The J.P. Morgan Chase Watch Archive - from Inner City Press & Fair Finance Watch

The J.P. Morgan Chase Watch Archive

Click here for current ICP JP Morgan Chase Watch Click here for Inner City Press' front page.

ICP has published a (double) book about the JPMChase-relevant topics of subprime lending, and corporate fraud - click here for sample chapters, here for an interactive map (including regarding Chase), here for fast ordering and delivery, and here for other ordering information. The Pittsburgh City Paper of Dec. 11, 2003, says that the "novel Predatory Bender: A Story of Subprime Finance may, in fact, be the first great American lending malfeasance novel." Click here for that review; click here to Search This Site For or with more information, contact us.

[Update of January 14-15, 2004: late on Wednesday afternoon, after the news started leaking, JP Morgan Chase confirmed it has a proposal to buy Bank One, for $58 billion. In late 2003, Chase did a "corporate trust" deal with Bank One, while Chase was (and still is) trying to put its nationwide consumer finance lending, including subprime mortgages and auto loans, into a federal thrift to preempt all states' anti-predatory lending laws. J.P. Morgan Chase's normal interest rate lending is disparate, particularly to Latinos and African Americans, while Chase targets these groups with high-cost subprime loans, for which it seeks to escape state anti-predatory lending laws by shifting its subprime business into a federally-chartered savings bank. ICP/Fair Finance Watch will be challenging Morgan Chase's proposal, raising the issues Chase has been ducking for months (see below & this page). This will be frequently updated, here. For or with more information, contact us.]

Background: J.P. Morgan + Chase

On November 6, 2000, Inner City Press / Community on the Move filed detailed comments opposing Chase Manhattan's applications to acquire J.P. Morgan & Co. and its subsidiaries, with the New York State Banking Department and the Federal Reserve Board. Portions of ICP's protest appear at the bottom of this page. Beyond arguing, with Home Mortgage Disclosure Act data, that Chase's normal interest rate lenders disproportionately deny and exclude credit applications from people of color, while Chase Home Funding (subprime) and the other subprime lenders Chase supports target these communities, ICP's comments demonstrate, from the "branch counts" in regulatory decisions in the past years, that the decrease in Chase's branches in low- and moderate-income census tracts has been more pronounced than its overall branch decreases. It's also an attempt at a comprehensive brief on Chase's and Morgan's impacts on communities, the environment, and even human rights.

See also, e.g., Bank to Keep Area Branches, Jobs; Name May Change Following Chase, J.P. Morgan Merger, by Bob Schober, Arlington (Tx) Morning News, January 4, 2001, Pg. 1C; N.Y. Judge Declines to Stop Chase - J.P. Morgan Merger, by Joseph A. Giannone, Bridge News, January 3, 2001; Protester asks N.Y. Supreme Court to Annul Chase - J.P. Morgan Merger; Court Ordered Say on Chase-Morgan Merger Friday, by Joseph A. Giannone, Bridge News, January 2, 2001; Chase-J.P. Morgan Deal Receives Fed's Approval, Wall Street Journal, December 12, 2000; Chase - J.P. Morgan Merger Approved by Fed, Bureau of National Affairs Banking Daily, December 12, 2000; Fed Approves Chase Manhattan-JP Morgan Merger, by Jonathan Nicholson, Dow Jones Newswires, December 11, 2000; Federal Reserve Board Approves Chase-JP Morgan Merger, by Eileen Canning, Bridge News, December 11, 2000; N.Y. Regulator Asks J.P. Morgan, Chase About Subprime Activities, by Rob Garver, American Banker, November 27, 2000, Pg. 1; Chase-Morgan Merger Opposed, Crain's New York Business, November 13-19, 2000; Group Protests Chase-Morgan Deal, by Rob Garver, American Banker, November 8, 2000; Consumer Group Seeks to Block Chase Purchase of J.P. Morgan, Reuters, November 6, 2000; Skeptics question purported benefit of Morgan Chase, By Dunstun Prial, Associated Press, September 16, 2000

For or with more information, contact us. In this space, we will be running short weekly updates on Morgan-Chase:

Update of January 5, 2004: ICP raised in its Dec. 22 Report (see below) issues reflected in document provided to ICP by the Oregon Department of Justice (ORDOJ) -- CMMC and false social security numbers (SSNs). Now ICP has received, and is submitted to the FRB, some of the underlying documents, including a handwritten statement by Jose Gabriel Quirino, inter alia that he was told that false SSN -- which he himself disclosed -- would not be a problem; the credit reports upon which CMMC relied, CMMC's "Loan Memorandum" -- which characterizes this process as "Full Doc" -- further investigative documents and correspondence of the ORDOJ, including one stating:

"the suggestion to a consumer that using a bad social security number will not be prejudicial... is a violation of our Unlawful Trade Practices Act... You mentioned the OCC; I could be corrected but I was told by someone and have been led to believe the [OCC] would not be in the picture here. I submit Oregon has a right to protect its consumers... we want an Assurance of Voluntary Compliance with Chase that this sort of alleged conduct will cease... I am concerned that if there are three possible instances of fraud there may be more. Part of any resolution would have to including a monetary effort to make things right with any consumers who have lost their property and their money."

ICP has also received copies of other complaints from Oregon (violation by Chase of telemarketing rules / "No Call" List asserted by ORDOJ); from the New York Banking Department (against Chase Manhattan Mortgage Corp., from October 1, 2000 to June 25, 2003, over 500 consumer complaints were filed; small sampling --

6/25/03 Mortgages - Privacy Issues - Valid - 03 M 1573

6/19/03 Mortgages - Escrow account, non-payment of taxes from - Valid - 03 M 1533

6/16/03 Mortgages - Release of satisfaction - Valid - 03 M 1502

6/13/03 Mortgages - Release of satisfaction - Valid - 03 M 1491

6/12/03 Mortgages - Release of satisfaction - Valid - 03 M 1485

6/09/03 Mortgages - Payment not posted to account - Valid - 03 M 1453

--other complaints acknowledged as "valid," even by the New York Banking Department, were for "Foreclosure" (Valid, o3 M 236); "Loan Terms Changed" (Valid, 03 M 133); "Closing Delays" (Valid, 03 M 676); "Foreclosure" (Valid, 03 M 843); "Insurance Funds - Difference FDIC and Other" (Valid, 03 M 869); etc.--

from Wisconsin, Texas and elsewhere, other complaints are annexed hereto, and timely made part of the record in this proceeding. Again, the above, including Chase's attempt to put ORDOJ off the trail by claiming that CMMC was OCC regulated, casts the other complaints annexed hereto -- all of which would fall under the OTS' dubious enforcement regime -- in a different light. Also:

In 2002 in the Portland, Oregon Metropolitan Statistical Area ("MSA"), for conventional home purchase loans, Chase Manhattan Mortgage Corp. ("CMMC") denied loan applications from Latinos 4.48 times more frequently than applications from whites, and denied African Americans a whopping 11.9 times more frequently than whites (while disproportionately excluding African Americans from its outreach and lending).

In the Seattle, Washington MSA in 2002 for conventional home purchase loans, CMMC denied loan applications from Latinos 2.61 times more frequently than applications from whites. In the Jackson, Mississippi MSA in 2002 for conventional home purchase loans, CMMC denied loan applications from African Americans 2.35 times more frequently than applications from whites. In the Denver, Colorado MSA in 2002 for conventional home purchase loans, CMMC denied loan applications from African Americans 3.64 times more frequently than applications from whites. These disparities are systemic...

Update of December 29, 2003: in this holiday week, and still awaiting Morgan Chase's response on the Oregon / SSN issues (see last week's Report, below), for now we'll note, along with the Budapest stock exchange daily Magyar Tokepiac, that Morgan Chase has increased its stake from 9.82% to 10.1% in Hungarian oil and gas company Mol. Perhaps as custodian -- similar to Chase's dubious work with/in the Russian stock market. Another topic for 2004...Happy holidays. Until next time, for or with more information, contact us.

Update of December 22, 2003: In this cold season, Inner City Press has just received hot documents on Chase Manhattan Mortgage from the Oregon Department of Justice (OR-DOJ). Among the documents in the ORDOJ's first FOIA response to ICP is correspondence concerning Chase Manhattan Mortgage Corp. ("CMMC") and false social security numbers -- an issue that the state regulator received complaints about, and then, for whatever reason, allowed Chase itself to investigate. According to Chase Associate General Counsel Laura O'Hara's June 5, 2003, letter to ORDOJ:

"Chase conducted an investigation with respect to the allegations set forth in your Letter. We related the results of that investigation upon your agreement that it would not constitute a waiver of the attorney client privilege. As part of that investigation, Mr. Hernandez was asked to come to our New Jersey headquarters and was interviewed by two attorneys and a senior investigator from our Fraud Prevention and Investigation Department ('FP&I'). After a thorough and intensive questioning, we found no evidence that Mr. Hernandez had 'condoned the use of bad social security numbers'... When Chase was notified by HUD that there were possible invalid SSNs on the Cortez and Alejandro Sierra loans in 2001, these files were immediately referred to our Quality Assurance Department. That department determined that the SSNs were invalid and determined that the borrowers had supplied falsified documents to Chase... If he were applying for a loan today... we would have found material misrepresentation in connection with the SSN submitted and would have declined the loan. This would be reported as a borrower misrepresentation in the Suspicious Activity Report ('SAR') that we file with FINCEN."

Even the ORDOJ, in responding to the above, noted that

"It appears there were Social Security number problems in all three consumer files including Gonzalez which apparently you had not yet discovered... we have persons claiming different things... Chase is very quick or possibly too quick to act once a person in possession is shown to have a bad social security number... You indicate Mr. Hernandez himself investigated after an alert and found two numbers incorrect; but while he found the third one correct it looks like that is now called into question as well... Whether Mr. Hernandez ever in fact winked at the use of a bad number we'll never know though I know you believe the evidence is he did not. Still, three transactions is a lot."

And it's more than three -- we hear this not only from ORDOJ, but also with regard to Chase's mass-purchase of loans in the Poconos with inflated appraisals. Something's wrong at Chase Manhattan, and putting it under an agency that's just desperate for assessment fees is sure not the answer....

Update of December 15, 2003: When we first heard -- not from the Office of Thrift Supervision -- that the OTS had approved JPMorgan Chase's application to form a savings bank, Chase FSB, to preempt state anti-predatory lending laws, we thought that the OTS must have at least considered the evidence of Chase's practices we'd submitted. But under a Dec. 9 cover letter, ICP has received the OTS' approval order, which states that ICP "filed comment letters, all of which were received after the close of the public comment period. OTS concludes that the comment letters do not meet the standard for consideration of late-filed comments, set forth in 12 CFR §516.140(b)."

It must be said: that's both pathetic and an outrage. ICP requested the Chase FSB application during the comment period, and commented on it less than a day after receiving it from the OTS. ICP was assured, by an OTS staffer, that its comments would be considered. The OTS has hit a new low -- ICP has filed a FOIA appeal and letter to this effect, results to be reported on this site -- but it also renders false any claim by Chase that adverse issues were considered by the OTS prior to its approval. A brand-new fight begins; the OTS, we'll deal with as well. It's also attributable to Chase, which argued from its first response that the comments should not even be considered. We'll say it again: pathetic.

Update of December 8, 2003: Bogus agency, bogus bank: last week a reporter (the American Banker's Liz Moyer) noticed on the OTS web site that the OTS had apparently approved Chase FSB, despite protests and outstanding FOIA requests, on November 28 -- the day after Thanksgiving. The OTS hasn't provided notice of approval; Chase hardly wanted to. Why? Because Chase must now begin another application process, at the Federal Reserve -- where hopefully the troubling predatory lending / preemption questions raised can actually be looked into. That the OTS is a joke (and that's why Chase wants to move its subprime lending there) is reflected by a response ICP received last week from the Kentucky Department of Financial Institutions:

"We have received numerous complaints against Washington Mutual, most concerning their failure to properly credit customers' accounts but, unfortunately, the Department does not have copies of those complaints. The lady who handles consumer complaints was under the mistaken impression that anything having to do with Washington Mutual was not to be handled by our Department but was to be forwarded to the Office of Thrift Supervision. She thought, since the banking business of Washington Mutual was federally regulated, that the consumer loan business of Washington Mutual was also federally regulated. She has no record of the number or content of such complaints registered over the past three years old than a knowledge that many of the complaints concerned a failure to credit customers' accounts resulting in complaints of unauthorized threat of foreclosure. We will attempt to work with you in this matter. We appreciate your concern and invite further correspondence."

For now, Inner City Press has submitted a Freedom of Information Act request to the Office of Thrift Supervision, for documents including this mis-forwarded complaints against WaMu Finance -- but note that the OTS never informed the Kentucky DFI it was sending complaints against a subprimer into the void... This is the type of void / loophole Chase is looking for...

Update of December 1, 2003: anything for a buck: the day before Christmas, JPMorgan Chase announced a proposal to buy the Citicorp Electronic Financial Services unit which provides government-issued benefit payments -- including public assistance a/k/a/ welfare. Readers of this site will remember that Citigroup fell under criticism for winning these contracts without having many or any branches in low income neighborhoods. Well, the same issues of worse will exist as to Morgan Chase...

Update of November 24, 2003: The Office of Thrift Supervision last week unilaterally extended its time to respond to Inner City Press' request under the Freedom of Information Act for records reflecting the OTS' consideration of Chase's proposal to put 302 Chase Manhattan Mortgage Corp. offices into a federal savings bank, evading all states' consumer protection laws. Meanwhile, here's a sample message that came in:

Date: 11/18/03 6:29:13 PM Eastern Standard Time

From:[ ]

To: ChaseWatch [at] innercitypress.org

I e-mailed you last week about the ordeal we went through with CMMC from April till Oct. Well, we received a letter stating they had sent electronic notification to all major credit agencies to have the delinquent payments off our credit report. We do not believe them. The letter also say " I apologize that we do not meet your expectations." My thought is "when donkeys fly will they ever meet my expectations"...

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

Update of November 17, 2003: The campaign against JP Morgan Chase's attempt to evade consumer protection laws for over 300 (subprime) lending offices in forty-something states continues. It's effect of various states is reviewed in this new ICP map, click here to view and use. On November 17, the following went in, to the OTS, FDIC, and other agencies:

Dear Director Gilleran, Regional Director Albanese, others:

On behalf of Inner City Press/Community on the Move and its members and affiliates, and the Fair Finance Watch (collectively, "ICP"), this is a supplemental comment opposing a pending application by J.P. Morgan Chase to form a new savings bank, Chase FSB, and to place its nationwide lending, including subprime lending, into Chase FSB, which would among other things have the effect of exempting Chase's subprime lending from state consumer protection laws.

ICP has continued receiving numerous complaints about the Chase entities -- Chase Manhattan Mortgage Corp. ("CMMC"), Chase Automotive Finance, etc. -- that it now proposes to exempt from state consumer protection laws. Some of these are discussed below and/or annexed hereto. First, however, ICP wishes to formally make part of the record its questions (and its October 27, 2003, Freedom of Information Act request) concerning whether the OTS is already anticipating "assessment revenue" from the applicant here, as it is from, for example, Hudson City. An October 22, 2003, American Banker newspaper article ("N.J.'s Hudson City Seeks Switch to OTS") about another institution trying to shift to the OTS quoted "Kevin Petrasic, an OTS spokesman" that the OTS "had been talking with Hudson City Bancorp about making the switch for some time and had factored the assessment revenue it would likely generate into the agency's budget for the second half of next year. The conversion to a federal charter would immediately make Hudson City the 10th-largest thrift regulated by the OTS." (Emphasis added).

ICP, which since August 25 has requested records related to Chase's proposal from the OTS under FOIA, find the above-quoted to be troubling. Hudson City's application to become a thrift is pending, as is Chase's: the inclusion already of projected assessment revenue in the OTS' budget reflects, we contend, inappropriate prejudgment of applications subject to public comment and to the CRA. As relates to this request, we are specifically requesting all records reflecting the inclusion (or non-inclusion) of projected Chase / Chase FSB assessment revenue in future OTS budget(s) -- in fact, we are requesting the above-referenced OTS budget, projected or not, for future years, in order to determine the inclusion or non-inclusion of institutions that are or are not yet OTS-regulated thrifts.

On October 27, 2003, ICP formally requested record related to the above, on which it desires to comment in this proceeding. ICP continues to await response and the records. In light of the material above, and the other facts of record, we demand the responsive documents forthwith, on an expedited (and incremental - as available) basis.

ICP has continued receiving numerous complaints about Chase Manhattan Mortgage Corp. ("CMMC"), Chase Automotive Finance, etc.. From the New York Banking Department, we received Freedom of Information response indicating , against Chase Manhattan Mortgage Corp., from October 1, 2000 to June 25, 2003, over 500 consumer complaints were filed...

At the end of last week, ICP received 114 pages, with approximately 12 consumer complaints on each page, against Morgan Chase from 1998 through earlier this year -- ICP is reviewing this, and will be commenting thereon. From Wisconsin, other complaints are annexed hereto.

In the Milwaukee, Wisconsin MSA in 2002, for conventional home purchase loans, CMMC denied the applications of African Americans three times more frequently than those of whites, and denied those of Latinos 2.18 times more frequently than whites. For refinance loans, CMMC denied the applications of African Americans 2.89 times more frequently than those of whites, and denied those of Latinos a whopping 4.72 times more frequently than whites.

It remains imperative, given the inaccuracy throughout the comment period of the list of CMMC offices which Chase is proposing to make branches of a thrift (and thereby preempt state consumer protection law) that new notice be published, the comment period officially be reopened, and the requested public meeting be held.

Update of November 10, 2003: this week, two tales of woe -- and new Inner City Press book. In order:

Subj: Chase Manhattan Mortgage

Date: 11/3/03 6:34:15 PM Eastern Standard Time

From: [ ]

To: ChaseWatch [at] innercitypress.org

...We refinanced our home in November 2002 at which time we paid off our loan with Chase Manhattan. In March 2003 CMMC falsely reported our loan as "foreclosed" to three major credit bureaus. (I noticed on your website another customer with the same experience.) As directed by Chase on 7/25/03 I faxed a copy of our credit reports. I was told they'd investigate and that would take up to 30 days. On 9/5/03 I was told it was still in investigation and would take 57 days! Upon my persistent phone calls I called again on 10/15/03 I was told their investigation into our loan showed it was not foreclosure and they'd notify the credit bureau's and send us a letter indicating to this fact. I've contacted them 14 times since 9/5/03 and they still have not sent us the letter nor will they return my calls as they always promise. Chase has not amended our credit reports as they indicated either. All totaled I have notes since 7/25/03 documenting 24 phone calls I've made in an attempt to get this fixed....

* * *

Subj: Class action suit against Chase?

Date: 11/4/03 3:36:11 PM Eastern Standard Time

From: []

To: ChaseWatch [at] innercitypress.org

...In April we changed from a Home Equity Loan to a Chase Mortgage Loan our bank was paid off on April 9th. Our first payment was on June the 1st. I was told to call the 800# Chase customer service if we did not receive a coupon booklet. I started around the end of April, computer did not recognize our loan #, was transferred to customer service, do not have a loan, must be problem between you and your bank. Called again the next week same as above. Mailed in a payment on May 21,2003. did not receive any confirmation on the payment , called again same as above. Around the first of July received a letter from ****** with a check from Chase exactly the amount I sent in. She wrote there was no loan # match. I called again, went through the whole ordeal including reading the letter from ******* to Chase customer rep. Sorry can not help. Decide to deposit Chase check, turned around and mailed three checks ,one for June, July, and Aug. Called again I think the customer rep. put me on line with a supervisor. She said that maybe the lady who helped in closing did not send the papers. Called the lady, apologized to her and told her what I was told, she already knew that we were having problems, had called her several times to talk about this problem, she said she would call someone. She called back said the problem would be straighten out . Around the first of August was sent a letter from Chase our first payment due the first of September and about the same time received a statement from Chase with one payment credited. Called again , this time was a nice young man, told him from the whole beginning and he assured me we would be credited the two other payments. One week later received a new statement all three checks credited, and due date for next payment 12/01/03. Called again to make sure, do not make any more payments until due date. Received statement in Sept. no transactions, did not call very tired of this. The statement for Oct. received it on the 14th. All three checks had been reversed, and we owed $651.15, payments are only $217.05. Called this time the computer said " do you want to keep your property". Customer service rep. said the same thing, by that time I was really upset. Tried to explain the whole ordeal, was told I had a problem with my bank. I told her I had all three cancel checks in my lap, I read the letter from ********, I told her I would go to my bank and talk to the President, was told " that want help you" She gave me an address to send copies of the cancel checks. Decide to go to the bank any way, the President called Chase talked to two reps. before a supervisor came on. He told her that I have never had an overdraft, and I had called him over the many months telling him the ordeal I was going through since May. Fax cancel checks and sent the paper about first payment due in Sept. Received a letter from *******was being researched. Decide to try and call the lady that was named on the paper stating first payment in Sept. again, although when called the times before "sorry you must have the wrong number" recording from telephone company. Decide to call bank and have them to check their computer for correct number. Letter had the lady in Orlando Fla. and she was in Montgomery. The last two numbers was wrong that was typed on the letter besides the city and state. Called her, she said our papers were lost and the problem was suppose to have been corrected. Told her about the customer service rep. saying the problem was our bank and us. She said our checks had been reversed back to the bank, by this time I was beside myself. She said "I'm sure if you sent in the $651.15 everything would be alright." I told her "that no one had the decency to call or write to let me know what was going on". She gave me a number for a lady that represents Chase and another number... The lady called Tuesday said she wanted me to go to the office of the lady that gave me her phone # to explain about payments, I could not for it was a two hour drive, she suggested mailing the papers, I suggested having them faxed to our bank. This was on Monday October 27th, no fax, nothing. On October 30th, I called the lady in Montgomery asked if she had talked to the lady from Chase, one thing different she put us on a speaker phone. Knew then she wanted someone to listen to our conversation, told her thank you for the phone # she gave, and wished her an early Happy Thanksgiving, all the time chocking from my thoughts. Lady from Chase called Thursday evening, had been calling me "sweetie" not" sweetie" any more but Mrs.**** asked if I had spoken to the lady in Montgomery I said yes, was inquiring about the papers that was suppose to have been sent...The lady said that she had asked the lady in Montgomery if she had explained to me about the reversal of checks, and she said she did, she LIED. The lady from Chase did not comment on my answer but went into explaining, called amenities, our papers went to Fla. took three months for them to go into the Chase system, and our bank had to pay for those three months and this is why are checks were reversed back to our bank She said to mail in a payment of $434.10 the next morning Express Mail. She said no late fees , nor reported to the Credit Bureau. I told her I felt we were in the hands of the Devil's Advocate. I mailed a Cashiers check, Express Mail. I am to wait five days and call Chase to see what our balance is, name, address, and the phone # and then the bank will handle it. We are AFRAID of what Chase could do to us before the deal is completed. I have names of Customer Service reps. some are only first names, and some with last names, all the supervisors, the statements, and letters. We want to be out from under Chase! .... If anything I want to help, maybe what I have will help others and for them to not have to go through the ordeals we and others have gone through. Hate to say this but I am having a hard time trusting, we are going to withdraw our checking account out of our bank. I do not trust them either!

Jump-cut, though not a big leap -- we try not to be self-serving, much less crassly commercial -- but if we didn't use this space to announce the availability of Inner City Press' new book, "Predatory Bender," it'd mean we didn't believe in the book, right? And we do. So click here for more information, including sample chapters. It is also available for direct credit card order here (this is the fastest way), through Amazon.com, Powells.com, Barnes and Noble.com, etc.. Freedom of the press...

Update of November 3, 2003: From the New York Banking Department, at least a Freedom of Information response. Against Chase Manhattan Mortgage Corp., from October 1, 2000 to June 25, 2003, over 500 consumer complaints were filed. A small sampling:

6/25/03 Mortgages - Privacy Issues - Valid - 03 M 1573

6/19/03 Mortgages - Escrow account, non-payment of taxes from - Valid - 03 M 1533

6/16/03 Mortgages - Release of satisfaction - Valid - 03 M 1502

6/13/03 Mortgages - Release of satisfaction - Valid - 03 M 1491

6/12/03 Mortgages - Release of satisfaction - Valid - 03 M 1485

6/09/03 Mortgages - Payment not posted to account - Valid - 03 M 1453

Other complaints acknowledged as "valid," even by the New York Banking Department, were for "Foreclosure" (Valid, o3 M 236); "Loan Terms Changed" (Valid, 03 M 133); "Closing Delays" (Valid, 03 M 676); "Foreclosure" (Valid, 03 M 843); "Insurance Funds - Difference FDIC and Other" (Valid, 03 M 869); etc. And so what's up (and will be up) with Morgan Chase's applications to the OTS, FDIC and Delaware to convert to a federal savings bank and evade all state consumer protection laws and agencies?

The Federal Reserve's Bank One - Chase order was weak, for example claiming that, "in light of... the small size of the transaction relative to JPMCB's total deposits and assets," Morgan Chase's Enron-enabling is not inconsistent "with approval of the proposal." As to Enron, as least the Fed can claim to have done something, outside of the applications context. But on Chase's standardless loans in the Poconos, the Fed says that due to "the number of loans involved" and "confidential supervisory information," that requires no Fed action. Apparently once a bank is big enough -- say, over $800 billion in assets, as Morgan Chase and Citigroup are, and as Bank of America wants to be, every scandal looks small to the Fed. Sounds like "too big to fail" to us...

Update of October 27, 2003: Preemption and regulatory capitulation -- these are abstract concepts, but they impact on consumers and communities. Since late summer, when it stumbled on notice of Morgan Chase's application to the Office of Thrift Supervision to open a savings bank and make over 300 offices of Chase Manhattan Mortgage Corp. into federal thrift branches, exempt from state consumer laws, ICP has been opposing the proposal. Two weeks ago, ICP noted that OTS Director Gilleran had pointed, as evidence of the OTS' continuing viability, to Chase's application; ICP wrote, and the American Banker published, a letter to the editor questioning whether the OTS Director was improperly prejudging a pending, protested application.

Well, it's actually worse than that. An October 22 American Banker article about another institution trying to shift to the OTS quoted "Kevin Petrasic, an OTS spokesman" that the OTS "had been talking with Hudson City Bancorp about making the switch for some time and had factored the assessment revenue it would likely generate into the agency's budget for the second half of next year. The conversion to a federal charter would immediately make Hudson City the 10th-largest thrift regulated by the OTS." (Emphasis added).

This means that the OTS starts counting "assessment revenue" with regards to institutions which apply for thrift charters even before they apply, while the comment periods are open, and while protests and hearing requests are pending. Beyond the obvious (and inappropriate) prejudgment at issue here, it is plain sad that Congress has left thrift regulation in the hands of an agency so hard-up for money it must engage in accounting tricks like counting projected future income or "assessment revenue." This is no way to regulate savings banks, much less to protect consumers. Inner City Press has now filed a Freedom of Information Act request with the OTS, for all record showing any consideration of the proposed Chase FSB (or other institutions) in future OTS budgets, in the "second half of next year" or before or after. Even pending the response -- which ICP has asked for on an expedited basis -- this make it even more clear that the OTS should hold public hearings on Chase's stealth applications, at a minimum to clear the air... Also last week, we received a copy of the OCC's letter to JPMorgan Chase, stating the applications for the Morgan Chase - Bank One corporate trust proposal were "removed from expedited processing to allow for sufficient time to review CRA-related public comments received for this filing. Please do not proceed with your proposal until you have been notified by the [OCC] that the application has been decided."

Update of October 20, 2003: JPMorgan Chase's October 15 submission to the Federal Reserve, purporting to respond to ICP's September 29 comments, argues among other things that the Fed should ignore evidence of the (at least) 50 complaints CMMC customers made to the Georgia Department of Banking and Finance in less than two years, and that the Fed should reject ICP's position that "the higher number of complaints for this period than for CMMC's competitors militates for a public hearing." Morgan Chase alludes vaguely to "the relative size of the servicing portfolios of those institutions" -- but CMMC was being compared to a similarly-sized (or larger) lender and servicer.

Last week, ICP received a response from North Carolina Commissioner of Banks, stating that while CMMC "has claimed the status of 'exempt person' under the Act... such a person remains subject to the prohibition against engaging in the activities listed in N.C. Gen. Stat. §53-243.11. Between September 18, 2001 and September 18, 2003, the Commissioner received 26 consumer complaints against CMMC and two against its affiliate...".

ICP also received a response last week form the Michigan Office of Financial and Insurance Services (OFIS), reporting against CMMC in Michigan 16 complaints in 2002, and 25 complaints in 2003. Among the summaries:

-Company overpaid property taxes & forced placed insurance consumer already had

-Payments not properly credited, foreclosure

-Company forced placed insurance & disputing escrow account balance

-Consumer alleges company misrepresented interest rate

-Alleges harassing phone calls, disputes loan's high interest rate and large monthly payment

In Michigan, as in Georgia, substantially more complaints have been filed against Chase Manhattan Mortgage Corp. than its peers. For now, the Texas Attorney General's Office has mailed ICP a sampling of complaints against Chase; an enumeration of complaints, against Chase and peers, remains pending. But from the sample complaints:

a consumer in San Antonio began complaining to Chase Manhattan Mortgage Corp. in 2002 about a derogatory report Chase had put on the consumers' credit report, without justifications. After numerous letters from Chase stating that nothing could be done (but containing the phrase, "I apologize that we did not meet your expectation"), six months after first complaining to Chase, the consumer wrote to the Texas AG's office, cc-ing Chase. Very quickly, Chase "sent an electronic notification to all major credit reporting agencies... requesting that they remove all references to a Chase Manhattan mortgage loan from your credit report." Again the stock phrase, "I apologize that we did not meet your expectations." But here's an expectation: that clearly meritorious complaints shouldn't take nearly a year to resolve...

Also, a sample complaint regarding a loan that CMMC bought, from Community Home Loan of San Antonio: "The first statement we received from Chase Manhattan filed to reflect a payment we had made to Community Home Loan... This check had cleared our bank on Dec. 20, 2002... We have made repeated attempts to get Chase Manhattan to credit our account with this payment but [CMMC] has not complied with our request... I suspect that this is more than a simple oversight and that my case is an example of an ongoing and widespread scam conducted by Chase Manhattan."

In Texas, it's worth noting that in the Dallas MSA in 2002, CMMC denied conventional home purchase loan applications from African Americans 2.4 times more frequently than those from whites.

In North Carolina, in the Raleigh-Durham MSA in 2002, for conventional home purchase loans, CMMC's denial rate disparity between African Americans and whites was 4.72; between Latinos and whites it was 7.09.

And (for now) in Michigan, in the Detroit MSA in 2002 CMMC denied the refinance applications of African Americans 2.58 times more frequently than whites; in the Benton Harbor MSA, CMMC denied the refinance applications of African Americans 2.36 times more frequently than whites.

ICP has filed these comments with various regulators. If the past is any guide, it will take Morgan Chase three weeks to respond, if they ever do...

Update of October 13, 2003: This week we focus on JPMorgan Chase's pending applications to acquire Bank One's corporate trust business. While Morgan Chase is claiming that it will take off this Bank One business by the end of October (see, for example, the American Banker newspaper of September 30, 2003), the deal has not yet been approved. In fact, on October 6 Morgan Chase purported to significantly alter the deal and its structure. ICP has commented to the Fed and OCC that such a modification triggers a need for new public notice, and a new comment period. ICP has also put before these agencies (and three others consider Chase's preemption proposal, including to OTS) samples of complaints against Chase that have been flowing in:

"She bought a new house... Within the first month, the mortgage was to Chase. They immediately increased her payment, due to an escrow shortage..."

"Her husband died... For the past two months she has attempted unsuccessfully to pet a pay-off statement from Chase Manhattan Mortgage Corp. on a mortgage for her house in San Antonio. The loan has a life insurance policy and will be paid in full upon receipt of certain documents, including a payoff statement... The only number that they give to contact someone is a general customer service number (800-848-9136), it takes about 30 minutes to get through to someone to put her through to other numbers for help and then there is no answer or the number is busy."

"He has a mortgage loan with Chase Manhattan and he has credit life insurance. When he turned 60, three months ago," etc..

"Consumer states that his loan was not credited appropriately and now ha has a lot of late fees. States that this is not fair. He has been overcharged for the last time when it is their error" [Chase Automotive Finance]

"He received a call from an employee of Chase Automotive Finance tell[ing] him he was overdue on a loan... he asked someone named Cynthia for a copy of the history of the payments for the lease, she got rude and told him he was changing the story about his payment history. He says his credit is impeccable. He just wants proof the bill is due. He did not appreciate in the manner he has been treated during this whole ordeal."

There are also a number of adverse managerial issues concerning Chase which have arisen: J.P. Morgan settles SEC IPO probe for $25 million (Oct. 1); ING sues J.P. Morgan, Deloitte in "Ponzi" case (Sept. 22):

The case comes one month after a former executive of Dublin, Ohio-based National Century pleaded guilty to securities-fraud charges involving the scheme, which cost investors more than $1 billion. The company's collapse also helped drive hundreds of health-care providers into bankruptcy. Federal authorities have said National Century, once one of the nation's largest health-care financing companies, bilked investors by moving hundreds of millions of dollars among subsidiaries to hide account deficits. The company filed for bankruptcy last November, shortly after federal and Ohio state law enforcement agents searched its offices, seizing computer files and documents. They said the company hid massive shortfalls by providing false offering documents, monthly reports and accounting records. Federal authorities have said National Century took these steps to mislead investors, trustees and auditors.

In fact, Morgan Chase and its senior executives have a greater role in National Century than as trustee. The Columbus Dispatch of May 30, 2003, "Founders Try to Gain Control of Dublin, Ohio-Based Health-Care Financing Firm," reported on those who "question the motives of Poulsen and Ayers, who both resigned from the National Century board in November as the Dublin-based health-care-financing company was collapsing. 'It's like letting the foxes back in the henhouse,' said one attorney involved in the case who asked not to be identified... Lance and Barbara Poulsen and Ayers resumed their previous roles as directors, along with two existing directors, Hal Pote and Thomas Mendell. Pote and Mendell are executives with J.P. Morgan Chase, a banking company that served as trustee for one of National Century's bond funds. Pote, Mendell and J.P. Morgan have been named in several lawsuits involving National Century." Emphasis added.

ICP continues to directly receive troubling complaints about Chase's practices, relevant to these Chase applications. Here's are sample complaints [omitted in this format]. ICP is asking the agencies to take action on Chase's inappropriate gun-jumping on this contested proposal. The American Banker of September 30, 2003, quotes JMPC's Michael K. Clark that "J.P. Morgan Chase would begin transferring major trades and transactions from Bank One customers to its own system on Nov. 1... In the meantime, bankers in the group are busy talking to clients about the changes, he said." This is inappropriate: the applications have not been approved (and, under the Bank Merger Act, would have at least a 15 day waiting period). Chase's gun-jumping is made worse by the fact that it is also trying to change the proposal. On October 8, Morgan Chase's outside counsel faxed ICP a copy of Morgan Chase's October 6 letter to the FRBNY, which purports to change Chase's application, without the required new public notice and new comment period. Morgan Chase's letter stated that "upon further review of the CTS business, JPMorgan Chase had determined that it would be more appropriate, as a business matter, for JPMCB, instead of JPMTC, to acquire certain of the CTS' lines of business, specifically, that portion of CTS conducted in the United Kingdom, the structured finance business, and that portion of CTS that involves Housing and Urban Development sponsored issues." ICP formally contends that these proposed modifications of the applications require new public notice, and a new comment period.

Update of October 6, 2003: at Morgan Chase, along week, another fine for fraud -- this time, $25 million for IPO scams. Meanwhile, on the stealth preemption proposal we're opposing, the OTS' director last week proclaimed his agency's ongoing relevancy by pointing to Chase's application to charter a thrift. Certainly shows objectivity and dispassion, and that the agency head's mind is not made up. [And see, "OTS' Embrace of Chase Illustrates Regulatory Laxity," American Banker, October 10, 2003, Pg. 18 - beyond what's said there, the OTS claiming that the comment period could close while the list of CMMC offices proposed to become thrift branches was incomplete and inaccurate, and ignoring its own hearing / meeting regulations, are what we're complaining of.] Until next time, for or with more information, contact us.

Update of September 29, 2003: On September 22 through 25, Chase submitted "responses" to ICP's comments to various regulatory agencies. The responses were primarily legalistic, arguing for example that ICP was supposed to somehow comment on the proposal before receiving and reviewing the timely-requested copy of the application, and that ICP has allegedly not complied with regulations in the hearing request it made within 24 hours of receiving the application. Regarding its subprime lending, Chase remains evasive, for example chiding ICP for naming the wrong Chase subprime auto lender, without explaining the auto lending, including subprime, that it is proposing to put into a new federal savings bank, to preempt the anti-predatory lending and consumer protection laws of at least 32 states. On that front, ICP wrote to numerous states' regulators and attorneys general, and responses have started trickling in. A sampling:

The State of Washington Department of Financial Institutions' legal counsel, Joe Vincent, explains his understanding that Chase Manhattan Mortgage Corp. (CMMC) is a subsidiary of Chase Manhattan Bank USA N.A. (actually, it isn't) -- and then says, "I wish to express on behalf of our Director, Helen Howell, appreciation for your concerns... It is not, however, within the purview of the DFI to speculate on or officially comment on the application of CMMC to become a federal savings bank, a matter solely within the jurisdiction of the OTS and FDIC." We disagree -- state officials can and should officially comment, when the consumer protection laws they administer are being preempted -- but appreciate the detail of the response.

