously noted, we find these less than meaningful, often misleading, and full of loopholes. In summary, Citigroup currently charges up to nine percent -- nine hundred basis points -- in fees on brokered loans, much higher even than other subprime lenders. Citigroup's "reform"? To reduce it to eight percent.

      Citigroup intends to continue selling single premium credit life insurance, where this cost is rolled into the loan, and never recouped by the borrower. Citigroup intends to continue imposing pre-payment penalties, so that people it traps into high cost loans cannot get out from under them, by refinancing with another lender. Citigroup intends to continue imposing mandatory arbitration clauses on loans, so that those wronged can't even sue, as a class, or seek punitive damages.

      Citigroup has submitted a less than useful, rushed response to the question letter that the OCC issued in connection with the extension of its review period. No explanation is given why "referral up" couldn't be done through CitiFinancial's "Maestro" computer system; the fees remains as high, single premium credit life insurance will continue to be offered. Citigroup's commitments -- which it goes out of its way to say are not part of its applications -- are illusory, and only further militate, along with the above, for the federal hearings that the FDIC and OCC should now schedule and hold, even more so in light of the troubling issues raised supra. On the current record, the FDIC, OCC and NYBD should (and, ICP contends, must) deny Citigroup's notices.

       If you have any questions, please immediately telephone the undersigned, at (718) 716-3540.

Respectfully submitted,

Matthew Lee
Executive Director
Inner City Public Interest Law Center
& Inner City Press/Community on the Move

      If this -- the son of the CEO given vast investment powers, while on drugs, and buying a predatory lender -- does not fall under the "competence, experience, or integrity" factor that the OCC and FDIC (and NYBD) are required to consider, what does?  The NYBD has now asked Credit Suisse/DLJ and Chase - Morgan questions about what safeguards they have in place, before doing business with subprime lenders.  The questions have not yet to posed to Citigroup -- sadly, the company's substance abuse policy may also have to be raised, including in connection with investments in subprime lenders.

Update of November 20, 2000:    The week for Citigroup: on Monday, Citi dropped out of the bidding to privatize Brazil's Banespa.   On Wednesday, Citibank Private Bank announced that it "has acquired" the international investment firm, Winter Capital International LLC. Whether Winter Capital's activities are or would be permissible, in light of the loss of Gramm-Leach-Bliley Act powers that Citigroup faces it is acquired Associates First Capital Corp. -- is unknown (and see below).  

     On Thursday, a group led by Citibank Venture Capital Asia Pacific purchased the information and telecommunications arm of Daewoo Telecom Co. for $230 million. See above. Also on Thursday, the Polish daily Rzeczpospolita reported that Citigroup is seeking to buy the 14 percent of Poland's largest insurer, PZU SA, that is held by employees. On Friday in Poland, Citigroup announced it plans to lay off nearly 23 percent of the combined workforce of Poland's biggest corporate Bank Handlowy and its local unit Citibank Poland "Up to 1,400 workers out of the combined 6,200 employed in the two banks will lose their jobs by end-2001," Handlowy's Chief Executive Cezary Stypulkowski told reporters. "In 2000 alone we are planning to lay off up to 400 people."    In Thailand, accusations mount the Citibank, N.A. colluded in drafting the reorganization plan of Thai Petrochemical Industry, whose employees are protesting (Bloomberg of Nov. 15, 2000). Citigroup's strategy of hiring ex-government employees (culminating, in the U.S., in the hiring of Robert Rubin) is in fact a global strategy.  In France, Salomon Smith Barney has hired Emmanuel Rodocanachi, a former personal adviser to two French prime ministers, including Jacques Chirac. In December 1999, Salomon hired Renato Ruggiero, a one-time chairman of the World Trade Organization...

        Back in the U.S., on November 16, the Office of the Comptroller of the Currency and the FDIC both announced they are extending their review period for Citigroup's notices to acquire controversial high interest rate lender Associates First Capital Corp.'s banks, for thirty days. The OCC asked Citigroup four questions, including "[p]lease clarify how Citigroup, through its marketing, its bank and thrift branches, its other office locations, and other procedures, offers prime as well as subprime products to low- and moderate-income and minority communities." The reference, clearly, is to Citigroup's November 7 proposal to finally begin a "referral up" process -- though only on a pilot basis, in four states, and only by "providing information on how they can access prime loans through other parts of the Citigroup organization." Citigroup has yet to explain why its "Maestro" computer underwriting system, which is claims is a major consumer protection safeguard at CitiFinancial, cannot simply be programmed to offer normal interest rate loans to those who qualify for them.

       Citigroup's submission to state regulators have become more and more vitriolic. In a November 16 letter to the Delaware Department of Insurance, Citigroup's lawyers at Skadden Arps intone that the November 9 testimony of the director of the Delaware Community Reinvestment Action Council "was essentially a collection of sound-bites [sic] taken verbatim from ICP's web site" [Note: the link is left "dead" -- since it leads to this very page]. Citigroup's submission annexed selected pages from a print-out of this web site, and argues that "[d]isingenuously... the executive director of ICP... chose not to participate" in the Delaware hearing... His failure to do so unmasks Protesters' 'ineffective participation' argument as a cynical ploy to manufacture a procedural claim." What's fascinating here is that where ICP has sought to "participate" -- for example, before the Missouri, Indiana and Wisconsin insurance regulators, and the South Dakota Division of Banks -- Citigroup and Skadden Arps have, in each instance, sought to exclude ICP's participation. One hearing that ICP neither attended, nor sought to attend (beyond the testimony of the director of DCRAC, who is also a member of ICP), Citigroup and Skadden characterize as a "disingenuous" or "cynical" non-appearance. Which is it? And, more to the point, what the heck is wrong with Citigroup?  

Update of November 13, 2000 -- Citigroup as cult: From November 6th through 8th, 250 top Citigroup executives and their spouses gathered at the Boca Raton Resort & Club in Florida, to praise themselves, watch acrobats, and listen to speeches by Robert Rubin and other ex-regulators that Citigroup has assembled. Vice chairman Robert Lipp announced that Citi plans to spend more than $100 million on marketing in the next year, much of it centered around the company's new slogan: "Live Richly." A motto very much in favor among the overpaid executives in attendance. What gave it a cult-like feel was Sandy Weill's "family values" demand, that all executives' spouses attend. As most cults know, if you can't "get" the spouse, you can't count on the recruit. While the executives on November 6 discussed "Citigroup Values," the Spousal Roundtable dealt with "wealth creation, community involvement and corporate giving." (ICP -- and this Web site! -- came up, in largely unfavorable, perhaps uncomprehending, terms, at this confab). Robert Rubin's half-hour speech, which made those assembled feel very proud to have bought him, was entitled "Citigroup and the Global Business Environment."

      Jump cut to New York City, November 10: the New York Banking Department was holding its public meeting on Citigroup's applications to acquire the much-sued high interest rate lender Associates First Capital Corporation (whose motto does not appear to be "live richly"). The hearing was held because of the discrimination in lending and other charges, including by the U.S. Justice Department, that are swirling around The Associates. Citigroup's "Chief Administrative Officer" Charles O. Prince III (that's how he signed up) emphasized that NO reforms of Associates' or CitiFinancial's practices are "required," for Citigroup's applications be to approved. Marge Magner, who previously ran CitiFinancial, and has returned to that post, claimed that CitiFinancial's motto is "do the right thing, all the time, every time." Citigroup's head of "global community relations," Pam Flaherty, said that while many groups have claimed that Citigroup discriminates, it simply isn't true. As the next witness (ICP's representative) began to contest each of these points, Chuck Prince and Ms. Magner left the room. Pam Flaherty and Citigroup's Janet Thompson remained, scribbling furiously as witnesses attacked Citigroup, and smiling broadly during pro-Citigroup testimony. For example, the Brooklyn Public Library said it has received much financial support from Citigroup -- somewhere, the members of Citigroup's "Spousal Roundtable" were clapping, if they were not too busy "living richly." Significantly, Citigroup did not get a single group to testify that the purported reforms of Associates and CitiFinancial that it announced on November 7 were sufficient.

