Inner City Press/Community on the Move

& Inner City Public Interest Law Center

  

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[THE COMMENT ICP FILED WITH THE FEDERAL RESERVE BOARD OPPOSING THE CITICORP - TRAVELERS MERGER, IN APRIL 1998]

I. 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 proposed merger of Citicorp, Inc. and its subsidiaries (“Citicorp”) and the Travelers Group and its subsidiaries (“Travelers”) and all related Applications and notices.

Citicorp and its banks, which are subject to the Community Reinvestment Act (12 U.S.C. 2901, et seq.; “CRA”), have in recent years abandoned low and moderate income (“LMI”) neighborhoods, and communities of color. This is reflected by Citicorp’s massive branch closings and downgrades (Section II.A, infra), by Citicorp’s automatic teller machines (“ATM”), electronic banking and fee policies (Section II.B), and by Citicorp’s lending record, which disproportionately excludes and denies African Americans and Hispanics (Section II.C).

Travelers, Citicorp’s proposed merger partner, does have subsidiaries (inter alia its finance company, Commercial Credit, and its retail distribution affiliate, Primerica Financial Services [“PFS’]) which target LMI and minority communities -- but only with higher than normal interest rate loans and overpriced and less-than-fully-explained insurance products (Section III.A). Travelers also has subsidiaries subject to the CRA: a nationwide subprime lending thrift, Travelers, FSB (which, even in its recent formation, has caused concerns at the Office of Thrift Supervision [“OTS]), and a Delaware-based nationwide credit card lending bank. Travelers has recently had to admit to systematic violations of the Home Mortgage Disclosure Act (12 U.S.C. 2801, et seq.; “HMDA”), reflecting adversely on the managerial and CRA record of the proposed acquirer. As noted below, Travelers has not corrected its HMDA data, which calls for close and detailed scrutiny in this proceeding (Section III.B).

The proposed combined company would be worse than its constituent parts: Citigroup would disproportionately exclude LMI neighborhoods and communities of color from Citicorp’s normal interest rate, high technology products and services, while Citigroup would target these communities with Primerica’s and Commercial Credit’s misleading, overpriced loans and insurance. As a preliminary example, consider the following:

Commercial Credit Loans, Inc. is one of Travelers’ subprime (higher than normal interest rate) lending units. In the Greensboro, NC Metropolitan Statistical Area (“MSA”) in 1996, Commercial Credit Loan, Inc. made 10 loans to African Americans and 25 loans to whites. For comparison’s sake (and the comparison is relevant and significant, in light of the proposed combination), in this MSA in 1996, Citibank FSB made 13 loans to whites, and none to African Americans; Citibank Mortgage made seven loans to whites and none to African Americans. Both Citibank Mortgage and Citibank FSB are normal interest rate lenders; as demonstrated infra in Section II.C, they both disproportionately exclude minorities from their marketing and lending. Commercial Credit Loan, Inc., is a high interest rate lender -- it targets and lends to minorities at a much higher rate than they are represented in the demographics of, or other lenders’ data in, this and other MSAs. For further example, in the Charlotte, NC MSA in 1996, Commercial Credit Loan made 19 loans to African Americans, and 23 loans to whites. Citibank Mortgage in the Charlotte MSA in 1996 made 10 loans to whites and only one loan to an African American; Citibank FSB in the Charlotte MSA in 1996 made 40 loans to whites and no loans to African Americans.

This type of analysis should be carried out for all of Travelers’, Commercial Credit’s and Primerica’s high interest rate lending, which is clearly targeted at minorities, comparing it in the same markets with Citicorp’s and its banks’ normal interest rate lending, which disproportionately excludes and denies minorities.

Rather than the claimed financial “supermarket” offering one stop shopping fairly to all, Citigroup would be a two-tier, separate and unequal cross-marketing operation, impermissibly tying credit and insurance products together, and mis-using private consumer information between its disparate units. These foreseeable adverse effects should be the subject of a public evidentiary hearing, particularly because Citicorp’s and Travelers’ CEOs were inappropriately allowed to “brief” the Chairman of the Board of Governors of the Federal Reserve System (the “FRB”) prior to announcing their proposal and submitting their applications.

Under applicable law, including the Bank Holding Company Act (the “BHC Act”), a bank holding company should not be allowed to own or control insurance underwriting operations, nor to own securities underwriting operations of the size of Travelers’ and Citicorp’s combined subsidiaries. No two year divestiture waiver should be granted. See infra Section V.

This proposed merger would also have significant anticompetitive effects, not outweighed by public benefits, in a number of product and geographic markets. ICP’s analysis of these competitive issues will be submitted after ICP receives and reviews Travelers’ Application and notices, and any (competition-based) divestitures proposed therein. This proposal is contrary to both the letter and the spirit of current law, and should be denied.

II. CITICORP’S ABANDONMENT OF LOW AND MODERATE INCOME NEIGHBORHOODS AND COMMUNITIES OF COLOR MILITATES FOR THE DENIAL OF THESE APPLICATIONS

A. Citibank’s Massive Branch Closings and Downgrades

Citicorp is headquartered in New York City, one of the U.S. cities with the starkest contrasts between affluent and low income communities. The Congressional District encompassing the Upper East Side of Manhattan is the most affluent District in the U.S.; the adjacent Congressional District encompassing the southern portion of Bronx County is among the lowest income, and most predominantly minority, Districts in the country.

Simply as an example, and as the starting point of ICP’s analysis: in 1996, ICP contacted Citibank requesting its most recent CRA statements, and commenting in opposition to branch closings and downgrades Citibank was implementing in the Bronx and other LMI communities in New York (see infra). The CRA statement Citibank provided to ICP at that time listed 18 full service Citibank branches in Bronx County. Even at that time, due to Citibank’s previous paring of its LMI branches, Citibank had only one branch in the South Bronx, which is the lower income, more predominantly minority half of Bronx County.

Barely two years later, Citibank has only 11 branches in The Bronx, and two “ATM/CBC” facilities. That is a loss, in two years, of seven branches, or, even if one counts “ATM/CBC” facilities as branches (which the agencies should not), a loss of five branches in two years. None of these closings was related to a merger and subsequent overlaps in combined branch systems -- Citibank has not bought a bank or branch in New York City in a decade. This was pure targeted cost cutting, or, as ICP views it, abandonment of the poor and minorities by the second largest bank in the U.S..

Examining more closely an example of Citibank’s branch closings in the Bronx: Citibank closed its Parkchester branch, at 1498 Metropolitan Avenue, telling its many customers there to travel more than a mile to Citibank’s Castle Hill branch. Parkchester is a large housing development, many of whose residents are now elderly. They were understandably concerned about (or unable to) walk one mile to 1265 Castle Hill Avenue. ICP received dozens of complaints, and raised the issue both to Citibank and to the Office of the Comptroller of the Currency (the “OCC”). Elected officials also raised the issue. But Citibank did not need any regulatory approval before closing the branch -- all it had to do was provide 90 “notice.”

ICP found Citibank significantly less responsive than other banks in New York. ICP believes that this lack of responsiveness was and is due in large part to the fact that since Citibank has for years not acquired any other insured depository institutions, and thus has not filed applications subject to CRA review, Citibank has felt itself immune to CRA scrutiny.

ICP stated to Citibank, and publicly, that it would oppose Citibank’s next application subject to CRA. See, e.g., B. Kappstatter, Bank Won’t Give On Closing, N.Y. Daily News, January 24, 1996: “Citibank will stand firm on its plan to close its Parkchester branch ... The decision immediately drew an angry response and a promise of regulatory challenges down the road... ‘The community position should be that no matter what, at some time, Citibank is going to apply to do something, and it’s going to hit them like a ton of bricks,’ said [the director] of Inner City Press/Community on the Move...”.

