Public Meeting Regarding Citicorp and Travelers Group
Thursday, June 25, 1998
Transcript of Panel Four
123
1
2 MR. LONEY: The next panel will be
3 comprised of Bill Traylor, Jacqueline O'Garrow,
4 Michael Lappin, Edward Reed, Suzanne Israel
5 Tufts. We will start with Mr. Traylor from
6 LISC.
7 MR. TRAYLOR: Before I begin I want
8 to thank you for the opportunity to speak
9 today. My name is Bill Traylor. I am the Sr.
10 program director for the Local Initiative
11 Support Corporation. I run our New York
12 program office, and I am also the managing
13 director of our New York equity fund which
14 invests in affordable housing projects
15 developed through the federal low income
16 housing and tax credit program.
17 I'd like to give you a little bit of
18 background on LISC before I move too far into
19 my discussions of our relationship with the
20 Travelers Group and Citibank.
21 LISC is the national organization.
22 We have forty offices in major urban centers
23 across the country. We also work in 63 rural
24 counties. We are an intermediary, a financial
25 and technical assistance intermediary. We are,
.
124
1
2 we'd like to see ourselves as a bridge between,
3 if I can for downtown and midtown sources of
4 capital and uptown community grass roots
5 organizations.
6 We operate community development
7 corporations which are grass roots indigenous
8 locally directed or neighborhood directed
9 organizations that have a comprehensive plan to
10 revitalize poor and distressed communities.
11 They are poor and distressed communities both
12 through or through a variety of different
13 mechanisms, first and foremost through the
14 redevelopment and development of housing stock
15 within their neighborhoods through economic
16 revitalization activities, including the
17 generation of new small businesses as well as
18 the construction or rehabilitation of
19 commercial space.
20 We've over the last 18 years have
21 enjoyed a tremendous amount of success through
22 this vehicle and being a conduit for capital to
23 the communities more than three billion dollars
24 has been invested in the nation's poorest
25 communities resulting in more than 75,000
.
125
1
2 affordable homes being constructed and more
3 than 3 million square feet of commercial space
4 and numerous new jobs being created.
5 Important to what we do obviously is
6 partnerships with corporations like Travelers
7 and Citibank for they are the ones who provide
8 the capital that we can funnel into local
9 communities, and they are the entities that
10 fund our technical assistance operations as
11 well.
12 Our relationship with Citibank and
13 the Travelers Group has been substantial over
14 the last 18 years. Travelers Group Salomon
15 Brothers has invested more than forty million
16 dollars with us to develop affordable homes
17 that I spoke about before, that forty million
18 dollars all for the City of New York.
19 Our relationship with Citibank has
20 been more complicated and more diverse and
21 becoming broader over the course of time.
22 Citibank has been a consistent lender to us on
23 the bridge, to bridge our equity investments
24 which generally come in over time from
25 corporations so that we can begin immediately
.
126
1
2 to construct or finance the contribution and
3 rehabilitation of the affordable homes that I
4 spoke about.
5 Citibank, and this is I think because
6 Citibank joined us very early on in the bridge
7 financing, when our product was new, when the
8 community groups with whom we were working were
9 untested and untried, and when the
10 neighborhoods we were working in were much more
11 distressed than they are today that Citibank's
12 involvement with us early on involvement is
13 very significant, and I think fairly
14 substantial indicating their ability and
15 willingness to take risks.
16 While it has taken sometime for
17 Citibank to fund our endeavors other than
18 through bridge lending and to achieve a level
19 of involvement in our work commensurate with
20 their asset side, Citibank is where it should
21 be today when benchmarked against other
22 financial institutions that are based in New
23 York City.
24 Beginning in 1995, Citibank became
25 one of our larger investors with a 25 million
.
127
1
2 dollar commitment to affordable housing to be
3 funded through our New York equity fund and has
4 recently made another commitment to fund $30
5 million for the development of that housing.
