Royal Bank of Canada (RBC) Watch

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Updated February 11, 2007

        Inner City Press / Fair Finance Watch (together, "ICP") on December 28 filed a timely challenge to the application by Royal Bank of Canada and RBC Centura (RBC) to acquire Alabama National BanCorporation, based on worsening lending disparities at RBC Centura, on RBC's continuing funding of fringe financiers such a pawnshops such as E Z Cash Pawn in Clayton County, Georgia and Pawn Outlet OF Skyland, Inc., of Skyland, North Carolina, and on layoffs and gun-jumping by Alabama National.  See below, and see, e.g., "U.S. Advocacy Group Opposes Royal Bank Bid for Alabama National," by Joe Schneider, Bloomberg, December 31, 2007.See also,"Consumer group protests RBC Centura Bank's pending buyout of Alabama National Bancorporation," by Richard Burnett, Orlando Sentinel, Jan. 3, 2008; "RBC faces discrimination claim," Edmonton Journal, Jan. 2, 2008; "RBC's U.S. takeover plans challenged, Vancouver Province, Jan. 2, 2008 ; "LEGAL: RBC acquisition in Ala. challenged," Atlanta Journal-Constitution, Jan. 1, 2008, Pg. 2C; and "Group opposes RBC bid for Alabama National," Birmingham News, Jan. 1, 2008, Pg. 1D.

   ICP has been increasingly troubled by Royal Bank of Canada's lending patterns since 2002, when ICP filed with the U.S. Federal Reserve Board a 12-page comment opposing the application by RBC to acquire Atlanta-based Admiralty Bancorp and its subsidiary, Admiralty Bank. See also, "Admiralty Takeover Opposed," by Purva Patel, Sun Sentinel (Fort Lauderdale, Fla.), November 14, 2002; "RBC Centura's Mortgage Unit Accused of Discrimination," by Chris Serres, Raleigh (N.C.) News & Observer, November 13, 2002;  "U.S. Advocacy Group Challenges RBC Deal: Wants Admiralty Acquisition Disallowed," by John Partridge, Toronto Globe & Mail, November 12, 2002; "Group Protests Bank Merger: Critics Cite Record on Lending to Minorities," by Rick Rothacker, Charlotte Observer, November 12, 2002.  For or with more information, contact us.  In this space, we will continue running updates.

Update of February 11, 2008: On Royal Bank of Canada and the pawnshops and quick cash joints, the Fed had this to say, that ICP Fair Finance Watch

"expressed concern about RBC Centura's relationships with unaffiliated pawn shops and other nontraditional providers of financial services. As a general matter, the activities of the consumer finance businesses identified by the commenter are permissible, and the businesses are licensed by the states where they operate. RBC Centura has stated that it conducts substantial due diligence reviews of its customers who provide alternative financial services, including reviews of anti-money laundering and Bank Secrecy Act compliance, and that it does not play any role in the lending practices, credit review processes, or other business practices of those firms."

  Sounds like the Fed's approach to subprime mortgage lending, before the fall..

Update of January 28, 2008: Royal Bank of Canada is seeking to conceal information about not only its merger plans but also its purported fair lending plans, in a response to the U.S. Federal Reserve Board a heavily redacted copy of which is now online. At the end of 2007, Fair Finance Watch challenged RBC's application to acquire Alabama National BanCorporation, based on racial disparities in RBC's lending and announcements of deal-related layoffs before any regulatory approval had been obtained. RBC denied the charges, through a spokesperson. Then in a filing with the Federal Reserve which RBC was required to send to Fair Finance Watch, RBC blacked-out almost all of its response on the layoffs and fair lending issues. Whether the Federal Reserve will, as would seem to be required by the Freedom of Information Act, release the withheld information remains to be seen.

            According to the most recent data Royal Bank of Canada has filed as required by the Home Mortgage Disclosure Act, RBC in 2006 disproportionately excluded and denied the applications of African Americans and Latinos. In the Charlotte, North Carolina Metropolitan Statistical Area (MSA), RBC Centura denied the mortgage refinance applications of African Americans 4.44 times more frequently than those of whites....While demonstrably excluding people of color from its offers of normally-priced, prime credit, RBC and RBC Centura have continued funding and enabling predatory / fringe financiers such as high-cost pawnshops. Fair Finance Watch submitted evidence to the Federal Reserve of RBC loans to E Z Cash Pawn in Clayton County, Georgia and Pawn Outlet of Skyland, Inc., of Skyland, North Carolina. Based on that showing, the Federal Reserve Board on January 11 asked for  description of RBC's "business relationships with any unaffiliated alternative financial services provides."

            In response, RBC admitted that it "maintains relationships with some clients who are alternative service providers. These clients include check cashing business and pawn shops." The Federal Reserve also asked, based on the challenge filed by Fair Finance Watch, about a report of deal-related layoffs, and about RBC's "consumer compliance and fair lending policies and procedures." In its response, RBC blacks out more than half the page, including an entire paragraph purportedly about fair lending. What is RBC so embarrassed about?

Update of December 30, 2007: With RBC now seeking expansion in the Deep South of the U.S. by buying Alabama National BanCorporation, Fair Finance Watch on December 28 filed comments with the Federal Reserve requesting public hearings on, and opposing, RBC's application:

December 28, 2007

Federal Reserve Bank of Richmond
Attn: Mr. A. Linwood Gill, III
701 East Byrd Street
Richmond, VA 23261-4528

Re: Timely comment opposing and requesting public hearings on applications by Royal Bank of Canada and RBC Centura to acquire Alabama National BanCorporation and its affiliates

Dear Mr. Gill, et al. --

  On behalf of the Fair Finance Watch and its affiliates (collectively, "FFW"), this is a timely comment opposing and requesting public hearing on, and complete copy of, the applications by the Royal Bank of Canada, RBC Centura and affiliates (RBC) to acquire Alabama National BanCorporation and affiliates. The Federal Reserve Board web site lists the initial comment period as running through December 28, 2007. This comment is timely. In light of the lending disparities set forth below, RBC's continuing funding of fringe financiers including pawnshops, such as E Z Cash Pawn in Clayton County, Georgia and Pawn Outlet OF Skyland, Inc., of Skyland, North Carolina, the companies' gun-jumping prior to regulatory approval (see below), and other adverse managerial factors (see, e.g., the Globe and Mail of September 25, 2007, "RBC ordered to produce Norshield documents"), FFW is requesting public hearing and that RBC's proposal, on the current record, not be approved or allowed.

            In the most recent year for which HMDA data is publicly available, 2006, RBC Centura in the Charlotte, North Carolina Metropolitan Statistical Area (MSA) denied the mortgage refinance applications of African Americans 4.44 times more frequently than those of whites. In the Atlanta, Georgia MSA in 2006, for conventional home purchase loans, RBC Centura denied the applications of Latinos 2.9 times more frequently than those of whites. Also in the Atlanta MSA in 2006, RBC Centura denied the home improvement mortgage applications of African Americans 4.2 times more frequently than those of whites, while also declaring "withdrawn" fully 38% of home improvement applications from African Americans. There should be an inquiry into this, including at the public hearings FFW is requesting.

            While strikingly excluding people of color from its offers of normally-priced, prime credit, RBC and RBC Centura have continued funding and enabling predatory / fringe financiers such as high-cost pawnshops. As simply two examples:

GEORGIA CLAYTON COUNTY SUPERIOR COURT CLERKS OFFICE, UCC RECORD

Debtors: JDH INVESTMENTS, INC.

Debtor Address: JDH INVESTMENTS, INC.
                E Z CASH PAWN

Secured Parties: RBC CENTURA BANK

Secured Party Address: RBC CENTURA BANK
Filing Type: CONTINUATION

Filing Date: 2/12/2007

Filing Number: 03107000298

Original Filing Number: 03102002156

Filing Office: CLAYTON COUNTY STATE COURT CLERKS OFFICE
               9151 TARA BLVD
               JONESBORO, GA 30236 

--

NORTH CAROLINA SECRETARY OF STATE, UCC RECORD

Debtors: PAWN OUTLET OF SKYLAND INC

Debtor Address: PAWN OUTLET OF SKYLAND INC
                PO BOX 871
                SKYLAND, NC 28776

Secured Parties: CENTURA BANK

Secured Party Address: CENTURA BANK
                       PO BOX 500
                       ROCKY MOUNT, NC 27802

Filing Type: CONTINUATION

Filing Date: 2/9/2007

Filing Time: 5:00PM

Filing Number: 20070014594C

Original Filing Number: 001481801

Filing Office: SECRETARY OF STATE/UCC DIVISION
               300 N SALISBURY ST, LEGIS OFF BLDG
               RALEIGH, NC 27603

            The companies appear to be jumping the gun before regulatory approval, taking it for granted. See, for the record, the Birmingham Business Journal of December 17, 2007--

"Alabama National BanCorp. is expected to cut jobs after its acquisition by RBC Centura Banks Inc. becomes official in early February. William Matthews, chief financial officer of Alabama National, said the company began notifying employees in recent weeks about the job eliminations, which will not take effect until the bank's systems conversions are complete in late spring and early summer. 'It is true that some redundancies were created and unfortunately that means some positions are eliminated,' Matthews said.