See also, J. Kraus, Citibank’s Quiet Branch Closing and Switch to ATMs Stir Outrage, American Banker, February 12, 1996: “Citibank’s opponents, including local neighborhood Chambers of Commerce, said small businesses without access to branches are not in a position to apply for loans or handle much of their other banking activities electronically. Activists also charge that many older customers and the poor have difficulty adjusting to technology. ‘Citicorp’s advertising shows street-smart yuppies going on-line, but people in Parkchester in the Bronx don’t have laptops and PCs,’ Mr. Lee said. The bank has ‘clearly decided which portion of New York City it wants to serve and that doesn’t include moderate- and low-income people.’”

See also, J. Lii, Depositors Cry Abandonment As Bank Shuts, New York Times, March 17, 1996: “For nearly 25 years, the Citibank branch on Metropolitan Avenue was the bank of choice for many of the 40,000 residents of Parkchester... The community’s support made it one of the more profitable bank branches in the city, with deposits of $65 million. But in early February, Citibank closed the Parkchester branch and transferred all its accounts to its Castle Hill branch about a mile away... ‘The Bronx is not the place to close more branches,’ said [the] executive director of Inner City Press/Community on the Move, a nonprofit group based in the South Bronx. ‘It’s already down to the bare bones’... [He] said there was one bank branch for every 25,000 residents in the Bronx, compared with one for every 2,000 Manhattan residents.”

Citibank’s branch closings and downgrades in LMI communities have not been limited to the Bronx. In Kings County in New York City in the past two years, Citibank has gone from 29 branches to only 17 branches, 7 “ATM/CBC” facilities, and one “Sales Only” office. In Queens, Citibank has gone from 37 branches to 24 branches and 10 “ATM/CBC” facilities. In the low income sections of Manhattan, Citibank downgraded its branch on 171st Street to an “ATM/CBC” facility. Furthermore, “76 percent of the branches that are targeted for closure or conversion [by Citibank] at located in the city, while only 24 percent are in the suburbs.” R. Kim, Citibank Accused of Discrimination Against Poor, N.Y. Newsday, May 20, 1996.

Citibank, upon questioning, does not deny these closings: see, e.g., Westchester County Business Journal of December 25, 1995: “Citicorp spokeswoman Susan Weeks said the company recently closed five Manhattan Citibank branches, three in Queens, two in the Bronx, one in Brooklyn and one in Nassau County. Citicorp plan to close another six New York City locations in 1996... According to Weeks, there are no current plans to close any of Westchster’s 23 full service branches...”.

Significantly, while Citibank has been closing and downgrading its branches in LMI and minorities neighborhoods in New York City, Citibank (through its savings bank, Citibank FSB) has been opening new branches in more affluent communities. Citibank has opened seven branches in Connecticut (including in Stamford, Fairfield, Cos Cob, Westport Plaza and Greenwich), and a branch in an affluent suburb in northern New Jersey. It is not even that Citibank is closing physical facilities across-the-board: Citibank is opening new branches in affluent, non-minority communities, while closing and downgrading its branches in low income and predominantly minority communities.

Citibank’s stated rationale for its branch closings is that more and more people are doing their banking electronically. To return to the initial example: in the Bronx, particularly low-, moderate- and middle-income neighborhoods in the Bronx, few people are on the Internet. That the Bronx, particularly the South Bronx, and communities like it, are being increasingly left behind from the so-called information super highway is not only a matter of anecdote. For example, the Urban Research Center at New York University in January 1997 found 15,139 internet domains in Manhattan, and only 181 internet domains in the Bronx.

Citibank’s branch closings and downgrades, and ambivalent approach to low and moderate income communities, are not confined to the New York area. A few quite recent branch closings: the Chicago Daily Herald of March 20, 1998 reports that “in Mount Prospect, Citibank, at 1111 Rand Road, is closing today.” See also, The Washington Post of February 5, 1998, Withdrawal of Banks Raises Fears; Changes at Branches Worry NE Residents, reporting that at Citibank’s Northeast Washington branch, “transactions with tellers will be a thing of the past... take a free shuttle bus that will run on the hour to the nearest Citibank branch at 3917 Minnesota Ave. NE, about a mail and a half” away.

That Citibank disagrees with the CRA’s premise that communities, particularly LMI communities, are unique and that their credit needs should be assessed and served on a local, rather than “McDonalds-ized” basis, is reflected by the fact that, at least as of February 1998, Citibank’s “new president for Florida...flies over 6,000 miles a week commuting from his base in San Francisco, where he also heads Citibank’s California and Nevada operations, to his hotel residence in Key Biscayne...”. Citibank’s Chief Wants More High-Tech Banking, South Florida Business Journal, February 13, 1998, at 10.

The OCC declined to approve the CRA strategic plan that Citicorp proffered for Citibank Nevada, N.A., inter alia because “the plan’s goals were generally well below historic performance: mortgagee goals for a Satisfactory rating, for example, were 43% below 1995 levels with LMI lending ratios four to ten times less... the bank’s ‘continued decline in lending’ of non-credit-card loans between 1991 and 1996 was ‘particularly troubling’ to the OCC, as was the ‘low level of lending as evidenced by a 22% loan-to-deposit ratio.’” K. Thomas, in the ABA Banking Journal of June, 1997, at 45.

B. Citibank’s ATM, Electronic Banking and Fee Policies Are Blatantly Adverse to low and moderate income consumers

Citibank might claim that its closings of bank branches in LMI and minority neighborhoods is made up for by Citibank’s automatic teller machines (“ATMs”). But Citibank’s unawareness of, or contempt for, the banking practices and convenience and needs of low and moderate income consumers is most recently evidenced by Citibank raising the minimum withdrawal amount on its automatic teller machines to $40, “double that demanded by rival banks in New York City... [A] Citicorp spokeswoman insisted the change was made to reduce waiting time at ATMs.” L. Moyer, Citi, Combating Too-Frequent ATM Visits, Hikes Minimum Withdrawal, American Banker, March 9, 1998, at 5. On personal experience (and as another issue as to which testimony should be taken at the requested public meetings), many banking consumers in The Bronx and communities like it often make ATM withdrawals of ten or twenty dollars. While Citibank raising its minimum withdrawal to forty dollars might help more affluent customers spend less time in line, it ignores or is contemptuous of the banking practices and convenience and needs of lower income consumers, and is indicative of Citibank’s attitude and approach sketched throughout this Comment.

Furthermore, Citibank has repeatedly been found to have the highest fees for small business customers of any New York bank. See, e.g., Westchester County Business Journal of April 1, 1996 (reporting that Citibank was next to last, 47th out of 48, in consumer bank fees). Despite various public relations campaigns to the contrary, Citibank has not improved -- see, more recently, the New York Daily News of February 11, 1998, at 10, reported that Citibank is among the three worst banks in New York City for consumers, based on its fees and “hidden service charges.” See also B. Piskora, Survey Hits High Fees at Big Apple Banks, New York Post, February 11, 1998, at 34. Many of these fees can only be avoided if one can keep relatively high minimum balances and accounts at Citibank -- like Citibank’s new $40 dollar minimum ATM withdrawal, and its branch closings (and openings in the suburbs), a statement by Citibank that it strives to serve the convenience and needs of affluent, generally non-minority people, but excludes or gouges the low and moderate income people supposedly protected by the CRA and convenience and needs provisions of the BHC Act....

C. Citicorp’s Racially Disparate Lending and Marketing Patterns, Including in Citibank’s CRA Assessment Areas

Citicorp and its mortgage-lending subsidiaries, including its banks, disproportionately exclude and deny the applications of African American and Latino mortgage applicants, in virtually every market they lend in, including in Citicorp’s banks’ CRA assessment areas.

Entity-wide, Citibank (New York State) in 1996 denied 52% of mortgage loan applications from African Americans, while denying only 20% of applications from whites. Citibank (New York State)’s denial rate disparity between African Americans and whites of 2.6 to 1 is significantly higher than the rest of the industry.

These disparities are systematic throughout Citicorp. Citibank, FSB, Citicorp’s savings bank, denied 28% of mortgage loan applications from African Americans, while denying only 12% of applications from whites. Citibank FSB’s denial rate disparity between African Americans and whites in 1996 was 2.33 to 1.

