Public Meeting Regarding Citicorp and Travelers Group
Thursday, June 25, 1998
Transcript of Applicant Presentation
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24 MR. LONEY: Thank you, Ms. McCall.
25 With that we will begin with our first panel
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2 which is made up of representatives from the
3 corporations involved in this application.
4 We have John S. Reed the chairman and
5 chief executive officer of Citicorp, Pamela
6 Flaherty, the Sr. Vice-President of Citicorp,
7 and Charles O. Prince, executive
8 vice-president, general counsel and secretary
9 of Travelers Group.
10 Mr. Reed.
11 MR. REED: Thank you very much. Mr.
12 Loney, Ms. McCall, Mr. Hodgetts and
13 Mr. Alvarez.
14 I'd like on behalf of my colleagues
15 first of all, to thank you for the opportunity
16 to kick off these hearings and to participate
17 in what is going to be I'm sure an interesting
18 day and a half. I really would like to make
19 some comments first with regard to the merger
20 and second with regard to the community aspects
21 that you have highlighted in your own comments.
22 With regard to the proposed merger
23 itself I think, as has been correctly
24 characterized, this is an important merger
25 because it does bring together two very large
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2 and I think two very committed institutions.
3 It is, as you have pointed out, a different
4 merger, because there is not a consolidation of
5 like enterprises.
6 Quite to the contrary, this is a
7 merger that has at its core a commitment on
8 both of our parts to try to expand our
9 business. In that sense it is a merger about
10 growth, it is a merger about expansion, and it
11 is a merger really that focuses on the consumer
12 throughout the United States, and, more broadly
13 around the world, and our commitment to serve
14 the consumer better than the consumer today is
15 able to be served.
16 We believe that we can accomplish
17 this by putting together our two institutions
18 in such a way that expand the product line that
19 is available to consumers, but may be even more
20 importantly, greatly expands the channels of
21 distribution, and hopefully will allow us to
22 improve the offering of financial services to
23 the community, and reduce their costs, make
24 them more efficient and make them more
25 effective. There is a very competitive
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2 marketplace out there.
3 Our success is going to require that
4 this core concept underlying the merger be
5 successful, and the marketplace will make very
6 clear whether it is or it is not, because
7 consumers will of course continue to have the
8 choice of funding to the traditional suppliers
9 in a more traditional kind of arrangement. So
10 the first thing I'd like to say with regard to
11 this merger is it speaks to new opportunities.
12 It is not a merger that speaks to
13 consolidation or a restriction of
14 opportunities, but, instead, it speaks to
15 substantial growth and its success requires
16 that we get growth and we get growth of revenue
17 that can only come from serving consumers and
18 other customers better than we are today doing
19 it. I think this is very important in taking
20 into consideration in our application, because
21 I think it speaks at a very positive way to
22 improving the quality of service that will be
23 available throughout the market areas that we
24 hope to serve.
25 Secondly, with regard to the
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2 community, I wanted particularly to come
3 personally because I wanted to reiterate our
4 commitment to the community. I think, speaking
5 on behalf of Citicorp and Citibank, the
6 institutions that I have been associated with,
7 but prospectively on behalf of Citigroup we
8 understand full well the centrality of having
9 to serve the community.
10 We cannot be successful in our
11 business if we don't serve the community. It
12 is something that the law requires of us, but
13 frankly, beyond the law, I think common sense
14 and any sense of business makes very clear that
15 our success over time requires that we be good
16 citizens and that we run our business in ways
17 that are compatible with the values of the
18 community and I think that that commitment goes
19 well beyond the specification of the law, and
20 it speaks more wholesomely, if you will, to
21 what it takes to build a successful enterprise
22 to attract good people to work for you, to keep
23 your customers happy, and so I'm here
24 personally not only to reiterate the
25 commitments that we have made and the
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2 requirements of the law, but also to make
3 public record of the fact that we believe that
4 service to the community is central to our
5 business success. It has been for many years,
6 and it will continue to be going forward.