The Georgia Department of Banking and Finance lists a volume of complaints against CMMC significantly higher than for its peers. The Kansas Bank Commissioner's Office offers to tell us the number of complaints, while withholding the specifics. We've pointed out that the Kansas Insurance Department gave us detailed complaint information, regarding Household / HSBC; we'll see. An ongoing problem in search of a solution: the Pennsylvania Department of Banking, relying on an archaic statute that restricts requests under the PA Right to Know Law to state residents, refused to provide any information. This is a legal nut (and we mean nuts, crazy, insanely unaccountable) that we aim to crack, and soon.

So far neither Chase nor the OTS have explained how it's legitimate that the list of CMMC offices that would, through this proposal, escape state law was incomplete and inaccurate throughout the initial comment period. The OTS has now unilaterally extended its time to respond to ICP's FOIA request; the comment period, then, must be similarly extended. We've requested a nationwide public hearing, by video conference (as was granted in WaMu-Dime and Citi-Golden State). Chase's written responses are dry, evasive and non-substantive: out of the mainstream, frankly, when compared to Chase's peers.

We've commented both against Chase's applications to charter and insure a new (preempting) savings bank, and its proposal 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 there too, and were told by the Federal Reserve Bank of Chicago that "[a]t this time, no formal proposal for the aforementioned transaction has been received by the Federal Reserve System." 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 we've opposed that as well. Meanwhile, complaints against Chase continue to roll in, and will be reported in this space going forward.

Update of September 22, 2003: On September 18, ICP/Fair Finance Watch wrote to dozens of state attorneys general and banking regulators, most of whom have spoken against preemption, and asked them for all documents about, and to take action on, Chase Manhattan Mortgage Corporation. Meanwhile, ICP noticed that Chase's list of CMMC offices that would become branches of Chase FSB was incomplete. ICP asked the Office of Thrift Supervision about this, by telephone, e-mail, then in writing, submitting (late on September 19) the following supplemental comment:

...ICP requested a copy of this application on August 24, received its copy on September 8 and submitted a comment that day. On September 11, having had three days to review Chase application, ICP noticed and asked OTS FOIA staff about an inaccuracy in the application, one the goes directly to the preemption of anti-predatory lending laws which ICP has raised.

Specifically, Exhibit 2 to Chase's Application to the OTS, purporting to be a complete list of the Chase Manhattan Mortgage Corp. ("CMMC") offices which would, under the proposal, become branches of a Chase FSB, was incomplete. As filed with the OTS by Chase, and as received by ICP on September 8, the top listing on the first page of Exhibit 2 was 1875 Century Park East, Los Angeles. Since the list is alphabetical, this would imply that no offices in any state beginning with "A," and none in California communities beginning with any letter before "L," are proposed to become branches of Chase FSB, exempt from state consumer protection laws.

ICP telephoned and then e-mailed OTS FOIA staff about this on September 11, asking if a first page of Exhibit 2 was omitted. Four days later on September 15, the OTS faxed ICP with a new list -- new in the sense that the CMMC office at 1875 Century Park East, Los Angeles is not at the top of any page -- rather, it's the third branch down on the second page. ICP infers that Chase filed with the OTS an inaccurate Exhibit 2, and that after ICP inquired, a new -- at a minimum, newly formatted -- list was submitted, including 29 CMMC offices that were not mentioned in what Chase first filed (and what was of public record throughout the OTS' comment period). ICP asked OTS FOIA and OTS-NE staff members about this in a September 11 e-mail, to which it has not received a response. That the incomplete list that ICP received on September 8 was due to Chase's inaccurate submission is reflected by a copy of the Application ICP has now received from the FDIC, still velobound, with the same problem with Exhibit 2.

Among the CMMC offices omitted from the application as Chase filed it are multiple offices in AR, AZ and CA. In Little Rock, Arkansas (where Chase's application omitted its office at 11300 North Rodney Parhan Road), CMMC in 2002, for conventional home purchase loans, denied loan applications from African Americans 3.06 times more frequently than applications from whites.

In Tucson, Arizona (where Chase's application omitted its office at 5151 East Broadway Boulevard), CMMC in 2002, for conventional home purchase loans, denied loan applications from Latinos 3.64 times more frequently than applications from whites.

And (for now), in the San Francisco MSA (where Chase's application omitted its office at 2001 Junipero Serra Boulevard, Daly City -- close to home, so to speak, for the OTS and the Western Regional Office) CMMC in 2002, for conventional home purchase loans, denied loan applications from African Americans 4.48 times more frequently than applications from whites. If Chase's defense for this high denial rate disparity is the low level of its lending to African Americans, that raises other issues -- note also for refinance loans (at a greater volume), CMMC denied loan applications from African Americans 3.06 times more frequently than applications from whites. Chase's disparities are systemic.

Given the significant policy issues raised by the proposed exemption from state law of CMMC lending, including subprime lending, offices, the omission of 29 offices from what was available to the public militates for new public notice, and for an extension / re-beginning of the comment period from the date at which the actual list of offices proposed for preemption is made fully available to the public.

...We reiterate, including in light of the significant incompleteness and/or inaccuracy of the application which Chase filed, our request that the OTS' comment period be formally extended, that ICP's hearing request be deemed timely and that the requested informal or formal meeting be scheduled forthwith. The meeting should be nationwide, by video-conference (as was done on Citi-Golden State, and WaMu-Dime before that)...

Morgan Chase has yet to submit any response to the issues raised in ICP's September 8-9 submission; when Morgan Chase does, ICP will reply. For now, we supplement our initial presentation of Chase's subprime (and we contend, for example in the Poconos case, predatory) lending by raising that Chase Manhattan Bank USA, N.A., lending of which would be put in the proposed Chase FSB, has been classified as a subprime lender by HUD. [We are informed that Chase has objected to HUD's classification of Chase Manhattan Bank USA, N.A. as a subprime lender: see ICP's first comment on the topic of Chase's lack of transparency (and vituperative defensiveness) about its subprime lending.] We further note, on the Poconos issues, the Chicago Tribune of September 14, 2003, following up on the Poconos "scandal [which] has also produced a federal class-action suit... [Chase] is also a defendant in the racketeering suit;" it has been reported that the Monroe County District Attorney's office plans to file criminal charges this coming week against as-yet unspecified defendants, in connection with the same scandal. As relates to applicable banking law, Chase's standards, of appraisal and whom it does (subprime) business with, are entirely called into question, militating for the evidentiary hearing ICP has timely requested.

In the day following ICP's submission to state AGs and bank regulators, responses were received from regulators in Arizona and California. As these build up, we'll report the substance (or absence) of the various states' responses.

Update of September 15, 2003: last week, Inner City Press /Fair Finance Watch learned that J.P. Morgan Chase is attempting to place its nationwide consumer lending, which includes a top-ten subprime lending operation, into a new federal savings bank, in order to preempt (and evade) all state anti-predatory lending laws. So, on September 9, ICP commented to the OTS (a staffer of which has confirmed that ICP's comments will be considered, and that Chase has been asked to respond to them), and re-requested the complete list of the offices of Chase Manhattan Mortgage Corporation (CMMC) which, under the proposal, would become branches of a federal savings bank, not subject to state or local laws. On September 15, ICP received the (apparently revised) list. The offices are in 32 states, as follows:

Alabama 1; Arkansas 3; Arizona 9; California 54; Colorado 10; Delaware 3; Florida 34; Georgia 12; Illinois 18; Indiana 5; Kansas 3; Louisiana 11; Massachusetts 8; Maryland 11; Michigan 11; Minnesota 6; Missouri 8; North Carolina 11; New Hampshire 2; Nevada 2; Ohio 9; Oklahoma 4; Oregon 12; Pennsylvania 7; Rhode Island 1; South Carolina 3; Tennessee 3; Texas 14; Utah 2; Virginia 12; Washington 10; Wisconsin 3

September 9, 2003

Chase has applied to the Office of Thrift Supervision to fold all of its consumer business into a federal savings bank, which would preempt all state consumer protection and anti-predatory lending laws. ICP comments analyze Chase's 2002 mortgage lending data and point to Chase's questionable lending that has been characterized as predatory and fraudulent. A summary of some of the points in the protest follows.

The 2002 Home Mortgage Disclosure Act (HMDA) data reported by Chase Manhattan Mortgage Corp. (CMMC), 300 offices of which Chase would fold into the propose Chase FSB, show that Chase disproportionately excludes African Americans and Latinos from its lending. In 2002 in the Washington DC Metropolitan Statistical Area (MSA), for conventional home purchase loans, Chase's CMMC denied loan applications from African Americans 4.94 times more frequently than applications from whites, and denied Latinos 2.51 times more frequently than whites. This is worse than other lenders in this MSA: the denial rate disparities for the industry as a whole in 2002 were 3.04 for African Americans, and 2.38 for Latinos.

Chase's higher-than-aggregate denial rate disparities are not explained by any greater-than-normal outreach with normal-priced credit to African Americans or Latinos. In 2002 in this MSA, CMMC made 1475 conventional home purchase loans to whites, only 127 to African Americans, and only 79 to Latinos. For the record, the aggregate industry in this MSA in 2002 made 11,902 such loans to African Americans, 6894 to Latinos, and 64,826 to whites. For these three groups, the aggregate made 14.2% of its loans to African Americans, and 8.2% to Latinos. For CMMC, the figures were much lower: 7.6% of loans to African Americans, and 4.7% to Latinos.

In the Raleigh-Durham NC MSA in 2002 for conventional home purchase loans, CMMC denied loan applications from African Americans 4.93 times more frequently than applications from whites, and denied Latinos 7.40 times more frequently than whites. This is much worse than other lenders in this MSA: the comparable denial rate disparities for the industry as a whole in 2002 were 3.41 for African Americans, and 3.28 for Latinos. Exclusion is again part-and-parcel with Chase's notably higher denial rate disparities between whites, African Americans and Latinos: among these three groups, only 3.1% of CMMC's conventional home purchase loans in this MSA in 2002 were to African Americans (versus 11.2% for the aggregate); only 0.5% of CMMC's loans were to Latinos (versus 2.4% for the aggregate).

In the Boston MSA in 2002 for conventional home purchase loans, CMMC denied loan applications from African Americans 8.89 times more frequently than applications from whites, and denied Latinos 6.38 times more frequently than whites. Chase high denial rate disparities for African Americans are pervasive, coast-to-coast: in 2002 in the San Francisco MSA, CMMC denied the conventional home purchase loan applications from African Americans 4.48 times more frequently than applications from whites; in St. Louis, 3.62 times higher; in Richmond VA, 4.65 times higher; in Memphis, 4.19 times higher. These disparities are systemic. They are also directly relevant to this Chase application to place its nationwide lending business into the proposed Chase FSB.

The National Mortgage News of March 11, 2002, listed Chase, through its Chase Home Finance unit, as a top-ten subprime mortgage lender in the United States. Chase does not separately report HMDA data for its subprime lending unit(s), so it is far from transparent in this way. But, as simply one example -- one widely described as predatory and even fraudulent -- consider Chase's lending outside its CRA assessment areas, in the Poconos region of Pennsylvania. Consumer Reports of November 2002 reports that:

"Starting in the mid-1990s, TV advertisements in New York City asking "Why Rent?" touted several large housing subdivisions in the Pocono Mountains of Pennsylvania... Chase Manhattan Mortgage Corporation acquired many of the mortgages. When homeowners like Hugh Robinson tried to sell or refinance their properties a few years later, they received some unwelcome news. Their houses were worth only 55 percent to 65 percent of what they paid, according to a complaint some homeowners filed. Others, unable to keep up with payments, were foreclosed."

More specifically, on this nexus of foreclosures and Chase's lack of standards in choosing its partners, resulting in the enabling of predatory lending, the Daily News of July 6, 2001, reported that

"While the county's overall population jumped by 44% since 1990, home foreclosures skyrocketed to 569 in 1999 from 120 in 1990 - a 374% jump. Public meetings in early June drew more than 600 irate homeowners, all claiming they'd been ripped off by a handful of local developers working in collusion with appraisers and mortgage companies. Last week, a group of residents filed a federal civil racketeering suit against the nation's biggest mortgage lender, the Chase Manhattan Mortgage Corp.... 'We vigorously deny the allegations put forth in this complaint,' said JPMorgan Chase Vice President Charlotte Gilbert-Biro."

One might expect Chase to respond that, following its spokeswoman's "vigorous[] den[ial]," it subsequently "agreed to reduce the amount owed on hundreds of residential mortgages in the Poconos, acknowledging that some of its loans were approved on homes sold at inflated prices. Chase Manhattan Mortgage Corp. sent a letter to nearly 300 homeowners this week offering to reduce the mortgages to reflect the current estimated market value of the property. Homebuyers could see their mortgages reduced by as much as $50,000. The offer comes as state and federal authorities investigate allegations of real-estate fraud in the Poconos." (See, Bergen (N.J.) Record, April 6, 2002, "Mortgages Cut for Bilked Buyers"). But that did not resolve the question of Chase's lack of standards, particularly but not only outside of its current CRA assessment areas, leading to predatory lending and foreclosures and the threat of foreclosure. Note that the National Mortgage News of July 30, 2001, reported that "Chase Manhattan Mortgage Corp. has been named as a defendant in two separate class-action complaints alleging mortgage fraud - one in the Pocono Mountains area of Pennsylvania and the other in Suffolk County of New York" -- that is, these issues go beyond the Poconos: they are nationwide.

Chase's lending includes, for two years now, the subprime lending operations previously owned by Advanta. On February 6, 2003, Fitch on Business Wire stated that Advanta Mortgage Corp.'s subprime operation was acquired by JP Morgan Chase... The loans in the Advanta Mortgage Loan Trust transactions are currently serviced by Chase Manhattan Mortgage Corp.". Also for the record, Chase's subprime lending (which it proposes to fold into a thrift, preempting state consumer protection laws) is not limited to mortgages. See, e.g., Automotive News of June 23, 2003, Fitch Ratings Downgrades Mitsubishi Credit's Debt, reporting that "Mitsubishi has tightened its consumer lending standards and enlisted Systems & Servicing Technologies, a subsidiary of J.P. Morgan Chase, to oversee approximately 85,000 outstanding subprime loans." Chase has been growing this subprime auto loan business: for example, the Assets Securitization Report of March 24, 2003, reported that "[t]he servicing rights of bankrupt Union Acceptance Corp. may officially be transferred to System & Servicer Technologies (SST), a unit of J.P. Morgan Chase, during a bankruptcy hearing scheduled for Tuesday, March 25. Although the transfer has gone through numerous postponements, if finalized, it is scheduled to close April 1, according to court records." These businesses would be folded into the proposed Chase FSB -- this application merits full (and strict) scrutiny, including the hearings ICP is requesting.

Chase's application to the OTS states that over 300 lending offices would become branches of Chase FSB. On preemption of state laws, Chase casually states that "the federal savings bank charter also will enable Chase FSB to operate under a uniform Federal system of regulation." Substantial controversy has surrounded the OTS' recent rulings to preempt anti-predatory lending laws. See, e.g., "Second OTS Preemption: Predator Law in N.Y.," American Banker, January 31, 2003.

Perhaps the best way to demonstrate what this Chase application is about (and/or what its effect would be), and why hearings should be held, is to point out that after Georgia passed an anti-predatory lending law, Chase stated that its nationwide mortgage company would curtail lending in Georgia. See, e.g., National Mortgage News of October 7, 2002, quoting from a Chase press release that "This legislation, though well intended, presents very serious issues. It goes far beyond attacking predatory practices which is a goal we share. Instead it puts institutions meeting important credit needs in Georgia in responsible ways at very serious risk." Later, the OTS ruled that federal thrifts are not subject to anti-predatory lending provisions of Georgia's (and other states') laws.

Then last month Chase quietly applied to a savings bank charter -- when, in late August, ICP stumbled on a notice of the application, there was no way to know what the application was for. ICP requested a copy, which, two weeks later, was provided. Then and only then -- September 8 -- did ICP learn that Chase proposes to fold over 300 lending offices, whose offerings include subprime loans, into a federal thrift and preempt all state consumer protection laws. ICP immediately prepared and submitted this comment and hearing request. The hearing request should be granted; the comment period should be further extended and more meaningful notice should be provided to the public given the issues raised by this (stealth) proposal.

ICP's comment to the OTS states, on procedural matters: we requested a copy of this application 14 days ago. On the tenth day after our request, we received from Chase a copy of a letter opposing our request for an extension of the comment period. Chase sent its letter to us via Federal Express -- for some reason without enclosing even the portions of its application for which confidential treatment is not being sought. Late on Friday, September 5, we received by fax a letter from OTS FOIA officer Martin Jefferson Davis: the letter stated that portions of the application were being sent, Not until September 8 did ICP know what Chase's application (that is, what the proposed Chase FSB) is for. While ICP is continuing to review the over-500 pages of Chase's application which it only received on September 8, the application appears to address very little, if at all, Chase's subprime lending. Reference appears to be made to Chase's CRA ratings -- but these do not cover the "nationwide lending," outside of the Tri-state area, which Chase now proposes to fold into Chase FSB.

Beyond mortgage lending disparities, lack of standards and predatory lending, J.P. Morgan Chase has been embroiled in corporate scandals for at least the past two years -- issues that should be considered, under the statute, in connection with this application by Chase to become a thrift holding company. While Chase settled certain governmental charges with respect to its activities with Enron, for example, significant litigation continues to swirl around Chase. For the record, the American Banker of September 2, 2003, reported that "In addition to paying a bigger fine ($135 million) than Citi did, J.P. Morgan Chase alone was stuck with an injunction that could trigger a criminal prosecution if it engages in Enron-type transactions with any company in the future. And it still faces significant civil exposure, up to $1 billion by its own estimate." The Daily Deal of August 4, 2003, recounts that " The bank holding the bag is J.P. Morgan, which made itself look defensive. Morgan played up the "no admission" boilerplate, which most sentient beings view as an admission of guilt. More damning was the memory of an op-ed penned by chairman William Harrison for the Wall Street Journal at the height of the controversy. Harrison argued that not only did J.P. Morgan do nothing wrong, but that it had no responsibility to know what its clients were up to. That seemed unrealistic then and completely absurd in a post-Sarbanes-Oxley now. " Emphasis added.

Chase's CEO's argument that due diligence is not required is troubling -- and is not unrelated to, for example, Chase's involvement in predatory lending / fraud in the Poconos, issues relevant to these Chase applications, which ICP is opposing and on which it is requesting public hearings. This will be updated. Until next time, for or with more information, contact us.

* * *

Background: J.P. Morgan + Chase

For or with more information, contact us. For ICP JP Morgan Chase Watch Archives, click here.

Here's just a few of the greatest (or funniest) hits, as examples of what you'll find in Archives

Update of August 18, 2003: after a brief hiatus caused by Orwellian anti-whistleblowing efforts within Morgan Chase, our favorite inside-the-Beast correspondent is back. Other than to note the August 11 announcement of Morgan Chase's proposal to acquire Pinnacle Foods, maker of Vlasic pickles and Swanson frozen dinners among others, for $485 million, we devote this week's Report to the following:

Subj: I am a mole and I live in a hole....or should I say cesspit?
Date: 8/13/03 12:59:46 PM Eastern Daylight Time
From: [Our favorite correspondent]
To: MorganChaseWatch [at] innercitypress.org

I have decided to surface my little velveteen snout again.

Remember I mentioned that JPM seemed to be recruiting again? Sure enough, I now hear that they have been filling quite a number of junior (supporting) research analyst positions recently. These were the positions, if you remember, which were not considered necessary in October 2002, and which were going to be replaced by the Mumbai Sweat Shop.

The workload never went away, of course, and the sackings were a little premature: the Sweat Shop has yet to get going, despite the virtually full-time focus of demoted ex-director of research Peter Houghton and two deputy director sidekicks. ( On reflection, perhaps I mean "because of" rather than "despite". ) Therefore, on top of the previous redundancy settlements it is necessary to give some more of shareholders' money to recruitment consultants to recruit the people to do the work that never went away. Just like I analyzed for you a couple of weeks back. If JPM research analysts had any understanding of financial statements, they would know that accounting manipulation of the timing of higher expenditure doesn't make any difference to the ultimate increase in cost....alas, very few of them have any financial qualifications so they don't usually pick up on that very simple concept.

One word of caution for the junior analysts being offered positions at JPM: let's hope Mumbai never does get going, because you're a disposable stopgap. Still, at least you can spend three or four months ringing clients up and telling them that you love them before you become "redundant". Won't that be fun?

Let the fun continue! With TV dinners and pickles and an entirely unworkable business strategy and plummeting employee moral -- forward!

Update of July 21, 2003: Below, our favorite correspondent's analysis of Morgan Chase's earnings announcement / spin. But we'd be remiss not to note Wild Bill Harrison, adopting the Office of the Chairman approach. This he explained thusly on the July 16 conference call: "I wanted to reflect the significant jobs that David Coulter and Don Layton have. They're running most of the businesses in the firm. I also wanted to sharpen some of the business discipline in terms of financials and review." On the question of mergers, here was his double-speak: "We think we have a broad-based position globally in terms of leadership.. Our primary focus is on recognizing and maximizing the potential of the firm." Here now an insider's view [of which we invite more]:

I note that there has been much trumpeting from JPM about how second quarter revenues of over $1.8 bn were 78% up on Q2 2002 and in fact were more than the earnings for the whole of 2002. Whoop-de-doo.

Could it perhaps have anything to do with the "E" word? In the last quarter of 2002, JPM made a $1.2 billion provision against potential costs associated with Enron, the well-known energy trader for whom JPM acted as accomplice in defrauding so many retail and corporate investors. It also decided that since it was going to have a really shitty 2002 anyway, it might as well get all the profit hits cleared out of the way so that it could look as though it was doing less of a dire job in 2003. So it cut swathes through its staff, removing 40% of some departments, just so that all the bad news could be pushed into 2002. Not that they didn't try to minimize the cost hit as well - at least one business area had a policy of really screwing over its staff financially as well as morally, when it gave the downsized ones a zero bonus for 10 months' hard work - and a bland "so sue me" stare.

As for the Q2-on-Q2 comparison, the most instructive fact is that investment banking revenues were flat but profits were up more than 100%. Now, let me see, how did we achieve this? Maybe it was because there wasn't the enormous provision for redundancy costs this year that there was last year. (Oh, didn't I mention? They laid off a batch in Q2 2002 as well).

I keep seeing news articles about JPM hiring again. Now, just carry out this simple mental exercise.(a) Sack someone in October 2002. Pay them essentially for 4-12 months (depending on staff grade) to do nothing. Overwork the other staff. When you decide the markets are looking better, say nine months later, start rehiring. Pay the new staff a signing-on bonus or a guarantee. Pay six months' salary to the recruitment consultant. Total average cost per employee position between October 2002 and December 2003 - 16-24 months' salary plus any signing-on bonus or guarantee. (b) Don't sack them in October 2002. Total cost 15 months' salary. Q. Leaving aside which accounting period is hit with the costs, what is better for actual profitability? Answers on a postcard, please, to Bill Harrison....

From tabloid-land, there's this report of Chase-conflicted judicial rulings. Unreported (or unconnected) there is this judge's recent recusal from a case regarding NYC's anti-predatory lending ordinance. Now it makes sense (to some), given Morgan Chase's involvement in subprime, through Advanta and otherwise...

Update of June 2, 2003: a swirling rumor was fixed in virtual hot lead type by e-financial news of May 25: a "rumour, which seems to have started in New York, that JP Morgan Chase would make a bid for Banc One. Before you say: 'But isn't Banc One actually a better bank than JP Morgan Chase?', that had occurred to me as well, but let's not split hairs. The carrot for buying Banc One would be to secure the services of Jamie Dimon, its chief executive. The JP Morgan board has been looking for a replacement for Harrison for 18 months and Dimon fits the bill. What changes would the uncompromising, no-nonsense Dimon make? Even if you close your eyes lightly, don't you see rivers of blood? JP Morgan Chase employees have every reason to be apprehensive."

On this, our favorite Morgan Chase correspondent comments: "sort of ties in with your May 19th speculation [see below on this page]. They bought the Beacon group for $500m just to get hold of Boisi. Boisi left after an argument with Harrison - one hell of an expensive spat. Will they never learn? Wouldn't it be a lot cheaper just to hire a chief executive, for God's sake?" Good question...

On the subprime (servicing) front, the American Banker of May 27 reports Fairbanks' syndicated loan from a group led by J.P. Morgan Chase & Co. includes a provision that a drop in its servicer rating would trigger default. J.P. Morgan Chase has granted Fairbanks a 30-day waiver on the default event, Mr. Costello said, and he is "presuming something is being worked out between the two parties." Fairbanks is widely accused of predatory practices; Morgan Chase, given its lack of standards, is enacting and protecting Fairbanks...

Update of October 7, 2002 -- Morgan Chase and subprime: the American Banker of Oct. 1 reports that " Chase Manhattan Mortgage Corp. [has] decided not to make "high-cost" loans in [Georgia] because the law's penalties are severe... 'This legislation, though well intended, presents very serious issues,' said Chase spokeswoman Charlotte Gilbert-Biro. 'It goes far beyond attacking predatory practices, which is a goal we share. Instead it puts institutions meeting important credit needs in Georgia in responsible ways at very serious risk.'"

Update of September 8, 2003: The sleaze of Morgan Chase knows (virtually) no bounds. Last month, having stumbled on notice of a Chase application to the Office of Thrift Supervision, ICP requested from the OTS a copy of Chase's application, and that the comment period run until three days after ICP received its copy of the application. The OTS has yet to provide ICP with a copy of the application -- but it apparently gave Chase a copy of the request, because Chase last week wrote to the OTS, cc-ing ICP, opposing ICP's request for any extension of the comment period. Chase sent ICP the letter by Federal Express -- without enclosing any portion of its application. Screw the law, and screw the public, appear to be Chase's approach. Or was it, "Living, [something], Leading"? A squib: in handing the U.S. Open women's tennis trophy out on September 6, Wild Bill Harrison said, "Christine" instead of "Justine." Oops...

Squib of September 1, 2003: from Enron to Iraq (with last week's Trade Bank announcement), Morgan Chase is there! Until next time, for or with more information, contact us.

Update of August 25, 2003: from the department of You-Heard-It-Here-First (thanks to our favorite correspondent), the following is from the FT of August 20:

US investment banks are moving analysts' jobs to India as they review equity research departments in response to Wall Street scandals and the bear market. Banks including JP Morgan Chase.. say they are not replacing existing jobs but are shifting tasks normally done by junior analysts, such as number crunching and financial modeling, to allow senior analysts the opportunity to publish reports and interact with clients. JP Morgan Chase said: "Our objectives are to provide support for our existing sector teams, improve productivity, and continue to differentiate the quality of our research." It added that the outsourcing started in May.

Chase was also in the news for declaring a live man dead, then refusing to correct its error. The WSJ reported this last week -- but the Houston Chronicle had it before that, click here to view. As summarized on CNNfn, "a Houston, Texas, businessman has been trying to prove for two years that he's not dead even while his bank, J.P. Morgan Chase, kept saying he was... He was told in effect that it was his responsibility to get the problem fixed. But as hard as he tried, it still reappeared affecting his ability to get a home mortgage, auto loan, and other credit related actions... He finally had to resort to appearing before his J.P. Morgan Chase branch with a local television news crew and virtually shaming the bank manager into agreeing to solve the problem." How responsive...

Update of August 18, 2003: after a brief hiatus caused by Orwellian anti-whistleblowing efforts within Morgan Chase, our favorite correspondent is back. Other than to note the August 11 announcement of Morgan Chase's proposal to acquire Pinnacle Foods, maker of Vlasic pickles and Swanson frozen dinners among others, for $485 million, we devote this week's Report to the following:

Subj: I am a mole and I live in a hole....or should I say cesspit?
Date: 8/13/03 12:59:46 PM Eastern Daylight Time
From: [Our favorite correspondent]
To: MorganChaseWatch [at] innercitypress.org

I have decided to surface my little velveteen snout again.

Remember I mentioned that JPM seemed to be recruiting again? Sure enough, I now hear that they have been filling quite a number of junior (supporting) research analyst positions recently. These were the positions, if you remember, which were not considered necessary in October 2002, and which were going to be replaced by the Mumbai Sweat Shop.

The workload never went away, of course, and the sackings were a little premature: the Sweat Shop has yet to get going, despite the virtually full-time focus of demoted ex-director of research Peter Houghton and two deputy director sidekicks. ( On reflection, perhaps I mean "because of" rather than "despite". ) Therefore, on top of the previous redundancy settlements it is necessary to give some more of shareholders' money to

recruitment consultants to recruit the people to do the work that never went away. Just like I analyzed for you a couple of weeks back. If JPM research analysts had any understanding of financial statements, they would know that accounting manipulation of the timing of higher expenditure doesn't make any difference to the ultimate increase in cost....alas, very few of them have any financial qualifications so they don't usually pick up on that very simple concept.

One word of caution for the junior analysts being offered positions at JPM: let's hope Mumbai never does get going, because you're a disposable stopgap. Still, at least you can spend three or four months ringing clients up and telling them that you love them before you become "redundant". Won't that be fun?

Let the fun continue! With TV dinners and pickles and an entirely unworkable business strategy and plummeting employee moral -- forward!

Update of August 11, 2003: from the Daily Deal of August 4, re Chase's and Citigroup's surprisingly quiet settlement of (governmental) Enron charges: "The bank holding the bag is J.P. Morgan, which made itself look defensive. Morgan played up the "no admission" boilerplate, which most sentient beings view as an admission of guilt. More damning was the memory of an op-ed penned by chairman William Harrison for the Wall Street Journal at the height of the controversy. Harrison argued that not only did J.P. Morgan do nothing wrong, but that it had no responsibility to know what its clients were up to. That seemed unrealistic then and completely absurd" now. Yep...

Update of August 4, 2003: a new addition to Wild Bill Harrison's greatest hits, at last week's Enron (partial) settlement: "We still have various Enron-related civil suits pending, and we intend to pursue our rights and defenses in those cases vigorously." And those defenses would be? It's said that Morgan Chase general counsel McDavid antagonized regulators and prosecutors so much during their inquiry into the Enron matter(s) that he alone explains the size of Morgan Chase's fine...

Ah, it's summer -- and so, why not a banking-related Page Six-like blind item? This one has New York written all over it (its placement here should also be a clue) -- which recently-confirmed bank's Number Two has sewn oats cooing with a passed-over candidate for the Federal Reserve Board (hint! hint!) -- we'll stop right there.

Update of July 28, 2003: Revolving door hits a new high-level low: Morgan Chase last week proudly announced its hiring / capture of Andrew Crockett former General Manager of the Bank for International Settlements, saying he'll report to Wild Bill Harrison and Vice Chairman David Coulter. "Andrew's relationships within the international finance community and his experience in setting risk standards for the industry will be enormous assets for us," Coulter said-in-a-statement. Reuters opined that it's " to spearhead effort to snare more government banking clients." Question: since most government's have anti-revolving door rules, does the BIS?

Also last week, Morgan Chase announced a proposal to buy Bank One Corp.'s corporate trust unit for $720 million. It's described as Morgan Chase's largest proposed acquisition since the (ill-fated) merger in Dec. 2000. Under Wild Bill, this (corporate trust) is the only part of Morgan Chase that is growing. We will have more on this, by summer's end...

Update of July 14, 2003: our favorite Morgan Chase insider alerted us to this, from e-financial news: "Staff at JP Morgan Chase have been pouring out their hearts to clients and colleagues, and developing their skills in 'followership' at the request of Jimmy Lee, vice-chairman. The outpouring of love and hope was encouraged in a memo to staff outlining Lee's thoughts on leadership and - more importantly - followership, relating to the bank's second global leadership day. He asked staff to help someone out at work 'who is having a tough time figuring out their job, or their life, or both. They won't forget that you did that.'" Word is that Wild Bill Harrison was bombarded with offers to help him figure out his job, his life, both....

Update of July 7, 2003: Laughable fluff from the Financial News (Daily) of June 29, 2003: "At JP Morgan, the Leadership Morgan Chase programme is aimed at the top 2,000 managing directors. It was set up by Bill Harrison, chief executive, who takes two days every month to run it. JP Morgan says it is a 'values-driven' programme aimed at senior people, which is not just about profit and loss, but about partnership, communication, integrity and leading from the front. Tom Smith, New York-based managing director in charge of recruitment and development in investment banking in the US and Europe, the Middle East and Africa, says: 'When people discuss leadership issues with the chief executive, and hear about his own experiences, they undergo a transformation. We have modelled our programme on what Jack Welch did at GE and it really works.'" So that's what Morgan Chase is (over-) paying Jack Welch for.... Regarding the June 25 five kilometer run in Central Park, it's reported that Harrison came in a suit, and didn't run (despite "heavily encouraging" his underlings to both attend and run). Rat race...

Update of June 30, 2003: this week, a voice we know and love, and something new:

Subj:   JPM and their spin
Date:   6/25/03 6:35:58 AM Eastern Daylight Time
From:   [Our favorite inside-Morgan-Chase correspondent]
To: ChaseWatch [at] innercitypress.org

   Recently in JPM's Research department, there has been a reshuffle among the top management. The phrase "rearranging the deckchairs on the Titanic" sprang to mind when your correspondent heard this.

Peter Houghton, the existing head of EMEA Equity Research, has presided over a steady exodus of the bank's top-rated analysts. In the last four months, he has lost three out of the four remaining ranked analysts. (Funnily enough, we never hear mention these days of the phrase "top five in three years, top three in five years", first touted as an objective, oh, three years ago......)

Houghton has been shuffled sideways and downwards into a job as Global COO of Equity Research, a role which was already occupied by someone who (unusually for JPM) was doing the job really rather well already. The current incumbent is not leaving, however, but is now reporting into Houghton. They will be working on the "Mumbai cost optimisation initiative"(see previous articles)....but that job was already being done by one of the deputy directors of research, who doesn't have anything else to do since the last round of redundancies and so will still work on it as well.

Let's see now. Houghton laid off nearly 40% of his department in October last year, including people who were ranked in the top quintile of research analysts, on the grounds that the firm needed to make cost savings. Houghton himself has done an appallingly bad job and was mistrusted and roundly despised by his entire department even before the layoffs. Nevertheless, Nick O'Donohoe, the Global Head of Research, invited everyone to congratulate Houghton on his "promotion".

So we have two senior and highly-paid people doing a job that was previously done perfectly adequately by one; we have another senior and highly-paid person who really has nothing to do but work on Mumbai but now there are two other people working on it. I don't know why the word "redundancy" keeps popping into my head: after all, we all know that this concept does not apply to heritage JPM management.

Nick O'D tells us that Houghton and his sidekicks will be trying to identify cost efficiencies......hmmmm...is this a trick question?

Also from the mail bag:

Subj: Re: Chase Manhattan

Date: 6/24/03 12:53:06 PM Eastern Daylight Time

To: ChaseWatch [at] innercitypress.org

I read your article on the purchase of the Providian portfolio purchased by Chase. Would it surprise you to know that included in that portfolio were accounts that had been charged off, or were in current litigation? According to the Press release issued by Chase, they told their stockholders, shareholders and investors, who were a little worried about this purchase that they purchased no "bad debt". I beg to differ. They have my account which has been in litigation for about four and a half years. They have refused to give me any information, including my account number with them. They have refused to give me balance information or information concerning what they paid for the account. They are now stating, two and a half years later that they're going to resell the account to Providian. Interesting, as SEC information shows they transferred their interest in these accounts to a company called Card Acquisition Funding Services, LLD on 2/5/2002, the same day they received them. Have any comments on why this company won't give me any information regarding my account? An attorney in Texas states many people with bad debts with Providian only found out that Chase had them when they pulled their credit bureaus. Is Chase hiding something? Or did Providian pull a quick one on them?

Update of June 23, 2003: according to SNL Securities' report issued June 19, Wild Bill Harrison is the U.S.'s second highest-paid bank CEO by total compensation, at $11,455,414... On the subprime / predatory front, on June 17 Fairbanks, just after being further downgraded by Fitch, bragged in a statement that it "finalized with a lending group led by J.P. Morgan Chase a deal that offers financing for Fairbanks through Sept. 2004." Some great standards, that Morgan Chase has..

Update of June 16, 2003: Chase and the paper cups -- on June 9, J.P. Morgan Partners-controlled Tableware Holding International, a polystyrene cupmaker, announced it acquired Grupo Convermex from the company's founding family as it moves to "expand in the disposable tableware market. Convermex, based in Puebla, Mexico, makes cups and other containers for Mexican wholesale and retail customers in three plants located in Puebla, Monterrey and Guadalajara. It employs more than 1,000 people [for now]. Ol' J.P. Morgan Partners intoned that it plans to expand Convermex's "leadership position" in the disposable food container market, which it said has grown 9 percent over the last six years with more fast food shop penetration into Mexico...

Also last week, the Ohio Public Employees Retirement System (OPERS) announced that Morgan Chase will no longer manage $269 million in international stocks for the pension fund. "The currently watchlisted J.P. Morgan EAFE Core portfolio was terminated on May 20th because of weak performance," said Chris Federer, spokesman for OPERS, which invests roughly $50 billion and ranks as America's 10th largest pension fund. In December, Massachusetts' pension fund said J.P. Morgan Fleming would no longer run $385 million in active domestic large-cap core equities. The pension fund said personnel turnover and weak performance contributed to the move. Connecticut Retirement Plans & Trust Funds also terminated J.P. Morgan which had managed $1.35 billion in passive enhanced domestic equities and $680 million in core-plus domestic fixed income...

