Inner City Press' Federal Reserve Reporter Archive 2003-4
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Click here to view ICP's current Federal Reserve Reporter.
December 27, 2004
From the Federal Reserves court
filings last week in ICP v. FRB, Civ. No. 04 CV
8337 (DLC), in the U.S. District Court for the Southern District of New York:
In a number of past applications, where public commenters have raised the issue, the Board has taken into accounting information on the acquiring and target institutions relationships with commercial customers who are engaged in subprime lending in assessing financial and managerial resources. In these applications, such information was necessary to the Boards assessment of financial and managerial factors because lending to commercial customers who engage in subprime lending can present legal, credit and reputational risks to the lending institutions. --Affidavit of Federal Reserve Board Counsel Andrew Baer.
Theres also an affidavit from Wachovias Michael Rizer, stating that the still-withheld Confidential Exhibit 3 to Wachovias SouthTrust application names nine subprime lenders which whom Wachovia does business, either as the provider of credit or funding facilities or other financial relationships. Both Wachovia and Rizer said the names should not be released; the Fed claims that it -- but not the public -- having the names allows it to assess the adequacy of safeguards and standards. But as previously raised, what inquiry does the Fed make into the compliance records of various subprime lenders? Very little. Which is another reason they should release the names -- if, that is, the Fed wanted to know the truth. Its troubling that they dont...
Similar lists are being withheld by BBVA (ICPs new BBVA and TD filings are summarized in this weeks Bank Beat Report), and by Webster Bank, represented by ex-FRB counsel Andy Weiderhorn. In a December 22 filing in the Eastern Wisconsin proceeding ICP has commented on, Mr. Wiederhorn tells his ex-colleagues Shawn McNulty and Anne Zorc that Webster funds seven subprime mortgage lenders, and five non-mortgage fringe financiers. The names are submitted to the Fed, but withheld from ICP. It is also unclear how Webster has responded on the issue of the CRA implications of seeking to collect deposits nationwide. Developing...
December 20, 2004
On December 14, Federal Reserve ruled on Fifth Third - FNBF, which ICP challenged in late October. There are a few portions of the Federal Reserves order (online at in PDF here) that bear notice. Footnote 23 says that
One commenter [thatd be ICP] criticized Fifth Thirds relationships with unaffiliated payday lenders, car-title lending companies, and other nontraditional providers of financial services. As a general matter, these businesses are licensed by the states where they operate and are subject to applicable state law. Fifth Third also responded that it has entered into lending relationships with several check-cashing organizations, pawn shops, and rent-to-own companies, but that it plays no role in the lending practices, credit review, or other business practices of those borrowers. Fifth Third represented that in all such cases, it requires borrowers to represent and warrant to Fifth Third that they comply with applicable laws.
This (for now) is much weaker than the standard the Fed uses in looking at banks business dealings with subprime mortgage lenders: there, the Fed appears to be looking for the bank to have done some due diligence, and not simply relying on the subprime lenders warranty it complies with law. And it is even more ludicrous for the Fed to rely on local regulators about fringe finance than subprime mortgage lending. ICPs campaign on predatory fringe finance continues. And for openness at the Fed -- the Board has a filing supposedly slated for this coming week, in ICPs FOIA case about the withholding of mostly-public lists of fringe financiers, by the Fed, Wachovia, and similar others including Fifth Third... And for the Fed to take appropriate action on, for example, Citigroup, whose fast-and-loose practices, well beyond CitiFinancials insurance-sales and other predatory high jinks, are coming home to roost: an account at Citigroups recently-sold subsidiary in Saudi Arabia will be charged with being used to collect and pass funds to organizations which then used the money to help suicide bombers and their families. Its the Account 98 scandal. According to Londons Sunday Times, Leah Johnson of Citigroup, its parent company, said: Any assertion that Citigroup supports terrorism in any way is an outrage. But having so demonstrably loose a know-your-customer regime, for example in Japan (note to the Fed: the Japanese regulators order against Citigroup is available via this link), is the real outrage...
December 13, 2004
The Federal Reserve, on pending mergers, sometimes asks good questions, and sometimes no questions at all. Citigroup, for now, is getting a free ride: few to no questions on its pending Texas deal (at least to ICPs knowledge, and we should know, under the Feds rules against ex parte communications); no action on Citigroups Japan fiasco, and most recent breakdown in Know-Your-Customers. Then again, the Fed has recently asked Synovus some questions, following ICPs comments on Synovus being intertwined with the subprime lender CompuCredit, which now owns the payday lender previously known as First American Cash Advance. Synovus is trying to withhold most of its answers; it refers among other things to a participation of more than ten million dollars... to a borrower that specializes in short term loans and cash advances to moderate income individuals. Hmm... While ICP may file yet another FOIA request-slash-appeal, it shouldnt have to: its up to the Fed, under its rules, to reject meritless requests for confidential treatment like this. Well see...
December 6, 2004
The Federal Reserve administers the publics access to Home Mortgage Disclosure Act data, including on the FFIEC web site. Sometimes, it mis-administers or block this access. On Friday, December 3, attempts to access the data resulted in a message that "The server is currently too busy to service your request. Please try again later." The result, and the message, remained the same the following day. So the question arises: does the comment period on merger applications to the Federal Reserve expire, despite the lack of access to public data which is required in a comment? Well see. And then we'll have more to say. For now, in further revolving door news, we note that former Federal Reserve Legal Division staffer Andrew Wiederhorn is now at the law firm of Hogan & Hartson -- and representing Webster Financial, in response to comments ICP filed last week. We're not characterizing this, just reporing it.
November 29, 2004
Now what will the Fed do? Last weeks Bloomberg News article about the funding of payday loans and lenders (JPMorgan, Banks Back Lenders Luring Poor With 780 Percent Rates, Nov. 23), quotes JPM Chase spokeswoman Calmetta Coleman that the bank will continue extending credit to payday lenders. We have heard the concerns of consumer groups,' Coleman says. The article identified Morgan Chase as providing credit to ACE Cash Express Inc. of Irving, Texas; Mr. Payday of Kentucky Inc.; and Illinois Payday Loans Inc., among others, according to Uniform Commercial Code records, which show lending relationships -- the UCC filings ICP unearthed and raised in early 2004, including at the Federal Reserves Morgan Chase-Bank One hearings. The bank says it has heard the concerns of consumer groups, but will continue extending credit to payday lenders. The Fed has heard the concerns, and now seen a (pro) business publication skewer the scam of bank enabling of payday lenders. What will the Fed do? Well see, in the Wachovia FOIA case (see below), and pending applications including Fifth Thirds, TD-Banknorths, and now Webster Bank as well (see this weeks CRA Report)...
Regarding Wachovia, the Bloomberg article reported that in July 2004, Wachovia... co-arranged a $265 million syndicated credit line for Advance America, according to SEC documents. Two months later, Advance America announced an IPO to raise $183 million. Presumably, beyond the Wachovia/SouthTrust payday connections that ICP has shown from UCC filings, this connection too is in the Confidential exhibits that the Fed and Wachovia are still fighting to withhold, now in the face of FOIA litigation. Meanwhile, the layoffs have begun, starting in Alabama. Wachovia plans to cut 829 jobs in Birmingham -- fully 20 percent of the 4,000 people SouthTrust employs in Birmingham.... Under the WARN Act, notice was given here -- but Wachovia was misspelled, in the most recent item on the list, as Wahovia...
Something else the Fed might want
to look at and act on: Canadian Imperial Bank
of Commerce claimed on Nov. 27 that it is reviewing its privacy procedures after
confidential information about hundreds of clients was mistakenly sent to a junkyard in
West Virginia for three years. Wade Peer, the scrap yards operator, told Toronto's
Globe and Mail that he has been deluged by internal CIBC fund transfer request forms to
his business fax line since 2001. The forms contained information such as social insurance
numbers and bank account data. Earlier this year, CIBC reported a computer glitch that
caused transactions to be recorded twice on about 60,000 accounts at the bank. That
followed a major technical snafu that delayed millions of transactions at Royal Bank of
Canada earlier this year. Hello? Federal
November 22, 2004
What a strange agency. The Federal Reserve Bank of New York, responding on November 18 to detailed anti-money laundering submission made to the Federal Reserve Board on September 29, states only that your letter will be held for a period of 90 days... as a comment on any application filed by HSBC Bank or any of its affiliates that requires consideration of the matters raised in your letter under the relevant statutory factors.
This is akin to a police department saying, thank you for the information, well keep it on file for three months in case the subject happens to apply for a gun permit... Relatedly, the news of BNPs involving in the Oil-for-food scandal keeps getting worse: and yet the Fed did nothing about it, allowing BNP to keep buying banks in the U.S....
Meanwhile, November 24 is the due-date for the Federal Reserves answer to the Freedom of Information Act complaint Inner City Press filed contesting the Feds withholding of basic information about Wachovias and SouthTrusts support of payday lenders and pawnshops...
The Toronto Star of November 21 quotes TD CEO Ed Clark that "We do not have the management team at the Toronto Dominion Bank in Canada to run a bank in the United States. We were attracted to Banknorth because it had that management." But what does Clarks statement say about the managerial factors that the Federal Reserve must review, in connection with the proposal?
November 15, 2004
From the Feds Nov. 9 Barclays order:
Using press reports, a commenter expressed concern that (1) projects that Barclays financed in Asia have negative environmental consequences, (2) Barclays Bank is a defendant in litigation involving the apartheid policies of the former government in South Africa, and (3) Barclays Bank is increasing its interest in banking organizations in Zimbabwe and Zambia. These matters are not within the Boards jurisdiction to adjudicate or within the limited statutory factors that the Board is authorized to consider when reviewing an application under the BHC Act. See Western Bancshares, Inc. v. Board of Governors, 480 F.2d 749 (10th Cir. 1973) (Western Bancshares).
This Fed boiler plate has congealed too quickly.
It would be outrageous to say that the non-US activities of an FRB-registered
financial holding company are not reviewable by the FRB. Its a choice that the FRB
makes, without nearly enough scrutiny, alongside its interest rate decisions... Soon we'll
see what the Fed goes on dodges by Wells
Fargo, Synovus and Fifth Third, and now, Toronto Dominion - Banknorth.
Soon we'll see what the Fed goes on dodges by Wells Fargo, Synovus and Fifth Third, and now, Toronto Dominion - Banknorth.
November 8, 2004
Speaking to a nearly empty room at the end of the SIA annual meeting on November 5, Fed governor Bies called for greater clarity to help banks comply with the anti-tying rules. "Ensuring compliance can be an extremely difficult endeavor because there is no prohibition against cross selling products or aggressive marketing," Bies said, adding that "the goal is to ensure that banks don't cross the line between offering choices and illegally tying products and services. Claritys a good thing -- but why then has Gov. Bies (and the rest of the Fed) aggressively withheld basic information about banks secured loans to payday and car title lenders? Inner City Press has challenged the Feds Wachovia - SouthTrust FOIA denial, and is awaiting the Feds response. Also pending is ICPs administrative appeal of PNC-Riggs withholdings, regarding money laundering...
November 1, 2004
The Federal Reserve has finally started asking PNC questions about its proposal to acquire [toxic] Riggs -- but PNC is trying to keep its answers confidential. ICP is preparing an appeal, under the Freedom of Information Act... The Fed, which incorrectly told Dow Jones newswires on October 25 that it had yet to receive ICP's timely request for reconsideration, thereafter didn't even respond to it, showing its true colors... Meanwhile, the Feds revolving door continues spinning. Ex-Fed legal staff Satish Kini, now at the law firm of Goodwin Procter, opined in last Fridays American Banker that This trend has been borne out in my own practice. I have seen that issues that a year or two ago would have commanded less regulatory attention or resulted in a minor comment from an examiner now gets much more scrutiny and, sometimes unfairly, a referral to the agencies' enforcement lawyers. From the agencies' perspective, this trend is perhaps understandable. The federal bank regulators were roundly accused on Capitol Hill of lax reaction to anti-laundering issues at Riggs Bank. As a consequence, those agencies seem to be taking a much tougher line. The upshot of the article? Gimme a call... I know these guys, and can delicately call them somewhat unfair, though understandable....
October 25, 2004
Fed governor Susan Bies, speaking October 20 at the University of Connecticut Law School, intoned that "Improved disclosure not only can provide more quantitative and qualitative information to the market and other stakeholders, but also help the market assess the quality of risk oversight and make an informed judgment about the appropriateness of the organization's risk appetite and its strategic direction."
She and the other governors do not, however, acknowledge any benefit to improved disclosure at the Federal Reserve Board itself. In boilerplate fashion, Governor Bies denied Inner City Press' Freedom of Information Act appeal for a list of the payday lenders and pawnshops funded by merger partners Wachovia and SouthTrust. On October 21, Inner City Press filed a FOIA lawsuit in the U.S. District Court for the Southern District of New York, challenging the Fed's systematic withholding of predatory lending-related information. The case has been filed; we will update its progress on this site.
October 18, 2004
Reserves Oct. 15 BNP Paribas
order reports that ICP
citing press reports, also expressed
concerns about BNPs role in handling payments for the United Nations
Oil-for-Food program with Iraq. As part of its review and assessment of the managerial
resources of BNP, the Board reviewed records of BNPs New York branch concerning this
program in conjunction with state regulators. The Board notes that BNPs role in this
program was to act as the exclusive bank to facilitate payments under an agreement with
the United Nations, which currently is conducting its own review of this program. The
Board will continue to monitor the progress and results of investigations of the
Oil-for-Food program by the Congress and by the United Nations.
The commenter also expressed concern about lending by Bank of the West and CFB Bank to unaffiliated retail check cashers and pawn shops. Applicants responded that Bank of the West and CFB Bank provide credit to pawn shops and retail check cashers but that neither bank plays any role in the lending practices or the credit review processes of those borrowers. These businesses are licensed by the states where they operate and are subject to applicable state law.
In addition, the commenter expressed concern about instances in which BNP may have underwritten the securitizations of subprime loans. BNP acknowledged that its U.S. broker-dealer subsidiary may from time to time underwrite securitization of assets that include subprime loans but stated that the subsidiary plays no role in the lending practices or credit review processes of any lender involved in the transaction. BNP has indicated that the due diligence implemented by its broker-dealer subsidiary would include consideration of whether the lender is known to have experienced legal or regulatory compliance problems.
Well see... Click here for the Feds position that a de minimus level of lying is okay, at least for Wachovia...
October 11, 2004
Could it be that the Federal
Reserve has (another) conflict of interest, on pending applications by BNP, embroiled in
the Iraqi Oil-for-Food scandal? Last week a
House subcommittee issued subpoenas to the Federal Reserve Bank of New York in the same
scandal. The New York Fed manages the Development Fund for Iraq, an account in
which Iraqi oil money and other funds earmarked for Iraq's reconstruction are held. The
New York Fed held the account into which Iraq's oil revenues were transferred after
Saddam's regime fell. The subcommittee hopes to use the FRBNY's account records as a
window into the CPA's largely opaque management practices.
At the underlying House hearing, BNPs representative, in a crisp British accent, claimed that BNP has had no discretion over how money has been spent or invested under the (oil-for-food) program." It might be time for the Fed to suspend processing of not only PNC-Riggs, but also BNP Paribas applications...
Chairman Greenspan, in meeting on October 1 with select members of the Financial Roundtable, was face-to-face not only with bankers, but also predatory lenders. A representative of HSBCs Household International, Siddharth Call Me Bobby Mehta, as well as longtime CitiFinancial executive Bob Willumstad. ICPs timely comments to the Fed on Citigroups pending application to buy First American Bank include Mr. Willumstads response to ICPs questions about CitiFinancials standards overseas. ICP has asked the Fed to nail this question down. If this wasnt done, ex parte, on October 1, its time for the Fed to ask the question(s) in writing...
Further note to the Fed, on HSBC: on October 8, HSBC claimed that it is beginning an internal investigation after a CIA report claimed Saddam Hussein had passed money through the bank's branch in Jordan to avoid United Nations trade sanctions. HSBC said that the allegations, in this week's CIA report into the Ba'athist regime, had been a surprise. It said it was undertaking a hasty review of its Middle Eastern operations. The CIA report claimed that during Saddam's reign Iraqi agents used an HSBC account in Amman as a home for money which funded their operations. In a statement, the bank said: Throughout the period of the Iraqi sanctions we were acutely conscious of allegations that they were being breached and, consequently, of the need for great vigilance. But that just makes the violation worse, and more telling....
October 4, 2004
What, you might ask yourself, does the Federal Reserve Board do? Beyond interest rates, it stands by while money laundering charges grow, against HSBC, Banco Santander and Citigroup in Japan; while the Oil-for-Food scandal embroils BNP Paribas; while troubled Wachovia continues to hide even the list of payday lenders and pawnshops it funds. Last week ICP submitted to the FRB comments on BNP, on HSBC, and at the weekend (as they put it in the UK), on Citigroup - First American Bank. Well see... Tax authorities in Chile have filed a formal lawsuit against the former dictator Augusto Pinochet, based on fraud and tax evasion through offshore accounts that came to light in Julys U.S. Senate report. Chile's internal tax service alleges that General Pinochet filed "false or maliciously incomplete tax declarations". If found guilty he could face up to five years in prison. The US senate report said Riggs took pains to hide the money for General Pinochet, especially during the late 1990s when a Spanish judge issued an international warrant for his arrest on human rights charges and tried to freeze his assets.... Last month, Baltasar Garzon, the Spanish judge who tried to have General Pinochet extradited to Spain in 1998, widened his own investigation against the former dictator, adding charges of money-laundering and concealing assets. He said that deposits made by General Pinochet and his wife in their Riggs bank accounts in 2002 violated an international embargo of his funds, decreed by Mr Garzon in October 1998.
Last week, ICP filed related comments on HSBC (click here to view), and on Riggs (and Banco Santanters) money laundering... Meanwhile - you and us? Turns out that Osama bin Laden had use of an account at UBS even after he was designated a financier of international terrorism. The revelation was made in a French courtroom last week during an investigation into one of the al-Qaeda chief's half-brothers. Yeslam Binladin, a Swiss citizen who since 2001 has been under investigation by Renaud Van Ruymbeke, a French judge, for suspected links to money-laundering, told the court that bin Laden had access to a UBS account between 1990 and 1997. He said that two of his brothers had created an account at UBS to redistribute family funds, which are thought to have come from the bin Laden family's construction empire in Saudi Arabia. He said that Osama bin Laden was one of the main beneficiaries. A spokesman for UBS in New York confirmed last week that Osama bin Laden was a beneficiary of the account but was never a customer of the bank. It is understood that the account was opened in 1990 with several million dollars....
Meanwhile, Wachovia quietly disclosed in a September 27 SEC filing that it would close 175 to 200 branches within 15 months of consummating its SouthTrust proposal. Previously it had said -- including to the Federal Reserve and to the public, during the comment period - that it would close 130 to 150 branches...
September 27, 2004
While the clock ticks on Wachovia / SouthTrust (in the most recent S-4, the records date for SouthTrust holders has moved, but not for Wachovia, viewed as springing from differences in NC and Delaware law but who knows), Wachovia last week settled discrimination charges. So it was gender, and employment - discrimination in one field is often mirrored in another (lending). And still they withhold the list of payday and car title lenders, and pawnshops, that they fund...
Riggs and PNC tried to pep-talk Riggs employees on September 24, PNCs Jim Rohr
has been quoted backing away from the deal. And
AIG now facing an SEC enforcement
action for having helped PNCs accounting games cant be helpful. Ex-Fed man Jack Wixted continued to stand on his
previous statements for PNC. Managerial resources, anyone? That is something the Federal
Reserve's responsible for, isn't it?
That is something the Federal Reserve's responsible for, isn't it?
September 20, 2004
As the Riggs Bank scandal continues to unfold, last week the Federal Reserve belatedly (and apparently begrudgingly) gave Inner City Press documents ICP requested back on August 11. These documents, even as partially whited-out by the Fed, show the inordinate and inappropriate access that PNC had -- and has -- to the Fed, including via ex-Chicago Fed official Jack Wixted, now at PNC. At 4:07 p.m. on July 15, 2004, Stephen H. Jenkins of the Fed staff e-mailed other staffers: Jack Wixted just called Bud to inform us that they were the successful bidder for Riggs. Less than two hours later, Mr. Jenkins e-mailed Jon Greenlee, assistant director of regional banking organization supervision at the Fed in Washington: Jack Wixted told Mike Carroll that they might make a press release as early as tomorrow.
Two months later, PNC wrote to the Fed, cc-ing the above-referenced Mike Carroll at the Cleveland Fed and purporting to respond to ICPs comments by stating that J. Wixted, Jr.... previously responded to those issues. Accordingly, PNC believes that no response to the September 9 letter is warranted. But all that Wixted said on money laundering was that he was sure that the Federal Reserve would look into it. Now PNCs chairman is claiming that the Fed will help PNC get the deal done. The whole things improper, and particularly inappropriate given the terrorist-financing issues swirling around Riggs. Now, Riggs Bank is being sued on behalf of the victims of the Sept. 11 attacks and their families for assertedly allowing Saudi officials to use accounts at the bank to funnel (or launder) money to at least two of the terrorists involved. Perils of revolving doors...
The Fed also appears to tell banks when approvals will come. The Durham Herald-Sun of September 15 quoted SunTrust CEO Phil Humann saying that approval from the Federal Reserve could come any day now. The banks have set Oct. 1 as a closing date. Humann said it on September 13; to consummate on October 1, the Fed approval would HAVE to come on September 15. So the Fed told SunTrust, it appears...
ICP has now filed a formal FOIA appeal for the information Wachovia and the Fed are withholding about Wachovias and SouthTrusts support of payday and car title lenders, pawnshops and other fringe financiers.
September 13, 2004
Reserve has yet to respond to the issue of its chairmans conflict on the PNC - Riggs
application, which raises serious money
laundering issues (see below); the Fed allowed the comment period to formally expire
on September 9... That same day, Atlanta Fed President Jack Guynn granted an
interview, blurting his view that the Fed has scope to raise U.S. interest rates at least
another half-percentage point in coming months without threatening the economic expansion.
There's a lot of breadth to the strength in the economy'' and it's important for the
Fed to return interest rates to a ``more neutral setting,'' Guynn said. Even a
couple more adjustments in our fed funds target of the size we did in June and August, by
historical standards, would still leave policy in at least a modestly accommodative
stance. Accommodative to say the
September 6, 2004
While the Fed continues withholding Wachovia's list of the payday lenders and other fringe financiers that it funds (see this week's ICP CRA Report for more), it relies on banks' (bogus) representations about how well they check out their (unnamed) counter-parties. In last week's National City - Wayne order, the Fed recited that "National City has represented that its credit evaluations of these types of lenders include, as applicable, the customer's reputation and adherence to applicable law, including the Fair Debt Collection Practices Act. Moreover, National City has represented that it monitors those borrowers' compliance with industry best practices through due diligence, including 'blind shopping' programs and interviews with management." The Fed relies on this, without either checking out the banks' fringe partners, or letting the public do so - rather, the Fed withholds the lists, thus coddling the banks...
Ah, the revolving door: Robert Parry, who just left the Federal Reserve Bank of San Francisco, has joined the board of directors of Countrywide, which is not only a (subprime) mortgage lender, but also a bank holding company...
August 30, 2004
DOJ's sell-out, a mere 18 branches to be divested in Wachovia - SouthTrust: nine in Jacksonville, one in DeLand, five in Lakeland and three in Augusta, GA. They're seeking agreements the branches would be kept open. But what about the 130 to 150 that Wachovia would close? That, along with the two banks' lies about their support for payday lenders and pawnshops, is what the Federal Reserve is supposed to be looking at...
The Federal Reserve's conflicts on PNC are now two. Beyond last week's petition, receipt of which has been acknowledged but as yet no substantive response, consider this question: if the Senate permanent subcommittee on investigations, and many others, question the OCC's examiner having gone over to Riggs, what exactly is the different with the Federal Reserve's Jack Wixted having gone to PNC, and now writing the bank's responses to the Fed? This will be answered in coming weeks -- that is, on a timely basis. Last week the Fed responded, four years late, to a Freedom of Information Act request ICP submitted in 1999. The Fed's August 20, 2004, partial denial states "by letter dated November 1, 1999, your request for expedited treatment was denied." That's an understatement. Provided are Fed communications with and about then-chairman of the Senate Banking Committee Phil Gramm. There's letter from Alan Greenspan to Gramm, agreeing with Gramm's "staff's key point that estimate of CRA paperwork burden do not capture all CRA compliance costs and address only a subset of the CRA compliance burden." There's an email from staffer Beverly Smith referring to a "Gramm box" that the Fed set up, to quickly forward all information about CRA protests, virtually in real time. There are lists of banks with less than satisfactory CRA ratings, virtually all of them small. Plus ca change...
August 23, 2004
It seems like common sense: if a regulators or judges spouse accepts a $50,000 award from a bank, recusal from decision-making on matters directly involving the bank less than four months later should be required. While this is seems like a hypothetical from Good Government 101, to the Fed its apparently not that simple. Heres a letter ICP Fair Finance Watch has just filed with the Fed:
August 23, 2004
Board of Governors of the Federal Reserve System
Attn: Secretary Johnson, Inspector General, Governors [and Chairman]
20th Street and Constitution Avenue, N.W.
Washington, DC 20551
Re: The Applications of PNC Financial Services Group, Inc. & PNC Bancorp, Inc., to acquire Riggs National Corporation & Riggs Bank NA National Association
Dear Secretary Johnson, and Governors of the FRB:
On behalf of Inner City Press/Community on the Move and its members and affiliates, and the Fair Finance Watch (collectively, "ICP"), and in connection with the applications of PNC Financial Services Group, Inc., PNC Bancorp, Inc. and their affiliates to acquire Riggs National Corporation and Riggs Bank National Association, this is a second timely comment, including a formal request that Chairman Greenspan recuse himself from the PNC - Riggs proceeding. It should first be noted that since ICP's first comment, the Washington Post of August 21, 2004, has reported on the widening criminal investigation of Riggs. "The Post's Saturday story, citing a letter to federal bank regulators from the District of Columbia's U.S. attorney's office, said the investigation includes Joe Albritton, Riggs' largest shareholder, his wife, Barbara, and son, Robert, who is chairman of Riggs... A lengthy probe could affect the company's pending acquisition by PNC Financial Services (PNC) for $779 million. The deal was announced in mid-July. Riggs has already paid a $25 million civil penalty to the U.S. Comptroller of the Currency over allegations that its Riggs Bank laundered money for Saudi Arabian diplomats." CBS MarketWatch, August 21, 2004.