7 Let me detail a few of the ways that
8 we think that this is made real. We have made
9 a public commitment that says going forward in
10 this merger we will expand the resources that
11 are available to the community, particularly in
12 making available mortgages and community
13 development funds, and this commitment is real,
14 and if you tear the numbers apart and Pam
15 Flaherty, my colleague, is going to do this a
16 little bit. It really says this merger will
17 result in an expansion of our financial
18 commitment under these kind of numbers to the
19 community.
20 But I believe if you look at our
21 business that the first commitment and the
22 first contribution we make to the community is
23 jobs. We are a company that creates jobs.
24 They are good jobs. They are well-paying.
25 They have good fringe benefits, and these are
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2 jobs where people could come in at entry levels
3 and can have a whole career with the
4 organization. They can grow, they can be
5 trained. They are not dead end jobs.
6 In community and community across the
7 United States we are currently today and have
8 been over the years, big-time hirers of entry
9 level people, graduates from high school, first
10 entrance into jobs. More than 50 percent of
11 the 110,000 jobs with these two companies. We
12 have in the United States more than 50 percent
13 of those jobs involve employees who earn less
14 than $40,000 per year. So this is a company
15 whose job imprint, if you will, on the
16 community is strong and important. We are a
17 good employer. We create good jobs with good
18 fringe benefits that have good careers, and I
19 think that this is a very important aspect of
20 our impact on the community.
21 We are big taxpayers. We are
22 important taxpayers in communities across the
23 country. This will continue to be the case,
24 and I think it's an important contribution that
25 we make to this society, and it's one that you
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2 can count on, and, obviously, as we are more
3 successful, we will in fact pay more taxes.
4 We recognize full well that we have
5 to make the services that we provide available
6 broadly within the community. This merger has
7 as its core an expansion of distribution
8 capability well beyond the traditional branches
9 through which banks have typically operated.
10 The Travelers Group is a major
11 provider of services through direct face to
12 face selling, and the combination will allow us
13 to make services available not only through
14 branches, not only over electronic cash
15 machines, telephones, the Internet and so
16 forth, but significantly through the expansion
17 of direct face-to-face selling throughout the
18 community.
19 We understand full well that we have
20 to work hard to make sure that the services
21 that we provide are uniformly available and
22 freely available across the community. We have
23 a pretty good record on this. You can count on
24 us to continue to push it. I think it's
25 important.
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2 We are very conscious of the equal
3 opportunity requirements. I would tell you
4 from a personal point of view I've been
5 involved in Citibank's equal opportunity
6 activities. The policies that we have within
7 Citibank with regard to equal opportunities,
8 fair lending, I have personally written because
9 I was involved in some of the original work in
10 this area, and I felt that it was very
11 important that the company understand that our
12 fair lending policies were more than just
13 something that had been written by an
14 administrator, and so I think that we have a
15 clear record of commitment in this area, and a
16 recognition that it is a difficult area in
17 which to consistently perform well, but one
18 that we are committed to doing.
19 We believe seriously in transparency
20 with regard to the services we offer, privacy
21 for our customers. We have a privacy statement
22 that tries to make sure that as the world moves
23 towards an electronic world that our customers
24 can be sure that the business we do with it
25 will maintain the privacy that they would
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2 expect of a banking institution, and we believe
3 that is part of our commitment as well.
4 So I'm here really to reiterate what
5 has been a long standing commitment of Citibank
6 and Citicorp. It's something that we take very
7 seriously, and I can say that we anticipate
8 with regard to City Group that if this
9 application were to be approved, that we would
10 in fact maintain that commitment and that we
11 would in fact strengthen it because as a
12 combined group we will be in a position to
13 offer more complete services, more broadly
14 throughout the United States.
15 I would hope that these facts, plus
16 the testimony of the many other people that you
17 are going to hear from during this day and a
18 half session or this two-day session, would
19 make clear to you that these commitments are
20 real, and that they are something that you
21 could count on going forward.
22 Thank you very much.
23 MR. PRINCE: Thank you. My name is
24 Chuck Prince, I'm the executive president of
25 Travelers Group. In the short time we have
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2 today I'd like to make just a few you key
3 points. First, the combination of Travelers
4 and Citicorp is permissible under current law.