Update of June 9, 2003: In last week's WSJ report that a small group within Morgan Chase has earned the company $100 million this year with risky bets on currency and interest rate moves, less than credible was Dina "the Double D" Dublon's quote that "the returns are not indicative of larger risk taking." Mark those words... In the interim, inordinate sway over the legislative process. on June 5 a shameless press release went out from Chase Manhattan Automotive Finance Corporation announcing that it "will stay in the auto leasing business in Connecticut due to the State Legislature's passage yesterday of a new bill limiting liability for long term auto leasing companies. Chase had previously announced its plans to exit the auto leasing business in Connecticut and New York on July 1, 2003 if the outdated law, known as 'vicarious liability,' holding leasing companies responsible for accidents involving their leasing customers, was not changed. "'We commend the Connecticut Legislature for its swift action to save auto leasing for Connecticut's consumers,' said Jeffrey Levine, general counsel for Chase Manhattan Automotive Finance Corporation. 'We are now committed to staying in the leasing business in Connecticut assuming that Governor Rowland signs the new bill,' Mr. Levine said." Morgan Chase played this "we'll go home" card in Georgia against anti-predatory lending legislation, too....

Update of May 26, 2003: at Morgan Chase's annual meeting on May 20, Wild Bill H. said he "regrets" the events that created Wall Street's many scandals and takes responsibility for his firm's role in the misdeeds. "Over the past couple of years, we have seen far more than the usual number of serious accidents at the intersection of Wall Street and Main. And our financial institutions, including J.P. Morgan Chase, must take their share of responsibility for that... We cannot undo what has been done, but we can express genuine regret and learn from the past," Harrison said. But will they learn?

Update of May 19, 2003: on May 13, Wild Bill Harrison said, "One day when we see fair value in our stock price, we will look at options, and if it makes sense, we would consider it." The "it" in question? Another merger -- since, of course, Chase - J.P. Morgan's been working out so well. Shares are only down 32% since the merger. To Reuters, analyst Richard Bove opined, "No CEO spends that much time talking about mergers and acquisition strategy unless they are really thinking about it and looking at it," adding his view that Wells Fargo would make a nice target for Morgan Chase. Or would it be vice versa?

Update of May 12, 2003: With other lines of its business imploding, Morgan Chase wants to expand "private banking." In an interview published in the FT of May 9, JP Morgan Private Bank CEO Maria Elena Lagomasino crowed that "because of bank secrecy, there is the unintended implication that money is more sleepy and less active (in Switzerland) than it would be in places like New York, London or Hong Kong... Clients are finding it more important, particularly after the last three years, to stay on top of their money. They cannot come once a year to Switzerland and find they have lost 30 per cent. That is unacceptable." But how much is Morgan Chase's stock down in the past year?

Reuters of May 8 make much of Fed chairman Greenspan's reference to J.P. Morgan Chase's derivatives portfolio. Reuters quoted experts that " JP Morgan's $28 trillion share of the more than $100 trillion derivatives market makes the bank almost too big to fail." Greenspan said, "When concentration reaches these kinds of levels, market participants need to consider the implications of exit by one or more leading dealers."

Update of May 5, 2003: On the road again, with Morgan Chase -- the Telegraph of India reports on Chase's "plans to open an offshore research department in Mumbai, where Indian professionals will chew on numbers, prepare reports and, if things go right, track shares on New York Stock Exchange and Nasdaq. More than 1,000 jobs could come to Mumbai." On this, we've received the following commentary, from our favorite in-house correspondent:

Subj: JPM takes a trip to Mumbai

Date: 5/1/03 7:18:40 AM Eastern Daylight Time

From: [ ]

To: ChaseWatch [at] innercitypress.org

In the wake of the recent $1.4 billion settlement from various investment banks, including good ol' JPM, what messages would you expect these institutions to take away with them? Would you expect them to carry on with the "star system" whereby a big-name analyst is expected to be a "rainmaker", whose job is to be on the phone all day promoting stocks to clients and to provide soundbites for the media - not burdened with such tedious inconsequentialities as a realistic, working financial model and a deep hands-on knowledge of industry statistics? (this was the existing system that brought us Blodget and Grubman)

Or would you expect them to provide insightful, informed comment based on a close understanding of the industry coupled with an ability to understand, analyze and accurately interpret financial statements? Well, I know what a reasonable person might expect, but unfortunately we are talking about JPM here. They have recently announced that they are setting up a unit in Mumbai, India, which could probably best be described as the financial industry's version of a sweatshop. Here they believe they can get MBAs and chartered accountants, at a quarter of the price they would

normally pay, to sit and gather data and produce generic models. They envisage a headcount of 40 out of a total 400 across research globally. (This after having recently cut their European headcount alone by 60 people). I quote from a recent memo from the global head of research:

"Hiring top grade MBA candidates to work in specific sectors. These analysts would do industry specific research and analysis - both regional and global work - offering support to analysts in that sector in all locations. Work could include maintenance of proprietary data, data collation and analysis for client requests, special projects, presentation preparation and periodical production. Initially we to start with 6 - 8

sectors and assign two headcount to each sector. Financial Modeling - Hiring MBAs or Chartered Accountants with strong Excel skills to build new models or maintain models and newsflow relating to covered companies. Having a team of financial modelers could decrease the time required to initiate coverage, as they could build

the model based on a standard cross-sector JPMorgan model and provide an option to analysts who would prefer to use their existing time and resources for other activities.."

Come again? "WHO WOULD PREFER TO USE THEIR EXISTING TIME AND RESOURCES FOR OTHER ACTIVITIES"?

I am intrigued as to what could be more important for an analyst than being able to build a meaningful financial model from which to base an opinion. Does "a standard cross-sector JPMorgan model" - where a telecoms stock would be bolted into the same framework as a drinks retailer - sound to you like something on which you would want to base your 401K investing? Especially since it has the phrase "JPMorgan" in it? We will leave aside the question of whether a truly "top grade" MBA is going to want to stay in Mumbai earning 25% of MBAs elsewhere. We will leave aside the question of how it will be humanly possible to understand US and

European industries at such a remove (assuming industry understanding is on the agenda at all).

Star analysts tend to leave after a few years and get replaced by the junior analysts, who have been learning from them by listening to them, building and maintaining the models, attending client meetings, writing some of their analysis etc. The question bubbling up is this: Where, in three years' time, are they going to find the analysts who have better things to do with their time than analysis? Will they perhaps ship them in from Mumbai....or will they have to spend fabulous amounts of shareholders' money to recruit them from another less moronic organization? (By the way, I used to sit next to a "star analyst" at JPM. A week after she was promoted to senior analyst, she had to ask me what ex-dividend meant..........)

Also on the Global Beat, Morgan Chase on April 29 announced a plan to buy a 33 percent stake in a fund management joint venture in China for $5.98 million. Shanghai International Trust and Investment Corp would own the remainder of the 150 million yuan venture, JP Morgan said in a statement, adding it intended to raise its stake to 49 percent when regulations allowed.

Update of April 28, 2003: We'll go self-referential this week. This Morgan Chase Watch showed up in New York Newsday of April 21, quoting one of our correspondents regarding the farming-out of thousands of employees to IBM:

... "letter that appeared on the Web site of the Inner City Press, a regional Web site, one employee said the transition has left 'plenty of [affected employees] pretty disgruntled. I know for a fact in Asia there is serious discontent, as the bottom line is sign with IBM or leave ... with nothing.' Octavio Morenzi, founder and managing partner at Cambridge, Mass.-based consulting firm Celent, said he could understand employees being miffed about the way the deal was announced - via newspaper reports on the last day of the year. A cynic, he said, could say the deal was structured to please Wall Street, noting that banks like JP Morgan are valued by multiples of their income while tech companies like IBM are valued relative to revenue. The $5 billion deal is expected to provide a sizable boost to IBM revenues while JP Morgan avoids the expenses of severance issues."

Typical Morgan Chase... Those with question might want to catch ol' David Coulter on April 29 (2:15 .m.) at UBS Warburg's 2003 Global Financial Services Conference... Just as it threatened to pull out of Georgia in the face of that state's anti-predatory lending law, last week Morgan Chase, attempting to pressure lawmakers in New York and Connecticut into repealing "vicarious liability" statutes, said it would stop providing auto leases there after July 1. Great diplomacy... Until next time, for or with more information, contact us.

Update of April 21, 2003: In announcing earnings last week, Wild Bill Harrison said-in-a-statement, "we continue to be cautious in our outlook for the remainder of the year.'' Vice chairman Marc Shapiro told reporters he believes there will be an economic recovery over the next couple of years. Right now, he said, "it's certainly not an economy that's operating on all cylinders.'' Reuters noted that the SEC has delivered a Wells notice to J.P. Morgan Chase, indicating it may take legal action on allegations the bank helped the now-bankrupt Enron Corp. conceal debt from investors...

Update of April 14, 2003: Those interested in Chase's ongoing subprime lending may want to check out Chase Funding Asset-Backed 2003-2, $890 million in asset-backed securities supported by subprime home equity loans Chase has made.

Update of April 7, 2003: From the mail bag (and one of our favorite sources), regarding last week's Report:

"I note that you question whether Mr Harrison is overpaid. Don't be too hard on him, the poor love: his bonus was down 50% on last year. Those of us who were recently rightsized with zero bonuses are thinking of taking up a collection. After all, an inspiring, charismatic and effective leader deserves to be adequately compensated....ah. Yes. That's where it all falls down, of course.
"Incidentally, if you look at the figures, last year's compensation included a special $10 million merger bonus. So effectively Mr. Harrison got a 42.5% increase on his 'normal' bonus, from $5.4 to $7.7 million. Given the destruction of shareholder value he achieved last year, wouldn't it be a better use of Mr. H's time for him just to sit in the executive washroom all day, flushing away dollar bills one at a time? We would lose less money that way."

She's baaack: former Chemical-Chase CRA officer Carol Parry (Fox) reappeared on the (CRA) scene last week, with an op-ed piece in the American Banker urging that branchless banks be treated as "wholesale or limited purpose" banks -- that is, that they not be judged on how their lending benefits low- and moderate-income consumers, but on indirect community development activities. We disagree -- why, for example, should E*Trade Bank be allowed to exclude LMI consumers? -- but note that the purpose of the article appears to be to drum up business for Ms. Parry Fox's "Corporate Social Responsibility Associates." Interesting name... Ms. Parry is a director of R H. Donnelley, which sells advertisements in various Yellow Page phone books; she is a trustee of Equitable Premier mutual funds. If one wanted to find out more about Corporate Social Responsibility Associates, and tried, for example, csra.org, you'd find the Connecticut Street Road Association, defending America's automative legacy. Other variants? Nothing. It is reported that Ms. Parry Fox defended WesBanco, a West Virginia-based bank with (at least temporarily) a rare Needs to Improve CRA rating. We remain interested, open-minded, all of that.

Update of March 31, 2003: Reuters of March 28 quoted a Morgan Chase insider that "I think it's appalling... You can look at the market capitalization from the day the merger happened until now and see complete market cap destruction. The bottom line is Harrison is overpaid."

Question from the mail bag: "Chase Manhattan Mortgage Corp. -- I continue to get told different things of how to have my PMI payments discontinued. I was told by their rep. that if I paid my loan down to 78%, it would be discontinued. After paying my mortgage to less than 78%, I find that there are other requirements and I've about had enough of it. I need to know who the CEO is as well as if there is someone I can copy my letter of complaint who regulates the banking industry."

Answers: CMMC's chief executive is one Stephen J. Rotella; the regulator is the OCC...

Update of March 24, 2003: Board of directors madness -- Morgan Chase on March 18 announced that Lloyd Ward, who resigned as chief executive of the U.S. Olympic committee earlier this month amid an ethics controversy, had stepped down as a Chase director Ward, embroiled in a controversy over an effort to help his brother's company win a contract for this year's Pan Am Games, resigned after just 16 months in his post as the head of the body in charge of coordinating all Olympic-related activity in the United States. Has he been the problem at Chase? No, these problems run much deeper...

Update of March 17, 2003: From one scandal to the next: last week found Morgan Chase in Asia defending credit derivatives and Chase's market-making position in them. Chase set off on a regional road show, to Hong Kong, Singapore, South Korea and China, according to spokeswoman Dorothy Lee. Bertrand Des Pallieres, a London-based managing director of JP Morgan Securities, said: "It is hard to get out of being a supplier or being a market maker the same way it would be hard for General Motors to get out of the car industry." Ouch...

Update of March 10, 2003: Chase's Boom-Boom room: faced with reports last week that the company had fired two of its investment bankers, Palden Namgyal and Norman Gretzinger, following charges that they sexually had harassed a female colleague, Namgyal and Gretzinger could not be reached for comment. A Morgan Chase spokeswoman declined to confirm the dismissals or whether the bankers received severance packages. That's leadership. And now, this report, from Hong Kong:

Subj: "One Firm One Team" at JP Morgan
Date: 3/4/03 4:10:29 AM Eastern Standard Time
From: [ ]com.hk
To: ChaseWatch [at] fairfinancewatch.org

Dear JP Morgan Chase Watch

Not sure if it has been brought to your attention but JP Morgan are outsourcing much of their IT department to IBM beginning April 1st 2003. This is quite few thousand people in all and plenty of them are pretty disgruntled. I know for a fact in Asia there is serious discontent, as the bottom line is sign with IBM or leave... with nothing. If you don't sign then that is taken as your decision to resign. Very honourable and decent behaviour from a company that supposedly prides itself on looking after its staff.

That seems to be pretty heavy-handed to me. There are also problems in Hong Kong where staff with JPM mortgages were told to go renegotiate with another bank once they sign with IBM. All very well you may say, but a fair number of these staff have serious negative equity (Hong Kong Property market being what it is). Some of them will take a hit amounting to tens of thousands of US Dollars.

Just recently JP Morgan decided that these mortgages would be guaranteed for 2 years with the bank as a sort of stop gap. On the face of it that sounds reasonable, delve a little deeper and you find out that it's guaranteed against your pension fund. Not so good. So, for joining IBM, some staff will end up paying big time in a couple of years time. Plus no one of course wants to go to IBM if given a choice and the heavy handed approach has made staff feel unwanted and akin to cattle being sold.

Makes last years JP Morgan team building promo "One Firm One Team" ring a little hollow now.

Best Regards, A Disgruntled employee...

Update of March 3, 2003: Japan's financial regulator announced on Feb. 28 it had ordered the brokerage unit of J.P. Morgan Chase & Co in Tokyo to suspend stock trading on its own account for 10 business days from March 3-14. The penalty against the Tokyo office of J.P. Morgan Securities Asia Pte Ltd was issued three days after a watchdog said the unit had manipulated market prices through irregular transactions involving exchangeable bonds. In a related move, Japan's Ministry of Finance said it would bar the J.P. Morgan unit from participating in Japanese government bond auctions from March 3-14.

Some weeks ago we ran a short report from deep within J.P. Morgan's burrows, and said there'd be more. And now there is! We considered recasting the report below, but, frankly, could not have said it better:

On Jan 28-29, Bill Harrison held a J.P. Morgan offsite with approximately 300 senior leaders of the firm (pause for a moment to consider how much THAT cost). The subject was "delivering our potential". (Remember, for about two years now since the Chase/JPM merger, after every dire set of results some "my glass is half full" loon pops up with the phrase that "we are well positioned to take advantage of our potential"....only we never have done, yet).
Get this. Mr Harrison is proposing to run a series of compulsory training sessions on business ethics. Wait a moment, did I hear this aright? JPMORGAN is proposing to train ME on business ethics? Presumably afterwards we will get a course on taxation from Leona Helmsley.
But the quote of the session is as follows:
Bill Harrison: "Let me just make a comment on attitude. I know you get tired of me talking about it, but get used to it. I'm going to keep talking about it because I think it's important. And one of the things I've told employees in town hall meetings is that I didn't do a lot of things well last year. But one of the things I give myself high marks on is attitude".
Crashed to a fourth quarter loss, laid off thousands of people just before year end with miniscule bonuses (hmmm...business ethics, anyone?), egg all over face with Enron, no further up the Equity league tables than we were pre merger, destroyed billions of shareholder value - but maintained a REALLY GOOD ATTITUDE. Well, that's all right then.

Update of February 24, 2003: Ah, Chase -- last week it unceremoniously fired Mino Capossela, hired just last year to run its cash equities business in North America ("A Morgan Chase spokeswoman declined to comment on Mr. Capossela's departure" -- the accountability never seems to reach the top, does it... Then, the WSJ of Feb. 21 reported that Morgan Chase faces a challenge from "some of the world's biggest banks over a loan it arranged for Enron before the energy trader's collapse. The dispute centers on the syndicated loan market, the newspaper said, with some banks focusing on a deal that J.P. Morgan arranged for Enron in May 2001 that included a $500-million letter of credit extended by the banks. Citing 'people familiar with the matter,' the Journal said Enron tapped part of the credit before it filed for bankruptcy-court protection, and the banks in the "syndication pool" suspect that Enron used some of that money to reduce its debt to J.P. Morgan."

Update of February 17, 2003 -- Some penalty: Morgan Chase in a Feb. 14 SEC filing stated that it had cut Bill Harrison's stock and options bonus. Harrison was "only" granted 105,625 shares worth about $2.3 million and options to buy 316,873 shares at $21.87 each. That's after eight quarters in a row in which Morgan Chase has been in decline. The stock lost 34 percent last year. Harrison's salary and cash bonus were not in the filing on Friday and will be disclosed in the bank's proxy statement.

Update of February 10, 2003: Phrases about sinking ships came to mind when Reuters reported, on Feb. 3, that "Carlos Asilis, chief stock strategist at J.P. Morgan Chase has resigned from the bank less than a year after taking his current position... The departure of Asilis, who sees the U.S. stock market declining further this year, signals more change at top levels of the No. 2 U.S. bank. Last Friday, for example, the vice chairman of J.P. Morgan Chase's investment bank, Mark Davis, said he is leaving the firm to pursue other interests. "It was pretty sudden," one of the sources said. A J.P. Morgan spokesman declined to comment." Typical...

Update of February 3, 2003: From a London source: Morgan Chase "is holding an 'EMEA MDs' Leadership Forum.' At the Savoy Hotel, one of the most expensive in London. JPMorgan Chase has more than enough space to accommodate the MDs in its own premises, but we wouldn't want them slumming it, would we? Cost cutting only applies when it comes to wrecking people's careers and lives, not to corporate jollies for the MDs. Glad to see that the money they saved by screwing me out of 10 months' work, at 70 hours per week, before sacking me without a bonus, is being spent wisely." This is a correspondent we want to hear more from.

Meanwhile, on the Jan. 30 Chase earnings call, CEO Harrison began the presentation by denying a Wall St. Journal article that suggested that some board members didn't support a $1.3 billion fourth-quarter charge to cover settlement expenses related to Enron's bankruptcy and other securities litigation. ."The board was very supportive of that and continues to be very supportive overall," he said. Harrison defended the company's model of using its loan portfolio to attract higher margin investment banking business. J.P. Morgan has been under pressure to grow its equity underwriting business... Morgan Chase announced on Jan. 28 a proposal to sell its Brazilian money management operations to Banco Bradesco...

Update of January 21, 2003: An astute reader of this ChaseWatch suggested that we excerpt from Business Week's recent nomination of Bill Harrison as one of the Worst Managers of the year. We aim to please: "William B. Harrison Jr., chief executive of J.P. Morgan Chase & Co., thought he would get the bad news out of the way early. So last January, he revealed that because of losses in the private equity business, loans to Enron Corp., and investments in Argentina, net income for 2001 would fall by half from 2000. Investors cringed -- but they hoped that at least the year ahead would be better. The optimists were proved wrong. In September, Harrison, 58, said that the bank would take yet another write-down for bad loans and plummeting trading revenues. As a key financier to scandal-wracked Enron, Morgan was dragged through the mud in Congress. Its stock traded as low as $ 15.26 a share in October, less than half its January value. In a recent memo to employees, Harrison said: 'No one is happy with our performance this year, but we are positioned well for a rebound in the economy.'" We'll see...

Update of January 13, 2003: On Jan. 8, Morgan Chase's shares fell almost 4 percent Wednesday after two analysts made negative comments about the bank's stock, including a ratings downgrade from UBS Warburg. Warburg cut its rating on J.P. Morgan to a "hold" from a "buy." Analyst Diane Glossman said that issues with capital markets revenue and corporate credit quality could still be a negative factor in 2003. Morgan Stanley analyst Henry McVey cut his fourth-quarter earnings target for J.P. Morgan to a loss of 6 cents a share from a profit of 40 cents a share, citing the company's Enron-related charges...

Update of January 6, 2003: On Jan. 2, Morgan Chase announced that it will be getting back half of what it claimed it was owed by insurers on losses from Enron-related finance deals, that it will take a $400 million pretax charge to cover the rest of the loss in the fourth quarter, and that it will take a $900 million charge to set up a reserve to pay for all future litigation related to Enron and other legal tangles, causing the bank to post a net loss in the fourth quarter. Then, on Jan. 3, Morgan Chase announced that it has asked the Securities & Exchange Commission to look into the swirling rumors about gold trading losses. "We brought the nature and subject of the rumors to the SEC and asked them to look at it," a spokesman for Morgan Chase said. A new openness? How about looking into Morgan Chase's subprime lending, including through the ex-Advanta? A project for 2003.

Update of December 30, 2002: In the Chase-Enron case on Dec. 23 came a ruling that the e-mails written by Donald Layton referring to "disguised loans" can be used as evidence in the ongoing trial.. Layton's e-mails bolster the insurers' argument that Morgan Chase knew the deals were loans but presented them to outsiders -- including insurers -- as something different. Chase had asked to exclude the e-mails on the grounds they were irrelevant and might prejudice the jury....Then on Dec. 24, Morgan Chase filed a slew of new lawsuits in U.S. Bankruptcy Court and U.S. District Court in New York, including against Cogentrix, a Charlotte-based power producer. The suits are related to a $500 million letter of credit that J.P. Morgan issued to Enron in May 2001. Morgan Chase issued the credit line to finance five power projects to be built by Enron subsidiary National Energy Production Co.. Thus Morgan Chase enters 2003.. Happy New Year!

Update of December 23, 2002: We are compelled to devote this week's ICP CitiWatch Report to the investment banking settlement announced on December 20. The largest payment is by Citigroup, some $400 million. Little ol' J.P. Morgan Chase escaped with paying a mere $80 million. Both companies will be seeking tax deductions, arguing that the money is not a fine. Was the "global settlement" a Christmas gift? In Chase's case, it needs one: last week it was kept in as a defendant in an Enron-related class action. Ever standardless, Chase also last week announced a $300 million equity program with Tulsa-based oil and gas company Latigo Petroleum, for an exploration and development drilling program. Great... Happy holidays!

Update of December 16, 2002: From the department of Too-Little-Too-Late: "'We regret that we ever dealt with Enron,' said J.P. Morgan Chase executive Robert Traband at a Senate hearing on Dec. 11. However, Traband defended Morgan Chase's deals with Enron as "perfectly legal." On the Enron / Slapshot deal, Morgan Chase spokeswoman Kristin Lemkau said: "Each country has its own tax law. We were advised by two Canadian law firms that this was legal and appropriate under Canadian tax laws. While we don't think we did anything illegal or unethical, from the standpoint of reputation risk, we would not do this transaction today."

From Texas we hear that the previously reported-on employment discrimination matter gave rise to the filing of a lawsuit last week, in state court in Texas. We'll be following this one. Morgan Chase was also among the banks sued last week by the California State Teachers Retirement System for propping up Qwest by underwriting and selling inflated securities. The case relies on California unfair business practices laws, which permit plaintiffs to quickly begin discovery, unlike the Morgan Chase lobbied-for federal Securities Litigation Uniform Standards Act of 1998, which can delay discovery for months or even years. The days of reckoning approach, one hopes...

Update of December 2, 2002: Reuters of Nov. 26 reported that Morgan Chase " expects to close an $8 billion private equity fund as early as this week, closing out the world's biggest buyout fund after a two-year fund raising process... It falls short of initial expectations. J.P. Morgan originally hoped to raise as much as $13 billion." On December 2, proceedings begin on Morgan Chase's ill-fated attempt to recoup $1 billion from a group of insurers over "complex" deals it struck with Enron Corp. "Complex" is Reuters' word: we take it as a euphemism for presumptively evasive deals. The trial revolves around so-called surety bonds that the insurers issued to Enron to guarantee gas deliveries -- or cash equivalents -- to a J.P. Morgan-related entity called Mahonia. The claim is that the Mahonia deal was really a disguised loan from J.P Morgan to Enron, which surety bonds did not cover.

You want subprime? From P.R. Newswire of Nov. 27: " Fleetwood Homes, a leading producer and retailer of manufactured housing, today announced that it is teaming up with Chase Manufactured Housing, a division of Chase Manhattan Mortgage Corporation." You want further information? Sorry -- Chase spokeswoman Kristen Batteria "would not disclose Chase's volume in this business line or how much it expects from the Fleetwood deal." Another indication of Chase's "best practices."

Update of November 25, 2002: While Morgan Chase does not have a Robert Rubin or an ex-IMF big-wig like Citigroup does, it's still trying. Last week it announced that former Polish finance minister Marek Belka will advise its investment bank on its business in central and eastern Europe. "Insight and integrity have characterized Marek Belka's service to Poland over many years...We are honored to have such a distinguished leader join our team," said Jakob Stott, head of JP Morgan in Central and Eastern Europe, Middle East and Africa. Morgan Chase, it seems, needs some end-game advice...

Update of November 18, 2002: Speaking of focusing on the affluent (oh, we forgot - Chase has Advanta now), Reuters of November 11 reported that Morgan Chase "has seen its hedge fund assets soar 35 percent to around $7 billion so far this year... Michel Nassif, head of the Hedge Funds Advisory Group at J.P. Morgan Private Bank in Europe, Middle East and Africa, is advising clients -- mainly wealthy individuals and families -- to have between 10 and 25 percent of their portfolios invested in the class.'Year-to-date our hedge fund assets are up 35 percent,' he told Reuters in an interview. 'Some our clients still have just two to three percent of their liquid assets invested in hedge funds, so it is still a very small portion.' Worldwide J.P. Morgan Private Bank has $224 billion in assets.... In terms of strategy, Nassif said long-short equity and global macro economic strategies offered growth potential, but distressed and merger arbitrage strategies are still under pressure." Hey -- Morgan Chase better arbitrage its own merger, since despite its size it's widely reported to be a take-over target...

Update of November 11, 2002: According to Reuters of November 6, Chase Morgan could face fraud and market manipulation charges for allegedly allocating shares in hot stock offerings to investors who agreed to buy additional shares in the aftermarket. The enforcement unit of the Securities and Exchange Commission plans to recommend that the agency file charges against both two investment banks for "laddering," as the process is known. A spokesman at J.P. Morgan confirmed that it received the so-called Wells notice last month...

On November 7, Chase protested that rumors it had suffered large losses on gold trades were "false and irresponsible," but the speculation damaged its stock price. "There have been issues over JP Morgan's gold derivative business over many months but nothing on the scale to scare the market," said one London-based gold analyst. Analysts said that concerns about Chase's exposure to energy merchants could be hurting the stock.

Update of November 4, 2002: when the going gets tough, Morgan Chase... runs. Last week in Caracas, Chase announced it will close its banking and stock trading operations in Venezuela at the end of the year. The company "is going to close the bank it has had in Venezuela since 1998 and its brokerage house," one official said off-the-record. "It's a global thing and it's also happening in other countries," a second executive said... Overall, Morgan Chase's stock value has fallen 68 percent since March 2000 -- the biggest stock decline during the period among banks in the Philadelphia KBW index of the 24 largest U.S. banks and thrifts....

Update of October 28, 2002: Reuters of October 21 reported that "J.P. Morgan Chase & Co. Inc.'s stock surged on Monday on speculation that Bank One Corp. would buy the bank, which is struggling in a weak market... J.P. Morgan is wrestling with weak trading results and losses on soured loans to telecommunications and cable companies. Its third-quarter profits fell 91 percent to $40 million, or a penny a share, and it said it would cut about 2,200 additional jobs following previous staff reductions... 'It's shocking,' Fred Cummings, an analyst at McDonald Investments, said of the disparity between the banks' market capitalizations. 'But that just shows you the market has lost confidence in (J.P. Morgan's) management team and they don't know how true that book value is at J.P. Morgan.'"

From the National Mortgage News of October 21: Fitch Ratings has upgraded the primary servicer ratings for Chase Manhattan Mortgage Corporation to 'RPS1' from RPS1-minus for prime loans. The ratings for subprime, Alt-A, high-LTV servicing and special servicing has been raised to 'RPS1-minus' from a rating of '3' in each case. The '3' ratings were the old ratings that had been assigned to the previous owner of the subprime mortgage servicing platform before Chase bought it in March of 2001." That'd be Advanta. NMN's sister-publication Origination News also confirmed that "Chase Manhattan Mortgage... has pulled its subprime operations out of Georgia due to the new harsh regulations that have gone into effect regarding high-cost home loans."

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Update of September 23, 2002: we have an update on a race discrimination charge against Morgan Chase in Texas, on which we've previously reported. On September 17, 2002, the EEOC's Houston District Office issued a ruling that "[t]he EEOC found reasonable cause to believe that a violation of the statute(s) occurred with respect to some or all of the matters alleged in the charge but could not obtain a settlement with the Respondent [Morgan Chase] that would provide relief." Let's review: the complainant, Steve O'Brien, charged under oath that on or about "September 20, 1999, I was asked to rate a Black male employee's performance at the lowest level both during the same period I had found his performance to be excellent... I believe that I am being, and have been, retaliated against because of my opposition to racially discriminatory practices." There's more, even worse, in the referenced related matter. But when the EEOC formally finds reason to believe that violations of law occurred at Morgan Chase, and Morgan Chase refuses to provide redress, what happens? Including with Morgan Chase's regulators? ...

Update of September 3, 2002: From Newsday of August 23: "'They might have to make some changes up top to get investors' confidence back,' said Frank Barkocy [of] Keefe Managers Inc., a hedge fund. 'They will also have to be more definitive about what they plan to do about some of these issues that plague the company.'" Yep... From AFX of August 30: "William Harrison, [CEO] of JP Morgan Chase, holds a single outside directorship on the board of Merck & Co Inc. The bank said it discloses any directorships that its employees have on outside boards in research notes or other relevant documents put out by the bank." That is to say, not on Chase's web site. Look for that to change...

From the mail bag, "Subj: chase morgan "--

         Date: 8/25/02 6:35:59 PM Eastern Daylight Time
          From: [Name removed at correspondent's request]
          To: ChaseWatch [at] innercitypress.org

Dear Sir:

We have filed a civil case against Chase for not complying with our forbearance agreement. They haven't complied with Regulation Z. but unfortunately many people do not know about it, and then just act surprised and let it go. Just the few people in my surrounding that I have spoken with about our lawsuit even though it is very stressful; and degrading to talk about the possibility of being homeless for a self employed person. I found out that the majority of people have Chase mortgages and they weren't informed of their loans being sold or merged. We are one of them and how corrupt they are, one of their routine and swept under the carpet styles is they sit on your payment, find a fault and send it back after weeks so in matter of months you have a bad credit and you can't refinance with another company so you're stuck with them. And if you call them they tell you, only six months, make timely payments... You believe them and for five months everything is O.K. but the sixth month all of a sudden their statement is late, you call them and it is your fault, you should have made the payment anyway it is your loan and you should make regular payments on your own and not wait for their courtesy reminder statement, so you start the sixth month process again and start sending payment before they send you statement or the day they should have, to get your credit going and refinance it. Ooops the payments don't go through, you call to find out, why? The answer: they are sitting on your check for weeks. This time the answer is "Your fault, you should have written at the bottom of the check what the extra few dollars you sent were to apply to, the next month's or the principal payment, or ma'am you are a hundred or $50 short, you tell them legally you should apply then call me or send me a statement, the answer is, your fault. I have three boys in parochial Catholic schools known for their demanding and strict approach of "you should have," " it is your responsibility" -- and they aren't this bad...

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

Update of August 26, 2002: Morgan Chase on August 22 announced a proposal to buy Plexus Group Inc, a transaction-cost analyzing firm. Morgan Chase did not disclose terms of the transaction, stating vaguely that "Our combined strengths ... (are) designed to rationalize investment costs and improve performance returns in today's challenging economic environment," and that it has $2 trillion in global custody assets. The American Banker (8/23) added that "with 30 offices scattered throughout the world, the group has plans to expand further by opening offices in Mexico City, Frankfurt, Milan, and Paris. Heath care and small-item leasing are to be added over the course of the next year... 'As bankruptcies have increased, we have asserted our influence,' said Michael K. Clark, the head of institutional trust services." Yeah, these big bankruptcies are really helping Morgan Chase...

Update of August 5, 2002: In answering the U.S. Senate's Permanent Subcommittee on Investigations' July 25 questions on July 29, Morgan Chase CEO Harrison "note[d] that on at least one occasion, Mahonia declined to engage in an activity proposed to it by J.P. Morgan Chase that did not meet Mahonia's risk criteria." But a Morgan Chase spokesman said he could not provide details on the transaction.

Morgan Chase was proud, however, to report that its highest executives were circling the wagons and buying their company's stock. Alongside their July 24 "spin" conference call, Harrison used $562,500 to buy 25,000 shares. Jeff Walker, the head of Morgan Chase's private equity business, bought 22,700 shares. Soon to be scapegoat Marc Shapiro bought 15,000 shares. David Coulter bought 20,000 shares, and Don Layton bought 15,000 shares....

From the Daily Deal of August 1: "At the current valuations, HSBC could even afford to buy J.P. Morgan Chase & Co., whose market cap has fallen to $50 billion after a 40% fall in the past year."

Update of July 29, 2002: Indicative Morgan Chase interchange of the week, from CNNfn of July 26: Q: "We had the CEO, Mr. Harrison, coming out this week and saying, we didn't do anything wrong, and furthermore, I'd do everything we did again. Bold, brazen."

A: "Our friends at J.P. Morgan are going to regret that comment for quite a long time." Yep. And when the going gets oily, the oily... buy auto parts. On July 26, Morgan Chase announced it has reached an agreement to buy a Japanese auto parts subsidiary of Nissan Motor Co for around $86 million.

Thou dost protest too much: on July 24, Standard & Poor's put out a statement that "market concerns over a possible cash-shortage at J.P. Morgan were 'unfounded,' despite the recent decline in the company's stock price and investigations into its business practices."

Update of July 22, 2002: on July 16 Morgan Chase denied rumors in European markets that it was having liquidity problems. "The rumors are untrue and irresponsible," a company spokesman said in New York. The bank's stock fell in European trade. Dealers there cited rumors of liquidity problems... Morgan Chase's operating earnings, announced on July 17, were below expectations, missing analyst estimates by 7 cents a share. Profits were hurt by its large emerging-market debt business, Dina Dublon, the chief financial officer, said in a conference call. Ol' Ms. Dublon stressed that she did not think that the bank's corporate businesses were ready to rebound. "We have not seen a turnaround yet, and we are very cautious about the outlook for market-sensitive businesses for the second half of the year," she said. The N.Y. Times opined: that response disappointed some analysts and investors who have been waiting since J. P. Morgan and Chase Manhattan merged at the end of 2000 for profits to revive in the company's investment banking and lending businesses. The Financial Times: " JP Morgan [Chase] reported operating earnings of $1.17 billion, or 58 cents a share, during the quarter - up 50 per cent from the same period a year earlier. The comparison is somewhat misleading because the bank wrote down $1 billion in losses during the second quarter last year for its massive private equity portfolio, JP Morgan Partners. JP Morgan wrote down another Dollars 125m this quarter - mostly on its private holdings." In other news for Morgan Chase, the company was named as a defendant in the lawsuit filed last week by three California pension funds against banks that underwrote corporate bonds forWorldCom. The pension funds, led by CalPERS, are seeking $318 million in damages...

Update of July 15, 2002: There's news this week (below) but we begin with a question. Last week a woman called Inner City Press stating that her husband works for Morgan Chase and has been told that both his and his wife's brokerage accounts must be transferred to Morgan Chase. The only exception would be if his wife's employer had a similar requirement. The caller asks: particularly in light of recent developments (such as Enron requiring its employees to invest their pensions in Enron's now-worthless stock), how can Morgan Chase require this? Our readers ask us; we await answers. Okay the news: Korean media reports last week said J.P. Morgan Chase & Co., U.S. investment fund Lone Star and South Korea's Hana Bank have been chosen as the preferred bidders for a 50% stake in Seoul Bank, which is wholly owned by the state-run Korea Deposit Insurance Corp....

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Just what Morgan Chase needs: A consortium of JP Morgan Chase & Co and the European Bank for Reconstruction and Development will bid for up to 65 pct of Bulgarian telecoms operator BTC in the second round of its privatization, the Bulgarian privatizations agency said on July 12...

Update of July 8, 2002: As the Enron case turns: two weeks ago Chubb filed a direct claim against Morgan Chase, stating that the bank "surreptitiously lent money to Enron, by way of Mahonia, and expected to be repaid . . . by Enron, with interest" directly or via other offshore vehicles. A bit delayed, Morgan Chase general counsel William McDavid played the populist card: "What's interesting here is that the insurance companies in this case have done what some insurance companies do all too often. They take in premiums for years, but when a claim is made, they litigate and try to fight paying the claim." Morgan Chase claims that everyone, including the insurers, "knew that the (Mahonia) deals were part of a structured financing transaction for Enron's general corporate benefit." What interests or should interest regulators, especially the Federal Reserve, at least as much as NY D.A. Morgenthau, is whether these were in reality loans that the bank did not declare. You thought banks were regulated but it may be that you were wrong, as least in this case...