This development further calls into question the wisdom of considering allowing the sale of Riggs at this time, until the investigations, including into terrorism-related money laundering, are completed. A sale to a bank with a troubled compliance record like PNC's, which also funds high-cost payday lenders including in the target bank's market, would be particularly unwise and harmful.
Unless PNC's Riggs application is withdrawn or dismissed forthwith, ICP contends that chairman Greenspan should be recused from involvement in this proceeding. Those involved in decision-making on Bank Holding Company Act applications, particularly one of this import, need to be impartial, and to be seen to be impartial. In April 2004, PNC awarded chairman Greenspan's wife $50,000. At the time, industry publications questioned the propriety of the award, to the spouse of PNC's chief regulator. See, e.g., American Banker newspaper of March 24, 2004, Pg. 3, "Earth to PNC" -
"Corporate America's ethics have come under considerable scrutiny in recent years for obvious reasons, so it's no surprise PNC Financial Services Group Inc.'s decision to present a $50,000 prize to the spouse of its top regulator would raise eyebrows. PNC is promoting a black-tie awards ceremony, scheduled for April 24 in Wilmington, Del., at which it will present five high achievers with the 2004 Common Wealth Awards. The winners are the actor Christopher Reeve, the Chilean author Isabel Allende, actress Meryl Streep, scientist Stanley Prusiner and Andrea Mitchell -- the chief foreign affairs correspondent for NBC News and the wife of Federal Reserve Board Chairman Alan Greenspan. The awards are given by the trust of Ralph Hayes, who sat on the board of PNC predecessors from 1943 until 1965. PNC is the administrator of the Hayes trust....
Wendell Cochran, who teaches journalism ethics at American University, said that regardless of the merits, the appearance of impropriety in this case was too strong. Having a bank holding company give the wife of the Fed chairman a $50,000 prize does look to me to be wrong,' Prof. Cochran said. Ms. Mitchell said in an interview last week that she was accepting the award because it came from a philanthropic entity and that NBC News has a policy not to accept awards from private corporations. She also noted that she is donating her prize money to a charity at the University of Pennsylvania, where she is a trustee. 'It is my understanding that this award comes from a foundation and has nothing to do with the financial activities of PNC,' she said...Under most circumstances, spouses are not barred from accepting awards like this, according to Office of Government Ethics rules. A Fed spokesman would not discuss the matter."
Whether or not PNC's granting a $50,000 prize to the spouse of its chief regulator, soon after being sanctioned for using special-purpose entities to move assets off its books, was or was not technically legal, a different, more stringent analysis is applicable to whether the spouse of the grantee should recuse himself from PNC's application to acquire the scandal-plagued Riggs National Corporation. The above-quoted ethics professor opined that "the appearance of impropriety in this case was too strong." AT this stage, ICP's reference is to the appearance of impartiality. At the April 24 event itself, Ms. Mitchell was responding to questions about the possible conflicts of interest raised by the $50,000 award. See, e.g., "Common Wealth Awards," Wilmington News-Journal of April 25, 2004, Pg. 12B,
"Mitchell, who is married to Federal Reserve Chairman Alan Greenspan, said she will give away the $50,000, as she does with any money she receives for speaking. Pointing out that the money comes from the Hayes trust, not the bank, Mitchell said it will go to programs in writing, English literature and music that she helps support at her alma mater, the University of Pennsylvania, where she was an English literature major. Mitchell is lead foreign-affairs correspondent for NBC News. Her employer also vetted the award and was satisfied it did not represent a conflict of interest, she said."
Whether NBC found a conflict, as to its news coverage of PNC, is a different question than whether a $50,000 award from a regulated entity like PNC to the spouse of its chief regulator should lead to that regulator's recusal from decision-making on the entity's application, less than four months later, for approval to acquire a bank sanctioned for money laundering. The answer to that question, ICP contends, is yes: recusal is appropriate, even, required. While the FRB declined to comment to journalists regarding its conflict of interest standards back in March 2004 (see above), it is important that the response to this timely request from ICP be in writing, and explain the reasoning and authority for any decision not to recuse, as early as possible in this proceeding.
It should be noted that the FRB has had and still has primary jurisdiction over at least one of the troubled Riggs subsidiaries: PNC's application at footnote 11 refers to "Riggs International Banking Corporation, which is regulated by the Board of Governors of the Federal Reserve System." The language is from Riggs May 13, 2004, consent order with the OCC, providing for a
"review, in a time period not to exceed one year from the effective date of this Order, of all Bank accounts in the Embassy and International Private Banking areas that are identified as high risk, and other high risk accounts identified by the Bank as appropriate for review, to ensure that Suspicious Activity Reports have been filed as appropriate between January 1, 2001, and April 30, 2004. This review shall include accounts at Bank subsidiaries (excluding Riggs International Banking Corporation, which is regulated by the Board of Governors of the Federal Reserve System), accounts covered by paragraph (c) of this Article, and an analysis of Currency Transaction Reports filed for each account."
It is surprising, and contrary to the public interest ICP contends, that PNC has even submitted this application and started the running of the comment period before the above-referenced review has been completed, and appropriate action taken. This is even more true now, given the just-reported widening criminal investigation of Riggs. The PNC-Riggs application should be immediately (this week) withdrawn or dismissed; or chairman Greenspan should confirm recusal, hearings should be scheduled [FN: ICP again emphasizes for purpose of its hearing request that PNC funds and enables major nationwide payday lenders such as Check n Go a/k/a CNG Financial Corporation, including Check n Go of Washington D.C., Inc., see the UCC filings, including from the District of Columbia Department of Finance and Revenue, which ICP submitted into the record along with its August 16, 2004, initial Comment], the comment period should be extended and the application should be denied.
Matthew Lee, Esq., Executive Director
To be continued; developing... The American Banker of August 16 reported, "Huntington said it is maintaining an active dialogue bank regulators about the Unizan deal, which was announced in January and had been scheduled to close last month." Its an interesting quote including because, under the Feds rules against ex parte communications, notice and copies are supposed to be given to ICP...
August 16, 2004
In the Wachovia - SouthTrust proceeding, the Federal Reserve has created a Catch-22. As soon as ICP saw notice of the application, it submitted a FOIA request for the entire application. Upon receipt, ICP noted this statement in Exhibit 6:
"Wachovia has commercial lending relationships with select check cashing companies, pawnshops and payday lenders. In recognition of the higher risk these businesses present, the Credit Risk policy on lending to them is very restrictive. Any new credit, or the renewal or modification of such a credit, requires the approval of one of the top found Chief Risk Offices of Wachovia... Please see Confidential Exhibit 3 for information concerning these customers."
This exhibit was not provided to ICP, despite the fact that Wachovias secured lending relationships with various "check cashing companies, pawnshops and payday lenders" are of public record, and therefore cannot legitimately be withheld under FOIA. ICP submitted a FOIA request / appeal, annexing print-outs of sample UCC filings, in an attempt to ensure that it would receive this wrongfully withheld exhibit during the comment period, to comment thereon. But ICP received a response from deputy secretary Frierson, dated August 5, 2004, that this FOIA request / appeal would not be acted on, because it was the Boards position that (despite the commitment to provide copies of applications in three days) the FRB has a full twenty working days to respond to ICPs FOIA request for the application.
The result is a Catch-22 in which comment periods can expire without any ruling on the applicants request to withhold even the names of payday lenders and other fringe financiers it funds, even when these names are otherwise publicly available. In answering a call from FRB staff, ICP reiterated and explained its position that these named cannot legitimately be withheld, even if a bank intentionally mixes this with other information: the solution is redaction and provision of all segregable information, and/or instructing the applicant to submit information that is NOT otherwise publicly available separately. A bank shouldnt benefit from mixing the information, and not following the instructions on the FRB application forms. This is an abuse, and ICP reiterates its request for the information, and for an extension of the comment period. This is particularly important in this case, in which the two banks have made counter-factual statements on this issue in their applications, not explained or remedied by their August 6 "response."
ICP has also noted, for timely inclusion in the Fed's record, that on August 11, the SEC announced that Wachovia Securities is being censured and fined $250,000 for registration, reporting and sales practice deficiencies and supervisory violations. Also, Dow Jones of August 13 reported
"Wachovia Corp.'s Evergreen Investments identified its two funds caught up in the mutual-fund trading scandal as the Evergreen Mid Cap Growth and Evergreen Precious Metals funds. Evergreen also said a former fund manager at the center of the Securities and Exchange Commission investigation managed the Precious Metals fund, raising the likelihood the agency was looking into transactions by well-known former Evergreen manager Prescott Crocker.... Evergreen named the funds in a filing this week with the SEC, following its recent disclosure that the agency might bring an enforcement action against it for improper fund trading. The company also gave more details about the matter in statements posted on its Web site from Dennis H. Ferro, chief executive of Evergreen Investments, and Michael S. Scofield, chairman of the board of trustees of Evergreen Funds. According to the filing and statements, the short-term trading by the Evergreen Precious Metals Fund portfolio manager took place between September 2001 and January 2003. At the time, the fund was co-managed by Mr. Crocker, who also managed Evergreen's High-Yield Bond fund. Evergreen didn't name him in the filing, but a spokeswoman confirmed that he managed the precious- metals fund at the time. Mr. Crocker is no longer at Evergreen. The firm said the SEC also is investigating an alleged arrangement between a former Evergreen Investment Management Co. officer and a broker at an affiliated broker-dealer. The broker allegedly engaged in short-term trading in the Evergreen Mid Cap Growth Fund on behalf of a client, the filing said.
Wachovia is a company around which these scandals swirl, a company which has, in connection with this application, made counter-factual statements to the FRB. The comment period must be extended; the merger should be denied. For or with more information, contact us.
August 9, 2004
Will the Federal Reserve accept being lied to? In the July 12 Wachovia - SouthTrust application, it was stated that "It is SouthTrusts policy not to lend to pawn shops, pay day lenders, check cashing companies or other MSBs." ICPs July 26 Comment annexed a number of UCC filings showing SouthTrust making just such loans. On August 6, Wachovia submitted a five-page letter to the Fed, purporting to respond to ICP's comments, which on this issue stated:
"Of the 15 SouthTrust relationships cited by ICP, four loans have been paid out and a loan relationship no longer exists. Two other UCC filings reflect loans to parties for which the businesses in question served solely as collateral. Four other entities cited are not pawnshops or money service businesses or provide MSB services only as an incidental service. Five such relationships do exist with pawnshops and were made as exceptions to SouthTrust's policy. In addition to those five relationships, we have identified five other credit relationships with pawnshops or related entities, some of which were acquired through mergers with other institutions... Moreover, it is standard industry practice to allow exceptions to credit policies based on legitimate reason."
But what are those reasons? Given the specious reasoning Wachovias response attempts to use to explain the counter-factual statement in Exhibit 6 of the Application, the Fed should wonder what other "policies" Wachovia makes exceptions to for unstated reasons: anti-money laundering policies? Policies Wachovia has promised to adopt against mis-using tax shelters like the lease-in, lease-out sleight of hand for which it was exposed? See for example, "Wachovia Says It Stopped Questionable Transactions," Winston-Salem Journal, February 21, 2004; "Wachovia Backs Off Aggressive Use of Tax Shelters: Deals Cut Taxes And Drew Criticism," News & Observer, March 5, 2004. ICP has specifically requested that, in light of Wachovia's above-quoted statement about exceptions to policy, its earlier statement in Exhibit 6 of the Application that "It is Wachovia's policy not to originate sub-prime loans" be more closely scrutinized, by the FRB including at the requested hearings.
On August 4, the Federal Reserve's managing senior counsel Elaine Boutilier wrote to ICP, stating that that in response to ICP's FOIA request "for portions of the July 1, 2004, submission by Huntington Bancshares, Incorporation that were withheld from you by counsel for the applicant," the Fed has given Huntington until August 18 "to provide written objections to disclosure of the information." Since normally the Fed compromises behind the scenes with banks regarding what can be released, without starting up the 12 CFR §261.16(d) "reverse FOIA" process, this appears to mean that Huntington is playing hard ball. Well, good for them. Clearly, the Fed shouldn't consider ruling on Huntington's Unizan application, other than to deny it, while Huntington is gaming the FOIA system...
August 2, 2004
While for now what the Federal Reserve is doing is at least asking questions about banks support for fringe banking services, see the below, from the editorial board of the Orlando Sentinel from their July 30 edition, "SunTrust was Right to End Business with Payday and Car Title Lenders" -- "SunTrust made its decision to cut ties with such lenders after a consumer group filed a complaint with the Federal Reserve opposing the bank's pending merger with National Financial Corp. of Memphis, Tenn. Among other complaints, Inner City Press/Fair Finance Watch said records showed SunTrust had at least 60 customers making payday or car-title loans. Announcing its decision, SunTrust cited the potential reputational risks and consumer harm that could come from lending to such companies. How candid, and how refreshing. ICP believes SunTrust's decision could persuade other banks -- especially those seeking government approval for mergers -- to follow suit. Let's hope so." Thanks, Orlando Sentinel. The last reference in the editorial is plainly to the proposed takeover of SouthTrust by Wachovia, which funds a range of fringe financiers (as does SouthTrust, despite its denials). And what will the Fed do, about SouthTrusts (and Wachovias) lies in their application on this issue? Well see.
Here also is an editorial in the Memphis Commercial Appeal of July 31:
National Commerce Financial Corp. and SunTrust Banks recently decided to stop doing business with companies that provide payday or car title loans. The move, while commendable, appears to have been done to win favor with federal regulators who will decide whether to approve a merger between NCF and SunTrust. Whatever the motives, the decision shows why high interest loans that are frequently made to lower income borrowers deserve careful scrutiny....A protest by the Inner City Press/Community on the Move and Fair Finance Watch apparently helped NCF and SunTrust see the light... Those words should be a wake-up call to local companies that want to deal in those types of loans. Unless they're willing to accept more regulation and greater accountability, maybe more major financial institutions will follow the lead of NCF and SunTrust.
And then car title lenders will know what it feels like to struggle to get a loan.
That last sentiment, we like how the Commercial Appeal's editorial board put it. (Click here for the full text of these editorial, and more). Still, what's up with Wachovia -- and with the Fed? Developing...
From the slap-on-the-wrist department: on July 26, Federal and state bank regulators gently cited weaknesses in ABN Amro's compliance with anti-money laundering rules at its New York branch, which provides "significant" services to its correspondent banks, including non-U.S. banks, and also conducts a high volume of U.S. dollar clearing business, according to the agreement. "Examiners have identified compliance and risk management deficiencies at the New York branch in these operational areas," the agreement said -- all too vaguely. Within 20 days, ABN Amro and its New York branch must hire an independent firm to conduct a review of account and transaction activity from July 23, 2002, through April 30, 2004. This review will be done "to determine whether suspicious activity involving accounts or transactions at, by, or through the New York branch was properly identified and reported in accordance with then applicable suspicious activity reporting regulations," the agreement said. Let's see: an accused criminal is allowed to check his own behavior, and report to authorities whether it broke the law? ABN Amro confirmed -- happily, one imagines -- that it entered into the agreement with regulators to address what it characterized as "insufficient internal controls" in the anti-money-laundering program of its New York branch's U.S. dollar clearing business. "The bank regrets that its AML controls in its U.S. dollar clearing business fell short of these standards," the ABN Amro said-in-a-statement. And so it goes...
July 26, 2004
Well, now there's (another) test base before the Federal Reserve Board. What will the Board do, when a major bank submits a knowingly false statement to it? The July 12 application of Wachovia and SouthTrust states "It is SouthTrusts policy not to lend to pawn shops, pay day lender, check cashing companies or other MSBs." That statement is patently false; click here to see why. But what will the Fed do? For now, the Fed is allowing Wachovia to withhold its list of funded fringe financiers; the same with Banque National Paribas. BNP is no longer ahead of the pack, even in terms of disclosure. In the same week that its peer SunTrust Banks, Inc. announced it would no longer fund payday or car title lenders, BNP asked for confidential treatment for even the names of the check cashers and pawnshops funded by its Bank of the West unit (and its proposed merger partner, Community First National Bank). Earlier in the proceeding, BNP had released the names of subprime mortgage lenders with which it does business. There appears to be no substantive distinction between the two, except perhaps that the list of BNP-funded pawnshops and check cashers is more embarrassing. Its good, we think, that the Fed asked BNP about its links with pawnshops and check cashers. But BNP cannot be allowed to withhold even the names of these companies. And, as noted earlier in the proceeding, how this secretiveness on an issue touching on the two-tier financial system is consistent with BNPs supposed allegiance to the UNs "Global Compact" remains to be seen.
July 19, 2004
These days when you visit the Federal Reserve Board, the entrance is no longer the glassed-in door on C street. A side entrance for visitors has been established: a window at which you show your identification, a metal detector, and finally a staffer comes to get you. Though corridors, then into the Board room, with its wall art of currency, its map of the Federal Reserve districts painted on the wall.
They tell you that you must be seated before The Chairman will come in. You sit, the polished table, the Fed staffers in seats a row behind. The Chairman enters through a side door, sits in the middle of the table, his back to Constitution Avenue and the Mall. Pleasantries are exchanged. Once predatory lending is broached, the Chairman has a question: why is it, he asks, that people actually sign these contracts? Dont they read them? Well.
When asked about the Feds duty to consider applicant banks connections with high-cost lenders, the Chairman assures that this topic is covered in every approval order. "I dont keep track of it all myself," he says. "I dont have time. But I vote on the orders." Well. He does say that if the Fed has its druthers, it would stamp out predatory lending... So as a test case, the Chairman is told of Wells Fargos funding of Armed Forces Loans, which targets active-duty service-members for high-cost loans. The Chairman nods; his staffer take a print-out of the evidence. Now what?
Meanwhile, it is entirely unclear why the Fed has allowed the SunTrust - NCF comment period to expire without having asked SunTrust questions about fringe finance evidence submitted two months ago...
July 12, 2004
The Feds secretary on July 2 (the letter was mailed July 6) decided to continue withholding the list of pawnshops and check cashiers funded by North Fork Bank, despite the fact that many of these connections are already public, in UCC filings and elsewhere. ICP has appealed, attaching the relevant UCC filings (as well as RBS most recent submission)....
Better late than never, we suppose: after Inner City Press requested under FOIA the withheld portions of Royal Bank of Scotlands list of funded subprime lenders, the Fed asked RBS to "reconsider" its withholding. Lo and behold on July 9, a longer version arrived, this time listing the following subprime lenders with which RBS does business:
Saxon Mortgage, Inc.; Aames Capital Corp.; Ameriquest Mortgage Company; Argent Mortgage Company; Asset-Backed Funding Corp; BofA, CDC Mortgage Capital; Centex Home Equity Company; CitiFinancial Mortgage Company; Clearwing Capital LLC; Credit Based Asset Servicing and Securitization, LLC; Delta Financial Corporation; Equifirst; Equity One, Inc.; Finance America, LLC; First Franklin; GMAC; Green Tree Investment Holdings II, LLC; Long Beach Acceptance Corporation; Long Beach Mortgage Company; NovaStar Financial, Inc., Option One Mortgage Corporation; Countrywide Correspondent Lending, Fremont Investment & Loan; Washington Mutual Bank; Residential Funding Corporation, Truman Capital Investment Fund LP, etc...
We will have more on the Fed, up close and personal, shortly... For now, let's get to work, including asking the right questions and making public the answers, on SunTrust, RBS - Charter One, Wachovia...
July 5, 2004
This week, we give the Federal Reserve credit for (finally) asking the right questions, of Huntington Bancshares -- but also, for now, allowing Huntington to withhold its answers. On July 1, Inner City Press received from Huntington's lawyers a copy of the bank's response to Fed questions of June 1. The Fed's question #1:
1. Discuss whether Huntington, Unizan, or any of their affiliates have business
relationships, including as commercial or warehouse lender, purchaser, custodian, servicer, or in any other financial capacity, with any providers of non-traditional banking products, such as pawn shops, gun shops, or check cashing stores (individually and collectively, "providers"). If so, identify the relevant business parties and describe the nature of the business relationships, including the respective roles and responsibilities of the providers and the Huntington or Unizan entities involved in each type of relationship.
The entirety of Huntington's public answer to this is: "Please refer to Confidential Exhibit A for a summary of these business relationships." This does not comply with FOIA, both in that Huntington has not shown likelihood of competitive harm (esp. given that many of its peers, named in ICP's exhibits, release such information, and in that ICP has already submitted to the Fed (and Huntington and its counsel) publicly available information such as
--an Ohio UCC filing showing Huntington National Bank's relationship with Uncle Sam's Pawn Shop, Inc. of Columbus, Ohio -- note that the relationship runs at least through October 8, 2007;
--an Ohio UCC filing showing Huntington National Bank's relationship with AA Pawn Shop, LCC of Lancaster, Ohio -- note that the relationship runs at least through June 5, 2005;
--a West Virginia UCC filing dated October 7, 2002 showing Huntington National Bank's relationship with Carl's Pawn Shop, Inc. of Parkersburg, West Virginia;
--a Florida UCC filing showing Huntington National Bank's relationship with Paradise Pawn, Inc. of Melbourne, Florida;
--a Florida UCC filing showing Huntington National Bank's relationship withQuick - Cash Pawn Shop East, Inc. of Tampa, Florida;
--a New Jersey UCC filing dated October 7, 2002 showing Huntington National Bank's relationship with Express Check Cashing, Inc.; etc.
It is frivolous to request confidential treatment for information that is otherwise publicly available, particularly where the public availability of such information has been shown in the same underlying proceeding.
Huntington's July 1 submission also recites Fed question #2
2. Discuss whether the Huntington or Unizan subsidiaries have any role, formal or otherwise, in the lending practices and credit review processes of the providers. Additionally, describe any due diligence conducted by Huntington or Unizan when either enters into these business relationships concerning a provider's compliance with applicable fair lending and consumer protection laws, including:
(a) the substance of any representations and warranties that Huntington or
Unizan requires of such entities;
(b) any agreements Huntington or Unizan requires such entities to enter into;
(c) any monitoring or other ongoing procedures Huntington or Unizan has
adopted to assess compliance with these laws.
As to due diligence, and sub-questions a, b and c, Hungtington refers to "Confidential Exhibit B." But Huntington's outside counsel's previous client, Firstar / U.S. Bancorp, has released such information during a proceeding before the FRB, undercutting the instant formulaic claim that Huntington would suffer significant competitive harm if this information were released. Huntington's exhibits should be release forthwith, ICP has argued in a FOIA request / appeal...
Also concerning Huntington, in Detroit on June 29 U.S. District Judge Paul Borman upheld a decision to detain a former assistant bank vice president of the bank, for the unauthorized wiring of $438,000 to banks in Lebanon and Jordan. Issam Abdul Hakim-Berjaoui has been charged with bank fraud, money laundering and embezzlement. So far, Huntington has escape (or evaded) scrutiny. Prosecutors are seeking, under treaty, bank records from Jordan; no such arrangement, however, exists between Lebanon and the United States...
With the Fed's general counsel position opening up on July 1, the Fed finally announced J. Virgil Mattingly's successor. It's long-time deputy Scott Alvarez, who's nothing if not knowledgeable about the bank supervision and merger-review processing, having attended numerous Federal Reserve public meetings on mergers, and played a large role in reviewing transactions. Back in 1998, Mr. Alvarez stated that notes he took when discussion the law-bending Citicorp / Travelers merger were not "records of the Board," but rather his personal property. We're still troubled by that, but genuinely congratulate Mr. Alvarez. Now, let's get to work, including asking the right questions and making public the answers, on SunTrust, RBS - Charter One, Wachovia... For or with more information, contact us.
June 28, 2004
First, let's get this out of the way: we see no reason to disbelieve the many predictions that the Fed will raise interest rates on Wednesday. The FOMC tries more and more to telegraph its moves, calling this transparency. It's quite the opposite in the Fed's bank regulatory role: there, it's the Federal Reserve itself which for example strives to keep issues of subprime lending undeveloped in merger proceedings until the comment period closes. In Royal Bank of Scotland - Charter One, ICP submitted initial comments on May 10, before RBS even submitted its application, detailing RBS's Greenwich Capital Markets' enabling of numerous subprime lenders, including Aames (which is being investigated by the FTC for predatory lending), analyzing HMDA data, and noting Citizens Mortgage Corporation's agreements with the subprime lenders Option One, Key / Champion and Freemont Investment & Loan.
RBS did not respond on these issues prior June 17: the expiration of the comment period. On June 23 -- after the expiration of the initial comment period -- RBS responded to FRB questions of June 14, including about subprime lending issues. The FRB's Question #2 asked RBS to
"Discuss whether RBS, Citizens Financial, Charter One, or any of their direct or indirect subsidiaries have business relationships, including referral relationships, with any subprime lenders (for example, as warehouse lender, trustee, custodian, securities underwriter, or in any other financial capacity)... If so, identify the relevant parties and describe the nature of the relationships... Describe the due diligence concerning each lender's compliance with applicable fair lending laws that RBS, Citizens Financial, or Charter One typically conduct before and after extended a loan of providing a credit facility to such a lender."
RBS has asked for confidential treatment for virtually all substantive portions of its response -- entirely inappropriately. ICP has identified from public sources many of RBS' subprime relationships; there is no basis for withholding information that is otherwise publicly available. ICP has submitted into the record Citizens Mortgage Corporation's referral agreements with at least three subprime lenders (Option One, Key/Champion, and Fremont). Does RBS' cynical request for confidential treatment for even the identities of its subprime "partners" mean that there are more such referral relationships?