Citibank Mortgage, Inc., in 1996 denied 30% of mortgage loan applications from African Americans, while denying only 11% of applications from whites. Citibank Mortgage’s denial rate disparity between African Americans and whites of 2.73 to 1 is, like Citibank (New York State)’s and Citibank FSB’s, significantly higher than the rest of the industry. As will be shown below, Citicorp in virtually every market has a lower market share of loans to African Americans and Hispanics than it does to whites, refuting any argument that Citicorp’s outrageous denial rate disparities are the product of increased outreach to minority and underserved communities.

Citicorp’s disparate record raises a “red flag” (or presumption) that discrimination is occurring...

Citicorp’s Disparate Mortgage Marketing and Lending in 1996

Following the analysis set forth above regarding Citibank’s systemic closing and/or downgrading of branches in low and moderate income and minority communities, this review will proceed outwards from The Bronx to Brooklyn, Upper Manhattan, and Queens; Long Island; Buffalo and Rochester (both in Citibank (New York State)’s CRA assessment area); Connecticut (where Citibank FSB has opened de novo branches, while it has closed its branches in lower income, more predominantly minority inner city neighborhoods); New Jersey (where Citibank has also branched); San Francisco, Los Angeles, Miami, Chicago and Washington, D.C. (each of which is in Citibank FSB’s CRA assessment area), and then nationwide.

Citicorp’s Mortgage Lending in The Bronx in 1996

Citibank, N.A., was Citicorp’s largest mortgage lender in The Bronx in 1996, making 215 loans. Citibank, N.A., had a notably higher market share of loans to whites (4.98%) in this county than to African Americans (3.03%) or Hispanics (3.47%). Nevertheless, Citibank, N.A., had a higher denial rate for African Americans than for whites. Furthermore, fully 14% of applications from African Americans were reported as “withdrawn,” as opposed to just 6% of applications from whites. Citibank Mortgage in 1996 in the Bronx made 45 loans, including 19 to whites, nine to African American, and seven to Hispanics. As with Citibank, N.A., Citibank Mortgage’s market share for whites (1.48%) was significantly higher than its market share for African Americans (0.66%) or Hispanics (0.78%).

In the past two years, Citibank has closed or downgraded seven of its already too-few branches in the Bronx; Citibank, the second largest bank in New York City (and in the U.S.) has only one bank branch in the entire South Bronx, where 500,000 people live.

Brooklyn: Citibank, N.A., was Citicorp’s largest mortgage lender in Brooklyn in 1996, making 554 loans. Citibank, N.A., had a notably higher market share of loans to whites (4.02%) in this county than to African Americans (2.20%) or Hispanics (3.24%). Nevertheless, Citibank, N.A., had higher denial rates for both African Americans and Hispanics than for whites. Citibank Mortgage in 1996 in Brooklyn made 72 loans to whites, 16 to African American, and only four to Hispanics. As with Citibank, N.A., Citibank Mortgage’s market share for whites (1.12%) was significantly higher than its market share for African Americans (0.35%) or Hispanics (0.39%).

Manhattan: Citicorp made more loans in 1996 in Manhattan than in the Bronx and Brooklyn combined. Citibank, N.A., was Citicorp’s largest mortgage lender in Manhattan in 1996, making 899 loans. Citibank, N.A., had higher denial rates for both African Americans and Hispanics than for whites- in fact, its denial rate for Hispanics (32%) was 2.9 times higher than its denial rate for whites (11%), significantly higher than the industry’s denial rate disparity of 2.1 in Manhattan in 1996. Citibank Mortgage in 1996 in Manhattan made 28 loans to whites, one loan to an African American, and not a single loan to a Hispanic household. Needless to say, Citibank Mortgage’s market share of loans to Hispanics in Manhattan in 1996 was zero. Meanwhile, as noted above, Citibank in 1996 downgraded one of its few LMI branches, on 171st Street in predominantly Hispanics Washington Heights, from a branch to an ATM.

Queens: Citibank, N.A., was Citicorp’s largest mortgage lender in Queens in 1996, making 768 loans. Citibank, N.A., had a notably higher market share of loans to whites (3.59%) in this county than to African Americans (2.24%) or Hispanics (also 2.24%). Nevertheless, Citibank, N.A., had higher denial rates for both African Americans and Hispanics than for whites. Citibank Mortgage in 1996 in Queens made 85 loans to whites, 18 to African American, and only eight to Hispanics. As with Citibank, N.A., Citibank Mortgage’s market share for whites (1.22%) was significantly higher than its market share for African Americans (0.47%) or Hispanics (0.31%).

Citicorp in the NYC MSA in 1996

Overall, in the NYC Metropolitan Statistical Area (“MSA”) (which includes the four counties supra, and the more suburban counties of Staten Island, Westchester, Putnam and Rockland) in 1996, Citibank N.A. made 3,999 loans. Citibank, N.A., market share of loans to whites (5.12%) was more than double its market share of loans to African Americans (2.42%), and nearly double its market share of loans to Hispanics (2.70%). This same pattern holds true for the 631 loans made by Citibank Mortgage in this MSA in 1996. Nevertheless, Citibank Mortgage in this MSA denied 35% of applications from African Americans, and only 15% of applications from whites, a denial rate disparity of 2.33, higher than the industry average in this MSA. Citibank, N.A.’s denial rate disparities for both Hispanics and African Americans were each higher than the industry average in this MSA. Citibank has a bad fair lending (and CRA) record in this, its headquarters MSA.

Citicorp in the Long Island MSA in 1996

Citicorp’s record in the Long Island MSA, MSA 5380, is even worse. In 1996 in this MSA, Citibank, N.A., made fully 1,229 loans to whites -- and only 47 loans to African Americans, and only 30 loans to Hispanics. Citibank, N.A., had a 2.99% market share of loans to whites -- but only a 1.55% market share of loans to African Americans, and only a 1.45% market share of loans to Hispanics. Citibank, N.A., denied 31% of applications from African Americans, and 27% of applications for Hispanics -- versus only 12% of applications from whites. Citibank, N.A., denial rate disparities (2.58 for African Americans and 2.25 for Hispanics) were both higher than the industry average in this MSA (1.77 for African Americans and 1.54 for Hispanics).

Citibank Mortgage in this MSA is yet worse. In 1996 in this MSA, Citibank Mortgage made 537 loans to whites -- and only 17 loans to African Americans, and only 20 loans to Hispanics. Citibank Mortgage had a 1.31% market share of loans to whites -- but only a 0.56% market share of loans to African Americans, and only a 0.96% market share of loans to Hispanics. Citibank Mortgage denied fully 30% of applications from African in this MSA in 1996 -- versus only 9% of applications from whites, for a denial rate disparity of 3.67, much higher than the industry average of 1.77.

Citicorp in the Buffalo MSA in 1996

Citicorp (through Citibank (New York State), hereinafter “Citibank NYS”) is subject to CRA in the Buffalo MSA. In 1996, Citibank NYS was Citicorp’s largest mortgage lender in this MSA, making 498 loans. 442 of these loans were to whites, and only 10 loans to African Americans. In this MSA, Citibank NYS’s market share of loans to whites was 2.31%, versus a 0.67% market share of loans to African Americans. Meanwhile, Citibank NYS denied fully 45% of applications from African Americans, and only 21% of applications from whites. Citibank Mortgage was even worse: it made 76 loans to whites and only one loan to an American American, with (given its exclusion of African Americans, of questionable statistical significance) a 5.55-to-1 denial rate disparity between African Americans and whites...

Citicorp in Connecticut in 1996

Citicorp, while systematically closing and/or downgrading its branches in LMI and minority inner city neighborhoods, has been opening branches in more affluent areas, include in Connecticut. Citicorp (through Citibank FSB) now has seven branches in Connecticut, in Cos Cob, Fairfield, Greenwich, Noroton Heights, Norwalk, Stamford and Westport Plaza. A review of Citicorp’s mortgage lending in Connecticut in 1996 is troubling.