Subprime on the move within Morgan Chase: the company has promoted Christian Schiavone to "team leader of the home equity business" within Morgan' Chases North American ABS and Conduit Group. According to a press release by the firm, as a vice president in this group, Schiavone "has demonstrated his ability to lead a team recognized for its thoroughness and creativity on behalf of the firm's home equity clients." Schiavone was previously a vice president at Chase Manhattan Funding, which is the subprime division of Chase Home Finance...

Update of June 17, 2002: Remember the Chase - Sumitomo copper trading scandal in the 90s? Earlier this year Morgan Chase settled up with Sumitomo for more than $120 million. The Financial Times of June 14 explains why: in essence, Sumitomo's Yasuo Hamanaka had only been "able to stay in business because of a secret payment made to a J.P. Morgan [Chase] banker, which has been linked to a loan that the U.S. bank advanced to the trader." We will not reiterate the FT's fine investigative article here, only the conclusion: "JP Morgan's decision to settle with Sumitomo means there is little likelihood of Winchester Commodities' unusual cash payments ever being fully investigated. Whether the Dollars 100,000 cash payment was ever connected to the arrangement of the JP Morgan loan will probably never be fully resolved. But it seems unlikely JP Morgan would have paid Sumitomo more than Dollars 120m if it had a completely clear conscience."

On more recent Morgan Chase scandals, Investment Dealers Digest of June 10 quotes a New York-based banking analyst that "a senior J.P. Morgan Chase official told him recently that the New York giant took a hit on credit derivatives related to Enron Corp. and Argentina late last year. This occurred shortly after J.P. Morgan issued its fourth-quarter call report talking about overall derivative losses for 2001, saying it had $376 million in such losses, much of it related to Enron and Argentina in the fourth quarter. The bank did not specify whether or not any of these losses were on credit derivatives... Analysts put the value of the underlying credits in J.P. Morgan's credit derivatives portfolio around $24 trillion." Ah, Morgan Chase...

Update of June 10, 2002:...In sweatshop lending news, Morgan Chase last week extended a $125 million "debtor-in-possession" loan to the Polymer Group, which describes itself as "the world's third largest producer of nonwoven fabrics [with] 25 manufacturing facilities throughout the world."

Update of June 3, 2002: an end-of-week report that Henry Kissinger is signing on as a "geopolitical analyst" for the Hicks Muse hedge fund added that Kissinger is already providing such advice to AIG and... Morgan Chase. Who knew? [snip]

Update of April 22, 2002: on April 17, Morgan Chase announced that its profit fell 18 percent in the first quarter. On a conference call, CFO Dina Dublon told analysts, "It's a quarter that is quite a bit improved from what we have seen in the last three or four quarters." Morgan Chase's stock is off 26 percent from its high of $50.60 last May...

On the Enron front, Morgan Chase has received a Congressional request for details about the transactions of its special purpose entities Choctaw Investors, Cherokee Finance and Zephyrus with Enron's Sequoia Financial Assets. These "loans" would be repaid in full on the last day of the month, only to be loaned again the next day. "As described by J.P. Morgan Chase in its court filings, the Sequoia transactions do not appear to have served a legitimate economic purpose," the April 12 letter to Chase's Bill Harrison states. "Rather, on their face, they appear to have been designed to allow Enron to covertly borrow hundreds of millions of dollars in undisclosed loans." Harrison's response is due by April 30..

Update of April 1, 2002: Despite pablum in high places about "market discipline" (see, for example, this week's ICP Federal Reserve Report), it was announced last week that Morgan Chase CEO William Harrison for 2001 got a pay package worth $21.9 million, when the bank's profits fell 71 percent. Harrison received $1 million in salary in 2001, as well as $5 million in bonus, $5 million in a merger-related bonus, $5 million in merger-related restricted stock awards, options worth $4.8 million, $1.1 million in long-term incentive payouts, and $50,000 in other compensation. "Nice work if you can get it" -- or, while you can get it...

In the mail bag this week, we've received a series of complaints from a Morgan Chase customer, sent to the bank on March 5, 22 and 25. On March 28, Jessica White of the bank's Internet Service Center wrote, "We apologize for the inconvenience that you are experiencing regarding this matter. We have forwarded your message to the Executive Office for review. If you require further assistance, please contact our 24-hour ServiceLine at 1-800-935-9935." The customer replied, "When a friend of mine saw your latest e-mail, she laughed and said, 'You don't really believe Chase will actually do anything to enable you to avoid paying the annual fee for their 'free' checking, do you? This 'executive committee' is Chase's wastebasket; it's their black hole, made to deal with customers who refuse to accept that they're receiving Chase's 'outstanding service.' Your friends have told you many times that arrogant institutions like Chase gouge their customers by forcing them to pay for services they do not want and do not need. But then, who else is going to make up for the losses Chase has been hit with because of the Enron affair, if not the ordinary depositors?' Naturally I said I didn't believe that. I said I thought Chase was as flexible as all the other banks I've ever dealt. Just as other banks do routinely, Chase would respond to customers wishes, I said. Just as other banks do, Chase would find a way of paying its customers the interest on their CDs, without forcing those customers to open a 'free' checking account that costs more in one year than an entire month's interest on the CD itself. My friend laughed. 'Dream on, sucker,' she said."

Update of March 25, 2002: Growing in subprime -- last week Morgan Chase priced about $428 million in asset-backed securities, supported by subprime home equity loans it bought in the open market. They call it "CFLAT 2002-C1"... In further down-market moves, J.P. Morgan Partners is reportedly bidding to acquire Fingerhut, the Minneapolis-based "retail catalog chain" owned by Federated Department Stores which sells housewares and other merchandise. The company also has potentially more valuable units, including Arizona Mail Order, an apparel business; Figi's, a food and gift catalog business; and Popular Club Plan, a membership-based general merchandise catalog....

From the mailbag

Subj: Chase Manhattan Mortgage Corp.
Date: 3/23/02 11:13:36 AM Eastern Standard Time
From: [Name withheld for now]
To: ChaseWatch [at] innercitypress.org

Re Chase Manhattan Mortgage Corporation: my 82 yr. old mother has a mortgage with them and when she recently became ill her payments, she discovered, had not been paid. In an attempt to rectify, I have sent them 3 separate checks, two of whom are cashier's checks, and they have all been returned. Are they in the business of servicing mortgages or foreclosing on properties owned by 82yr old widows?

Update of March 18, 2002: Morgan Chase laugher of the week was its evasive response to a study of its subprime lending (a study whose release was endorsed by NY Sen. Chuck Schumer, by the way). Morgan Chase writes (American Banker, 3/15) that "Chase does not have a 'subprime mortgage affiliate'... [S]ubprime is only a small fraction of Chase's business overall." The National Mortgage News of March 11 reports that Morgan Chase "ranked 10th in the subprime market in the third quarter of 2001, accounting for a 2.36% share of that niche via its Chase Home Finance unit, Woodcliff Lake, NJ." So until Morgan Chase makes more full disclosure of which of its loans are subprime, its defensive rebuttals are empty.

Update of March 11, 2002: On March 5, Federal judge Jed Rakoff denied Morgan Chase's request for immediate payment of $965 million from a group of insurers over natural gas and oil that Enron failed to deliver. "These arrangements now appear to be nothing but a disguised loan -- or at least have sufficient indicia thereof that the court could not possibly grant judgment to the plaintiff," Judge Rakoff wrote in denying Morgan Chase's summary judgment motion. The trial is set for late 2002....

Well before then, many on Wall Street expect current CEO Harrison to be gone. And many are questioning whether any of the presumed successors -- Don Layton, Geoff Boisi, Walter Gubert, Marc Shapiro, and the folksy "Jimmy" Lee -- are up to the task. The latter two are the ones being most directly blamed for Morgan Chase's bad loans to Enron, Kmart, Tyco, Global Crossing, et al.... We predict an outside hire.

Update of March 4, 2002: On February 28, Morgan Chase announced a new plan to sell its U.S. Virgin Island branches, this time to FirstBank Puerto Rico. Chase previously sought to sell these branches to a telecommunications entrepreneur heavily involved in pornography; that deal apparently fell apart. There's some great due diligence over there at Morgan Chase...

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Update of December 17, 2001: As Argentina totters near financial collapse, it is considering adopting the U.S. dollar as its currency. Here's Chase's take: "It's coming down to a political decision," said Joyce Chang, managing director-emerging markets for J.P. Morgan Chase & Co....

Chase Morgan's business is decidedly "political." On December 13, Treasury Secretary O'Neill reportedly met with seven industry representatives, including Chase Morgan's chief lobbyist Cory N. Strupp.

Also last week, Morgan Chase announced it has filed suit seeking $2.1 billion from Enron. Chase's lawsuit was filed as a motion in the bankruptcy on December 10 and as an adversarial action on December 11. The filings seek a return of the "trade receivables" that backed credit facilities arranged by Chase Morgan for a special-purpose entity known as Sequoia...

Update of December 10, 2001: From the global to the local, from the general to the concrete. We begin this week with the mailbag:

         Subj: Property flipping by Delta Funding & Chase Manhattan Bank
         Date: 12/8/01 3:36:07 PM Eastern Standard Time
         From: [Name withheld for the present time]
         To: ChaseWatch [at] innercitypress.org

I am an African American widow, who resides in New Jersey. My home was refinanced by Delta Funding. Delta transferred my property, even though the monthly payments were being made, to an attorney who stated that he was representing a person who was purchasing my property. This property was transferred to the attorney, of whom I had never met. Nor had I met the person of whom stated that he owned my property. Public records states that it was Chase Manhattan of whom was actually the receiver of the property. Chase flipped the property several times. Public records states that the property was flipped on record but continued to remain in the possession of Chase. The property was eventually sold by Chase and has been flipped several times. Each time, with the help of an attorney, and in over $200,000.00 sums of money on each transfer. I have reported this to the Attorney General's Office, and the Governor's Office of New Jersey, but nothing is being done. My family and I were moved from our home, without compensation. We owned the home for 28 years. Chase and Delta knew from the beginning that the people that were involved in the scams were not the true owners of the property. They both were involved in the scam. My purpose in writing to you is to expose both of them for their illegal and unscrupulous practices. I never received any compensation for my home being taken away from me. On a loan of $56,000.00, of which I only needed $12,000.00, I only received the sum of $700.00. The rest went to Delta, their lawyer and broker. Delta and Chase need to be stopped by continued exposure.

How true. And what was that, again, about Chase's anti-predatory lending safeguards?

For those of a more environmentalist mindset, in New Hampshire, J.P. Morgan Chase will soon begin soliciting offers for the Seabrook nuclear power plant, which is expected to be sold by the end of 2002. The plant is being sold due to state electricity deregulation plan requirements that owner Public Service Company of New Hampshire sell its power generating assets...

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Update of November 5, 2001: We return this week to Chase's subprime lending, which so often flies under the radar (due in no small part to Chase's decision to report the Home Mortgage Disclosure Act data of its subprime unit mixed in with its wider mortgage company). Chase has now responded to the anti-predatory lending ordinance passed in the District of Columbia. Chase's response? That it will cease making home equity loans in the District. See Washington Post of November 3, 2001. So much for Chase's claimed progressive stance.

And why be surprised? In chain of command for Morgan Chase's retail unit runs from David Coulter to Harold "Hal" Pote, down to Joe Scharfenberger, head of small business financial services; Harry DiSimone, who oversees "marketing and consumer markets management;" and Shelaghmichael Brown, who runs financial services distribution. (This according to Crain's New York Business of January 15, 2001).

Coulter appointed Pote head of branch banking; Pote is explicitly more interested in the up-market side of the business, telling the NYT of February 8, 2001, that he "is excited about the possibilities at the old J. P. Morgan private bank, one of the nation's leading advisers to wealthy people." Pote was even more explicit, in the NYT of May 28, 2001, citing "recent efforts to cater to wealthier customers and small-business people. 'If you look at where most banks are getting deposit growth, it's likely to be among higher-end customers,'" Mr. Pote told the Times.

So-- Chase's head of retail is most focused on "wealthy people" a.k.a. "higher-end customer;" service to "lower-end" customer focuses on subprime lending, which Chase ceases whenever a locality tries to bar predatory lending. Not pretty...

Update of October 8, 2001: On October 3, J.P. Morgan Chase announced it will be laying off 200 employees in Texas. Meanwhile, in Payneham in southern Australia, Morgan Chase is pushing for a sweetheart deal to acquire land for a call center. At a recent public hearing, the Morgan Chase plan was roundly denounced. Among the grounds listed: "the deal with the State Government was done in secret; the council decision to sell was made in secret; and no one knows the specifics of taxpayer-funded incentives given to JP Morgan Chase because they were decided in secret too." State government bureaucrat Andrew Scott articulated Chase's position: "If this does not happen (the sale of the Payneham site) JP Morgan will go to New South Wales." Ah, globalization...

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

Last week, regulators in Luxembourg circulated a list of five banks, in addition to the 27 individuals and companies named in the U.S. Executive Order of September 23-24: Al Shamal Islamic Bank, Dubai Islamic Bank, Faisal Islamic Bank, Bahrain International Bank and Kuwait Finance House. Luxembourg has asked its institutions to alert it to any correspondent relationships with these banks. ICP has consulted the Bankers' Almanac, and found Chase Manhattan listed among the listed correspondents of Kuwait Finance House (and Faysal Islamic Bank of Bahrain).

It should be noted that J.P. Morgan Chase lobbied Congress earlier this year not to crackdown on its correspondent accounts. "David Weisbrod, a senior vice president [at] J.P. Morgan Chase, testified that accounts... held by questionable offshore banks had been opened years ago, before the industry was sensitive to the risks." Wall St. Journal, March 2, 2001. That lobbying followed a Senate hearing which unveiled a Chase internal memo from August 5, 1998, after a Chase officer had advised an inside colleague that "our records show that [Swiss American Bank] has been suspected of money laundering." In the memo, one Chase officer wrote to another one: "I explained to Len that SAB may not necessarily be consciously money laundering but was used as a conduit by their customer. . . . I explained that the revenue from this account was at least $ 100K per annum and we are not going to make a rush judgment to close the account immediately." So, for $100,000 a year, Chase's relationship with a known money laundering bank continued...

And the beat goes on: last week the head of Morgan Chase's private bank in New York, John Straus, bragged to the Financial Times: "We are very, very busy. For several days after the attack, most of our clients did not want to talk about their personal wealth at all. Now they all want to know what these events mean to them.. Most of our clients had well diversified portfolios, with plenty of cash and bonds. They aren't panicking at all, although they are definitely becoming much more conservative... Most clients just want to maintain their lifestyle now. Their expectations for future returns are reduced." Others, Straus said, "had concentrated equity positions, which is the way that a lot of wealth had been created until 18 months ago and a lot lost since. Now they are really hurting."

Apparently to Morgan Chase, "hurting" is all relative... Also last week, Morgan Chase paid $1 million to settle SEC charges that it committed record-keeping and reporting violations while acting as a transfer agent for bond issues. According to the SEC, over a two-year period Chase "filed false TA-2 Reports (annual reports required of transfer agents)... and "failed to provide the required notice in the prescribed manner to the appropriate regulators, or to issuers, that its records showed significant differences between its master securityholder files and its control books for a large number of bond issues."

So let's get this straight: Chase filed false reports, and didn't notify its regulators (the Fed and the New York Banking Department) of the problems it had found. Now Chase pays $1 million dollars, and that's it.

Update of September 24, 2001: on September 17, Morgan Chase CEO told NBC News (according to the NBC transcript) that "By next year, I--I am optimistic that we'll begin to--to see some recovery in the economy.. There are several industries that are clearly going to be impacted short term by--by the events of last week, and the airline industry will probably be one of those. I think Congress will do something. I--I hope they do. It is against my philosophy that they do too much of this. But I think we're in a unique time where they could be helpful... I see--I see the tragic events of last week as a short-term, temporary phenomenon. There will be lasting effects from that, for sure, that we'll all deal with. But--but--we'll--we'll be different."

Questionlessly different from Mr. Harrison's pronouncements was the revised assessment of the Korean economy with J.P. Morgan Chase in Seoul released last week. Morgan Chase downgraded its economic forecast for the Korean economy to 1.9 percent for the full-year from the previous growth estimate of 2.5 percent. Around 20 percent of Korean exports go to the U.S., meaning that the revised forecast of a contraction in the U.S. economy at least through the second half of this year clouds the outlook for the Korean economy. "The increased likelihood of retrenchment in U.S. households dims Korea's near-term recovery prospects," Morgan Chase's report said...

On September 18, trading was halted in the Tokyo office of Morgan Chase, in the 30-story Akasaka Park Building, by a bomb threat...

Again, rest in peace.

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

Economic justice and community reinvestment advocates have shown, and will undoubtedly show, restraint -- that they take the events of September 11 seriously. We suggest that financial institutions do the same. In Inner City Press' daily coverage of the plane-bombing's aftermath from September 12 - 14 (to view, click here and scroll down), we noted several self-serving announcements by financial institutions. One New York-based bank, HSBC, told a reporter that it would be waiving fees -- then, the next day, called the reporter to explain that the fee-waived would be extremely limited, and to request that a clarification be published. Morgan Chase CEO William Harrison told the Financial Times (9/16): "The whole clearing and settling process is moving along - not without problems, but it's moving along." Among post-September 11 tasks is to inquire into how attacks like these are financed, how the money is moved. Banks with notably lax money laundering policies -- see below on this page -- will be examined particularly closely. See also, as to Morgan Chase, the Minority Staff of the U.S. Senate Permanent Subcommittee on Investigations, Report on Correspondent Banking: A Gateway to Money Laundering, February 2001.

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

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

Update of August 27, 2001: Chase's spinning never stops. Most recently, the executive in charge of Chase's subprime lending, Luke Hayden, has been lobbying in Washington for a proposal that would pre-empt state and local anti-predatory lending legislation for all subprime lenders who consent to examinations for the Fed or OCC. In an interview published in the American Banker newspaper on August 24, Mr. Hayden claims that Chase Home Funding, the subprime division of Chase Manhattan Mortgage which makes $4 billion a year in subprime loans, is already "under OCC oversight because it is a subsidiary of Chase Manhattan Bank, which has a national charter." Actually, Chase's lead bank is state chartered. And in any event, OCC "oversight" seems to mean little. For example, when Chase's subprime lending practices were raised to the OCC earlier this year, in connection with Chase's application to the OCC to acquire the business of a Bank One bank with a Needs to Improve CRA rating, the OCC's approval order stated only that "the Chase Manhattan Corporation, Chase's parent corporation, represented that its subprime mortgage lending is a small part of its mortgage lending business." Some oversight. The OCC's Order made no reference to any onsite consumer compliance or fair lending examination of CMMC or its subprime lending. Mr. Hayden tells the American Banker: "What I would love to see is some sort of Good Housekeeping seal of approval for subprime lenders. If you create a higher national standard, those who subscribe to that standard can broadcast that fact."

Well, Chase is certainly "broadcast[ing]." But without some substance to the non-public examinations of subprime lending affiliates, it is absurd to deem these exams a "Good Housekeeping seal of approval for subprime lenders." It is only... spin.

A recent Newsweek article touching on the issue of slave insurance in the 1800's caused ICP last week to go back to a Chase submission of November 28, 2000. ICP had raised to the Fed public reports that a predecessor of Chase Manhattan had been involved in slave insurance policies. Chase declined to respond -- but then Fed staffers required a response. Chase submitted three paragraphs, dated November 29, 2000:

There have been allegations that the Merchants Bank and the Leather Manufacturers Bank, which were acquired by The Bank of the Manhattan Company ('BMC') in 1920 and 1926, respectively, engaged in certain servicing activities related to life insurance policies issues on the lives of slaves. BMC merged with the Chase National Bank in 1955 to form The Chase Manhattan Bank, which in turn merged with and into Chemical Bank in 1996 under the name The Chase Manhattan Bank.

The allegations are based on a document that purports to be a circular (the 'Circular') issued in 1852 by the apparent issuer of these policies, the National Loan Fund Life Assurance Company of London ('National Life'). The Circular was provided to Chase by a member of the public and has been the subject of at least one magazine article.

Chase has researched its internal archive related to these banks and has found no reference to National Life or the alleged servicing activities. Chase has begun researching external sources, but has not yet found anything relevant to the issue. It is continuing to research these matters. It is not clear from the Circular whether the alleged activities of these banks including insurance underwriting.

We are not aware of any (public) update by Chase on this issue, since...

Finally for this week, in light of Chase's increasing lay-offs - from the mail bag:

Subj:   Hi, I would like to say something
Date:   8/21/01 12:09:00 PM Eastern Daylight Time
From: [Ex-Colson / Morgan Chase employee]
To: ChaseWatch [at] innercitypress.org

   I used to work for Colson Services Corp. which is now a subsidiary of JP Morgan Chase. I was unjustly fired terminated by awful acts of nastiness... I used to work there and my manager was a person full of hatred. I used to process all their loan information manually, that's right manually, he tried to get me fired , he threatened me , and then he pulled lies from every corner and got JP Morgan Chase to terminate me. I brought this up to them, they said they will investigate this matter, and who was there to help them? The same person who wanted me out. Working there with JP Morgan Chase / Colson Services Corp. is a company full of deceitful, dreadful people. I have stories that would turn your stomach round and round. Fortunately I got a job but the lies that they have perpetrated are tremendous -- the owners went to Congress 105th and testified about their way of processing loan information. And you know I was the only person to process their loan information -- alone and enslaved for hours, 15, 18 hours a day... I had gone to a lawyer but they said the company could not be touched. Sometimes I feel like going to Congress and telling about these acts... Well I thought to write to someone. I am glad it was you.

So are we...

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Update of July 30, 2001: Morgan Chase's purchase of the subprime lending operations of Advanta earlier this year has descended into acrimony and chaos. On July 26, Chase filed suit in Delaware against Advanta, "ask[ing] the court to revoke the deal or award it damages with the amount to be determined at trial." (Reuters 7/26). Chase's complaint is that "Advanta fraudulently concealed significant losses with the intent and effect of inflating the apparent value of its assets." Chase's concern is not that the loans (and operations) are predatory -- but that they are not EFFECTIVELY predatory enough....

At week's end, an ICP source in Texas chimed in that the Houston office of the Equal Employment Opportunity Commission (EEOC) has internally ruled on the discrimination claim of Regina Davis, awarding her over $700,000 in compensatory damages, and more than that in punitives, against... Chase. When "internal" becomes external, this will be updated...

Update of July 23, 2001: Morgan Chase on July 18 reported a 63 percent decline in second quarter earnings, largely due to mis-speculation by its J.P. Morgan Partners unit (f/k/a Chase Capital Partners). Chase CFO Dina Dublon tried to minimize the decline in earnings, promising that upcoming job cuts would "significantly exceed" the 5,000 layoffs projected in connection with the Morgan-Chase merger. Chase also addressed its exposure in Argentina, saying it amounts to "only" $1.4 billion. On June 20, Morgan Chase released its Argentina prognostication, stating that "we believe the willingness for a fast solution on both sides many mean that there could be completion a lot faster than on the Ecuador and Russia restructuring," and predicting that bondholders would take a 35% "haircut" on their outstanding securities and exit yields on the new bonds would range between 14% to 22%. According to Dow Jones, Chase said the 35% haircut would be sufficient to allow a sustainable debt load for Argentina under a scenario of "medium-term fiscal austerity." We know what "austerity" means: reduction in social programs, health care, education, etc.. Meanwhile, in the U.S., Chase's David Coulter is slated to speak at the Federal Reserve Bank of Dallas' "community development lending conference" on August 23-24. There, Chase's Coulter is unlikely to speak about austerity: rather, he will make claims about Chase's CRA unit (that's the one that seeks sanctions and attorneys fees from community groups for raising concerns, that neglects to even provide community groups with copies of its responses to their comments, etc.). We can't wait to hear what ol' David Coulter says, on these and other topics...

Update of July 16, 2001: We have two updates this week -- but first, some "fresh" news: Morgan Chase was at it again last week, pontificating about the benefit of tax breaks in developing countries. Asia Pulse of July 13 reports on a J.P. Morgan Chase report on South Korea, which "pointed out that government support measures such as a waiving of real estate taxes have had positive effects."

In the United States, the Miami Daily Business Review of July 9 reported on lawsuits being prepared for reparations for slavery: "cases against the U.S. Department of Commerce, the state of Mississippi, and J.P. Morgan Chase & Co., to name three likely defendants...". During its processing of the Chase - Morgan merger application, the Federal Reserve Board asked Chase about this potential liability; Chase said it was looking into it. This one... is developing.

Our first update is to our reports at the cusp of 2000 and 2001 (available by scrolling down this page), regarding a lawsuit filed to seek judicial review of the New York Banking Department's and Banking Board's approvals of the Chase - Morgan merger. ICP has raises a number of issues in opposition to Chase's applications to the NYBD (the issues are summarized near the bottom of this page); the NYBD had extended the comment period to December 8, 2000. Despite that, the NYBD approved one of Chase's two application on December 7 -- while the comment period was still open.

Then, at the its December 14 meeting, the N.Y. Banking Board did not have a quorum. The Department decided to seek the votes of Banking Board members who were not present by faxing them a form: yes or no. These absent Board members voted without hearing (or, obviously, being able to participate in) the debate and deliberation that were supposed to take place at the Open Meeting. One of the Banking Board members, John Robinson of Fleet Bank, spoke in opposition to ICP's challenge -- while at the same time, ICP had, along with community organizations in Pennsylvania and elsewhere, commented against Fleet's then-pending application to acquire Summit Bank. ICP asked that Mr. Robinson be recused from voting, but Mr. Robinson voted anyway. ICP immediately asked the NYBD for the minutes of the meeting, and records concerning the earlier (December 7) approval.

The NYBD provided these documents to ICP after Christmas, and, working around the clock, ICP managed to file suit in N.Y. Supreme Court, New York County, on December 29, seeking review of both approvals, and a stay of the merger. Chase responded that it had, earlier on December 29, filed its merger documents with the Delaware Secretary of State, and that nothing could stop the merger. The court accepted this representation (while enjoining Chase for any additional affirmative steps over the New Years weekend); after a five-hour hearing on January 2, the court allowed the merger to go forward. For the following six months, we (and Morgan Chase) have awaited the court's decision.

Given the difficulties of "unscrambling" a multi-billion dollar merger, we felt it was unlikely that the trial court's final decision would grant our petition, despite, for example, that approval was granted while the comment period was still open. The decision last week acknowledges this timing, and acknowledges that the NYBD was required to consider Chase's and Morgan's CRA record, and had a comment period -- but states that "there is simply nothing explicit in Banking Law §§ 142 or 601-b that requires the Superintendent to wait until the end of the comment period, extended beyond the original ten days, before approving a bank merger." Some things, it would seem, go without saying -- or perhaps not.

In any event, the decision upholds ICP's standing under the Open Meeting Law, but finds that ICP's petition (which was prepared in less than two days) did not make sufficient allegations for standing under Banking Law §§ 142 or 601-b. On a more extensive ICP petition, Justice Shainswit of the same court found differently, in 1996. One lesson? Even in connection with an emergency petition, it is imperative for consumer organizations to address their standing in as much detail as possible.

On July 13, ICP received a telephone inquiry from a reporter at the American Banker newspaper, regarding the decision. ICP assumes that Morgan Chase distributed the decision to this reporter, either to gloat that the Morgan - Chase merger had survived a challenge, or to imply that the decision means that community group, going forward, have no standing to challenge decisions by the NYBD. The latter is clearly not the case: the decision explicitly finds standing under the Open Meetings Law, and merely notes that ICP's petition did not meet the standard of Banking Law §§ 142 or 601-b, in this case, while acknowledging Justice Shainswit's 1996 decision granting ICP standing under Banking Law §§ 142 or 601-b.

There is one final matter, not previously reported on this Web site, which we feel a need to address. At the January 2, 2001, hearing, Chase, by its counsel from Simpson Thacher and its in-house lawyers, filed a cross-motion which, beyond defending the merger approvals, argued:

Given Petitioners' frivolous contentions and their pattern of making such spurious claims, J.P. Morgan Chase respectfully requests that sanctions be imposes against Petitioners and, specifically, that they be required to pay all costs (including attorneys fees) incurred by J.P. Morgan Chase in responding to the Petition.

When reviewing this Morgan Chase pleading on January 2, ICP was struck by the idea that a claim that a regulator's approval of a merger with the comment period was still open could even plausibly be characterized as "frivolous" or "spurious." ICP had -- and has -- never seen another bank, in a CRA-related case, demand sanctions or attorneys fees. For example, when ICP sought judicial review of regulatory approvals of mergers by BankAmerica, Bank One, and even Citigroup, these institutions sought to defend themselves on the merits, or, at least, did not seek sanctions and attorneys fees.

ICP raises this with other CRA advocates, and was advised to "go public" about Chase's descent into Strategic Litigation Against Public Participation (SLAPP suits). Given how rare it is for community groups to seek judicial review of regulators' approvals of mergers, however, ICP did not wish to publicly highlight the degree to which banks could seek to retaliate. Clearly, if a grassroots community group were required to pay a major bank's attorneys fees in a such a case, the group could be debilitated, or even put out of operations. So ICP did not "go public." However, a number of community groups from around the country raised this issue to Morgan Chase: groups from Illinois, California, Wisconsin, Delaware, New York and elsewhere. Chase's response, when pushed, was that it had most objected to the timing of ICP's lawsuit, and to the alleged lack of notice. ICP responded that it only obtained the needed evidence (the minutes of the NYBB meeting) on December 27, and filed suit two days thereafter. At no time did ICP appear before a judge ex parte (without Chase and its many lawyers present). Ironically, after the Wisconsin-based Fairness in Rural Lending commented on Chase's Texas-New York internal merger in June 2001, and provided Chase with direct notice of the comment, Chase did not provide FRL with a copy of its response. Only after the Federal Reserve approved Chase's application on July 9 (that's our second update) did FRL learn that Chase had submitted a response. So much for notice, for good faith, etc...

Chase's June 19 response, of which ICP has now obtained a copy, quotes FRL that "Chase has made private assurances that it has policies designed to protect against predatory lending, which will be carried over to Advanta and all of its personnel; these pledges (to our knowledge) have not been made in writing to the public." To this, Chase responded that "in February 2001, Chase invited community leaders from all over the United States to a day-long meeting at Chase's subprime mortgage offices in Woodcliff Lake, New Jersey... Approximately 15 community representatives attended and a free and open exchange of information took place. Chase fully expected the community representatives to talk to their constituencies about the meeting and their view of Chase's subprime business. [FRL's director] was invited to the meeting but, unfortunately, did not attend." As Chase was informed, back in February, FRL's director, to his credit, declined to attend specifically because of Chase's above-described SLAPP suit. Questions about Chase's SLAPP suit were raised to Chase at that meeting, and in many venues since. As to Chase's claim of "open[ness]," Chase flashed documents about its subprime lending at participants in the February meeting, but pointedly did not allow anyone to take a copy, for dissemination "to their constituencies" or otherwise. So much for openness...

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Update of June 4, 2001: Crain's Chicago Business, in a May 21 story about predatory lending and foreclosures, reports that "the West Side Austin neighborhood has been hit so hard by crime related to abandoned property that police have adopted an aggressive policy that's been imitated in other areas. They've made it the responsibility of the owners-banks and mortgage companies, in many cases-to board up and secure abandoned houses. In just the first six months of 2000, the police issued 111 fines totaling more than $615,000. Lenders 'didn't take us too seriously at first,' said Area Five Deputy Chief Tom Byrne. 'We'd reach out to try to contact them, and many times we'd get no response. But once the word started getting around-and one $15,000 fine against Chase Manhattan really got some attention-the companies started reaching out to us within a day or so.'" One question is whether that was an Advanta mortgage, or "straight-Chase"...

From the New York Times of May 28: "In 1995, Chase and Chemical together had 344 branches in the New York area. Six years later, Chase has 248 branches."...

Origination News of May 25 identified Chase Home Finance as the eighth largest wholesale subprime lender in the United States...

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Update of May 21, 2001: From macro to micro: last week, environmental groups including Greenpeace, Friends of the Earth and Amazon Watch wrote to Morgan Chase CEO William Harrison (as well as the CEOs of Citigroup and Deutsche Bank), asking the banks not to finance the building of a pipeline for heavy crude oil in Ecuador. "Instead of financing the expansion of the oil industry in fragile areas, we urge your institutions to invest in the development of clean, renewable energy as an alternative," the letter said. NGOs have been criticizing the Ecuadorian government for closing the public review of the process prematurely, just 27 days after the release of the environmental-impact study on the building of the new pipeline. The pipe would extend more than 300 miles and have a capacity to transport close to 450,000 barrels of heavy crude from the Amazon to the Pacific Coast, through areas with a large biological and cultural variety, like Yasuni National Park, estimated to contain the largest oil deposits in Ecuador.

Now micro: as reported in this week's ICP Community Reinvestment Act Reporter, at a recent, open-to-the-public discussion of CRA "Sunshine," held in the wood-paneled conference / board room of Bank of America on Chicago's LaSalle Street, the CRA officers of the nation's three largest banks, including Morgan Chase, each explained their understanding (and implementation) of "CRA Sunshine" -- the provision of the Gramm-Leach-Bliley Act that requires public financial reporting by all recipients of bank funds who have discussed with a bank the "adequacy" of the bank's community lending and service performance.

Chase, and now Morgan Chase, have a "Community Advisory Board," of Chase-selected individuals, most of them representatives of housing groups and intermediaries, who meet periodically with the bank. During the Morgan - Chase proceeding, Chase claimed that this Community Advisory Board had expressed few to no concerns about the Morgan Chase merger. In Chicago on May 7, 2001, the J.P. Morgan Chase representative stated his understanding that only "a handful" of Chase-funded groups have to submit CRA Sunshine reports, and he specifically dismissed two questions from the audience which suggested that members of Chase's Community Advisory Board whose organizations receive over $10,000 a year from Chase (or Morgan) must report under the CRA Sunshine requirements. This is at odds with the positions taken by the other two presenting-banks: Citigroup's representative stated that she reviewed the transcripts of public meetings held on the Citicorp-Travelers merger in 1998, and on Citigroup - Associates in 2000, and sent letters to any Citi-grantees who testified, informing them that they are subject to the CRA Sunshine requirements. The Bank of America representative gave a "Power Point" presentation, and stated that it is her understanding that if an investor asks about B of A's community lending, any subsequent transaction is covered by CRA Sunshine. So, again: who's right? Morgan Chase? Or everyone else?

Update of May 14, 2001: The American Banker of May 14 ran a profile of the new chief of Chase Manhattan Mortgage, Stephen Rotella, reporting that "like his predecessor, who directed Chase Mortgage through a $1.6 billion purchase of Advanta Corp.'s subprime mortgage business, Mr. Rotella said he considers the segment an important area for expansion... 'We think those businesses are real growth opportunities, particularly in home equity,' Stephen J. Rotella said in an interview Friday. 'We expect to expand those as we move forward, as we have over the last few years.'" The interview was triggered by a May 10 press release issued by Morgan Chase, which recited that "prior to joining Chase, Rotella was Director of Mortgage Products at Shearson Lehman Brothers (now Salomon Smith Barney)." Hey - that's a company with a lot of standards... But consider this, as to Chase itself:

ICP received from the Office of the Comptroller of the Currency last week a print-out concerning complaints the OCC received about Chase, from January 1, 2000 to March 31, 2001. There were a total of 2,168 complaints, including 60 for harassment (and four for "threats"); there were five complaints of illegal discrimination (and 49 regarding violations of the Equal Credit Opportunity Act); there were ten complaints of "force-placed" homeowners' insurance. In the same time period, the OCC received 158 complaints about Advanta Corporation, the subprime lender that J.P. Morgan Chase acquired earlier this year. These also included complaints of force-placed insurance and harassment. While Chase is larger than Advanta (was), a comparison of the number of complaints calls into question Chase's claim that it has procedures in place to "clean up" Advanta, and the other subprime lenders that Chase explicitly intends to acquire...

Meanwhile, Tyco's application to the New York Banking Department to acquire the subprime lender CIT Group includes a January 3, 2001 letter from Chase Manhattan Bank vice president Roger A. Parker "confirm[ing] that The Chase Manhattan Bank has a line of credit in the amount of $1,000,000 to the CIT Group/Consumer Finance Inc. for the period ending December 31, 2001." This is precisely the type of information that Chase claimed, in late 2000, was confidential; as to CIT's lending patterns (and, by implication, Chase's lack of standards), see our Bank Beat Report of May 7, 2001...

[Some archival material cut to save server space - with questions, contact us]

Update of April 23, 2001: In a conference call with reporters on April 18, CFO Dina Dablon (who's quoted, in another context, below in this Report) said that Morgan Chase will be cutting yet more jobs this year, more than originally projected. "We are looking for cuts that are larger than originally planned," Dublon said. "We're going to look for managing expenses to something lower than flat in comparison to last year ... I'm talking about expenses and, in part, about jobs as well. That's a major component of expenses." Later that day, the company's chief "Risk Officer" quit; the spin was that he's leaving to "pursue opportunities outside of J.P. Morgan Chase." Perhaps relatedly, the company disclosed that its non-performing assets at the end of March totaled $2.23 billion, up from $1.92 billion in the fourth quarter and $1.84 billion a year earlier.