6 Citibank has also provided extensive
7 philanthropic support to us. Just one more
8 word before I conclude, that philanthropic
9 support all passes through us to community
10 based organizations.
11 They recently gave us $340 million to
12 support our neighborhood homes program which
13 will construct and renovate affordable homes
14 for first-time home buyers and that type of
15 philanthropic support is extremely important
16 and extremely hard to find. Given this level
17 of substantial support both by Travelers and by
18 Citibank, we support the proposed merger of the
19 organization.
20 MR. LONEY: Thank you, Mr. Traylor.
21 Ms. O'Garrow.
22 MS. O'GARROW: Good morning. My name
23 is Jacqueline O'Garrow and I am deputy director
24 of the New York partnership office of
25 FannieMae. As many of you are undoubtedly
.
128
1
2 aware FannieMae is America's largest supplier
3 of conventional home mortgage funds, since its
4 creation by Congress in 1939, and its evolution
5 into a shareholder-owned accompanied in 1968
6 FannieMae's mission has been to provide
7 financial products and services that increase
8 the availability and the affordability of
9 housing for low, moderate and middle income
10 Americans. FannieMae has established 31
11 partnership offices throughout the United
12 States. One such office is the New York
13 partnership office.
14 We work closely with city government
15 officials, community based organizations and
16 members of the professional real estate
17 community to structure a series of creative and
18 flexible products that are necessary to meet
19 the home financing needs of New York's low to
20 moderate income home buyers.
21 The products and programs also
22 warrant the support of strong lenders committed
23 to affordable housing on the premise that
24 everyone is entitled to decent affordable
25 housing both rental as well as home ownership.
.
129
1
2 Citicorp is one of several major New
3 York lenders that have demonstrated a
4 commitment to partnering with us to assure that
5 these principles are achieved, and that
6 products meet their intended concern.
7 FannieMae's valued relationship with
8 Citicorp of course predates the establishment
9 of the partnership office. However, it is also
10 quite clear that the introduction of our
11 programs could only be enhanced with the
12 support of a lending source like Citicorp in
13 New York City and Long Island.
14 With respect to affordable housing
15 Citicorp's participation in our city homes
16 financing program is one such program that
17 brings us closer to achieving our overall
18 objective. This program was developed to
19 support the city's efforts to transform vacant,
20 abandoned and neglected in rem once poor family
21 housing stock into rehabilitated housing, low
22 to moderate income first time home buyers.
23 Citicorp is also a lender partner in
24 the New York City housing partnership new homes
25 program. Another program for which FannieMae
.
130
1
2 has negotiated flexible underwriting guidelines
3 which serves to facilitate the opportunity for
4 home owners of the thousands of New York City
5 low to moderate income first time home buyers.
6 Further, their overall performance in
7 the origination and delivery of co-op housing
8 units utilizing our co-op pilot has added
9 considerable options to the co-op market. In
10 1997 Citicorp was one of three lenders who
11 worked closely with us to structure a secondary
12 market program that would compliment federal,
13 state and local agencies in supporting the
14 ground breaking City Lights at Queens Landing
15 development. The successes of these programs
16 requires the experience of a skilled
17 organization staff, sensitive to underwriting
18 affordable housing loans.
19 Citicorp has been a willing partner
20 in taking the lead to facilitate partnerships
21 among nonprofits and for profit developers to
22 seek solutions to some of New York City's
23 housing issues. The spirit of working
24 collaboratively with FannieMae's New York
25 housing and neighboring housing service very
.
131
1
2 low down payment, gut rehabilitation,
3 convention financing program commonly known as
4 the neighborhood pilot has been noted in our
5 company as a model for other parts of the
6 company to date.
7 Until Citicorp's involvement this
8 initiative sat dormant for five years waiting
9 for a willing partner to bring a leveling of
10 commitment necessary to have us realize the
11 success in an urban setting. The features of
12 the program reach to the very issues home
13 buyers face when purchasing or repurchasing one
14 of New York's aged housing stock.