            Are these notifications under the WARN Act? Before regulatory and / or shareholder approval? This should be explored at the public hearings FFW is requesting.

  There are other adverse managerial factors to be discussed at the requested public hearings. See, e.g., the Globe and Mail of September 25, 2007, "RBC ordered to produce Norshield documents" --

"An Ontario judge has ordered Royal Bank of Canada to produce all documents relating to its dealings with scandal-plagued hedge fund Norshield Asset Management (Canada) Ltd., which filed for receivership in 2005. The ruling is the latest twist in a series of legal battles involving RBC, Norshield and Cinar Corp., a prize-winning Montreal animation company that was sold to a group of Toronto investors in 2003 after being mired in controversy. Mr. Justice James Spence of the Ontario Superior Court ruled yesterday that the documents, which include bank records in Canada and offshore, were relevant to a lawsuit filed against RBC and others... The litigation committee has launched a series of a lawsuits aimed at recovering $121-million (U.S.) Cinar allegedly invested eight years ago in Caribbean firms connected to Norshield. That money has allegedly gone missing. Norshield has insisted it did nothing wrong. The firm collapsed after heavy redemptions which the company blamed on growing client concern about the Cinar allegations.... RBC has been caught up in the fray because it was Cinar's principal banker and it provided some financial services to the Caribbean firms and Norshield. The Cinar litigation committee has sued the bank for $121-million (U.S.) alleging it handled the transfer and is responsible for the loss. The bank has denied the allegations and suggested that if money has gone missing, it is the fault of Cinar managers or the offshore companies. This summer, as part of the lawsuit, the committee filed a motion seeking a long list of documents from the bank... Lawyers for the litigation committee filed hundreds of pages in court to back up their request. The documents included an internal RBC memo which showed the close relationship between the bank's senior executives and Cinar's co-founders, Ronald Weinberg and his late wife Micheline Charest.  One document indicated that RBC's chief executive officer at the time, John Cleghorn, was 'well known to Mrs. Charest.' The documents also included an internal RBC memo dated March 27, 2000, when allegations of misconduct relating to misuse of tax credits first surfaced at Cinar. 'Difficult relationship to manage since its inception: high number of RBC executive interventions required,' said the memo, which was written by a senior market manager at the bank."

            For these and other reasons, RBC's proposals, including for RBTT Financial Group in Trinidad and Tobago in the Caribbean, should be subject to enhanced regulatory scrutiny and public hearings and, on the current record, should not be approved / allowed.

  ICP is a protestant to these proposals, and should be provided copies of all communications regarding these proposals -- including a full copy of RBC's applications, forthwith --  and should be provided an opportunity to participate in any communications between or about RBC or Alabama National (or their affiliates) and your agency. All documents and records related the proposal (on an ongoing basis), including complete copies of the Applications, and other records in your agency’s  possession related to the proposal, should be provides as quickly as possible, as they become available, to:

Fair Finance Watch and affiliates

Attn: Matthew Lee, Esq., Executive Director

P.O. Box 580188, Mount Carmel Station

      The Bronx, New York 1045

      E: lee@fairfinancewatch.org

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

Very Truly Yours,

Matthew Lee, Esq.

Executive Director

Fair Finance Watch and affiliates

  Selected earlier updates:

Update of January 22, 2007: Royal Bank of Canada has been refusing to open U.S. dollar accounts for some Canadians who are also citizens of countries facing American sanctions: Iran, Iraq, Cuba, Sudan, North Korea and Myanmar. RBC spokesman David Moorcroft claimed that U.S. authorities expect RBC to live up to a higher standard than others because the bank is the largest provider of U.S. dollar accounts in Canada. Moorcroft also said RBC aims to be a leader in the efforts to crack down on money laundering and terrorist financing. Yeah, right...

Update of April 10, 2006: The 2005 Home Mortgage Disclosure Act data, which Inner City Press / Fair Finance Watch received in late March from Royal Bank of Canada, reveal that, considering all conventional first-lien loans, RBC Centura in 2005 confined African Americans to rate spread loans 2.70 times more frequently than whites. The Federal Reserve has defined higher-cost loans as those loans with annual percentage rates above the rate spread of three percent over the yield on Treasury securities of comparable duration on first lien loans, five percent on subordinate liens. While comprehensive income comparisons will not be possible until the aggregate data is released in September, ICP / Fair Finance Watch has designed an innovative way to consider income correlations, by calculating upper and lower income tranches based on each lenders own customers. Nationwide at RBC Centura for conventional first-lien loans, upper income African Americans were confined to higher cost loans over the rate spread 3.04 times more frequently than whites. Income does not explain the disparities at RBC's Centura. More analysis will be forthcoming.  For or with more information, contact us.

Some previous RBC-Watch reports:

Update of May 9, 2005: ICP Fair Finance Watch continues drilling deeper into the 2004 Home Mortgage Disclosure Act data.   Following its petitioning last week of state attorneys general, ICP was asked to produce a study of disparities by gender as well as race. The results, being forwarded to those who requested them, are not pretty. For example, At Royal Bank of Canada, African American women were confined to high cost loans 4.52 times more frequently than white men. Based on this disparity, ICP has also now analyzed the nationwide lending of RBC:

Whites: 74,387 applications, leading to 5740 denials (7.72% denied) and 58,173 originations; 1971 [or 1.84 percent] exceeded rate spread.
African Americans:
4767 applications, leading to 612 denials (12.84% denied, 1.66 times higher than whites) and 3451 originations; 255 [or 7.39 percent] were at rate spread [3.99 times higher / more likely to be over rate spread than whites].
Latinos:
8376 applications, leading to 870 denials (10.39% denied, 1.35 times higher than whites) and 6105 originations; 163 [or 2.67 percent] at rate spread [1.45 times higher / more likely to be over rate spread than whites]. Analysis continues...

Update of April 18, 2005: Inner City Press / Fair Finance Watch is reviewing the 2004 Home Mortgage Disclosure Act data of the Royal Bank of Canada, including the new information concerning which loans are subject to a rate spread (3% higher than comparable Treasuries on a first lien, and 5% on a subordinated lien), and has found that RBC, which in the U.S. owns Centura bank and an Illinois-based mortgage loans, imposes higher-cost rate spread loans nearly four times more frequently on African Americans than on whites.  Analysis continues...

Update of April 4, 2005: This week it’s logistic. On February 28, ICP Fair Finance Watch made a formal request for Royal Bank of Canada’s / RBC Centura’s 2004 mortgage lending data; the data by regulation must be provided “by March 31 for a request received on or before March 1.” Numerous other institutions began provided ICP with their data as early as March 4, usually in a single .DAT file, allowing analysis of holding company-wide patterns all at one time.  But as of April 3, RBC had not provided any data. ICP has complained to the Federal Reserve. Click here to view the first of ICP’s studies; RBC will be in a future study, watch this space. .

Update of March 28, 2005:  RBC is in chaos; we thought we’d run one reason why, RBC Centura’s working with predatory lenders including (Wells’) America’s Servicing Company:

Subj: America's Servicing Company - and RBC Century

Date: 3/25/2005 4:09:00 PM Eastern Standard Time

From: [ ]

To: RBC-Watch [at] innercitypress.com

In 2004 I built a home. I had a construction loan through a local bank. Permanent loan was then obtained through RBC Centura bank.  This loan was sold to ACS.

Problems arose after ACS purchased loan. I was never notified that ACS had purchased loans. I continued to send my mortgage payment to RBC... RBC forwarded the installments to ACS for the first 60 days after they had sold loan to ACS. The installments RBC received from me after the 60 day time frame were returned to me with a letter stating they had sold loan to ACS in December of 2004 and had been forwarding my payments. The letter also advised the new mortgage company should contact me with account information etc.... I never received any notification that ACS had purchased the loan. I learned that I was in default and that I was placed in collections. I have Made repeated attempts to contact ACS to have this situation resolved to no avail....

Not only does this company not comply with fair lending and credit practices, they place accounts in collection without due course and process and without notification that they are the lender/mortgage company....

This has placed a burden on me as to impact to my credit standing and ability to obtain a mortgage with a reputable company.  I am subjected to increased cost of payments, increased interest rates and will be forced to pay additional fees to obtain refinancing...

  Thanks, RBC..

   Some older reports:

Update of January 19, 2003: The Federal Reserve delayed its action on RBC - Admiralty, then, in its Jan. 13 Order, admits that "RBC Bank's denial disparity ratios, which compare the denial rate for minority loan applicants with that for nonminority applicants -- particularly for African-American applicants in the Rocky Mount, Greensboro, and Charlotte MSAs, all in North Carolina, and the Norfolk, Virginia MSA -- compare unfavorably with those of the HMDA-reporting lenders in the aggregate of those four MSAs."