      During the afternoon session, student and environmental activists showed up, and decried Citigroup's lack of social and environmental standards, using as examples its involvement in the Three Gorges Dam project in China (which would displace one million people, seemingly making it more difficult for them to "live richly") and Citigroup's involvement in the timber industry, including in Chile (note: ask Robert Rubin about this Citigroup involvement in the global economy). Numerous speakers called for -- or announced -- a boycott of Citigroup products. Somewhere, the members of the Citigroup "Spousal Roundtable" shook their heads: "Why can't everyone," they asked, "'live richly'?" This, while Citigroup's practices pre-determine precisely this result...

      In more serious news, Peruvian newspapers on November 7 reported, citing U.S. State Department sources, that the country's now-deposed spy chief, Vladimiro Montesinos, has accounts in relatives' names at Citibank Private Bank (as re-reported on Bloomberg, Nov. 7). (We can't resist: yes, Mr. Montesinos is "living richly," with Citibank's help). Meanwhile, Citibank is forcing Mexico's bank deposit guarantee agency IPAB to continue to pay interest to it for the next eight to ten years (thereby condemning many in Mexico to NOT "live richly"). Citibank sued IPAB for trying to pay off a loan early -- much as CitiFinancial imposes pre-payment penalties on its high interest rate consumer and home equity loans in the United States...

Update of November 6, 2000: Citigroup week in review -- the week opened with limousine liberal Robert Rubin psychologizing in Japan, telling a business conference that "[t]hus in my view with the fundamentals of human nature creating an inherent tendency to excess in markets and finance, I think it is close to inevitable that we will have future crises." Citigroup, of course, is well positioned to profit from any such crisis -- it could continue its pattern of distress purchases of banks in countries destabilized by foreign exchange speculation, in which Citigroup is king. Perhaps relatedly, the day after Rubin's speech, Bloomberg reported that "Salomon Smith Barney Inc., the investment banking unit of Citigroup Inc., said it won the mandate to advise the Industrial and Commercial Bank of China (Asia) Ltd. on the restructuring of its Hong Kong business." See? The next day, Citigroup, along with others, issued a vague statement about how it will henceforth fight money laundering. Will the Salinas' and Sani Abacha's of the world henceforth have to leave Citigroup's "big tent"? Unlikely.

     In an announcement potentially of interest to West Coast anti-Citigroup campaigners -- whose numbers are growing -- Citi on October 30 issued a press release bragging that "CitiStreet, the global benefits provider formed earlier this year by combining the retail strength of Citigroup with the institutional prowess of State Street Corp., has won key government accounts with about $2 billion in assets in markets of all sizes, the firm announced today. CitiStreet was selected to provide full administration of the 457 plan for the state of Washington, which involves $1.6 billion in assets and 40,000 state employees; full service of the 401(k) plan for the Kent County Road Commission in Michigan; optional retirement plan services for K-12 teachers in the state of South Carolina; and, in partnership with the California Public Employees' Retirement System (CalPERS), an expanded role in the deferred compensation plan for the city of Anaheim, Calif.." Addresses, as they say, "available upon request."

      Also in California, on October 31, "Citigroup Inc.'s Salomon Smith Barney, saying it couldn't get a fair trial, convinced a local California judge to move a fraud lawsuit brought by San Bernardino County to a neutral site. Salomon, the leading underwriter of municipal bonds, had argued that local publicity about the county's allegations would make it difficult to find unbiased jurors. San Bernardino County Superior Court Judge Keith Davis yesterday ordered that the case be moved to Ventura County, northwest of Los Angeles. San Bernardino is east of Los Angeles. The county's lawsuit, filed in August, claims that former county officials directed securities transactions to Salomon and one of its brokers, Peter Morrison, in exchange for 'kickbacks,' including paid trips to Costa Rica and Greece."

       Maybe Citigroup should pay to have the whole trial moved to Costa Rica or Greece, leading to much gratitude among the prospective jurors... We would not, however, suggest moving the trial to Mexico, where the Reforma newspaper last week reported that "Citigroup Inc.'s Citibank NA/Mexico, the nation's sixth-largest bank, overcharged about 11,000 customers after a computer error...The computer error multiplied Citibank clients' withdrawal amounts by [ten].... The paper also reported Citibank Mexico Chief Executive Officer Julio de Quesada as acknowledging the bank has experienced difficulties integrating its computer systems with those of Confia SA, a Mexican bank it acquired in 1998. Citibank Mexico has separately filed a lawsuit to reverse a decision by Mexico's federal deposit insurance agency to pay a $2.5 billion debt to Citibank earlier than planned. Citibank says that the advance payment of the debt would strip it of about $120 million a year that it was using to help clean up Confia's balance sheet."

      You see, Citigroup was counting on collecting interest from Mexico. Now, just like in predatory mortgage lending, it is seeking a prepayment penalty.

      Speaking of predatory lending, in the run-up toward the New York Banking Department's November 10 public meeting on Citigroup's application to acquire Associates (the sign-up form is here), Citigroup flacks have been telling community groups that "some announcement" will be made, on November 8 or 9. Other sources indicate that this "announcement," reportedly a set of vaguely-defined reforms Citigroup would institute at The Associates, has already been approved by Messrs. Weill and Rubin, and is now only awaiting internal approval from Citigroup's legal department. The same department one of whose lawyers schmoozed the Fed on September 5 (the day before the deal was announced), about Associates National Bank's Needs to Improve CRA rating, while another of whose lawyers, in sworn testimony on October 18, said he didn't know if Citigroup has communicated with the Fed about this. Doesn't lead to a lot of confidence about this possible "announcement"...

      Meanwhile, the Fed on November 6 will consider, at a closed meeting, an application by Citibank, N.A. to expand its business in Santiago, Chile. The Fed's received various comments opposing Citigroup, on which it has refused to act, or even to consider in connection with other Citigroup applications pending before it...

       The other state proceedings continue. ICP turned in its post-hearing brief to the Missouri Department of Insurance on October 30, and awaits decisions on its hearing requests for other Departments. More next week. Of possible interest: ICP's new weekly reporter on Chase Manhattan (and J.P. Morgan), begun in connection with comments ICP has just filed against the companies proposed merger. And the beat goes on...

Update of October 30, 2000:      There's been a development, in the insider-trading investigation into trading, through Citigroup's Salomon Smith Barney, in options of Associates First Capital Corp., just before Citigroup announced its proposal to acquire Associates for $31 billion. As reported in the National Post (of Canada), the U.S. Attorney has charged that Salomon Smith Barney's Michael Petrescu-Comnene passed on pre-announcement news of the deal, leading to the run-up in Associates' options. Meanwhile, Eagle Asset Management is trying to recover $400 million from Salomon Smith Barney, for monkey-business surrounding the flame-out of the Long Term Capital Management hedge fund in 1998.