5 Under the express provisions of the Bank
6 Holding Company Act as it exists today
7 Travelers is permitted to combine with Citicorp
8 subject to approval by the Federal Reserve and
9 other banking authorities, and will have a
10 period of two years with the possibility of
11 three one-year extensions in which to come into
12 conformance with the terms of the bank audit
13 company act.
14 In that regard, I would note that
15 most of the current activities of Travelers
16 Group are today permissible activities for bank
17 holding companies. We are not, for example, in
18 any businesses commonly referred to as
19 commercial. Of those activities which are not
20 today permissible, most can be modified to
21 conform to the requirements of banking law. The
22 activity of insurance underwriting does not
23 today fit within these requirements, but
24 frankly, we are hopeful that the current law
25 will be modernized within the next two years
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2 I do want to emphasize, however, that we do not
3 seek and do not require any change in the law
4 in order to consummate this merger.
5 This merger will bring together two
6 well capitalized companies with strong
7 management teams and the new Citigroup of
8 banking securities and insurance subsidiaries
9 will be financially strong and independently
10 viable whether or not there is any change to
11 our banking laws.
12 The second point I would like to
13 emphasize is that cross-marketing activities
14 which are important to us in the context of
15 this transaction exist today. Banks all over
16 the United States cross market other financial
17 service products, including insurance products
18 today.
19 What is different here is that
20 instead of cross marketing the financial
21 service product of unaffiliated providers, we
22 will combine the ownership of multiple
23 companies under one umbrella, and I suggest to
24 you that there is nothing different about the
25 cross marketing of affiliated products compared
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2 to today's widespread cross marketing of
3 unaffiliated product.
4 The third point I would make is the
5 importance to us of customer privacy. As Mr.
6 Reed just indicated, both of our companies
7 recognize the high trust that our customers
8 place in us when they provide individual
9 financial data to us. Citibank has privacy
10 principles on its Internet web site and the
11 combined Citigroup will be publishing privacy
12 guidelines for the combined company in the near
13 future.
14 We will treat each individual's
15 information with the same high privacy
16 protection that each of us wants for our own
17 personal data, yours, and mine. Our policies
18 and procedures will be fully consistent with
19 the caution expressed by regulators including
20 most recently by Ms. Dewey Williams the acting
21 comptroller of the currency.
22 Lastly, I want to mention the
23 commitment Travelers Group has made to increase
24 the availability of home owners and other
25 insurance in low and moderate income
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2 neighborhoods in 1994 we began our urban
3 availability of insurance program to improve
4 the availability of insurance in these areas.
5 Under Travelers underwriting guidelines
6 coverage on residential properties in urban
7 areas is issued and renewed regardless of
8 location, regardless of value, and regardless
9 of the age of the property.
10 Recently Travelers property casualty
11 insurance voluntarily joined in Citigroup a
12 community commitment to expand the urban
13 availability of insurance. Our program will
14 provide special education, enhanced
15 availability and special pricing to Citibank's
16 low and moderate income customers. We will
17 over time expand this important program to
18 additional cities where we have a significant
19 presence.
20 Our program also includes aggressive
21 efforts to recruit and develop minority agents
22 who can represent our insurance company.
23 I want to emphasize that all of the
24 current banking subsidiaries of Citicorp and
25 Travelers Group will remain subject to the
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2 Community Reinvestment Act and other fair
3 lending and consumer protection laws and
4 regulations just as they are today. The
5 commitment of the banking subsidiaries to their
6 communities will remain strong.
7 More importantly, we believe that the
8 high level of community involvement that
9 already exists within our companies will
10 increase as a result of our merger. The reason
11 for this is simple.
12 The purpose of the merger is to bring
13 more and better product to a greater number of
14 people. The various businesses within the
15 newly created Citigroup are innovative
16 producers of these products as are banking and
17 nonbanking organization work together to bring
18 better products to more people. Citigroup as a
19 whole will better serve the needs of its entire
20 community, including low and moderate income
21 and minority individuals.
22 With that, I will thank you for the
23 opportunity to be here today and turn to my
24 colleague, Pam Flaherty.