   As a purported rebuttal to these RBC disparities, the Fed "notes that the lower percentage of mortgage loans to African Americans and in predominantly minority census tracts by RBC Bank appear to reflect a lower percentage of applications received by the bank from these individuals and areas compared with the aggregate." Yeah, that's the point -- this raises, rather than resolves, questions. Questions on which ICP/FFW will be following up. The Fed has referred issues concerning RBC Mortgage to the FTC and HUD.

    We also for now note the Fed's ludicrous dodging of Royal Bank of Canada's loss of its appeal of a finding of discrimination in insurance, in a case that the Fed previously said it would closely monitor. Now, following RBC's loss, the Fed says that it "has only limited authority to address matters related to the insurance activities of regulated insurance companies" -- but notes, again, that "the Board will continue to monitor this matter." But that's what they said last time, before RBC lost its appeal... For or with more information, contact us.

Update of December 16, 2002: While RBC continues trying to withhold its presentations to the Federal Reserve on both fair lending and money laundering, the Miami Daily Business Review of December 10 quotes Ward Kellogg, the president of RBC's target, that "Admiralty Bank does not expect any delay in regulator approval of the merger." While calls to "RBC's New York law firm were not returned by deadline," Mr. Kellogg is quoted that ICP's comment "word for word" echo ICP's previous opposition to RBC. Since the HMDA data used is one year more recent, and there've been developments in the South Carolina insurance discrimination case, and with regards to RBC and Enron, it's hard to understand Mr. Kellogg's claim. But the problem is RBC and its performance to date in the U.S., not the self-serving statements of executives who want to for turning over their smaller banks to RBC. So say what you will, Mr. Kellogg. Only, it might be sense to read the administrative challenge you're commenting on before attempting to characterize it. And to say that you know the week when the Fed will approve raises other issues, that will be pursued with the Federal Reserve.

 * * *

[ICP's December 2, 2002, filing with the U.S. Federal Reserve Board:]

                                                                                                          December 2, 2002
Board of Governors of the Federal Reserve System
Attn:  Chairman Alan Greenspan, Governors, Secretary Johnson
20th Street and Constitution Avenue, N.W.
Washington, DC 20551

Federal Reserve Bank of Richmond
Attn: Mr. A. Linwood Gill, III
701 East Byrd Street
Richmond, VA 23261-4528

Re: Supplemental comment on the applications / notices of Royal Bank of Canada and RBC Centura Banks to acquire Admiralty Bancorp and Admiralty Bank

Dear Chairman Greenspan, Secretary Johnson, Mr. Cox, others in the FRS:

    On behalf of Inner City Press/Community on the Move and its members and affiliates, including the Fair Finance Watch (collectively, "ICP"), this is a supplemental comment opposing the applications of Royal Bank of Canada and its affiliates (collectively, "RBC") to acquire Admiralty Bancorp and Admiralty Bank (collectively, "Admiralty").

     On November 27, ICP received from RBC's counsel a heavily redacted copy of RBC's response to the FRB's question letter of November 18. FRB Question 2 concerned RBC's fair lending compliance. As provided to ICP, RBC's two-and-a-half page response is entirely redacted. This is absurd and does not comply with the FRB's rules prohibiting ex parte communications, nor with FOIA. ICP hereby requests to be provided with an unredacted copy of RBC's response regarding fair lending issues, which, as you know, ICP timely raised in opposition to RBC's applications.

    Also, ICP received RBC's purported response to ICP's November 8, 2002, comment. On the issue of racial discrimination by an insurer owned by RBC, Liberty Life, ICP disagrees with RBC's characterization of the South Carolina proceedings. Since the FRB should, in light of its previous statement on this RBC matter (The Board will monitor the proceeding and take whatever action might be appropriate based on the determinations of Liberty Life's primary regulator in any final adjudication," 88 Federal Reserve Bulletin 385, n.11, emphasis added), and as "umbrella" regulator, be obtaining copies of the South Carolina rulings and pleading, ICP stands on its timely presentation of this issue, and on, see, e.g., Judge Rules Liberty Life Used Race-Based Policies, Charleston (S.C.) Post and Courier, August 24, 2002. Without question (and as acknowledged by previous FRB RBC Order), this issue must be considered under the statutory factors of the BHC Act (contrary to RBC's apparent disagreement with the previous FRB Order on this matter, see RBC's Resp. at 2, top paragraph).

    Regarding RBC Mortgage Company, RBC's defense is that it reports so few applications from protected classes that the disparities are "not statistically significant." ICP has two replies, which are entirely common-sense: lack of service to African Americans and Latinos by RBC Mortgage, in presumptive violation of the fair lending laws, is precisely ICP's complaint in this regard. And, one of the reasons that so few race-specific applications are reported by RBC Mortgage is its presumptive (and still unexplained and uncorrected) violation of HMDA.

     As to RBC Centura, RBC tries to ignore the demonstrated decrease in lending to protected classes by focusing on its raw approval rates. But even on this, the denial rate disparities between whites and protected classes, at the lender in question compared to the aggregate, is the relevant analysis, not raw approval ratings (particularly given RBC's (Mortgage and Centura) lack of service to protected classes).

    Regarding RBC's dealings with Enron, ICP was not focusing on the Rabobank - RBC litigation, but on the indictment of employees of a subsidiary of RBC. See, e.g., the Toronto Star of September 13, 2002, U.S. Indicts Ex-RBC Bankers. RBC's response is entirely non-responsive on this important ongoing matter.

    Perhaps most troublingly, RBC refuses to respond to public reports of its unseemly, dangerous and inappropriate marketing of "secret" offshore banking services, and reiterates its argument that, despite the troubling issues of record, all of the information that the USA Patriot Act now requires RBC to file should be withheld from public scrutiny. We continue to disagree, and note that RBC appears to be making the same argument for the entirety of its fair lending presentation as well. We are opposed, on these bases, to RBC being allowed to expand, in the U.S. or elsewhere (see Reuters of Nov. 25, 2002, "'We'd certainly like to have the option to merge domestically and outside of Canada," Royal Bank president and chief executive Gordon Nixon told Reuters.")

    In light of all of the above, the comment period should be extended. The improperly withheld information, including RBC's fair lending and anti-money laundering presentations, must be released, including under the FRB's rules prohibiting ex parte communications. On the current record, RBC's applications must be denied. On the grounds set forth above, ICP reiterates its timely request for an evidentiary hearing on this application. If you have any questions, please immediately telephone the undersigned, at (718) 716-3540.

Respectfully submitted,


Matthew R. Lee, Esq.
Executive Director
Inner City Public Interest Law Center
& Fair Finance Watch

    NOTE: This page will be updated. For or with more information, contact us.

[ICP's November 8, 2002, filing with the U.S. Federal Reserve Board:]

                                                                                                          November 8, 2002
Board of Governors of the Federal Reserve System
Attn:  Chairman Alan Greenspan, Governors, Secretary Johnson
20th Street and Constitution Avenue, N.W.
Washington, DC 20551

Federal Reserve Bank of Richmond
Attn: Mr. A. Linwood Gill, III
701 East Byrd Street
Richmond, VA 23261-4528

Re: Timely comment on the applications / notices of Royal Bank of Canada and RBC Centura Banks to acquire Admiralty Bancorp and Admiralty Bank

Dear Chairman Greenspan, Secretary Johnson, Mr. Cox, others in the FRS:

    On behalf of Inner City Press/Community on the Move and its members and affiliates, including the Fair Finance Watch (collectively, "ICP"), this is a timely comment opposing the applications of Royal Bank of Canada and its affiliates (collectively, "RBC") to acquire Admiralty Bancorp and Admiralty Bank (collectively, "Admiralty").

    RBC is on an acquisitions spree in the United States, including of companies with demonstrably poor compliance records. This comment provides recent information concerning now-confirmed discrimination by RBC's Liberty Life Insurance Company, concerning RBC's involvement(s) with Enron, and concerning a recent fraud settlement with the SEC by RBC Dain Rauscher . We have reviewed RBC Centura Bank's and RBC Mortgage Co.'s 2001 Home Mortgage Disclosure Act data, and find that performance has become worse since RBC acquired these companies. Until these issues are addressed, including through on-site examination and, we request, enforcement actions, we oppose RBC's expansion.

1. RBC Liberty

    The Federal Reserve Board ("FRB") has said that ICP "alleged that an insurance company subsidiary of RBC, Liberty Life Insurance Co. of Greenville, South Carolina ("Liberty Life"), discriminated against African American clients by charging them higher premiums than white clients. This matter is currently under review before the Administrative Law Judge Division of the South Carolina Department of Insurance. The Board will monitor the proceeding and take whatever action might be appropriate based on the determinations of Liberty Life's primary regulator in any final adjudication." 88 Federal Reserve Bulletin 385, n.11, emphasis added.

   For the record, since that FRB statement, the referenced judge has ruled "that Liberty Life Insurance Co. discriminated on the basis of race in charging blacks more than whites for certain life insurance policies." See, e.g., Judge Rules Liberty Life Used Race-Based Policies, Charleston (S.C.) Post and Courier, August 24, 2002. Since the Board said that it was monitoring this case and would take appropriate action, we request such action at this time, on this application.