Beyond withholding the names of its subprime "partners," RBS' explanation of the relationships is unclear. It claims that CMC "delivers the application to either an unaffiliated investor or unaffiliated lender;" then RBS states that "CMC processes mortgage applications and funds and closes mortgage loans in CMC's name.. then sells the closed mortgage loans to the unaffiliated investors." Which is it? In this latter scenario, do these subprime loans get reported in CMC's HMDA data? What is CMC's compensation in these subprime arrangements? All of these questions need to be explored, including at the hearings ICP has timely requested. Clearly, these questions are not being resolved in writing -- by RBS' choice and strategy. And, so far, with the Fed's complicity. ICP has asked for the withheld subprime information, and that the comment period be reopened. We'll see.
June 21, 2004
The Fed's shredding of antitrust law, and failure to act on payday and predatory lending, is addressed in ICP's JPM Chase Watch. But at least public notice was given that JPM Chase - Bank One would be voted on by the governors. Not so with Regions - Union Planters: no notice was given, perhaps it was done without a meeting, by so-called "notational" voting, an even more rubbery rubber stamp. Some analysis (there's more in ICP's Bank Beat Report) -- after 5 p.m. on June 16, the Federal Reserve announced it had approved the application by Regions Financial to acquire Union Planters. There had not been notice of any governors' board meeting that day. The predatory car title lending connections, including the organized crime connections that the Fed sidestepped by claiming the connections date -- like the CRA -- from the 1970s. On payday and car title lending, which ICP raised in detail, the Fed in footnote 24 says:
"This commenter also expressed concern about Regions Bank and a UPB-NA subsidiary allegedly financing payday and car-title lending companies. Regions responded that Regions Bank and Union Planters have depository relationships with, and provide warehouse credit facilities to, entities engaged in payday and car-title lending. These payday and car-title lenders are licensed by the states where they operate and are subject to applicable state law. Regions stated that neither it nor Union Planters plays any role in the lending practices or credit review processes of their payday and car-title lender customers. The record in this case does not indicate that Regions, Union Planters, or any direct or indirect subsidiary of either organization engages in payday or car-title lending activities directly or through agency arrangements."
It's immaterial whether Regions or Union Planters is MAKING the car title loans, or lending to the car title lender: either way, the bank bears responsibility. Particularly laughable (and troubling) is the Fed's footnote 20, reciting that ICP
"asserted that a UPB-NA subsidiary has originated loans to a company that is controlled by an individual with alleged connections to organized crime. This assertion was based on allegations in press reports from 1999 and 2000 that cite determinations in 1980 and 1992 by the New Jersey Casino Control Commission. The allegations appear to involve the individual s business transactions and activities during the 1960s and 1970s. The Board has carefully reviewed these allegations in light of all facts of record, including relevant reports of examination by federal regulators, and has consulted the OCC concerning the relationship between the UPB-NA subsidiary and the company involved."
So as long as Mob connections were (or began) in the 1970s, it's okay? Regarding Regions' subprime lender EquiFirst, the Fed says, in footnote 35 that Regions
"represented that the brokers in the EquiFirst network offer their clients a variety of prime and subprime mortgage loan products from EquiFirst and other mortgage lenders. In addition, Regions noted that the independent mortgage brokers generally provide their customers with options on available mortgage loan products, including the type of products (prime or subprime)and the provider (EquiFirst or another lender).In particular, Regions represented that EquiFirst does not require its brokers to offer EquiFirst products exclusively."
There's a problem with this analysis: just because the brokers EquiFirst does business with are not exclusive to EquiFirst does NOT mean that EquiFirst is not involved in violations of the Fair Housing Act and Equal Credit Opportunity Act. The Department of Justice's fair lending enforcement action against Long Beach is directly on point. Apparently, the Fed lags years behind other law enforcers in its acceptance of disparate treatment and disparate impact fair lending legal theory...
ICP has commented again on BNP Paribas, and has explicitly asked the Fed to examine Household as it did CitiFinancial -- all actions and inactions will be reported on this site.
June 14, 2004
It is time, surprise surprise, to denounce the Fed for not doing its job. We're referring, last week, to the Fed's approval of National City - Provident, with the payday lending issue confined to a footnote, despite UCC evidence presented and NatCity's admission that it funds four of the top ten payday lenders, with APRs over 500 percent. The Fed coddles predatory lending -- and won't even explain why. Here's hoping the Fed does at least a more credible job on JPM Chase- Bank One (more on that next week), on Regions - Union Planters, on Huntington and then SunTrust.
Talk about weak: the Fed finally asked Royal Bank of Scotland some questions; ICP on June 10 received by fax a copy of RBS' June 7 response. The questions were soft-balls: "describe due diligence performed," proposed "systems integration," and two purportedly confidential questions. Then again, these are (only) the questions of the Boston Reserve Bank. The Board, if they are even moderately consistent with other recent proceedings, will ask more and better questions. The June 17 closing of the comment period should be extended...
June 7, 2004
In Congress last week, Rep. Kelly said that the $100 million fine the Federal Reserve Board recently imposed on UBS AG for conducting illegal currency transactions with four countries subject to U.S. sanctions was "a mere slap on the wrist." What then of the mere $70 million fine of Citigroup for predatory lending, including misleading examiners and shredding documentary evidence? Click here for more detailed communications ICP's received from whistleblowers, and see ICP's CRA Report for the Fed's new question (to North Fork) about banks funding pawnshops, check cashers and rent-to-own businesses. ICP has re- submitted this question with regard to at least two other applications pending before the Fed: Huntington - Unizan, and BNP - Community First. The Fed should be consistent between regions, it would seem...
On another front, ICP has timely raised to the Fed the New York Times of June 6, 2004, " Lockboxes, Iraqi Loot And a Trail To the Fed," by Timothy O'Brien:
WHEN a United States Army sergeant broke through a false wall in a small building in Baghdad on a Friday afternoon a little over a year ago, he discovered more than three dozen sealed boxes containing about $160 million in neatly bundled $100 bills. Later that day, soldiers found more cash in other hideaways near the Tigris River, in an exclusive neighborhood that elite members of Saddam Hussein's government once called home. By the end of the evening, they had amassed 164 metal boxes, all riveted shut, that held about $650 million in shrink-wrapped greenbacks.... The investigation led quickly to the vaults of four Western banks that were among a select group handling the sensitive task of distributing freshly printed dollars overseas: the Bank of America, the HSBC Group, the Royal Bank of Scotland and UBS. ... After American forces in Iraq discovered an additional $112 million in hidden cash, on top of the $650 million they had already found, the Fed's cashiers tracked it to the same vaults and to a Fed vault at HSBC in Frankfurt, a Royal Bank of Scotland vault in London and to other locations the Fed has not disclosed. (Emphasis added).
ICP has raised this in a timely comment on RBS - Charter One...
June 1, 2004
Pennies on the dollar, swept under the rug: just before the holiday, on May 27, the Federal Reserve announced a cease-and-desist enforcement action against Citigroup's subprime CitiFinancial unit, calling for $20 million in restitution, a $50 million fine, and some "remedial" actions -- including revising its compensation structure and its practice of misleading examiners and destroying or hiding documents. The practices the Fed describes in the order -- illegal requiring of co-applicants in order to sell more joint credit insurance, and shifting personal unsecured loan customers into high-cost mortgage loans -- are only a few of CitiFinancial's problematic and predatory practices, the tip of the proverbial iceberg. CitiFinancial's business model is based on the sale of credit insurance that is neither asked for by, nor in most cases beneficial to, the customer, and on "upselling" customers from unsecured to home-secured loans. For example, ICP has evidence that CitiFinancial pays its branch managers based on how many sales finance loans (for furniture, for example) are converted to more lucrative real estate-secured loans. It's called "Sales Finance Conversion," or SFC, in CitiFinancial's compensation scheme, called ROCO-poly [and see new whistleblower letter ICP's received, below.]
But downplayed in the order, in Paragraph 14, is the Fed's requirement that CitiFinancial henceforth ensure "full and honest cooperation with regulatory authorities" and improve "document retention policies." The background to this is instructive, and is fully recounted in our CitiWatch Report.
During the Citi-Golden State challenge, ICP was contacted by CitiFinancial whistleblowers in Tennessee and elsewhere. ICP submitted these complaints, and evidence, to the Fed, and soon the Federal Reserve Bank of New York sent two attorneys to Knoxville, Tennessee, to depose the CitiFinancial ex-employees who had contacted ICP, and others. The American Banker of October 11, 2002, reported
"Shari Leventhal is the Fed attorney who was dispatched this week to Tennessee to conduct the inquiry, according to Inner City Press. A spokesman for the New York Fed confirmed that Ms. Leventhal was a counsel at the bank, but would not comment on her activities."
ICP was informed, by those deposed, that accompanying Ms. Leventhal were Yoon Hi Greene, Counsel, and Ms. Gretchen Downing, Bank Examiner, both of the FRBNY. ICP also reported to the Fed, and the above-named Fed employees were informed, that CitiFinancial offices removed and shredded documents. ICP named names, and locations: for example specifically at the Morristown and Jefferson City, Tennessee offices. ICP directed the Fed to specific documents that remained unshredded (because whistleblowers had hidden them), in the Jefferson City office.. ICP reported this to the Fed, and asked for copies of the deposition transcripts. The Fed has refused to provide the transcripts. And the biggest bank in the world is still run by predatory lenders, document shredders, silencers of whistleblowers....
Meanwhile, JPM Chase's attempts to downplay anticompetitive effects continue, most recently in a May 21 letter to the Federal Reserve, provided to ICP is heavy redacted form. Much of it revolves around the deposits book at JPMC's 712 Main Street, Houston office, including a large "corporate mortgage finance" account "derived in their entirety from its servicing operations, which are located in Orange, California." Why are the dollar amounts being redacted? How can the Federal Reserve countenance this? We'll see... Until next time, for or with more information, contact us.
May 24, 2004
Let's review: back in 2001, Inner City Press challenged Old Kent being acquired by Fifth Third Bank, on redlining grounds, including in Detroit. Fifth Third spokeswoman Stacie Yee said that the banks "stand behind our lending record in all of the communities we serve." (The American Banker, January 24, 2001, " Group Protests Fifth Third-Old Kent Deal"). The Federal Reserve approved the merger. Now, in 2004, the Department of Justice finally files a redlining lawsuit, for lending in 2000 and 2001. We hate to say "we told you so" -- but, we told you so...
Similarly, here's from ICP's analysis of Regions' lending in Atlanta submitted to FRB on March 26, 2004: "In the Atlanta MSA in 2002, for conventional home purchase loans, Regions (Regions Mortgage plus Regions Financial Corp.) made 445 loans to whites, and only 18 to African Americans -- 24.7 loans to whites for each loan to an African American, for Region's prime-rate lender."
Regions' May 14 response to Federal Reserve questions quotes the Fed's question number two, about Regions' glaring exclusion of African Americans from its mortgage lending--
"In light of the combined record of Regions Bank and Regions Mortgage, as compared to that of the aggregate and to the demographics in several major markets (particularly in the Atlanta, Georgia, Metropolitan Statistical Area), for receiving HMDA-reportable applications from and originating HMDA-reportable loans to African Americans and in predominantly minority census tracts... please describe... all internal reviews by Regions Bank, including its mortgage company division... (b) all efforts by Regions Bank, including its mortgage company division, to use targeted media to reach African American individuals or residents of minority tracts, (c) all efforts by the bank to develop any significant involvement with community based organizations serving minority individuals and/or residents of minority tracts."
Regions' answer says that if they application is approved, Regions would start using Union Planters' "mechanism" to analyzed HMDA data. But that hasn't been working too well, either. And Union Planters makes HOEPA loans, and funds car title lenders, including one 50% owned by a reputed Mafia figure...
May 17, 2004
...So the Fed now asks some applicants about their links with payday lenders and car title lenders -- but an open question is what the Fed is going to DO about it. In ICP's May 17 comments to the Federal Reserve Bank of Atlanta on SunTrust - National Commerce, ICP quotes from the Fed's questions to Regions - Union Planters:
Please describe all business relationships involving Regions or Union Planters and any of their direct or indirect subsidiaries (as lender or provider of credit facilities, for example) and unaffiliated payday lenders or car title lenders. In doing so, identify the relevant parties and describe the nature of the relationships, including the respective roles and responsibilities of the (i) payday lender or car title lenders and (ii) Regions, Union Planters, or any subsidiary of either company. Discuss whether Regions, Union Planters, or any subsidiary of either company plays any role, formal or otherwise, in the lending practices and credit review processes of the lender(s). Additionally, describe the due diligence concerning each lender's compliance with applicable consumer protection and fair lending laws that Regions or Union Planters typically conducts before extending a loan or providing a credit facility to such a lender. (Emphasis added).
SunTrust lends / provides credit facilities to car title lenders (and pawn and gun shops) throughout Georgia, Tennessee, Alabama, Florida, Virginia, Maryland and elsewhere. Huntington similarly funds fringe finance, in Ohio, Florida and elsewhere. At a minimum, questions like the above must be posed to these banks by the Federal Reserve...
JP Morgan Chase and Bank One continue their ex parte lobbying of the Federal Reserve, including on antitrust: last week ICP received a copy of a curt letter in which JPM Chase's outside antitrust counsel notified ICP and another party that they'd be calling Fed staffers. Under the Fed's rules, timely commenters like ICP are supposed to be invited to participate in, or at least listen in on, such communications. We're still waiting...
May 10, 2004
The Fed is for now allowing JPM Chase and Bank One to dodge the payday lending, check cashier and other fringe finance issues that ICP and many others raised at the hearings. In a letter to the Federal Reserve dated April 30, received by ICP last week, JPM Chase and Bank One purport to respond to testimony given at the public meetings. Amazingly, they entirely avoid the payday lending, pawnshop, check cashier and other fringe finance issues. One must assume that the Fed will pursue this...
In terms of the proposed combo's effects, on May 5, the banks announced in an employee memo that, for example, Bank One will slash at least 185 Indianapolis-area jobs. Between July 1 and Oct. 31, 170 mortgage service workers in Fishers and 15 other employees in Bank One's offices in Downtown Indianapolis will lose their jobs, said Bank One spokesman Tom Kelly. In Ohio, Bank One announced another 120 job cuts at a mortgage-processing center in Findlay, which will close. The company also told 200 workers in its capital-markets and commercial-banking divisions that their jobs will be cut....
On May 4, it was leaked then announced that Royal Bank of Scotland proposes to acquire Charter One Financial, for $10.5 billion. Unbeknownst to many, including what Citizens Bank calls its community partners (while seeking to redact their names, as we've previously noted), RBS' Citizens Mortgage Corporation has loan origination partnerships with subprime lenders, including Option One, Fremont Investment and Loan, and the KeyCorp unit known as Champion ("when you bank says no, Champion says.. yes," as the TV ads have it). Additionally, RBS owns the investment bank Greenwich Capital Markets, which securitizes subprime loans for such lenders as Aames, Accredited, and Delta (including while it was being sued for predatory lending). RBS has been defensive and arrogant about these connections with questionable subprime lenders; now RBS wants to more than double its size in the U.S..
ICP / Fair Finance Watch sprung into action, preparing a detailed filing and submitting it, on May 10, to the Federal Reserve. The Fed has gotten into a groove of giving proposals by RBS and others "waivers" from the need to apply. In late 2003, ICP wrote to each of the Reserve Banks, requesting notice of waiver requests (since otherwise, the Fed is eviscerating CRA, which is enforced on expansion proposals). The Fed's response has been, to say the least, unsatisfactory. But it seems clear that the Fed could not give a waiver here; watch this space.
May 3, 2004
Will mysteries never cease? Last week, ICP received from the Fed a copy of an April 12 letter from Credit Agicole, represented by the Fed's ex-general counsel Michael Bradfield, waiving the provision that the Fed "shall act on an application before the end of the one-year period of receiving a completed application," and asking the Fed to "discontinue processing" the application "until such time at the Board's staff informs Boetie and Credit Agricole that processing will continue." What's strange about this request to discontinue is that the application is for something Credit Agricole jumped the gun and did, without Fed approval: acquire Credit Lyonnais and its U.S. subsidiaries. There's better be meaningful enforcement at the end of this process...
As reported in more detail in this week's CRA Report, Always learning -- a flurry of correspondence that Inner City Press received last week instructed, among other things, that National City Bank of Cleveland funds at least four of the top thirteen payday lenders (NatCity provides the names, while other banks including JP Morgan Chase still try to withhold the names of the payday lenders they fund); that Union Planters refers denied applicants down to its subprime unit Colonial Loan, but has no referral-up process; and that JP Morgan Chase radically mis-reported its deposits, putting false information into the public domain until the Fed closed its comment period on JPM Chase - Bank One. Each is described in brief below. Not from correspondence, but rather from the salt mines of Uniform Commercial Code research, ICP learned (and has commented) that North Fork Bank, intent on acquiring non-prime lender GreenPoint, was the only New York State bank to fund the now-closed check cashier and bill payment fiasco, CashPoint Network. CashPoint has faced suspension orders in New York, Pennsylvania, Rhode Island and other states; that North Fork funded it raises serious questions, on which ICP is demanding public hearings -- and that the FRB ask detailed questions, especially since ICP raised these issues to the Fed so early in the North Fork - GreenPoint comment period.
April 26, 2004
At its two public meetings on JPM Chase - Bank One, the Fed staffers only asked questions during the first panel, consisting of the bankers. The questions were perfunctory (at the second hearing, a softball questions about how JPM Chase would serve rural areas). There was no mention of payday lending, no attempt to nail down the vagueness of the $800 billion pledge nor of why it includes middle income mortgages, no questions about the paying of pro-merger witnesses, or the withholding until after the hearing of long-ago-requested Loan Application Register data (that's what Chase did). Apparently, the Fed believes that community groups should be grateful that a public meeting was held at all, on a $58 billion merger. ICP has heard that Fed staffers bemoan that the public meetings are less than useful. But that's by the Fed's choice -- the Fed allows the banks to fill the witness list with paid shills whose testimony could easily have been submitted in writing; the Fed declines to ask questions of detailed commenters in opposition, etc.. It may be that a panel of four is not needed, if so few questions about going to be asked. The Fed should hold hearing on a higher percentage of challenged mergers, and should experiment with format until it arrives at a less absurd one, one that actually adduces relevant evidence. Allowing some back-and-forth between the banks and the commenters would be a good start. Allowing cross-examination would be better. But even short of that, the Fed panel members should ask better questions, or even solicit suggested questions from the commenters. This week's ICP CRA Report suggests a number of questions the Fed should ask North Fork Bank, which is applying to buy GreenPoint. In that, there is time for the Fed to for once get to the bottom of issues (unlike its current dodging of organized crime connections to Union Planters-funded Community Loans of America) -- so we'll see.
While the Fed is dodging the Mafia / car title / Union Planters connection, it did ask another round of questions, to which Regions replied on April 22, withholding from ICP a portion of its response. The Fed's questions -- which the Fed didn't send to ICP, despite the Fed's own rules to this effect -- included requests for more information about Regions' new statement that "Equifirst has recently taken steps to enhance its compliance programs, including... predatory testing programs." The Fed asks about Equifirst's audits "AFTER the brokers are chosen," and the Union Planters-owned subprime lender Colonial Loan of Morristown, Tennessee. The response refers to "Confidential Exhibit A," and uses a magic market to black-out information about "indirect recreational vehicle paper and its overall volume of subprime loans. A footnote discloses that Union Planters' Colonial Loan "originates 'high rate / high rate' real estate loans (commonly referred to as 'Section 32 loan')." Now things are getting interesting....
April 19, 2004
Beyond the specifics of the Fed's too-tentative inquiries on banks' support for payday and car title lenders, and inaction to date on similar support for check cashiers and pawn and guns shops, we're compelled to note here the absurd increased security we encountered last Thursday at the Federal Reserve Bank of New York. There were sub-machine gun, a force with badges saying "Federal Reserve Police." All payphones had been removed from inside the building, at least on the publicly-accessible floors. In fact, the building was almost not accessible to the public: only two elevators, and they rarely came. On the 13th floor, guards demanded to re-check visitors bags, and to confiscate for example umbrellas, filling a container with identical black fold-up umbrellas. There were video camera, through which the witnesses could be seen: but the cameras were not on. The Reserve Banks, when you submitted Freedom of Information requests, say they are not subject to FOIA. And most of the Reserve Banks refuse to answer their mail, for example ICP's October 2003 requests for clarification about, and notice of, requests by banks for waivers from the need to apply. ICP has recently reiterated those unanswered requests to a number of Reserve Banks, including Atlanta, Philadelphia and Cleveland, and has still received no response to the question. Perhaps, going forward, under new CEO Yellen, the San Francisco Fed will finally answer. Now ICP's made some simple requests to the Federal Reserve Bank of Chicago; we'll see.
On the question of payday lending (and pawn & gun shops), squarely raised by ICP's comment and exhibits, the American Banker of April 16 quotes a Bank One spokesman that "' "We have ethical standards for all the companies we do business with and we think we have adequate standards today.' A spokesman for JP Morgan referred questions on payday lending to Bank One." But the Columbus (Ohio) Dispatch of April 15 reported:
"Bank One is aware of concerns about the type of businesses that Inner City Press cited and has a "small number of lending relationships" with those firms, spokesman Jeff Lyttle said. 'We require our customers to comply with the law,' he said. 'If they comply with the law, we do business with them.'"
So that's these two banks' standards -- anything that's not illegal is fine with them. That's a long way from "best practices," and from the standards that JPM Chase claims to have. Even Alan Greenspan distinguishes between violations of trust and "even" legality -- to the Atlanta Fed's South Sea Island, Georgia conference last week, Greenspan said that "recent allegations on Wall Street of breaches of trust or even legality, if true, could begin to undermine the very basis on which the world's greatest financial markets thrive... Guilty parties should be expeditiously punished.'' We'll see...
April 12, 2004
The Federal Reserve -- which is allowing JPM Chase to fill the April 15 public meeting at the New York Fed with members of the bank's own community advisory board -- has finally mentioned the Parmalat scandal in one of its Orders. Not surprisingly, the mention is in the nature of a dismissive cover-up. Footnote 16 of the Fed's Manulife-Hancock order last week explains that Hancock's $152 million investment in Parmalat was only "0.1 percent of John Hancock's total assets." Maybe that's why the Fed loves consolidation and ever-larger banks: any particular scandal can be ignored based on what percent of assets it is. That BofA appears to have assisted Parmalat in its scam didn't cause the Fed any pause: ICP has been informed that "no member of the Board has requested that the Order be reconsidered or modified in any manner," based on ICP's request, of the BofA-Fleet approval. The Fed's letter states that while the SEC announced its damning enforcement action against BofA on March 10, "information about the status of the investigation was presented to the Board." Then why did the order claim that BofA is cooperative and transparent, when the SEC was preparing to find precisely the opposite? Well, the Fed's letter states that the Board "retains sufficient supervisory authority to address any adjudicated misconduct that would adversely affect the managerial resources of the combined entity." Hmm... Meanwhile, though ICP has shown that Union Planters does business with a Mafia-connected car title lender, the Atlanta Fed predicts that the Board won't consider the issue (see this week's ICP Bank Beat report). Perhaps relatedly -- well, we think so -- governor Ferguson on April 8, at a luncheon organized by the San Francisco Fed, acknowledged that "some households have become burdened with excessive debt. But," he went on, "financially overextended households represent a small fraction of the total economy, and at the macroeconomic level, financial distress in the household sector seems unlikely to cut off the expansion.'' Hmm...
April 5, 2004
The Federal Reserve Board's gamesmanship around the Freedom of Information Act has gotten even worse, since Governor Susan Bies has been put in charge of FOIA appeals. The goal appears to be never admitting, in the required annual report to the Department of Justice or elsewhere, that initial withholdings were wrong. So, for example, in response to ICP's appeal of the withholding in December 2003 of Royal Bank of Scotland's fair lending-related submissions, Gov. Bies writes in a March 25 FOIA appeal determination letter that "since the time of the Secretary's determination, the submitted of the documents has consented to the release of certain of the materials that were withheld from you." Gov. Bies doesn't mention the overarching scam here: RBS, which had a merger application pending, managed to put these 125 pages in for Fed consideration, without allowing any reply from ICP -- then, post-approval, "consents" to releasing the documents. And the Fed will report to DOJ that it never had to reverse itself on FOIA in this matter. The exact same game was played in a March 15 Bies letter, which adds that "these material, although properly withheld by the Secretary under exemption 4, will be released to you at this time in view of these changed circumstances." Apparently, the Fed includes under exemption 4's "competitive harm" test the harm caused by having to show a merger's opponents the documents on which the Fed will rely.... This is taking place in JPM Chase - Bank One -- JPM Chase and Bank One have refused to substantively respond to the predatory lending issues raised, except in purportedly "Confidential" exhibits to their March 23 submission. The FRB staff on March 11, 2004, posed questions to JPM Chase and Bank One. Questions 3 and 4 are about subprime lending; JPMC's response, at 35, refers to "Confidential Exhibit 8," a list of subprime lenders JPMC does business with. This list -- like purportedly Confidential Exhibits 4-15 -- is withheld in full, without any showing that it does not contain information that is otherwise publicly available (in SEC and UCC filings and elsewhere), nor any showing of competitive harm.
In fact, JPM and Chase have in the past made public lists of subprime lenders they do business with -- for example, in November 29, 2000, letter to the New York Banking Department, by this same outside counsel (in a chart headed "Chase Securities Lead and Co-Managed Business," including Conseco, Block Mortgage, Option One, Green Tree, Saxon and Centex, which ICP has submitted to the FRB). How can it be that JPM Chase is trying to be even less transparent now, in 2004, than it was in 2000, despite the increasing centrality of questions of (and JPMC's increasing, unverifiable claims about) predatory lending? Others of JPMC's peers have made public lists of subprime lenders they do business with. The only purpose of this withholding in full, it appears, is to deny the public the right to comment to the FRB on the list, and JPMC's claims to not do business with predatory lenders, prior to the public meeting. This cynical strategy cannot be countenanced -- on March 29, ICP submitted a FOIA appeal / request, demanding that all improperly withheld portions be released prior to the public meetings...