       Citigroup's proposal to buy The Associates has been in the news, but not enough attention has been paid to the regulatory process. Citigroup has applied not only to Office of the Comptroller of the Currency and the FDIC, but also to a number of state regulators.

      On October 24, the New York Banking Department announced a public meeting on Citigroup's applications, to be held on November 10 at the Union Theological Seminary on Broadway and 121st Street in New York City. The sign-up form is here. Announcement has been made to anti-Citigroup student groups at campuses in NYC...

       ICP, meanwhile, has been focusing on Citigroup's applications to state insurance regulators, to acquire Associates' (also questionable) insurance companies. Many of Associates' predatory lending practices are intertwined with insurance, including single premium credit life insurance. Associates has other insurers, engaged in so-called "surplus-lines" insurance -- essentially, subprime insurance. These companies -- and Citigroup's surplus lines insurers -- write policies for such things as private prisons. Then, when guards abuse inmates, Associates' insurers refuse to pay (below, the example is of Associates' Northfield Insurance Company). Here are excerpts from the October 18, 2000 hearing of the Missouri Insurance Department, with ICP's representative cross-examining Citigroup's and Associates' witnesses:

[ICP's representative] MR. LEE: I'll

10 ask you if you're aware of it. If you are, we can proceed.

11 There's a report that one of Northfield's insureds, the

12 Franklin County, Ohio, that Northfield insured the prison

13 there.

14 This is all -- this is as discussed and

15 reported in the Cincinnati Inquirer of June 19 of this year,

16 and that following the alleged violation of inmates' rights,

17 that Northfield has refused to pay on the policy. Are you

18 aware of that case?

19 [Northfield's] MS. SUTHERLAND: No, I am not.

20 MR. LEE: And I guess to Mr. Michener, are you

21 aware of that case?

22 [Citigroup's] MR. MICHENER: No.

        ICP also asked about the legal effect of Associates National Bank's rare Needs to Improve rating under the Community Reinvestment Act. Here's a portion of the transcript of ICP's representative cross-examining Martin Wong, the general counsel of Citigroup's high-rate lender, CitiFinancial (for more, see ICP's Citi-Associates page):

7 [ICP's MR. LEE:] it your understanding, Mr. Wong, that

8 Associates National Bank currently has a needs to improve

9 Community Reinvestment Act rating?

10 MR. WONG: That's correct. That's my

11 understanding.

12 MR. LEE: And is it -- do you -- what, if any,

13 legal effect on Citigroup's activities if the overall merger

14 is consummated would that rating have?

15 MR. WONG: We do not believe that it will have

16 any effect on Citigroup's activities ongoing after the

17 transaction occurs... <snip>

1 MR. LEE: I just -- no. I appreciate that. I

2 guess what I -- when you were saying no effect, I wanted to

3 ask whether -- given the expertise you were recited on

4 direct testimony, whether it's your understanding that, upon

5 consummation of the proposed overall merger, Citigroup would

6 be precluded from certain activities or acquisitions to

7 which it is today entitled prior to consummation?

8 MR. WONG: Again, we do not believe that the

9 acquisition of Associates First Capital Corporation will

10 have any impact on our ability to do business going forward.

11 MR. LEE: And I'm sorry to press the point.

12 I'm asking you legally, not whether you had planned to make

13 acquisitions under new powers of the Financial Modernization

14 Act, but whether it's your understanding that acquiring a

15 bank with that rating would, until the rating is, as you

16 said, raised, preclude acquisitions that may -- legally

17 preclude Citigroup from acquisitions they could otherwise

18 make? <snip: over-ruled objections omitted>

MR. WONG: Well, I think embedded in your

6 question, I guess, is you're asking for a legal

7 interpretation under the newly enacted Graham, Leach, Bliley

8 law. As you know, Mr. Lee, that is a very new law, and that

9 the Federal Reserve is in the middle of perhaps even writing

10 regulations relating to the enforcement of that law.

11 It would be -- I could not render a legal

12 opinion on that -- on your question because of the newness

13 of this law and the fact that the Federal Government

14 themselves have not rendered interpretations regarding this

15 law.

16 MR. LEE: I guess I note that there's actually

17 already a regulation out on this. I guess -- here's another

18 question. You said that you were -- you were involved in

19 the -- indirectly involved in the negotiation of the

20 transaction. Was this, the issue you've just been

21 describing, was it, to your knowledge, considered during the

22 negotiation or the board's deliberation on the transaction?

23 MR. WONG: The satisfactory -- I'm sorry. The

24 CRA rating of Associates National Bank was certainly brought

25 to our attention during the due diligence process, and we


1 certainly considered the matter as part of the overall due

2 diligence transaction consideration.

3 MR. LEE: And how so -- that's why I go back

4 to the position. It would seem that the consideration of it

5 would ride on this what you're calling legal interpretation,

6 how -- what did the due diligence or the conclusion consist?

7 MR. WELCH: Your Honor, I'll object. This is

8 now, I think, the fourth time. I think he's answered the

9 question as best as he can. I think we're going -- I don't

10 think he can be asked to go any farther than he can, and I

11 think we should move on respectfully.

12 MR. LEE: I want to say that it's a question

13 that we asked under an interrogatory and found the answer

14 extremely nonresponsive. We didn't have time to raise it.

15 We've objected to the hearing taking place today, but I

16 think it's -- it's not a question out of the blue, and I

17 feel that the witness is not -- is not -- here's the

18 difference. Here's a much more practical approach.

19 If, as you say, Citigroup considers it a new

20 area of the law, an unsettled question, what is Citigroup's

21 plan of action to try to get resolution of the issue prior

22 to consummation of the proposed transaction?

23 HEARING OFFICER MARTIN: If the witness has

24 anything further to add on that, you may answer it.

25 MR. WONG: Not much more. Again, I would --


1 perhaps this may sound like a flip response, but it's not

2 intended to be. This is a question perhaps that you can ask

3 of the Federal Government because, again, this is -- if this

4 is an issue, it is an issue that they will need -- that

5 they'll need to help us resolve at the end of the day.

6 Again, we take the position that the

7 acquisition of Associates First Capital Corporation will not

8 impact our ability to conduct business going forward, and

9 that's all I -- <snip>

11 MR. LEE: One follow-up question, Mr. Wong.

12 To your knowledge, has Citigroup sought a ruling by the

13 Federal Reserve Board on this issue?

14 MR. WONG: I do not know. I do not have an

15 answer to the question. I do not know the answer to that

16 question.

      Inner City Press has been trying to get "the answer to that question" -- whether, as Citicorp and Travelers did in 1998, the now-combined entity has sought private advice and assurances from the Federal Reserve Board. ICP has just received from the Fed, in "further response" to its September 19 Freedom of Information request, partially blanked-out copies of two Fed e-mails, both from Thursday, September 7, the day after Citigroup announced its plan to acquire The Associates. The New York Fed's Joyce Hansen writes to Thomas Baxter: "This follows up on the call Bill, Betsy and I had with Carl Howard on Tuesday where he disclosed that [Associates] has three credit card banks, one of which is a Delaware national bank with a less than satisfactory CRA rating." The rest of the e-mail has been withheld from ICP. But note that "Tuesday" was September 5 (the day before the deal was announced), and that Carl Howard is one of Citigroup's regulatory lawyers. So, as in 1998, the Fed has been willing to meet behind closed doors with companies who will later have to submit applications subject to public comment, and give out advice, that the Fed then withholds from the public. The e-mail also calls Mr. Wong's answers, above, into question. In the above-quoted portion of the hearing, Mr. Wong claimed that he (and by implication Citigroup) have not knowledge regarding whether the acquisition of a bank with a Need to Improve CRA rating, as here proposed, would result in a loss of powers -- powers that Citigroup's competitors would not lose. But the law, and regulation, are clear: 12 U.S.C. 1843(l)(2), and 12 CFR 225.84(a).