In the Stamford-Norwalk MSA in 1996, Citibank FSB made 573 loans. It made 401 of these loans to whites, and only five to African Americans, and only ONE to a Hispanic household. Strikingly, Citibank FSB’s market share of loans to whites was 4.41% - while its market share of loans to Hispanics was only 0.42%, and its market share of loans to African Americans was only 1.55%, with (given its exclusion of Hispanics, of questionable statistical significance) a 9.57-to-1 denial rate disparity between Hispanics and whites.

In the Bridgeport MSA (which includes a portion of Fairfield County) in 1996, Citibank FSB made 70 loans to whites and none to Hispanics; it had a denial rate for Hispanics of 100%, and a denial rate for whites of 12%. Citibank FSB’s denial rate for African Americans in this MSA was 38%, a 3.17 denial rate disparity, higher than the industry average of 1.88...

Citicorp in California in 1996

Citibank FSB made 697 loans to whites in the San Francisco MSA in 1996 -- and only six loans to African Americans, and only 11 loans to Hispanics. Citibank FSB had a 2.51% market share of loans to whites - but only a 0.57% market share of loans to African Americans, and only a 0.51% market share of loans to Hispanics. Meanwhile, Citibank FSB for both African Americans and Hispanics had a denial rate disparity of 2.5, higher than the industry average. Citibank Mortgage chimed in with 49 loans to whites, one to a Hispanic and none to African Americans.

In the Los Angeles MSA in 1996, Citibank FSB made 621 loans to whites, 63 loans to Hispanics, and only 23 loans to African Americans. Citibank FSB had a 0.85% market share for whites, a 0.16 market share for Hispanics, and a 0.18% market share for African Americans. Its denial rates were 24% for African Americans, 21% for Hispanics, and 13% for whites. Meanwhile Citibank Mortgage in this MSA made 90 loans to whites, two to African Americans and five to Hispanics, with (given its exclusion of African Americans and Hispanics, of questionable statistical significance) a 13.4-to-1 denial rate disparity between African Americans and whites, and a 7.6-to-1 denial rate disparity between Hispanics and whites.

Citicorp in Miami: In this MSA in 1996, Citibank FSB had a 1.77% market share of loans to whites, and only a 0.36% market share of loans to whites, and only a 0.77% market share of loans to Hispanics. It denied 43% of applications from African Americans, versus on 15% of the applications of whites, for a denial rate disparity of 2.87, significantly higher than the industry average of 1.53.

Citicorp in Chicago: in this MSA in 1996, Citibank FSB made 3,500 loans to whites, 492 loans to African Americans, and 365 loans to Hispanics. It had a 2.03% market share of loans to whites, a 1.75% market share of loans to African Americans, and a 1.73% market share of loans to Hispanics. Meanwhile, it denied 29% of applications from African Americans, and 24% of applications for Hispanics, versus only 12% of applications from whites. Its denial rate disparities (2.42 for African Americans, 2 for Hispanics) were higher than the industry average.

Citicorp in the Washington, DC, MSA in 1996

Citicorp is subject to CRA in the Washington, D.C., MSA, through Citibank FSB. It is hard not to note, by quadrant, that Citibank FSB has fully 12 branches in NW, only three branches in NE (including one since downgraded), one in SE, and none in SW. The relation of this pattern to that of Chevy Chase FSB (pre-consent decree) bears inquiry and action, in this proceeding, as does Citibank FSB’s lending in this MSA. In 1996 in this MSA, Citibank FSB made 698 loans to whites, 118 loans to African Americans, and 15 loans to Hispanics. By market share, Citibank FSB had a 0.79% market share of loans to whites, a 0.44% market share of loans to African Americans, and a 0.33% market share of loans to Hispanics. Meanwhile, Citibank FSB’s denial rate disparity for both African Americans and Hispanics was 2.6, significantly higher than the industry average (of 1.9 for African Americans, and 1.64 for Hispanics).

This is a PATTERN: in virtually every geography, Citicorp has a higher than industry average denial rate for minority, while having lower market shares for minority than for whites. The minority communities unserved by Citicorp’s banks -- are precisely those communities targeted by Primerica for high interest rate loans, a pattern that would become even more coordinated if Primerica became affiliated with Citibank under the Citigroup umbrella. This proposal should be denied.

Citibank Mortgage Extends Citicorp’s Disparities Nationwide

Citibank Mortgage originated 4,393 HMDA-reported loans nationwide in 1996. As noted above, Citibank Mortgage in 1996 denied 30% of mortgage loan applications from African Americans, while denying only 11% of applications from whites. Citibank Mortgage’s denial rate disparity between African Americans and whites of 2.73 to 1 is, like the other Citicorp entities’, significantly higher than the rest of the industry. Citibank Mortgage in virtually every market has a lower market share of loans to African Americans and Hispanics than it does to whites, refuting any argument that its outrageous denial rate disparities are the product of increased outreach to minority and underserved communities.

Citibank Mortgage is a “cherry picker,” targeted almost entirely at whites, distorting most markets it reaches into. In Albany, NY, for example, in 1996 Citibank Mortgage made nine loans to whites, and none to any minority. In Akron, Ohio, it made nine loans to whites, none to African Americans. In Atlanta, Citibank Mortgage made 32 loans to whites and 2 to African Americans, while having a denial rate disparity between African Americans and whites of 11-to-1. In Austin-San Marco, Texas it made 15 loans to whites, and none to Hispanics. In Baltimore, it made 23 loans to whites, and two to African Americans.

In Birmingham, Alabama, Citibank Mortgage made 56 loans to whites, and none to African American households. In Boston, it made 86 loans to whites, and only one to an African American, none to Hispanics. In Charleston, South Carolina, it made five loans to whites, none to African Americans. In Columbus, Ohio, it made 41 loans to whites, none to African Americans. In Dallas, it made 23 loans to whites, one to an African American, none to Hispanics. In Detroit, Citibank Mortgage made 34 loans to whites, and NONE to African Americans. In Greensboro, NC, it made seven loans to whites, none to African Americans. In Hartford, CT, it made 13 loans to whites, none to either African Americans or Hispanics.

In Houston, Citibank Mortgage made 12 loans to whites, one to an Asian, none to African Americans or Hispanics. In the Kansas City MSA, it made 11 loans to whites, none to African Americans. For loans for which no MSA was recorded or reported, Citibank Mortgage made 353 loans to whites, and only four each to African Americans and Hispanics, while having high denial rate disparities (2.25 for African Americans, and 2.63 for Hispanics). In Memphis, Citibank Mortgage made 17 loans to whites, and none to African Americans. In Montgomery, Alabama, Citibank Mortgage made 13 loans to whites, and none to African Americans. In Oklahoma City, it made 18 loans to whites, none to African Americans. In the Philadelphia MSA, Citibank Mortgage made 145 loans to whites, and only three to African Americans, and only two to Hispanics, while denying half of the applications it received from Hispanics, versus only 9% of applications from whites, for a denial rate disparity of 5.55-to-1. In Raleigh-Durham, NC, Citibank Mortgage made five loans to whites, and none to African Americans.

In the St. Louis MSA, Citibank Mortgage made 74 loans to whites, and only two loans to African Americans. In San Antonio, Texas, Citibank Mortgage made four loans to whites, and none to Hispanics or African Americans. In San Diego, Citibank Mortgage made 11 loans to whites, and none to African Americans, and one to a Hispanic household (while having a denial rate disparity of 5.5-to-1 between Hispanics and whites).

In the Santa Fe, NM MSA, Citibank Mortgage made 14 loans to whites, and only one to a Hispanic household, none to Native Americans. In the Wilmington, DE MSA, Citibank Mortgage made 21 loans to whites, and none to African Americans.

Citibank Mortgage is a “cherry picker,” targeted almost entirely at whites, distorting most markets it reaches into.