At those meetings, the banks' solicitations of favorable comments will be an issue -- as is, last week, National City's solicitation (but failure to provide copies) of letters of support of its proposed take-over of Provident. [Non-FOIA Fed report, from deal-relevant Dayton, OH: Chicago Fed president Mike Moskow, last week told students there that "Many of our business contacts have told us that they will have to hire soon if strong demand continues'' and ``I think that it will,." Well alright.] Meanwhile, on Capital One, the Fed waited until 5:30 p.m. on the day the comment period expired in order to fax ICP the responsive documents....
Gov. Bies has also taken to automatically denying requests for discretionary release of information under 12 CFR 261.22. ICP has made such requests exactly has it did in the past (when the requests were considered); under Gov. Bies, such requests "will not be considered further."
Well, here's something for the Fed to consider: this week's ICP CRA Report shows that Union Planters' funded Community Loans of America is owned by an individual who has been barred by gambling commissions in such states as New Jersey and Nevada for having organized crime connections. This week's ICP Bank Beat reports the Delaware Insurance Department's finding that Manulife directors neglected to disclose, in required biographical affidavits, corporate governance-related litigation against them (while Manulife is applying to become a bank holding company). Our question: what does it take, to make the Fed take action that's not merely bank-protective? We'll see...
March 29, 2004
The Federal Reserve Board late on Friday afternoon announced two public hearings, on April 15 in New York City and April 23 in Chicago. The announcement came 11 days after the Fed closed the comment period, and one day after an article in the American Banker newspaper reported that "as of Wednesday 95 comment letters on the Bank On deal, most of them negative, had poured into the Fed since J.P Morgan Chase submitted its application," and quoted ICP as " flabbergast[ed]... What is the standard?"
Now that hearings have been scheduled, ICP has put in a formal request to JPM Chase for its 2003 mortgage lending data, broken down into subprime and prime, and for information about "safeguards, if any, for purchasing, securitizing and otherwise enabling (including through warehouse lending) other subprime lenders." Bank One's enabling of payday lenders will also be explored...
JPM Chase on March 26 claimed to the New York Banking Department, in response to ICP's comments to the NYBD, that it is foreclosing on only 4.43% of its subprime loans in Philadelphia (a market ICP has analyzed) -- but then discloses, in a footnote, that "data do not include cases where a JPMC affiliate acts as trustee of a securitization but CMMC is not servicing the loan." But it's the trustee who forecloses...
To the Fed, JPM Chase has been submitting nearly identical "responses" to comments, and has yet to respond on, for example, the enabling of payday lenders. Now with the hearings scheduled, JPMC will presumably HAVE to respond.
March 22, 2004
So now we have to ask -- how can the Federal Reserve governors justify to themselves ignoring their recent BofA-Fleet precedent (two public hearings held on a $47 billion merger proposal), and not holding any hearings on JPM Chase - Bank One? JPM Chase's responses to comments are by rote, the same thing, letter after letter. It's not even clear if the Federal Reserve has asked JPM Chase any questions. Particularly heading into a March 25 Consumer Advisory Council where governor Gramlich and others will pretend to take seriously the GAO's admonition for the Fed to do more to fight predatory lending, the failure to ask JPM Chase any questions, the failure to hold a hearing, reflect a Fed out of control....
March 15, 2004
Inner City Press / Fair Finance Watch has now filed a timely request for reconsideration to the Federal Reserve on Bank of America - Fleet -- click here to view -- and another timely comment to the Fed opposing JPM Chase - Bank One. Numerous requests for extension and for public hearings on JPMC-Bank One went in, each urging the Fed to "pay close attention to, and inquire into, JP Morgan Chase's subprime lending, and its role as securitizer and foreclosing trustee for other lenders' subprime loans, as well as Bank One's tax refund anticipation lending and funding of high-cost payday lenders, documented in comments the Federal Reserve has already received." Meanwhile, on the business day just prior to the Fed's slated expiration of comment period, JPM Chase's executive vice president Mark Willis took questions at the Hyatt Regency on Capitol Hill, at a session on predatory lending. When asked (by ICP) if the standards which Chase claims for its own subprime lending are extended to the subprime lenders for which JPM Chase securitizes, acts as trustee, and to which it makes warehouse loans, Mr. Willis said that he wasn't sure, but that it is "a good question," one that he will look into and then definitively answer. The interim answer was that JPM Chase aspires to and/or claims to have achieved such consistency in practices -- a proposition that was immediately met with skepticism, by interlocutor and audience. Among the inconsistencies are the imposition of mandatory arbitration by subprime lenders JPM Chase works with, their use of five year prepayment penalties, YSPs and other matters. At press time, it is unclear if and when the Federal Reserve will hold the multiply-requested public hearings -- it not, it'd be an outrage. But there and/or elsewhere, the issues will be pursued...
The Fed's kid-gloves approach for mega-banks, even when they flout the law, was made even clearer last week, when the Fed "revolved" lawlessness by Credit Agricole and Lyonnais for a mere $13 million. Credit Agricole failed to keep its part of a 2000 agreement with regulators, failed to maintain accurate books and records, and to submit reports to state bank regulators. The fines include $3 million to the Fed to "resolve allegations it bought shares in Credit Lyonnais and a related securities firm in 2002 without prior Fed approval." The message, apparently, is that the privileged can ignore the BHC Act and acquire U.S. banks without application or approval, then pay $3 million after the fact -- this after BCCI and its "lessons"... Then again, Credit Agricole hired the Fed's ex-general counsel to schmooze his way through this -- effectively, it appears...
March 8, 2004
In the run-up to a week of Washington (and Fed) watching, a follow-up on last week's GAO sleazy story. The Fed's response was in the form of a two-and-a-half page letter from Governor Gramlich; it disagrees with the GAO recommendation that the Fed be given more, or clearer, power to examine subprime lenders which are bank holding company subsidiaries. Gov. Gramlich claims that "the existing structure has not been a barrier to Federal Reserve oversight" -- a statement called into question by the Fed's repeated response, in merger approval orders, that the evidence presented has merely been forwarded on to the Federal Trade Commission. "No barrier" -- if want you want is to stonewall. Gov. Gramlich -- we're quite clear this was written by Fed staff, but he is the one who signed it -- then offers as proof of the Fed's seriousness the Fed's purported examination of CitiFinancial, announced during Citigroup - EAB. But the Fed has never announced any results of this exam; it denied all FOIA requests, including requests by individuals whom it interviewed for transcripts of the interviews. "No barrier" -- if want you want is to whitewash the stone wall you erect. Finally, Gov. Gramlich claims that the GAO's recommendations would put the CitiFinancial's of the world as a competitive disadvantage when compared to unregulated lenders. Now, we think, we understand how Citigroup, JP Morgan Chase et al. got involved in Enron, WorldCom, Dynergy and all the rest -- the Fed didn't want to put them at a competitive disadvantage. For shame...
We'd also be remiss to let slide the Fed's 16-page approval order for New Haven Savings Bank, demutualizing and buying two other Connecticut banks. After months of review, the Fed entirely sidesteps the major issues raised, and relies on outdated and discredited CRA exams. The Fed refused to extend the comment period in light of state public hearings on the proposal, so perhaps it's no surprise... As reviewed in this week's CRA Report, the Fed is now faced with mounting evidence of Bank One's enabling of payday lenders -- what the Fed will do remains to be seen...
The Fed put BofA-Fleet on its agenda for March 8, despite the continued withholding of most of BofA's responses to questions about subprime and Oakmont (and despite Fed lawyer Kit Wheatley's "two to three weeks" representation to the federal District Court in Hawaii, well less than two weeks ago...
March 1, 2004
Policy first, then the concrete: the Federal Reserve's responses to the GAO predatory lending study released last week were shameful. Despite the harm to consumers that has flowed from bank holding company subsidiary lending -- the GAO says that over one-quarter of subprime loans are made by BHC subsidiaries -- the Fed doesn't want to have to examine these subsidiaries, allegedly because it would create a competitive disparity with non-holding company lenders. The Fed doesn't address the fact that, if you're going to engage in standardless subprime lending while affiliated with a bank, it raises reputational and even safety-and-soundness issues...
Meanwhile, the Fed has yet to ask JPM Chase about its subprime lending, direct and enabling. In the Chase FSB proceeding, the Fed shamefully did nothing, asked nothing, not even what it's asked Bank of America, Wells Fargo and others. Now Chase is citing that proceeding back to the Fed. Lazy proceedings make for bad precedents...
The Fed so far is allowing National City to withholding most of its response about First Franklin and its subprime lending, in essence allowing the company to make secret arguments. It's getting worse and worse, including on FOIA, at the Fed...
Problems in both BofA's and Fleet's business are increasingly coming to light, as their merger applications still pend. On Feb. 24, federal and state regulators filed charges Tuesday against two FleetBoston Financial Corp. fund management units, alleging civil fraud in connection with market timing of fund trades. The next day, a California jury on Wednesday ordered Bank of America to pay at least $75 million in a lawsuit that plaintiffs' lawyers said could eventually bring $1 billion of damages. The suit, filed on behalf of more than one million customers, claimed the Charlotte company illegally used electronically deposited Social Security funds to pay overdraft charges on checking accounts. Still brewing (or steaming, for you cappuccino lovers out there), is Parmalat. Meanwhile, Federal Reserve lawyer Katherine Wheatley says the Fed will rule on BofA's applications in two to three weeks. How does she know that? And if that time-frame's true, how could the Fed do anything but deny BofA's application? Until next time, for or with more information, contact us.
February 23, 2004
On February 19, Inner City Press received a copy of a BofA response, dated Feb. 10, to twelve Federal Reserve Board questions, including about Oakmont (a subprime lender of which BofA owns 82%) and other subprime lenders with which BofA does business. BofA has requested confidential treatment for nearly all of its response on these issues; ICP has appealed:
The FRB staff on January 29, 2004, posed 12 questions, three of which have been omitted from BofA's response (the FRB inexplicable, and contrary to the FRB's own rules, apparently did not transmit a copy of its Additional Information letter to ICP, by fax, mail, or otherwise). Question 3 is about Oakmont, the subprime lender owned and controlled by BofA; BofA responds, "See Confidential Section, Response 3(a)." Similarly without merit, BofA claims "Confidential" status for its management interlocks with Oakmont, its business relationships with Oakmont, whether it proposes to securitize or purchase Oakmont loans, etc.. In response to Question 5, about BofA's previous statement that, following comments, it is "reviewing its existing policies," BofA claims Confidential treatment for its whole response. BofA's delays and withholdings are outrageous...
Meanwhile, the Fed has allowed the comment period to start running on National City's Provident proposal less than a week after the deal was announced -- and apparently before National City has submitted any application. National City's Allegiant application has disappeared from the Fed's H2A web site. [Update: and then, after this Report, went back up, in the H2A midweek update of Feb. 24.] But what of standardless subprime lending at National City's First Franklin unit? We'll see...
February 16, 2004
Last week, Inner City Press filed five Freedom of Information Act appeals with the Federal Reserve, challenging the Fed's increasing opaqueness and lawlessness, particularly in the service of the largest banks and their subprime lending operations. JP Morgan Chase, Wells Fargo, Bank of America -- on this last, the Fed has allowed BofA to delay two weeks in mailing out to commenters its response to Fed questions (which themselves should have been sent to commenters, but weren't). ICP has appealed "for all withheld portions of the January 23, 2004 (dated) and December 22, 2003, submissions by Bank of America Corporation ("BofA") regarding CRA and fair lending. BofA's submissions dated January 23, 2004, purporting to respond to issues raised by ICP and other, was regular-mailed to ICP by BofA on February 2, 2004 (see attached copy of envelope, with postmark). A full paragraph about Oakmont Mortgage, HMDA irregularities and predatory lending has been redacted... The 188 full pages (and other redacted information) should be released -- including under 12 CFR §261.22 -- this also applies to the redacted portions of BofA's late-provided January 23, 2004, submission, regarding Oakmont - ICP wants and deserves this prior to the FRB ruling on BofA's Fleet applications, given that ICP timely raised this issue, during the comment period (BofA acquired its stake in Oakmont on Dec. 15, 2003). FOIA exemptions should not be used to withhold information regarding alleged predatory lending and other compliance issues at subprime lenders in which mega-banks like BofA acquire ownership positions. Again, this is a request also under 12 CFR §261.22, and ICP asks for a response, under the rules (from the General Counsel, or a Governor), prior to any ruling other than denial on BofA's Fleet applications." Regarding JP Morgan Chase,
The FRB's determination letter states that 63 pages have been withheld in full. Among the documents provided is a redacted e-mail of Dec. 4, 2003, from Katie S. Cox to Betsy Cross, Beverly Smith, Melissa Clark, Pat Robinson and others, referencing an ex parte phone call to the attorney for JP Morgan, in which the FRB asked for "copies of correspondence between JP Morgan and the OTS." None of this correspondence was provided to ICP, despite the fact that the FRB's approval order references the OTS' approval, and the FRB considered this information as rebutting ICP's comments. These records must be provided, in response to this appeal. We also appeal from the redactions to the e-mails provided to ICP along with the Denial letter. For example, in the Dec. 4, 2003, e-mail, Ms. Cox states "The attorney also [REDACTED]."
The Fed's secret communications with JP Morgan Chase, including regarding the applications, must be released. Developing...
February 9, 2004
The Federal Reserve does not even follow its own rules. It is supposed to send copies of its communications with protested banks to those who filed protests. But in the National City - Allegiant proceeding, the Fed never sent Inner City Press / Fair Finance Watch a copy of its January 14 questions to National City. It directed National City to send a copy of its responses to ICP -- but National City did not, apparently with no repercussions. Only under cover letter dated January 30, regular-mailed to ICP, were the questions and answers provided. And even then, National City requests confidential treatment for nearly all of its response about it subprime lending unit, First Franklin (Exhibits D through F). National City makes claims about real estate brokers, the lack of any "referral-up" program, and even tries to deny that First Franklin IS a subprime lender -- and then tries to withhold all exhibits. The Fed - and not only the Cleveland Reserve Bank - is supposed to review this withholding; ICP will await the rest of the exhibits, in response to its FOIA appeal. Other FOIA appeals are in preparation, since the Fed can't seem to follow even its own rules anymore...
On another deal pending before the Fed, AP of Feb. 2 reported that "New Haven Mayor John DeStefano, an outspoken opponent of a contentious New Haven Savings Bank deal, has signed a deal requiring him not to criticize the bank for five years. If the mayor breaks the agreement, which requires all public statements be cleared by the bank, New Haven Savings Bank could revoke its $25 million pledge to create a community lending institution.... Th[e] pledge, reported Monday by the Register, prohibits the mayor from making any critical statements of the bank and requires him 'use his best efforts' to convince other bank opponents to back down." In the past, the Fed would inquire into the scope and ramifications of such gag orders (for example, during First Union - CoreStates). Will they now? We'll see...
February 2, 2004
The Federal Reserve Board hits a new low in its twelve-page Jan. 30 order on J.P. Morgan Chase's application to put its nationwide consumer lending into a federal savings bank. The Fed relies on the Office of Thrift Supervision's approval as somehow rebutting the comments the Fed received -- despite the fact that the OTS' order states that it considered no comments, and despite the fact that the OTS already began including projected assessment fees from Chase FSB in the OTS' budget, even while the application was pending. Faced with detailed information about such matters as Chase-encouraged social security number fraud, the Fed clings to one line from an Oregon Department of Justice letter (to Chase), and ignores the Oregon DOJ's other and more recent statements - including a statement last week that Oregon DOJ is still pursuing the Chase matters with "a federal agency," not the Federal Reserve. And why would Oregon DOJ, or any one else, count on the Fed to be objective in regulating favored, too-big-to-fail companies with JP Morgan Chase, or Citigroup?
A footnote: another low is the Federal Reserve Bank of New York's January 15, 2004, letter to ICP, stating that information forwarded to the Fed by the Michigan Attorney General's office "was determined not to be a consumer complaint... As you know, the OTS approved this application on November 28, 2003. Based upon these facts, our Consumer Complaint Unit will not process your letter as a consumer complaint." But we knew that -- Chase is protected at the Fed, it appears...
A second footnote: some argue that particularly weak Fed orders like this might be attributable to which Fed staff members the "case" was assigned to. But the Fed is in charge of its orders; the Governors, presumably, read them before voting... On Chase FSB, according to a Dec. 4, 2003, e-mail released to ICP, the Fed's Katie S. Cox "called the attorney for JP Morgan" and asked for correspondence with the OTS (which has still not been released to ICP), stating that "I don't want to re-invent the wheel, so I'm included to see what the OTS asked before sending our own AI letter." Apparently, no Additional Information letter was ever sent -- another new low of arbitrariness, not unlike the failure, yet, to ask questions to National City, in connection with its Allegiant proposal...
Meanwhile the Fed continues its inappropriate policy of secrecy on bank holding company applications, particular those involving non-U.S. applicants (like Manulife) and non-U.S. operations. Last week Manulife responded to FRB questions of Jan. 14 (which were not sent to Inner City Press, contrary to the FRB's own rules); Manulife states that "Confidential Exhibit 4 includes all direct and indirect foreign subsidiaries" of John Hancock..."an organizational chart is included on page 9 of Confidential Exhibit 10." But subsidiary-lists of a bank holding company are not exempt from FOIA. Similarly, the Fed on Jan. 27 ruled that, regarding Royal Bank of Scotland's / Citizens Financial Group's Community Reinvestment Act record, "approximately 1 1/2 linear inches will be withheld from you in full." Secrecy, conflicts of interest and protection of those deemed too-big-to-fail -- again, it's getting pathetic...
January 26, 2004
Loose (and ill-informed?) lips at the Federal Reserve Bank of Cleveland: last week, a reporter was told by FRB of Cleveland contact that National City's application to acquire Allegiant would be ruled on and approved on Monday, January 26, and that the convoking of any hearing was highly unlikely. But you know what? No FRS staffer should predict in advance what the governors will be in their closed meeting; no Reserve Bank should so blatantly play cheerleader to its regulatees (FRB Cleveland's done this before).
Meanwhile the FRB, by letter dated January 13, further extends its time to respond to Inner City Press' FOIA request about JP Morgan Chase, "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." (The Fed's pulling the same unilateral time-extension regarding Royal Bank of Scotland, on CRA issues). One would expect the Fed to hold off on Chase's application to form a federal savings bank and shift its nationwide consumer finance lending into it, at least until Chase makes clear which of Bank One's operations it proposes to put into the thrift and gain preemption -- but we'll see...
January 20, 2004
Federal Reserve gamesmanship, there's nothing like it. Having before it an insurance mega-merger application (Manulife - Hancock), the Fed waited until the day that its listed comment period ended (Jan. 12) to mail Inner City Press a letter about ICP's month-old FOIA request. ICP asked for an extension of the comment period then received a phone message, and subsequent fax, that the comment period ran longer than is listed on the Fed's web site's H2A. But where are the documents that Manulife's asking be withheld? We'll see...
Additionally (and mysteriously), a Fed staff memo was mailed to ICP, dated Jan. 13, reciting in a paragraph a Jan. 8 conference call between Fed staff and lawyers representing New Haven Savings Bank. NHSB said it intends "to submit an amendment to its application" because it "continue[s] to engage in dialogue with certain commenters in an effort to address the commenters' concerns. In addition, NewAlliance confirmed that it would send a copy of the amendment to each of the commenters on its application." We'll report it here - but note that the Fed refused to extend the comment period, even in light of a then-upcoming Connecticut Banking Department public hearing, but will listen to the applicant, apparently, upon request...
Finally (for this week), ICP was provided with a heavily redacted copy of another Credit Agricole response, this time about leasing subsidiaries, including Credit Lyonnais Leasing Corp., which among other things leases oil platforms...
January 12, 2004
In the run-up to this week's two Federal Reserve public meetings on Bank of
America's applications to acquire Fleet, the Fed granted a comment period extension on a
piece of a large (but largely hush-hush, in the U.S.) merger, that between Credit Agricole
and Credit Lyonnais. The Fed, seemingly contrary to the laws it administers, allowed the
deal to be consummated without any Fed approval. Now after the fact Credit Agricole and
its affiliate Boétie have applied, triggered by their controlling stake in Espirito Santo
Bank in Miami. This is a bank with a ludicrous 100% reported approval rate for mortgage
applications. ICP raised it, months ago; the Fed asked questions. But Credit Agricole's
lawyer, an ex-Fed general counsel, was given months to respond. Now he has, in dismissive
and evasive fashion. ICP has a few days to formally comment on it, but here goes:
On January 8, FRB staff faxed ICP a copy of Credit Agricole's counsel's December 31, 2003, months-late response to the FRB's seven CRA- and HMDA-related questions, and stated that the FRB is granting ICP five days, starting from January 9, to comment thereon. ICP has, into the record, noted among other things the 100% approval rate reported in 2001 and 2002 by Espirito Santo Bank (ESB). The FRB asked about compliance with HMDA, work with mortgage brokers, and measures to prevent illegal pre-screening, discouragement, or exclusion of credit applicants. Credit Agricole's answers, months delayed, are outrageous. No credible explanation of the 100% approval rate is given -- all Credit Agricole claims is that "the vast majority" of applicants "come from customers with whom the Bank already has a relationship or borrowers that have been referred by existing customers." Not only does that not explain the 100% approval rate -- beyond that, Credit Agricole claims "specific data on the number of Bank originations in 2001 and 2002 to those with existing customer relationships... are not available to ESB at this time." Question: when will this basic data, regarding which CA makes representations, be available? Bigger question: how bogus a response with the Fed accept, as long as it comes from an ex-Fed general counsel?
Or consider the contentless "response" submitted Jan. 8 by National City Corp. chairman Dave Daberko to the Federal Reserve Bank of Cleveland. It's a two page letter, that provides no explanation of the lending patterns at NatCity's subprime lender First Franklin, or of anti-predatory lending safeguards, referral-up, nothing -- all things that the Fed has asked other subprime lenders about. So will the Fed at least ask NatCity the same type of question it asked Wells Fargo, in mid-2003? We'll see.
A final note: with last week's Fed Consumer Advisory Committee appointments, the Fed now has simultaneously on its CAC representatives from Citigroup, Morgan Chase and Bank of America. Thus is the Fed advised on consumer protection issues...
January 5, 2004
The Fed gets more and more lax, as we enter 2004. Take for example the Bank of America - Fleet proceeding. On this $47 billion proposed merger, the Fed has asked a total of FOUR Community Reinvestment Act- and predatory lending-related questions. These were in a December 11 letter that the Fed sent to BofA, but not to the commenters, including Inner City Press. We only learned of the questions when we received, just before New Years, a copy of BofA's response. BofA, apparently with a wink from at least some Fed staffers, has tried to withhold from the commenters including ICP all portions of its response to the Fed's request that "to the extent not already covered in your December 3, 2003 responses to the comments of the Inner City Press Community on the Move and [FFW and CRC], describe the due diligence that Bank of America typically conducts concerning a subprime lender's compliance with applicable fair lending and consumer protection laws when Bank of America enters into these business relations...". BofA's response, by the statement above, relates to the issues raised by ICP and CRC. This is precisely the type of information that's supposed to given to the commenters -- but the Fed for now, in the run-up to its public meetings, is allowing BoA to withhold it. ICP has appealed, demanding a response (and the documents) prior to January 14. We'll see.
Also, the Fed has apparently yet to ask Morgan Chase any questions, despite detailed and troubling exhibits timely submitted on a Chase application (to form and acquire a federal savings bank and preempt all state laws). See this week's Chase Watch Report for more; developing...
December 29, 2003
Fed CRA 2004 will begin with public hearings on Bank of America's Fleet acquisition proposal, Jan. 14 in Boston and Jan. 16 in San Francisco. But what of 2003? The Fed held no merger hearing -- it declined to get involved in the predatory acquisition bleeding over from 2002, HSBC-Household; it never announced any results of its supposed examination of CitiFinancial (whose proposed acquisition of WaMu Finance it is also staying away from). What an agency...
In this shortened, holiday-week report, we'll end with a question, based on a Dec. 3, 2003, ABC News report about Iraq:
"The captured finance minister, al-Azzawi, has described a scheme involving banks in Beirut, Lebanon and Amman, Jordan, U.S. officials told ABCNEWS. According to al-Azzawi, those banks disguised their requests for U.S. cash by using the London headquarters of a British-based bank as a go-between. Officials say the bank unwittingly arranged for the cash shipment from the United States to London and then to the Middle East. Iraqi officials, including former Deputy Prime Minister Tariq Aziz, then used their diplomatic status to move the U.S. cash from Beirut, Lebanon, and Amman, Jordan, into Baghdad, said officials. "
So -- HSBC? Or Standard Chartered? Either way, the Fed should (find out and) care...
December 22-23, 2003
The time has come to ask, what is wrong with the Federal Reserve Board? The basis for the question, this week, is the Fed having let expire the comment period on the Bank of America - Fleet application, a $47 billion proposal to create a bank at / over the 10% nationwide deposit cap, without granting the many requests for a public meeting, including from each and every member of the Massachusetts Congressional delegation. What -- the Fed staff is too busy? The Fed has gotten worse and worse over the years -- for example, on a much smaller deal, Fleet - Shawmut, the Fed held three public meetings, in Boston, Hartford and Albany. In 1998, the Fed held public meetings on four of that year's mega-merger proposal. And since then? Nothing.
[Update of December 22-23, 2003: Well, on the afternoon of Dec. 22, seventy hours after letting the comment period on BofA-Fleet expire, the Fed announced two public meetings on the application: Jan. 14 in Boston, and Jan. 16 in San Francisco. We'll be gearing up... For or with more information, contact us.]
...Governor Susan Bies sent ICP a Dec. 19 FOIA appeal response regarding the more then 100 pages of BofA-Fleet documents the Fed is withholding. Gov. Bies "upholds" all of the withholdings, but states that "[t]he withheld material includes an item, consisting of seven pages, that was voluntarily submitted by Bank of America before the application and notice were filed that was commercial and financial in nature. I have confirmed that this information is not customarily disclosed to the public by the submitter.... Bank of America recently withdrew its request for confidential treatment of a portion of this item. Accordingly, you will be provided with four full pages and one page that has been redacted to remove descriptions of information that remains confidential."