The Texas complainants about racial discrimination in employment at Chase have now raised the issue to board member William H. Gray III, at the UNCF. It should be noted that J.P. Morgan Partners manages investments for the states of New York and Michigan, and has representation on no fewer than 550 other corporate boards of directors, including "House of Blues." Morgan Partner's managing partner Jeffrey Walker "combined House of Blues with a chain of amphitheaters to create HOB Entertainment Inc. In 1999, House of Blues bought Universal Concerts from Seagram Co. for $190 million in cash and now is the second-largest concert promoter in the U.S. 'You try to put your peanut butter and chocolate together and come up with a better company,' Walker said. 'That's what we do.'" (Bloomberg, 4/19/01). Needed next, for review, is the full list of these 550 companies (somehow reminiscent of the days of J.P. Morgan)...

Update of April 16, 2001: On April 10, a long-time employee of J.P. Morgan Chase Securities filed a gender discrimination lawsuit against the company, following a finding by the U.S. Equal Employment Opportunity Commission in August that there was "reasonable cause'' to believe the firm had discriminated against her. The EEOC makes such a determination in fewer than 10% of the cases that come before it...

This new lawsuit comes as no surprise to the Texas complainants against Chase's mortgage business there. Most recently, these complainants have informed Inner City Press that "one issue that Chase has conspired to cover up is an incident in the workplace in which an Anglo male co-worker donned a makeshift Klu Klux Klan mask in an effort to intimidate the Black man referred to in the letter that you [previously -- see below] published. An Anglo female coworker friend of the mask-donner witnessed the entire incident and is on a tape recording discussing the incident with the Black man. Chase has a copies of the tape recording in the offices of William Harrison-CEO, John Farrell-EVP HR, Claude Weir, SVP Employee Relations." As we've previously reported, that case is developing...

There is, of course, more mundane corruption. The New York tabloids last week reported that Chase gave office space to the N.Y. Police Department official who was supposedly in charge of the Police Museum in lower Manhattan. The Daily News of April 12 reported on "concerns that using free office space provided by Chase Manhattan Bank gave an appearance of impropriety. Cops are forbidden to accept gifts, and city workers cannot accept gifts worth more than $50 from companies that do business with the city. " The previous day, the News quoted a retired NYPD detective that the "office had been vacated by Chase Manhattan Bank, which agreed to the arrangement." But the same day's Newsday reported that "Judy Miller, a spokeswoman for Chase, confirmed that Chase was a tenant in the building but said she knew nothing about the police office... Police Department rules forbid gifts or gratuities to officers." A question left unexplored -- or not yet resolved -- is whether it's illegal to give, and not only to accept, such a gratuity, when one is doing as much business with NYC as Chase is...

Update of April 9, 2001: J.P. Morgan Chase, which with a stiff upper lip purports to be a "leader" in consumer protection -- is not. Beyond the material below on this page, from Business Week of April 9, we learn that Chase is outside the mainstream of banks in terms of privacy protections: "Some firms, like New York's J.P. Morgan Chase & Co., go further. Its policy allows customer contact information -- names, addresses, and phone numbers -- to be shared with nonfinancial companies offering travel programs, dental or legal services, and the like." Added to this stew on April 1 was Bank One's commercial credit card bank in Utah, which has (had?) a Needs to Improve rating under the Community Reinvestment Act.

In mortgage lending, here's a complaint from Texas that was filed with the Office of the Comptroller of the Currency's office in Houston on March 30, 2001 (personal information of the complainant will be redacted, because, unlike Chase, we respect consumer privacy):

...My mother is an older divorcee living alone and working full time for low wages. Her only wealth in this world was in her home equity. For approximately twenty six years she has been making monthly payments on an original loan of between $110,000. and $120,000. Within the last year her mortgage debt has been paid down to less than $3,000. Her intention was to pay off this remaining debt. She began requesting her payment records and payoff statement in writing as well as by telephone as early as March of 2000. Her mortgage company [Chase] responded every time with a standardized "thank you letter" advising that she contact the "Customer Service Department. " This Customer Service Department being the same department which was sending her these letters. She continued to write and call along with the usual making of her payments throughout the past year.

She sent her usual mortgage payment check on January 29, 2001 along with another written request for her payoff information. On February 28, 2001 she received another Customer Service Department "thank you" letter from the mortgage company stating they "have forwarded your issue to the appropriate department…" On March 2, 2001 she received a letter stating that the company "does not accept personal checks for Foreclosure." Along with her returned January 29, 2001 check.

In a panic she called my father... After much difficulty he spoke to a representative and stated that he would pay off the rest of the debt immediately as opposed to allowing a foreclosure. The representative informed him that the house was not yet in foreclosure and that there was still plenty of time to sort this out. The representative also agreed to provide my father and mother with the requested payment records and payoff statement right away so they could facilitate the complete payoff of the debt.

On March 20, 2001 an Eviction Notice was delivered by a Harris County Constable which had been filed on March 14, 2001. She did not however discover the notice until the March 22, 2001 this being due to the fact that she works late. The court date was set for March 28, 2001. The documentation stated that the Plaintiff purchased the property at a foreclosure sale conducted on March 06, 2001...

We immediately tried to contact the mortgage company and their attorneys leaving several messages to no avail. They would not even answer the phone number provided or respond to voice mail messages. We did however manage to contact the attorney for the purchaser or plaintiff. He informed us that the property was purchased by his clients for $103,000. at the foreclosure sale.

...My mother had about $2000. debt remaining at this point and according to the sales price she should receive approximately $95,000 of her equity money... On March 28, 2001, before court we negotiated with the new owner to allow her to stay for one more month so she could try and find a new residence and move for the cost of $1,000. Of course she can not afford to move until she receives her equity as par the proceeds of the sale.

Later this day, March 28, 2001 my attorney made contact with the law firm which facilitated the foreclosure. This law firm stated that my mother could not have her equity money unless she signed an "Indemnity Agreement" holding them harmless from future actions, etc. Furthermore, they refuse to provide us with the relevant accounting and documentation pertaining to these events...I request that investigations into these matters be conducted immediately.

We'll be following this one, too...

Update of April 2, 2001: From the annals of overcompensation, we have this: J.P. Morgan Chase chairman Douglas A. ("Sandy") Warner III was paid over $60 million in 2000, almost quadrupling his 1999 pay. Sell your bank, you'll make out like a bandit...

In New Zealand, J.P. Morgan Chase is selling off its retail business, which Chase acquired last year, pre-Morgan, along with Sydney-based Ord Minnett Group Ltd.. The rationale? "We are committed to our institutional, corporate finance and research businesses for New Zealand,'' said Scott Reid, J.P. Morgan Australasian Managing Director. "We do not consider our retail businesses in New Zealand offer the same strategic fit.'' How long before that same argument is used in the United States -- other than subprime and credit card lending, of course...

Chase has informed the New York Banking Department of its intent to close its branch at 81-19 Roosevelt Avenue, in Queen's Jackson Heights, whose diversity was just confirmed by the 2000 census data. No "strategic fit," apparently...

On the environmental front, J.P. Morgan Chase has signed up to auction off the Vermont Yankee Nuclear Power Corp. for its owners, which include National Grid Group Plc of the U.K. and Northeast Utilities.

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

Dear Mr. Gramm:

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

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

Update of March 26, 2001: First, the merger; then global, then domestic. Morgan Chase itself conducted a survey of its employees, about how the year-end merger is viewed. Bloomberg obtained the results, and reported last week that "fewer than half of J. P. Morgan Chase & Company employees said customers welcome the merger that created the second-largest banking company in the country... The survey measured responses to 37 statements, including 'customers view the merger as a positive event.' Only 40 percent had a favorable response to that question...About 16,000 of the 90,000 employees responded."

In London last week, Morgan Chase circulated a memorandum confirming... that its stock analysts have (or should have) little to no credibility. In the memo, Morgan Chase European research head, Peter Houghton, told analysts that the analyzed company and the investment bankers who service it "need to be notified, in advance, of the recommendation change" and be sent complete copies of the proposed research note. "If the company requests changes to the research note, the analyst has a responsibility to either incorporate the changes requested or communicate clearly why the changes cannot be made," the memo stated. So what purports to be objective stock analysis -- is actually edited, and censored, by the company being "analyzed."

In Hong Kong, Morgan Chase's Asia-Pacific head, Antony Leung Kam-chung, has been named the government's financial secretary, without having been subject to any prior background review. It's created an uproar: legislator Cheung Man-kwong stormed: "If such officials undergo checks only after they are appointed by the central Government, how can we be convinced they have not been done in a slap-dash way?" Good question...

In the United States, Chase is undermining, in different ways, both the Community Reinvestment Act, and attempts at the state level to impose consumer protection safeguards on subprime lending. Chase lobbied, long and hard, against an anti-predatory lending proposal in Georgia. The Financial Times (March 22) alludes to Chase's Georgia lobbying activities, but ICP has it from quite involved sources that since acquiring Advanta, Chase has become even more active in opposing consumer protecting legislation. Chase's trick, for now, is to try to stay out of the spotlight that's on Citigroup / Associates. But, lest it be forgotten, Advanta was subject to enforcement orders, at the time Chase acquired it. An update: to resolve Fleet's lawsuit against the Chase - Advanta deal, reported on below, Advanta established escrow account of $70 million, pending the resolution of Fleet's ongoing suit against Advanta. Advanta's SEC 8-K statement terse said: "with regard to Fleet's attempt to block the previously announced sale of Advanta's mortgage business to Chase Manhattan Mortgage Corp. the effect of the agreement is that Fleet's motion for an injunction is moot...." The (Advanta) issues, however, are not...

As to CRA, Chase's acquisition of Bank One's First USA Financial Services, a bank with a Needs to Improve CRA rating, has served to render toothless the CRA provisions of the Gramm-Leach-Bliley Act (as Chase must have known it would, and as Chase affirmative argued for, once the issue was raised). Now, reports on documents that ICP has just received. The Office of the Comptroller of the Currency's March 13, 2001, approval states, among other things:

During the public comment period, the OCC received and considered comments from a community organization ("commenter") that opposed the proposed transaction, in part, because of FUSA-Utah's CRA rating. The commenter stated that approving the application would result in an evasion of the CRA requirements of the Gramm-Leach-Bliley Act ("GLBA"). According to this commenter, Bank One Corporation, FUSA-Utah's parent corporation, will now be free to become a financial holding company, because it will not be constrained by FUSA-Utah's "Needs to Improve" CRA rating... The OCC has carefully considered this comment. The transaction requiring OCC review is Chase's application to acquire assets of FUSA-Utah and not the impact of the transaction on another holding company. Nothing in GLBA's provisions regarding financial holding companies prohibits approval of Chase's application...

Under the circumstances, the OCC does not find that FUSA-Utah's CRA rating is inconsistent with approval of the transaction at issue. First, although the OCC understands that FUSA-Utah will at some point cease operations and voluntarily liquidate, FUSA-Utah will remain a separate legal entity after the transaction and will not be affiliated with Chase. Second, after the proposed purchase and assumption, Chase's current assessment area for CRA (i.e., New Castle County, Delaware) will remain unchanged. Chase's assessment area will not include Salt Lake County, because Chase does not anticipate opening any branch offices in Utah after the acquisition. FUSA-Utah's failure to achieve a satisfactory CRA rating does not, therefore, reflect on Chase's future ability to help meet the credit needs of its New Castle County assessment area.

So let's get this straight: a bank can underserve its community, then sell all of its business to another bank, and then "dissolve," with the bank that took over its business taking on no new CRA responsibility, in fact excluding the area that the bank whose business it acquired used to serve. Following this logic, the GLB Act CRA provisions are meaningless. If one of a holding company's banks receives a less than satisfactory CRA rating, the bank has only to transfer the business and assets of that bank to another bank -- even, another of the same holding company's banks -- and "dissolve" the charter of the bank with the less than satisfactory rating. Presto! CRA problem gone! Thanks, Chase (and OCC), for this precedent...

Chase's lending record remains disparate. The OCC's order acknowledges that it

found that CMMC's 1999 denial rates on conventional home purchase mortgages for minorities were greater than denials dates for whites... Brownsville (Chase Group's denial ratio of Hispanic borrowers as compared to white borrowers was 3.00 versus 1.89 for all lenders); Dallas (Chase Group's denial ratio of African American borrowers compared to white borrowers was 2.01 versus 1.59 for all lenders); Gary (Chase Group's denial ratio of African American borrowers to white borrowers was 6.75 versus 2.34 for all lenders); Kansas City (Chase Group's denial ratio of African American borrowers to white borrowers was 2.75 versus 1.38 for all lenders); San Antonio (Chase Group's denial ratio of African American borrowers to white borrowers was 2.12 versus 1.70 for all lenders); St. Louis (Chase Group's denial ratio of African American borrowers to white borrowers was 2.02 versus 1.44 for all lenders).

The OCC also recites that "the Chase Manhattan Corporation, Chase's parent corporation, represented that its subprime mortgage lending is a small part of its mortgage lending business." But Chase acquired the subprime mortgage lending business of Advanta (deal announced Jan. 8, 2001, and consummated Feb. 28, 2001). The OCC's Order makes no reference to any onsite consumer compliance or fair lending examination of CMMC or its subprime lending.... This will be updated.

Update of March 19, 2001: Last week we focuses on J.P. Morgan Chase's global operations; this week, it's back to the U.S.. Inner City Press has just received a response from the Federal Reserve Board to a Freedom of Information Act request ICP made in December, 2000, for complaints filed with the Fed. The Fed's response includes the following:

Chase Manhattan Mortgage Corp.: Consumer indicates that he did not receive an accurate disclosure concerning prepayment penalties. The RESPA form has "may not" have a prepayment penalty checked when the actual mortgage contract contains a ride that states that a prepayment penalty will be imposed if he refinanced within three years. FRB action: Referred to OCC.

Chase Manhattan Mortgage Corp.: Consumer fell behind in mortgage payments, however tried to get current by sending in the amount due plus one hundred dollars. Bank did not accept this offer; bank foreclosed on the property. FRB action: Referred to FTC.

Chase Manhattan Mortgage Corp.: Consumer faces foreclosure due to the bank's lack of acknowledging past payment. Also, bank failed to provide a detailed copy of the account history. FRB action: Referred to OCC.

Chase Manhattan Bank USA, N.A.: Complainants asked the bank to cancel credit insurance on their account but the bank continues to charge them $60/month for the unwanted insurance. Account has been charged over $500. Additionally, bank's letter to the customers about closing their account did not correctly disclose the [Federal Reserve Bank of New York] address in the [Equal Credit Opportunity Act] language. Resolution: bank were informed that the FRBNY address is incorrect and the complaint was forwarded to the OCC.

This last appears to contradict Chase's February 15, 2001, presentation to Chase-selected community groups. Most attendees understood Chase to be claiming to "not be involved" in credit insurance.... The Fed's FOIA response last week did not include Chase's newly-acquired subprime unit, Advanta; ICP will be making a new FOIA request...

Update of March 12, 2001: For reasons made clear at the bottom of this week's Report, we look at Chase's global operations this time: enabler of currency speculation, orderer of economies of the Global South. Two weeks ago, Turkey "floated" its currency, the lira. Since then, there's been a frenzy of trading -- and chaos. Chase is one of (only) three main "custodian" banks in Turkey. Typically, it processes 100 to 150 trades daily, but volumes increased during the crisis to about 200 trades a day. Dom Piper, vice president of "network management" for J.P. Morgan Investor Services, said his bank's general policy in Istanbul has always been to ensure that cleared funds are received in the case of sales before releasing title to securities, and that good title to securities is received in the case of purchases before effecting payment. "This practice greatly reduced counterparty risk for clients," he said. The country's suffering, but Chase provides the plumbing...

Update of March 5, 2001: On March 1, J.P. Morgan Chase "consummated" its acquisition of the subprime mortgage lending business of Advanta. Earlier in the week, Reuters reported that, even prior to the Advanta acquisition, Chase bought hundreds of "bad loans" that were originated by Baltimore mortgage lenders. Chase's spokeswoman told Reuters that the company "tries to check the loans it buys but it cannot examine all of them because of the sheer volume." (Reuters, 2/26). This raises a question: if Chase can't appropriately oversee its current portfolio, how will it do so when it doubles its (subprime) size, with the Advanta acquisition? Meanwhile, the American Banker of Feb. 21 quoted Chase's David Coulter "indicat[ing] that subprime mortgage lending might become a more important business at Chase. 'We think it's an important market,' he said."

J.P. Morgan Chase was under fire last week at the Senate Governmental Affairs Committee's hearings on money laundering. A Committee staff report, and several Committee members, criticized Chase for failing to shut down accounts with offshore banks even after identifying suspicious activity. The report shows that Chase explicitly considered filing a criminal referral to the U.S. government in 1995 over deposit activities of a customer, Antigua-based Swiss American Bank. No referral was filed. Then, in 1998, Chase employees again identified Swiss American as a money-laundering suspect. Again, nothing was done. Only in October 2000 did Chase close Swiss American Bank's account. Guess it's like predatory lending: Chase "tries to check... but it cannot examine all of them because of the sheer volume." (See above).

Another problem is brewing for Chase, not yet reported in the financial (or other) press. In Texas, the Equal Employment Opportunity Commission is considering a complaint against Chase Manhattan Mortgage. It's not limited to the mortgage operation that Chase bought from Mellon: the complaints were earlier forwarded to, and now, according to sources, implicate, Chase's Executive Vice President for Human Relations, John Farrell, Senior Vice President for Employee Relations Claude Weir, and even, sources tell ICP, Chase CEO William Harrison...

Update of February 26, 2001: J.P. Morgan Chase announced on Feb. 22 that it acquired privately held financial record keeper and loan servicing company Colson Services Corp.; the terms of the deal were not disclosed. Colson services about 85,000 secondary-market loans with an outstanding value of more than $30 billion. "We have no plans for staff reductions, but never say never," J.P. Morgan Chase SVP Conrad Kozak said.

Now, as promised, more detail on J.P. Morgan Chase's February 15 closed-door presentation of its subprime lending. Beyond acknowledging the limitation of its review of loans it securitizes, and lenders to which it makes "warehouse" loans, Chase Manhattan Funding's Luke Hayden stated that Chase's net loss on each foreclosure is "close to the national average." Asked for more specifics, he put the figure at 33 to 38 percent. Several of the attendees appear to only have been invited to "support" Chase. Among those invited was Steve Zeizel of the trade association, Consumer Bankers of America. To this audience, Chase asked: tell us who the predators are, we want to know. But Chase has only to check the public record, about various of the companies it does business with (and see Comments, at the bottom of this page). Chase also claimed that it "must permit" yield spread premiums (often characterized as kick-backs to brokers, for charging customers higher rates than those they are entitled to). Chase flashed its "matrix" (correlating credit scores, loan-to-value ratios and "mortgage history" with interest rates) on a screen, but refused to hand it out. Developing...

Relatedly, on the FDIC's proposed guidance on subprime lending, J.P. Morgan Chase has commented that "the compliance costs of screening loans for predatory features will make it difficult for banks to compete with non- bank lenders and securitizers." (NMN, 2/19/01).

Update of February 20, 2001: On February 15, content with the knowledge that the OCC would, despite all of the above, not require an application (see below), Chase made a presentation about its own subprime lending, to individuals it (Chase) selected to attend a meeting in New York City. Among other things, according to ICP's sources, Chase claimed that its subprime lending unit, Chase Manhattan Funding ("CMF") does no Home Ownership and Equity Protection Act ("HOEPA") loans, nor single premium credit life insurance.

Significantly, Chase admitted that it does not have the systems in place to "weed out" such loans from its "warehouse" channel, nor from the loans it securitizes.

Chase stated that CMF securitizes all its assets, selling "70-75% of the coupon but retaining the pre-payment and default risk. In states where it is permitted, borrowers are offered a trade-off between points and prepayment penalties."

Chase's "yield spread premium" ("YSP") policies are particularly interesting. Brokers get 2:1 YSPs for interest rates over market, up to four points YSP. In Chase's "retail channel," overages are split 50 / 50 between loan officers and the business. Significantly, Chase states that there are no yield spread premiums for loans over $250,000 (disparate impact, anyone?).

Finally (for this interim summary), Chase stated that (only) fifty percent of "minority wholesale loans are subject to backend review." Chase, during the J.P. Morgan proceeding (see below) made various claims about its "referral-up" program. But it does not seem to apply to all of Chase's subprime loans (and, clearly, does not apply to the loans that Chase securitizes...).

Some background: on January 8, 2001, Chase announced its intention to buy all of the subprime mortgage lending business of Advanta Corporation. This business has been conducted through Advanta's banks, including two national banks. ICP inquired with the Office of the Comptroller of the Currency, the regulator of national banks, about Chase's proposal. ICP was told that the OCC did not anticipate receiving any application from Chase.

Then, Advanta's proxy statement, for its February 27 shareholders' meeting on the proposal, came out, stating that Advanta National Bank would be requesting approval from the OCC to pay a dividend to Advanta Corp, of the money it would receive from Chase. ICP inquired with the OCC, and was told to submit a Freedom of Information Act (FOIA) request -- which ICP did. Well, the OCC has now claimed that any documents responsive to that FOIA request are exempt from disclosure, as a trade secret. A national bank's application to pay a dividend to its parent, after selling off all of its subprime mortgage lending business -- is exempt from disclosure? In its entirety? That's the OCC's claim. ICP has appealed.

On February 5, after news reports that Fleet has sued Advanta, alleging that Advanta Corp. IS selling "substantially all" of its business to Chase, ICP wrote to the OCC, formally asking them to require an application, under the Bank Merger Act's "all or substantially all" standard. Well, in a letter mailed to ICP on February 13, the OCC's Chief Counsel states:

"This is in response to your letter of February 5, 2001... in [which] you requested that the Office of the Comptroller of the Currency ('OCC') require an application under the Bank Merger At with respect to the proposed acquisition by Chase Manhattan Mortgage Company of mortgage loans currently held by Advanta National Bank. Chase Mortgage is an operating subsidiary of Chase Manhattan Bank USA, N.A.. Under the Bank Merger Act, no application is required when a subsidiary of a bank acquires additional assets. Therefore, the OCC does not anticipate receiving an application with respect to this acquisition...".

-emphasis added.

But this response -- hardly explains the matter. First, Chase is proposing to acquire far more than just "mortgage loans" -- it is acquiring Advanta's entire subprime mortgage business, including origination capacity. Second, the matter is not resolved simply by which entity Chase proposes to make the acquisition through (i.e., a bank subsidiary, rather than a bank). The issue is, are "substantially all" of the assets of Advanta National Bank being acquired. Fleet, a national bank, says yes, and cites statistics regarding the percentage of assets, and of business, that Chase is proposing to acquire. The OCC's purported response cites no statistics, percentages, or anything else. It characterizes that Chase is acquiring as mere "mortgage loans," and states that because Chase is doing it through a national bank subsidiary, it will not require an application.

On Citigroup - Associates, the OCC claimed that it could not address the issues raised, due to the limitations of the Change in Bank Control Act. Here, on the next large acquisition of a troubled subprime lending operation, the OCC won't even ATTEMPT to address the issues, won't even require an application, despite one of its national banks' public citation to statistics that, if correct, clearly trigger an application....

Update of February 12, 2001: The newswire last week were full of reports of layoffs and defections at the newly-merged J.P. Morgan Chase. Meanwhile, the New York Times of Feb. 8 ran a long, but strangely empty, piece about the company's "retail" plans. It reported, as we have, that Morgan Chase may withdraw entirely from the branch banking business, then quoted CEO William Harrison that the "consumer division... gives us diversity of earnings, which we like and the stock market likes." The article didn't even mention Chase's only "retail" expansion of late: its proposed acquisition of the subprime mortgage business of Advanta. All the news that's fit to print? Or all the spin that Chase can plant?

The Office of the Comptroller of the Currency, which has (initially) said that no application by Chase will be required for the Advanta proposal, is now (re-) considering whether Chase would, in fact, be acquiring "substantially all" of Advanta's business (as Fleet is claiming, see last week's Report, below), thus triggering an application. The OCC better hurry up and decide: according to Advanta's proxy statement, some part of the business may already have been sold to Chase, on February 9... Meanwhile, Chase's Community Reinvestment Act staffers are preparing a dog n' pony show for carefully selected "community representatives," on February 15...

Update of February 5, 2001: Chase has argued to the Office of the Comptroller of the Currency (the "OCC") that it is NOT acquiring "substantially all" of Advanta's national bank. Fleet, clearly, disagrees. It remains to be seen if the OCC may reconsider its initial view of the proposed transaction (as not requiring an application from Chase), in light of Fleet's lawsuit and arguments).

Chase's involvement in subprime lending continues to grow. On January 29, it announced a deal, along with Wells Fargo, with subprime auto lender AmeriCredit. Chase's previous dealings with AmeriCredit are touched on in the Comment at the bottom of this page; Reuters of January 29, 2001, reports that "AmeriCredit buys loans made by independent auto dealers to consumers who are typically unable to get financing from traditional sources" -- that is, subprime loans.

For those interested, Chase's "presentation" of its Advanta proposal, and of its own subprime lending, to community groups that Chase is selecting, is scheduled for February 15, 2001. Some organization have declined the invitation; among the grounds expressed is a concern that Chase intends, as it did during its merger with Chemical Bank, to conflate attendance at a meeting with support of the bank and its acquisition(s). While merging with Chemical, Chase invited groups in to "talk." Then, without notice, Chase issued a press release, listing the groups it had met with, by name, and implying their support. Chase in many ways is outside the "mainstream" of CRA (which is not a very high bar, of performance or civility, to begin with).

We will have more on Fleet's lawsuit against Advanta's sale of its subprime business to Chase, and its ramifications, as they develop...

Update of January 29, 2001 -- Community groups (not including ICP, by the way - we ask the regulatory agencies directly) have asked Chase representatives where they intend to apply for regulatory approval, to acquire the subprime mortgage lending business of Advanta. Chase has yet to respond. Advanta's "proxy statement," filed with the Securities and Exchange Commission in preparation for Advanta's February 27 shareholders' meeting on the deal states that "[o]ur bank subsidiaries, ANB and ABC, intend to seek the approval of the OCC and the FDIC, respectively, to use proceeds received in the Transaction to pay a dividend to Advanta Corp." It is not yet clear if the requirement for regulatory approval is the result of the OCC's 2000 enforcement actions against Advanta. Developing...

Chase, meanwhile, is preparing a dog n' pony show about its supposed fair lending safeguards, for (Chase-selected) community groups. This is apparently similar to Chase's statements that since its self-selected "Community Advisory Board" didn’t raise any issues about Chase - Morgan, there were no issues.

ICP has received word of a number of pending cases against Advanta Mortgage, including this one: where the [Advanta] loan officer told the client who wanted to exercise TILA rescission that it was too late, when in fact, it was not. The loan officer misstated the interest rate and other terms over the phone-- it was a phone application-- and sent a notary public to the client's home on a Saturday evening for the closing. He told the client that when the notary comes, if there is a problem, just sign the papers and we will fix it later. When the APR was 2% per annum higher than discussed, she called the next business day to rescind, and the loan officer then told her that there was no way to get a writing in to them on time (Fed Ex), so it's a done deal. Apparently, this loan officer lied to the client from the start....

Update of January 16, 2001 J.P. Morgan Chase & Co.'s interest in high-interest rate mortgage lending was further confirmed by its January 8 announcement that it is buying the subprime mortgage operation of Advanta. Bloomberg News put the sales price at $1.6 billion. The American Banker reports that in 1999, Chase "originated $2.7 billion of subprime loans; Advanta, $2.6 billion." In 2000, Advanta was hit with a regulatory enforcement action, and its originations declined. But the 1999 volume represents the Advanta subprime unit's capacity. With this proposal, Chase would be doubling its subprime lending. Given the regulatory hoopla about this part of the mortgage business, throughout 2000, you'd expect scrutiny of this proposal, similar to that afforded Citigroup - Associates in the fourth quarter of 2000. But you might be wrong...

The Office of the Comptroller of the Currency doesn't expect any application from Chase for this acquisition, even though the announcement was made by one of Chase's national bank's operating subsidiaries. Since in 1998, when First Union bought The Money Store, the OCC at least received an operating subsidiary notice, considered community groups' comments on the deal, and imposed some conditions, the lack of any application or notice for this 2001 deal represents another effect of the Gramm-Leach-Bliley Act of 1999: banks' ability to buy controversial businesses -- here, a subprime lending operation subject to a cease-and-desist order -- without any pre-consummation notice, and no comment period.

The Federal Reserve Bank of New York, on January 17, is holding a Legal and Compliance Risk Conference, which a representative of ICP will be attending, and participating in, on the issue of how Fed examiners should consider subprime lending. Frankly, ANY consideration would be an improvement. ICP has gone back and reviewed the Fed's most recent Community Reinvestment Act performance evaluations of Chase Manhattan Bank -- an exam on which the Board extensively relied in approving the Chase - Morgan combination last month. The Fed's exam, released in late 1999, is 121 pages long, but does not use the word "subprime" once. The exam purports to have considered the lending of the bank and its affiliates, Chase Manhattan Mortgage, and Chase Manhattan Bank USA, N.A.. In response to ICP's comments in November 2000, Chase reported the following subprime loan volumes, during the period covered by the Fed exam:

Subprime First Mortgage Loans

Chase Manhattan Bank CMMC CMB USA, N.A.

1997 450 7,034 NA

1998 602 13,797 NA

1999 1,225 25,408 NA

Subprime Home Equity Lines/Loans

Chase Manhattan Bank CMMC CMB USA, N.A.

1997 825 NA 3,085

1998 1,155 NA 14,480

1999 472 NA 3,514

That's over 70,000 subprime loans -- not even mentioned in the Federal Reserve's (or New York Banking Department's) CRA performance evaluations of Chase. Apparently, there'll be no pre-consummation scrutiny of Chase's planned purchase of Advanta's subprime lending operation, which would double Chase's subprime lending -- and no "post-consummation" scrutiny, either, absent increased advocacy.

Update of January 6, 2001: No word, yet, from NYS State Supreme Court, in the case against the New York Banking Board's approval, without a quorum, of Chase's application to acquire Morgan, and of the New York Banking Superintendent's similar approval, while the comment period was still open. After press time for our previous Update (below), we came across a Bridge News article about the case, reporting that "Chase spokesman Jon Diat confirmed the suit, but reiterated the bank's statement that 'the merger was consummated on Dec. 31. This lawsuit is totally without merit.'" How that characterization is consistent with the still-undisputed claim that one of the approvals came while the comment period was still open, and the second at a purportedly open meeting, at which no quorum was present, with absent Banking Board members voting on the basis of meeting minutes they never saw before their vote -- is unclear...

Meanwhile, Chase in late 2000 submitted a Bank Merger Act application to the Office of the Comptroller of the Currency OCC, regarding First USA Financial Services, Inc. (which Chase calls "FUFSI") -- an institution with a Needs to Improve CRA rating. By the terms of the GLB Act, a bank acquiring another bank with a less than satisfactory CRA rating should have a legal effect; Inner City Press was surprised to see that Chase's application to the OCC included no discussion of how to improve FUFSI's CRA performance. Well, in a Jan. 3 letter to the OCC, Chase argues that no CRA discussion or plan is necessary, because it is only acquiring "substantially all of the assets of FUFSI," and not the bank charter itself. A very neat evasion -- but it was FUFSI's "assets," the business that Chase is acquiring, that led to the Needs to Improve CRA rating... Chase also argues that it is fine that the OCC's CRA performance evaluation of Chase Manhattan Bank USA, N.A. made no reference to that bank's increasing involvement in subprime lending (from 3,085 subprime loans in 1997 to 14,490 subprime loans in 1998, the years covered by the exam). Chase argues that these subprime activities should only be assessed in the "Consumer Compliance" and fair lending examinations -- which, unlike the CRA exams, are confidential. Chase's response to the OCC asks that agency to rely on the NYBD's (flawed) approval, and claims that "Chase delivered to ICP copies of... every response... to the New York State Banking Department." But that's not true, either: as reported below, Chase sought "confidential treatment" for the list of the subprime (high-interest rate) mortgage lenders to which it has provided warehouse funding -- a level of secrecy not asked for by Credit Suisse First Boston, before the NYBD, or by U.S. Bancorp - Firstar, before the Federal Reserve Board...

Update of January 2, 2001: On the lawsuit challenging the Morgan - Chase approvals of the New York Banking Board (done by written vote, with six members absent, and no quorum at the open meeting of December 14, 2000) and of the New York Banking Department (which approved while the comment period was still open), on January 2 there were oral arguments, beginning at 10:30 a.m., and running through 3:50 p.m.. The banks' lawyers had prepared affidavits: their chief financial officer Dina Dublon averred that

"[a]ny uncertainty about the future of the company -- even the perceived risk that the company might be broken up -- would likely have enormous adverse consequence to the trading prices of our stock. And because of the size of J.P. Morgan Chase and its prominent role in the U.S. and global financial services industry, any adverse effect on its stock could well spread beyond its stock to affect the broader stock markets generally."

From this, the banks' law firm argued that, even if a stay could be granted (or continued), "Petitioners must first furnish a bond to protect J.P. Morgan Chase from the adverse consequence set forth in the Dublon Affidavit." This point was pressed in oral argument as well, using the figure $3 billion (the banks' self-calculated annual cost savings). By this logic, a corporation or merger as large as this could never be subject to judicial review, except by a party with $3 billion. The banks went further, arguing that, although they needed New York regulatory approval, as Delaware corporation(s), New York courts have no power over them or their merger(s). While claiming this "lack of jurisdiction," the banks at oral argument urged that community groups not be allowed to seek judicial review of New York Banking Board decisions, since New York is a "financial capital," and the inconvenience of judicial review might make it less attractive. Another Chase affidavit cited this Web site, accusing it of providing "extensive commentary that covers a variety of topics including the progress of F[reedom] O[f] I[nformation] L[aw] requests on challenged transactions" (note: why this would be viewed as negative, in the context of this litigation or otherwise, is unclear), and went on to say that "Petitioners' challenges to banks other than Chase are documented not only on the website, but in trade publications such as American Banker and are too numerous to list. Some of the more high profile challenged have been to (a) Deutsche Bank's acquisition of Bankers Trust" (note: yes, on predatory lending grounds); "(b) E*TRADE's application to acquire Telebank" (note: yes, on CRA assessment area grounds, and how CRA should apply to Internet banks); "and (c) the merger of Travelers Group Inc. and Citicorp" (note: which the Independent Bankers of America trade association also sued). Apparently, a community group actually seeking to enforce the Community Reinvestment Act (and such public interest statutes as the Open Meetings Law) makes it, in Chase's view, a pariah (Chase's representative(s) used other, harsher terms, inappropriate for this short update). These were some of the arguments, as afternoon light faded outside in Foley Square...

The Court, alluding in an oral ruling to the bond (that is, $3 billion) issue, declined to impose any stay, stating that the banks showed that they would suffer irreparable harm if the court granted the petitioners' application for a preliminary injunction. The arguments under the Open Meetings Law, the Banking Law (including the New York Community Reinvestment Act), etc., have all been submitted. The banks' memorandum of law, at n.7, states that "[t]he Bank Merger (of C[hase] M[anhattan] B[ank] and M[organ] G[uaranty] T[rust] C[ompany]) is not scheduled to close until July 1, 2001. The ruling, including on that Bank Merger (which the Superintendent of Banks admittedly approved while the comment period was still open), is expected (well before) that time.

Update of January 1, 2001: The New York Banking Board's and Department's approvals of the Chase - Morgan merger proposal have been challenged in court. At an emergency hearing on Friday, December 29, Chase's lawyers, as recited in Justice Phyllis Gangel-Jacob's Order (reproduced below), "agree[d] that no additional steps will be taken prior" to an oral argument scheduled for Tuesday, January 2, 2001, at 9:30 a.m., in New York State Supreme Court, 60 Centre Street, Manhattan. What does this mean? We will try to explain below.

Inner City Press / Community on the Move (ICP) opposed Chase's applications, in detailed comments submitted from November 6, 2000, onwards (most of these comments are reproduced below on this page). Chase required (and still requires, ICP contends) two approvals: one from the New York Banking Board (NYBB), for the holding company merger, and one from the Superintendent (NYBD), for the bank merger. The NYBD extended the comment period to December 8. The NYBB meeting, which is required to be open to the public, was scheduled for December 14.

But on December 14, only eight of the Banking Board members showed up. The Banking Board is supposed to have 17 members. Accordingly, and as admitted by the Superintendent in the minutes of the meeting, there was no quorum. The Superintendent sought to "cure" this, by having the eight members present vote in writing at the meeting, then "procur[ing]" (that's how the minutes put it) the votes of the members who were not present -- who numbered six, because three of the Board seats are vacant. (Actually, many of the Board members' terms have expired, but that's another story, another flaw).

There's a major problem with this. The NYS Open Meetings Law requires "public business be performed in an open and public manner and that the citizens of this state be fully aware of and able to observe the performance of public officials and... listen to the deliberations and decisions that go into the making of public policy." As ICP notes in its lawsuit, filed on December 29, the New York State Committee on Open Government (COOG) has ruled repeatedly that members of public bodies (like the NYBB) cannot cast votes unless physically present at the meeting of the public body. See, e.g., Comm. on Open Gov't OML Advisory Opinion ("AO") 2575 (public bodies must guarantee public ability to "be fully aware of" and "listen to" deliberative process). The COOG has ruled that a member of the Public Service Commission could not validly vote even if "attending" the meeting by 2-way telephone link. OML-AO-2480. In a case directly on point, the COOG has stated unequivocally that "a member of a public body cannot participate unless he or she is physically present at a meeting of the body." OML-AO-2853 (1998) available at <http://www.dos.state.ny.us/coog/otext/o2853.txt>.