This is also true of Citibank FSB. Beyond Citibank FSB lending analyzed supra, Citibank FSB makes loans well beyond the markets in which it has its branches (similar to Travelers FSB, see infra and note ICP’s hearing request as to both FSBs). For example, Citibank FSB in the Albuquerque NM MSA in 1996 made 23 loans to whites, and only four loans to Hispanics, while having a denial rate disparity for Hispanics of 2.33. In the Allentown PA MSA, Citibank FSB made eight loans to whites, and none to any minority. In the Ann Arbor MI MSA, Citibank FSB made 15 loans to whites, and none to any minority. In Austin-San Marcos, TX, Citibank FSB made 43 loans to whites and only one loan to a Hispanic, and only three loans to African Americans, while having high denial rate disparities (for Hispanics, 6.25; for African Americans, 3.13). In Baton Rouge, Citibank FSB made five loans to whites, none to African Americans. In Charleston, SC, Citibank FSB made nine loans to whites, none to African Americans.

In the Charlotte, NC MSA (where, as shown below, Travelers’ Commercial Credit Loan, Inc. targets African Americans for high interest rate loans), Citibank FSB, with its normal interest rate loans, made 40 loans to whites, and none to African Americans (denying both applications to it from African Americans, while denying only 6 of 48 applications from whites). In Cincinnati, Citibank FSB made 11 loans to whites, none to African Americans. In Cleveland, it made 14 loans to whites, none to African Americans. In Columbus, OH, Citibank FSB made 25 loans to whites, none to African Americans. In Dallas, Citibank FSB made 153 loans to whites, and only two to African Americans, while having a 5.56 denial rate disparity for African Americans.

In Greensboro, NC MSA (where, as shown below, Travelers’ Commercial Credit Loan, Inc. targets African Americans for high interest rate loans), Citibank FSB, with its normal interest rate loans, made 13 loans to whites, and none to African Americans. In Houston, Citibank FSB made 82 loans to whites, none to African Americans or Hispanics (all applications from these groups were reported as “incomplete”). In the Las Vegas, NV MSA, Citibank Mortgage made nine loans to whites, none to African Americans or Hispanics. For loans for which no MSA was recorded or reported, Citibank FSB made 806 loans to whites, and only 11 loans to African Americans, while having a denial rate disparity for African Americans of 2.58. In the Milwaukee MSA, Citibank FSB made seven loans to whites, none to African Americans. In New Orleans, Citibank FSB made 16 loans to whites, and none to African Americans.

In the Philadelphia MSA in 1996, Citibank FSB made 98 loans to whites, only three to African Americans, and none to Hispanics, while having a denial rate disparity for African Americans of 2.71, and for Hispanics, infinity (100% denial). In the Phoenix-Mesa, AZ MSA, Citibank FSB made 130 loans to whites, only three to Hispanics, and only one to an African American, while having a denial rate disparity for African Americans of 3.57. In the Raleigh-Durham, NC MSA< Citibank FSB made ten loans to whites, none to African Americans (100% denial rate for African American applicants). In St. Louis, Citibank FSB made 267 loans to whites and only nine to African Americans, while having a denial rate disparity for African Americans of 3.33. In the San Antonio, TX MSA, Citibank FSB made 13 loans to whites and only one to a Hispanic, while having a denial rate disparity for Hispanics of 4.71.

In the Santa Fe, NM MSA, Citibank FSB made 19 loans to whites, and none to Hispanics or Native Americans. In the Wilmington, DE MSA, Citibank FSB made 18 loans to whites, and none to African Americans.

Citibank FSB, like Citibank Mortgage, is a “cherry picker,” targeted almost entirely at whites, distorting most markets it reaches into. Based on Citicorp’s lenders nationwide pattern of racially disparate lending, this proposal should be denied.

Citicorp’s web page entitled “Involvement with our communities is an important component of Citibank’s performance” states that “[o]ur profile as a corporate citizen starts with our role as an employer.” But the “red flags” of discrimination set forth above are also mirrored, for example, in the work environment within some of Citicorp’s units. See, e.g., Lawsuit Alleges Racism at Citibank, The Bergen Record, February 19, 1997, at A4: “A Citibank assistant vice president and another worker have filed a class-action lawsuit against the bank... [for] a ‘pervasively abusive racially hostile work environment” for blacks.” See also Milwaukee Journal Sentinel, November 24, 1997, at 12.

III. TRAVELERS AND ITS COMMERCIAL CREDIT AND PFS SUBSIDIARIES GOUGE THE POOR AND TARGET MINORITIES FOR HIGHER THAN NORMAL INTEREST RATE LOANS

The Travelers Group is a strange conglomeration of upscale businesses (for example, Solomon Smith Barney) on top of a profit engine of predatory businesses aimed at lower income, more predominantly minority consumers -- for example, Primerica Finance Services (“PFS”), and the nationwide subprime lenders Commercial Credit and Travelers FSB. As ICP demonstrated to the Office of Thrift Supervision (“OTS”) in a six month proceeding in 1997, these last three businesses are all inter-connected: the PFS agents push high interest rate home equity loans to LMI, disproportionately minority consumers, loans “manufactured” by Commercial Credit, and now booked through Travelers FSB (to evade state laws). Even in that first proceeding in which ICP raised these issues, the OTS concurred with many of the concerns ICP raised, and imposed, based on Travelers’ record, unprecedented consumer protection safeguards on its conditional approval of Travelers FSB. See, e.g., OTS Press Release and Order of November 24, 1997, especially Conditions 14-17 thereof. Condition 14(a) acknowledges that PFS (and now Travelers FSB, which is subject to CRA scrutiny) make the type of mortgages referred to in Section 103(aa) of the Truth in Lending Act; Condition 15 acknowledges that the new Travelers FSB pays broker fees of fully 3.4% of the loan amount.

While the unprecedented conditions the OTS applied to Travelers FSB and PFS by no means fully resolve these companies questionable practices, it appears that if this proposed merger were fully effectuated, the detailed conditions so recently imposed by the OTS would become void or moot, and/or would not necessarily be applied (as they should be) to Citicorp’s operations, including but not limited to Citibank FSB. Of particular import is Condition 14(a), requiring that all PFS customers “are properly and completed apprised of the financing options reasonably available to them through the New FSB and the costs and risks associated with each option.” Inter alia, this requires the type of “referral up” (i.e. ensuring that an “A” credit borrower is given an “A” priced loans, even if the borrower initially approaches, or is approached by, the conglomerate’s “B&C” unit) that ICP has asked the FRB to require of diversified bank holding companies which own both “A” priced banks, and “B&C” lending subprime finance companies. Travelers, to which, based on adverse practices that ICP documented to the OTS, these consumer safeguards and training requirements were imposed by the OTS, is now applying to the FRB to become a bank holding company, and to acquire, inter alia, Citibank FSB, to which no such protections apply. The FRB must inquire into (including at the requested evidentiary hearing) and act on this issue, in this proceeding.

While the FRB should obtain from the OTS the entire record before it in the Travelers FSB proceeding (which includes other information concerning predatory and possibly discriminatory practices), ICP sets forth in Section III.A below an analysis of Commercial Credit’s (now Travelers FSB’s) disparate high interest rate lending:

A. Commercial Credit Loan Targets Minorities

Commercial Credit Loans, Inc., headquartered at 300 St. Paul Place in Baltimore (Respondent ID No. 52-0799008), is one of Travelers’ subprime (higher than normal interest rate) lending units. The demographics of its marketing and lending should be inquired into, based on the analysis below and in light of the DOJ’s enforcement action against Long Beach Mortgage, and the NYSBD’s enforcement action against Roslyn Savings Bank and its Residential First, Inc. subprime subsidiary, both for discriminatorily charging high prices to racial minorities.

Travelers’ Commercial Credit Loan, Inc. Targets Minorities for High Priced Loans

In the Charlotte, NC MSA in 1996, Commercial Credit Loan made 19 loans to African Americans, and 23 loans to whites. For comparison’s sake (and the comparison is relevant and significant, in light of the proposed combination), Citibank Mortgage in the Charlotte MSA in 1996 made 10 loans to whites and only one loan to an African American; Citibank FSB in the Charlotte MSA in 1996 made 40 loans to whites and no loans to African Americans. Both Citibank Mortgage and Citibank FSB are normal interest rate lenders; they both disproportionately exclude minorities from their marketing and lending. Commercial Credit Loan, Inc., is a high interest rate lender -- it target and lends to minorities at a much higher rate than they are represented in the demographics of, or other lenders’ data in, this MSA.