        ICP has now raised the inconsistencies in Citigroup's witnesses testimony, and other matters, to a number of other venues. In each, Citigroup's local counsel responds with 40-page blasts of bombast, each with an identical section entitled "Inner City's Agenda." What an ethical company! What a consumer and community friendly company! What a... Citigroup!

Update of October 23, 2000:  Citigroup, ever-adept at settling the many charges against it, put two disputes to rest last week (while preparing to mislead the public on a third dispute, its proposed acquisition of the predatory lender, Associates First Capital).  Citigroup received judicial approval for its settlement of claims against its buy-out of the portions of Travelers Insurance it didn't already own; Citigroup received similar approval for its settlement of claims that it charges late fees to its credit card customers, even when their payments arrive on-time. While Citigroup reported its earnings, its female employees called on it to establish standards for fair treatment, currently lacking. Anti-money laundering standards are also apparently missing: it was revealed last week that Citibank in London accepted the money of Nigeria's ex-dictator, Sani Abacha. See Financial Times of October 20, 2000, " How Citibank came to be duped by the two 'charming' sons of Nigerian despot."

       It would be hard to claim that Citigroup's Sandy Weill was "duped," when he agreed to acquire Associates First Capital on September 5, 2000. Sandy loves this high interest-rate lending business, and the financial press says he's quite good at it: ruthless, in fact. The fight against Citigroup's applications to acquire The Associates has continued:   On October 18, the Missouri Department of Insurance (MDI) held its hearing on Citigroup's application to acquire Associates' Missouri-domiciled insurer, Northfield Insurance Company. At the beginning of the hearing, Citigroup's lawyers sought again to exclude Inner City Press from participating. The MDI upheld its previous ruling, that ICP has standing and a right to cross-examine. The hearing lasted over three hours.

      Among other things (for purpose of this Report), Citifinancial's general counsel, Martin Wong, testified that the due diligence for the deal was done over the Labor Day weekend, and that Citigroup knows very little about Northfield Insurance Company. Over Citigroup's objections, Mr. Wong was directed to answer ICP's questions about the litigation against The Associates listed in ICP's filings. Mr. Wong confirmed the FTC investigation into Associates in Detroit, for racial discrimination, and stated that he was unaware of the facts of litigation against Associates concerning single premium credit life insurance. Citigroup's witnesses were unable to describe Citigroup's current activities in the lines of insurance offered by Northfield, and were directed to make a written submission after the hearing. Citigroup's insurance witness, in the claim of the day, said the Citigroup is the "most knowledgeable group about the Gramm-Leach-Bliley Act and its implementation." Strangely, however, Citigroup's Mr. Wong, when questioned about the legal effect of Associates National Bank's Needs to Improve CRA rating, said that the law is unclear, and that ICP should ask the Federal Reserve Board. We have; we asked Mr. Wong is Citigroup had asked the Fed about this. Mr. Wong said he didn't know. Both sides were given ten days to submit post-hearing briefs.

      Since the hearing, ICP has received a copy of Citigroup's submission about its "surplus lines" insurance, which includes, as one of the insurance policies written by "TPC/Gulf Select" in Missouri in 1998, "U.S. Risk Underwriters, Inc.--Private Prisons." Ah, Citigroup... We will be running updates on this site.

       There is, of course, a more amorphous process going on. In early October, Rep. John LaFalce (D-NY) sent a letter to Citigroup's Sandy Weill and Robert Rubin, expressing concern about Citigroup's Associates First Capital proposal. But Rep. LaFalce went out of his way, in the letter, to praise Citigroup, writing that "[w]hile I have always had the utmost respect for Citi as a good corporate citizen, I am concerned that Citi is acquiring a lender that community advocates have for some time placed among the worst predatory lenders in the country." Rep. LaFalce's request to Weill and Rubin was that they meet with him and the head of a credit union in Durham, N.C., to discuss reforms that Citigroup might implement at The Associates after Citigroup's acquired it.

       While it is unclear if Rep. LaFalce has met with Citigroup officials, and while it does not appear that either Weill or Rubin have met with any advocates -- whether community groups or legislators -- in connection with Citigroup's applications, the Citigroup "placation team" traveled to North Carolina on October 19. Reportedly, Citigroup's Chuck Prince offered his "personal" fax number, and invited advocates to fax him copies of the documents behind particularly controversial Associates loans. From all accounts, Citigroup did not detail any meaningful changes of its or The Associates' practices. Nevertheless, the Raleigh, N.C. News and Observer of October 20 quoted one attendee as being "cautiously optimistic." National Mortgage News' Washington News page reports that "a spokeswoman for Rep. LaFalce said the congressman believes Citigroup is being responsive."

      Two questions (at least) are raised by this. The first is an observation that leads to a (rhetorical) question: the corporate media, in its coverage of Citigroup's proposal to acquire The Associates, has by silence implied that regulatory approval of the proposal is automatic, or that there IS no regulatory process in which the proposal can be opposed. Question: and who does this (mis-) representation serve, if not Citigroup? Second, given Citigroup's donations to and domination of not only the Republican Party, but also most Democrats in Congress (see, for example, most Democrats', including Rep. LaFalce's, support for the Gramm-Leach-Bliley / Citigroup Relief Act in 1999), one might question Rep. LaFalce's ambivalent approach toward Citigroup's Associates proposal: praising Citigroup but asking that Citigroup meet with the founder of community development credit union. The meeting is done, no reforms are offered or announced; Rep. LaFalce's spokeswoman nevertheless says that " the Congressman believes Citigroup is being responsive" (NMN Washington News, see above). This question is not meant to malign anyone's (but Citigroup's and perhaps Rep. LaFalce's) motives -- but the question must be asked... Citigroup is simply too good at this type of kabuki theater: choosing its own opponents, and placating them. Similar charades can be seen in the environmental field.

     We've saved the best for last: on October 17, anti-Citigroup actions were taken in dozens of cities, on dozens of campuses. Below is ICP's write-up of the NYC action. More raucous action was reported in San Diego, and, among other places, , Washington, D.C., San Francisco, Seattle, Duluth, Minnesota (protest at an office of Citigroup's high interest rate lender, Citifinancial), Princeton University (blast-fax of comments opposing Citi-Associates), and Cornell University. We welcome updates and reports from our readers, by e-mail or otherwise. Here's the NYC write-up; see you next week:

     In midtown Manhattan at noon on October 17, 2000, in front of Citigroup's headquarters at Lexington Avenue and East 53rd Street, concerned people, from college student to long-time community and social justice activists, joined for a ceremony in which Citibank credit cards were cut in half with scissors, and speakers denounced Citigroup and its leaders, Sandy Weill and Robert Rubin, for the company's lack of social and environmental standards. The plaza in front of the Citigroup building was filled, with a mixture of demonstrators, Citigroup employees, and New York City police officers. A sound permit was quickly negotiated with the officers (the Police Department liaison noted that "it can be revoked at any time"), and the festivities began.

     Speaker after speaker detailed Citigroup's lack of social and environmental standards: from applying to acquire the high interest rate consumer finance lender, Associates First Capital Corporation, to underwriting bond for the Three Gorges Dam in China, which will displace two million people. Citigroup's involvement in the bonds of the World Bank, and in that institution's anti-poor policies, was explained, along with Citigroup's involvement in the trend toward privatized, for-profit prisons.