How convenient -- the Fed is never wrong, rather, the submitter withdraws its request for confidential treatment. The scam is that if one doesn't submit a FOIA appeal (which too few requesters do), you're not told that the previously withheld information is now "public." (And so, it's not public). The Fed's manipulation of FOIA, including in its annual reports, continues and grows worse.
The four-and-a-half page released, right at the comment period deadline, included e-mails concerning a November 10, 2003, conference call with BofA -- e-mails from BofA's Scott Cammarn to the Fed's Scott Alvarez and others, entitled "Fleet Deposit Cap Talking Points." The attachment, only partially released, states that if the FDIC's June 30, 2003 Summary of Deposits -- the data set the Fed used in 1998 on BofA-NationsBank -- is used, a combined BofA-Fleet would hold 10.02% of nationwide deposits. But then, BofA's "Talking Points" tell the Fed, "This Calculation is Wrong." There follows an argument about thrift escrow funds, which is repeated in BofA's application. But why run this argument by the Fed before applying, except to get pre-approval? Developing... Click here about CitiFinancial, which the Fed was supposedly examining, though no results are ever announced...
December 15, 2003
More on the Fed and FOIA: on December 12, Inner City Press received a partially withheld, partially blacked-out set of documents for Royal Bank of Scotland, apparently with the FRB's agreement to the withholdings. And so we've appealed:
Dear Governor deciding FOIA Appeals:
On behalf of Inner City Press/Community on the Move and its members and affiliates, and the Fair Finance Watch (collectively hereinbelow, "ICP"), this letter is a timely appeal / request for all withheld portions of the December 11, 2003, submission by Royal Bank of Scotland / Citizens Financial Group, responding to CRA and fair lending related questions posed by the FRB Staff on December 5, 2003, in connection with an RBS application ICP has timely protested. RBS was required to send ICP a copy under the FRB's Anti-Ex Parte Communication Rules [a copy of the FRB's Dec. 5, 2003, letter to RBS should have been sent to ICP, under the clear terms of the FRB's Ex Parte Rules, but wasn't], however, large portions of RBS' response are being withheld from ICP. Hence this FOIA appeal / request. It is an appeal in light, inter alia, of RBS' statement, on page 3 of its Dec. 11 letter, that "the Notificants withdraw their request to the Board and the Reserve Bank to accord confidential treatment to the tables" -- implying that the limited scope of information being released to ICP was negotiated between RBS and the FRB: a request for confidential treatment made, and then withdrawn, presumably at FRS direction; other requests for confidential treatment still in place, and information still being withheld. This is confirmed elsewhere on page 3, where RBS states that "the charts originally were included behind Tab C of the ["Confidential"] Supplement but are now being made publicly available in their entirety." ICP demands the improperly withheld records before the FRS acts on RBS's application (other than to deny them).
The FRB staff on Dec. 5, 2003, posed five questions; RBS' Dec. 11 submission, as provided to ICP, withholds most of the response. For example, in response to question (a), RBS has provided ICP with a heavily redacted "Tab A," "LMI Loan Program product matrix" -- more than half of the page, about "low and moderate income loans," is obscured by black magic marker. The document is entitled "CRA Product Matrix;" on it, even the names of the categories of the information being obscured are redacted. This in turn makes other disclosures in Tab B useless: numbers are given for code-named programs (Programs "RDA," "ACR," "CEN," "1301" and "8084," for example, in PA).
Most outrageous, however, is the withholding in full of "Tab D," which according to RBS includes information about community development loans, the names and "missions of the various organizations with which Citizens PA and Citizens DE made these community development loans," and even the "purpose" of the loans. The entirely withheld Tab E contains similar, even less exempt, information. The withholding of this type of information is entirely contrary to FOIA [and, the Fed should know, to provisions of the GLB Act -- RBS has recently included, in its response to adverse CRA comments, letters of support from organizations, including one regarding which information is redacted, in its Tab A...]. Amazingly, in the withheld Tab F, RBS even tries to withhold all information about "seminars and programs" it participates in, or claims to participate in. The idea that the release of this information would cause significant competitive harm to RBS is laughable; the attempt to withhold such information, in a contested applications proceeding, is outrageous. All improperly withheld information should be released forthwith, prior to the FRB rendering any decision on RBS' applications other than denial.
We'll see. Click here for BofA-Fleet updates, and here about CitiFinancial, which the Fed was supposedly examining, though no results are ever announced...
December 8, 2003
Delays and bottle-necks, at least in terms of transparency, at the Federal Reserve. In the past week we've received long-delayed documents about Credit Agricole - Credit Lyonnais (a merger the Fed allowed to happen without Fed approval, and now asks about after-the-fact, as Credit Lyonnais scandals mount); and about Bank of America - Fleet, leading to a FOIA appeal. On Dec. 5, 2003, the FRB faxed ICP five pages purporting to respond to ICP's Nov. 14 request, consisting of letters from the FRB of Richmond to the FRB of Boston, DOJ and the OCC, and two e-mails (Nov. 7 from Adam Drimer to various, regarding newspaper notice, and from Pam Nardolilli to various, suggesting a meeting; Nov. 10 from Susan K. Stawick to Pam Nardolilli, regarding a press inquiry). None of the other requested documents and responses have been provided; ICP has appealed. In other FOIA news, ICP's Constitutional challenge to the Delaware Freedom of Information Act's "citizens-only" provision is proceeding, having been assigned to Judge Joseph Farnan, is now described on FirstAmendmentCenter.org (click here to view); a editorial in the Wilmington News-Journal of December 4, 2003, "Our View: Change the State's Open Records Statute So It Applies to All," recounts ICP's "federal lawsuit asserting Delaware's open-records law is unconstitutional because it refuses access to non-residents," then opines that the "exclusion is silly and probably unconstitutional. The General Assembly should attend to this when it returns to session next month." We'll see.
We also note -- as the Federal Reserve should -- Royal Bank of Scotland's CEO's recent denunciation of anti-money laundering laws, see, e.g., The Herald (Glasgow) of December 4, 2003: "Goodwin, known as Fred the Shred for his cost-cutting prowess, said: 'Many of the penalties are so draconian that you might as well report every transaction.'" Yes: if you move money, as RBS has, for companies on the Treasury Department's watch list, you might want to report - or even avoid - the transaction... Royal Bank of Scotland attempting to affect and undermine anti-predatory lending -- and now anti-money laundering -- legislation enacted by duly elected legislatures is, to put it diplomatically, distasteful...
December 1, 2003
While the Federal Reserve Bank of Richmond has acknowledged receipt of both of ICP's comments to date, and has forwarded each of them to Bank of America's legal department, BofA has yet to respond. Meanwhile, the American Banker of Dec. 1, 2003, says that ICP-published novel Predatory Bender "blend[s] the images of companies such as Citigroup Inc. and Bank of America Corp. One section reads: 'While ostensibly the fruit of three decades of community struggle, the land beneath the mall was owned by Anguilla-based EmpiBank. The anchor tenant, too, was a part of Empi's empire: a storefront office in the high-rate lender EmpiFinancial. Jack Bender had worked for EmpiBank on the outskirts of Charlotte, North Carolina, the so-called Queen City.'" -- yep... To those two you could add the Fed-supervised Wells Fargo -- which is now further exporting its predatory lending, this time to Canada. The Toronto Star of Nov. 25, 2003, now reports that Wells "has a presence in Canada with Trans Canada Credit Corp., a high-interest consumer loan company that offers mortgages to those with a poor credit rating. Now Wells Fargo has branched out in Canada with a new division called HomePlan Mortgage that will do business with a focus on those who would be rejected by a bank. It will accept business from mortgage brokers starting tomorrow. Maurice (Moe) Forget, vice-president and general manager, told the annual conference of the Canadian Institute of Mortgage Brokers and Lenders yesterday that HomePlan will lend up to 85 per cent of a home's value one year after a discharge from bankruptcy, and 100 per cent after two years... Forget won hoots of approval from brokers when he announced the loans for the recently bankrupt, or at least those who have re-established a record of repaying smaller loans."
Moe Forget - you can't make this stuff up... Click here for more on Predatory Bender; we'll be chiming in more on BofA soon...
November 24, 2003
Last week, Inner City Press / Fair Finance Watch filed a 30-page challenge to Bank of America's applications to acquire Fleet, click here to view. Will the Fed hold public hearings, or meetings as it calls them? It should. The Fed hasn't held a public meeting on a merger since 1998. Prior to that, on the smaller Fleet - Shawmut deal, the Fed held three hearings; Boston, Hartford and Albany. This proposal calls out for hearing, including because it would go over the ten percent nationwide deposit cap that Congress included at a lone safeguard in the 1997 interstate banking law. Now BofA wants the Fed to play with the numbers, and include thrift escrow funds. ICP has pointed out that, even if one accepted BofA's definition of deposits, one would have to then exclude a larger volume of deposits, including for example $43 billion in Puerto Rico. By our count, BofA-Fleet would control 10.1119% of U.S. deposits, making the deal illegal.
Given the Fed's growing lack of follow-up (see below), we're curious to see what action will be taken on reports that U.S. Trust, long coddled by the Fed, even before the Board let Schwab buy it, helped Rush Limbaugh smurf his way around the $10,000 anti-money laundering threshhold. U.S. Trust delivered $9,900 to El Rushbo -- helping a client in need, apparently. "To get his business, Limbaugh said, U.S. Trust told him that 'if I needed cash, they would bring it to me.' They also suggested he take out less than $10,000 at a time to help cut down their paperwork, he said." Great... Will the enforcement hammer further fall, as it should, on this the first spawn of the Gramm-Leach-Bliley Act? We'll see.
We can't neglect to mention how weakly reasoned the Fed's PNC-United Order last week was. On the corporate and accounting fraud issues, what can we say: we disagree, that a company, and CEO, who so recently engaged in those should be allowed to buy up another bank. But on the straight factual inconsistency of PNC's HMDA submission, all the Fed's order does is say that "the discrepancies noted by the commenter appear to have resulted from different categorization of the data by PNC Financial in its response" -- that admits that PNC tried to present data that didn't follow HMDA definitions as, in fact, HMDA data. This was cursorily referred to -- neither explained nor apologized for nor corrected -- by a PNC official, Jack Wixted, who until 2002 was a Federal Reserve official. ICP has asked for an explanation, and an improvement, of the Fed's "anti-revolving door" provisions, but has received no response from the Fed, nor the documents responsive to ICP's long-ago FOIA request for record reflecting PNC's pre-announcement, pre-application communications with the Fed about this United proposal. These have not been given -- it's similar to the way in which the Fed withheld almost everything about an application by Emigrant Savings Bank, until after the Reserve Bank approved the application, under delegated authority. And the Fed's answer on the question of requests for waivers, and of public notice thereof? There has BEEN NO ANSWER, even after an Oct. 17 FRB letter which said that one would be forthcoming. There's time to approve, and/or grant waiver, but no time to answer public interest questions....
November 17, 2003
Fed waiver / stone-wall update: to ICP's October 2, 2003, inquiries, including under FOIA, only two of the 12 Reserve Banks have responded. We previously reported on the FRB of Boston having (correctly) provided ICP with a copy of Royal Bank of Scotland's request for a waiver (which request RBS subsequently withdrew, and submitted an application). Well, last week we received, by regular mail, the FRB of Chicago's response. It was limited to the question of Bank One proposing to charter three banks, and why no application was submitted. In fact, the FRB of Chicago now says that not even a waiver request was required. Bank One's lawyer, at Wachtell Lipton, submitted a waiver request on September 8. (Then the FRB of Chicago claimed there was not such filing pending, see Reports of previous weeks). Now we learn that on September 26, Bank One's lawyer wrote in with a new argument: the proposed banks would not even BE banks, as defined in Section 2 of the BHC Act. Innovative -- and sleazy. Bank One asked for a waiver, then that got opposed; then Bank One said, and the FRB of Chicago ended up agreeing, that no waiver need even be requested. Then the FRB of Chicago waited more than a month to disclose the whole game (hoping, it seems, that the Morgan Chase - Bank One transaction could be completed first). And the other ten Reserve Banks? Who knows -- we'll be following this up.
On November 10 and 12, we received responses by PNC, this time by their Chief Regulatory Officer, Jack Wixted (who until recently worked in the Federal Reserve System). Actually, that's of concern -- where are the "revolving door" safeguards which, at most government agencies, prohibit a recent official from representing private interests before the agency he or she just left. We've raised the issue (see this week's ICP Bank Beat for more).
November 10, 2003
How the Federal Reserve allowed the mega-merger of Credit Agricole and Credit Lyonnais to go forward with no public notice or comment period is becoming clearer, but not less outrageous. On November 6, the Fed released 113 more pages responsive to Inner City Press' FOIA request. Included are handwritten letters from Credit Agricole general counsel Jean-Michel Daunizeau, then a typed one acknowledging that "without an exemption under section 4(c)(9), section 211.23(f)(5)(ii) of the Board's Regulation K would prevent CNCA from owning more than 10% of the shares of CL" (Credit Lyonnais).
But by what right -- and, separately, what wisdom -- can the Fed grant "exemptions" from the need to submit applications? This was a mega-merger; now, months later, the Fed asks Credit Agricole and its U.S. counsel to respond to timely CRA-relevant comments on the "post-consummation" application, and Credit Agricole blows them off. For example, a July 3, 2003, internal Fed email says, "I spoke with Michael Bradfield and informed him of ICP's comment. He indicated he would reply to the comment and that he would be emailing a copy of CA's 2002 ARS immediately."
Well, it was more than a month until Credit Agricole's counsel (who previously served at the Fed's general counsel) sent ICP a copy of Credit Agricole's annual report; and Credit Agricole has STILL not replied to ICP's comments, nor to the Fed's July 28 CRA-relevant questions. On that, an August 6 Fed email states that "Michael Bradfield called today to ask for more time to reply to our 7/28 A[dditional] I[nformation] letter, because he's waiting on responsive info from Espirito Santo Bank. He expected that the response could be ready Wednesday of next week." Well, that was three months ago and still not response has been submitted. The Fed staff accommodated Credit Agricole's counsel (for some Fed staffers, their previous boss), by contacting him out of the office in Pennsylvania, speaking one-on-one, etc.. We're not, we think, being sticklers here -- it's that a mega-merger was approved without an application, under a stealth "exemption" or waiver process, and tellingly the Fed has allowed the companies, post-consummation, to blow off deadlines, even those the companies themselves have promised, on CRA-relevant submissions. Not unrelatedly, the Fed has yet to release its communication with PNC about its pending acquisition proposal. For shame....
November 3, 2003
The Federal Reserve has still not responded to Inner City Press' October 2 requests, to each Reserve Bank and the Board, for notice of banks' request for waivers form the need to apply. It's November now: where's the answer?
Meanwhile, arbitrary action continues. The Fed did extend its comment period on Credit Agricole's and its affiliates' late-filed applications to acquire Credit Lyonnais, because of Credit Agricole's counsel's absurdly broad request for confidential treatment. But, in a near-identical case, in which Emigrant Bancorp / ESB Acquisition Corp's outside counsel at Sullivan & Cromwell requested confidential treatment for 155 pages of a presumptive public financial report, and kept it confidential until October 26 (nine days after the comment period closed), the Fed has provided ICP with the document -- but not extension of the comment period. What's the difference? ICP's FOIA request about Emigrant said, if the non-exempt portions of the application are not received five days before the end of the comment period, the comment period should be extended. They weren't, but it wasn't. And both of these application are pending at the same Reserve Bank....
Not that extending the Credit Agricole comment period solves the problem -- ICP continues to await a copy of the February 7, 2003 FRB letter to which Credit Agricole's counsel's submissions repeatedly refer. But in the documents released to ICP on October 21, Credit Agricole's counsel states that by this (still withheld) letter, "the Board granted CA SA, as well as SAS, temporary authority under section 4(c)(9) of the BHC Act to acquire control of the U.S. subsidiaries of CL." In terms of the Fed's statutory duties to provide public notice, and accept and consider public comment, such a grant of "temporary authority" to irrevocably consummate a mega-merger of the size and import of Credit Agricole - Credit Lyonnais is troubling. It is not dissimilar to another issues that's arisen, and that we've been following in this space, regarding the Fed quietly granting waivers from the need to submit applications. But at least in those cases, there are Bank Merger Act application, on public notice and with public comment periods, at other agencies. In this case, the Fed allowed the acquisition to take place with no public notice or comment, and now Credit Agricole has neither submitted a response to the CRA and HMDA issues raised in ICP's comments on the SAS La Boetie - Espirito Santo Bank application, nor has it responded to the Board's questions in this regard. This, then, is one of the effects of the Board granting stealth "temporary authorization" to consummate mega-mergers, without public notice or comment -- the merged companies have no reason or incentive to take the post-consummation rubber-stamp processing seriously, at least, as is clearly the case here, on CRA, HMDA and related issues. Stealth and arcane FRB rulings undermine the CRA each day. FOIA, too, is undermined by the Fed: click here to view ICP's Bank Beat report on PNC, with which the Cleveland Fed schmoozes but then no documents are even identified, much less provided. Meanwhile, as reviewed in our JPMorgan Chase Watch, the Fed's Morgan Chase - Bank One order was a joke, a new low in failure to consider adverse community lending issues, even on applications explicitly subject to CRA review...
October 27, 2003
Strange and silent partial break in the weather -- since September 29, Inner City Press has expressed to the Federal Reserve its opposition to the Fed granting Royal Bank of Scotland any waiver from the need to apply, in light of redlining, predatory lending and money laundering issues ICP is raising (and exist) about RBS. The lack of transparency regarding such waiver requests led ICP, in early October, to request from each of the Reserve Banks, and from the Board, notice of pending waiver requests. The Fed has yet to substantively respond. However, the Federal Reserve Bank of Boston, to its credit, informed ICP of a waiver request by RBS, and on October 21 send ICP a copy of the waiver request (which ICP opposed, in two comments). Then, the Fed's October 24 "Form H2A" listed an application as having now been filed by RBS, with a comment period running through November 24. It shouldn't have had to be this difficult, but we're appreciative at least of the Federal Reserve Bank of Boston's attempts to be less opaque. But the other Reserve Banks? And the Board? So far, nothing. (Although the Board did extend some comment periods last week, which although only logical we've come to appreciate, because it's not always done, even when documents are being improperly withheld). Here, the Board has granted ICP until October 29 to comment on PNC - United, and until November 3 to comment on the more-than-a-little-strange applications by Credit Agricole, regarding the already-acquired (and scandal-plagued) Credit Lyonnais. Developing...
October 20, 2003
Following up on the requests Inner City Press sent to the Federal Reserve on October 2, late on October 17 the Fed's Assistant Secretary faxed ICP a letter, full of citations to the Code of Federal Regulations but a bit light on answers. ICP had inquired into the process by which the Fed grants waivers from the need to apply (thereby undermining the Community Reinvestment Act, among other things). The Board's Oct. 17 letter reduces ICP's detailed request to the Freedom of Information Act (FOIA), and states that
"FOIA does not require agencies to honor standing requests for information or for documents that may be created or received in the future. Furthermore, your October 13 letter to the Federal Reserve Bank of Boston did not cite FOIA nor was it addressed to the Board's FOIA Office... Accordingly, those letters have not been logged in or processed as FOIA requests. Nevertheless, we have decided, in this case only, to provide you with copies of notices filed pursuant to 12 CFR 225.12(d)(2)(v) that had been received by the Federal Reserve Bank of Boston at the time of your October 13 letter... The other matters that you raised in your letters of October 2 and 13 are being reviewed by Board staff, and a separate response will be provided to you in the future."
For now we note: the Board, on its web site, directs the public to request copies of applications from the Reserve Banks, and tries to send them out within three days of a request. But for "notices" -- requests to be exempted from having to apply -- the Fed claims that it will not process (or even "log in") requests that are sent to the Reserve Banks. Since the Board can and does take 20 business days or more (see below) to respond to FOIA requests sent to Washington, the result (for now) of the above would be that it would be impossible for the public to know of, or comment on, requests for waivers. This is not acceptable.
ICP intuited a request by Royal Bank of Scotland for a waiver to acquire Philadelphia-area Roxborough-Manayunk Bank, and submitted a comment. RBS, by its October 17 cover letter to the Fed, appears to be arguing that by merely forwarding to the FRBB a copy of a submission to the Massachusetts Board of Bank Incorporation ("BBI") about an unrelated transaction, it has responded to ICP's opposition to what ICP understands to be RBS' draft notice requesting a waiver. ICP notes that it was informed that the FRS would not consider a comment about an earlier RBS transaction in opposition to a waiver request about a new transaction -- but that it would consider a comment specifically about the waiver request / target, and that a waiver could be denied or withheld, and an application required, on the basis of a comment. (This has been ICP's previous experience with the FRS, as far back as a 1994 Chase proceeding).
ICP cannot imagine the FRS deeming RBS' letter to the BBI, about a different transaction in a different state, as being responsive, or a basis to not follow past precedent and deny or withheld the waiver. There are issues that need to be considered in the context of a normal application under the BHC Act, and not the truncated, stealth context of a waiver request We've noted the incongruity between the FRBB's Community National waiver (which RBS at the September 29 BBI hearing claimed meant that the FRS "is fine" with the proposed acquisition and RBS), and the BBI's request for a response, and RBS inability to submit a response without two weeks. Now RBS submits to the FRBB a copy of its BBI / Community National response, only about New England, for the proposition that it should get a waiver for a Pennsylvania and Delaware proposal. To be updated...
In terms of the Board taking more than 20 working days to respond to a straight-forward FOIA request, including one regarding a waiver request, ICP last week received by regular mail a letter from the Fed's FOIA office, dated October 8, referring to ICP's September 5 request regarding Morgan Chase - Bank One. The letter, more than a month after ICP's request, states that "[p]ursuant to section (a)(6)(B)(i) of the FOIA, we are extending the period for our response until October 20, 2003, 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."
Meanwhile, a Morgan Chase submission to the Fed dated October 15, of ICP's questions about Bank One's (Morgan Chase-related) waiver request, says, "ICP first comments on the waiver request by Bank One Corporation and issues concerning the FRB of Chicago. It is our understanding that these issues are moot."
So that's how it works? The Reserve Bank -- Chicago, we're referring to -- can mislead the public about the existence of a waiver request, the Board can delay for more than a month in providing documents, until the co-applicant can claim that the whole issue is "moot," presumably because the stealth waiver request has been granted, beyond the reach or even knowledge of the public? Again, this is unacceptable; to be continued.
October 13, 2003
The closer we look at and into the Federal Reserve System of late, the more irregularities we find. In recent week we've covered the "mystery" of the waivers from the need to apply; this week's ICP CRA Report covers, among other things, the incongruity of the Federal Reserve Bank of Cleveland "reviewing" with PNC, that scandalous accounter, a proposed acquisition while PNC is still subject to a deferred prosecution agreement with the U.S. Department of Justice. But this week we return to something we've been looking into since June: the Fed's strikingly lackadaisical approach to the French merger of Credit Agricole and Credit Lyonnais, concerning which required U.S. approvals from the Fed were not requested nor obtained pre-consummation, as the law requires. ICP has just commented to the Fed on the third "post-consummation" application, this time for Credit Agricole and SAS Rue Le Boetie to "retain" Credit Lyonnais:
Earlier this year, ICP submitted timely comments opposing SAS Rue La Boetie's application to become a bank holding company by acquiring Espirito Santo Bank. ICP's July 3, 2003, comments among other things highlighted Espirito Santo Bank's presumptive violations of HMDA, in light of its 100% reported approval rate; it asserted a weak Community Reinvestment Act ("CRA") record and adverse managerial issues at Credit Agricole / Credit Lyonnais. On July 28, FRB staff asked Credit Agricole questions, including CRA questions; the response was due on August 7, and a copy was to be sent to ICP. On August 6, ICP telephoned FRB staff asking that it receive its copy of the response in order to be able to review it in comments on a related Credit Agricole application, the initial comment period on which ran through August 11. Apparently, the FRB gave Credit Agricole an extension -- and, more than two months later, ICP has still not received a copy of any response by Credit Agricole.
Now comes another related application, which is described in the Federal Register as requesting regulatory approval " to retain the voting shares of Credit Lyonnais." It would appear that this application should have been filed months ago -- in fact, it appears that Credit Agricole violated, and is in violation of, the Bank Holding Company Act. As to the SAS Rue La Boetie - Espirito Santo Bank application, Credit Agricole's and SAS's position seems to be that they had an argument that no application was required. But they needed to make that argument to the FRB pre-consummation. It is amazing to ICP that a company can be allowed to ignore, evade and/or violate the BHC Act, with little to no repercussion, "all among friends," so to speak. ICP remains surprised that despite its timely comments back in July, neither the FRB nor Credit Agricole saw fit to notify ICP of the two subsequent related applications. Of this application, ICP saw a general public notice and immediately submitted a request, including under FOIA, to the FRBNY and to the Board. Initially, the FRBNY sent ICP the wrong application; this was quickly (and civilly) cleared up. Among the portions provided to ICP is a September 16, 2003, letter to FRB Associate General Counsel O'Day, purporting to call these required applications for regulatory approval no more than a "Report," and stating that
"The Report provides the information on the subsidiary [sic] of Credit Lyonnais that will engage in grandfathered activities under Section 8(c) of the U.S. International Banking Act as requested by the Board in its letter of February 7, 2003, approving the acquisition by Credit Agricole of up to all of the outstanding shares of Credit Lyonnais, and under the terms established in that letter.
Strangely, despite ICP's FOIA requests, ICP has not been provided with a copy of the referenced February 7, 2003, letter (and in an excess of caution is submitting a new FOIA request today for that and other documents). But again, it seems more than a little strange that the FRB would have "approved" a transaction despite, for example, the lack of regulatory approval from SAS Rue La Boetie to acquire Espirito Santo Bank and become a BHC, nor for Credit Agricole (and SAS) to acquire and retain Credit Lyonnais' activities. Even the FRB has no right to waive the plain requirements of the BHC Act...