    Beyond the ruling, the argument advanced by RBC in the case is troubling. "Liberty argued that life expectancy of blacks has been lower than that of whites for most of the 20th century, and that the company wouldn't have been financially responsible if it had ignored the difference in life expectancy, according to a copy of Kittrell's order. The company's argument was disputed by the National Association of Insurance Commissioners, which filed a memorandum stating 'there is no actuarial necessity or requirement to discriminate on the basis of race,' Kittrell wrote. Kittrell's order notes that Liberty didn't dispute the facts in the case." See, BestWire of August 26, 2002, JUDGE RULES AGAINST LIBERTY LIFE. ICP also requests that the FRB rule on the propriety of a major financial holding company sticking to such an argument in 2002, including under applicable Fair Housing Act law. As a financial resources issue, note that the Greenville (S.C.) News of August 24, 2002, at A1, reported that RBC Liberty "also faces a class-action suit filed in Richland County challenging the race-based premiums."

2. RBC's Lending Is Increasingly Disparate by Race / CRA

    We have analyzed Home Mortgage Disclosure Act ("HMDA") data for the most recent year available (2001) for RBC Mortgage and for RBC Centura bank, comparing these to data from 2000 and 1999, respectively.

   In the St. Louis Metropolitan Statistical Area ("MSA"), RBC Mortgage in 2001 denied applications by African Americans for conventional home purchase mortgages over nine time more frequently than applications by whites. This is worse that RBC Mortgage's already disparate record in 2000. (Specifically, in 2000 in St. Louis RBC Mortgage denied African Americans' applications 6.67 times more frequently than whites).

    For the record, ICP continues to strenuously dispute RBC Mortgage's compliance with HMDA. In the St. Louis MSA for FHA/VA loans, RBC Mortgage for 2001 has reported that, of 350 applications from whites, 347 were approved and only three denied: a denial rate for whites of less than one percent. While noting that RBC Mortgage's presumptive violation of HMDA may cloud the picture, for FHA/VA loans in this MSA, RBC Mortgage in 2001 denied Latinos 37 times more frequently than whites.

    In its headquarters MSA, Chicago, in 2001 RBC Mortgage's originations to African Americans declined from 2000: for conventional loans, from 81 in 2000 to 73 in 2001; for FHA/VA loans, from 155 in 2000 to 87 in 2001. Meanwhile RBC Mortgage loans to whites in its headquarters MSA increased: for conventional loans, from 2696 in 2000 to 2978 in 2001. It is significant, including for this application, that the company's record has become more disparate under RBC's ownership. These are the practices that RBC would impose on Admiralty (and any other entity RBC may seek to acquire in the U.S. or elsewhere).

    Similarly, and even more troubling for Community Reinvestment Act ("CRA") purposes, RBC Centura's record in 2001 was more disparate than Centura's was in 1999. For example, in 2001 in the Rocky Mount, NC MSA, RBC Centura denied the conventional home purchase applications of African Americans 3.91 times more frequently than whites, notably higher than Centura's 1999 denial rate disparity between African Americans and whites in this MSA, 2.38.

   In 2001 in the Greensboro, NC MSA, RBC Centura denied the conventional home purchase applications of African Americans 5.68 times more frequently than whites, notably higher than Centura's 1999 denial rate disparity between African Americans and whites in this MSA, 3.37.

    In 2001 in the Charlotte, NC MSA, RBC Centura denied the conventional home purchase applications of African Americans 7.39 times more frequently than whites, notably higher than Centura's 1999 denial rate disparity between African Americans and whites in this MSA, 2.13.

   The deterioration under RBC also affects FHA/VA purchase loans, and other states: in 2001 in the Norfolk, Virginia MSA, RBC Centura denied the FHA/VA purchase applications of African Americans 6.28 times more frequently than whites, notably higher than Centura's 1999 denial rate disparity between African Americans and whites for this loan product in this MSA, 3.24.

    These are the practices that RBC would impose on Admiralty (and any other entity RBC may seek to acquire in the U.S. or elsewhere). ICP is opposed to, and requests an evidentiary hearing on, this RBC expansion application.

3. RBC and Enron

    Again, since the above-quoted FRB Order, further troubling information regarding RBC's involvements with Enron has come to light. See, e.g., the Toronto Star of September 13, 2002, U.S. Indicts Ex-RBC Bankers:

"The seven-count indictment released yesterday against British bankers Gary Mulgrew, Giles Darby and David Bermingham charges that the former employees devised a scheme with former Enron executives Andrew Fastow and Michael Kopper to defraud the company. The bankers schemed to 'obtain money and property by means of materially false and fraudulent pretences,' reads the grand jury indictment filed in the U.S. District Court for the Southern District of Texas... The three men left RBC last November, a month before Enron filed for bankruptcy. They are the focus of a lawsuit filed by Rabobank of the Netherlands against RBC over a different Enron deal. "We don't comment on former or current employees," RBC spokesperson Beja Rodeck said yesterday. The Rabobank action accuses RBC of being a "henchman" for Enron, facilitating Enron's business deals with Rabobank while knowing that Enron was "a corrupt organization liable to implode at any time."

     The referenced case, Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A. v. Royal Bank of Canada et al., No. 602303/02 (N.Y. Sup. Ct.), is further described (for the record in this proceeding) in the Derivatives Litigation Reporter of September 9, 2002.

    The Financial Times of September 23, 2002 reported that "Royal Bank of Canada and Rabobank of the Netherlands were involved in the Cerberus deals, according to the report." Some further detail on Cerberus: "This deal, which enabled Enron to raise millions of dollars without having to list it as debt, involves the sale of 11.5 million shares of Enron Oil & Gas (EOG). It was spun off by Enron in August 1999. Enron exchanged in 2000 this block of shares, which now have a market value of $ 400 million, to another entity, Aeneas, for a share in the Cerberus partnership. Cerberus then sold the shares to an Enron trust called Heracles, which had borrowed more than $ 500 million from the Royal Bank of Canada to finance the transaction. Two years ago, RBC transferred the loan to Rabobank, a Dutch financial concern." See, USA TODAY of September 23, 2002. See also, the Canadian Press Newswire of September 23, 2002.

   RBC's pronounced fixation on secrecy (see, e.g., the Legal Times of October 14, 2002) is delaying the needed factual exposition of this matter. Under the BHC Act's managerial resources, financial and other factors, the FRB must address and act on these timely raised issues, in this proceeding.

4. RBC Dain Rauscher

    Again, since the above-quoted FRB Order, RBC Dain Rauscher has settled compliance violation charges (to put it mildly) with the SEC. See, e.g., Bloomberg News of August 13, 2002, RBC DAIN RAUSCHER TO PAY $500,000 TO SETTLE SEC MUNI-BOND CASE: "RBC Dain Rauscher Corp. agreed to pay $500,000 to settle regulatory charges that it failed to disclose the risks of investing in Orange County, California's... Dain Rauscher sold $680 million in municipal bonds offered by the cities of Anaheim and Irvine and four school districts in Orange County." See also, the Los Angeles Times of October 31, 2002: "A former Rauscher Pierce Refsnes Inc. investment banker has settled allegations over his role in the firm's alleged failure to disclose the risks of investments related to Orange County's 1994 bankruptcy, U.S. regulators said Wednesday. Kenneth Ough of Post Falls, Idaho, settled the charges by agreeing not to violate applicable provisions of securities law."

     On the money laundering issues ICP has previously raised to the FRB, this is a more recent supplement, from "This Magazine" of August, 2002:

LET'S SAY THAT I HAD SOME MONEY I WANTED TO HIDE FROM THE government. Say it's maybe, oh, $215,000... what do I do? I dial up the Royal Bank. A cheerful man with a British accent answers. ''Hi,'' I say. ''I'm exploring the possibility of getting an offshore international account. And I wanted to know what are the requirements for setting one up with you guys. I'm a Canadian living in the U.S.'' He doesn't miss a beat. ''Is this an ordinary sort of banking account you're looking for, along with che[ck] books and debit cards and that sort of thing?'' ''Yes, exactly.'' ''It's $75,000 U.S., or $100,000 Canadian, to have a relationship with the bank.'' ''I don't think that should be too much of a problem,'' I say confidently. ''Ah, where exactly is the branch itself? Is it in the Caribbean?'' ''No, it's based in the Channel Islands. I'm in Guernsey!'' Ah, Guernsey--a tiny nation about five miles across, with miniscule taxes and a fantastically secretive banking establishment. Which leads to my final question. ''What are the tax implications with the offshore accounts? Because I'm basically self-employed. So all my deposits are going directly into this thing. It's up to me to report the income directly to the IRS here in the U.S., right?'' ''That's right,'' he smoothly assures me. ''We say to people, 'It's down to the individuals.' There's no reporting from us, we don't disclose taxation or the account to anyone. And all the accounts pay gross, without any deductions of tax.'' 'So this is an issue between me and the IRS?'' ''That's right.'' ''If they ask for account information, can they get it?'' ''No.'' ''Right. Because it's a completely separate country--right?'' ''Right!'' (Emphasis added.)