15 With the added complexity and the
16 issues of affordability this product offers a
17 very low down payment feature with an
18 aggressive form of rental underwriting to help
19 low and moderate income families qualify.
20 By working very closely with
21 FannieMae to structure secondary market product
22 that could be replicated in other cities when
23 neighborhoods organizations operate Citicorp
24 has contributed significantly to this product a
25 availability and accessibility. Their
.
132
1
2 commitment to New York City is further
3 demonstrated through a partnership with LISC,
4 HPD and FannieMae to provide a financing
5 structure to address the needs of existing one
6 to four in rem occupied housing through the
7 neighborhood homes program.
8 Unlike other City of New York
9 reconstruction efforts of in rem housing this
10 program brings new challenges since existing
11 rental families occupy all of these units.
12 Citicorp has stepped to the plate to explore
13 with FannieMae a financing structure that will
14 allow low to moderate income families to
15 purchase these occupied rehabilitated one to
16 four unit properties.
17 They have also been a significant
18 partner of FannieMae as a source for
19 identifying home ownership and the creation and
20 development of products and programs and
21 financial literacy tools to assist minorities
22 and immigrants simulation to our social
23 structure and achieve what most American
24 strives for, home ownership.
25 Citicorp recently participated as a
.
133
1
2 partner in a community needs round table. This
3 round table assembled in Chicago on June 1 and
4 was comprised of significant community lending
5 and government partners from five major cities.
6 The purpose of the round table was to
7 bring the partners together to share
8 experiences, best practices and identify
9 solutions which will guide FannieMae to
10 structure lots and experimental programs that
11 will assist minority and immigrant communities
12 gain greater access to affordable housing.
13 From the perspective of the New York
14 partnership office Citicorp is a major player
15 in the New York City housing market. Their
16 commitment to housing issues and providing
17 access to our flexible and affordable housing
18 programs are all directed to addressing the
19 complex housing needs of New York City. We
20 continue to work with Citicorp as we strive to
21 reach our mutual objective which is to provide
22 affordable financing access to low and moderate
23 minority and immigrant community in New York
24 City.
25 MR. LONEY: Those of you who didn't
.
134
1
2 get to finish all they had to say, you can
3 leave a copy with the folks at the registration
4 table. The entire thing will be put into the
5 record.
6 MS. ISRAEL TUFTS: Thank you. My
7 name is Suzanne Israel Tufts and I am president
8 and CEO of the American Women's Economic
9 Development Corporation, the nations oldest
10 not-for-profit organization providing in-depth
11 counseling training and supportive services for
12 womens business owners.
13 I want to thank the Federal Reserve
14 and the State Banking Commission for the
15 opportunity to testify today, and to speak to
16 community that while not defined by the
17 traditional neighborhood and geographic bounds
18 or racial bounds in the regulatory framework
19 nevertheless represents the growing single
20 largest customer base of the two companies at
21 issue here, Citibank and Travelers.
22 In our twenty-year history and over
23 twenty year collaboration with Citibank and
24 Travelers has worked with over one hundred
25 thousand entrepreneurial women and we have
.
135
1
2 spearheaded the creation and development of
3 similar organizations throughout the country.
4 We serve women from all income
5 levels, all neighborhoods, all demographic
6 background and all industries. When we first
7 started and Citibank first came to our help,
8 women were just entering the small business
9 market and were a negligible factor in that.
10 Today women-own businesses account
11 for over one third of all businesses in the
12 United States, and it is estimated by the year
13 2000, half of all small businesses will be
14 owned by women. Today they employ one out of
15 every four US workers which is approximately
16 18.5 million people. They generate close to
17 2.3 trillion dollars in sales and even in this
18 bull market their growth outpaces overall
19 business growth by nearly two to one.
20 At the same time the largest
21 demographic group of growth in the country is
22 55 and older group. In that group women make
23 up the largest portion of that group. So as
24 women's credit needs are growing both
25 professionally and personally their insurance
.
136
1
2 needs and their retirement needs are growing.