25 MS. FLAHERTY: Thank you, Chuck. My
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2 name is Pam Flaherty, and I'm responsible for
3 Citibank's community involvement.
4 Add to Pamela Flaherty.
5 Thank you. My name is Pamela
6 Flaherty. As John Reed explained, I am
7 responsible for Citibank's community
8 involvement.
9 This merger breaks new ground in its
10 combination of insurance and banking services.
11 While many of our community partners are
12 excited by the opportunities this suggests,
13 some are concerned that this will somehow
14 diminish Citibank's community commitment.
15 Nothing could be further from the truth.
16 I want to make three points this
17 morning. 1. Our lending record is good and
18 improved dramatically in 1997, particularly in
19 terms of lending to low and moderate-income
20 consumers and to minorities.
21 2. We provide a broad range of
22 products and services and access to consumers
23 of all income levels, and, 3, we intend to do
24 even more in the future, as evidenced by our
25 community commitment.
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2 Let me first address lending. In the
3 eight areas around the country where we serve
4 the local retail banking market, we have a
5 strong record of lending to all segments of the
6 community. In 1997 in those markets we
7 provided $9 billion of credit to low and
8 moderate-income consumers, to small businesses
9 and to organizations engaged in community
10 economic development.
11 We are particularly proud of our
12 commitment to our local neighborhoods. Since
13 their emergence thirty years ago, we have
14 partnered with local community development
15 organizations, combining their knowledge of
16 local community needs with our human and
17 financial resources.
18 Today our program is significantly
19 expanded, and Citibank's community development
20 lending supports affordable and special needs
21 housing, small business and economic
22 development, health and human services, as well
23 as the educational and cultural activities in
24 LMI communities.
25 New community development lending
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2 originations in 1997 in all US Citibank markets
3 totaled $238 million versus $146 million the
4 year before, up 63 percent.
5 Of the 1997 lending, 42 percent was
6 in metropolitan New York, Citibank's largest US
7 marketplace. Here in New York our lending
8 commitments have doubled over the last two
9 years to $100 million in 1997.
10 We apply a comprehensive strategy
11 based on building strategic partnerships with
12 nonprofit, government and other financial
13 partners to respond to the specific needs of
14 local communities. In addition to lending,
15 Citibank employees a range of investment tools.
16 In 1997, our community investment
17 portfolio totaled $47 billion, while we made
18 $26 billion in grants to community and
19 educational programs. Citibank has also long
20 provided the financing that addresses small
21 business credit needs. In 1997, nationwide,
22 Citibank lent approximately $1.9 billion to
23 small businesses, a total of more than 13,000
24 loans. We are especially proud that 10,000 of
25 these loans were for less than $100,000, the
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2 loan size most often needed by small
3 businesses.
4 What's more, 29 percent of the
5 dollars lent were in LMI census tracts. In New
6 York we provided $768 million in credit to
7 small businesses. 35 percent of our loans were
8 for less than $25,000, and 30 percent of the
9 dollars lent were in LMI census tracts.
10 Communities are also stabilized
11 through home ownership. As early as 1978,
12 Citibank began to reach out to LMI families
13 eager to purchase homes through our stretch
14 mortgage piloted in Brooklyn, the first 10
15 percent down payment product in New York.
16 Until 1991, Citibank was a leader in
17 mortgage financing, but the economic downturn
18 in the early '90s and the collapse of the real
19 estate market forced us to restructure and cut
20 back on our lending. We regained momentum in
21 1996 and 1997.
22 In 1997, Citibank made a 3,000
23 HMDA-reportable loans for a total of $9.5
24 billion, almost a 50 percent increase from the
25 prior year. Our lending to LMI consumers and
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2 communities grew even faster, at $1.2
3 billion -- nearly doubling.
4 During 1997, Citibank also
5 dramatically increased its lending to
6 minorities with $1.5 billion in HMDA-reportable
7 lending. Lending to African-Americans doubled
8 as did lending to Hispanics.