This exemplifies the discriminatory pricing / separate-and-unequal structure that the proposed Citigroup would have. This proposal should be denied.

In the Greensboro, NC MSA in 1996, Commercial Credit Loan, Inc. made 10 loans to African American and 25 loans to whites. Meanwhile in this MSA in 1996, Citibank FSB made 13 loans to whites, and none to African Americans; Citibank Mortgage made seven loans to whites and none to African Americans. Both Citibank Mortgage and Citibank FSB are normal interest rate lenders; they both disproportionately exclude minorities from their marketing and lending. Commercial Credit Loan, Inc., is a high interest rate lender -- it target and lends to minorities at a much higher rate than they are represented in the demographics of, or other lenders’ data in, this MSA.

This type of analysis should be carried out for all of Travelers’, Commercial Credit’s and Primerica’s high interest rate lending, which is clearly targeted at minorities, comparing it in the same markets with Citicorp’s and its banks’ normal interest rate lending, which disproportionately excludes and denies minorities. This evidences the discriminatory pricing / separate-and-unequal structure that the proposed Citigroup would have. This proposal should be denied.

B. Commercial Credit and PFS Violate HMDA; Travelers Has Admitted This But Has Only Committed to Address It In Two States, and Has Not Corrected Its HMDA Data

In 1997, ICP raised to the New York State Banking Department (the “NYSBD”) the fact that Travelers’ Commercial Credit’s loans in New York were reported as virtually all “race not available,” and argued that Commercial Credit was violating HMDA’s requirement that lenders and their affiliates are required to request, record and report race and national origin information about applicants, so that the public and regulators can enforce the fair lending laws. Travelers repeated denied that it was violating HMDA. However, the NYSBD (and Connecticut Banking Department, to which ICP also raised this issue) both found that Travelers and Commercial Credit had been violating HMDA. This is evidenced inter alia by a letter from Commercial Credit to the NYSBD, dated July 30, 1997, stating that:

The purpose of this letter is to confirm our conversation today. You have advised that it is the position of the [NYSBD] that Primerica Financial Services Home Mortgages, Inc. and its representatives (collectively, “PFSHMI”) are deemed affiliates of Commercial Credit Plan Incorporated of Georgetown (“CCPIG”). Therefore, it is the Department’s position that in taking mortgage loan applications, PFSHMI is acting on behalf of CCPIG and must comply with the requirements imposed upon lenders under [HMDA]... In accordance with our discussion, we will promptly clarify our policy to require PFSHMI to make a visual observation if the applicant does not voluntarily complete the HMDA questionnaire during a face-to-face interview. All information collected in this manner will be compiled for CCPIG’s HMDA reporting purposes.

Clearly, Commercial Credit (and PFS) violated HMDA in 1996 and previous years. Commercial Credit’s 1996 HMDA data has not, however, been corrected. ICP has requested from Travelers and Commercial Credit their 1997 Loan Application Register (“LAR”), to see if that data complies with HMDA; ICP will be submitting further comments after it receives and reviews this data. In 1996, for example, in two markets in which Citicorp is subject to CRA, Buffalo and Rochester, Commercial Credit Plan, Inc. reported the following data:

Buffalo-- three loans to whites, one loan to an African American, and fully 56 originations reported as “race not reported;” no denials at all reported.

Rochester-- two loans to whites, none to minorities, fully 40 originations reported as “race not reported; no denials at all reported.

Further note that the “commitment” to come into compliance with HMDA quoted above was only made to New York and Connecticut regulators; it was never made to the OTS, nor is it referenced in the OTS’s November 24, 1997, conditional Order. The FRB must inquire into Commercial Credit’s actual lending practices, on an on-site basis.

In 1996 (as noted, ICP has requested from Travelers its HMDA-reporters’ 1997 LARs, and will be commenting thereon), Travelers had fully 18 HMDA-reporters beginning with the words “Commercial Credit;” all told, these Travelers’ companies originated 13,957 HMDA-reported loans in 1996. The American Banker of October 7, 1997, listed Commercial Credit among the top B&C lenders in the country; it has grown far beyond the size reported in 1996 HMDA data, inter alia by acquiring 297 offices from Bank of America’s subprime unit, Security Pacific Financial Services. This operation, given inter alia nationwide HMDA violation, clearly has weak managerial resources, which militate against approval of this merger.

While the FRB clearly can (and should) review Commercial Credit’s lending operation, and can verify the wide spread refusal to request, record and report race and national origin information, particularly troubling given the higher than normal interest rates and overages charged by these entities, note that 1996 HMDA data shows that Commercial Credit Plan, Inc. made 698 loans, while 649 of them reported as “race not reported.” Commercial Credit Corpo. in 1996 made 403 loans -- with 389 of them reported as “race not reported.” The entity called simply “Commercial Credit” made 1,631 loans -- with 1,498 of them reported as “race not reported.” Commercial Credit Inves. made 269 loans -- with 224 of them reported as “race not reported.” Commercial Credit of AL. made 365 loans, with 334 of them reported as “race not reported.” Commercial Credit Consu. made 245 loans, with 239 of them reported as “race not reported.” Overall, the “Commercial Credit” entities reported fully 12,465 of their 12,957 loans as “race not reported.”...

...Primerica is a so-called “multi-level marketing” operation (often referred to as a pyramid scheme) in which independent contracts are recruited to sell Primerica’s and Commercial Credit’s products door to door, with a percentage of the commission going to the person who recruited the contractor. According to Primerica’s web site, Primerica’s independent contractors sell mortgage loans “manufactured” and processed by Commercial Credit. But the high percentage of “race-not-reported” loans by CCC is attributable in large part to Travelers erroneous position that although HMDA requires such reporting for face-to-face loans, CCC didn’t have to report the Primerica salespeople’s face-to-face application-taking activity. This position was rejected by the NYSBD (see supra), but Travelers has not committed to changing its practices in the dozens of other states in which it operates, despite the fact that HMDA is a federal statute...

C. Travelers’ and PFS’ Insurance Operations Manifest Questionable Market Conduct

Primerica Financial Services (“PFS”) is a multi-layered marketing operation that recruits salespeople to push term life insurance, high priced home equity loans and fee-laden investment products on LMI and lower-middle class people, not based on the comparative merits of these products, but based on personal “hard sell,” “over the kitchen table.” See, generally, Best’s Review - Life-Health Insurance Edition, February 1997. One (non-) compliance issue that arises is that of improper replacement: mouthing a manta of “buy term, invest the difference” (in other Travelers / Commercial Credit products), fully 37% of the policies placed in force with Primerica are replacements of policies already in force. “PFS and its New York affiliate, National Benefit Life Insurance Co., paid about $700,000 in fines for various misdeeds, including allegations of deceptive sales materials and licensing problems. This is in addition to the $2 million to $3 million settlement to former agents.” Id. “‘I take a look at what they have,’ said PFS agent Terrence Evans of Philadelphia... ‘I tell them, “If I can provide the proper amount of coverage and save you money, I don’t see why you would continue to keep the policy.’” Such comments alarm James Hunt, a life insurance actuary and former Vermont insurance commissioner... he says it’s rarely a good idea to replace whole life policies, especially when they’ve been held for a few years. PFS preaches a simple message at its revival-like recruiting sessions. At ‘opportunity meetings,’ as they’re called, PFS agents give recruits a whirlwind introduction to financial concepts...” Id.

And, soon after that “whirlwind introduction,” the recruits are turned loose in their communities, seeking to “take out” (and to make a 25% commission for taking out) all whole life insurance policies and cross-selling other, often inappropriate and almost always over-priced, products. Training in TILA and RESPA compliance, much less fair lending, is hardly foreseeable. “PFS agents are independent contractors who pay their own expenses. The 10% of the sale force who are full-time cover many of the business expenses for the remaining 90%. The part-timers generate three-quarters of the sales volume. People at the higher tiers traditionally make money from overrides on the sale made by op to five layers of recruits beneath them. ‘The structure of the sale force and the fact that it’s part-time is not incidental to the marketing of our products,’ says Beyer, the retired PFS vice chairman. ‘We would have had a hard time figuring out how to have a 100% full-time sale force doing nothing but selling term insurance.” Id.