There are a number of other legal violations in the approvals; this one is clear, a "slam-dunk." As is ICP's claim against the Superintendent's approval of the bank merger: the Superintendent issued this approval on December 7 (see NYBD Weekly Bulletin of Dec. 15, 2000)-- that is, while the comment period was still open! ICP has also noted that four NYBB members who were physically present should have recused themselves from voting. One, John Robinson, is an employee of FleetBoston Financial, which ICP challenged on Dec. 11, 2000. At the Dec. 14 NYBB meeting, just prior to voting, Mr. Robinson stated stated at the meeting his view that the NYBD has "a near perfect record of credibility" in terms of enforcing the Community Reinvestment Act, and that "that credibility is constantly challenged -- as well as the credibility of the banking industry, which by and large does a terrific job responding to CRA -- by a particular group which consistently makes fairly outrageous, and to my experience on this Board, unsubstantiated and unsustained allegations... Maybe I'm just venting my frustration." Transcription of tape of meeting, emphasis added. It is clear from the tape, and context, that Mr. Robinson, whose bank ICP had publicly challenged three days previous to the December 14 meeting, was referring to ICP. His personal "frustration," and "venting" thereof, make it clear that he should have recused himself from voting on ICP's challenge to the Chase - Morgan application.

Another NYBB member, Charles Hamm of Independence Savings Bank, which ICP challenged in late 1997, stated at the meeting, during the Chase-Morgan presentation, that he was "underscor[ing] one of John [Robinson]'s points -- all of which I agree with...". Mr. Hamm also should have recused himself from voting on ICP's challenge to the Chase - Morgan application. Two other board members were also conflicted, through connections to companies which do business and/or compete with Chase and Morgan. And, substantively, ICP's comments on Chase's and Morgan's Community Reinvestment Act record, and involvements with problematic subprime (that's, predatory) lenders (all of which is summarized below on this page) were not addressed, and were not even submitted to the NYBB members, as Section 142 of the N.Y. Banking Law requires.

Immediately following the December 14, 2000, NYBB meeting, ICP requested a copy of the minutes, under the Freedom of Information Law (FOIL), in a letter that plainly said that ICP was considering seeking judicial review. The NYBD only provided ICP with the minutes on December 27 -- two business days before the merger was to be consummated (Dec. 31, according to Chase's and Morgan's own joint press release, which states that "the merger will close on December 31, 2000").

On December 29, ICP filed suit in NYS Supreme Court, New York County, seeking to stay and annual the approvals. ICP telephoned the Banking Department, and they sent a lawyer over to the courthouse. ICP telephoned the banks' outside counsel. Soon, the NYBD's outside counsel, the Office of the State Attorney General, sent a lawyer. As did Chase -- two lawyers in person, and one on speaker phone. And, at five p.m., a hearing was held in the chambers of Justice Phyllis Gangel-Jacob.

After Justice Gangel-Jacob had summarized the claims, one of Chase's lawyers pulled out a document, and claimed that, despite and contrary to Chase's and Morgan's joint press release, the merger had already closed. The document was a December 29 filing with the Delaware Secretary of State. But on closer inspection, the document plainly says that the merger is not "effective" until 11:59 p.m. on December 31. Chase claimed that the merger was now on "automatic pilot" -- nothing could be done to stop it. Justice Gangel-Jacob opined that this was a "sucker punch," and began writing an order that the "parties agree that no additional affirmative steps will be taken prior" to a hearing she was scheduling for Tuesday, January 2, 2001, at 9:30 a.m., before Justice Eileen Bransten. The Chase lawyers, including Chase's outside counsel, on the speaker phone, became agitated. They said that "people all over the world are preparing for the merger," and that "the merged stock will be traded on January 2, 2001." Justice Gangel-Jacob inserts the second of these phrased into the Order.

But a question is: can the companies "de-activate" one of their stocks, and actually consummate the holding company merger, without taking "any additional affirmative steps" between December 29 at 5:45 p.m. (when the Order was signed) and the January 2 oral argument? Chase and Morgan have already created a joint Web site, and Bloomberg of Jan. 1 reports that the companies have, in fact, merged, based on a press release the banks' issued at 12:15 a.m. on January 2, 2001.

For this update, we'll reproduce below the text of ICP's three-page "Order to Show Cause" below, with Justice Gangel-Jacob's additions to it typed in italics.

PRESENT: PHYLLIS GANGEL-JACOB

Justice of the Supreme Court

-----------------------------------------------------------------------x

In the Matter of the Application of:

INNER CITY PRESS / COMMUNITY ON THE MOVE ORDER TO
and MATTHEW LEE, Petitioners SHOW CAUSE

For a Judgment Pursuant to Article 78 of

the Civil Practice Law and Rules, Index No. 126041/2000

-against-

THE NEW YORK STATE BANKING BOARD;
THE NEW YORK STATE BANKING DEPARTMENT
AND ITS SUPERINTENDENT; CHASE MANHATTAN
CORPORATION and J.P. MORGAN & CO., Respondents

------------------------------------------------------------------------------------x

UPON reading and filing of the annexed Petition, verified by MATTHEW LEE, Petitioner and executive director of Petitioner INNER CITY PRESS / COMMUNITY ON THE MOVE, on December 29, 2000, the exhibits attached thereto, all the prior administrative proceedings described in the Petition, and sufficient cause therefore appearing,

LET THE RESPONDENTS SHOW CAUSE before me or another Justice of this Court at I.A.S. Part 21, Room 543 of the Supreme Court of the State of New York, to be held in and for the County of New York, at the courthouse located at 60 Centre Street, Borough of Manhattan, City and State of New York, on the 2nd day of January, 2001, at 9:30 o'clock in the [fore]noon of that day, or as soon thereafter as counsel can be heard WHY a judgment should not enter:

a. Annulling the December 14, 2000, determination of Respondent New York State Banking Board ("NYBB") to approve the merger application(s) of Chase Manhattan Corporation ("Chase") and J.P. Morgan & Co. ("Morgan") and their subsidiaries, which petitioners allege (1) was legally defective, in that NYBB members not physically present were allowed to vote, in violation of the Open Meetings Law, Public Officers Law Section 100, et seq., (2) was rendered in violation of N.Y. Banking Law Section 142 (which requires the Superintendent of Banks to provide to the NYBB members copies of "all papers" in her possession, prior to their vote), and (3) was rendered in violation of legal procedures, without required recusals, and was affected by errors of law and was arbitrary and capricious and an abuse of discretion;

b. Annulling the December 7, 2000, approval by the Superintendent of Banks of the merger application of Chase Manhattan Bank and Morgan Guaranty Trust Company of New York, which petitioners allege was rendered in clear violation of N.Y. Banking Law Sections 600 through 601-b, including in that it was rendered while the public comment period on the application was still open, and was affected by errors of law and was arbitrary and capricious and an abuse of discretion;

c. Enjoining Respondents Chase Manhattan Corporation and J.P. Morgan & Co., and Chase Manhattan Bank and Morgan Guaranty Trust Company of New York, from consummating their proposed mergers, pending full judicial review of the NYBB's December 14, 2000, determination, and the Superintendent's December 7, 2000, determination;

d. Granting petitioners attorneys fees, costs and disbursements, as provided in Public Officers Law Section 107(2);

e. Along with such other and further relief as may be just and proper.

It is further,

[[crossed-out and modified, below in italics]ORDERED that the determination of the NYBB, on December 14, 2000, to approve the merger application(s) of Chase Manhattan Corporation and J.P. Morgan & Co. is stayed, pending a hearing on this motion;]

[[crossed-out and modified, below in italics]ORDERED that the determination of the Superintendent, on December 7, 2000, to approve the merger application(s) of Chase Manhattan Bank and Morgan Guaranty Trust Company of New York is stayed, pending a hearing on this motion;] and

ORDERED that personal service of a copy of this order together with the papers upon which it is based upon Respondents, or their respective authorized agents for service of an order such as this (in the case of the NYBB and NYBD/Superintendent, the Attorney General of the State of New York), on or before 12/30/00 shall be sufficient.

[[Added by Justice Gangel-Jacob:] "Request for the temporary relief is declined at this time subject to argument before J. Bransten at 9:30 AM on 1/2/01. The parties agree that no additional affirmative steps will be taken prior to that date + time.* *-This court understands that the merged stock will be traded on 1/2/01"]

ENTER:

P.G.J.

PHYLLIS GANGEL-JACOB

For or with more information, contact us.

Update of December 26, 2000: As Chase prepares to acquire J.P. Morgan (and its stock ticker symbol) on Dec. 31, Chase's lack of standards are ever-more on display. For environmentalists: Chase is arranging about $350 million of high-yield loans to help finance Ripplewood Holdings LLC's purchase of Royal Dutch/Shell Group's Kraton Polymers business. For those concerned about safety-and-soundness? Chase's and Morgan's joint loan exposure to Xerox shows a lack of planning (or due diligence), to put it mildly. And for those concerned with community reinvestment, Chase has quietly applied to buy a bank with a Needs to Improve CRA rating, in a "streamlined" application to the Office of the Comptroller of the Currency that barely mentions the issue. ICP's comments, just filed with the OCC, follow, after these two updates: (1) the Fed, on (FOIA) appeal, has denied that it has in its possession any documents reflecting oral communications with Chase or Morgan, in connection with their pending merger. This is simply not credible: why would Chase have met, face-to-face, with the New York Banking Department (see below), and not with the Fed? Given such things as Chase's and Morgan's combined loan exposure to Xerox, ICP is not sure how to react to the Fed's claim it had no communications, beyond the application and related letters, with Chase and Morgan. The possibilities seem to be: out-to-lunch, or, stone-walling... And, (2), the NYBD has still not provided ICP with even the most basic documents from its Dec. 14 meeting, at which it approved Chase-Morgan. Not even the approval order. The idea seems to be to wait until after December 31...

Here's the comment ICP has just filed with the OCC:
December 26, 2000

Office of the Comptroller of the Currency
Northeastern District Office
Attn: Mr. Anthony DosSantos, Licensing Manager
1114 Avenue of the Americas, Suite 3900/br>
New York, NY 10036-7780

Dear Mr. DosSantos and others at the OCC:

On behalf of Inner City Press/Community on the Move and its members and affiliates, including the Inner City Public Interest Law Center (collectively, "ICP"), this is a timely comment opposing the Application of Chase Manhattan Bank, USA, National Association ("Chase USA"), to acquire First USA Financial Services, Inc. ("FUFSI"), its commercial credit card portfolio and its current "Needs to Improve" rating under the Community Reinvestment Act ("CRA").

Infra in this comment, ICP enters into the record before the Office of the Comptroller of the Currency (the "OCC") information about the lending, and apparently standardless subprime lending, engaged in by Chase USA. ICP wishes initially to highlight, however, how inappropriately superficial the application that Chase USA has filed is. ICP became aware of this application on December 12, 2000 -- ICP, because of its concerns about Chase's practices, had read in November 2000 of Chase's proposed acquisition from Paymentech, but the notice published by Chase (and the OCC) make no mention of Paymentech, only of FUFSI.

ICP requested the application, under the Freedom of Information Act ("FOIA") on December 13, 2000. On Saturday, December 23, 2000 -- three calendar days, and NO business days, before the comment period was set to expire -- ICP received the application, by regular mail, from the OCC. This application contains little more than a form with boxes checked (including, in response to the question "Have any of the combining institutions entered into commitments with community organizations, civic associations, or similar entities to provide banking services to the community?" the answer, "No"), and a brief (six page) antitrust memorandum. Without further explanation, the Application contains as an exhibit a one-page letter from FUFSI to the FDIC, claiming that have recently made CRA improvements.

FUFSI, at its most recent CRA exam, was awarded a rare Needs to Improve CRA rating. This CRA exam, which clearly must be part of the record on this application, states inter alia that:

--"the thrift has not sufficiently utilized its resources or expertise to adequately meet the requirements of the CRA in light of its abilities, or when compared with the CRA efforts of similarly situated institutions in its assessment area;" (Exam at 4)

--"The thrift has no qualified community development lending activities that could be considered at this examination. Despite several viable third party of consortia lending programs available to FUFSI in its assessment area, the thrift has consciously chosen not to contribute to those programs to date. Likewise the thrift has not involved itself in any activities which could be considered under the community development service test, despite available opportunities;" (Id.)

--"Community Development Lending... The bank has no qualified CDL activities that could be considered under this performance factor... FUFSI has not involved itself in satisfying the requirements of this factor;" (Exam at 9, emphasis in original);

--"Community Investment Services... As with CDL, the thrift has conducted no qualifying CDS activities since the last examination that can be considered under this performance factor" (Exam at 11, emphasis in original).

Chase's application does not address this (other than attaching a cryptic one-page letter from FUFSI to the FDIC); nor does it address Chase USA's subprime lending, on which we will now focus:

ICP has been concerned about Chase's increasing (and, ICP contends, standardless) involvement in subprime lending, including since its most recent CRA examinations. In October and November, 2000, ICP compiled a detailed overview of these involvements, including Chase's role as warehouse lender to, and underwriter and trustee for, several of the most controversial subprime lenders. For purposes of this application, by Chase USA, it is significant to note that Chase is directly involved in subprime lending, as an originator, including through Chase USA.

Crain's New York Business of August 2, 1999 ("Alarms Sound Over Predatory Loan Practices: Regulators Plan To Take Action As Big Banks Enter Shadowy Market"), reported that "Chase last year reorganized its subprime lending unit to better push such loans through its mortgage broker network... Chase's subprime lending volume grew to $1.5 billion in 1998, up from $800 million the year before, and is expected to increase again this year."

In 1999, Chase more than tripled its subprime volume, to $3 billion, according to Sam Cooper, the Chase Manhattan Mortgage Corporation executive vice president who runs Chase's subprime division. [FN 1: Mortgage Banking, October 2000. See also, Los Angeles Times of May 13, 1999 ("Banks Moving Into Subprime Lending Arena"), reporting that "Chase Manhattan Bank... which quietly started offering these subprime loans a few years ago, today [is] actively marketing to consumers with credit problems"].

Chase's joint press release with Fitch IBCA, dated July 20, 2000, states that "Chase's home finance lending businesses include home equity, subprime and manufactured housing loans." Emphasis added. This same self-description of Chase, including subprime, is in, inter alia, the Mortgage-Backed Securities Letter of August 9, 1999 (reporting on Chase's acquisition of Mellon's residential mortgage business, and its acquisition, in February 1999, of "First Town Mortgage Corp. and HomeSouth Mortgage Corp. for an undisclosed sum"). The American Banker of September 10, 1999, reported that "Chase Manhattan Mortgage Corp., which securitized $580 million of subprime loans in June, is planning another large deal in the near future, a spokesman said."

Chase Funding, which is the securitization unit for Chase's subprime loans, had, as of June 27, 2000, issued fully eight pools of subprime loans "within 22 months." Fitch Structured Finance analysis of Chase Funding Mortgage Loan Asset-Backed Certificates, Series 2000-2. Standards & Poor's on March 21, 2000 went even further back, looking at "50 classes of Chase Funding Trust's mortgage loan asset-backed certificates... approximately US $1.47 billion in rated debt... The collateral is of B and C subprime credit quality backed by first-lien mortgage loans." Business Wire, March 21, 2000, emphasis added. See also, Chase Funding, Inc.'s SEC Form 10K, filed March 29, 2000, for "Chase Funding Mortgage Loan Asset-Backed Certificates Series 1999-1, Series 1999-2, Series 1999-3 and Series 1999-4."

As noted above, Chase reports HMDA data on its subprime loans blended in with the normal interest rate loans of CMB, CMMC and other entities. In fact, Chase told HUD that "[s]ubprime applications would be included in the LARS for Chase Manhattan Mortgage Corporation. Chase Manhattan Mortgage Corporation did not have absolute numbers for subprime...". [FN 2: 1998 HMDA Highlights (HUD Housing Finance Working Paper Series HF-009, 1999), which also states, at n.90, that "Chase [was] among the top 25 subprime originators in 1998"].

Question: if Chase did not (or would not) even break out which of its loans are subprime loans, how could and can Chase (including Chase USA) perform the appropriate due diligence for these potentially-problematic (that is, predatory) loans, including but not limited to a review of the correlation between interest rate and race, canceling for credit history? The answer, in light of the above-quoted HUD report, would appear to be that Chase cannot, and does not.

Only after ICP's inquiries and comments did Chase provide data on how many of Chase USA's loan are subprime loans. According to Chase's November 30, 2000 submission to the Federal Reserve Board (which is not Chase USA's primary supervisor -- the OCC is), Chase USA in 1997, 1998 and 1999 made 21,089 subprime home equity loans. Since subprime lending was not focused on in the OCC's most recent CRA examination of Chase USA, there is nothing in the record on this application which addresses these issues, and the questions that must be asked (and answered): how, if at all, does Chase USA perform the appropriate due diligence for these potentially-problematic (that is, predatory) loans, including but not limited to a review of the correlation between interest rate and race, canceling for credit history?

Despite Chase's knowledge, as of the date of submission of this application, that this issue had become a focus of recently CRA-related inquiries into Chase (not only by ICP, but by the FRB and NYBD as well), it is striking that the issue is not mentioned by Chase whatsoever. Neither is FUFSI's rare Needs to Improve CRA rating mentioned. On the current record, this application could not legitimately be approved.

* * *

Chase Manhattan Mortgage Corp. is a disparate lender all over the United States:

In the Atlanta MSA in 1999, CMMC denied the conventional home purchase applications of African Americans 2.48 times more frequently than those of whites.

In the Baltimore MSA in 1999, CMMC denied the conventional home purchase applications of African Americans three times more frequently than those of whites.

In the Boston MSA in 1999, CMMC denied the conventional home purchase applications of African Americans 2.34 times more frequently than those of whites.

As noted above in Section II.C (and not only fair lending, but also CRA, relevant), in the Brownsville, Texas MSA in 1999, CMMC denied the conventional home purchase applications of Latinos 3.4 times more frequently than those of whites. ...

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On information and belief, the Needs to Improve CRA rating of FUFSI (which is owned by Paymentech, which, in turn is controlled by Bank One Corporation) -- is a, or the, major reason that Bank One has not yet, as virtually all of its competitors have, applied to the FRB for financial holding company status under the Gramm-Leach-Bliley Act. As you know, the GLB prohibits a bank holding company which controls a bank with a less than satisfactory CRA rating from becoming a financial holding company. Here, this institution with a rare Needs to Improve CRA rating, would be passed from Bank One/Paymentech to Chase (which is already a FHC). Bank One would then be able to become a FHC; Chase, apparently, would simply merge the underperforming FUFSI into Chase USA, with no statement as to how its performance would be improved. This is an evasion of the CRA provisions of the GLB; for this reason as well as those set forth above, on the current record this application could not legitimately be approved.

Communications regarding this proceeding, including Chase's (or FUFSI's) response, any and all OCC communications with Chase or FUFSI, and all of the information that Chase has not yet submitted, but now should submit, should be provided to the undersigned.

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

Respectfully submitted,

Matthew Lee, Executive Director

Update of December 18, 2000: As both Chase and Morgan announce earnings shortfalls, and formally boost the number of projected lay-offs to 5,000, the Fed approved the deal on December 11 (see below), and the New York Banking Board approved the deal on December 14. In fact, as revealed by Section II of the Department's Weekly Bulletin of December 15, the New York Banking Superintendent reached out and approved a piece of the deal on December 7 -- while the comment period, extended due to Chase's erroneous withholding of information, was still open. Reasonable mind may differ on whether an approval after the comment period is closed is a "rubber stamp" -- but this characterization cannot be disputed, as to an approval while the comment period, by the Department's own General Counsel's Dec. 6 ruling, was still open...

In the days before the N.Y. Banking Board's December 14 meeting, ICP raised these and other issues. But the fix was in -- the banks' CEO have announced they want to close the deal by the end of the year; "damn the torpedoes" (and the comment period), has become the regulators' approach. Here are ICP's last-minute comments:

December 12-13, 2000

Dear Members of the Banking Board, Superintendent McCaul or designee, Deputy Sup't Kramer, and Ms. Kent:

On behalf of Inner City Press/Community on the Move and its members and affiliates, including the Inner City Public Interest Law Center (collectively, "ICP"), this is a supplemental comment in opposition to, and requesting for the reason set forth below a further extension of the comment period on, the Applications, under Section 142 and 601 of the Banking Law, of the Chase Manhattan Corporation and its subsidiaries (collectively, "Chase") to acquire J.P. Morgan & Company (together with its subsidiaries, "Morgan").

On December 12, 2000, less than 48 hours before the Banking Board meeting scheduled for December 14, ICP received a number of fax transmissions from the Banking Department about this proposed merger, which ICP timely opposed and on which it timely requested a hearing. Other than a three paragraphs of "Confidential" Exhibit 9, the Department's December 12, 2000 Freedom of Information Law ("FOIL") appeal determination upholds all of the Department's initial denials of access, to information ranging for the specifics of Morgan's investment in KorAm Bank, to complaints filed against Chase with government agencies, to, still, Chase's purported due diligence policies for doing business with subprime lenders, and the identities of subprime lenders to which Chase has provided warehouse funding in the last two years.

Several of these withholdings are contrary to FOIL, and to the disclosure practices of Chase's peers (or, said otherwise, Chase's competitors). Credit Suisse and DLJ, for example, released the names of all subprime lenders they have provided warehouse funidng to in the past two years. Attached hereto is a letter from the Federal Reserve Board (the "FRB") to two other bank holding companies, asking -- appropriately, ICP contends -- for even more detailed than the NYBD requested, and then withheld, in this proceeding. Relatedly, ICP notes that the NYBD has not, in the record, asked Chase about its compliance with the lending commitment it made in order to secure NYBB approval of its last major merger, with Chemical Bank. Attached hereto, and made part of the record, is letter reflecting the FRB's recently questions to another bank holding company, asking for detailed reporting on the companies lending pledges. The NYBD should ask Chase these and other questions; the record is not complete on these issues, including Community Reinvestment Act ("CRA") issues.

Despite not having gotten to the bottom of Chase's and Morgan's rapidly expanding involvement in questionable subprime (and, ICP contends, predatory) lending, the Department apparently [FN: After close of business on December 12, 2000, ICP telephoned the NYBD Associate Attorney who was faxing ICP the above-referenced transmissions, asked if the Chase - Morgan application is on the Banking Board's agenda for December 14, 2000, and was told that even the NYBB's agenda, less than 48 hours before the scheduled meeting, is not public] intends to present the Applications to the Banking Board, for its final vote, on December 14, 2000. This is because Chase and Morgan, as reflected in the minutes of the October 13, 2000, meeting that the NYBD released, and in Chase's and Morgan's November 29, 2000, SEC filing to which ICP has cited, now want to consummate the proposal by the end of the year.

ICP contends that its right to comment on the Application, and to meaningfully participate in this proceeding, have been prejudiced by the Department's withholdings... Note also, in the Wall Street Journal since the FRB's December 11, 2000, approval, "Sitcom Claims Its IPO Fell Victim To Chase, J.P. Morgan Merger Deal."

ICP contends that the record is not complete, including on CRA and subprime lending issues.

Very truly yours,
Matthew Lee, Esq.
Executive Director

December 13-14, 2000

Dear Members of the Banking Board, Superintendent McCaul or designee, Deputy Sup't Kramer, and Ms. Kent:

On behalf of Inner City Press/Community on the Move and its members and affiliates, including the Inner City Public Interest Law Center (collectively, "ICP"), this is a timely supplemental comment in opposition to, and requesting for the reason set forth below a further extension of the comment period on, the Applications, under Section 142 and 601 of the Banking Law, of the Chase Manhattan Corporation and its subsidiaries (collectively, "Chase") to acquire J.P. Morgan & Company (together with its subsidiaries, "Morgan").

Despite ICP's inquiries, and its previous comment [FN: On December 12, ICP was told that the Banking Board's agenda for its December 14, 2000, meeting (which must be "open," under the terms of N.Y. Public Officers Law Section 100, et seq.) was "not available to the public." ICP disagrees, and also questions whether Chase or Morgan, despite the above-referenced statement, were informed of the Banking Board's agenda for December 14. Timely public commenters should not be expected to travel to attend Banking Board meetings for which the agenda has been kept confidential, and which, according to the Department's Web site, are often cancelled], it is still not clear if Chase's application to acquire Morgan will be considered at the Banking Board's meeting on December 14, 2000. ICP has demonstrated in its submissions, including the submission precedent this one, that the record on the applications is not complete, in that it does not support an approval that would not be arbitrary, capricious, etc.. In further supplement to ICP's still unaddressed comments on Chase's involvement in predatory mortgage lending, attached hereto is a filing from a lawsuit involving predatory lending, in which Chase Manhattan Bank plays a major role (ICP has only obtained this filing today; it is being immediately submitted to the Department, and thus to the Board). The case involves a mobile home, Chase Manhattan Bank, Ocwen, Access Financial Lending Corporation, Equitable Mortgage Corporation -- and other subprime lenders, including the type of "non-publicly traded" subprime lender concerning which Chase has improperly requested, and the Department has improperly granted, confidential treatment to Chase's presentations of its business inter-connections.

Also, as to supplement to a matter raised in ICP's previous submission, consider "Italian regulator studies Sitcom-Chase IPO dispute," Reuters, Dec. 13, 2000...

While it would be ill-advised, on substantive grounds, for the Department to present Chase's applications to the Banking Board for consideration of approval on December 14, ICP hereby timely presents the following procedural objections into the record as well:

A review of the Department's Web site reflects that three of the eight "Public Member" seats on the Banking Board are vacant. Of the eight "industry" members, the Department's Web site reflects that the terms of all but two of these members have expired, in some cases, long-expired. ICP does not believe that the language of N.Y. Banking Law Section 13 allows for legally effective participation of Banking Board members so long after their terms have expired -- that would defeat the statutes clear statement that Banking Board member must be confirmed by the state senate, and that their terms are for only three years.

As you know, N.Y. Banking Law Section 142 requires that "an order granting such application may be made only by three-fifths vote of all the members thereof." Emphasis added. ICP contends that this means the affirmative approval of eleven legally effective Banking Board members. Since, for whatever reason, the Banking Board's membership, even according to the Department's Web site, is down to 14 (with three Public Member seats vacant), and since six of the eight industry members have expired terms, even ignoring arguendo the recusals that ICP has timely requested, no legally effective vote on Chase's application to acquire Morgan could be taken at the Banking Board meeting on December 14, 2000.

ICP notes that the Department's Web site mentions another Banking Board meeting, on January 4, 2001. Perhaps that above-discussed infirmities could be cured by that time, while the Department, on the substantive issues, completes the record.

Very truly yours,
Matthew Lee, Esq.
Executive Director

After close of business on Dec. 14, the Department's new press officer left ICP a message that the Banking Board had approved Chase-Morgan earlier in the day. ICP has requested all related documents (they are not on the Department's web site, which still, on Dec. 17, lists Dec. 14 as the "next" Board meeting).

Update of December 12, 2000: The Federal Reserve Board on December 11 approved Chase's applications to acquire J.P. Morgan, in a 47-page order that misrepresents most of the issue raised in opposition to the application, and passes the buck to a panoply of other Federal regulators. The evidence ICP presented about Chase's increased involvement with questionable subprime lenders, as underwriter and warehouse lender, are, in the Order's page-long footnote 36, referred to the Department of Justice, the Department of Housing and Urban Development, and the Federal Trade Commission. The Fed's Order states that these are the agencies that "have responsibility for reviewing the compliance with fair lending laws of nondepository institutions." It appears that the Fed is saying that DOJ, HUD and the FTC, and not the Fed, are in change of Chase Securities Corp.'s fair lending compliance -- an abdication, if there ever was one, of the Fed's responsibilities under the Equal Credit Opportunity Act and the Fair Housing Act.

Similarly, the Fed mis-summarizes related issues raised by ICP, stating, for example, that "ICP contests the inclusion in Chase's H[ome] M[ortgage] D[isclosure] A[ct] data for [sic]subprime loans originated by Chase's affiliates." Note 33. But ICP didn't "contest" the inclusion of subprime loans in Chase's HMDA data -- rather, ICP pointed out that while the Federal Reserve Bank of New York gave Chase positive Community Reinvestment Act credit for its loans in low- and -moderate-income census tracts, in its most recent CRA performance evaluation, that exam report didn't even MENTION that many of these Chase loans are at higher than normal interest rates. Two footnotes later, in note 35, the Fed gets a little closer, with its summary, stating that "ICP has expressed concern that the HMDA data reported by Chase do not separately report subprime loans to borrowers." This the Fed rebuts by stating: "HMDA and Regulation C do not require separate reporting for subprime loans to borrowers." But the Fed does not address that its CRA exam of Chase did not distinguish between loans at normal interest rates and loans at higher than normal interest rates, but rather gave Chase identical CRA credit for both. It doesn't appear that the Fed examiners who compiled the Chase CRA performance evaluation were even AWARE that many of Chase's loans are subprime loans -- the issue is not mentioned anywhere in the lengthy examination report.

As to other CRA matters, the Fed mostly quotes for Chase's banks' CRA performance evaluations, as somehow rebutting the more recent evidence submitted by ICP. In the case of Chase's Texas bank, the Fed resorts to quoting for a CRA examination from 1996, which uses 1995 lending data. A little out of date? It would seem...

Before getting to CRA and subprime lending, the Fed's order considers antitrust. It recites, at page 4: "In reviewing the competitive effects of the proposal, the Board has reviewed carefully comments submitted by Inner City Press/Community on the Move, Bronx, New York ('ICP'). ICP contends that the merger would reduce competition for banking services in several product markets and result in higher fees and reduced consumer convenience. ICP also challenges the Board's use of the cluster of banking services to review the competitive effects of the proposal." As to this last, the Fed states, without further support, that the passage of the Gramm-Leach-Bliley Act of 1999 "does not suggest that the cluster of banking products and services no longer is the appropriate line of commerce for analyzing the competitive effect of bank affiliations." If you're looking for a BASIS for the last-quoted, you won't find it in the Fed's Order. ICP has argued that since banking product markets had, from 1963 to 1999, been defined largely in terms of the "cluster" that banks were, by law, restricted to, the shattering of those walls (and of the Glass-Steagall Act) renders obsolete the Fed's old antitrust methodology, which was based on the pre-2000 regulatory scheme. We'd love a rebuttal, but don't find one in the Fed's Order, only what they call mere "ipsi dixit" -- "it is so because we say it's so." That might word for interest rates, at least those charged at the Federal Reserve's "discount window" -- but administrative law requires something more than ipsi dixit...

So the Fed, rather than separately analyzing the actual product markets in which Chase and Morgan compete, limits its review to.. the New York, Palm Beach and Wilmington, Delaware consumer banking markets, as these are over-broadly defined by the Fed. The New York market, where Chemical bought Manny Hanny bought Chase buys Morgan? No problem -- the market, the Fed says, is "not concentrated," because the Fed includes counties, and the banks in them, all the way into Pennsylvania. The only problem market, by the Fed's analysis, was Wilmington. But conveniently, Morgan shifted most of its deposits out of this market, right before the deal. The Fed recites that "ICP has asserted that Chase and Morgan manipulated their deposit data for June 30, 2000, to conceal their competitive presence in the Wilmington banking market." Note 16. The Fed's answer is that in the past two year, "five banking organizations entered the market de novo." Order at page 9. But most of these banks (which include nontraditional banks chartered by General Motors and Dutch insurer ING) only located in Wilmington due to the advantages of Delaware law -- their decision to locate there has little to do with the "entry of out-of-market competitors," since there's little nexus between these banks' location there and where they do business. The ING bank, for example, solicits deposits nationwide, by telephone and the Internet. Whether they're a meaningful competitor in the Wilmington banking market is questionable.

The Order's footnote 18 is a classic. The Fed recites that "ICP also contends that the combined organization would be able to exert an inappropriate level of influence on global financial markets and foreign nations thereby resulting in an institution too large for the Board and other government agencies to regulate." That conflates two separate arguments. Among ICP's comments was the proposed J.P. Morgan Chase "would be able to exert an inappropriate level of influence on... the Board and other government agencies....". And, frankly, the Fed's fast processing of Chase's applications -- a mere 66 days, shorter than applications by much smaller banks, for much simpler transactions -- is perhaps the first evidence of this "inappropriate level of influence." Another of ICP's comments, not mentioned or addressed in the Order, was that, "with all due respect," the Fed's chairman used to be on the board of directors of J.P. Morgan & Co. and should have considered recusing himself from the consideration of the Chase-Morgan application, or explaining why not. On this, the Order is silent. Governor Ferguson, the Order says, was "absent and not voting." In fact, had the chairman (appropriately) recused himself, it is doubtful that the three remaining votes (Governors Meyer, Gramlich and Kelley) would have been sufficient, on a formally seven-member Board, for approval...

On the Holocaust issues, the Board notes that "Chase and the World Jewish Council have retained jointly an independent counsel to review Chase's self-assessment." On the Chase - slavery issues (see ICP's Nov. 6, 2000 comment, below), the Board states that "Chase represents that it will continue to investigate the matter by researching sources external to Chase." Dow Jones Newswires of Dec. 4, 2000, summarized: "New York-based Inner City Press/Community on the Move had challenged the Chase-J.P. Morgan deal on the basis of what it said was Chase's poor community lending record. The group had also sought to block the deal based on what it alleged was involvement by two of Chase's predecessor banks with insuring U.S. slaves and the actions of one of its predecessor banks in allegedly collaborating with the Nazis in World War II. But the Fed rejected the group's objections to the bank's community lending status, as well as the other two issues. The Fed said Chase's internal investigation turned up no evidence its previous incarnations had provided or serviced insurance for U.S. slaves. The bank said it would continue to investigate the matter. The bank also investigated the World War II charge for three years. 'Through this investigation, Chase has determined that during World War II, the German government appropriated certain accounts in the Paris branch of a Chase predecessor bank, and that the holders of some of those accounts have applied for restitution,' the Fed said." Yep, that's what the Fed said...

There follow dozens of pages of buck-passing. ICP raised Chase's and Morgan's lack of environmental and social standard; in footnote 19, the Fed "notes that the Department of Justice and the Environmental Protection Agency have jurisdiction, to the degree that the actions occur in the United States, to determine whether companies are in compliance with federal environmental protection statutes and regulations." And what of Chase's and Morgan's financial support to the proposed Three Gorges Dam in China, which would displace two million people, render several species extinct, etc.? Well, that doesn't occur in the United States. "Anything goes," apparently -- footnote 47 states that two companies in which Morgan has invested overseas (one of which, Massera, manufactures ice cream) are "not substantially at variance with the purposes of the B[ank] H[olding] C[ompany] Act and would be in the public interest." Look, we know that "we all scream for ice cream" - but this is too much. Or perhaps not -- as long as it's overseas, the Fed doesn't even have to refer it to another federal agency. At footnote 39, the Fed notes the jurisdiction of the Department of Labor and the Equal Employment Opportunity Commission, as giving the Fed a pass on the branch closing and previous lay-off issues ICP had raised. Chase's plan to lay off another 5,000 people? Not the Board's problem (see footnote 43). There's an all-purpose blow-off, on page 13: "The Board has also taken into account that many of the matters raised by ICP involve subjects of public interest that are not within the Board's limited jurisdiction to adjudicate or do not relate to the factors that the Board is required to consider...".

So there you have it: the Fed for a decade pokes regulatory holes in the Glass-Steagall Act (in the first instance, mostly for J.P. Morgan F& Co.), then, in the late 90s, lobbied for an outright repeal of Glass-Steagall, and for designation as the "umbrella regulator" of financial holding companies. But, on "subjects of public interest" -- standardless and destructive actions of these financial holding companies, this proposed J.P. Morgan Chase -- the Fed either defers to other agencies (the Order mentions HUD, DOJ, the FTC, the EEOC and the Department of Labor), or says it is not required to consider the issues, or even that it CANNOT consider the issues, given its "limited jurisdiction." Welcome to the brave new world...

The New York Banking Department is presumably slated to consider Chase's application at its meeting on December 14 (despite Chase still withholding the identities of the subprime mortgage lenders it has funded in the last two years, and its purported "due diligence" guidelines for doing business with subprime lenders, on which the Fed heavily relied as rebutting the issues raised by ICP). Chase and Morgan have scheduled their required shareholder meetings for December 22. And, as Chase's and Morgan's CEOs wrote to employees on November 28 (in a memo filed with the SEC on Nov. 29):

"We anticipate receiving the remaining regulatory approvals so that our first day of doing business as J.P. Morgan Chase & Co. will be January 2, 2001."

Chase and Morgan sure can predict the Fed's timeline, no? And the NYBD's timeline, too, apparently. What was that, in the Fed's footnote 19, about "inappropriate level[s] of influence"? To be continued...