    Under the BHC Act's managerial resources, financial and other factors -- including the U.S. PATROIT Act, see below, the FRB must address and act on these timely raised issues, in this proceeding.

* * *

    As you know, on October 9-10, 2002, ICP requested, concerning these proposals, the entire application, and all records "reflecting communications between [FRS] personnel and representatives of any of the above-captioned companies related to the proposals" and all "other records in the FRS’ possession related to the proposal."

   The FRB of Richmond subsequently provided ICP with an incomplete copy of the application, and none of the requested communications, then or since. ICP contests the withholdings and redactions. All improperly withheld documents should be provided forthwith, and the comment period should be extended.

    ICP specifically and vigorously contests RBC's attempt to withhold all of the information required by the USA PATRIOT Act, particularly in light of the detail account timely raised above. The Table of Contents to RBC's application refers to a "Confidential" Exhibit 4, "Information Required Pursuant to the U.S. Patriot Act." In the public interest, this information should not be withheld.

   Furthermore we note in Non-Confidential Exhibit 14 ("RBC Centura Bank CRA Report and CRA Statement"), a document entitled "RIDERS FOR TUBZ DOCUMENT," apparently faxed from Goldman Sachs on September 22, 2002, concerning various TUBZ ramifications based on when an SEC shelf registration statement might or might not become effective.

    In light of all of the above, the comment period should be extended; on the current record, RBC's applications must be denied. On the grounds set forth above, ICP is timely requesting an evidentiary hearing on this application. If you have any questions, please immediately telephone the undersigned, at (718) 716-3540.

Respectfully submitted,


Matthew R. Lee, Esq.
Executive Director
Inner City Public Interest Law Center
& Fair Finance Watch

    NOTE: This page will be updated, when we receive the information that RBC is seeking to withhold, in the face of Freedom of Information requests from ICP, and RBC's response  to the Federal Reserve Board and other regulatory agencies. For or with more information, contact us.

* * *

    [Background:] On May 24, 2002, Inner City Press / Community on the Move and the Fair Finance Watch (together, "ICP") filed with the U.S. Federal Reserve Board a 12-page comment opposing the application of Royal Bank of Canada ("RBC") to acquire Atlanta-based Eagle Bancshares and its subsidiary, Tucker Federal Bank.   See, e.g., "Royal Bank's Purchase of Eagle Bank Under Scrutiny," National Post, May 25, 2002.  On June 7, RBC's counsel submitted a purported response, to which ICP replied on June 10, 2001. ICP's filings are summarized below in reverse chronological order.  Tucker Federal Bank has a rare "Needs to Improve" rating under the Community Reinvestment Act (CRA), and that RBC has not submitted any plan to improve Tucker's performance.  ICP notes that another RBC subsidiary in the U.S., Liberty Life, was in December 2001 fined $2 million for racial discrimination, and was suspended from doing business in South Carolina for one year. See, e.g., Toronto Star of December 28, 2001, "Sales Ban Ordered for Royal Insurer."

    For or with more information, contact us

Update of September 16, 2002: in Houston on September 12, prosecutors indicted three British bankers on wire fraud charges in connection with Enron's (and Fastow's) LJM partnership. Gary Mulgrew, David Bermingham and Giles Darby are accused of stealing $7.3 million from the deal with Enron. The indictment closely mirrors allegations first brought in a lawsuit filed in June by Rabobank against Royal Bank of Canada over a $517 million Enron-related deal. Mulgrew, Darby and Bermingham joined RBC from NatWest two years ago. Developing...For or with more information, contact us

Update of September 3, 2002: On August 29, Royal Bank of Canada announced a proposal to buy Admiralty Bancorp in Florida for $150 million. We note that on RBC's last U.S. deal, for Tucker Bank in Atlanta, the Federal Reserve said it would "monitor" RBC's appeal of the race discrimination finding against RBC's Liberty Life insurance unit in South Carolina. Well, also last week, South Carolina Chief Administrative Law Judge Marvin upheld the finding, writing that "it is difficult to believe the Legislature intended to allow whites and African-Americans to be divided into separate classes for purposes of setting insurance rates based upon nothing more than their skin color." Liberty Life's black customers paid up to one-third more for burial insurance policies than white people, Insurance Department Director Ernst Csiszar told AP. The AP story did not mention that Liberty Life is owned by RBC.  

Update of July 8, 2002:  ICP has just filed a timely request for reconsideration of the Federal Reserve Board's June 24 RBC - Tucker Order:

                                                                                                          July 8, 2002
Board of Governors of the Federal Reserve System
Attn:  Chairman Alan Greenspan, Governors, Secretary Johnson
20th Street and Constitution Avenue, N.W.
Washington, DC 20551

RE: REQUEST FOR RECONSIDERATION OF THE BOARD'S JUNE 24, 2002, ORDER APPROVING THE APPLICATIONS  OF Royal Bank of Canada and its affiliates to acquire Tucker Federal Bank & Eagle Bancshares Capital Group

Dear Secretary Johnson, Chairman Greenspan and Governors:

     On behalf of Inner City Press/Community on the Move and its members and affiliates, including the Fair Finance Watch (collectively, "ICP"), this is a timely request for reconsideration of the Federal Reserve Board’s (the "FRB’s") June 24, 2002, Order approving the applications of Royal Bank of Canada and its affiliates ("RBC") to acquire Tucker Federal Bank, Eagle Bancshares Capital Group, Inc., and Prime Eagle Mortgage Corp (collectively, "Tucker").

   ICP will begin by directly addressing the standard that the FRB applies to such requests: "present relevant facts that, for good cause shown, were not previously presented to the Board." 12 C.F.R. §262.3(k).

    Two days after the Board's approval order, The Daily Deal of June 26, 2002, reported:

Royal Bank of Canada is suing a Dutch bank for breach of contract and seeks unspecified damages over a $517 million loan to Heracles Trust, an affiliate of bankrupt Enron Corp.

Beja Rodeck, an RBC spokeswoman, said Tuesday, June 25, the bank filed the suit in London on Monday after Cooperatieve Centrale Raiffeisen-Boerenleenbank, or Rabobank, accused RBC in a lawsuit filed June 21 in New York State Supreme Court of being a "henchman" for Enron and having inside information about the company when it structured the loan. Rabobank is contesting a credit derivative deal - known as a total return swap - under which it agreed to cover the risk associated with the loan, which is due Friday. Essentially, Rabobank agreed to pay back the loan if Heracles defaulted, which it did after Houston-based Enron filed for bankruptcy in December. Rabobank, based in Utrecht, the Netherlands, accused RBC of having information regarding "massive corruption and self-dealing" at Enron. Rabobank said three former RBC structured finance specialists who put together the loan deal had intimate knowledge of Enron's "internal corruption" from their time at British investment bank Greenwich NatWest. Rabobank claims the three bankers, who have since resigned, knew Enron was on the brink of collapse when they structured the deal for RBC. RBC's shares plummeted C$1.76 Monday to C$53 ($35) following news of the lawsuit and did not rebound Tuesday. (Emphasis added).

   It is important that the Board stay its June 24 Order until the serious allegations made by Rabobank (and U.S. prosecutors, see infra) regarding RBC and these RBC employees are resolved and acted on.

    Bloomberg News of June 29, 2002, reported that " U.S. investigators will probably try to extradite three former U.K. employees of Royal Bank of Canada who have been charged with fraud in connection with Enron Corp.... Federal prosecutors in the Enron investigation filed a criminal complaint, along with arrest warrants, for the investment bankers Thursday. Gary Mulgrew, Giles Darby and David Bermingham." The Houston Chronicle of June 29, 2002, reported that "[a]n international legal effort commenced Friday to have three British men charged with Enron-related fraud brought back to the United States to face those allegations, officials said. 'Arrest warrants were signed by a judge and issued (Thursday) night,' said Justice Department spokesman Bryan Sierra. Federal authorities want Gary Steven Mulgrew, Giles Darby and David John Bermingham brought to the United States to face charges...".

RBC's attitude to date to this serious matter is recounted in the Toronto Star of June 29, 2002, "Outrage premature at Royal Bank:"
If Canada's biggest bank had kept a lid on its righteous indignation for just a few days last week, it would not look so ridiculous now. Early this week, it was revealed that a top Dutch lender, Rabobank, had balked at honouring a commitment to pay Royal Bank of Canada the tidy sum of $517 million (U.S.) due last Friday.
That sum originated as an RBC loan in November, 2000, to one of the notorious offshore trusts of Enron Corp., the now collapsed Houston energy trader. Hedging its bet, RBC had promptly traded it in a so-called swap transaction with Rabobank. Rabobank has claimed that it should not have to pay the money because RBC failed to disclose to the Dutch its knowledge that Enron's management was "corrupt" and was "looting Enron for personal benefit and that Enron's reported financial results were a house of cards waiting to collapse"...
The feds' evidence includes an e-mail message in which Bermingham describes the trio's effort to lure Enron's then chief financial officer, Andy Fastow, into a deal that would improperly enrich all four men. "I will be the first to be delighted if [Fastow] has found a way to lock it in and steal a large portion himself," wrote Bermingham. "We should be able to appeal to his greed."
So what did RBC know about its drive-by dealmakers? Or more to the point, what did it go to the trouble of knowing? ... With that in mind, RBC might have informed itself of the trio's close ties to Fastow, the prime contractor of Enron's thousands of off-the-books projects. In the process, RBC might have also made itself aware that the trio accepted holiday junkets from Enron and in turn hosted Enronites at Treasures, a Houston-area strip club. On grounds of conflict of interest if not bad taste, Mulgrew & Co. certainly bore watching. (Emphasis added).