Despite the fact that the current BHC Act, particularly as amended in 1982, prohibits except in circumstances not applicable here the mixing of banking and insurance underwriting, Travelers and Citicorp apparently believe that the FRB will allow precisely such mixing, by virtually automatically granting a two year divestiture waiver. The FRB should NOT grant such a waiver. To consider granting ANY waiver (including one that might provide some months to divest, but which would prohibit Travelers from writing new policies in the interim, a safeguard for which there is ample FRB precedent, see infra) - the FRB must closely inquire into Travelers insurance operations, including Primerica. Furthermore, the proposed affiliation of questionable businesses like Primerica and Commercial Credit with large FDIC-insured banks like Citibank, N.A. -- raises extremely serious safety and soundness, subsidy, and supervisory issues, on which the FRB should forthwith schedule both public meetings and an evidentiary hearing.

In mid-1997, ICP was contacted by individuals who were being recruited to become salespeople for Primerica and Primerica Financial Services Home Mortgage, Inc.. One of these individuals told ICP that the person who recruited her based the “pitch” on showing documents reflecting, inter alia, higher than normal interest rate mortgage loans, and a claimed high commission she could receive if she paid various initiation and application fees. ICP referred some of this information to the NYSBD, and only in this way was it revealed that Commercial Credit and PFS were violating HMDA. This is one of the reasons the FRB should schedule and conduct a public meeting on this proposal -- to solicit needed (but often not publicly reported) information about Travelers’ actual operations, which Travelers now proposes to continue doing as a BHC.

Days after Travelers’ and Citicorp’s announcement, ICP was contacted by an ex-PFS salesperson in California, who asserts on personal knowledge that in California, Travelers’ PFS targets minorities, including Hispanic immigrants, for insurance products, without making full disclosure regarding these products in Spanish. Again, this is the type of testimony the FRB must invite and receive, at public meeting and the requested evidentiary hearing.

Another issue that raises questions, cognizable by the FRB, about this proposal is the almost certain lack of sufficient due diligence. As one analyst who’s called ICP opined, the lack of “leaks,” while indicating the secrecy with which the proposal was treated within the two organizations, also calls into question the range of due diligence (if the processes of other recent [much smaller] mergers are any guide). The FRB should inquire into this issue, and ICP requests to receive copies of all correspondence and communications in this regard.

Furthermore, consider the following (a representative slice-of-non-compliance), with respect to Travelers’ securities affiliates:

November 18, 1997: the Wall Street Journal, New York Times and Associated Press report that Smith Barney, Inc. is proposing to settle “one of the largest sexual-harassment cases against a Wall Street firm” by spending $15 million over four years to promote diversity within the brokerage... ‘Smith Barney did not buy itself any relief with this,’ former broker Pamela Martens told reporters after the hearing...Martens had complained a manager grabbed her and kissed her on the lips during a visit to the so-called ‘boom-boom room’ at a Smith Barney branch in the New York suburb of Garden City. The suit claimed Smith Barney failed to act when workers at the branch harassed women workers with fraternity-like antics.”

While on April 9, 1998, a federal judge “accepted” the Smith Barney discrimination settlement, numerous public interest advocates (and original plaintiff Martens, see supra) remain concerned about Travelers’ and its subsidiaries’ increasing demands that all employees sign statements confining their claims to internal arbitration or ADR (run by Travelers), viewing this as a denial of the ability to effectively defend civil rights. Meanwhile Smith Barney CEO James Dimon has downplayed changes at Smith Barney, emphasizing that the settlement is little more than the status quo at the company. To extend such policies to the proposed Citigroup, which would be the largest financial services firm in world history, is even more troubling....

IV. ADVERSE MANAGERIAL FACTORS CONCERNING CITICORP’S U.S. AND OVERSEAS OPERATIONS

As the FRB is aware, Citicorp is the subject of ongoing investigations regarding money laundering, including but not only with respect to the over $100 million Citibank helped Raul Salinas de Gortari move out of Mexico and to set up companies in the Cayman Islands with. See, e.g., N.Y. Times of October 31, 1997, at A1.

While the FRB’s spokesman on April 9, 1998, represented that the FRB will consider this issue, it may be worth incorporating the following into the record by reference:

Millions of Dollars and No Questions: U.S. Investigating Raul Salinas de Gortari’s Dealings with Citibank, Austin American-Statesman, June 5, 1996, at A1;

Citibank Said to Exclude Official From Probe: Expert on Money Laundering Reportedly Kept Out of Salinas Case, Washington Post, June 12, 1996, at F2;

Citibank Beefs Up Legal Team Amid Probe, Reuters newswire, July 30, 1996;

In Case Tied to Mexico, Witness from Citibank is Called A Liar, New York Times, December 4, 1996, at A8; and, comprehensively,

Citi and the Mexican Millions, Euromoney, May 1997, at 12: “For a year, the U.S. Justice Department has been investigating whether or not Citibank violated federal money-laundering statutes through its private banking relationship with Raul Salinas de Gortari... For any bank, a conviction of money-laundering carries stiff penalties, including the possibility of what is called the ‘death penalty’ -- loss of a bank’s license. It won’t come to that for Citibank. But... Citibank helped Salinas move more than $100 million out of Mexico, to New York, and then on to Switzerland and elsewhere. Salinas has said that is Citibank private banker, vice-president Amy Elliott, ‘devised the whole strategy.’... The government is considering other information, including claims that other banks turned down the Salinas deposits, and that Citibank changed its procedures in the private banking area to accommodate opening Salinas’s account... Another question is whether Citibank kept its own former top money-laundering expert, Jane Wexton, from participating in its internal investigation...”.

ICP concurs with and joins in the request that the FRB not consider this application until these issues are resolved. Since the application should be denied on other grounds (impermissibility under the BHC Act, adverse CRA and managerial factors, etc.), ICP urges the FRB to take action under 12 U.S.C. 1818 as to Citicorp.

V. THIS COMBINATION IS CONTRARY TO EXISTING LAW; NO TWO YEAR DIVESTITURE WAIVER SHOULD BE GRANTED

Underwriting life and property/casualty insurance has repeatedly been found by the FRB to be not closely related to banking. As to life insurance, see, e.g., 12 C.F.R. 225.126(b), and 58 Fed. Res. Bull. 571, 905 (1972). As to property/casualty insurance, see, e.g., NCRC/Superior Insurance Co., 64 Fed. Res. Bull. 506 (1978), aff’d NCNB v. Board of Governors of the Fed. Reserve Sys., 599 F.2d 609 (4th Cir. 1979). In terms of any ambiguity the Applicants may claim, see Concurring Statement of Governor Angell, in Citicorp / Family Guardian Life Insurance Co., 76 Fed. Res. Bull. 977 (1990): “the plain and unambiguous language of Section 4 of the Act... by its terms prohibits a bank holding company from acquiring or retaining control, directly or indirectly, or any company other than a bank unless that company’s activities are authorized under one of the nonbanking exceptions in the Act... Under the 1982 amendment to section 4(c)(8) of the Act, the Board no longer has the discretion to permit a bank holding company or any of its nonbank subsidiaries to underwrite or sell insurance beyond the seven situations set forth in the statute.”

It appears clear that Citicorp, already an FRB-supervised bank holding company, could not apply to the FRB to acquire Travelers. Therefore the companies have structured the transaction such that Travelers will apply to the FRB to become a bank holding company. They are directing this cynical proposal at a loophole in Section 4(a)(2) of the BHC Act (12 U.S.C. 1843(a)(2)) which in some circumstances gives a company two years from the date as of which it becomes a bank holding company to divest nonpermissible activities (in this case, e.g., Travelers’ extensive life and property/casualty insurance underwriting).