Much of this application is still being withheld; ICP has yet to receive a formal FOIA response from the Board. ICP notes for the record that it contests many of the applicants' requests for confidential treatment, which include absurd requests to withhold inter alia the officers and directors of Credit Lyonnais Rouse (USA) Limited and of Lyon Capital Management and Credit Lyonnais Securities; the formation documents of CL Transfer Funding Trust, etc.. ICP will submit a FOIA appeal, but must await the FRB's FOIA response, to do so. The comment period should be extended.
Since no response to ICP's two prior comments, nor to the FRB's July 28 CRA questions, has been received, this timely comment incorporates ICP previously comments (July 3 and August 11, 2003). The adverse issues, if anything, have grown worse since then: Credit Lyonnais has been embroiled in a major transnational scandal, involving Executive Life, which has given rise to extradition requests and which raises significant issues under the managerial resources and other statutory factors with the FRB must consider.
October 6, 2003
Beyond the account in this week's CRA Report of the undermining of CRA enforcement represented by the Federal Reserve System's doling out of waivers from the need to submit merger applications, ICP last week submitted requests, under FOIA and otherwise, to each of the 12 Reserve Banks and their directors for notice and copies all waiver requests. This was triggered on September 29: ICP attended a public hearing on a merger (that of Royal Bank of Scotland's proposal acquisition of Community National Bank), and heard RBS' lawyer Greg Lyons say, "We got a waiver from the Federal Reserve, which means that the Fed is fine with the transaction." ICP, when its turn came, contested this. The Fed didn't give any public notice of RBS' request for a waiver, so how could its granting be given any weight? Later, from a payphone down in South Station, ICP called the Federal Reserve Bank of Boston (next door), asking if waiver requested can be denied based on comments received (yes), then offering to cross the street and hand-deliver a copy of that day's comment on RBS. That was answered negatively -- apparently, only commented directly on a proposed transaction could result in a denied waiver. But how's one to know?
September 29, 2003
Bad policy is one thing -- and dissembling (we're being diplomatic here) is something else. As reported elsewhere on this site, ICP has recently commented both against JP Morgan Chase's applications to charter and insure a new (preempting) savings bank, and its proposal to the Federal Reserve to acquire corporate trust business from Bank One. For the latter, Bank One proposes to charter three new banks -- which would require Federal Reserve approval. So we commented to the Federal Reserve Bank of Chicago too, and were told by the Chi Fed that "[a]t this time, no formal proposal for the aforementioned transaction has been received by the Federal Reserve System."
But that turns out not to be true: ICP has since received from Chase a copy of a "Response by Bank One Corporation to the Allegations Raised by the Inner City Press," which makes reference to a "Letter, dated September 8, 2003, from Richard K. Kim to Mr. Philip G. Jackson, Federal Reserve Bank of Chicago," which asked "that Bank One not be required to submit an application under the [BHC Act] for approval to form the interim banks."
So, the above-quoted response to ICP by the Federal Reserve Bank of Chicago is highly problematic. Arguably, the phrase "formal proposal" was meant to implicitly exclude requests for waivers from the need to apply. If so, this is a misleading word-game of a type (f/k/a Clintonesque) in which the Federal Reserve, one would think, should not engage. Past Fed practice shows that CRA issues and public comments can result in the denial of waiver requests. For example, a Chase request for a waiver in connection with its proposal to merge its Connecticut and New York banks was denied / withdrawn, a fact that Chase itself explained as being due to a public comment being received. ICP has raised issues to the FRS about this Chase - Bank One proposal since September 9 (or September 5, the date of ICP's FOIA request which stated its intention to comment). The first date is one day after Mr. Kim's letter; the latter (notifying) date is three days before Mr. Kim's letter... Contrary to the claim in "Exhibit I" that HMDA and CRA have "no bearing" on the proposal to charter / acquire three new banks, note that Bank One N.A. (IL), in the Chicago MSA in 2002 for home purchase loans, denied 75% of African Americans' application, and less than one percent of (over 100) applications from whites. No bearing? On a proposal for Bank One to charter / acquire three new banks? ICP has reiterated its clearly-timely opposition to any waiver from the need to apply under the BHC Act being granted in this case, given the issues raised.
Another recent (stealth) Fed waiver, to New York Community Bancorp's proposal to acquire the holding company Roslyn Bancorp, now turns out to have been wildly ill-advised -- by the Fed's own (administered) rules, for the Home Mortgage Disclosure Act, NYCB has been breaking the law. On September 26, ICP received in response to a Freedom of Information request copies of governmental messages such as an e-mail from the FDIC's Alice E. Beshara to the NYBD, dated August 27, 2003, stating that NYCB will have CMPs" -- Civil Monetary Penalties -- "imposed" due to its "HMDA (MECA) filing problem," regarding which "the FRB won't change their mind." Another NYBD e-mail opines that the NYCB "has a tough counter-argument since they were previously specifically told NOT to include them but continued to do so." And, "Im not quite sure why this has been such a problem for NY Community -- I guess keeping them off their loan register was too big a problem to handle."
So the Fed hands out waivers, with no public notice, to banks which openly and repeatedly violate the Home Mortgage Disclosure Act, which the Fed is supposed to administer. That other government agencies find serious problems at NYCB, which the Fed waiver doing anything about or even considering, is reflecting in detail in this week's ICP Bank Beat.
September 22, 2003
We have received from the Federal Reserve Board, late and by regular mail, a dry answer to our August 31 question: how could the Fed waive the requirement to apply, under the BHC Act, for the $1.7 billion proposed merger of New York Community Bancorp and Roslyn Bancorp, when (1) its the biggest proposed bank merger of the year in New York; (2) NYCB has been previously protested for redlining, and Roslyn sued by governmental authorities for predatory lending, and (3) even NYCB's SEC filings say they will "apply" to the FRB for approval? Here's what the Fed says:
"Section 225/12(d)(2) of the Board's Regulation Y waived the filing of certain applications with the FRS for transactions that involve the temporary acquisition of the stock of a bank or bank holding company if the transaction is part of a bank-to-bank merger that will be reviewed by another federal banking agency...In this light, the FRBNY, acting under authority delegated by the Board, did not object to the NYC Bancorp/Roslyn Bancorp acquisition, and the time period for the System's objecting to the waiver had expired.... In light of all the facts of record in this case, no member of the Board has requested review of this matter. Accordingly, your request for Board review of this matter is hereby denied."
Our question: were the Board members even told (they're given staff memos, not the actual requests that come in) that the FDIC approved mere days after its comment period closed, and while the since-further-extended comment period of the New York Banking Department was still open? In fact, the CEO of NYCB was summoned in to the New York Banking Department last week to response to outstanding CRA issues. The Fed's Reserve Banks should not give (or accede to) waivers where the applicant banks have been public challenged on CRA or predatory lending, nor on proposed mergers of this size. For shame....
September 15, 2003
While the pundits predict stasis this week, at least on interest rates, the Fed in seeming dereliction of its regulatory duties is becoming a "waiver machine." We're reported in recent weeks on the Federal Reserve Bank of New York's seeming waiver of the need to apply for the largest bank merger year-to-date in its district, New York Community Bancorp - Roslyn proposal (NYCB's Joe Ficalora was quoted last week that the Fed "approved" the transaction, despite the Fed not having provided any public notice or having accepted or review any public comments). Now it appears that the Federal Reserve Bank of Chicago has granted a waiver to Bank One, for setting up three new banks with the Enron-resonant names Bank One Zeta Trust Company, Chicago, IL, Bank One Delta Trust Company and Bank One Epsilon Trust Company. ICP has now commented to the Fed:
...Morgan Chase has yet to submit any response to the issues raised in ICP's September 9 submission; when Morgan Chase does, ICP will reply. But as best ICP can make out, the FRB has not provided any public notice of the proposal, by Bank One Corporation to charter / acquire the stock of three proposed new banks. Chartering and acquiring the stock of new banks should not be undertaken lightly, and should not by regulators be treated lightly. If Bank One has requested a waiver from the otherwise-applicable need to submit an application under the BHC Act, subject to public notice and CRA consideration, ICP opposes such a request. If, somehow, such a waiver has stealthy been sought and inappropriately granted, ICP hereby requests that the waiver be rescinded.
ICP has already submitted substantial information about why it is concerned with Morgan Chase's performance; beyond CRA, predatory lending and other issues, Morgan Chase's activities in connection with Enron and others -- including through subsidiaries with names like Zeta, Delta and Epsilon -- are matters of public record, and of public concern. To the degree necessary for this request (opposing or for the rescission of any waiver for Bank One Zeta Trust Company, Bank One Delta Trust Company and Bank One Epsilon Trust Company), here is a preliminary review of a few of the disparities in Bank One's 2002 mortgage lending record. ICP has initially, while it awaits copies of the applications, reviewed Bank One, N.A., Ohio's 2002 lending in New Orleans (including with reference to Bank One's and its predecessors' record in New Orleans, which ICP has previously reviewed, including to the FRB). For conventional home purchase loans in 2002 in this MSA, Bank One, N.A., Ohio denied the applications of African Americans 2.41 times more frequently than whites, and denial the applications of Latinos 2.85 times more frequently than whites. [etc.]
September 8, 2003
The Federal Reserve has been asked to deny or rescind any waiver of the need to apply, under the BHC Act, for the proposed New York Community Bancorp - Roslyn Bancorp merger. Now the Fed has been provided with this supplement:
late on September 4, the New York Banking Department (NYBD) provided ICP with portions of NYCB's applications which had previously been withheld. (The NYBD had formally granted ICP until September 15 to comment on these and other related NYCB documents.) For example, NYCB's counsel's August 29, 2003, letter to the NYBD, in the 2nd numbered paragraph to page 2, states that "on page 5, the information contained in footnote ** to the first sentence of subparagraph (g) and the second sentence of subparagraph (g) ... reveals the proposed structure of a non-public entity." The referenced page 5, subparagraph (g), redacted (for now) as NYCB has requested, states that "[t]he Holding Companies Merger will require the prior approval of the [FRB]" -- then a sentence is redacted, and a footnote. And still ICP has seen no notice of the referenced NYCB application to the FRB. NYCB, through counsel, is still trying to withhold information about its requests to the FRB, whether for a waiver or otherwise. This is unpalatable, contrary to the public's right to participate and the need and benefits of transparency. We again urge the FRB to either deny any waiver request, or rescind -- including on the grounds of NYCB's playing hide-the-ball regarding its waiver request, and the resultant inability of the public to know of the waiver request in order to submit opposition (which as previously noted can result and has resulted in such waiver requests being denied, in some cases in the past).
Also, in a September 4 response to additional Federal Reserve questions, Wells Fargo among other things prevaricated thus: "Wells Fargo Financial "does not classify credit as prime or subprime as a factor in setting APRs. However, the vast majority of WFF's real estate loans are to customers who would typically be characterized by others as subprime." Wells then describes providing some of WFF's customers with the phone number of Wells Fargo Home Mortgage -- but claims those cold referrals are based on the product requests (i.e., no cash out), not on credit score. So the obvious next question: does WFF offer a prime product? Or, to deal with Wells evasion, does WFF offer a product which "would typically be characterized by others as subprime"?
September 1, 2003
While the Federal Reserve Board -- at least its chairman and select staff -- go oracular in Wyoming, the Federal Reserve Banks apparently dole out exemptions and waivers from the Bank Holding Company Act's requirement to submit applications subject to CRA and public comment. ICP has just raised this to the Board and N.Y. Fed, with regard to the proposed acquisition by New York Community Bancorp of Roslyn Bancorp. When one bank holding company wants to buy another (in this case for $1.69 billion), the BHC Act requires an application, public notices, etc. But on August 30 ICP received a copy of NYCB's application to the N.Y. Banking Department: it refers to an application to the Fed, but the Fed has give no notice. The bases for ICP's opposition are available here; here's what we've raised to the Fed:
This $1.69 billion proposal, one of the major bank merger proposals in the NYC market in 2003, is one on which no waiver from the need to apply for prior FRB approval, including under the CRA, should be granted -- if already granted, it should be rescinded. ICP intuits that such a waiver may already have been (mis-) granted by the FRBNY. On August 30, ICP received from the New York Banking Department a copy of NYCB's application to the NYBD; it references (as it must) the legal requirement of FRB approval. In fact, NYCB's SEC Form S-4 states that "[c]onsummation of the merger will require New York Community to receive the prior approval of the Federal Reserve Board under the Bank Holding Company Act of 1956, as amended. We filed an application in connection therewith in July 2003. " But ICP has seen no notice of such an application on the FRB's H2A.
Programmatically, if it is the FRB's position that it may grant waivers if, among other things, no substantive protest has been received (see, for example, the Regulatory Compliance Watch, Vol. 5; No. 6, FED ENFORCEMENTS, quoting a lawyer for Chase Manhattan that a FRB denial of waiver request, following a comment by ICP, "was because the Fed does not process waiver requests while a protest is still outstanding), it is imperative that notice of such waiver requests be given. In fact, given ICP's opposition to the FRB to NYCB's previous acquisition of CFS Bank (which had a Needs to Improve CRA rating in Connecticut, and 15 of the branches of which faced closure), the FRB or FRBNY was on constructive notice that the public, certainly ICP, had CRA concerns about NYCB. Notice might have been provided to ICP; ICP's position is that notice should have been given on the H2A and in the FRBNY's Weekly Bulletin. The mis-granted waiver should now be rescinded
We'll see... Until next time, for or with more information, contact us.
August 25, 2003
No response yet from the Fed on the Freedom of Information Act appeal for what Wells Fargo is trying to withhold, nor any substantive response (or response to the Fed's questions) by Crédit Agricole. Meanwhile, ICP / Fair Finance Watch commented to the Basel Committee on Bank Supervision, mostly to the effect that predatory lending and others lack of standards should be included in any assessment of capital, but also touching on the Federal Reserve's refusal to consider U.S.-based holding companies' actions overseas, despite the fact that many countries defer, even on events in their countries, to banks' home-country supervisors. Click here to view ICP's comments. The loophole can't be denied; it would be surprising if the Fed took no steps to close it -- including beginning to inquire into U.S.-based lenders' predatory lending beyond the U.S...
August 18, 2003
The Fed, the Fed. Still we have no response from Credit Agricole, which the Fed first allowed to violate the Bank Holding Company Act, and then allowed to delay coming into compliance, then extended its time to respond, etc.. To be fair, the Fed had asked some interesting questions of Wells Fargo, for example: "[d]escribe in detail Wells Fargo's corporate programs to monitor compliance with the fair lending and consumer protection laws and regulations... Include in your response a description of any policies, procedures, and practices with respect to... complaints," by subsidiary.
In its August 11 response, Wells tells the Fed that "Island Finance does not have a specialized customer service department or a toll-free telephone number for complaints. Customers who have complaints contact the store handling their account. If the store is unable to resolve the complaint the complaint if referred to the district manager. If the district manager is unable to resolve the complaint it is referred [to] the district manager's supervisor."
That Island Finance has even less consumer protection safeguards that Wells Fargo Financial's overall operations is significant -- and potentially violative of the Fair Housing Act and Equal Credit Opportunity Act, given the demographics of Island Finance's headquarters and its lending operations. ICP has now raised this to the Fed. Wells has also requested "confidential treatment" for large portions of its response, which ICP has now re-requested under FOIA. We'll see...
August 11, 2003
Tales from the crypt: on August 7, ICP telephoned a Federal Reserve Board staff member, with a simple request: that ICP be provided with a copy of a bank's (Credit Agricole's) response, due August 7, to use it for a comment period set to expire on August 11. The Fed staff member was polite but formal, making it a point to get a second staff member (from the Legal Division) on the line, and then saying only that ICP's "request has been taken under advisement," and that no further comment would be appropriate. Well, okay, if that's how the Fed's rules against ex parte communications are read.
But the next day, not having received the requested copy, ICP telephoned Credit Agricole's counsel (who among other things is a former Federal Reserve Board general counsel). Also politely, and at greater length, he informed ICP that the Fed had granted him an extension of time to submit the answer that had, by its terms, been due on August 7. That too is fine -- except, why didn't the Fed staffer tell ICP this on August 7? Would even that have been improper? In which case, how was it proper to engage in ex parte discussion with a former Fed general counsel, representing a bank whose applications has been timely protested? Perhaps we'll learn some day. ICP has requested an extension of the comment period past August 11, based on the Fed have granted the applicant an extension to submit (CRA) relevant information... We'll see.
August 4, 2003
For this week, our focus is on Citigroup - Sears, click here. But here's an update to last week's report, on Crédit Agricole's failure to substantively respond to ICP's comments, and the Fed's failure to inquire: on July 28, the Fed finally asked Crédit Agricole and its shadowy affiliate SAS Rue la Boetie three CRA-related questions, asking for answers by August 7, with a copy to ICP. We'll report on the response upon receipt - presumably before August 11....
Regarding Wells Fargo, the LA Times of July 30 reported: "Saying the Federal Reserve is 'best positioned' to investigate the matter, the [Washington State] department's director, Helen P. Howell, urged the Fed to 'take these claims seriously and look at WFC more carefully.' Fed spokeswoman Susan Stawick said the central bank had no one available to talk about the issues Tuesday." The key is not talk, but action by the Fed.... The LA Times also reported (correctly) that "Inner City Press maintained, Wells Fargo is 'exporting these practices' to the Caribbean through Island Finance, a Puerto Rican consumer-finance lender it owns." Wells' outgoing general counsel Stanley Stroup mailed in a letter purporting to respond to the issues ICP has raised -- but it limited itself, for now, to ICP's initial letter which asked for an extension of the comment period. And Wells' (and the Fed's) response on the predatory lending issues, including those beyond the continental 48 states? Developing...
ICP/Fair Finance Watch commented to Basel on the proposed new Capital Accord -- but the scuttlebutt in DC is that Barney Frank is opposed to Basel II because, as written, it might force State Street to sell out....
July 28, 2003
Beyond ICP/FFW's Wells Fargo filings with the Fed (summarized here, and further discussed below), we received last week a copy of the Fed's July 22 "Additional Information Request" to Credit Agricole and SAS Rue la Boetie, asking among other things about "all of the regulatory and supervisory consequences... of Boetie's inclusion in the Group;" strangely, while Credit Agricole has stonewalled (and not responded to) the issues raised, the Fed has yet to ask about these issues, despite the fact that the application is under Section 3 of the BHC Act, and is subject to the Community Reinvestment Act....
On Wells, the Fed to date has tried to evade its duties to consider the full lending profile of the bank holding companies it regulates. This appears contrary to current international law, and even "customary" law (a term of art in the human rights field). Take, for example, a response ICP / Fair Finance Watch received last week from regulators in Sweden, whom ICP/FFW asked to act on HSBC's export of Household International's lending practices (which the Fed has, to date, entirely refused to consider, allowing HSBC to evade even applying to the Fed to buy Household -- ah, Basel):
In a message dated 7/24/03 8:24:15 AM Eastern Daylight Time, [ ] @fi.se writes:
Dear Mr. Matthew Lee,
Thank you for your letter concerning Predatory Lender Household International. You mention in your letter that HSBC already runs the Household´s business model in Sweden in HSBC Bank plc at Västra Trädgårdsgatan 17, Box 7615, 103 94 Stockholm.
Financial Services Authority, (FSA), Lomdon, has notified Finansinspektionen that HSBC Bank plc - a firm authorised by the Financial Services Authority - has informed FSA to carry out activities in Sweden by its branch in Stockholm...
The branch in Sweden is under supervision of the home country, FSA, with exemption for liquidity, which is supervised by Finansinspektionen. According to The Banking Business Act the branch is allowed to carry on the same business in the host country as is allowed in the home country. Finansinspektionen has no detailed knowledge about which type of lending, that is carried out in Sweden, why Finansinspektionen therefore cannot verify that the Household´s business model is run by HSBC Bank plc branch in Stockholm. That means that if you have any points of view of the business run by the branch in Sweden, please contact the FSA in London, as the FSA has the homeland-supervision of that business. --Jurist/Legal Counselor, Finansinspektionen
The relevance to Wells Fargo and the Fed: under this model of bank regulation, the Federal Reserve as Wells Fargo's home county regulator must consider Wells Fargo's lending, including high-cost subprime lending, in other host countries... Click here for more.
July 21, 2003
Law-breaking without consequences (yet) -- on July 16, the Federal Reserve Board finally provided Inner City Press with some of the documents responsive to ICP's June 5 Freedom of Information (FOIA) request about Credit Agricole and its affiliate, SAS Rue le Boetie. From the (redacted) Fed e-mail messages provided, it is clear that Credit Agricole has violated the U.S. Bank Holding Company Act, setting up without notice or authorization a BHC which owns and controls a bank in the United States. And Credit Agricole, via its U.S. counsel Michael Bradfield at Jones Day, is still thumbing its nose at the Fed, and at the law. In a May 22, 2003, e-mail to various parties at the Federal Reserve Bank of New York and at the Board in Washington, Fed staffer Kara Sulmasy recounts that
"today Michael Bradfield finally confirmed that he would take the required steps. He spent a lot of time asking if SAS could somehow be exempted from filing, as this is admittedly more a question of bringing the current situation into conformance than a question of a substantive change in control... He said that SAS would find the additional Section 4 filing to be burdensome, and he would have to broach it with them next week when he goes to Paris on other business. We expressed our hope that he would submit the information to us as soon as possible."
Let's get this straight -- the Fed has to "hope" that a bank will after-the-fact file the required applications to own a bank in the United States? The Paris-based bank's U.S. lawyer can ignore the Fed's requests, then ask for more time, to "broach" the issue -- that is, complying with U.S. law -- with them next time he goes to Paris? Note that the reference Section 4 applications have apparently still not be filed -- no notice of them has been given, while the comment period on the related Section 3 application was allowed to expire. In all other cases, the Fed synchronizes the comment period on related Section 3 and 4 applications to the later of the two dates. Will that be done here? If not, it's another inappropriate (and, we contend, illegal) favor to Credit Agricole.
Further note, from Reuters, that the Fed chairman Greenspan on July 15 "promised to write Congress on the status of a legal fight involving Credit Lyonnais" (owned by Credit Agricole). Whatever is submitted should be made public, because these Credit Agricole applications are pending and otherwise...
July 14, 2003
Reminiscent of BCCI -- taking ownership of a bank in the U.S. before / without getting Federal Reserve Board approval. The Fed has asked Credit Agricole (well, its DC lawyers) the following:
"The application states that Boetie was established as a holding company in 2001 in connection with the sale to the public of shares of the predecessor company to Credit Agricole S.A.. Please explain why an application for Boetie to become a bank holding company was not submitted prior to the establishment of Boetie. Also, address what actions Boetie and its subsidiaries will take in order to ensure that filing requirements pursuant to the BHC Act, the International Banking Act, and any other statutes enforced by the Board will be complied with in the future."
It's clear, including from Credit Agricole's counsel's response, that Credit Agricole broke the law. But what will the Fed do about it? Meanwhile, Credit Agricole -- and SAS Rue la Boetie, it would appear -- on July 7 announced a proposal to acquire the Lanbouwkrediet Group, mostly from Dexia.
July 7, 2003
Talk about out of it: the Fed's road show meetings about the Basel Capital Accord suffered a notable lack of representatives of consumer groups or civil society -- click here for the attendee list, top-heavy with bankers. Even the IMF and WTO include non-industry views. The Fed is a dinosaur... Perhaps it's the heat -- the Fed has gotten lackadaisical in its review of contested applications under the Bank Holding Company Act, even if the Applicant has recently been heavily fined for money laundering, lends to and securitizes for heavily criticized subprime lenders, and runs roughshod over environmental, social and human rights principles. We are referring to Royal Bank of Scotland, whose Port Financial application the Fed approved on June 30. The Fed's order tries to rely, in rebutting these matters, on a previous (and also lackadaisical) order, in RBS - Mellon. But it was since that order that RBS was hit with a 750,000 Pound fine for lack of anti-money laundering controls; nor does the Fed order address RBS' Greenwich Capital Markets' business with yet more subprime lenders since the Mellon order (nor, for example, the clarification of securitizers' and warehouse lenders' duties, if one was needed, in the recent Lehman - First Alliance verdict). No, the Fed chugs blithely along -- in response to ICP's comments, the Fed staff asked five questions, one of which RBS simply refused to answer (this regarded the subprime lenders with which GCM does business). ICP immediately pointed out RBS' failure to answer -- but the Fed never made RBS answer. Maybe it's the heat; we call it remiss. For example, the Fed makes much of the lending of Citizens Mortgage Corporation -- without having nailed down anything about the subprime lending / referrals that CMC makes. Interesting (to say the least) that the Fed would consider a bank holding company's lack of human rights standards relevant only if this lack affect safety and soundness from a financial point of view (that's n. 26 of the Order). Of course, such lack of standards does affect reputation, and financial strength. But the Fed's head-in-the-sand positions on these issues are not only irresponsible: we're beginning to think they contradict legal duties the Fed has, as a governmental body and organ of society. More on this in coming months. For now, the Fed has been given a second change, with regard to Crédit Agricole (see this week's ICP CRA Report)....
Lax and laxer: the Office of Thrift Supervision, rarely transparent, has now ended the extra scrutiny imposed on Trustco Bank after the OCC accused it last August of violating laws against money-laundering. In October, the OTS approved the merger of Trustco Bank and Trustco Savings Bank into one entity, bringing the bank under the supervision of that agency, which regulates thrifts, instead of the OCC, which regulates national banks. Talk about being able to flee your regulator for an (even) easier one...
June 30, 2003
Last week's rate cut pushed the funds rate from 1.25 percent to one percent, the lowest level since it averaged 0.68 percent in July 1958. Banks' prime rate is down to four percent, lowest since May 1959... The lone dissenter was the San Francisco Fed, who argued for a 50 basis-point move. The analysis of Morgan Stanley's chief economist? "This shows that inflation fighters have turned into deflation fighters"...