     Again, it is important that the Board stay its June 24 Order until the serious allegations made by U.S. prosecutors regarding RBC and these RBC employees are resolved and acted on. The questions "what did RBC know about its drive-by dealmakers? Or more to the point, what did it go to the trouble of knowing?" should be answered, forthwith and forthrightly, before RBC is allowed to acquire another bank in the U.S., particularly one with a rare Needs to Improve CRA rating, without RBC having presented any substantive plan to improve Tucker's (or its own) CRA performance.

     RBC's single Response (the "Resp.) stated, at 1, that "[i]nformation in this response regarding Eagle had been provide to Royal Bank by Eagle" -- but there was no information in the Response, at least as provided to ICP, regarding Eagle, its Needs to Improve CRA rating nor plans any RBC plans to improve Tucker's deficient performance.

    The Board's order acknowledges that RBC's "HMDA data also reflect disparities in certain MSAs with respect to loan originations and applications in LMI areas and to LMI borrowers," and to African-Americans. Order at 14-15. The Board states that it "has forwarded [ICP's] letter to HUD and the Federal Trade Commission, the agencies responsible for enforcing compliance with the fair lending laws of nondepository institutions." Order at note 29. The Order is internally inconsistent: the Board states that it "expects banking holding companies and their affiliates to conduct their subprime lending activities without any abusive lending practices" (Order at note 18), but then, on the issues raised, simply passes the evidence along to other, far less well-funded agencies.

     The Board's order states that it will "monitor" RBC's appeal of the race discrimination finding against RBC's Liberty Life insurance subsidiary, and "take whatever action might be appropriate." The Board is evading its duties to address adverse evidence in the record in its Orders in contested proceedings, by simply saying it will act later. In the 1990s, the Board denied an application by Shawmut because of a race discrimination investigation. Shawmut National Corporation, Order Disapproving Acquisition of a Bank and Formation of a Bank Holding Company, 80 Federal Reserve Bulletin 47 (January, 1994). Now in the Aughts, even after a holding company subsidiary has been found guilty of discrimination by its functional regulator, the Board approves an application saying it will monitor the holding company's and subsidiary's appeal. The Order should be stayed and reconsidered.

     RBC acquired Prism Mortgage Company on April 25, 2000. As such, the 2000 HMDA data of Prism / RBC Mortgage is attributable to RBC. But RBC's Resp. claimed, at 3, that "[t]he data referenced by ICP" -- that is, full-year 2000 data -- "relates to a time period before such improvements could reasonably be expected to take effect, given that RBC completes its acquisition of Prism Mortgage Company in April 2000." ICP disputes this. It is not permissible for a company (particularly not one of the size and compliance-claims of RBC) to file erroneous HMDA data for a company it acquired 11 months previously. The 2000 HMDA data was filed on March 1, 2001. If RBC is does not find it "reasonable" (or possible) for it to bring a company it acquires into compliance within 11 (or eight) months, it should not be permitted to acquire a bank with a rare Needs to Improve CRA rating (as Tucker Federal Bank has).

     The stated divestiture of the subprime lender First Greensboro Home Equity -- the date of which continued to change throughout the proceeding-- and the cessation of lending by NCS, were not disclosed or projected in any RBC Response to the issues being raised. We note that the 2002 McGraw-Hill Standard & Poor's Register of Directors and Executives lists Cecil Sewell, "CEO of [RBC] Centura Banks, Inc." as also being a director of First Greensboro Home Equity, Inc.; the load-date of this information into the data base was January 7, 2002.

    ICP disputes whether the information required by the post-9/11/01 USA Patriot Act is "solely [for] the regulators" (Resp. at 7). On this important issue, it is impermissible and contrary to public policy for the FRB and RBC to withhold this information. The information should have been, and now should be, released. And while RBC characterized ICP's comment on RBC's offshore banking practices as "gratuitous" (Resp. at 7), the article ICP cited reported clearly that "[a]mong companies the I.R.S. identified in court papers as advertising offshore banking secrecy were... Barclays, HSBC and Royal Bank of Canada." See New York Times of March 26, 2002, at A1, "I.R.S. Says Offshore Tax Evasion Is Widespread," emphasis added. Additionally, RBC's Resp. does not mention, much less address, the FRB's October 6, 2000, letter to counsel for Bank of Cyprus, which questioned "the policies and procedures that [Bank of Cyprus] uses to monitor transactions of Bank of Cyprus (Channel Islands) Ltd., which is operated as an administered banking unit by the Royal Bank of Canada (Channel Islands)... identify the scope and frequency of on-site examinations of Bank of Cyprus (Channel Islands) Ltd. conducted by the Central Bank." Emphasis added. These questions -- including about the frequency of on-site examination -- should have been, and now should be, put to RBC (Channel Islands and elsewhere). Furthermore, ICP questions the FRB's June 25, 2002, letter to ICP stating that RBC has filed no applications and had no communications with the FRB regarding its proposals to further grow in the U.S., specifically by acquired U.S. business of Generali (announced April 30, 2002) and of Barclays Americas (announced May 22, 2002). In light of the new information above and otherwise, ICP urges the FRB to inquire into both above-named RBC - U.S. deals, to require applications or stay then as well, pending resolution of these troubling Enron and other issues.

Combined with the new information regarding RBC's and its employees' involvement in the troubling Enron scandal, the Order should be stayed and reconsidered, and appropriate action taken.

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

Respectfully submitted,


Matthew R. Lee, Esq.
Executive Director
Inner City Public Interest Law Center
& Fair Finance Watch

       For or with more information, contact us.

Update of July 1, 2002: The Federal Reserve Board on June 24 approved Royal Bank of Canada's application to acquire Tucker Federal Bank, which has a Needs to Improve CRA rating. Among other thing the Board's order states that it will "monitor" RBC's appeal of the race discrimination finding against RBC's Liberty Life insurance subsidiary, and "take whatever action might be appropriate." The Board also stated that RBC "fully divested" the subprime lender First Greensboro by September 2001 -- that date just keeps on changing, see below in this Report. The Board's order acknowledges that RBC's "HMDA data also reflect disparities in certain MSAs with respect to loan originations and applications in LMI areas and to LMI borrowers," and to African-Americans. Order at 14-15. The Board states that it "has forwarded [ICP's] letter to HUD and the Federal Trade Commission, the agencies responsible for enforcing compliance with the fair lending laws of nondepository institutions." Order at note 29. And, RBC's "CRA compliance record will be considered by the Board in connection with any subsequent applications by [RBC] to acquire a depository institution." All right, then... Also, it emerged last week that Dutch lender Rabobank has balked at honoring a commitment to pay Royal Bank of Canada $517 million that was due on June 21. That sum originated as an RBC loan in November, 2000, to one of the notorious offshore trusts of Enron Corp., the now collapsed Houston energy trader. Hedging its bet, RBC had promptly traded it in a so-called swap transaction with Rabobank. Rabobank has claimed that it should not have to pay the money because RBC failed to disclose to the Dutch its knowledge that Enron's management was "corrupt" and was "looting Enron for personal benefit and that Enron's reported financial results were a house of cards waiting to collapse." For or with more information, contact us.

* * *

[ICP's June 10, 2002, filing with the U.S. Federal Reserve Board:]

                                                                                                          June 10, 2002
Board of Governors of the Federal Reserve System
Attn:  Chairman Alan Greenspan, Governors, Secretary Johnson
20th Street and Constitution Avenue, N.W.
Washington, DC 20551


Federal Reserve Bank of Richmond
Attn: Mr. A. Linwood Gill, III
701 East Byrd Street
Richmond, VA 23261-4528

Re: Near-immediate reply to RBC's June 7 response to ICP's May 24 comment on the applications/notices of Royal Bank of Canada and its affiliates to acquire Tucker Federal Bank & Eagle Bancshares Capital Group, Inc.

Dear Secretary Johnson, Mr. Cox, others in the FRS:

  On behalf of Inner City Press/Community on the Move and its members and affiliates, including the Fair Finance Watch (collectively, "ICP"), this is a near-immediate reply to the June 7, 2002, submission (the "Resp.") of Royal Bank of Canada and its affiliates ("RBC"), which purported to response to ICP's timely May 24 protest to RBC's applications to acquire Tucker Federal Bank, Eagle Bancshares Capital Group, Inc., and Prime Eagle Mortgage Corp (collectively, "Tucker").