Update of December 11, 2000: Chase was asked by the New York Banking Department to disclose the identities of the subprime lenders to which it does warehouse lending. Chase tried to withhold the whole list; ICP appealed. On December 6, the NYBD faxed ICP a part of the list. Chase is still trying to withhold the names of some of the lenders (despite the fact that other banks routinely are asked for, and disclose, this information -- most recently, U.S. Bancorp and Firstar). ICP has commented to both agencies; ICP's NYBD comment is below. Meanwhile, Chase clearly anticipates getting NYBD approval for its applications to acquire Morgan on Dec. 14, and getting Federal Reserve Board approval -- on Dec. 11, when its applications have been put on the Fed's agenda. Chase is now of a size that when it snaps its fingers, the regulators jump, in ways they don't for smaller banks. The Fed's apparent acquiescence in this case is shameful; we will analyze the Fed's Dec. 11 action in this space-- developing.

December 8, 2000

Dear Members of the Banking Board, Superintendent McCaul or designee, and Ms. Kent:

Chase and Morgan have made, and the New York Banking Department ("NYBD") has to date upheld, a number of meritless requests for confidential treatment in this proceeding. The most recent of these involves Chase's and the NYBD's continued withholding of the identity of certain of the subprime mortgage lenders to which Chase has provided warehouse lending in the past two years, and Chase's purportedly due diligence policies for doing business with subprime lenders. Certain other of the impermissible withholding are addressed below, and in the Freedom of Information Law ("FOIL") appeal ICP has today filed with the NYBD, and the with NYS Committee on Open Government, concerning the NYBD's numerous partial denials of ICP's October 31, 2000, FOIL request.

On November 6, 2000, ICP submitted a 60-some page protest to the Applications. On November 21, the NYBD asked Chase and Morgan a number of questions, including about their involvements in subprime lending. Chase's response sought to withhold the list of all of the subprime lenders to which it has provided warehouse lending in the past two years (the "List"). ICP submitted a FOIL appeal for this information (and for Chase's and Morgan's due diligence policies for doing business with subprime lenders), on December 4, 2000.

On December 6, 2000, the NYBD's General Counsel responded to ICP's December 4 FOIL appeal, but upheld Chase's continuing request to withhold the identities of certain of the subprime lenders to which Chase has provided warehouse lending in the past two years, and to all but the headings from Chase's purported due diligence policies for doing business with subprime lenders (the "Policy"). As to the information that was released, the NYBD's General Counsel gave ICP only 48 hours -- until December 8 -- to comment. See infra.

ICP continues to contest the NYBD's General Counsel's withholdings of December 6 (as well as the NYBD's many withholdings in connection with ICP's October 31, 2000, FOIL request), as set forth in ICP's December 8, 2000, FOIL appeal, and the exhibit(s) thereto. Note that the Credit Suisse-DLJ public response referenced in ICP's timely December 4, 2000, submission did not seek to withhold the names of any of the subprime lenders to which Credit Suisse has provided warehouse loans.

Note also, in terms of Chase's professed concern with the privacy of customers (here, corporate (subprime lending) customers), that Chase earlier this year settled charges related to the impermissible sharing of (retail, "small potatoes") customers. See, e.g., New York Law Journal of January 26, 2000, at 2, Chase Manhattan Agrees to Credit Deal: "Mr. Spitzer said Chase Manhattan had distributed financial information on 20 million customers to four different marketing companies. He alleged that the distribution breached a confidentiality agreement between the bank and its customers..." -- a material matter that does not appear to have been addressed, to date, in this proceeding....

As to the partial information released on December 6, 2000 (as to which ICP has been granted less than 48 hours to comment), consider the following:

Even the partial (redacted) list of the subprime lenders to which Chase has provided warehouse funding in the past two years demonstrates that, in many instances, Chase is both the front-end warehouse lender, and the back-end securitizer (making Chase doubly responsible for the fairness of the underlying subprime loans). Comparing Chase's November 29 submission at 5 to the redacted Public Exhibit 45, Chase has performed this double function (warehouse lending and securitizer) for, at a minimum, Saxon Mortgage, and New Century. ICP has presented certain information concerning Saxon, in its December 4 submission (and hereby requests a further extension of the comment period, beyond the 48 hours provided, to submit further comments). As to New Century, beyond the material previously submitted, consider:

In the Newark, New Jersey Metropolitan Statistical Area ("MSA") in 1999, the aggregate industry made 16,074 refinance loans to whites, and 2,243 to African Americans, a ratio of 6.58 to one. New Century made 18 refinance loans to whites, and 12 to African Americans, a ratio of 1.5 to one. New Century, to which Chase has been warehouse lender and securitizer, is 4.39 times more likely to target its (high interest) refinance loans to African Americans in this MSA than is the industry aggregate.

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New Century, to which Chase has been warehouse lender and securitizer, blatantly targets people of color with its high interest rate loans; Chase profits from New Century activities, in two ways -- giving Chase a perverse incentive to continue underserving communities of color with normal interest rate loans, so that it can make greater profits doing business with companies like New Century, which lend to those excluded (by Chase) at higher rates.

Also in now-Public Exhibit 45, Chase appears to claim that its participation in a letter of credit to the subprime lender ContiFinancial, and Morgan's role in a syndicated loan to the subprime lender United Companies, are not relevant to the required (and begun, but unfinished) review of the institutions' involvements with subprime lenders, many of them scandal-plagued (like United Companies, and, to a lesser but known-by-the-market degree, ContiFinancial). ICP disagrees: Chase and Morgan should have, but apparently don't have, appropriate safeguards in place before enabling subprime lenders like United Companies and ContiFinancial. For this reason as well, ICP requests access to the withheld substance of Chase's purported due diligence policies for doing business with subprime lenders. All that has been provided are the headings (for example, "Reputation Risk," followed by 9 blank entries labeled A thought I; similar redacted were done under the heading "Best Practices"). It is noteworthy that Morgan's "policies" (FRB Public Exhibit 47) do not even mention any fair lending, or even "reputation risk," review. This makes disclosure of Chase's purported policies all the more important...

ICP's December 8, 2000, FOIL appeal is timely, and must be addressed, the improperly withheld information released, and ICP granted a reasonable time to comment thereon, prior to any final determination on these Applications by the Banking Board, and the Superintendent or her designee....

While still seeking to withhold presumptively public information (including the mass of information which ICP is seeking in its FOIL appeal of today's date), Chase and Morgan are simultaneously counting on Banking Board approval for the applications, at the Board's December 14, 2000, monthly meeting. See, e.g., Memo of Chase's and Morgan's CEOs, filed with the Securities and Exchange Commission on November 29, 2000.

Since the only scheduled meeting of the Banking Board between the date of the above-quoted Memo and January 2, 2001, is on December 14, 2000, the institutions clearly expected, and have now publicly stated that they expect, final Board action on December 14, 2000 -- despite seeking to withhold key information. The NYBD appears to be acquiescing to this "aggressive timetable" (see supra) -- even as to the subprime lending information released to ICP on December 6, the Department's General Counsel has granted ICP only until December 8, 2000, to comment. [Footnote omitted].

ICP's timely FOIL appeal must be addressed, the improperly withheld information released, and ICP granted a reasonable time to comment thereon, prior to any final determination on these Applications by the Banking Board, and the Superintendent or her designee.

On the current record, these Applications could not legitimately be approved.

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

Very truly yours,
Matthew R. Lee, Esq.
Executive Director

Update of December 4, 2000: As reported in the mid-week update of December 1, below, Chase last week responded to the Fed's and NYBD's questions about its involvements with subprime lenders. But Chase is seeking to withhold the list of the subprime lenders for which it does warehouse lending. ICP has submitted a comment to the NYBD and Fed on this; the NYBD comment (referencing ICP's Freedom of Information appeal, and some other late-developing issues) is below; the Fed comment is substantially similar.

December 4, 2000

Dear Members of the Banking Board, Superintendent McCaul, et al.:

Significantly, Chase and Morgan are seeking to withhold information about the subprime lenders with which Chase has had a warehouse lending relationship in the last two years, and both institution's purportedly policies to avoid doing underwriting for predatory lenders. See Chase's counsel's letter to the Department, dated November 29, 2000, at 1, 7, 13 and 19. ICP has today submitted a Freedom of Information Law ("FOIL") appeal, with a copy to the Committee on Open Government, requesting access to this presumptively public, and questionlessly material, information. As the Department knows, Credit Suisse and Donaldson, Lufkin & Jenrette ("DLJ") released precisely this type of information, in a Department proceeding in October and November, 2000 -- undercutting Chase's, Morgan's and the Department's claim that Chase would suffer competitive harm from the release of the information (Credit Suisse, for example, has not claimed any harm suffered from releasing the information) and undermining any claim that Chase and Morgan do not have similar information about their competitors. As another pertinent example, Chase's and Morgan's competitor Citigroup released detailed information about Citigroup's "internal" business practices regarding predatory lending, and this information has been made publicly available on, for example, the Web site of the Office of the Comptroller of the Currency (<www.occ.treas.gov>). The Applicants' November 29, 2000, conclusory request for confidential treatment does not address any of these obvious and recent precedents, despite that fact that Chase's counsel is clearly aware of the Credit Suisse - DLJ precedent. The American Banker of November 27, 2000, at Pg. 1, reported: "'This will not pose any difficulties for the banks,' said Gary Rice, a partner with the law firm Simpson Thatcher & Bartlett, which is representing Chase in the deal. Noting that Credit Suisse First Boston and Donaldson, Lufkin & Jenrette were asked similar questions when state regulators reviewed their merger, he said, 'It is becoming part of the application these days.' A spokesman for J.P. Morgan echoed Mr. Rice's comments."

While seeking to withhold presumptively public and material information, Chase and Morgan are simultaneously counting on Banking Board approval for the applications, at the Board's December 14, 2000, monthly meeting. See, e.g., Memo of Chase's and Morgan's CEOs, filed with the Securities and Exchange Commission on November 29, which begins:

Dear Colleagues:

Only 10 weeks since announcing the merger of J.P. Morgan and Chase, we are well on our way to closing by the end of the year. Last week the Securities and Exchange Commission declared our joint proxy statement effective, and shareholder meetings have been scheduled for Friday, December 22. We anticipate receiving the remaining regulatory approvals so that our first day of doing business as J.P. Morgan Chase & Co. will be January 2, 2001.

--Emphasis added.

Since the only scheduled meeting of the Banking Board between the date of the above-quoted Memo (November 28, 2000) and January 2, 2001, is on December 14, 2000, the institution's clearly expected, and have now publicly stated that they expect, final Board action on December 14, 2000 -- despite seeking to withhold key portions of their response of November 29, including types of information that their competitors, Credit Suisse and DLJ, released publicly in October and November, 2000, in a proceeding of which Chase's counsel has stated he is aware (see supra).

In this proceeding, Chase and Morgan have both claimed to have policies and procedures to avoid enabling predatory lenders, but have sought to withhold the substance of those policies and procedures, and even a list of the subprime lenders with which they do business. The improperly withheld information should be released, forthwith; the comment period must be extended, as it was for the non-withheld portions of the Chase Letter, until at least five days after the improperly withheld information is released.

* * *

In the interim, ICP provides the following preliminary comments on the portions of the Applicants' November 29 submission (the "Chase Letter") for which they did not improperly seek confidential treatment:

It is clear that Chase has becoming increasingly active in subprime lending, nationwide and in New York State. The Chase Letter at 10 reports that in 1999, Chase made 337 "retail" subprime home equity loans in New York State...

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Update of December 1, 2000: Inner City Press has just received a portion of Chase's and Morgan's response to the New York Banking Department's questions about their involvements with subprime lenders. Chase has requested "confidential treatment" for the list of subprime lenders with which it has or had had "warehousing relationships." It should be noted that Credit Suisse and DLJ released precisely this kind of information, a month ago -- undermining Chase's claim that disclose of this type of information would lead to competitive harm. ICP will be appealing Chase's attempts to keep secret this list, and Chase's presentation of its due diligence procedures for doing business with subprime lenders.

As to what Chase has disclosed: Chase Securities has done underwriting, in 1999 and year-to-date 2000, for the following subprime lenders: New Century; Conseco Finance (Green Tree); Block Mortgage; FSPC; Option One; Fremont; Centex; and Saxon. Morgan has done underwriting for AFC, Green Tree / Conseco, and Champion / Key Bank. Compliance problems (to say the least) exist, as to a number of these. ICP is preparing a supplemental comment to the NYBD.

The "public portion" of Chase's November 29 response as confirms Chase's growing involvement in direct subprime lending. Chase, in New York State, made 337 "retail" subprime home equity loans in 1999. In the first half of 2000, the number jumped to 1051.

We will be reporting more in our Update of December 4. What's most striking is Chase's and Morgan's novel attempts to keep confidential the lists of subprime lenders with which they have warehousing relationships. How, then, to assess claims Chase makes, such as, Nov. 29 Resp. at 3, that "Chase Bank, as a matter of policy, does not provide warehouse financing to lenders that diregard the borrower's ability to repay the loan..."?

Update of November 27, 2000: As reported below, the New York Banking Department and the Federal Reserve have now asked Chase questions about its involvements with subprime (high interest rate) lenders, and other issues. Chase's responses will be reported in this space, upon receipt. Meanwhile, Chase last week announced it's acquiring Paymentech Inc.'s Utah-based commercial credit-card issuing unit, for "undisclosed terms." Thomson Corp.'s Venture Economics reported that Chase Capital Partners was the most active venture investor during the third quarter of 2000, investing $315.4 million in 51 companies. Chase Capital Partners reported a $25 million loss, in the third quarter, and there's mounting speculation that Chase may spin-off the unit (its investment in theStreet.com sure worked out well, didn't it?). Welcome to the bank holding company-as-casino.

While Chase has gotten more and more involved in questionable subprime lending in the United States, and its regulators have now (finally) asked for detailed information about these involvements, Chase's spin-machine has moved up a notch, to full-throttle. On Nov. 21, Chase announced it's taking part, along with four other banks, in a "Predatory Lending Pilot" in New York, to the tune (all five banks combined) of $5 million dollars. Meanwhile, Chase in 1999 made $3 billion in subprime loans, and funded and underwrote much more... Chase, which has "declined comment" to numerous journalists about challenges to its Morgan proposal, pitched its "faith-based lending program" to local NYC television recently. Spin on!

Here's what's up in the Chase - Morgan proceedings: the Federal Reserve has (at last) asked Chase and Morgan questions about their involvements in subprime lending, including auto and other consumer lending, and about other adverse issues raised in ICP's November 6 comment: Chase's settlement of class action credit card litigation, Chase's and Morgan's activities with a Sumitomo Bank copper trader in the mid-90s; Chase's activities during the Holocaust, particularly in France; and Chase's unaddressed underwriting of insurance policies on slaves in the United States. On these final issues, the Federal Reserve's question letter goes beyond the New York Banking Department question letter set forth (now in full) below. Under the Fed's "Ex Parte" rules, it is clear that Chase must send a copy of its response to the Fed's questions to ICP... The American Banker of Monday, November 27, 2000 reports on the NYBD's question letter, and quotes Chase's outside counsel that "'This will not pose any difficulties for the banks'... Noting that Credit Suisse First Boston and Donaldson, Lufkin & Jenrette were asked similar questions when state regulators reviewed their merger, he said, 'It is becoming part of the application these days.'" "N.Y. Regulator Asks J.P. Morgan, Chase About Subprime Activities," by Rob Garver, American Banker, November 27, 2000, Pg. 1. ICP's executive director is quoted that "[i]f this were as routine an inquiry as they say, they would have addressed it in their application. They were hoping the questions wouldn't be raised."

In support of that, compare ICP's November 6 comment (set forth at the bottom of this Web page) to Chase's November 14 response (the "Resp."), on the issues raised in the Fed's question letter:

Chase's Resp.'s only (oblique) reference to the slavery issues was a statement, at 2, that ICP's "Comment is replete with references to Chase's alleged history, ranging as far back as 150 years...". That's it -- there is no other response, on the slavery or Holocaust issues. On the subprime lending issues, no mention is made of Morgan, and Chase only responded, however superficially, as to its own, direct subprime mortgage lending. The Fed has now asked about "other consumer" subprime lending, and about Chase's involvement with subprime lenders as warehouse lending and underwriter. If, as Chase's counsel told the American Banker on November 22, Chase and Morgan have no problem responding to these matters, which are simply "part of the application these days," why did not only Chase's application, but also Chase's purported response, not address these issues? And, for the (ongoing) story of the NYBD's somewhat similar information request to Credit Suisse and DLJ (referred to by Chase's counsel, quoted above), see ICP's Bank Beat page, from mid-October to the present.

ICP will be closely reviewing Chase's and Morgan's responses, to the Fed and NYBD, for completeness and candor. Developing...

Footnote: Chase and Morgan have set their shareholder meetings for December 22. Meanwhile, ICP has received a copy of a complaint a resident of Plano, Texas filed with Senator Phil Gramm (R-TX), against the Chase-Morgan merger. We'll see what happens on that one...

Update of November 22, 2000: Among the grounds for ICP's November 6, 2000, challenge to Chase's applications to acquire J.P. Morgan is Chase's and Morgan's involvements, as warehouse lenders, underwriters and otherwise, with a number of problematic subprime (high interest rate) lenders. The issue is documented in Section III of ICP's comment, at the bottom of this page, including ICP's request that Chase and Morgan be asked the same questions about subprime lending that Credit Suisse and DLJ were asked, as reported in late October on ICP's Bank Beat page.

Late on November 21, ICP received a copy of the NYBD's question letter to Chase (dated Nov. 21), which asks these questions.

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Update of November 20, 2000: On November 17, ICP received from the New York Banking Department a set of handwritten notes from an October 13 meeting between Chase / Morgan and that agency. From Chase and Morgan, the following people attended:

Chase general counsel William McDavid; Chase treasurer Mary Guilfoil; Chase lawyer Ronald Meyer; Chase CRA staffers Anne Diedricke and Nancy Quaife; Chase "competition" specialist Mark Segall; Chase "Holocaust" specialist Lyn Federman; Chase Financial Lou Morrell; Chase outside counsel Gary Rice; Morgan CRA staffer Nancy Iskere; Morgan lawyer Kathlenn Juhase; Morgan Financial Grace Vogel; and Tom Block, "Government Relations."

The handwritten notes from the meeting are instructive. One sheet recites: "CRA... No plans for commitments. Very quiet reaction. [ICP] has said [it] will protest. Chase securitizes subprime." Another says: "CRA -- doesn't expect a lot of issues will occur... Shooting for early December." Another notes, next to the name of Chase lawyer Ronald Meyer, that "Don't think CRA should be big issue because... don't plan to make any major CRA announcements; sent [ICP] copy of Fed application so [it] can't complain about not having enough time. Chase is involved in: mortgage-backed securities; subprime lending." There's no mention of another issue: Chase's own application acknowledges that in 1999 and the first half of 2000, in the New York City CSMA, Chase closed 24 branches, and opened... one.

There is a detailed recitation of representations Chase made about "Holocaust issues" -- "Chase research has indicated that, contrary to popular opinion, Chase did not freeze accounts...Chase did participate in the Ruckwanderer program operated by Germany in the 1930s." ICP is checking these with experts. This memo concludes: "Timetable for the merger is aggressive: Chase and JPMorgan are working to secure state and federal approval before the end of calendar year 2000. This year-end target data has not been publicly announced."

Particularly striking is the NYBD handwritten note that says:: "CRA -- doesn't expect a lot of issues will occur... Shooting for early December." Another recites, next to the name of Chase lawyer Ronald Meyer, that "Don't think CRA should be big issue because... don't plan to make any major CRA announcements; sent [ICP] copy of Fed application so [it] can't complain about not having enough time. Chase is involved in: mortgage-backed securities; subprime lending."

So: among the reasons Chase gave that it "doesn't expect a lot of [CRA] issues will occur" is that Chase doesn't plan to make any CRA "announcement" or "commitment." This is Chase's view: CRA commitment, no matter how vague, are seen as slowing down, rather than speeding up, regulatory review of merger applications. Potential commenters are sent copies of the application, by Chase's outside counsel -- but only so they "can't complaint they don't have enough time."

Chase's (first) response to the Fed archly states that "Chase and Morgan have discussed the Merger with dozens of community leaders, including Chase Bank's Community Advisory Board, and have sought their input and ideas for the merged institution. These community leaders have raised no major issues regarding the Merger." ICP has now reviewed the "roster" of Chase's Community Advisory Board. It includes representatives from the Chamber of Commerce of Albany, New York (where the percentage of Chase's small business lending that was in low- or moderate-income census tracts declined, dramatically, from 1999 to year-to-date 2000); it includes representatives from the "financial intermediaries" LISC, Enterprise, and NHS, as well as from the YWCA and the Salvation Army. There's the past head of the New York Housing Partnership (now working for leveraged buy-out king Henry Kravis), and the current head of the NYHP, Veronica White. Chase is a major funder of the NYHP's middle-income housing projects; it's not surprising that the NYHP would not "raise major issues" about Chase, the Merger, or anything else. The issues, despite the limitations in the NYBD notes quoted above, include that Chase's own application acknowledges that in 1999 and the first half of 2000, in the New York City CSMA, Chase closed 24 branches, and opened... one.

ICP has e-polled certain other, more grassroots members of Chase's "Community" Advisory Board, and has learned that this Board, which meets four times a year, has met only once since the merger was announced. Chase's and Morgan head CRA officers, Mark Willis and Nancy Ylvisaker, made a little dog n' pony show (it remains unclear why neither attended the October 13 NYBD meeting reviewed above). David Coulter, who was chased (so to speak) out of Bank of America by Hugh McColl, and has landed at Chase, had previously been scheduled to appear, which he did, admitting that details about the merger were few, since it had only recently been announced. Based on this meeting, Chase tells the Fed that "these community leaders raised no major issues about the Merger." And the Fed apparently takes this at face value. The issue was raised to Federal Reserve governor Edward Gramlich on November 17..

Chase has responded to the analysis, below, of Chase Mortgage Company - West by arguing to the Fed that this HMDA reporter was Mellon Mortgage Company, that Chase acquired in 1999. Chase says it "subsequently filed Mellon Mortgage Company's HMDA data under the name Chase Mortgage Company--West... Chase does not include Chase--West's HMDA data in its analysis of its own 1999 performance because Chase West's HMDA data reflects mortgage records prior to Chase's purchase." Chase's November 14, 2000, letter to the Federal Reserve Board. But note that Citigroup claims credit (or takes responsibility) for the 1999 HMDA data of Source One, which it bought in 1999. One must ask: how could the regulators accept both of these contradictory positions?

Update of November 13, 2000: ICP has submitted a second comment, to the Federal Reserve and New York Banking Department...

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[Here's ICP's initial comment, including a review of (Chase's) banking in New York, and elsewhere:]

PETITION TO DENY AND HEARING REQUEST BY INNER CITY PRESS / COMMUNITY ON THE MOVE AND THE INNER CITY PUBLIC INTEREST LAW CENTER IN OPPOSITION TO THE APPLICATIONS OF THE CHASE MANHATTAN CORPORATION TO ACQUIRE J.P. MORGAN & COMPANY

NOVEMBER 6, 2000

PRELIMINARY STATEMENT

On behalf of Inner City Press/Community on the Move and its members and affiliates, including the Inner City Public Interest Law Center (collectively, "ICP"), this is a timely comment opposing and requesting hearings on the applications and notices of the Chase Manhattan Corporation and its subsidiaries, including its subprime lending subsidiaries such as Chase Funding, Inc. and its subprime lending enabling subsidiaries, such as Chase Securities, Inc. (collectively, "Chase") to acquire J.P. Morgan & Company (together with its subsidiaries, "Morgan").

With this proposal, Chase -- which is the combination of three separate, formerly competing retail banks -- turns further away from providing normally-priced retail services to the communities it was chartered to serve, including low- and moderate-income ("LMI") neighborhoods and communities of color, and turns further toward global business and investment banking, much of it environmentally and socially destructive.

Section II of this Comment analyzes Chase's insufficient service, at normal interest rates, to LMI neighborhoods and people of color, including in light of the more than 100 bank branches Chase has closed (or sold and closed) in recent years. ICP begins with a summary narrative of the loss of banking competition and service in low-income New York in the past decade, then turns to Chase's continued reductions of service, after its merger with Chemical Bank. As demonstrated from the FRB's own Orders, and press accounts, the decrease in branches in low- and moderate-income census tracts has been more pronounced than overall branch decreases. This has resulted, inter alia, in Chase's self-reported decreases in the percentage of Chase's small business loans from 1999 to first-half 2000 were in LMI census tracts, in not only the New York City and Long Island Metropolitan Statistical Areas ("MSAs"), but also in Albany, NY (from 20.4% to 14.6%), Buffalo (from 43.2% to 25.0%) and Elmira, NY (from 11.1% to zero, in the fast half of 2000).

Section II concludes with an analysis of Chase's disparate mortgage lending in 1999, with the caveat that since Chase mixes its high-interest rate loans (disproportionately to people of color) into its banks' and mortgage company's Home Mortgage Disclosure Act data, Chase's disparities are even greater than reflected by the data. Note that Chase's Application's presentation of its HMDA data, App. at 57-60, does not even mention that subprime loans are mixed in with its HMDA data.

Section III turns to an analysis of Chase's new strategy for serving LMI neighborhoods and people of color: higher than normal interest rate lending, for home equity, mortgage, automobile and other loans. Particular emphasis is placed on Chase Funding (which made $3 billion in subprime loans in 1999), and the other questionable subprime lenders which Chase enables, through warehouse loans, underwriting, trustee and other services. J.P. Morgan & Co. is also active in underwriting pools of subprime loans, such as IMC Home Equity Loan Trust 1998-3 (see infra). ICP enters into the record a series of questions about subprime lending that the New York Banking Department has recently, following an ICP comment less detailed than this, asked of two applicant investment banks; ICP asks the FRB to pose these and other questions to Chase and Morgan, in this proceeding.

Section IV analyzes the business to which Chase is turning, as it increasingly pulls back from normal interest rate lending and branch banking in local communities: global business and investment banking. The adverse social, environmental and human rights effects of Chase's (and J.P. Morgan's) business practices are timely put into the record before the Federal Reserve Board -- both historically (Chase's involvement in slavery in the United States, and in the Holocaust in Europe), and up-to-the-minute (Chase's and Morgan's involvement in the controversial Three Gorges Dam project in China, which will displace over one million people, and, in the United States, Chase's involvement in funding companies long-alleged to be involved in, and to exemplify, environmental racism).

Section V touches on the anticompetitive and other prospective effects of this proposal, and deficiencies and mis-statements in Chase's applications.

In Section VI, ICP formally requests public hearings on these applications, and contends that on the current record, these applications could not legitimately be approved.

II. CHASE HAS DIMINISHED THE SERVICE TO COMMUNITIES, PARTICULARLY LMI NEIGHBORHOODS, PREVIOUSLY PROVIDED BY CHEMICAL BANK, MANUFACTURERS HANOVER AND CHASE'S OWN PRE-WHOLESALE ENCARNATION

A. A Little History (Grounded, At Each Stage, in the South Bronx, But Of Import Beyond It)

Once upon a time -- less than a decade ago, actually -- three large banks competed with each other in providing retail banking and lending services in New York City: Chemical Bank, Manufacturers Hanover Bank, and Chase Manhattan Bank. While each of these banks, particularly Chase, also had business outside of the United States, each bank's focus was on the U.S., in particular on their shared headquarters city, New York. Even then, of the three, Chase was the least focused on low-income New Yorkers. In the late 1980s, Chase has begun closing branches in low-income neighborhoods in New York. See, e.g., Crain's New York Business of December 8, 1986, "Chase to Slash N.Y. Branches," reporting that "Chase Manhattan Bank may close as many as one-fifth of its branches in the New York metropolitan area next year... Bank sources and real estate experts say bank executives are evaluating a program that would close... anywhere from 20 to 50 of the bank's 232 area branches as part of an overall corporate cost-cutting move. Though occasional branch closings are not uncommon, Chase's plans appear to be the most draconian contemplated by New York's major banks in several years." Significantly (particularly in terms of the instant proposal), this same article also reported that " Chase officials appear to be reconsidering the basic banking business. President Thomas Labrecque, arguing for broader banking powers, has even talked of giving up the bank's charter altogether to become a financial operation more like American Express Co.".

For a Bronx example of Chase's "draconian" practices, note that Chase closed its branch on Tremont and Washington Avenues in The Bronx, leaving no other Chase branch for twenty or more blocks, in any direction. This closed-down Chase Manhattan Bank branch -- still with Chase's hexagon logo on its now-seal night deposit drawer -- is now being used as a church.

On July 15, 1991, Chemical and Manufacturers Hanover announced their intention to merge -- "a deal that [would] le[a]d to 6,000 layoffs and more than 80 branch closings." Buffalo News, August 28, 1995. New York City residents, particularly in low- and moderate-income neighborhoods, expressed concerns, about how many branches would close, and how competition might diminish. The Federal Reserve nonetheless approved the merger application. 78 Federal Reserve Bulletin Pg. 74 (January 1992). This Fed approval order stated, among other things that, "Chemical Bank and MHTC have a combined total of 91 branches in low- and moderate-income neighborhoods in the downstate New York area... Currently, Chemical Bank proposes, following the merger of Chemical Bank and MHTC, to consolidate 14 branches of the combined banking organizations located in low- and moderate-income areas into nearby offices... This would leave a total of approximately 77 full-service branches in low- and moderate-income areas in the downstate New York area." [Note that now, in 2000, the combination of Chase - Chemical - Manufacturers Hanover Trust has only 77 LMI branches in the entire New York CMSA (App. at 76) -- thus, (more than) all of the old Chase's LMI branches have been eliminated. It is "more than," because the CMSA is largest than the area referenced in the FRB's Chemical Bank Order. And see infra].

The Fed included in its antitrust calculations the deposits of non-retail banks like J.P. Morgan & Co.'s Morgan Guarantee unit, and Bankers Trust: "Upon consummation of the proposed acquisition, Chemical would become the largest commercial banking organization in the market, controlling approximately 17.2 percent of the total deposits in commercial banking organizations in the market." Id. at n.14. Community groups complained, but to no avail.

In the aftermath of the merger, dozens of bank branches were closed. On the 149th Street and Third Avenue "Hub" of the South Bronx, the MHT branch closed. Still, "Judy Walsh, a Chemical Bank spokeswoman, said the bank has 438 branches. To date, 11 branches have been closed due to proximity to other Chemical or Manny Hanny branches. Some 69 more branches will be closed by the end of the first quarter of 1994, nine months ahead of schedule, she said. Even after these closures, Walsh said the merged bank eventually will have 320 metropolitan New York branches -- 60 more than its nearest competitor." U.P.I., April 5, 1993.

Chase, meanwhile, had confirmed its focus on the most affluent (and least minority) consumers, becoming the largest issuer of "jumbo" mortgages (mortgages over Fannie Mae's then-current $200,000 threshold) in the country. Low-income communities suffered, and community groups began to raise their voices. See, e.g., "The group said the South Bronx in particular had been underserved by Chase, with only one-fifth of the bank's mortgage applications in the Bronx coming from the South Bronx. And it said that of Chase's 15 branches in the Bronx, only 2 were in the South Bronx." New York Times, November 5, 1994.

Chemical continued along with its branch closing strategy, deciding in 1994 to close 50 more branches, "on top of the 80 branches that Chemical has designated for closing as a result of its 1991 merger with the Manufacturers Hanover Corporation. The merger gave Chemical 441 branches throughout New York State. So far, Chemical has closed 62 of the 80 downstate branches it said it would eliminate largely because the two banks operated branches near each other. The remaining 18 branches and the 50 new branches will be closed by the end of this year. Chemical has also sold its 31 upstate New York branches...". New York Times, March 26, 1994.

On August 28, 1995, Chemical and Chase announced their intention to merge, in a then-record $10 billion stock transaction. The banks told investors that the combination would result in $1.5 billion in annual cost savings, including by closing 100 bank branches. Neighborhood residents and community groups -- in greater numbers than had opposed the Chemical - Manufacturers Hanover combination in 1992 -- expressed their concerns to the Federal Reserve, about the branch closings, the loss of competition, and Chase's record of excluding LMI neighborhoods and people of color.

The Federal Reserve agreed to hold a public meeting on the merger, at which dozens of community groups testified. Nevertheless, on January 5, 1996, the Federal Reserve approved the Chase-Chemical merger (82 Federal Reserve Bulletin Pg. 239, March 1996), stating among other things that "Chemical Bank operates 185 branches in New York City, including 45 in low- and moderate-income communities. Of the branches in low- and moderate-income communities, 13 are in the Bronx and 14 are in Brooklyn. Chase Bank operates 107 branches in New York City, including 24 branches in low- and moderate-income communities. Chase Bank also operates 81 branches in upstate New York, including 15 branches in low- and moderate-income communities... Chemical has announced that only seven of the 69 branches that would be operated by New Chase Bank in low- and moderate-income communities in New York City would be closed as a result of the proposed merger... Chemical also has announced that it expects New Chase Bank to close 93 other branches after the merger. These branches are not located in low- and moderate-income communities." Id., text accompanying n.52-56. This order, at Appendix B, listed 323 branches of Chase Manhattan Bank, N.A. which would become part of Chemical Bank's New York State charter.

Note that Chase Bank alone had 81 "Upstate New York" branches in 1996. Now, in 2000, the Chase - Chemical combination has only 49 "Retail and Middle Market Branches" in Upstate New York, only nine of which are in LMI census tracts. App. at 76. Also, Chase Bank in 1996 had 323 branches; Chemical - MHTC combined to have 441. Together, that would be 764. But, in 2000, the combination of the three banks has only 556 branches. Id. While the overall branch deficit is 208, that deficit is still less than the Chase Bank branches in 1996. But, in terms of LMI branches, all of Chase's branches are gone -- see supra.

How did this come about? Subsequent to the consummation of the Chase - Chemical merger, Chase closed more than 100 bank branches. Its statements that only seven of the branches were in low or moderate income neighborhoods turned out to be misleading: many of the branch closings were in technically middle-income census tracts, surrounded on all sides by low- and moderate-income census tracts. Even the Fed had to acknowledge, later in 1996, that "Chase has also closed one additional branch located in an LMI census tract in New York City that had not been disclosed in the Chemical/Chase application.... Chase indicates that the LMI Branch was inadvertently identified as a branch that would be retained in an LMI census tract." 82 Federal Reserve Bulletin Pg. 1139 (December 1996), n.14 and accompanying text.

Over 10,000 people were laid off; Chase aggressively fought off ligitation alleging racial and age discrimination in the lay-offs. See, e.g., BERTUZZI v. CHASE MANHATTAN BANK, N.A., QDS:02761641, reported in the New York Law Journal of September 30, 1999, at 25 (terminated employee "had been employed by Chase since 1958"). [Employment discrimination claims were not new at Chase: see, e.g., Alonzo v. Chase Manhattan Bank, N.A., No. 98 Civ. 2749, 1998 WL 833855 (S.D.N.Y. Dec. 1, 1998) ("Luis R. Alonzo, a Latino employed by Chase since 1974, filed a charges the EEOC and the New York State Division of Human Rights, alleging national origin discrimination, specifically, that his supervisor, Fritz Groesser, subjected him to repeated name-calling and racial slurs].

In the Hub of the South Bronx, 149th Street and Third Avenue, Chase's branch was closed, and the space was subsequently donated to a smaller institution -- for which Chase claimed social, and even CRA, credit. Subsequently, on October 25, 2000, the state comptroller came to the site, and stated: "Everybody else left - they didn't realize what they had here." N.Y. Daily News, October 26, 2000. Chase's interest(s) had moved elsewhere --

In 1999, after extensive lobbying by Chase, Citicorp, Morgan and other financial institutions, and after the Federal Reserve had poked loophole after loophole through the Glass-Steagall Act's separation between commercial and investment banking, including in various orders allowing Morgan to become more and more involved in investment banking, Congress passed, and the President signed, the Gramm-Leach-Bliley Act of 1999, removing any restriction on the percentage of a bank holding company's business that could be non-retail, investment banking.

Chase's focus, despite the retail banking business it had consolidated into itself throughout the 1990s, turned increasingly to global and wholesale business, particularly investment banking. Chase acquired San Francisco-based Hambrecht & Quist, the U.K.-based investment bank, Robert Flemings Holdings, a stake in Australasian investment bank Ord Minnett, New York-based Beacon Group, and, in a smaller deal, the U.S. corporate trust business of Fuji Bank.

Morgan, as noted above, had been at the forefront in pushing the FRB to "relax" (and incrementally repeal) the Glass-Steagall Act. By 1996, Morgan (and the FRB) described its bank, Morgan Guaranty, as "a wholesale institution that specializes in providing financial services to institutional customers such as corporations and governmental entities and to high net worth individuals. As a wholesale institution, Morgan Guaranty does not engage in residential mortgage lending, other than as an accommodation to its existing customers, or provide other traditional retail credit products, and it does not hold itself out as a retail lender." FRB Order of April 29, 1996, text accompanying n.11. While Morgan claimed to have no connection to retail banking in the United States, it has opportunistically bought into retail banks overseas, including, most recently, KorAm Bank (through a "Cayman Islands limited partnership," App. at 143, information regarding which the Applicants have inappropriately requested confidential treatment, along with information about other companies Morgan has invested in, see Section V, infra).

On September 13, 2000, Chase and J.P. Morgan announced their intention to merge, in a $33.6 billion stock deal, forming a company with $660 billion in assets, to be named J.P. Morgan Chase. At the time of announcement, Chase estimated cost savings of approximately 1.5 billion dollars in the combination. "This is all about wholesale," said Chase's recently installed CEO William Harrison (American Banker, September 14, 2000, emphasis added), adding, as a seeming afterthought, that retail banking may not be "a natural fit with the greater emphasis on wholesale banking and investment banking services." CNNfn, September 13, 2000, 2:46 p.m. Eastern Time. The Application, at 14, states that "the Merger represents precisely the type of consolidation contemplated by... the Gramm-Leach-Bliley Act."