Meanwhile, despite Royal Bank of Scotland's blatant refusal to answer the Fed staff's question about the subprime lenders it and its subsidiaries (like Greenwich Capital Markets) do business with, the Fed has not to our knowledge followed up with RBS....
June 23, 2003
...ICP's Fair Finance Watch submitted to the Fed a challenge to Royal Bank of Scotland's proposal to acquire Port Financial. The Fed asked RBS five questions, among them questions about branch closures and about the business RBS or its affiliates do with subprime lenders. Surprisingly (or not), RBS' June 19 response refused to answer the Fed's questions, with regard to RBS' Greenwich Capital Markets: "We have not discussed Greenwich in response to this item because Greenwich is not engaged in subprime lending." But the Fed asked about subprime lenders that RBS' affiliates do business with. Whether the Fed will back down is not yet known... It's also illuminative to compare the Fed's oft-repeated statement that it need not consider the non-US activities of the mega-banks it supervises with a contrary response received from the German bank regulatory agency, reproduced in this week's ICP GE Report (click here to view)....
June 16, 2003
Speaking to reporters on the sidelines of a conference in Washington on June 11, after delivering a speech on corporate governance (see below), Fed governor Bies said, regarding Freddie Mac:
"I'm not too concerned right now, again waiting to see what really plays out. It looks like the mortgage securities are still trading fairly well... All the regulators talk to each other but we're appropriately letting the right regulators go ahead and talk about this at the appropriate time.... We're obviously interested in what they find because a lot of banks in the country hold paper and securities from Freddie, so we do want to understand what has happened and what is going on.... Obviously Freddie stock got hit, but the securities which would affect homebuyers seem to still be very liquid and we know the housing market is still very strong and there are lots of alternatives out there for homeowners to go to. I haven't seen any sign that there will be a short-run impact..."
In light of Gov. Bies' speech, wonder if the Fed saw, and what it will do about, the June 9 announcement by The Corporate Library that Citigroup has the least accountable board of directors in the United States. "CEO Sanford Weill was personally involved in one of the most outrageous scandals of the most scandalous year for American business since the 1929 stock market crash, the infamous exchange of admission to the 92nd Street Y preschool for a more favorable analyst report on AT&T. Citi, like its peers, has had to pay a massive fine and Weill himself must be accompanied by a lawyer when he speaks to the analysts who work for him. But for Weill and the board, it looks like business as usual, and Weill and the board have demonstrated no personal accountability. The fine was almost entirely paid for by Citi's current shareholders (and the shareholders of Citi's insurers). At a minimum, it would be fair to expect Weill to take a hit in pay. And it might appear at first glance that he did -- Weill refused his annual bonus, which had been $17 million the prior year. [Note the way this was announced as his decision, not the decision of the board's compensation committee, just in case there was any doubt who's in charge.] But on closer examination, in addition to his $1 million salary and the $11.8 million on realized stock option gains, he was awarded new options on another 1.1 million shares. Fortune wrote, "In February of this year, Citigroup's board of directors granted Weill options on yet an additional 1.5 million shares, which one outside consultant valued at about $14.5 million." TCL's editor told the N.Y. Daily News (June 10) that Those payments suggest the board is "operating as a wholly owned subsidiary of Sandy Weill Inc," said Minow. "I don't know that there's anybody on that board that's capable of saying no to him." Always a bad sign...And what will the Fed be doing?
June 9, 2003
Public policy in corporate and recently-ex-corporate hands: on June 5 it was announced that, with Bill McDonough stepping down, Jamie B Stewart will become acting president of the Federal Reserve Bank of New York. Until 1999, Stewart worked at Mellon Bank, including as vice chairman. The N.Y. Fed's board, chaired by Pete Peterson (chairman of the Blackstone Group, former chief executive of Lehman Brothers), continues to search. And who else is on the N.Y. Fed's board? Sandy Weill of Citigroup, of course...
And from Citigroup's subprime unit (which the Fed is supposedly examining, without yet announcing any results), last week we received dozens of new pages, including ROCopoly print-outs from Citi's Maestro computer system, showing that CitiFinancial continues to base employees' compensation on how much credit insurance -- on personal loans, explicitly including single premium credit insurance -- they sell. There is also a break-down, by branch, of sales finance conversions, and rah-rah talk from sample branch manager Jim Chakales: "We have 62 of 100 POT 30's not set, how can we let this happen gang we have some with no activity since 5/12. Tim are you reviewing work list?? Team where is the pride and commitment Jim." Where indeed...
June 2, 2003
Some weeks ago, ICP alluded in this space to the Fed's strange (mis-) consideration of money laundering issues, particularly with regard to Royal Bank of Scotland, and said these would be raised soon. Well, on June 2, ICP filed a 15-page timely comment with the Fed, opposing RBS' applications to acquire Port Financial, and, on this issue, putting into the record before the Fed:
...In December 2002, RBS was hit with an unprecedented fine for lack of anti-money laundering safeguards. See, e.g., Financial Times of December 18, 2002, "RBS Fined over Anti-Laundering Controls"
A probe by the Financial Services Authority found RBS staff failed to obtain or keep documentation to establish customer identity in an "unacceptable" number of accounts opened in early 2002. In some cases the bank had not taken copies of basic proof of identity or address, such as a driving license or recent utility bill, to verify new customers were who they said they were.
Since this break-down in anti-money laundering safeguards became public not only after the last FRB review of RBS, but after ANY U.S. acquisition review, it is imperative that it be inquired in to at this time. It is extremely surprising that RBS did not address this important issue in its application, as has been provided to ICP -- note in this regard the nexus to post-9/11 issues, see, e.g., the Wall Street Journal of November 9, 2001 (Network Suspected of Funding Terrorists Used Major Banks for Money Transfers), reporting that Al-Barakaat (which was raided by the FBI on November 7) opened an account with RBS' Citizens in March 2000, and subsequently wired nearly $600,000 to the United Arab Emirates ("UAE"). "Between July 5 and Sept. 26 of this year, $595,373 was sent from Citizens to... Emirates International Bank in Dubai." Id. The WSJ article also reports that "[a]ccording to regulators and bank officials, neither Citizens Bank nor Key Bank made any effort to ascertain whether Barakaat was legally permitted to be wiring such huge sums back and forth to Dubai. Both banks said they complied with all regulations. 'We saw no suspicious activity,' Citizens spokeswoman Barbara Cottam said."
RBS' Citizens public position, still, is that the wiring of nearly $600,000 by an institution which had been denied a license by the Massachusetts regulators was not, in RBS' Citizens' view, any "suspicious activity." This calls into question the compliance practices of RBS and Citizens. What will the Fed do, on this and the CRA and other issues raised? We'll see. On May 10, 2003, ICP submitted a Freedom of Information Act ("FOIA") request to the Federal Reserve for a copy of the Applications. On May 12, John S. Jordon of the Federal Reserve Bank of Boston (the "FRBB") wrote to ICP, stating that "[y]ou should be aware that the [FRBB] is not an agency of the federal government and is not subject to [FOIA], but has adopted its own policy on disclosure of information which, for the most part, complies with the spirit of the [FOIA]." There were significant redactions in the FRBB's production, and ICP to date has not received a FOIA response from the Board. The comment period should be extended on this basis, one would think...
May 26, 2003
Seat-of-the-pants (Resona) reasoning: in a speech May 19, Governor Bies argued that the Japanese government's announcement over the weekend that it would offer a $17 billion rescue to Resona Bank is an example of the resources that are consumed by problems in the banking sector, and underscores the reasons the United States should keep its commercial sector separate from banking. "We are very concerned about the direction that Congress is thinking on rule-making," Bies told a conference of the Independent Community Bankers of America. "If you look at this bailout that just occurred ... in Japan, the whole idea of the government going in and taking over the fifth largest bank was in part due to the cross shareholding that commerce and banking have always had in Japan," she said. "The reason German banks aren't making money and haven't for years is again because of these cross investments between commerce and banking," Bies added. "That's why we've got to really make sure that we keep commerce and banking separate. We at the Fed are going to do whatever we can to see that that happen," Bies said. That is, by any means necessary...
May 19, 2003
Yowdza -- in the past week, first Fisher and Fischer, then Roger Ferguson, all took themselves out of contention to replace Bill McDonough as head of the New York Fed. The Times of May 16 reports that "if no one is appointed to succeed Mr. McDonough before he leaves in mid-June, the first vice president, Jamie B. Stewart Jr., will assume the president's responsibilities, said Peter Bakstansky, a spokesman for the New York Fed. Mr. Bakstansky said Mr. Stewart was not granting interviews." That's the spirit. Meanwhile, we were informed last week by the Federal Reserve Bank of Boston that "[y]ou should be aware that the Federal Reserve Bank is not an agency of the federal government and is not subject to the Freedom of Information Act, but has adopted it own policy on disclosure of information which, for the most part, complies with the spirit of the Act." We ask again: how is it that bank are examined and supervised by an entity that claims not to be the government, and not subject to FOIA?
May 12, 2003
The FOMC stood pat (yawn). Meanwhile, speaking May 6 at a Bankers Association for Finance and Trade conference in Phoenix, William Ryback, associate director of the Fed's BS&R division, said that the Fed has detected more deficiencies in financial institutions' anti-money-laundering programs in the past two years. "That's why we hired more specialists to look at money-laundering controls, and they tend to take a much more harsher view on what is being done in the institutions on a daily basis," Mr. Ryback said. He also cited failures to do timely updates of their anti-laundering policies. We appreciate his candor -- and question why, for example, the Fed has to date agreed to certain banks' requests to keep confidential all of their submission regarding their anti-money laundering programs...
May 5, 2003
Interesting, ain't it, that being president of the N.Y. Fed is considered a higher calling that the vice-chairmanship of the Fed. The indicator of this is that Roger Ferguson is widely reported to be in the running to take over from Bill McDonough; the reports have become less equivocal in light of Greenspan's statement that he'd be happy to continue on into 2008. The other two finalists, according to these reports, are Fisher (of the Treasury Department) and Fischer (of Citigroup and the IMF). This last is troubling, both in light of the IMF's track-record from 1994 to 2001 (counter-productive structural adjustment policies foisted on countries) and of Citigroup's continuing revolving door with, and domination of, the Fed.... Citigroup on May 2 disclosed that it is in talks with U.S. securities and bank regulators about a previous transaction with power company Dynegy Inc. Last September, without admitting or denying wrongdoing, Dynegy agreed to pay the government $3 million to settle charges of improper accounting related to "Project Alpha." Citigroup helped create Alpha, which helped Dynegy artificially boost operating cash flow by $300 million. "As part of Citigroup's discussions with the SEC and bank regulators relating to certain of its transactions with Enron, Citigroup is also involved in substantive discussions with the SEC and bank regulators regarding one of its transactions with Dynegy," Citigroup said in its quarterly report filed with the SEC. The "bank regulators," one would think, include the Fed...
April 28, 2003
"Four more years!" The question arises: why did George W. Bush announce last week he'd reappoint Alan Greenspan, and Greenspan so quickly say he'd accept? (Or say, " I would have every intention of serving"?) It was on the eve of prostate surgery; some pundits opined that Bush's announcement was meant to take the edge off the surgery, from the market's point of view at least. While we certainly wish The Chairman well with surgery and recovery, we find the timing strange. Others have asked.... less generous questions (click here for the Pioneer Press' "Cult of personality can hurt economy." From Reuters: "the surgery will not interfere with the May 6 meeting of the central bank's policy-setting Federal Open Market Committee, the Fed said."
April 21, 2003
Speaking at the Ronald Reagan library in Simi Valley, California, Fed chairman Greenspan lauded "the firing of the air traffic controllers in August 1981. The President invoked the law that striking government employees forfeit their jobs, an action that unsettled those who cynically believed no President would ever uphold that law. President Reagan prevailed, as you know, but far more importantly his action gave weight to the legal right of private employers, previously not fully exercised, to use their own discretion to both hire and discharge workers." Non-partisan Fed?
As regards the Fed, at Citigroup's annual shareholders' meeting on April 14, Citi CEO Sandy Weill defended the use of derivatives, citing with approval the Fed's Alan Greenspan. Sandy denied that the government had done anything to bail out Long Term Capital Management, other than lend its office space. As noted, ol' Sandy's on the board of directors of the New York Fed...
April 14, 2003
Amazing. Reuters of April 11 quoted "sources close to the Fed" that the search for a replacement for Bill McDonough as president of the New York Fed has zeroed in on Stanley Fischer from -- where else? -- Citigroup. Supporters of such a selection would focus on Fischer's tenure at the IMF. But is the revolving door and interpenetration between the Fed and Citigroup become outrageous? It is. For example, Sandy Weill is on the board of directors of the New York Fed. While even the NYSE had to step away from its proposal to put Weill on its board, the Fed keep him on, and presumably would continue to, even if Weill's IMF trophy Fischer became president of the New York Fed. Forget "too big to fail" -- it's now become "too big to not capitulate to."
Meanwhile ComplianceEase, "a leading provider of intelligent business solutions," announced last week the appointment of ex-Fed vice chair Preston Martin as a member of its Advisory Board. In making the announcement, John Vong, CEO and co-founder, commented, "It is a major coup for ComplianceEase to have access to Preston's counsel." Hmm... ComplianceEase's press release stated that "Martin was vice chairman of the Federal Reserve Board of Governors during the Reagan administration. Besides having responsibilities for monetary policies, he also managed the entry of the 12 Federal Reserve Banks into the commercial marketplace." Yep -- "into the commercial marketplace."
April 7, 2003
Big Al goes philosophic: in an April 4 speech delivered by satellite to Sea Island, Georgia, the Fed chairman posed these questions:
If our objective is to maximize economic growth, are we striking the right balance in our protection of intellectual property rights? Are the protections sufficiently broad to encourage innovation but not so broad as to shut down follow-on innovation? Are such protections so vague that they produce uncertainties that raise risk premiums and the cost of capital? How appropriate is our current system--developed for a world in which physical assets predominated--for an economy in which value increasingly is embodied in ideas rather than tangible capital?
Big Al, it is clear, likes copyrights and patents. Missing from his cost-benefit analysis, however, is a consideration of such matters as the morality of the price of AIDS drugs in the developing world. While the Fed's "objective" may be to "maximize economic growth," that is not the main goal of civilizations, one hopes...
March 31, 2003
Has the Fed been irresponsible in taking no action on HSBC - Household? Absolutely. While we will pursue that, in fairness there were at least two Fed actions last week that were not so lax. The first was the Fed's written order with Fifth Third, whose March 27 10K said that "[t]here is currently a moratorium on future acquisitions, including Franklin Financial Corp., imposed by the Federal Reserve Bank of Cleveland and the Ohio Department of Commerce, Division of Financial Institutions under a November 7, 2002 supervisory letter until such letter is withdrawn."
Testifying to the House Subcommittee on Financial Institutions on March 27, Governor Olson Olson emphasized the Fed's opposition to a proposal to granting nationwide branching authority to "industrial loan companies (ILCs) unless the owners of these institutions are subject to the same type of consolidated supervision and activities restrictions as the owners of other insured banks... The bill [the Financial Services Regulatory Relief Act of 2003] as currently drafted would allow large retail companies to establish an ILC and then open a branch of the bank in each of the company's retail stores nationwide."
Gov. Olson also had this to say, in support of a proposal to shorten the waiting period on merger approvals from fifteen days to five: "This revision would allow the parties to an approved bank merger or acquisition to more quickly consummate their transaction and seek to achieve any resulting economies of scale or efficiencies. Importantly, the amendment would not shorten the time period that private parties have to challenge the appropriate banking agency's approval of the transaction under the Community Reinvestment Act." It is unclear what Gov. Olson and the Fed (staffer who drafted the testimony) meant by this: that the Fed recognizes CRA as among the grounds to challenge bank holding company approvals, within thirty days of the order? Of course, if the underlying merger closes five days after approval, post-consummation judicial review would be less than meaningful...
Revolving door, on the logistics side: Unisys Corp. last week named a Federal Reserve Bank of Philadelphia veteran as the vice president for service delivery in the Americas region in the company's business process outsourcing business. D. Blake Pritchard will be responsible for creating, expanding, and managing regional payment processing centers in various locations around the country. He oversaw check cashing and direct deposit programs at the Philly Fed...
Click here for HSBC - Household wrap-up (for now).
March 24, 2003
The FOMC met on March 18 despite the putative closing of the Federal Reserve Board's Eccles Buildings on Constitution Avenue due to a tobacco farmer in a tractor out on the Mall. The Washington Post's John Berry -- the Fed's favored source for intentional leaks -- reported that "a Fed spokeswoman declined for security reasons to say whether the session took place in the Fed's boardroom, whose windows face Constitution Avenue, or elsewhere in the complex." Bet they're glad they for their claimed total exemption from the open meetings / Government in the Sunshine Act.. . The committee said after the meeting that the economy is so fraught with uncertainty that it decided not to issue a statement about the balance of risks between economic weakness and inflation. Unlike Mr. Berry, Bloomberg rounded up some market players to talk trash about the FOMC. "We found out that they have no idea where the economy is heading,'' said Ethan Harris, chief economist at Lehman Brothers Inc. and a former research manager at the Federal Reserve Bank of New York. ``In the old days, they had three choices for their bias statement: easing, tightening, or neutral. They've added a fourth one: none of the above.'' William Sullivan, a senior economist at Morgan Stanley in New York, said he was ``taken aback'' by the omission. ``It may be an honest approach but I believe it's unwarranted,'' he said. ``Investors are more reassured when the Fed acts decisively.''
Speaking of inaction, ICP has raised to the Fed the cease and desist order that Household was hit with on March 19, ten days before HSBC proposes to acquire it, and an upcoming (March 28) hearing to unseal an affidavit about Household inappropriately shredding documents. So we'll see...
March 17, 2003
Fed Consumer Advisory Council update: fade in, 9:05 a.m. on March 13, holding pen in the lobby of the Federal Reserve's Martin Building. Upstairs the CAC is meeting. By the metal detectors, name-tags await the pre-registered guests. These include the lobbying for the subprime lender Option One, and Stacie McGinn of the Skadden Arps law firm, which represented Citigroup against charges of predatory lending. A quarter of an hour into the meeting, a Fed staffer named Ms. Featherstone escorts the observers to the Terrace Level meeting room. The CAC members are in a wide circle, with three of the Fed Governors: Gramlich, Bies and Bernanke.
Full disclosure and the reason for this insane amount of detail: three days previous, Inner City Press submitted a letter for distribution and action at this meeting. The letter asks the CAC to direct the Governors to make HSBC explain why it's appropriate to acquire the scandal-plagued subprime lender Household International, and put Household's CEO in charge of HSBC's bank. The letter has been photocopied; there's a stack of copies on the table by the entranceway. But it does not come up during the hour-long discussion of predatory lending. There are sharp comments by a consumer attorney from East St. Louis; there are questions from Gov. Bies about state enforcement actions on brokers. The Fed's own duties are not discussed. The issue, it seemed, was addressed in a non-open meeting on March 12. Fed staffer Dolores Smith has assured CAC members that the Fed will, on HSBC - Household, do what it did on Citigroup - Associates. And what was that? Allow the deal to be consummated, and then ask questions. That it makes little sense, in a post-Enron (and post-9/11) world, is not brought up. There is a breakfast spread along the side wall, that even the visitors access. With the Federal Reserve, resources are not at issue.
But reason is: the same week, the Fed approves an application by Friedman Billings Ramsey to acquire, among other things, a stake in Imperial Capital Bank. This company makes tax Refund Anticipation Loans for Household, at rates over 100%. The Fed's summary, in footnote 9 of its approval order, is that "[t]he commenter also objected to one institution's participation in a loan program based on anticipated tax refunds. The Board notes that neither FBRG nor its subsidiaries or affiliates make this type of loan." No, it's that FBRG has applied to acquire a 5.2% stake in Imperial Capital Bank, Household's RAL partner. And you ask, what's going wrong at the Fed? We'll admit: we don't know. Increasingly, things seem to ride on which staffers are assigned to particular applications. On Citigroup - Golden State, the Fed staffers at least asked good questions. But recently on M&T-Allfirst, the Fed' (staff-written) order didn't even mention M&T's involvement in scandal-plagued FHA / HUD loans, a matter that's been reported in the New York Times, in articles that were raised to the Fed in timely comments. 2003 seems to be the year of inconsistency, at the Fed: it didn't ask Wakashio / Sumitomo Mitsui even the questions it had asked Mizuho earlier in the month. So what's going on? Perhaps it rides on the identify of the applicant's counsel (Paul Pilecki of Winston Strawn for Mizuho, William Sweet of Skadden Arps for Wakashio). If and when we figure out the basis of the Fed's inconsistencies, we'll report them here...
March 10, 2003
In light of the Federal Reserve's outrageous inaction on the HSBC - Household proposal, ICP on March 9-10 submitted the following letter, for distribution and consideration at the March 13 meeting of the Fed's "Consumer Advisory Council"
Dear Members of the Consumer Advisory Council:
This is a request that the Council quickly provide advice and guidance to the Federal Reserve Board on its duty to, at a minimum, keep predatory lending out of the banking system. The Board has only fifteen days left to take appropriate action on the proposal by HSBC Holdings plc to acquire Household International, Inc., a company recently charged with a wide range of predatory practices by the attorneys general of all fifty states. Of particular concern is HSBC's plan to place Household's chairman, William Aldinger, in charge of state member bank HSBC Bank USA.
One would think that the bare minimum of the Board's responsibilities under the consumer protection laws would involve conducting a review prior to a widely-accused predatory lender taking control of one of the banks that the Board directly supervises. But the Board has taken no action whatsoever on detailed comments that have been submitted since November 18, 2002, by our organization, Inner City Press/Community on the Move (along with its Fair Finance Watch project, "ICP"). ICP has presented the Board with over 100 pages of internal Household documents, and recent (post-Settlement) complaints against Household from more than a dozen states. The response has been a letter from Board Secretary Jennifer Johnson, forwarding ICP's comments to other regulators, and a slightly more detailed response from Associate Secretary Scott Alvarez.
The Federal Reserve Board, it appears, has fallen into the rut of "in-box" regulation -- that is, only when there is already a pending application do the Board's decision-makers allow the staff to conduct any inquiry into evidence that is presented to the Board. Given the urgency of the issue of predatory lending -- including as reflected by the inclusion of the topic as one of three agenda items for this meeting -- the Board current approach is inappropriate and ill-serves consumers. The Board's (in-) action on HSBC - Household is also directly at odds with the Board's position when it adopted the current Regulation Y, that consumer issues could and would be addressed outside of the applications process.
To its credit, the Board's staff asked detailed questions about consumer safeguards, referral-up programs and credit insurance when, in mid-2002, Citigroup applied to acquire Golden State Bancorp. But, faced with even more detailed documentation of Household's practices -- including employee compensation based on credit insurance sales volume and sales of personal property insurance that is of little to no benefit to the customer -- the Board since November 2002 has asked HSBC and Household not a single question. Nor has the Board responded to numerous Freedom of Information Act ("FOIA") requests on the topic.
Without conceding that it is legitimate for the Board to only act when it has an application before it, it is important to note that HSBC would have clearly required Board approval to acquire Household, under the initial deal-structure which involved establishing a new holding company. After ICP raised this, HSBC amended the structure, deleting any reference to a new holding company. Similarly, until Jan. 30, 2003, Household owned a federal savings bank, acquisition of which would have required Board approval. But Household essentially gave away (on what it called a "break-even basis") the remainder of this savings bank, explicitly so as to avoid Board review.
In this context -- all of which ICP put before the Board in weekly comment submissions from Nov. 18, 2002 through today -- it has been highly irresponsible for the Board to have neglected to conduct any inquiry into HSBC's proposal to acquire Household. While, for example, the New York Banking Department has asked HSBC how it would "refer-up" prime-eligible borrowers to prime-priced mortgage loans, HSBC's commitments in this regard (most recently reported in the March 10, 2003, American Banker) would only be binding in New York State. The only federal regulators with an HSBC application before it is the Office of the Comptroller of the Currency, but that application is only to acquire Household's special purpose credit card bank. It is the Board which lobbied for and obtained in the Gramm-Leach-Bliley Act so-called "umbrella" jurisdiction over financial holding companies and their subsidiaries. The Board has the jurisdiction but not, apparently, the will.
To choose just one exhibit that may be more succinct that a thousand other documents, ICP has submitted to the Board a May 23, 2002, governmental Memo it obtained under a state freedom of information law, entitled "Meeting with HFC," which states:
"HFC's practice is to hard sell insurance products. These practices break down into four categories: i) aggressive sales tactics, ii) inclusion of insurance without customer knowledge, iii) making borrowers believe insurance is a requirement, and iv) forgery of signatures on acceptance documents...
"Household has engaged in the practice of mailing 'live' checks to potential borrowers... These live check loans are marketing tools and persons who case the 'live' checks are placed on a 'hot list' for 'target practice' and are aggressively marketed to consolidate the live-check loan with the consumer's other credit obligations in a home equity loan with a slightly smaller interest rate but a much larger principal balance secured by the borrowers' residences."
We couldn't have said it better ourselves -- but note that the above quoted is from a governmental source, not a consumer advocacy group. Some but by no means all of the above-described is in some (narrow) way addressed in the Settlement -- but even then, only with regard to mortgage loans, and only those originated through Household's HFC and Beneficial branches. The same practices occur with Household's brokered, correspondent and wholesale-channel mortgages, and Household's non-mortgage loans, but these practices have not been reformed in the least. HSBC wants to profit from and export the above-described practices; the Board in the face of this evidence has stood by and done nothing. That should end, in the next fifteen days.