       For a decade, Citigroup has closed bank branches in low-income communities, and now disproportionately excludes African Americans and Latinos from its (normal interest rate) lending. For example, In 1999, in the New York City Metropolitan Statistical Area (MSA), Citicorp Mortgage made 1236 conventional home purchase loans to whites, and only 56 such loans to African Americans, and only 58 to Latinos. Meanwhile, Citicorp Mortgage denied 14.9% of applications from African Americans, versus a 4.5% denial rate for whites. Citicorp Mortgage denies African Americans 3.31 times more frequently than whites (other lenders in New York deny African Americans 2.0 times more frequently than whites).

      In the Oakland MSA in 1999, Citicorp Mortgage’s denial rate disparity between African Americans and whites for conventional home purchase loans was 4.04. On New York’s Long Island, it was a whopping 6.26. Citigroup is already a disparate lender; its plan to acquire a large and troubled subprime (high interest rate) lender, Associates First Capital, which disproportionately targets people of color for high interest rate loans, had given rise to nationwide opposition from neighborhood groups.

     For example, in the St. Louis MSA in 1999, Citicorp Mortgage made 122 refinance loans to whites, and only four to African Americans, a ratio of 30.5 to one. Associates Financial Services, on the other hand, made 123 refinance loans to whites, and 75 to African Americans -- a ratio of 1.64 to one. The subprime lender that Citigroup seeks to acquire is more than 18 times more likely to target African Americans with its high cost loans than is Citicorp Mortgage, with normal interest rate loans, in St. Louis.

      Midway through the October 17 anti-Citigroup rally in NYC, Citibank credit cards were cut up, and student from colleges whose administrations are unself-critically in the thrall of Citigroup (to the point of including Citigroup's logo on the back of all student identification cards) proceeding to cover Citigroup's logo with black magic marker. The crowd chanted, "Hey Hey, Ho Ho, Citigroup has got to go!" Employees streamed out into the plaza to hear the speakers. Anti-Citigroup actions took place elsewhere, in other cities, states and countries, as well; this is a report on the Manhattan anti-Citigroup (first) Day of Action. Citigroup's hegemony over this part of Manhattan's grid was broken, at least temporarily. And not for the last time -- as the rally concluded, the participants chanted, "We'll be back"...   [And they -- we! -- will be back...].

Update of October 16, 2000: Quite a week on the Citigroup Watch. While communities throughout the United States and beyond prepare for an October 17 Day of Action(s) against Citigroup, Citi plowed forward, gaining regulatory approval to acquire a bank in Poland, announcing it will underwrite bonds back by Peru's Brady bonds, and bonds connected with El Salvador's coffee harvest. Meanwhile, Salomon Smith Barney Michael A. Petrescu-Comnene was arrested and charged with insider trading. Citigroup announced it has hired yet another U.S. Treasury Department official, David Medina, as "Global Compliance Officer." Mr. Medina has his work cut out for him.

      ...While this is reviewed in greater detail on ICP's Citi-Associates page, Citigroup revealed its anti-participatory, anti-democratic essence last week, in opposing public participation in connection with its various applications for regulatory approval to acquire Associates. Some examples:

       Citigroup needs the approval of the South Dakota Division of Bank, to acquire Associates (subprime) credit card bank, Hurley State Bank. ICP commented to the SDDB on September 25; on October 2, ICP was granted "full party" status in the proceeding by the SDDB. Nevertheless, Citigroup's lawyers faxed a letter to the SDDB on October 9, at 11 p.m., opposing ICP's participation. Citigroup's letter argued that "subject to the discretion of the Commission or Director, Inner City may be allowed to comment on the proposed acquisition not as an interested party to the hearing, but as a member of the general public. However, Inner City's request to be a party to this proceeding in any other capacity should be denied." Emphasis added.

      ICP responded that "it seems that Citigroup misperceives its status, as a publicly-traded, for-profit corporation seeking a non-automatic regulatory approval. That status, or role, does not include deciding who may or may not be 'allowed' to comment and participate, a role reserved, here, for the Director on behalf of the Commission. As noted, ICP has already been granted party status."

       Citigroup repeated the same arguments at the beginning of the October 10 hearing. Citigroup's arguments were rejected, and the hearing began, with ICP having full party status and the right to cross examine. While ICP is still awaiting the transcript (Citigroup has already ordered it), this week's Citi - Associates page has a blow-by-blow of the hearing.   Next week's ICP Citigroup Watch report will include news of the various October 17 actions -- reports, in e-mail form, from readers who have attended and participated are particularly welcome. 

Update of October 9, 2000:  Citigroup's focus right now, in the United States, is on cramming through its much-opposed applications to acquire the high interest rate consumer finance company, Associates First Capital. Both the Office of the Comptroller of the Currency and the FDIC announced, on October 5, that they are extending the comment periods until October 18. For more, including a sample comment, see ICP's Citi-Associates page. See also, in the past week, Citigroup Purchase Is Facing Challenge, by Jim Fuquay, Fort Worth Star-Telegram, October 7, 2000;  Agencies Extend Citi-Associates Public Comment Period, by Jonathan Nicholson, Dow Jones Newswires, October 5, 2000;  Consumer Group Targets Citigroup Deal, Milwaukee Journal Sentinel, October 5, 2000, Pg. 3D;   Consumer Groups Fight A Citigroup Acquisition, by Joseph DiStefano, Philadelphia Inquirer, October 1, 2000.

       But Citigroup is almost always playing more than one regulatory game. Last week was no exception. The Federal Reserve Board on October 5 announced that it was extending Citigroup's time to comply with federal banking law for another year. This special treatment of Citigroup began in 1998, when the Fed approved the merger of Citicorp and Travelers, despite the Glass-Steagall Act's prohibition on mixing banking and insurance underwriting. At that time, the Fed gave Citi two years to "conform its operations to the law" -- or, as it turned out, to change the law. Citigroup lobbied hard for the 1999 repeal of Glass-Steagall, the so-called Gramm-Leach-Bliley Act. But even with this deregulation, Citi still owns operations outside of the law. So, without any public notice, Citi approached the Fed, and obtained an October 5 letter, allowing it another year to sell off its Phibro operations (which trade in oil, natural gas and other commodities) -- or, again, to change the law. As an aside, the Fed was and is well aware of public concern about Citigroup's continuing exclusion from (and/or evasion of) the law. The Fed's failure to give any public notice of Citi's request, until it was granted, is hardly consistent with principles of open government. It is, however, consistent with the Fed's granting of special status to Citigroup...

       The largest utility in the Philippines, National Power Corp., has selected Citigroup to lead a $430 million syndicated loan for it, rather than issuing bonds. Citigroup Vice Chairman Robert Rubin, who cashed out from his previous position as Secretary of the Treasury, is headed to India, to drum up even more business for Citigroup -- in all likelihood, environmentally destructive as well. From a mystical land, to outright mystification: last week the managing director of Citigroup new "eConsumer" unit was quoted about "a moment of Zen that is not really about making a profit, but about what we can do for the customer." American Banker, October 5, 2000. Left unexplained is how Citigroup's hunger for the hard-driving predatory lending of Associates First Capital has anything to do with Zen, Buddhism, or plain social responsibility.