And thus, three previously-competing retail banks have consolidated into one, Chase, which now turns away from the communities the three banks had been chartered to serve.

B. Loss of Services After the Chase-Chemical Merger

While Chase said that only seven of its 100 named branch closings explicitly related to the Chemical merger were in low- or moderate-income neighborhoods, this turned out not to be true. See, e.g., N.Y. Daily News, September 3, 1996 (The Toll: City Will Lose 4,000 Jobs; 100 Area Banks to Close): "Branches: one hundred will close. They include... neighborhood branches in Jackson Heights, Queens, and Gun Hill in the Bronx. Chase says only seven targeted branches are in poor neighborhoods. But Matthew Lee, executive director of Inner City Press/Community on the Move, a South Bronx group that's battling the merger, says that is misleading. 'Technically, Jackson Heights, Gun Hill and several other branches are in middle-income neighborhoods, but they're just blocks away from low-income communities, so they adversely impact the poor who use those banks,' Lee said." As the New York Banking Department ("NYBD") soon realized (after these and other comments), numerous others of the closings were in technically middle income census tracts, surrounded on all sides by low- or moderate-income tracts. In fact, Chase's duplicity lead to the NYBD changing the format of its branch closing question, to include branches adjacent to LMI tracts.

The fall-out, disruptions of service, and increasing exclusion of LMI communities from normal interest rate credit began nearly immediately, and continued over the next years. See, for simply one example, the New York Times of February 22, 1998, Sec. 14; Pg. 8; Col. 3 ("A Merger Creates a New, Unamusing Ride"): "At the time [of the merger -- 1995], Chase announced that 100 branches would close as a result, and most of the closures have been completed. This week, one of the last will take place, when Chase closes its branch at 486 Neptune Avenue... Chase plans to transfer all accounts to its branch at the corner of Brighton Beach and Coney Island Avenues, just under a mile away. But the Neptune Avenue branch sits at the heart of a cluster of high-rise housing complexes inhabited by thousands of senior citizens. Shopping carts double as walkers here, and a mile, in some cases, might as well be 10. 'I can't walk that far,' Lee Deutsch, 82, said of the Brighton Beach branch. 'I'm an old lady.' For elderly people in the area, a trip to the bank may be a week's central mission."

Many of Chase's branch closings left customers with well over a mile to travel. See, e.g., Crain's New York Business, September 13, 1999, "Banks Make Withdrawals: Small Firms Have Tougher Time Finding Services as Branches Close:" "When Veta Brome's local Chase Manhattan branch closed two years ago, the Queens real estate broker had no alternative but to transfer her business to a branch two miles away. Now, it takes Ms. Brome more than twice as long to do her banking, and the service has gone downhill as well. 'Going to the bank has become like D-Day,' she complains." Emphasis added.

Note that the nearest Chase branch to this closure was "two miles away." Note also that Chase attempted to portray a number of its branch closings as unrelated to the Chemical bank merger and cost-cutting -- an attempt rejected by courts, in, for example, 401 BROAD HOLLOW REALTY CORP. v. CHASE MANHATTAN BANK, QDS:86700925, reported in the New York Law Journal of March 31, 1999, at 25 ("Landlord Shows That Bank Moved Branch Over Merger, Not Construction Disruption"): "the respondent merged with Chemical Bank on July 14, 1996, and on April 11, 1997, respondent wrote to the New York State Banking Department advising them of its intention to close its branch office located at these premises and relocate the business of the branch to a location .87 miles away. The reasons expressed in that letter for closing the branch at these premises are not related to the issues raised by respondent here. Rather, respondent advised the Department that 'the formation of The Chase Manhattan Bank has resulted in a retail branch network which contains a number of branch outlets located in close proximity to each other thus causing an unnecessary duplication of service delivery to the same communities. In order to focus its economic resources in those areas which will maintain the highest quality of service delivery to its customer, Chase has designated selected branch offices to be closed.'"

The problem is, the re-"focus[ing of] economic resources" by Chase was not toward service of retail, moderate income customers, but toward increased nationwide subprime lending, and global (and equally standardless) business (see Sections III and IV, infra).

C. Chase's Continued Pull-Out from Communities

Since Its Merger with Chemical

The adverse effects on communities are palpable and quantifiable, even in Chase's Application. At page 62, the Application acknowledges that a smaller percentage of Chase's small business loans from 1999 to first-half 2000 were in LMI census tracts, in both the NYC and Long Island MSAs, the Binghamton, Buffalo, Albany, Elmira, Rochester and Syracuse NY MSAs, the Danbury and Stamford-Norwalk CT MSAs, the Bergen and Newark NJ MSAs, and the Dallas, Houston, San Antonio, Austin, El Paso TX MSAs. In the same time frame, Chase closed LMI branches, in Texas, in San Antonio, McAllen and Brownsville, with the last being purportedly "relocated" to a non-LMI site. Note that in 1999 in the McAllen MSA, Chase Manhattan Mortgage Corp. ("CMMC") denied the mortgage refinance applications of Latinos three times more frequently than those of whites. In the Dallas MSA, CMMC denied the conventional home purchase application of African Americans 2.61 times more frequently than those of whites. In the Brownsville, Texas MSA in 1999, CMMC denied the conventional home purchase applications of Latinos 3.4 times more frequently than those of whites. And in the San Antonio MSA in 1999, CMMC denied the conventional home purchase applications of African Americans 2.56 times more frequently than those of whites.

The Application, at n.106, states that Chase is pulling out of Texas retail markets, specifically, the Odessa-Midland MSA. The Application at 78 states that "in April 2000, Chase Bank sold six branches to Webster Financial Corporation... in Cheshire, Middlebury, North Haven, Waterbury and Watertown [CT]. Chase Bank has completely exited those markets as a result of the sale to Webster." Note that in 1999 in the New Haven MSA, CMMC denied refinance loan applications from African Americans 2.42 times more frequently then those of whites. In the Stamford MSA in 1999, CMMC denied the conventional home purchase applications of Latinos 2.06 times more frequently than those of whites.

The Application also states that "[i]n the Albany, Binghamton, Buffalo, Elmira and Utica assessment areas, Chase Bank has only middle market branches." This was not always so -- in fact, it was not so until quite recently. According to the Buffalo News of September 18, 1999, "Chase Manhattan Bank's local retail customers and about 230 employees will convert to M&T Bank next week through the sale of 29 branches. The New York City-based bank is pulling out of several Upstate New York markets by selling its branches, including seven in the Buffalo area, to M&T... Chase decided this year to retrench from some retail markets that are not major profit centers. Chase will continue to serve commercial clients in the Buffalo area, focusing on "middle-market" companies with annual sales of more than $ 3 million...". Emphasis added.

This was followed by a December 7, 1999 announcement (also in the Buffalo News) that "M&T Bank Corp. has begun cutting its branch network by announcing the scheduled closing of seven offices, including three in downtown Buffalo. Five of the branches were recently acquired from Chase Manhattan Bank...M&T branches scheduled to close in the next three months include: 236 Delaware Ave. in Buffalo on Jan. 14; 6532-34 East Quaker Road in Orchard Park on Jan. 26; 2225 Colvin Blvd. in Tonawanda on Feb. 10; 904 Broadway in Buffalo on Feb. 11; 5 Niagara St. in Buffalo on Feb. 15; 295 Main St. in Buffalo on Feb. 15; [and] 312 Main St. in Dunkirk on Feb. 18... Buffalo-based M&T acquired 29 Chase Manhattan Bank branches in September, after Chase decided to exit the retail banking market in Upstate New York. M&T is also closing a branch in Endicott as a result of the Chase acquisition. All of the Western New York branches, except for the Dunkirk branch and 236 Delaware Ave. in Buffalo, are former Chase branches. Zabel said the branch at the corner of Delaware Avenue and Chippewa Street, adjacent to the location where a Hampton Inn will be constructed, has lots of customers but is an outdated facility." Emphasis added.

Chase cannot escape responsibility for these reductions in service, simply because it sold the branches just before they were closed. But the Application, at 78-79, makes no mention of the subsequent (and foreseen) closures. Note that the same thing happened following Chase's earlier round of pull-outs from upstate New York markets, with its sale of 15 branches to Community Bank Systems, Inc. (regarding that deal, see, e.g., American Banker of June 23, 1995, at 7).

Even excluding branch sales (and subsequent closures), Chase admits that during 1999 and the first half of 2000, it closed 24 branches in the New York CMSA, while opening a grand total of one. The rationales given for the closings are internally inconsistent. Chase states that it closed an LMI branch in Brooklyn because a high percentage of the "customers who banked at the closed branch were commercial customers" (note that the "receptor branch" was far more than three blocks away, App. at 77). On the next page, Chase explains an LMI branch closing in New Jersey because the branch was "located in a predominantly residential area.. This community does not have any commercial or consumer shopping traffic." Id. at 78. So Chase will justify LMI branch closing as being based on the branch being "too commercial," or being "not commercial enough." It doesn't seem to matter: Chase is just pulling out.

In July, 2000, Chase announced it is closing its branch on Roosevelt Island in New York City -- the only branch on this water-bound community of 9,000 people. See, e.g., New York Times of September 17, 2000, Sec. 14, Pg. 8, Col. 1 (reporting that Chase will, until July 2001, keep the branch open -- two days a week. "But then what happens after 10 months?" a resident asks).

The CRA ratings that the Application trots out, pp. 51 et seq., are questionable, for a number of reasons. The regulators looked at the wrong things -- ignoring, for example, Chase's deep and multi-faceted involvement in problematic subprime lending, and the actual effects of Chase's reduction in branches and normal interest rate lending facilities, and the number of the branches that Chase sold that were subsequently closed. Chase, with the highest deposit share in the New York market, asks its regulators including the FRB to "exclud[e] two competitor credit card banks" in evaluation its small business lending. App. at 61. As set forth below, Chase's presentation of its mortgage lending, App. at 57-60, doesn't even mention that subprime loans are mixed in with its Home Mortgage Disclosure Act ("HMDA") data.

D. Chase's Disparate 1999 Mortgage Lending

Chase's reduction in branch and normal interest rate lending presence in low- and moderate-income neighborhoods and communities of color has coincided with (and/or led to) disparities in Chase's lending records. In analyzing Chase's HMDA data, it is important to first note that Chase mixes its high interest rate, subprime loans ($3 billion in 1999) in with the normal rate loans in its HMDA data. The Department of Housing and Urban Development's ("HUD's") publication, 1998 HMDA Highlights (HUD Housing Finance Working Paper Series HF-009, 1999), states, Appendix D at 3, that "Chase Manhattan is a large manufactured home and subprime lender. Three Chase Manhattan entities have reported manufactured home or subprime loans to HMDA. In 1997, Chase Manhattan Bank ['CMB'] reported 82,839 purchase and refinance applications. Of these applications, 77 percent (or 63,593) applications were for manufactured homes. Chase Manhattan Bank also reported that it had a significant number of refinance applications for manufactured home loans.... The HMDA LARS of Chase Manhattan Bank, USA, NA included manufactured home loan applications for the fourth quarter. Subprime applications would be included in the LARS for Chase Manhattan Mortgage Corporation ['CMMC']. Chase Manhattan Mortgage Corporation did not have absolute numbers for subprime...".

Incredibly, even with its high interest rate subprime loans added in, Chase still underserves people of color, including in the communities in which it collects deposits. Note that Chase's presentation of its mortgage lending record, App. at 57-60, while including such arcane terms as "Shadow Income" (n.109) make no mention of the subprime loans that are mixed in with its HMDA reporters.

On the Long Island Metropolitan Statistical Area ("MSA") in 1999, Chase (CMB, CMMC and Chase Mortgage Co. added together) made 2242 conventional home purchase loans to whites, and 91 to Hispanics, a ratio of 24.64 to one. The industry aggregate on Long Island made 24,900 such loans to whites, and 1421 to Hispanics, a ratio of 17.52 to one. A significantly smaller percentage of Chase's loans are to Hispanics than is true of the industry as a whole. [snip - contact ICP for more recent data (and, 1999 analysis available supra on this page, in ICP comment to OCC)].

But, as we will see in the next section, while Chase disproportionately denies and excludes people of color from its conventional home purchase lending, at normal interests, Chase has become increasingly active in high interest rate lending, through Chase Funding and by financing and underwriting for subprime lenders who disproportionately target people of color.

III. CHASE IS INVOLVED, IN MULTIPLE WAYS, IN QUESTIONABLE SUBPRIME (HIGH INTEREST RATE) LENDING, DISPROPORTIONATELY TO PEOPLE OF COLOR

While Chase has been pulling its bank branches and normal interest rate lending offices out of low- and moderate-income neighborhoods and communities of color, other divisions of Chase Manhattan Corporation have paradoxically found ways to make profits from these communities: through higher than normal interest rate, subprime lending.

A. Chase's Subprime Lending Through Chase Funding

Chase Funding, which makes high interest rate loans for subsequent securitization, had, as of June 27, 2000, issued fully eight pools of subprime loans "within 22 months." Fitch Structured Finance analysis of Chase Funding Mortgage Loan Asset-Backed Certificates, Series 2000-2. Standards & Poor's on March 21, 2000 went even further back, looking at "50 classes of Chase Funding Trust's mortgage loan asset-backed certificates... approximately US $1.47 billion in rated debt... The collateral is of B and C subprime credit quality backed by first-lien mortgage loans." Business Wire, March 21, 2000, emphasis added. See also, Chase Funding, Inc.'s SEC Form 10K, filed March 29, 2000, for "Chase Funding Mortgage Loan Asset-Backed Certificates Series 1999-1, Series 1999-2, Series 1999-3 and Series 1999-4."

As noted above, Chase reports HMDA data on its subprime loans blended in with the normal interest rate loans of CMB, CMMC and other entities. In fact, Chase told HUD that "[s]ubprime applications would be included in the LARS for Chase Manhattan Mortgage Corporation. Chase Manhattan Mortgage Corporation did not have absolute numbers for subprime...". 1998 HMDA Highlights (HUD Housing Finance Working Paper Series HF-009, 1999), emphasis added.

Question: if Chase cannot (or will not) even break out which of CMMC's loans are subprime loans, how can Chase perform the appropriate due diligence for these potentially-problematic (that is, predatory) loans, including but not limited to a review of the correlation between interest rate and race, canceling for credit history? The answer, in light of the above-quoted HUD report, would appear to be that Chase cannot, and does not. Infra, ICP suggests certain questions the FRB should require Chase to answer, in this proceeding. But first, consider Chase's other involvements in questionable subprime lending:

B. Chase As Purchaser of, and Underwriter, Trustee and Warehouse Lender for, Questionable Subprime Mortgage Loans

Even less scrutinized, to date, is Chase's involvement in questionable subprime lending through Chase Securities, Inc., as underwriter, through its banks, as trustee, and through various units, as warehouse lender / enabler.

In 1999, Chase Securities was among the top ten securitizers of subprime loans. New York Times, March 15, 2000, "Mortgaged Lives," reporting primarily on predatory practices at First Alliance. Note that Chase, during the time frame for which First Alliance is accused of discriminatory and predatory practices, was a substantial buyer of First Alliance's loan trusts. For example, of First Alliance Mortgage Loan Trust 1999-3, Class A-2, Chase Manhattan Bank bought and owns $25,000,000, or 32% of the class. What standards does Chase have, for purchasing subprime loans and pools thereof? Apparently none -- compare the First Alliance practices described in the above-referenced NYT article (incorporated herein by reference) with Chase's purchase of the underlying loans.

Beyond its purchase of loans, Chase acts as a lead underwriter for subprime lenders' MBS issuances. For example, Chase Securities performed this function for Centex Home Equity Corp.'s $415 million securitization of subprime home equity mortgage loans in August, 1999, via Centex Home Equity Trust 1999-3. Mortgage Servicing News, November 1999.

For the record, and simply as one example, see Kansas City Star of April 12, 2000, at A1, "Home-improvement loans ripe for fraud, consumer loss." Centex targets people of color with its troubling subprime loans. For example, in the New York City MSA in 1999, for African Americans, Latinos and whites, the aggregate industry made 20.2% of its refinance loans to African Americans. For Centex Credit Corp., the targeting is clear: a whopping 56.3% to African Americans. So, what standards does Chase have, for underwriting subprime loans and pools thereof? Apparently none.

Chase Manhattan is also, for subprime mortgagors, a "large warehouse lender." National Mortgage News, December 6, 1999. In 1998, Chase was the fourth largest warehouse lender to subprime mortgagors, at $3.3 billion dollars. NMN of April 5, 1999, "Subprime Shakeout Leads to Stricter Warehouse Lending Rules." In 1998, Chase played a large role in extending a $317 million letter of credit to the troubled (and troubling) subprime lender ContiFinancial. See, e.g., American Banker of August 19, 1999, at 3. ContiFinancial's lending unit, ContiMortgage, targets people of color with its troubling subprime loans. For example, in the New York City MSA in 1999, for African Americans, Latinos and whites, the aggregate industry made 20.2% of its refinance loans to African Americans. For ContiMortgage, the targeting is clear: a whopping 52.2% to African Americans. In response to ICP comments in the late 1990s, Conti acknowledged to the NYBD that it had been violating HMDA -- which leads to the question: what sort of due diligence does Chase do, that doesn't even include a review of the HMDA data of the subprime lenders it enables?

J.P. Morgan's bank, Morgan Guaranty, has done warehouse lending to questionable subprime lenders, including $ 64.8 million to United Companies Financial Corp.. See National Mortgage News, April 12, 1999. What standards does Morgan have for this business? Note that J.P. Morgan & Co. is, like Chase, involved in securitizing subprime mortgages. Morgan was the lead manager on IMC Home Equity Loan Trust 1998-3 -- an issuance by the troubled subprime lender IMC, on which Chase Manhattan Bank was and is trustee. IMC targets African Americans with its subprime loans. For example, in the Chicago MSA in 1999, the aggregate industry made five times as many refinance loans to whites as to African Americans. IMC, on the other hand, made as many of its (subprime) refinance loans to African Americans as to whites.

Note also that J.P. Morgan is involved not only in multifamily mortgage origination (an activity clearly relevant to CRA -- as ICP previously documented to the FRB, and see infra, Morgan disproportionately under-serves low- and moderate-income neighborhoods and communities (and tenants) of color in this business line) -- Morgan is also involved in securitization. See, e.g., Bloomberg News of September 18, 2000: "J.P. Morgan is getting ready to sell $738 million of bonds backed by commercial mortgages early next week." See also, Mortgage-Backed Securities Letter of April 19, 1999, reporting in "the past week [a] new CMBS deal, an $800 million offering from J.P. Morgan." And note that Chase's application to the NYBD lists, as a Morgan subsidiary, Cedar Hill International Corp., stating that it "[a]cquires and securitizes commercial mortgage loans."

Morgan has, for a number of years, been involved in multifamily mortgage lending and securitization. A 1996 FRB Order (mis-)summarized ICP's contentions, and a representation by Morgan: "Protestant [ICP] alleges that Morgan Guaranty's 1995 HMDA data indicate a lack of lending for multifamily housing in New York, and Delaware, and in low- to moderate-income areas; prescreening of loan applicants; and violations of the F[air] H[ousing] A[ct] because loans are not made for multifamily housing located in neighborhoods with predominately minority residents. Morgan Guaranty indicates that, although it acquires multifamily loans from unaffiliated institutions for the purpose of having them pooled and securitized by an affiliate and sold to investors, it reports them as originations for HMDA purposes because it provides the underwriting criteria and makes the credit decision on the applicants. Morgan Guaranty states that it has been unsuccessful in locating a broker in the New York City area to participate in this activity, but will continue its attempts to do so." FRB Order of April 29, 1996, at n.16, emphasis added. The FRB should inquire, in this proceeding, into Morgan subsequent compliance with the above-quoted representation (as well as asking Morgan and Chase the questions set forth below, in Section III(D).

Chase Manhattan also operates, standardlessly, as trustee for subprime loans. See, e.g., Merrill Lynch Mortgage Investors, Inc. $130,613,000 (Approximate) Mortgage Loan Asset-Backed Certificates Series 1999-NC1, analyzed (on PR Newswire) by Duff & Phelps on August 20, 1999: "The certificates are issued pursuant to a pooling and servicing agreement dated July 1, 1999, among Merrill Lynch Mortgage Investors, Inc., as depositor; Litton Loan Servicing LP, as servicer; and The Chase Manhattan Bank, as trustee. The certificates represent beneficial ownership interests in a pool of conventional, adjustable-rate, fully amortizing, first-lien subprime residential mortgage loans." Emphasis added.

C. Chase's Auto and Credit Card Subprime Lending

Chase is also involved, directly and indirectly, in subprime automobile lending. "AmeriCredit became Chase Manhattan Bank's only nonprime lending partner in 1999 and launched a direct lending initiative for its customers, effective with their next vehicle loans." Ward's Dealer Business, July 1, 2000, Subprime Lenders Are Staying Busy. The American Banker of March 5, 1999, at 5 ("Chase in Subprime Auto Loan Alliance") reported: "Taking a step into the subprime automobile lending market, Chase Manhattan Corp. on Thursday announced a strategic alliance with Americredit Corp., a consumer finance company in Fort Worth. The deal calls for Americredit - one of the few subprime lenders to survive the 1997 meltdown in that sector - to provide its financing programs to auto dealers who do business with Chase... George Bicher of BT Alex. Brown [said] 'They want to skim an incremental fee off their existing dealer relations.'" "AmeriCredit is the largest automobile lender to the subprime market... Under the arrangement with AmeriCredit, Chase will participate in the credit." Fort Worth Star-Telegram, March 5, 1999.

Chase's own car lending is coming under fire. The New York Times' October 27, 2000 expose of dealer mark-ups (and their possible violation of fair lending laws, including ECOA) reports that "In New Jersey, lawyers are seeking permission to expand an earlier individual case against Chase Manhattan into a class action."

Morgan is also involved, in its way, in subprime auto lending: Morgan advised Arcadia Financial Ltd on its 1999 sale to Associates First Capital. See, e.g., Star Tribune (Minneapolis, MN), November 16, 1999. What standards does Morgan have, in working with subprime lenders? This (and Chase's and Morgan's other practices) must be inquired into and acted on, in this proceeding.

Chase is also involved, directly and indirectly, in subprime credit card lending. Chase has established a relationship with subprime card issuer Merrick Bank of Salt Lake City, Utah. Merrick's subprime offer appears on the back of Chase's promotional material, and Chase retains "marketing rights" to customers (presumably, to later pitch them for a high-rate home equity debt consolidation loan). See, e.g., American Banker of June 3, 1999, also reporting that "Mr. Levin said Orchard Bank also has customers who, like Chase Manhattan, do not want their names on the plastic. 'There may be issuers who believe that a subprime product would sully their image,' Mr. Levin said. 'The evidence is that Merrick Bank is branding some of their products with their name.' Merrick and Orchard Bank both charge annual fees of up to $100 for unsecured cards, plus 'application processing fees' of up to $50. Most mainstream card issuers do not charge either type of fee."

See also Bloomberg News of September 20, 2000: "Chase Manhattan Corp. will pay at least $22.2 million to settle consumer lawsuits alleging credit-card customers were forced to pay extra interest and late fees even when monthly payments arrived on time....'We estimate the total settlement to be worth at least $22.2 million, but it could wind up being worth substantially more,' Monts said. Lawyers won't be sure how much the bank will pay out in reimbursements until consumers start filing claims under the agreement, he added.... The suit, which sought class-action status, alleged that Chase officials refused to post any payments to customers' accounts if they arrived after 9 a.m. on their due date. Cardholders wound up paying more in interest and late fees on payments they thought were on time.... A federal judge in Los Angeles will decide whether to give final approval to the settlement in January, Monts said." The FRB should inquire into the facts, and status, of this and other litigation against Chase Manhattan and Morgan.

D. The FRB Should, as a First Step, Asking Chase and Morgan the Questions the NYBD Asked Credit Suisse and DLJ

This application presents the Federal Reserve with the opportunity (and responsibility) to act in accordance with its publicly-stated concern about that portion of subprime lending that may be characterized as predatory. The FRB's Chairman in March of this year stated: "Of concern are abusive lending practices that target specific neighborhoods or vulnerable segments of the population and can result in unaffordable payments, equity stripping, and foreclosure. The Federal Reserve is working on several fronts to address these issues...". "Remarks of Chairman Alan Greenspan," March 22, 2000. Since then, FRB Governor Gramlich has reiterated the Fed’s concern with predatory lending, while claiming that there is little that the Fed can do, by itself, about the problem. See, e.g., "Fed Says Can't Curb Subprime Lending Abuses Alone," Reuters, August 4, 2000: "'Our authority in the overall scheme of things is a bit limited,’ Gramlich said before a panel discussion on predatory subprime lending. ‘We certainly can't do it all.’"

Here is something that the FRB can, and should, do: in support of ICP's requests to the FRB, annexed hereto is a question letter the New York State Banking Department (the "NYSBD") recently send to the counsel for Credit Suisse and Donaldson Lufkin & Jenrette ("DLJ"). While both are investment (and not, as here, commercial) banks, Credit Suisse applied to the NYSBD to acquire a New York-chartered DLJ subsidiary. ICP commented to the NYSBD on September 30, 2000, raising, in less detail than the Chase analysis, above, the institutions' involvement in subprime lending. The NYSBD took the CS-DLJ applications off the normal processing track, and, on October 19, 2000, requested information regarding CS's and DLJ's involvements with subprime lenders. See attached. ICP hereby formally timely asks the FRB to pose the questions above (and more) to Chase and Morgan, in connection with this Application. More questions should be asked, because, as demonstrated above, Chase is directly involved in subprime lending (to the tune of $3 billion in 1999), and is involved in subprime auto and credit card lending, as well.

IV. CHASE'S (AND J.P. MORGAN'S) GLOBAL BUSINESS AND INVESTMENT BANKING IS STANDARDLESS, AND IS SOCIALLY AND ENVIRONMENTALLY DESTRUCTIVE

Chase's involvement in predatory lending is not confined to the United States. See, e.g., The Times of London, November 27, 1999, "Japanese lender orders debtors to sell their kidneys:"

A former employee of Nichiei Co, Japan's leading lender to small companies, was arrested yesterday after being accused of telling a borrower and his wife to sell their kidneys to repay their debt.... Police arrested Yukihiro Wada, 45, now employed by a Nichiei subsidiary, on suspicion of using intimidation to recover a 7.2 million yen (Pounds 40,400) loan. "Make money by selling your kidneys. You can sell them for three million yen," he was quoted by a police official as telling the borrower and his wife, who was the guarantor... Nichiei Co is no small-time loan-sharking business. With 2,200 employees and 220 branches, it is listed on the First Section of the Tokyo Stock Exchange along with Japan's foremost companies. The firm has sought respectability by sponsoring prime-time television programmes and has obtained its funds from leading Japanese and foreign banks. Japanese regulators have begun questioning 13 Japanese and foreign banks that provided funds to Nichiei, including Merrill Lynch and Citibank. Chase Manhattan has a 4.7 per cent shareholding.

Emphasis added. See also The Guardian (London), November 6, 1999, Banks bitten by Japanese loan sharks scandal: "The scandal is also embarrassing to foreign investors, who own 31% of Nichiei. These investors, led by Chase Manhattan Bank, have enjoyed healthy dividends from the company in recent years."

Chase's reductions in the United States, of branches and normal interest rate lending facilities in low- and moderate-income neighborhoods and communities of color have coincided, in time, with Chase's increasing interest in global and investment banking business. Before reviewing these Chase business lines, ICP hereby enters into the record some of Chase's history of discrimination, at home (slavery) and abroad (Holocaust), beginning with The Nation magazine's recent expose of Chase's involvement in slavery in the United States [attached]. Chase's disregard for human rights (to put it mildly) continued. See, e.g., Reuters of September 14, 2000, and note that on September 7, 2000, Judge Sterling Johnson of the United States District Court for the Eastern District of New York denying the Chase's motions to dismiss Holocaust-related litigation against it. The FRB must inquire into the status of, and act on, these issues, in this proceeding.

Just as Chase appears to have few to no standards in its involvements in subprime lending (see Section III, supra), Chase has few to no environmental standards, in its involvement in resource extraction, from coal to mining. In 1999, Chase was the "lead arranger" of a 1.325 billion British Pounds loan to AES Corporation to acquire National Power's Drax coal-fired power plant. See, e.g., Institutional Investor, Inc.'s publication, Project Finance, November 1, 1999. Until August 3, 1999, Chase's CEO, William B. Harrison, served as a director of Freeport-McMoRan Copper & Gold Inc.. See Business Wire of August 3, 1999.

As directly (and adversely) affects low income communities in the United States, today, Chase in 1999 was a major part of the $7.5 billion loan for Allied Waste Industries Inc.'s acquisition of Browning-Ferris Industries Inc.. See, e.g., Arizona Republic, August 3, 1999. Both Allied and BFI have long been alleged to be engaged in environmental racism, including in their disproportionate targeting of waste transfer stations and the attendant pollution and toxins into communities of color. "Browning Ferris has disclosed paying more than $ 75.5 million in fines and settlements from 1972 to 1994...". Daily News of Los Angeles, October 3, 1999, "Dumping on the Valley?" In the South Bronx, BFI bought a controversial medical waste incinerator in 1995, and, in the following years, paid a $50,000 fine for pollution violations. See, e.g., N.Y. Daily News, April 22, 1999.

Morgan's environmental standards are hardly better. Morgan has raised funds for the controversial Three Gorges Dam in China, which will displace over one million people, and have other adverse environmental effects. See, e.g., the Village Voice of April 4, 2000. Chase's Application to the New York Banking Department ("NYBD") lists, as Morgan subsidiaries, Whitkath Inc. (which was "formed for the purpose of acquiring assets used in coal mining"), and Oil Tanker Leasing Corporation (self-explanatory).

Even where these companies appear to support environmental issues (take, for example, J.P. Morgan's 1998 $10,000 contribution to the Clean Michigan campaign, for that state's $675 million environmental bond proposal, their motives are far from clear (or clean). See, e.g., Crain's Detroit Business of December 21, 1998: the "executive director of Common Cause in Michigan, said that Morgan's contribution "raises 'a lot of questions in terms of their motives for doing it ... particularly if any of the firms that gave get business.'"

Note that the Center for Public Integrity has reported that "Just a month after his retirement from the Senate in 1997, [ex-Senator Bill] Bradley was pulling in $300,000 in consulting fees from some of the same Wall Street brokerages -- J.P. Morgan Services and its subsidiary, Morgan Guaranty -- whose practices he had defended in the Senate." FDCH Political Transcripts, January 5, 2000. As recently reported, in 1998, J.P. Morgan & Co. paid no federal taxes at all, in the United States -- instead, on profits of $481 million, it received a federal tax rebate of $62 million. USA Today, November 6, 2000: "Taxes? What Taxes?"

Chase, too, has been a large (and subsequently non-compliant) recipient of what has become known as "corporate welfare." According to the N.Y. Daily News of October 22, 1999 ("Chase Takes the Money But Runs," by Jim Dwyer), "In November 1988, the city and state governments announced that they would give Chase $ 235 million to move jobs into the MetroTech Center, rather than to New Jersey. That remains the largest single corporate welfare package in the city's history. On Thursday, Chase made history once again. The bank announced that it is pulling 3,500 positions out of New York, including many based at the MetroTech Center." The FRB must inquire into the status of, and act on, each of the above-referenced adverse issues, in this proceeding.

V. ANTI-COMPETITIVE AND OTHER PROSPECTIVE EFFECTS OF THIS PROPOSAL; DEFICIENCIES AND MIS-STATEMENTS IN CHASE'S APPLICATIONS

This proposal would, ICP contends, be anticompetitive in a number of relevant product markets. Serious questions must be, and hereby are, raised about this proposed combination of the third and fifth largest financial holding companies in the United States. The Chattanooga (TN) Free Press of September 16, 2000, at C2, ran an article by Dunstan Prial of Associated Press, "Are Bigger, Fewer Banks Good, Bad?" reporting that "[a]nother concern is that as banking conglomerates get bigger, their political clout will grow in tandem with their financial assets. 'The risk is that they will become too big to properly discipline,' said Edward Kane, a finance professor at Boston College."[If Chase, as it tried in 1995, attempts to claim that it was unaware of ICP's concerns until its receipt of ICP's comments, note that this same September 16, 2000 Associated Press article reported that "'The changes in the banking laws are siphoning banks away from lower income communities. Banks that once served these neighborhoods are now fixated on investment banking. They're interested in catering to the affluent, and in completing initial public offerings for Internet companies,' said Matthew Lee, executive director of the Inner City Public Interest Law Center, a New York-based community lending advocacy group. 'But in a community like the South Bronx, the people aren't interested in foreign exchange speculation. They need loans to buy a home, and small businesses need loans to expand,' Lee said. Lack of competition is also an issue, according to Lee, who noted that in New York City, three large banks -- Chase, Chemical and Manufacturers -- once competed for customers in low and middle income communities. Through mergers, all of those banks now fall under the J.P. Morgan Chase umbrella"]. That is another question (and danger) raised by this proposal, beyond the adverse material put into the record, supra in this Comment, and the product market-specific information infra.

ICP hereby timely enters various attachments into the record, on antitrust issues. The Application, at 17, argues that "the relevant product market within which to assess the likely competitive impact of the Merger is the 'cluster' of products and services constituting the banking line of commerce." ICP disagrees. The Gramm-Leach-Bliley Act in 1999 has called into question the continuing relevance of the Supreme Court's 1963 definition of the "cluster," in U.S. v. Philadelphia National Bank, 374 U.S. 321 (1963). ICP contends that each product market -- those referenced in the attachments, and others -- must be reviewed in this proceeding, and that, on the current record, the FRB "shall not" approve this anticompetitive mega-merger. Even using the "cluster" approach, the HHI in the Wilmington, Delaware market would increase 567 points, to 2,567 (App. at 24) -- clearly anticompetitive. Morgan claimed (and strangely convenient) massive decrease in deposits in this market, from 1999 to 2000, is unavailing, and in fact calls for an inquiry of a different type by the FRB and perhaps other agencies.

Even prior to receiving the FRB's initial FOIA response, ICP notes, from Chase's counsel's October 6, 2000 cover letter to the FRBNY that Chase has requested confidential treatment for information relating to Fleming, on that argument that "disclosure of it might be confusing to readers of the S-4." As disclosed in footnote 104 of the Application, Chase has omitted information about Fleming in its SEC Form S-4, "because it is not material." FOIA has no "might be confusing" exemption; in any event, Chase's argument is circular: the information would only be "confusing" to readers of the S-4 because Chase omitted it from the S-4. ICP contests this, and, as noted above, is awaiting the FRB's initial FOIA determination.

Similarly, Chase has requested confidential treatment for information about KorAm Bank and other "companies in which Morgan has invested" -- including Massera, S.A., a company which "manufactures, distributes and exports ice cream products in Argentina." App. at 150. ICP contests this (both the withholding, and whether making ice cream is "financial in nature"), [the (Good) [H]umor is not lost on ICP; however, this contestation is being timely raised] and, as noted above, is awaiting the FRB's initial FOIA determination.

Chase has a history of making broad requests for confidential treatment, some later over-turned by judges. See, e.g., American Banker of February 14, 1996, at 3, "OCC Releases Documents On Chase-U.S. Trust Deal:" "The Office of the Comptroller of the Currency complied last week with a federal court order requiring it to turn over seven documents pertaining to Chase Manhattan Corp.'s purchase of several businesses from United States Trust Company of New York. U.S. District Judge Lawrence M. McKenna had ruled that the OCC improperly withheld the documents from the Bronx-based activist organization Inner City Press/Community on the Move."

Chase also has a history of refusing to provide CRA-relevant information, even when it is requested by its regulators, including the FRB. See, e.g., then-FRB Secretary William Wiles' April 12, 1995 letter to ICP, 1995 Fed. Res. Interp. Ltr. LEXIS 254, which stated at n.9 and accompanying text that "[t]he Chase Order specifically considered that Chase had elected not to provide certain information, including information regarding small business and consumer lending, requested by you and Board staff during the processing of the application. Staff's request for the information was part of the record that the Board considered in the Chase Order."

The federal bank regulatory agencies have already shown a striking (and, ICP contends, inappropriate) solicitude to Chase. For example, as reported in the Village Voice of January 23, 1996 ("Why the Chemical-Chase Megamerger Doesn't Add Up For Many New Yorkers") [snip]

ICP is also concerned about, and hereby timely raises, certain potential conflicts of interest in the FRB's review of this important proposal. "Last month the Fed announced a working group headed by former Chase Manhattan Corp. chairman Walter V. Shipley designed to recommend what data banks and securities ought to make public." American Banker, May 23, 2000, at 5. We are also aware that the FRB's Chairman served on the board of directors of J.P. Morgan & Co. -- and we respectfully request, particularly in light of the issues raised in this comment, that the Chairman recuse himself from decision-making on these Applications.

VI. HEARING REQUEST

For the reasons set forth above, the FRB should schedule public hearings on this proposal...

VII. CONCLUSION

For the reasons set forth above, the FRB should schedule and hold a public hearing on this Application, and, on the current record, the FRB must deny the Application.

Respectfully submitted,

Matthew Lee, Esq.
Executive Director
Inner City Public Interest Law Center
& Inner City Press/Community on the Move
Tel: 718-716-3540
Fax: 718-716-3161

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