   ICP is most struck by RBC's failure to submit a credible plan regarding Tucker Federal Bank's rare Needs to Improve Community Reinvestment Act ("CRA") rating. RBC's Resp. states, at 1, that "[i]nformation in this response regarding Eagle had been provide to Royal Bank by Eagle" -- there is no information in the Response regarding Eagle, its Needs to Improve CRA rating nor plans any RBC plans to improve Tucker's deficient performance. On this ground alone, the comment period should be extend, an evidentiary hearing should be held, and RBC's Application could not legitimately be approved.

    This is particularly true given the presumptive (and apparently acknowledged) compliance deficiencies at RBC Mortgage. As acknowledged in the Resp., RBC acquired Prism Mortgage Company on April 25, 2000.  As such, the 2000 HMDA data of Prism / RBC Mortgage is attributable to RBC.   But RBC's Resp. claims, at 3, that "[t]he data referenced by ICP" -- that is, full-year 2000 data -- "relates to a time period before such improvements could reasonably be expected to take effect, given that RBC completes its acquisition of Prism Mortgage Company in April 2000." We dispute this. It is not permissible for a company (particularly not one of the size and compliance-claims of RBC) to file erroneous HMDA data for a company it acquired 11 months previously. The 2000 HMDA data was filed on March 1, 2001. If RBC is does not find it "reasonable" (or possible) for it to bring a company it acquires into compliance within 11 (or eight) months, it should not be permitted to acquire a bank with a rare Needs to Improve CRA rating (as Tucker Federal Bank has).

   The stated divestiture of the subprime lender First Greensboro Home Equity, and the cessation of lending by NCS, were not disclosed or projected in any RBC Response to the issues being raised. We note that the 2000 McGraw-Hill Standard & Poor's Register of Directors and Executives lists Cecil Sewell, "CEO of [RBC] Centura Banks, Inc." as also being a director of First Greensboro Home Equity, Inc.; the load-date of this information into the data base was January 7, 2002.

    RBC's one-sentence (non-) response regarding Tucker Federal Bank's rare Needs to Improve CRA rating (Resp. at 5) makes a mockery of CRA, and of the CRA provisions of the GLB Act. On this ground alone, the comment period should be extended, an evidentiary hearing should be held, and RBC's Application could not legitimately be approved.

   That RBC has appealed the South Carolina Department of Insurance's order imposing a $2 million fine for racial discrimination by RBC's subsidiary Liberty Life does not resolve the issue: under the principle of functional regulation, the FRB must accord weight to the determination of this RBC subsidiary's primary functional regulators, which has formally charged the RBC subsidiary with racial discrimination.

   The relevance of RBC's Security First Network Bank's layoffs (Resp. at 6) is, inter alia, that they have occurred in Atlanta, the very community in which RBC now proposes to acquire a bank with a rare Needs to Improve CRA rating, without any credible plan to improve the CRA performance.

   ICP disputes whether the information required by the post-9/11/01 USA Patriot Act is "solely [for] the regulators" (Resp. at 7). On this important issue, it is impermissible and contrary to public policy to withhold this information. The information should be released. And while RBC characterizes ICP's comment on RBC's offshore banking practices as "gratuitous" (Resp. at 7), the article ICP cited reported clearly that "[a]mong companies the I.R.S. identified in court papers as advertising offshore banking secrecy were... Barclays, HSBC and Royal Bank of Canada." See New York Times of March 26, 2002, at A1, "I.R.S. Says Offshore Tax Evasion Is Widespread," emphasis added. Additionally, RBC's Resp. does not mention, much less address, the FRB's October 6, 2000, letter to counsel for Bank of Cyprus, which questioned "the policies and procedures that [Bank of Cyprus] uses to monitor transactions of Bank of Cyprus (Channel Islands) Ltd., which is operated as an administered banking unit by the Royal Bank of Canada (Channel Islands)... identify the scope and frequency of on-site examinations of Bank of Cyprus (Channel Islands) Ltd. conducted by the Central Bank." Emphasis added. These questions -- including about the frequency of on-site examination -- should be put to RBC (Channel Islands and elsewhere).

* * *

  On the current record, RBC's applications should be denied.  If you have any questions, please immediately telephone the undersigned, at (718) 716-3540.

Respectfully submitted,


Matthew R. Lee, Esq.
Executive Director
Inner City Public Interest Law Center
& Fair Finance Watch

* * *

[ICP's May 24, 2002, filing with the U.S. Federal Reserve Board:]

                                                                                                          May 24, 2002
Board of Governors of the Federal Reserve System
Attn:  Chairman Alan Greenspan, Governors, Secretary Johnson
20th Street and Constitution Avenue, N.W.
Washington, DC 20551


Federal Reserve Bank of Richmond
Attn: Mr. A. Linwood Gill, III
701 East Byrd Street
Richmond, VA 23261-4528

Re: Timely comment on the applications/notices of Royal Bank of Canada and its affiliates -- including RBC Prism Mortgage, NCS, First Greensboro Home Equity, Inc. to acquire Tucker Federal Bank, Eagle Bancshares Capital Group, Inc., and Prime Eagle Mortgage Corp.

Dear Chairman Greenspan, Governors, others in the FRS:

     On behalf of Inner City Press/Community on the Move and its members and affiliates, including the Fair Finance Watch (collectively, "ICP"), this is a timely comment on the applications/notices of Royal Bank of Canada and its affiliates -- including RBC Prism Mortgage, NCS, First Greensboro Home Equity, Inc. (collectively, "RBC") to acquire Tucker Federal Bank, Eagle Bancshares Capital Group, Inc., and Prime Eagle Mortgage Corp (collectively, "Tucker").

     ICP has monitored the performance of RBC's lenders in the United States, including the subprime lenders NCS and First Greensboro Home Equity, Inc. ("First Greensboro"), and RBC Prism (recently re-named RBC Mortgage). [FN: While the HMDA data analyzed herein was filed by "Prism," it will be referred to as RBC Mortgage -- RBC renamed the entity in April 2002. See P.R. Newswire of April 8, 2002, "Prism Mortgage Changes Name to RBC Mortgage"]. Given the disparities in these RBC subsidiaries' lending (see infra), ICP also notes that in December 2001 another RBC U.S. subsidiary, Liberty Life, settled charges of race discrimination. See, e.g., Toronto Star of December 28, 2001, "Sales Ban Ordered for Royal Insurer" -- "A South Carolina life insurance company owned by the Royal Bank of Canada could be suspended from doing business in the state for one year and fined $2 million (U.S.) for allegedly charging African Americans higher premiums than whites. Liberty Life Insurance Co. of Greenville has acknowledged some black customers were charged higher premiums....".

     It is important to note that Tucker Federal Bank has a current "Needs to Improve" rating under the Community Reinvestment Act ("CRA"). See, App. at 8. RBC's Application does not sufficiently address this rare Needs to Improve CRA rating; RBC has not made (public) a credible plan to improve this rating, which should have the effect(s) envision by the Gramm-Leach-Bliley Act of 1999.

     Since RBC is on an acquisition spree in the U.S. -- of companies, at least Tucker and Liberty Life, with troubled compliance records -- we are concerned by continuing disparities and apparent lack of oversight and compliance safeguards at RBC's subsidiaries.

     We have analyzed Home Mortgage Disclosure Act ("HMDA") data for the most recent year available (2000) for First Greensboro, RBC Mortgage and NCS. In 2000 in the Goldsboro, North Carolina MSA -- where RBC has a Community Reinvestment Act ("CRA") duty -- RBC's subprime unit First Greensboro made 3.67 times more of its high-cost refinance loans to African Americans than to whites, on a higher volume of lending than First Greensboro reported for the previous year, 1999. Note that the industry as a whole (the "aggregate") in Goldsboro in 2000 made 1.92 times more refinance loans to whites than to African Americans. Thus, RBC's First Greensboro targets African American seven times more frequently than other lenders in this MSA, with its high-cost loans.

   In the Richmond, Virginia MSA in 2000, First Greensboro made 23 refinance loans to African Americans, and 35 to whites; in 1999 in this MSA it made eight loans to African Americans and 13 to whites. The aggregate in 2000 in Richmond made 1310 refinance loans to African Americans and 3386 to whites. Thus, RBC's First Greensboro targets African American 1.74 times more frequently than other lenders in this MSA, with its high-cost loans. We will refer to this, in the analysis below, as the "targeting index."

    RBC Mortgage's targeting index (targeting of African Americans with high-cost loans) in the Rocky Mount, North Carolina MSA in 2000 was 1.63; in Charlottesville, Virginia it was 3. And in the Atlanta MSA it was 2.86. RBC's subprime subsidiaries' targeting of African Americans with high-cost loans has not improved, in the most current data: in fact it has gotten worse.

   In the St. Louis Metropolitan Statistical Area ("MSA"), RBC Mortgage in 2000 denied applications by African Americans for conventional home purchase mortgages over six times more frequently than applications by whites. (Specifically, RBC Mortgage denied African Americans' applications 6.67 times more frequently than whites).