9 Let me now turn to access to
10 financial services. Citibank has made a deep
11 commitment to the use of technology to increase
12 choice and convenience for all customers. We
13 introduced the first ATMs in 1977. Since then,
14 we have expanded the use of telephone access as
15 well as PC banking.
16 Our data on customer usage patterns
17 show that across all income levels, customers
18 increasingly perform their financial
19 transactions outside a branch, on the phone,
20 through a PC or at an ATM.
21 Customers who live in low and
22 moderate income census tracts do not differ
23 significantly in their usage from the rest of
24 our customers.
25 Our data show that these customers
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2 perform 76 percent of their transactions
3 outside a branch, versus 80 percent for all
4 customers, and 25 percent on the phone or the
5 PC, versus 30 percent for all customers.
6 Because consumers use the branch less
7 frequently, the quality has to be uniformly
8 great. Our branches have been recently
9 upgraded with better training for our people,
10 better and more user friendly technology and
11 longer hours.
12 Two years ago, in New York we closed
13 a number of branches and converted several to
14 Citicard Banking Centers, while renovating and
15 upgrading the remaining branches. When we
16 started this process, 16 percent of our
17 branches were located in LMI census tracts.
18 Today, 22 percent of our branches are located
19 in LMI tracts.
20 And we continue to open different
21 kind of specialized stores like our new manned
22 electronic banking facility on Burnside Avenue
23 in the Bronx, a loan store in Harlem, both of
24 which will open this summer, and a retirement
25 store in Oakland, California.
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2 Electronic benefits transfer is
3 another innovation which has opened a new
4 opportunity for us to serve low income people.
5 The most important benefit for EBT recipients
6 may well be the ability to participate in the
7 mainstream world of electronic banking and
8 payments systems.
9 We're encouraging customers to use
10 technology and alternative access points in two
11 ways, pricing and education. In New York we
12 eliminated fees for our ATMs, PC banking, and
13 telephone bill payment.
14 With regard to education, we have
15 multilingual hosts to assist us in branch
16 customers and a unit of full-time educators who
17 give seminars on banking, credit and
18 technology. Each year we conduct roughly four
19 hundred seminars on sight, with nonprofits and
20 at schools across New York.
21 We also support a number of nonprofit
22 organizations dedicated to improving education
23 and job skills training through technology in
24 our schools including Classroom, Inc., City
25 Tech, and Junior Achievement.
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2 Finally, let me talk about our ten
3 year $115 billion lending and investment
4 commitment. Our Citigroup commitment is a
5 national pledge that responds to our community
6 partners by focusing on lending and investing,
7 financial literacy and insurance.
8 We will execute the commitment by
9 working with our community partners. We will
10 also aggressively market these products
11 ourselves. We seek to increase this lending in
12 all our markets, being responsive to each of
13 them individually. We will report publicly on
14 how we're doing on an annual basis.
15 Citigroup built its pledge through
16 conversations with some 300 community
17 organizations across the country. They told us
18 they wanted to ensure that we would remain an
19 active partner through community development
20 lending and investing; increasing our small
21 business and mortgage lending; expanding our
22 work in financial literacy; and offering
23 greater access to insurance.
24 Our pledge was also designed as a
25 challenge to our business. To meet our
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2 targets, we must grow the areas our community
3 partners are particularly concerned about,
4 mortgages, small business and community
5 development lending, at an average annual rate
6 of eight to ten percent over the ten-year
7 period, and social investing must average over
8 12 percent growth per year. We believe this
9 pledge is a very aggressive commitment.
10 The commitment is more than numbers
11 and growth rates. It includes insurance for
12 the first time, as Chuck Prince described. It
13 also addresses financial literacy, a critical
14 need of consumers of all income levels.
15 Let me close by saying that we
16 believe we have done a great job of meeting the
17 credit and convenience needs of the communities
18 where we accept deposits, as required by CR A.
19 And beyond that, we also believe we have met
20 the test of being an excellent corporate
21 citizen in all the communities where we do
22 business.
23 But we intend to do more. We intend
24 to use the resources of the combined company to
25 improve the financial lives of all customers as
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2 well as the communities in which we operate.