      Activism against Citigroup is picking up on college campuses around the country; samples will be reported in this space in coming weeks, particularly before and after October 17. For or with more information, contact us

Update of October 2, 2000:   Opposition to Citigroup's proposed acquisition of the high interest rate consumer finance lender Associates First Capital Corp. has continued to grow, with new issues arising (including Citigroup's failure to disclose Associates National Bank's Needs to Improve rating under the Community Reinvestment Act in its SEC Form S-4). Click here for ongoing coverage of the Citigroup - Associates proceedings, and ICP's comments in opposition.    See also "Bank Laws Close Public Comment Door; Consumer Group Still Finds Ways to File Objections to Citigroup-Associates deal," Dallas Morning News, September 26, 2000, Pg. 3D. "Reject Citi-Associates Deal, Group Urges," by Eileen Canning, American Banker, September 26, 2000, Pg. 19; "Consumer group opposes Citigroup-Associates deal," Reuters, September 25, 2000; and "Options to Protest Citigroup-Associates Merger Cut by New Law," by Rob Wells, Bloomberg, September 25, 2000

         During actions on September 26, coinciding with the World Bank / International Monetary Fund meetings in Prague, in San Francisco, and across the Bay in Oakland, Citigroup was accused of greed (which was once again confirmed last in the week, when Citigroup traded on inside knowledge of governments' Central Banks' plans to support the euro, as reported on Reuters newswire).   Students at a number of college campuses, including NYU, "blast-faxed" Citigroup, with a short statement of opposition to the bank's activities. Citigroup was also targeted in Brazil.

         In Prague, Tomas Strnad, director of Citicorp Investment Co. mused for Bloomberg: "I do not think that the people that organized these protests in this way -- I mean all the violence -- have reached any better or more positive results for their ideas then they would have managed through calm means. I don't think it helped these people to win more enthusiasts for their ideas... In, say, twelve months from now, the agreements that we made during the meetings will have a direct, visible effect, our clients will have access to new products. The consequences are that it will bring benefits not only to our clients..."

        Citigroup's provision of "new products" to its clients apparently included inside information about government's Central Banks' plan to intervene in currency markets. As widely reported in the European press, Citibank began voluminous trading in the euro just before an intervention by the Central Banks. A Germany newspaper speculated that Robert Rubin, ex-Treasury Secretary, now in Citigroup's office of the chairman, was the link.

        San Bernadino County in California has alleged that Citigroup's Solomon Smith Barney bribed local officials to win $7.5 billion in bond and other business. Just another "product" that Citigroup provides to its clients...

      At week's end, the U.S. Equal Employment Opportunity Commission filed suits against Solomon Smith Barney, for discriminating against "Haitian, Nigerian, or West Indian employees" (this is how the EEOC put it). Just another "product" that Citigroup provides...

Update of September 25, 2000: As alluded to last week, the fight against Citigroup's proposal to buy the high interest rate lender The Associates has begun: click here to view ICP's comments, submitted September 25 to two federal and numerous state regulators.

       As in every week since we began this Report, Citigroup's global involvements increased like week. At the beginning of the week, it was dropped as investment advisor by the Sultan of Brunei -- but no worry! Midweek it announced a plan to open branches in Israel, and to manage loans to Romania. Citi's Salomon Smith Barney unit issued its Latin American stock picks (heavy on the "resource extraction" sectors, always a good financial (but not environmental or social) bet. Citigroup's squabbling about money with the Mexican government, in connection with its purchase of a bank there. Citi's ready: Robert Rubin, in Citi's "office of the chairman," arranged the 1995 bail out of Mexico -- or was that a bail out of Goldman Sachs and Citi? Hard to keep up with it, sometimes. But we'll continue to try. Click here for more.

Update of September 19, 2000:      [At deadline, we received "legal notice" of Citigroup's application to the Office of the Comptroller of the Currency (OCC) to acquire the high interest rate lender The Associates.  The notice is reproduced in fall at the bottom of this update.  The process begins...]   While most of the financial press' focus last week was on the Chase Manhattan - J.P. Morgan deal, Citigroup kept on keepin' on, buying a European investment bank named the Geneva Group, reportedly acquiring just below 9.9 percent of the Royal Bank of Canada, and hiring away the Securities and Exchange Commission's chief of staff, Jennifer Scardino. This last item's actually more interesting than it looks: Ms. Scardino was, prior to joining the SEC in 1993, assistant press secretary for then-NYC Mayor David Dinkins. Citigroup's current chief flack, Leah Johnson, also worked for Dinkins, as his spokeswoman in his 1993 campaign. After a stint with NYC Comptroller Alan Hevesi, Ms. Johnson hopped to Citigroup, where, most recently, she told a Dallas reporter that no decision has been made yet, about The Associates' leases there. And there's yet another Dinkins - Citigroup cipher: Michael Schlein, chief of staff to one of Dinkins' deputy mayors, who then went to Smith Barney, pre-Travelers/Citicorp merger. So Robert Rubin is by no means the only one through the revolving door between politics and Citigroup -- only the most prominent...

   It's worth noting, even as comments to the OCC are being prepared, that prior to last year's passage (and signature by President Clinton) of the Gramm-Leach-Bliley Act of 1999, Citigroup would have had to apply to the Federal Reserve Board to acquire Associates, under Section 4 of the Bank Holding Company Act.    This (largely Citigroup-sponsored) deregulatory law not only "legitimized" their lawless 1998 merger -- it now comes back to benefit Citigroup on this Associates deal, by eliminating a requirement to apply to the Federal Reserve, and limiting review of Citigroup's application to the OCC to a legal standard narrower than that of the Bank Holding Company Act.  But, comments (and more) are being prepared

Update of September 11, 2000:  Citigroup last week announced a deal to buy The Associates, one of the most scandal-plagued subprime (high interest rate) lenders.   Citigroup made the announcement on September 6, and most of the financial press slapped together articles praising the deal-making acumen of Citigroup CEO Sandy Weill. Much of the coverage echoed a puff-piece on Weill that appeared in the New York Times Magazine of August 27, which profiled Sandy relaxing in his country home, reflecting on his relentless drive to the top, cutting out one rival after another (John Reed, Jaime Dimon, even, most recently, his own son, Marc Weill, fired earlier this year). The Times piece concluded with Sandy demanding credit for his philanthropy: he rebuilt Carnegie Hall, and has slapped his name on hospital wings (where doctors, not surprisingly, applaud him).

     On a journalists' conference call about the deal, Weill was asked about the issue that might arise on this combination of subprime lenders. Weill was dismissive, saying that "[o]ur company has a very good long-term record of being a good corporate citizen by being supportive of all of our various regulatory constituencies and what they're trying to accomplish. I'm hopeful that they would think we're the kind of company that they want to continue to work with in a constructive way in the future."

      Let's unpack and parse this. Travelers, prior to its merger with Citicorp in 1998, was built on a high-interest rate lender headquartered in Baltimore, Commercial Credit. The company was no paragon of corporate citizenship: HUD investigated it in 1997 for systemic Fair Housing Act violations, and the company acknowledged to the New York State Banking Department that it had been violating the Home Mortgage Disclosure Act. Perhaps Mr. Weill was referring to, and appropriating, the record of Citicorp. But Citicorp was hauled before Congress in the late 1990s for aiding in money laundering by the family of then-Mexican president Salinas, among other irregularities.

    Weill's next phrase, "supportive of our various regulatory constituencies and what they're trying to accomplish" compresses current real politik corporate-speak. Regulators are changed with enforcing the laws, not "accomplishing" policy objectives. If Weill is referring to government agencies, he's implying that "it's all politics." For example, the Federal Reserve wanted the Glass-Steagall Act to be repealed, so Weill's merger with Citicorp was supporting of what the Fed was "trying to accomplish." Clinton and the New Democrats want to be seen as pro-business; natch.