There is more to be said, but in order to facilitate consideration of this issue, and these requests, by the Council at its March 13 meeting, ICP will not in this letter include its analysis of the many ways in which Household's December 16, 2002, predatory lending settlements do not sufficiently protect consumers. [FN: Nor will it include its analysis of HSBC's practices, except to note (1) that HSBC Bank USA received a rare Needs to Improve CRA rating for the state of Pennsylvania in its most recent CRA performance evaluation, and that HSBC on Feb. 24, 2003, submitted data to the New York Banking Department showing that in twelve of thirteen Metropolitan Statistical Areas in New York State, its overall market share, both by applications received and mortgage originated, was significantly higher than its market share in majority-minority census tracts, in seeming violation of lending commitments that HSBC made in 1999. To simply assume that HSBC would improve Household is not supported by the evidence.] The key limitation is that Household's Settlements only relate to mortgage loans originated through Household's HFC and Beneficial branches. There is no reform of Household's high volume of mortgage loans through correspondent (broker) and wholesale channels, nor of Household's non-real estate loans, which include high-rate personal loans with forced-placed credit insurance, as well as tax Refund Anticipation Loans of the type that have led to cease-and-desist actions by the New York City Consumer Affairs Department and, most recently, banking regulators in Massachusetts (see Boston Globe of March 6, 2003, at E1). The Board inquired into such issues during the Citigroup - Golden State Bancorp proceeding; Citigroup late in the proceeding proposed certain reforms, and the Board stated that it had expanded its onsite examination of CitiFinancial, to include issues of compensation and credit insurance. [FN: We are compelled to note that the Board has withheld, despite timely Freedom of Information Act requests, at least eight linear feet of documents concerning its review of CitiFinancial, including transcripts of October 2002 depositions of ex-CitiFinancial employees of whom ICP made the Board aware -- the Board has even neglect to provide these ex-CitiFinancial employees with transcripts of their own depositions. While of much concern, that is beyond the scope of this letter and the requests made herein, which are focused on HSBC - Household for the reasons explained above.] The time to scrutinize such issues is before these predatory practices are allowed to enter the banking system -- not after. The Board has ICP's sixteen comments on HSBC - Household, and numerous exhibits, in its possession, and you are encouraged to request these from Board staff, along with an explanation of what, if anything, the Board has done on these issues since November 2002.
The Board's press release for today's meeting states that the agenda includes, as one of three topics, "predatory lending," that "[t]he Council's function is to advise the Board on the exercise of its responsibilities under various consumer financial services laws," and that "[t]he Board invites comments from the public on any of these matters." Pursuant to that invitation, this is a comment urging the Council and its members to quickly provide advice and guidance to the Board on its duties to keep predatory lending out of the banking system, with particular reference to the Household - HSBC Bank USA proposal. The matter is urgent: now that the Board has taken no action on comments and evidence submitted since November 2002, HSBC now states that it anticipates consummating the proposal (which would put Household's chairman in charge of HSBC Bank USA) by the end of this month.
There are fifteen days for the Board to take appropriate action. These actions would include, at a minimum, developing and requiring HSBC to respond to the type of consumer protection questions which the Board staff asked during the Citigroup - Golden State Bancorp proceeding in 2002, and suggesting and/or requiring (as the record in the Citigroup - Golden State Bancorp proceeding reflects) consumer protection safeguard commitments prior to any final consummation of the proposal.
Thank you for your consideration of this letter and these requests, on which we urge you to act at the March 13, 2003, meeting or as much prior as possible to the March 28 slated consummation of the Household - HSBC Bank USA proposal.
March 3, 2003
This week: another foray regarding the Fed's hands-off policy on predatory practices and on "non-U.S." lending. On March 3, ICP submitted evidence to the FRB of Household International's predatory lending and insurance, including of the type of "personal property insurance" regarding which the FRB in mid-2002 questioned Citigroup, and subsequently expanded its examination of CitiFinancial to include. Another hook for FRB action: HSBC's Feb. 20, 2003, announcement that it intends to acquire an additional 40% of Equator Bank in Africa -- an institution subject to FRB jurisdiction. HSBC Equator Bank has offices in Connecticut; in the current proposal, HSBC would gain total control over offices in South Africa, Ghana, Angola, Uganda, Cote d'Ivoire and Mozambique. HSBC has previously stated its intention to "export Household's model;" ICP has already filed preliminary comments with several central banks in Africa regarding HSBC's proposal(s); here's a sample of response:
Subj: Predatory lending in Kenya via takeover by HSBC of Equator Bank
Date: 2/28/03 1:40:48 AM Eastern Standard Time
To: [ICP / Fair Finance Watch]
We refer to your email of 23 February 2003 addressed to our Mr. J.K. Murugu on the above subject.
We appreciate the trouble you took to put the long dossier together and will take full cognizance of your warning about the practice of predatory lending.
However we are not aware of any intention by HSBC to buy substantial stakes in any bank in Kenya.
Thank you very much for your warning.
Patrick N. Ndwiga, Manager, Bank Supervision
CENTRAL BANK OF KENYA
The U.S. FRB has a duty to scrutinize transactions through which holding companies which it supervises proposed to export predatory lending practices to other nations -- contrary to the FRB's statement in its Feb. 24, 2003, rushed Mizuho approval order, that the FRB need not consider non-U.S. lending (in that case, under the convenience and needs factor of Section 3 of the BHC Act). ICP has commented: call it the managerial factor, then -- call it comprehensive supervision, call it what you will, but the FRB is irresponsible to not get involved in this HSBC - Household proposal.
Meanwhile Federal Reserve Governor Susan Schmidt Bies has denied access even to the transcripts of its interviews with three ex-CitiFinancial employees in Knoxville, Tennessee on October 9, 2002. Nor has the Fed given the deponents copies of the transcripts, despite statements on Oct. 9 that this would be done. For this, Gov. Bies cites FOIA exemption 8; under exemption 4, the Fed is withholding "three linear feet" of responsive documents.
February 24, 2003
It's time for the Federal Reserve to speak up. On the HSBC - Household front, the Fed continues to do nothing; ICP this week has raised to the Fed a proposed acquisition by HSBC of 40% more of the shares of Equator Bank, in Connecticut and Africa, over which the Fed has jurisdiction. Meanwhile, the Federal Reserve is mentioned in briefs filed last week by private class action lawyers seeking to settle-on-the-cheap with CitiFinancial. For the proposition that $120-a-head is fair restitution for victims of loan flipping, an affidavit has been submitted which recites, "[f]rom 1998 through 2000, I served on the Consumer Advisory Council, a body created by Congress to advise the Federal Reserve Board about its responsibilities for the regulation of consumer credit in the United States. The Council has 30 members, including representatives of banks and sub-prime lenders, consumer advocates and academics." Yep -- in that order. The affiant, Dwight Golann, before giving his blessing to the paltry proposed settlement, acknowledges that "I also appeared as defense counsel for a sub-prime lender in litigation brought by consumers challenging its mortgage lending practices." Just what's needed: an objective expert witness.
[An aside about the CAC: the Fed's Feb. 14 press release about the next CAC meeting states that "Time permitting, the Council will discuss the following topics: Check Bounce Protection; Predatory Lending; Truth in Lending Act." Yeah, it might be a good idea to make time for predatory lending...]
Regarding the Fed's amendment last week to Regulation B,
implementing the Equal Credit Opportunity Act: the Fed states that " The results of a
self-test can be made privileged, provided the creditor carries out corrective action
where appropriate. This means, for example, that the results cannot be obtained in an
examination or investigation
alleging a violation of the ECOA." Strange that the collected information couldn't even be viewed by (Fed) examiners...
On Mizuho, apparently at the Fed staff's direction, Mizuho's counsel last week released some, but not all, of its CRA-related response; it continues to withhold its organizational chart and even the list of the "principals" (or would that be, "principles"?) of its banks in the United States. Something's fishy here... Meanwhile, on Feb. 21 the Nihon Keizai Shimbun reported that Merrill Lynch plans to "inject" $186 million into a Japanese corporate rehabilitation fund it will run with Mizuho.
On HSBC, we've reiterated our requests for the Fed to do its job, now in light of internal Household documents ICP has submitted, along with governmental descriptions of the business that HSBC is seeking to acquire. Click here for more....
February 17, 2003
An example of the Federal Reserve's current rut of "in-box" driven supervision. If there is a application pending, for which the applicant wants fast approval, the FRS quickly asks questions (and then seeks to hold the answers confidential). The example involves Mizuho, to which the Fed posed questions on Feb. 10, following ICP's Feb. 5 comment. Contrast this to the Fed (in-) action on HSBC's proposal to acquire Household, and to put Household's CEO Wild Bill Aldinger in charge of HSBC Bank USA. At least according to its letters, and FOIA (non-) responses, on this the Fed does nothing but pass the comments on to other agencies.
February 10, 2003
While the U.S. operations of a Fed-supervised financial holding company threaten to be taken over by a much-sued predatory lender (that'd be HSBC and Household's William Aldinger), the Fed does nothing. However, on Feb. 6 Fed governor Olsen launched this defense of the Gramm Leach Bliley Act, for which the Fed lobbied:
"The abuses recently brought to light are the result of corporate governance issues, such as lax internal controls, that had not kept pace with the changing financial markets...They are not related to GLBA. Breakdowns in internal controls and relaxation of basic risk-management fundamentals do not indict the objectives, principles, or the statutory structure for implementing the GLBA."
But it's not an (unexpected) "breakdown in internal controls" when the Fed stands by as a predatory lender, maligned for reporting and SEC-compliance practices as well as for systemic equity-stripping, is acquired by and takes over the U.S. operations of a Fed-supervised institution like HSBC Bank USA. ICP has submitted to the Federal Reserve the following:
In light of [the FRB's] January 29, 2003, letter to ICP, we wish to explain why we continue formally providing the Fed with these HSBC- and Household-related submissions. Whatever the legitimacy of HSBC's and Household's attempts to avoid Fed and CRA review of their $14 billion merger proposal -- and ICP has timely contested the legitimacy and even legality of these shamefully evasive maneuvers -- the Fed is the primary supervisor of HSBC in the United States. Not only consumers in the U.S., but also the banking regulators of other countries, are expecting appropriate review and action by the FRS on this controversial proposals, the second-largest financial services merger announced globally in 2002. For this proposition, annexed hereto are letters from the U.K. Financial Services Authority ("FSA"), responding to ICP's comments by stating inter alia that in assessing whether HSBC "has the financial and management resources and proper systems and controls necessary to make such an acquisition... it is likely we will liase with other regulators, notably in the U.S.." We believe that the U.S. regulator with which the FSA will liase, or has liased, is the FRB. The OCC does not regulate HSBC, either its holding company or its lead bank. That "silence equals consent" applies here; that appropriate banking supervision should not be limited to what is in the regulator's in-box, but should rather be more proactive, also comes to mind.
Also annexed hereto is a letter from the National Bank of Poland, General Inspectorate of Banking Supervision (the "NBP"). As we have previously informed the FRS, it appears that HSBC "handed-off" an acquisition it had planned in Poland to Household, despite lacking regulatory and shareholder approvals. The NBP states that it will "take into consideration all relevant information and facts it is aware of." Of U.S. regulators, we assume that the FRS is most in contact with the NBP, and other overseas banking regulators. The FRS' silence is both troubling and, ICP contends, dangerous. We ask that the FRS' silence and inaction end, with respect to this proposal that raises serious supervisory and consumer protection issues concerning a U.S. financial holding company, HSBC, which would put the chairman of a much-sued subprime lender in charge of its FRS-supervised lead bank.
For months now, ICP has requested from the FRS under FOIA records concerning this proposal, and any FRS review or awareness thereof. The time for response has been twice extended and has now expired; still ICP does not have a single document. This is inappropriate, and troubling.
While we welcome the FRS "forwarding" ICP's comments to other federal financial supervisory agencies (as stated in Mr. Alvarez' Jan. 29, 2003 letter), this does not mean that the FRS does not have a supervisory duty to retain, review and act on the matters raised and documents therein... Household's non-U.S. operations, which HSBC proposes to expand into 81 countries, would not be subject to "this review and monitoring."
But will they? Perhaps it's a question that will come up during the Fed chairman's semi-annual report to Congress on Feb. 11-12... Another question: will the Fed let Mizuho off the hook?
February 3, 2003
The FOMC stood pat on rates -- yawn. Meanwhile, following the Fed's month-long silence on the proposal by financial holding company HSBC to acquire scandal-plagued subprime lender Household, finally the Fed found its tongue. On Jan. 23, soon after the stealth approval of the applications to sell-off Household's saving bank, Fed Secretary Jennifer Johnson wrote to ICP:
As we understand the proposal, HSBC would not acquire a financial institution or other company or form a new subsidiary that would require the Board's prior approval under the BHC Act. HSBC also has indicated that it intends to acquire the foreign subsidiaries of Household under the general consent provisions of Regulation K, which would not require Board approval.
If you pick up on the tone of relief in the above-quoted, you're paying attention. The Fed had every opportunity to require an application from HSBC -- first when HSBC proposed to form a new holding company, then with respect to Household's savings bank. The Fed choose to wait and wait, until it could play pass-the-buck. Whether this is wise, even from the Fed's ongoing perspective, remains to be seen....
January 27, 2003
The Fed, it seems, has an answer to being criticized and appealed for withholding responsive records about CitiFinancial and other alleged predatory lenders. The strategy might be summarized: "Just Delay, Baby." By letter dated Jan. 15, 2003, the FRB's FOIA Office purportedly to unilaterally extend its time to respond to ICP's Dec. 12, 2002, FOIA request. It is entirely unclear which "two or more components of the Board hav[e] a substantial interest in the determination of the request," and why the FRB has not at least provided the records which these Board-components do not have an interest in withholding or delaying. ICP has now raised to the Federal Reserve the irregularities in Household's long-withheld applications to the OTS to "dissolve, divest and deregister" its savings bank, solely so that HSBC won't have to apply for Fed approval. Does the Fed give a damn? We'll see.
January 21, 2003
This week: Fed inaction on Household - HSBC, dodging on Citigroup and RBC.
While the FRB to date has done nothing about HSBC's troubling proposal to acquire Household, despite at least two legal theories requiring HSBC to apply for FRB approval under the BHC Act, last week it appears that what the Fed was waiting for in fact occurred. Despite substantially irregularities, the FDIC on Jan. 15 reportedly approved the application to acquire the rest of Household Bank FSB. Note that Household still owns this thrift -- it is imperative that the Fed not continue with its irresponsible "see no evil, hear no evil" approach to this proposal, which would put the senior management of a lender alleged by 50 states to be predatory in charge of Fed-supervised HSBC Bank USA. HSBC explicitly cc-ed its Jan. 14, 2003, Second Response to Fed Chairman Greenspan. HSBC has claimed, in this filing with the Fed, that because Household finalized a settlement of certain charges of predatory real estate lending on Dec. 19, 2002, the issues raised have been addressed. ICP disagrees, including in light of internal Household documents summarized here.
On Citigroup, after delaying since October 2002, the Fed finally responded to ICP's FOIA request for records related to the FRS' recent supervision of CitiFinancial, including depositions taken on October 9, 2002, and for withheld portions of records concerning Fed communications with Citigroup in connection with Citigroup - Golden State. But the Fed's Denial does not mention ICP's requests for the deposition transcripts. This calls into question the seriousness and accountability of the FRB examination of CitiFinancial on which the FRB's Oct. 28, 2002, approval of Citigroup's applications to acquire Cal Fed Bank were explicitly conditioned. ICP complained of this in various submissions to the FRB, including those regarding HSBC's proposal to acquire Household.
As to the documents that the Fed provided, by regular mail on Jan. 10: an e-mail dated 9/19/02, reads "Charlie has kindly shared the portion [REDACTION] that discusses Citigroup's Initiatives [REDACTION]." An attachment is withheld in full. From an e-mail dated 9/23/02, Subject line "Eighteen]th] Comment f[rom] Inner City Press," material is redacted (the same applies to the e-mails headed 19th and 20th "Comment Letter from ICP" -- the latter states that ICP's comment was "received from Skadden Arps").
The FRB has chosen to redact a portion of an e-mail, dated 10/21/02, from the OTS' Bob Knecht. ICP has, in an appeal, contested whether the FRB can cite Exemption 5 for other agencies' allegedly pre-decisional communications. The Fed's Denial haughtily declines to address the questions ICP has raised about the FRB's rules prohibiting ex parte communications, and compliance therewith. We note that among the documents provided is a summary of the July 8, 2002, Formal Meeting in which the FRB acknowledges that ICP raised issues concerning Citigroup's involvement with not only Dynegy, but also WorldCom and Enron. However, in records previously provided by the FRB to ICP under FOIA, FRB staff claim that ICP never raised Citi-Enron, and that therefore ex parte communications on that issue with Citigroup could continue...
Finally, for this week, we note the Fed's ludicrous dodging of Royal Bank of Canada's loss of its appeal of a finding of discrimination in insurance, in a case that the Fed previously said it would closely monitor. Now, following RBC's loss, the Fed says that it "has only limited authority to address matters related to the insurance activities of regulated insurance companies" -- but notes, again, that "the Board will continue to monitor this matter." But that's what they said last time, before RBC lost its appeal...
In the same Jan. 13 Order (on RBC - Admiralty), the Fed says it will "monitor" RBC's Enron-related litigation. The Fed confines to a footnote that "RBC Bank's denial disparity ratios, which compare the denial rate for minority loan applicants with that for nonminority applicants -- particularly for African-American applicants in the Rocky Mount, Greensboro, and Charlotte MSAs, all in North Carolina, and the Norfolk, Virginia MSA -- compare unfavorably with those of the HMDA-reporting lenders in the aggregate of those four MSAs." And so what's the Fed doing about it? Nothing, apparently. It refers issues concerning RBC Mortgage to the FTC and HUD; it says that the FRB of Richmond concluded a fair lending exam on March 4, 2002, but says nothing more about it. In the text of the Order, the Fed "notes that the lower percentage of mortgage loans to African Americans and in predominantly minority census tracts by RBC Bank appear to reflect a lower percentage of applications received by the bank from these individuals and areas compared with the aggregate." Yeah, that's the point -- this raises, rather than resolves, questions. Increasingly, that seems to be the Fed's specialty.
Finally, for this week, we note the retirement announcement of William McDonough, and wish him well (in advance: he's leaving in July). But we question whether Citigroup's Sandy Weill should play a role in nominating Mr. McDonough's successor...
January 13, 2003
The Fed's negligent inaction on the proposal by HSBC to acquire the scandal-plague subprime lender Household International continues. While the FRB to date has done nothing about this troubling proposal, further irregularities in HSBC's attempt to avoid apply to the Fed have arisen. Household is trying to give away the Orchard Bank division of its federal savings bank, to an unqualified institution, Panhandle State Bank, solely to evade applying to the FRB under Section 4 of the BHC Act. An additional irregularity in Household's attempt to give away its federal savings bank has come to light, militating for the FRB to require an application from HSBC.
In its previous comments to the FRB, ICP has directed the FRB to <orchardbank.com>, where subprime / secured credit cards are offered by Household. As we stated in our Dec. 2 comment, Orchard is a subprime card issuer; Hoover's 2002 Company Capsule for Household Credit Card Services states that "[t]he company also offers the Orchard Bank Card, which is its entry into the subprime credit card market." See also ICP's Jan. 6 comment, citing the publication Credit Card Management that Household's Orchard Bank is "a secured card specialist," and that the same publication noted a direct-marketing strategy "being followed by Orchard Bank, which has access to the database of Los Angeles-based Lexicon School of Languages, which primarily serves Hispanics." We again note to the FRB, in connection with HSBC's proposal to acquire Household: targeting high-rate, high-fee credit at protected classes, by ethnicity or national origin, violates the fair lending laws.
Now, <https://www.orchardbank.com/care/CustomerCare?cmd_Redirect=HelpFAQ#cardfaq2> states that "Your credit card is issued by Household Bank (SB), N.A." But an HSBC submission to the OCC and NYBD, dated Dec. 23, 2002, stated that Household Bank (SB), NA's "activities are limited to two lines of credit card business: the issuance of Visa and Mastercard bank credit cards, and the issuance of private-label credit cards. Both businesses are primarily 'prime' lending activities that do not raise the issues that ICP and others have raised about Household's lending." That was inaccurate: Household Bank (SB), NA issues subprime / secured credit cards -- which are not "private label" -- under the Orchard Bank name.
There is another issue, which stands to affect tens of thousands of Household Bank (SB), NA customers: the deposits that Household Bank (SB), NA required for its secured / subprime cards are been held in the Orchard Bank division of Household Bank FSB. See, <https://www.orchardbank.com/care/CustomerCare?cmd_Redirect=HelpFAQ#creditcards6>, incorporated herein by reference, which states that "[t]he interest rate on savings accounts, as of 7/1/2002, is 2.00% with an annual percentage yield of 2.00%. For more current information, call Orchard Bank, a division of Household Bank, fsb at (503) 245-9280."
So: Household is now trying to sell (well, give) to Panhandle State Bank these deposits which secure subprime credit card accounts at Household Bank (SB), NA. As recounted in ICP's Jan. 6 comment, Panhandle's Dec. 24 submission to the FDIC states that, of the Household Bank FSB / Orchard deposits Panhandle seeks to acquire, "approximately $14 million consists of secured credit card deposits." These are the deposits that Household required be deposited to secure credit cards issues by Household Bank (SB), NA.
As stated in ICP's Dec. 2 comment to the Fed, Panhandle State Bank's CEO has been quoted that Panhandle is "only interested in the community aspects of (Orchard) bank," and not in its subprime or credit card business. See, "Group Challenging Purchase by Panhandle: Complaint Seeks Review of Banks' Lending Practices," The Spokesman-Review (Spokane, WA), Nov. 27, 2002. And so it appears that current credit card customers of Household Bank (SB), NA now face -- solely so that Household and HSBC can try to evade applying to the FRB under the CRA -- the following situation: the deposits they were required to put into Orchard / Household Bank FSB stand to be sold off to a small, eight-branch bank in Idaho, while, following Panhandle's CEO's comments, their "secured" credit card accounts would remain at Household Bank (SB), NA.
HSBC's Dec. 23 submissions to the NYBD and OCC stated tersely that Household Bank FSB "has no credit card operations." ICP responded that the statement appeared untrue, including in light of the card offerings on <OrchardBank.com>. Now we find that the cards offered on <OrchardBank.com> are issued, not by Household Bank FSB (of which Orchard is a division), but by Household Bank (SB), NA. We still maintain that Household Bank FSB's Orchard, by marketing cards (see infra) and holding deposits securing cards, has "credit card operations." But Household's and HSBC's cynical strategy, described above, militates for the FRB to finally break its silence and direct HSBC to file an application to acquire Household and Household Bank FSB.
January 6, 2003
While the Federal Reserve stands by, for now, while financial holding company HSBC, parent of Fed-supervised HSBC Bank USA, tries to acquire the scandal-plagued subprime lender Household International, the Fed on Jan. 3 named ten new members to its "Consumer Advisory Council." These include representatives from Commerce Bancorp, Bank of America, Juniper Financial Corporation, World Savings Bank, and Washington Mutual.
Whether the Fed's CAC will take up, as they should, the question of HSBC trying to evade the Fed while seeking to acquire a lender much-sued as predatory is not known at this time. What is known is that the already-questionable legitimacy of Household's and HSBC's strategy -- to give away a subprime credit card lending unit of Household Bank FSB so that HSBC doesn't have to apply to the Fed under Section 4 of the Bank Holding Company Act, is becoming comical (not that the Fed is laughing, or doing anything about it yet). Household is trying to give the Orchard Bank division of its savings bank away, to Idaho-based Panhandle State Bank. On Jan. 6, ICP formally informed the Fed of a Panhandle's "Update" (that is, correction) to its already late-filed antirust HHI analysis. Panhandle's December 24 letter to the FDIC Regional Director states that, of the deposits that Panhandle is applying to acquire, "approximately $14 million consists of secured credit card deposits," and that these deposits were omitted from the deposit chart Panhandle previously provided as Item 15(I)(a) of its application. This contradicts Panhandle CEO Curt Hecker's previously public statement that Panhandle is "only interested in the community aspects of (Orchard) bank." Spokane Spokesman-Review of Nov. 27, 2002.
Panhandle's Dec. 24 letter distinguished between "'local' deposits, which were the only deposits reflected in the deposit chart in Item15(I)(a) of the Application," and these "secured credit card deposits." So: Panhandle is seeking to acquire money that Household Bank f.s.b. customers have been required to deposit as security for subprime credit cards. Orchard has been described in the publication Credit Card Management as "a secured card specialist;" the same publication noted a direct-marketing strategy "being followed by Orchard Bank, which has access to the database of Los Angeles-based Lexicon School of Languages, which primarily serves Hispanics." Targeting high-rate, high-fee credit at protected classes, by ethnicity or national origin, violates the fair lending laws; ICP has asked the Fed to act on this, particularly since Fed-supervised HSBC seeks to acquire Household.
While the Fed silently chews on all this, ICP has filed comments opposing HSBC's proposal to acquire Keppel Insurance in Singapore, and a strange proposal, first by "a British bank," then by Household International Europe, to acquire Polski Kredyt Bank in Warsaw (ICP's reportorial efforts are recounted in ICP's Jan. 6 comment to the OCC, summarized here). ICP has raised this HSBC "gun-jumping" to the Fed; we'll see.
For or with more information, contact us.
* * *
Click here to view ICP's current Federal Reserve Reporter.
Click here for view ICP's Federal Reserve Archive 2001-2002
Click here to view ICP's Federal Reserve Archive #4 2000 (Sept. 25-Dec. 26, 2000)
Click here to view ICP's Federal Reserve Archive #3 2000 (July 17 - September 25, 2000)
Click here to view ICP's Federal Reserve Archive #2 2000 (April - July 17, 2000)
Click here to view ICP's Federal Reserve Reporter Archive 2000 #1 (Jan.-March 27, 2000)
Click here to view ICP's Federal Reserve Reporter Archive #4 (Sept. 27 - Dec. 31, 1999)
Click here to view ICP's Federal Reserve Reporter Archive #3 (Aug.-Sept. 20, 1999)
Click here to view ICP's Federal Reserve Reporter Archive #2 (May 19-July, 1999)
Click here to view ICP's Federal Reserve Reporter Archive #1 (Feb. - May 17, 1999)
Click here to view ICP's current Federal Reserve Reporter.
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