3 Whether from the standpoint of a business owner
4 or from the standpoint of looking at their life
5 and their financial planning as one uniform
6 process, it is our belief that merger will
7 represent for women efficiency, effectiveness
8 and improvement of the services that they can
9 render.
10 WEDC and Citibank have as I've said
11 in over twenty year history of strong creative
12 collaboration on behalf of women business
13 owners. The burst in their growth is due to
14 many market and social factors, but it is due
15 to very much increased educational opportunity
16 open to women, and this education simply would
17 not have been available or affordable if it
18 were not for Citibank's commitment to WEDC a
19 commitment evidenced by financial support and
20 also and most importantly by extraordinary time
21 expertise and in depth involvement.
22 Many employees in this organization,
23 in particular Pamela Flaherty's familiarity and
24 her team.
25 Based on their work, Citibank has
.
137
1
2 helped us, as I say, start and grow our
3 organization at a time when people do not have
4 faith that women could do it. They helped
5 reach out, have educated Congress, Small
6 Business Administration, and women throughout
7 the country to open similar offices which now
8 exists all over the country.
9 They have provided general operating
10 support, the life blood of any organization.
11 They have provided health in times of deficit
12 and help wean us away from federal government
13 funding to be predominantly private sector
14 supported.
15 They have helped in funding access to
16 capital programs at a time when now women
17 business owners are coming in to their own and
18 Citibank is the one of the first to recognize
19 the need for education that has to provide a
20 good credit application, a good credit standing
21 and a vibrant and growing business.
22 Travelers has been involved with us
23 focusing on women as insurance agents and
24 people who are at this point under insured and
25 need more education and protection towards
.
138
1
2 their old age insurance product.
3 What we have found is that time is
4 womens most precious commodity and trust their
5 most important asset, and when they can deal
6 with one organization, with one person, be it
7 their broker or their insurance broker or when
8 they form trust in that person, they will put
9 the repository of their trust there. They will
10 want the efficiency of one stop shopping.
11 They do not have the time in their
12 life to be dealing with older arcane systems of
13 corporate structure.
14 Today, for example, our organization
15 is hosting an on-line marketing, on-line
16 banking seminar with a group called Web World
17 and we have over a hundred of the latest
18 growing firms in the high tech community.
19 These women represent the future and what they
20 want is efficiency, speed and one stop
21 shopping.
22 They and we are grateful for the
23 support Citibank and Travelers have shown as
24 they were getting there and now that they are
25 becoming successful again across all
.
139
1
2 boundaries, no matter how that's defined, it is
3 our belief that that merger will only help them
4 continue, thank you.
5 MR. LONEY: Thank you. That was well
6 timed. Mr. Reed.
7 MR. REED: Good morning. My name is
8 Edwin Reed. I am here as chairman of the board
9 of the Jamaica Business Resource Center.
10 I'd like to thank the Federal Reserve
11 Bank and the State banking of New York for
12 giving me this opportunity to come before you
13 today on what I think is a very critical
14 development in the banking industry.
15 The Jamaica Business Resource Center
16 was established over three years ago to serve
17 as the national power for President Clinton one
18 stop capital shop initiative.
19 This program which is administered by
20 the US Small Business Administration has been
21 replicated in 16 major urban cities across the
22 United States. Since its inception, JBRC has
23 assisted approximately 748 businesses in
24 creating or retaining over one thousand four
25 hundred fifty nine jobs, has secured over 15
.
140
1
2 million dollars in financing for small
3 businesses resulting in over six hundred
4 additional jobs, has provided high quality
5 in-depth training to over five hundred
6 entrepreneurs, has provided training to two one
7 stop capital shops in Harlem and Detroit and
8 provided orientation and in over one hundred
9 LDCRs, CDCs, EDCs, bank and other public
10 private sector organizations on the JBR team
11 model and have initiated internal welfare to
12 work and minority college intern programs.