     If, on the other hand, Weill's referring more generally to "constituencies" -- that is, non-governmental groups who are viewed as promoting (or "trying to accomplish") various causes, the last part of his response is particularly interesting: these possible opponent of the deal should think twice, if they "want to continue to work with [Citigroup] in a constructive way in the future." The implication is clear; its effect on groups which might legitimately be expected to oppose the deal remains to be seen.  Opposition has already begun. See, e.g., " Citigroup to Acquire Associates First," by Kathleen Day, Washington Post, September 7, 2000, Pg. E1.

     In last week's slew of campaign finance reporting, Citigroup showed up as a top-20 funder of both parties: ranking 11th among donors to the Democratic Party with $708,125 and 14th to the Republican Party with $574,225.  Now we understand Weill's claim that Citigroup is "supportive of our various… constituencies and what they're trying to accomplish"…

     The campaign against Citigroup continues to pick up steam, on both coasts of the United States, and beyond.   In New York City, a brain-storming session was held that week, standing-room only.  It appears that some of the "Localize globalization" actions on September 26 will include Citigroup accountability components.  And, not unrelated, as press time for this update, the World Economic Forum meeting in Melbourne, Australia is the site of well designed protests. Bloomberg's coverage quotes Hugh Morgan, managing director of WMC Ltd., the world's third-largest nickel mine, saying that "what we've got is misconceptions about what this is all about... It's about people trying to exchange ideas and help the world be a better place."  What - a better place for nickel mining? This attempted corporate spin is similar to Citi's, which is sure to be repeated in defense of its proposed acquisition of The Associates:  "But we'll clean it up" (and make the world a better place).  There's little basis for believing this.  Also in Melbourne, ex-World Bank economist Joseph Stiglitz is, as usual, less lost in space:  "There are different ways of articulating dissatisfaction with the system and bringing about change.  The political process isn't doing a good job about hearing concerns."  The same could be said of Citigroup's various regulators:   they're not doing a good job of hearing, or acting on, the mounting concerns.   Click here for the Melbourne IndyMedia Center's on-going coverage.  And, on an ongoing basis,  readers of this page may wish to bookmark a new section ICP is beginning this week, covering "The Movement(s)" (against corporate globalization). This page will be Citigroup-related news, while that page will be... well, "muse").

Update of September 6, 2000:   Earlier today, Citigroup announced it will apply to buy The Associates, for $31.7 billion. This confirms the centrality of high-interest rate consumer finance to Sandy Weill's Citigroup -- the combination would double Citigroup's involvement in questionable high interest rate (subprime) lending. Citi's subprime lending is reviewed below. ICP and others have been concerned about The Associates' practices for some time, as well. ICP opposed The Associates' application to the Office of Thrift Supervision (OTS) to form a savings bank. The Associates subsequently withdrew that application; sources told ICP the withdrawal was related to then-rumored Department of Justice and FTC fair lending investigations of The Associates. It is ICP's understanding that that investigation is continuing. In any event, Citigroup's and The Associates 1999 lending records show sharp disparities. [snip - contact ICP for more recent data]

       It appears to ICP that while Citigroup may not be required to apply to the Federal Reserve Board for approval, given the streamlining enacted by the (Citigroup-sponsored) Gramm-Leach-Bliley Act of 1999, it WILL have to apply to the Office of the Comptroller of the Currency (OCC), to acquire The Associates' national bank.

Update of September 4, 2000: What does a week like for global Citigroup? Take these examples: Citi's Salomon Smith Barney unit wanted to be selected as underwriter of $10 billion in shares that Taiwan's largest telephone company is preparing to sell. Solly would get paid $77 million for this work. The company considered sending Robert Rubin, the ex-U.S. Treasury Secretary it hired in late 1999, but decided against it. The head of Citigroup's. global telecommunications group, John Otto Jr., told Bloomberg: "I could have bought Robert Rubin. But that would have nothing to do with telecommunications." But it's sure nice to be able to trot, fresh out of the revolving door between government and Wall Street, one of the titans of corporate globalization…

    In Brazil, Citigroup is bidding on government-owned Banespa. In Argentina, Citi's joint venture in a telephone company, CEI Citicorp Holdings, is selling shares to Cayman Islands-based ACH Acquisition Co.. No, you're not supposed to understand…

      In Chicago, the City Council on August 30 passed an Anti-Predatory Lending Ordinance which will prohibit companies which have affiliates engaged in predatory lending from doing business with the city, including bond underwriting business. Two bank holding companies which stand to be affected, Citigroup and Bank of America, lobbied strenuously against the ordinance, and managed to get many of its definitions and other provisions changed…

      And in New York City, the Schools Chancellor (whose came to the job directly from Citigroup, as a sort of example of Citi's ethos of "public service") last week proposed assigning each of NYC's 1,100 schools… to a corporation. Former (and future?) Citigroupie Harold Levy told reporters at a New York Press Club breakfast forum that "there is no reason why we can't find 1,100 corporations to match up with those schools.. We need to be more grounded in the community." Which community is that -- the corporate community? At the same press conference, Levy called for "evicting" community groups from spaces in school buildings, calling them "squatters." Mr. Levy said he'd gotten the idea (of the evictions) during a visit to a school in Upper Manhattan. When questioned, he said he couldn't remember which school, or which district. Giving rise to this week's Inner City Press poem (click here to view).

Update of August 28, 2000: Citigroup’s Salomon Smith Barney unit was paid to advise on the sale last week of TransCanada’s North Sea oil fields to Gaz de France. In the Philippines, Citigroup is bidding to become the underwriter for $430 million in bonds to be issued by that country’s National Power Corp., primarily for the construction of a $450 million transmission project traversing the southern islands of Mindanao and Leyte. Meanwhile, business newspapers in Manila on August 22 reported that Citigroup is one of six banks being investigated for violating foreign exchange rules in the Philippines. Another of the six banks is Deutsche Bank, a signatory to U.N. Secretary-General Kofi Annan’s (strictly voluntary) “Global Compact.” Click here for related ICP poem...

August 21, 2000:  Citigroup last week announced that it is buying AST StockPlan; its Salomon Smith Barney unit said it’s exploring a brokerage joint venture in China. In related news, Citi wined and dined lawmakers at both nominating conventions. Since January 1, 1999, Citi has given $574,000 to the Republican Congressional and Presidential candidates, and $705,000 to Democrats. Lionel Johnson, Citigroup's vice president and director of international government relations says that the “New Democrats” understand what’s needed, globally: “They have demonstrated that there is a strong element of the Democratic party that is pro-growth and committed to a new centrist direction for the party,'' Johnson said. Rep. Cal Dooley, D-Ca., one of three co- chairs of the so-called New Democrat Coalition, proudly told Bloomberg that he and other House New Democrats have met twice with Sandy Weill, Citigroup's chairman and CEO, at the company's headquarters.

     Citigroup has been aiding several House Democrats who supported normal trading relations with China this year. Citigroup’s Johnson said that the company in May held a fundraiser in its Washington lobbying office to help one such lawmaker, Rep. Baron Hill, D-Indiana. And so it goes...

   At deadline for this report, the Financial Times reports that Citigroup unit Salomon Smith Barney will advise Nigeria Liquefied Natural Gas on funding of as much as $3 billion to develop Nigerian natural gas further...