3 We will do this primarily through our business,
4 offering quality banking services, loans,
5 insurance, and investments, and participating
6 in the financing of community improvements.
7 We will also continue to innovate to
8 expand access to financial services and
9 information so individuals and family of even
10 modest means can improve their economic well
11 being.
12 We have listened to our community
13 partners, those organizations which work
14 everyday in our communities. Many of them are
15 speaking at this meeting, and we thank them.
16 We intend to continue to listen to them and to
17 work with them.
18 Thank you for your time this morning.
19 MR. LONEY: Thank you. Do we have
20 questions from the panel?
21 MR. ALVAREZ: I have a couple of
22 questions. Mr. Prince, you mentioned in your
23 opening remark the requirement of the Bank
24 Holding Company Act that the organization
25 combined organizations conform the nonbanking
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2 activities to the limitations of the Act. In
3 particular you noted that insurance
4 underwriting is not a permissible activity at
5 this point.
6 If the current law is not changed,
7 can Travelers Group, combined Travelers Group
8 realistically meet the requirements of the Bank
9 Holding Company Act and how will the proposed
10 costs marketing services that you hope to do
11 affect the ability of the company to meet those
12 requirements?
13 MR. PRINCE: The companies within
14 Travelers Group and companies within the
15 combined Citigroup are operated at separate
16 independently viable company.
17 Each company is separately staffed,
18 separately organized, has its own board of
19 directors. The company in the insurance
20 business, Travelers Property Casualty, for
21 example, is not only separately organized, it
22 is already publicly held in part. It's already
23 listed on New York Stock Exchange, and the
24 companies will continue to be operated in that
25 fashion.
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2 The cross-marketing activities will
3 not involve any combination of the company
4 staff or organizations in a way which would
5 prevent the orderly restructuring of the
6 company in the event that were to become
7 necessary.
8 So the short answer to your question,
9 Mr. Alvarez, I believe is that, yes, we would
10 be able to comply with the requirement even if
11 the law did not change, and if it became
12 necessary at some point, for example, to spin
13 off the insurance companies they would be
14 strong independently viable companies, and our
15 company would continue to be strong and
16 independently viable, and there is nothing in
17 the cross-marketing that would change any much
18 that.
19 MR. ALVAREZ: I had another question.
20 A number of comments have been expressed
21 concerned that the wind Travelers Citigroup
22 would as far as loan marketing individuals and
23 communities be concerned perhaps be worse than
24 the sum of the parts of the two organizations
25 in part because the new organization might
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2 target low and moderate income and minority
3 individuals in communities from marketing
4 higher cost lending and higher cost insurance
5 products.
6 How is it that Citigroup if this
7 transaction is improved, would insure that all
8 individuals in all communities will have access
9 to the full range of products, including lower
10 cost products that might be available through
11 the organization?
12 MS. FLAHERTY: I guess I would first
13 say that the record shows with regard to
14 Citibank and with regard to Travelers that, and
15 I can certainly speak more specifically to
16 Citibank, that we already do today provide
17 extensive credits to low and moderate income
18 communities and we have made a pledge to
19 continue to do that going forward.
20 MR. ALVAREZ: Ms. Flaherty, you
21 mentioned that Citicorp has closed branches in
22 the past.
23 Are any branch closing proposed as
24 part of this transaction?
25 MS. FLAHERTY: No.
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2 MR. ALVAREZ: One final question from
3 me. Travelers Group made several commitments
4 and were subject to several conditions in an
5 order by the OCS when it applied to acquire its
6 thrift. What would be the status of those
7 commitments going forward if this transaction
8 is approved because Travelers Group would no
9 longer be subject to the OCS?
10 MS. FLAHERTY: We intend to continue
11 to meet those commitments.
12 MS. MC CALL: I have a question. We
13 would be very interested in the Department in
14 receiving a little more detail on the very
15 large commitment that you made, the breakdown
16 that is available.
17 MS. FLAHERTY: I'll be happy to do
18 that.
19 MR. LONEY: Any other questions from
20 the panel? If not, I will thank you very much.
21 MS. FLAHERTY: Thank you very much.
22 MR. REED: Thank you.