13 Citibank has played a pivotal and
14 important role in the development in
15 establishing JBRC. Fairly early on three years
16 ago it was a major sponsor, and in fact, lended
17 its resources and expertise to meetings which
18 helped develop the model for JBRC.
19 Citibank has also provided grants of
20 $25,000 per year to help support the programs
21 and operations of JBRC. In addition, Citibank
22 has been a leader in establishing a new forum
23 by which nonprofit organizations, specifically
24 religious institutions, were trained in
25 computer development. This resulted in a
.
141
1
2 partnership with Citibank, JBRC, Southeast
3 Queens Clergy, York College and others, so that
4 we could take advantage of the many
5 opportunities that exist.
6 In regard to this merger it is
7 important to note that we are looking at an
8 opportunity to make a significant and historic
9 change in the way we do banking and financial
10 services. The people at JBRC welcome this
11 opportunity because we have had a relationship
12 with Citibank for the last three years and we
13 believe that they have the innovative
14 management technique and style to fully take
15 advantage of this new horizon.
16 The key element to success in this
17 arena, we believe are going to be an effective
18 response to the market by the combined company,
19 the management, and its focus on the
20 opportunities presented for community
21 development and historically underserved
22 community, and a role for the regulators which
23 is oversight. That oversight must be
24 coordinated, consistent, and contain effective
25 rule making so that the market is able to
.
142
1
2 function efficiently.
3 As we look at Citibank and the
4 potential for this merger we believe that we
5 have an example of where the development of the
6 financial markets will go. It is an
7 opportunity for Citibank and Travelers to
8 expand into markets that have been underserved
9 before, but also represent the opportunity for
10 future growth here in the domestic arena.
11 We believe that Citibank is up to the
12 challenge, and we as JBRC would like to join in
13 that partnership so that we can successfully
14 rebuild urban communities by entrepreneur and
15 small business development. Thank you very
16 much.
17 MR. LONEY: Thank you. Mr. Lappin.
18 MR. LAPPIN: Good morning, and thank
19 you for this opportunity to speak. My name is
20 Michael Lappin. I'm the president of the
21 Community Preservation Corporation known as
22 CPC.
23 We are an affordable housing lending
24 consortium that operates throughout New York
25 State and will shortly open an office to serve
.
143
1
2 New Jersey. Our mission is to provide
3 financing, to help preserve low and moderate
4 income communities throughout these areas.
5 (Continued on next page)
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
.
144
1
2 MR. LAPPIN: We are one of the
3 largest affordable housing lenders in the
4 country, having to date invested over $1.8
5 billion for the rehabilitation, development and
6 preservation of almost 62,000 housing units.
7 We have had a long history with
8 Citibank. Citibank was one of our founding
9 members back in 1974. Citibank has been
10 unwavering in its commitment to CPC. It has
11 had a senior level executive serve on our
12 board, as well on our investment committee.
13 Currently, Pam Flaherty serves on our board,
14 our audit committee, and our strategic planning
15 committee, and Bernice Giscombe serves on our
16 mortgage committee. Both are highly valued
17 participants in CPC and give freely of their
18 time and experience in guiding our company and
19 our investments.
20 Citibank's standing financial
21 commitments to our company total over $26
22 million, and these revolve. Additionally, they
23 have made investments and grants in the many
24 projects the CPC is involved with.
25 The representative from Fannie Mae
.
145
1
2 spoke of the City Home program, which we are
3 very heavily involved in, and most recently
4 Citibank has made a commitment with us in the
5 Nehemiah housing projects, where they have made
6 a sizable no-interest loan to help rebuild this
7 blighted community with 600 new homes.
8 Citibank has always been among the
9 first institutions to sign up for new
10 initiatives, which we have sponsored and have
11 encouraged others to do the same. They have
12 truly been a leader in helping to serve the
13 affordable housing market. They will be a
14 founding participant with us in our expansion
15 into New Jersey.
16 Citibank is also providing support
17 for our efforts to revitalize the 12,000-unit
18 housing complex in Parkchester in the Bronx.