   In its headquarters MSA, Chicago, RBC Mortgage in 2000 denied the applications of African Americans for FHA/VA home purchase mortgages more than two and a half times more frequently that the applications of whites. (Specifically, RBC Mortgage denied African Americans' applications 2.57 times more frequently than whites'). [FN: For the record, ICP disputes RBC Mortgage / Prism's compliance with HMDA: in the St. Louis MSA for FHA/VA loans, Prism in 2000 reported that all 71 applications by African Americans were approved, for example. The FRS should inquire into RBC's HMDA compliance].

   RBC Mortgage's lending to Latinos is also disparate. In the Oakland, California MSA in 2000, for conventional home purchase loans, RBC Mortgage denied the applications of Latinos 4.71 times more frequently than whites' applications. In the Rockford, Illinois MSA, for VA/FHA loans, RBC Mortgage denied the applications of Latinos 7.7 times more frequently than whites' applications.

   While RBC Mortgage disproportionately denies applications by African Americans, RBC's higher-than-normal interest rate (subprime) lending subsidiary NCS, like First Greensboro, targets African Americans with their high-cost loans.

    RBC's subprime lender NCS made two and a half (2.5) times more of its high-cost refinance loans to African Americans than to whites in the Atlanta MSA in 2000, up from 1.29 in 1999. The aggregate in Atlanta in 2000 made 2.82 times more refinance loans to whites as to African Americans. Thus, RBC's NCS targets African American seven (7.14) times more frequently than other lenders in this MSA, with its high-cost loans. This Atlanta MSA, in which Tucker Federal Bank is based, is particularly relevant to this application proceeding.

     Tucker Federal Bank's most recent CRA performance evaluation, transmitted to Tucker by the Office of Thrift Supervision on February 22, 2001, rates Tucker as "Needs to Improve" under the Lending Test, stating inter alia that

--"only a very small percentage (7.7 percent) of [Tucker's] HMDA reportable and small business loans were for properties inside Tucker Federal's assessment area. This low percentage is of significant concern given that approximately 77 percent of Tucker Federal's total deposits are from within the assessment area;"

--"Tucker Federal's penetration of lending in [low and moderate income] geographies throughout the assessment area was poor;"

--"Since the last examination, Tucker Federal did not grant any community development loans."

    The CRA performance evaluation also states that:

"During the review period, Tucker Federal's qualified [CRA] investments were limited to financial contributions totaling $8,527;" and

--"Tucker Federal has no branch offices located in low-income census tracts...".

    Of Tucker's HMDA-reported loans, only 0.78% (by number) and 0.35% (by dollar amount) of Tucker's loans were in low-income census tracts.

   Of Tucker's CRA-reported small business loans, only 0.68% (by number) and 0.62% (by dollar amount) of Tucker's loans were in low-income census tracts.

  Despite all this, RBC has not even presented a purported CRA improvement plan. On the current record, this application could not legitimately be approved.

* * *

     In Atlanta in July 2001, RBC laid off over 100 employees at its first-bought U.S. subsidiary, Security First Network Bank. See, e.g., Bloomberg News of July 12, 2001, "CANADA'S ROYAL BANK TO CUT JOBS AT SECURITY FIRST" (putting the number of RBC lay-offs in Atlanta at 129). ICP continues to contend that RBC violates the letter and spirit of the Community Reinvestment Act by seeking to limit RBC Security First Network Bank's CRA duty to the Tampa and Atlanta MSAs (see supra for RBC's affiliate's disparate lending record in Atlanta -- in which, as noted, Tucker Federal Bank has a rare Needs to Improve CRA rating, which must be addressed in this proceeding). Also note, terms of Canada (and compliance), the Toronto Post/ Guelph Mercury of April 9, 2002, "Royal Bank refunds $17 million to Visa users after unclear rule" -- " Royal Bank of Canada said it would refund $17 million in interest charges after rewriting what it called an unclear rule that affected about 1.6 million card holders.....".  See also, Bloomberg News of April 8, 2002, "CANADA'S ROYAL BANK REFUNDS C$17 MILLION CHARGED ON SOME VISA CARDS."

     ICP's concerns regarding disparities and lack of oversight at RBC's U.S. subsidiaries have only grown.  On April 27, 2001, ICP received from RBC two heavily-redacted documents, both dated April 26, 2001. The first was a response to the FRB's questions of April 12, 2001, which related to fair lending and other issues ICP had raised. RBC's response (hereinbelow, "RBC's Resp."), as provided to ICP, was virtually unintelligible, given that sentences, paragraphs, and even entire pages, had been (and remained) whited-out.   RBC stated, Resp. at 3, that "if... an applicant for a mortgage loans does not meet the criteria for any of Centura's loan products, then the applicant is given the option of having the loan application submitted to FGHE...". See supra re FGHE's updated lending disparities, using the most recent available data.

    The RBC FRB Response to FRB question 2 (regarding, inter alia, referral-up programs) claimed that First Greensboro brokers conforming loans "to conforming/prime lenders," without naming the lenders. It seemed (and seems) reasonable to infer that FGHE does not refer-up to RBC Centura, at least not exclusively. The result is a one-way street: referrals down from RBC Centura to its subprime affiliate FGHE; less defined referrals-up by this subprime affiliate, which RBC Centura does not "oversee" for compliance. ICP maintains that RBC Centura (and RBC more generally) do not have sufficient fair lending, consumer compliance and other safeguards in place. And now RBC wants to acquire a bank, Tucker, with a rare Needs to Improve CRA rating. This application should be denied.

    RBC's Response appeared to acknowledge that Prism's 1999 HMDA data contained errors. The Resp. at 6 referred to steps that have "enhanced the accuracy and credibility of Prism's HMDA data and reporting" -- HMDA data are required to be accurate; the data either are or aren't accurate, and if inaccurate data have been filed, they must be withdrawn, corrected and refiled. (Various studies, including by the GAO, have admonished the agencies including the FRB to take HMDA errors more seriously, and act thereon -- that should be done, in this case).

     Astonishingly, Prism's 2000 data contains the same near-100% approval rates as the 1999 data. For example, in the St. Louis MSA for FHA/VA loans, Prism in 2000 reported that all 71 applications by African Americans were approved. The FRB must inquire into and act on RBC's ongoing presumptive violations of HMDA...

       On April 29, 2002, ICP requested, concerning these proposals, the entire application, and "all records reflecting any FRS personnel’s communications with the above-captioned companies or their affiliates regarding the proposal" and all "other records in the FRS’ possession related to the proposal."

    The Federal Reserve Bank of Richmond on May 13 provided ICP with a copy of "redacted confidential exhibits." ICP contests the redactions, and notes the paucity of information about any RBC proposal to improve the rare Needs to Improve CRA performance of Tucker Federal Bank. All improperly withheld documents should be provided forthwith, and the comment period should be extended.

    ICP specifically and vigorously contests RBC's attempt to withhold all of the information required by the USA PATRIOT Act. At App. at 8, Part F, referring to "Confidential" Exhibit 8. This information should not be withheld. In additional support for this position, which should be necessary, ICP directs the FRB to (and incorporates by reference into this proceeding) the FRB's October 6, 2000, letter to counsel for Bank of Cyprus, which questions "the policies and procedures that [Bank of Cyprus] uses to monitor transactions of Bank of Cyprus (Channel Islands) Ltd., which is operated as an administered banking unit by the Royal Bank of Canada (Channel Islands)... identify the scope and frequency of on-site examinations of Bank of Cyprus (Channel Islands) Ltd. conducted by the Central Bank." Emphasis added. The same questions -- including about the frequency of on-site examination -- should be put to RBC (Channel Islands and elsewhere). Note that Bank of Cyprus withdrew its application in mid 2001. See also, New York Times of March 26, 2002, at A1, "I.R.S. Says Offshore Tax Evasion Is Widespread" -- "[a]mong companies the I.R.S. identified in court papers as advertising offshore banking secrecy were... Barclays... and Royal Bank of Canada." RBC's withheld exhibits -- particularly but not only the information required by the USA PATRIOT Act -- must be released, and the comment period extended.

* * *

     RBC on May 22, 2002, announced a proposal to acquire the business of Barclays in the Americas, stating the proposal requires regulatory approvals and would be consummated "by summer."  Also, on April 30, 2002, RBC announced a proposal to acquire the U.S. insurance and mutual fund business of Generali. In light of the above, ICP explicitly requests that this Comment be considered in connection with RBC's Barclays and Generali proposals...

     The comment period should be extended; on the current record, RBC's applications must be denied. On the grounds set forth above, ICP is timely requesting an evidentiary hearing on RBC's applications. If you have any questions, please immediately telephone the undersigned, at (718) 716-3540.

Respectfully submitted,


Matthew R. Lee, Esq.
Executive Director
Inner City Public Interest Law Center
& Fair Finance Watch

    NOTE: This page will be updated, when we receive the information that RBC is seeking to withhold, in the face of Freedom of Information requests from ICP, and RBC's response  to the Federal Reserve Board and other regulatory agencies. For or with more information, contact us.


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