    We’d promised a brief report on the anti-Citigroup actions in Los Angeles during the Democratic convention. Here is it:

    On August 17, Citigroup was presented with an award as “The World’s Most Destructive Bank.” The award was covered in USA Today, the Chicago Tribune, the Cleveland Plain Dealer and other papers. No coverage on PBS, where a non-ad advertisement for Salomon Smith Barney ran, with the slogan, "See How We Earn It." See, indeed.  And (or?) see this week's ICP poem, "L.A. Aug. 17: Drowned by the Hype."

August 14, 2000:  Last week's Citi news began with the Wall Street Journal's report that Sandy Weill may be looking "outside the company" for his successor.  Among those named as possibilities is the CEO of Wells Fargo -- another U.S. bank heavily involved in questionable subprime (high interest rate) mortgage lending.   Wells' CEO is, like Weill, a pro-corporate globalizer: he was pontificating to France's Le Monde newspaper, as community groups in seven U.S. states protested his bank's application to acquire Utah's First Security.  Hey -- sounds like a good fit...  In perhaps related news, Citi last week teamed up with Wells, Enron and two others to form a "B2B" venture, with the unwieldly URL of <>.  Enron recently bought the electricity delivery system in the Dominican Republic, and has been cutting off the lights there, as a bill-collection strategy.  Citi, Wells and Enron: what a combination!  The August 17 Citigroup accountability action in L.A. is still on -- a report will be forthcoming.  Citigroup has re-armed for this spin-battle, last week naming the Fallon Worldwide P.R. firm as its (advertising) "agency of record for Citibank's U.S. consumer business, including retail banking and credit cards."  The first salvo is the self-description:  "the premier financial services company, which provides some 100 million consumers, corporations, governments and institutions in 100 countries with a broad range of financial products and services, including consumer banking and credit, corporate and investment banking, insurance, securities brokerage and asset management."  On August 2 in Philadelphia, Citigroup was named "The World's Most Destructive Bank."  Cognitive dissonance, anyone?  Developing... 

August 7, 2000:  Citigroup last week settled a class action lawsuit for $45 million last week, that it had been charging late fees to its credit card customers even when their payments arrived on time.  The settlement still has to be approved by the federal judge hearing the case, in Los Angeles.  L.A. will also be the venue of the second action of the emerging Citigroup Accountability Network, on the morning of August 17.  The first was August 2, in front the building housing Salomon Smith Barney's Philadelphia office.  (Report in verse on Philly as round three of four;  a Philly / Citigroup surreal poem).  Citigroup was presented an award, as “The World’s Most Destructive Bank.” While surrounded by riot equipped police, speakers detailed Citigroup’s involvement in environmentally and socially destructive projects around the world: rainforests in Ecuador, a dam that would displace over one million people in China, the funding of private prisons in the United States, and, last but not least, redlining and predatory lending. Citigroup refused to accept the award, in Philadelphia at least.  Perhaps Los Angeles?

July 31, 2000:  Preliminary analysis of Citigroup's 1999 lending record

      In 1999, in the New York City Metropolitan Statistical Area (MSA), Citicorp Mortgage made 1236 conventional home purchase loans to whites, and only 56 such loans to African Americans, and only 58 to Latinos. Meanwhile, Citicorp Mortgage denied 14.9% of applications from African Americans, versus a 4.5% denial rate for whites. Citicorp Mortgage denies African Americans 3.31 times more frequently than whites (other lenders in New York deny African Americans 2.0 times more frequently than whites).   [snip - contact ICP for more recent data]

    Groups concerned about Citigroup's ongoing redlining and questionable subprime lending in their communities will have to find ways beyond the Community Reinvestment Act to raise these issues.  After the passage of the financial deregulation law in November 1999 (the "Gramm-Leach-Bliley Act," which Citigroup lobbied for up until the last minute), Citigroup is able to do most of its acquisitions without applying for any regulatory approvals.   In early 2000, Citi bought an investment bank, Schroders, without any application subject to public comment.  On July 25, 2000, the U.S. Office of the Comptroller of the Currency informed ICP that Citibank, N.A. has submitted only three applications thus far in 2000, the largest being to acquire the retail deposits of a New York branch of the Bank of Tokyo-Mitsubishi Trust.  Citigroup, after the financial deregulation law, is flying below any regulatory radar, is evading any scrutiny that might be brought to bear through the regulatory or public comment process...

Installment #1:  Citigroup in Inner City USA

Redlining and Predatory Lending

    Citigroup plays an opportunistic game with low- and moderate-income neighborhoods and communities of color in the United States. Citibank, which makes loans at normal interest rates, disproportionately excludes and denies people of color. Citigroup’s so-called “subprime” lenders, on the other hand, target these same communities with high interest rate, high fee loans.

    In 1998, in its headquarters city, New York Citibank N.A. denied 17.4% of conventional home purchase mortgage applications from African Americans, while denying only 5.4% of such applications from whites. Citibank N.A.’s denial rate disparity between African Americans and whites -- 3.2 times higher -- was higher than other lenders in the market (aggregate denial rate disparity of 2.15). [snip - contact ICP for more recent data]

     Citibank has been closing its branches in low income neighborhoods for years. In Bronx County of NYC, for example, where Inner City Press is based, Citibank in recent years has closed or downgraded five of its 18 branches; Citibank now has only one branch in the South Bronx, where 500,000 people live.  See, e.g., Bank Won’t Give On Closing, N.Y. Daily News, January 24, 1996. Citibank is also weak in small business lending: in 1996 in NYC, Citibank, N.A. made $231 million in small business loans in Manhattan and only $28 million of small business loans in the Bronx, of which only $11.7 million (41%) were in low and moderate income census tracts, while 54% of the census tracts in the Bronx are low and moderate income.

   While Citibank excludes low income communities of color with its bank branches and normal interest rate lending, it targets these same communities with high interest rate, predatory loans. Travelers brought a predatory lender, Commercial Credit (since renamed Citifinancial), into its 1998 merger with Citicorp. Here is a comparison of Citicorp Mortgage (a normal interest rate lender) and Commercial Credit (a high interest rate lender), in two sample markets, with the data available at the time of the merger [snip - contact ICP for more recent data]

     Inner City Press/Community on the Move and others continue to press the bank regulators to carry out this same type of analysis for all of Commercial Credit’s (recently renamed “Citifinancial”) and Primerica’s high interest rate lending, which is clearly targeted at minorities, comparing it in the same markets with Citicorp’s and its banks’ normal interest rate lending, which disproportionately excludes and denies minorities.

     In May 1998, to encourage the regulators to approve the Travelers - Citicorp merger, the companies announced a purported Community Reinvestment Act (CRA) pledge of $115 billion over 10 years. The pledge was and is extremely ill-defined, and includes both consumer lending and seemingly predatory home equity lending that few to no other banks have included in their CRA pledges. Higher than normal interest rate home equity and other loans and products sold by Citifinancial, Primerica, and two new Citigroup acquisitions, Source One and IMC Mortgage, appear to be included in the pledge; Citigroup is also explicitly including credit card lending, which other banks have not included.  Citigroup, the largest bank holding company in the United States, plays an opportunistic game with low- and moderate-income neighborhoods and communities of color in this country.

     In 2000, a new (and global) drive for accountability by Citigroup is gathering momentum.  It promises to be exciting, and will be covered on this page in the coming weeks and months. As they say, “developing... stay tuned.”

     Until our next update on this page, for or with more information, you can contact us.  

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