19 They have signed an expression of interest to
20 provide $20 million of financing -- that is
21 over and above the commitments I already spoke
22 to -- to renovate this property that is now
23 experiencing a certain amount of decline. They
24 are also working with us closely to provide end
25 loans to condominium loaners and to refinance
.
146
1
2 existing end loans that they have at the same
3 complex.
4 The bank has provided through its
5 directors long-standing support for our public
6 initiatives in the legislative arena on a
7 variety of issues concerning affordable housing
8 and have attended and been very much involved
9 in these efforts, both on the city, state and
10 federal level.
11 In closing, Citibank's 24 years of
12 support for CPC have been a crucial
13 underpinning to our success in helping the
14 affordable housing needs and helping us serve
15 the affordable needs of the low- and
16 moderate-income neighborhoods where we lend.
17 Thank you very much.
18 MR. LONEY: Thank you, Mr. Lappin.
19 Are there any questions from the
20 panel?
21 MR. ALVAREZ: I have one question.
22 Ms. Tufts and Mr. Reed, you both
23 represent small business areas, and we have
24 heard a lot of concern this morning that
25 one-stop shopping from the individual side
.
147
1
2 could cause some difficulties because of
3 sharing of customer information. A lot of
4 folks were concerned that sharing customer
5 information might actually lead to a cutback of
6 services.
7 That one-stop shopping, you think, is
8 very helpful to the small business community.
9 Do you think with your experience with small
10 businesses that they would be concerned about
11 sharing of information, calling an insurance
12 company and a bank in the effort to provide
13 one-stop shopping?
14 MS. TUFTS: Based on the businesses
15 that we deal with, we see that they have really
16 two concerns. One is a general social privacy
17 concern, and that is going to exist no matter
18 what kind of corporate structures exist. So as
19 long as there are environments where they have
20 knowledge of what is going on, that would just
21 be a general concern, not specific to this
22 issue.
23 What we see as a greater concern is
24 really -- I didn't mean to trivialize it -- is
25 very truly one of time and one of trust. When
.
148
1
2 I say "trust," it is very hard for a small
3 business person to approach a bank and bring
4 their credit concerns to them. Once they have,
5 particularly in terms of the women's market and
6 the way women work with their bankers or with
7 their service providers, once they have formed
8 that repository of trust, that is the person
9 and that is the place where they want to
10 discuss things in, frankly, a more holistic
11 fashion. I realize these are not banking terms
12 necessarily, but those are how our customers,
13 how the small businesses, look at that.
14 Their business plan is not that
15 different from their life plan and their
16 concerns they have to bring together in their
17 desire to approach things in a more integrated
18 fashion, but, yes, with protecting dignity and
19 privacy. Nothing that we see would be
20 precluded. The two are not precluded.
21 MR. REED: My experience has been
22 that, as it relates to privacy concerns and
23 one-stop-capital shopping, I agree with
24 Ms. Tufts that the most overriding issue for
25 small businesses is the ability to get it done
.
149
1
2 effectively and efficiently all at one time.
3 As it relates to the issue of
4 privacy, I think the regulators are the ones
5 who are going to be very important in that.
6 From a small business and from an individual
7 standpoint, one of the most important things
8 that one has is your credit report, which is a
9 very public document, and if we have safeguards
10 to be sure that the information that is being
11 shared is accurate, reliable, if questioned can
12 it be corrected, those are the things that will
13 make sharing of information a viable
14 opportunity.
15 The other side of that issue is
16 simply one of sharing information, not for
17 making business decisions, but sharing it for
18 marketing purposes. And on that issue, the
19 individual must have the right to understand
20 how that information is being used and whether
21 or not they should be the final one to
22 determine whether or not they want that
23 information in the overall marketplace, and
24 guidelines must be set up in order for that
25 process to work, in our opinion.
.
150
1
2 MR. LONEY: Thank you.
3 Any other questions? If not, I will
4 thank the panel.
5 MR. REED: Thank you.