It is imperative to note that this provision “was designed to allow a two-year divestiture period for companies that became bank holding companies by operation of law upon enactment of the statute.” ... This reasonable Congressional purpose would be abused if Travelers were allowed to count on getting these two years, and, as Travelers has publicly stated, three one-year extensions beyond the two years, in which to lobby Congress to change the BHC Act.

The two-year divestiture period was enacted as a matter of fairness to then-existing company which had no notice that the BHC Act would be enacted in 1956, and therefore reasonably needed time to divest activities made impermissible by the BHC Act. It was NOT meant to be an ever-expanding (or, in this case, suddenly expanding) loophole by which otherwise impermissible combination could be effectuated.

Travelers has no right to rely on the FRB granting it two years (much less five years) to divest its impermissible activities. See, e.g., MEI Corp. and IGI Successor/First National Bank in Sioux City, 58 Fed. Res. Bull. 583, 584 (1972); see also, United Kentucky/Louisville Trust Co., 40 Fed. Reg. 2766 (1975), in which as a condition of approval the applicant committed to divest nonpermissible activities prior to consummation. In Marine Bancorp/Coast Mortgage, 58 Fed. Res. Bull. 505, 506 (1972), the Board directed the applicant to terminate its nonpermissible activities “at the earliest practical time and to undertake no new projects in this line of activity.”

Proof that Travelers is not automatically entitled to a two-year divestiture period is found in, e.g., Baltimore Bancorp/Charles Street Savings and Loan Ass’n, 71 Fed. Res. Bull. 901 (1985), where, even as the Board in its discretion allowed a two-year period, the Board asserted that divestiture would ordinarily be required prior to consummation of the acquisition.

Furthermore, while the last paragraph of Section 4(a) of the BHC Act allows the Board in appropriate circumstances to extend the two-year period for not more than one year at a time, and for not more than three years in the aggregate, the BHC Act clearly neither requires the Board to grant such extensions, nor allows a bank holding company to count on getting such extensions. See, e.g., I F.R.R.S. 4-491, on the denial of a request for a second extension of the divestiture period. Also note the situations in which, even where the FRB has granted a two-year divestiture waiver, it has ordered the applicant, during this time period, to stop engaging in the nonpermissible activities, or has set a cap on growth of the nonpermissible activities.

Perhaps most ironically, note that the FRB has prohibited “continued conduct” of impermissible activities as benign as “cattle feeding operations” (Whitcorp Financial Corp., 77 Fed. Res. Bull. 191, n.12 (1991)) -- but here, Citicorp and Travelers are publicly assuming they will automatically be granted a two-year waiver from the BHC Act.

The Applicants’ public reliance on obtaining such a waiver (and, apparently, automatic extensions for three more years) is entirely inappropriate. It is an analogue to this scenario: a city passes a local law requiring all apartment buildings to have fire escapes, but gives two years for owners of existing buildings to install such fire escapes. Forty two years later, a real estate developer announces it will construct a new building, without fire escapes, counting on a two year safe harbor during which time it will lobby the City Council to repeal the fire escape law. Such a proposal should be stopped before ground is even broken (this is one of the reasons ICP is commenting even before Travelers submits its application for required prior approval and discretionary two-year waiver).

In order not to make a mockery of existing law and of Congress’ intent in enacting the two-year divestiture possibility, and in order to not blatantly contradict the Board and Chairman’s call for a moratorium on the OTS grant approvals for unitary thrift holding company charters to insurance companies, and to remove, if possible, the taint on fair procedure and good government created by the Applicants’ CEOs’ private meeting with FRB officials and public statements thereafter, ICP urges the FRB to not grant any two-year divestiture period in this case. While Travelers can apply to acquire Citicorp and its banks, and to become a bank holding company, the FRB should, on this issue, require divestiture of all nonpermissible activities prior to any acquisition. ICP is hereby requesting both a public meeting and an evidentiary hearing on this issue, and on the possible conflicts and other consumer dangers raised by this unprecedented proposal.

VI. REQUEST FOR PUBLIC MEETINGS, INCLUDING IN LIGHT OF CITICORP’S AND TRAVELERS’ CEOS IMPROPER PRIVATE MEETINGS WITH FRB OFFICIALS, AND PUBLIC STATEMENTS ABOUT SUCH MEETINGS

Based on the showing of CRA-relevant adverse issues and disputes made supra, and considering that the FRB has granted public meetings on smaller proposal with no greater CRA disputes (e.g., First Union-Corestates in 1998; Fleet-Shawmut, Chase-Chemical and Wells Fargo-First Interstate in 1995-6), it should be clear that the FRB should schedule public meetings on this proposal, at the earliest possible time....

ICP is extremely troubled by, and formally asks the FRB to explain and to remove the taint created by, the following:

“The two chairmen, John S. Reed of Citicorp and Sanford I. Weill of Travelers , met last week with Alan Greenspan, the chairman of the Federal Reserve...”. R. Stevenson, Financial Services Heavyweights Try Self-Deregulation, New York Times, April 7, 1998.

FRB spokesman Joseph Coyne has confirmed that this meeting took place. See, e.g.: “Leaders of the two companies last week briefed Federal Reserve Chairman Alan Greenspan and William J. McDonough, president of the [FRBNY], on the proposed $70 billion merger. ‘We knew it was coming,’ Fed spokesman Joseph Coyne said Monday.” M. Gordon, Citicorp, Travelers Bet on Change, A.P. newswire, April 6, 1997, 15:59 EDT.

With all due respect, ICP’s concerns are not allayed by Mr. Coyne’s statement that “I don’t think [the Chairman] showed any reaction at all... He gave them no advice.” Reuters newswire of April 6, 1998, 13:42 EDT.

One reason ICP’s concerns are not assuaged is the statements and characterizations made both the CEOs of Citicorp and Travelers. See, e.g., Citicorp CEO Reed’s statement, quoted in the American Banker of April 7, that “‘[t]here were enough discussions [with Fed officials] for us to know that there wasn’t a legal problem,’ Mr. Reed said, noting that Fed officials have strongly supported financial reform legislation... ‘[T]here are all indications that [the merger] will be looked at favorably.’” B. Rehm, Megamerger Plan Hinges on Congress, American Banker, April 7, 1998, at 1.

See also: “Top officials with the two companies said they discussed the deal before Monday’s announcement with Fed Chairman Alan Greenspan... The executives characterized conversations with Greenspan... as supportive...”. Reuters newswire, April 6, 1998, 19:24 EDT, Regulators Likely To Okay Citicorp / Travelers Deal.

See also: “Appearing at the same news conference, Citicorp head John Reed said executives from both firms had spent the last four weeks ‘making sure with the regulatory authorities that it was possible.’” Agence France Presse, April 6, 1998, Travelers, Citicorp Chairmen Confident of Federal Merger Approval.

ICP does not believe that institutions should seek, or that the FRB should give, explicitly or implicitly, assurances of approval of a controversial proposal before even publicly announcing, much less applying for it. In this instance, Mr. Reed’s (and to a less extend Mr. Weill’s) public statements on April 7 about their prior discussions with Chairman Greenspan and FRBNY officials were clearly intended to give the impression that the FRB has indicated it will approve the proposal, and this perception played a role in the over $25 rise in Citicorp’s stock price during April 6. This is an extremely serious, and troubling, matter...

Because of the important factual and policy issues raised by this proposal -- AND to remove, if possible, the taint in fair proceedings and good government described above -- ICP is requesting that the FRB schedule both public meetings and evidentiary hearings on this proposal, as early as possible.

VII. CONCLUSION

For the reasons set forth above, the FRB should forthwith schedule both the private and public meetings requested above. On the current record, this proposal could not legitimately be approved.

Respectfully submitted,

_________________

Matthew Lee, Esq.
Executive Director
Inner City Press/Community on the Move
& Inner City Public Interest Law Center
1919 Washington Avenue
Bronx, NY 10457
Tel: (718) 716-3540
Fax: (718) 716-3161

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