Public Meeting Regarding Citicorp and Travelers Group
Thursday, June 25, 1998
Transcript of Panel Five
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6 MR. LONEY: At this point we will
7 move to Panel Five, Josh Zinner, Karen Thomas,
8 Shanna Smith, Mark Silverman, Sarah Ludwig and
9 Hilary Botein.
10 It appears to me that you folks have
11 just changed the order.
12 Ms. Thomas.
13 MS. THOMAS: Good morning. My name
14 is Karen Thomas, representing the Independent
15 Bankers Association of America. Thank you for
16 the opportunity to present our views.
17 The IBAA strongly opposes the
18 Travelers/Citicorp application. The proposed
19 merger carries serious adverse consequences for
20 consumers, community banks, and the entire
21 financial services industry.
22 The merger is the largest in American
23 business history and portends awesome
24 restructuring of the financial landscape.
25 There are a lot of problems with this union,
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2 but the gratuitous way it treats U.S. banking
3 law and regulation is, perhaps, the most
4 unsettling. It is an illegal merger, announced
5 with the express intent of pressuring Congress
6 into making it legal.
7 First, it violates the Bank Holding
8 Company Act by seeking to combine insurance
9 underwriting and banking, under the guise of a
10 conditional promise to divest the prohibited
11 insurance activities. Second, it violates the
12 Glass-Steagall Act by invading the barriers
13 between investment and commercial banking
14 established by Congress 65 years ago.
15 With a hubris not often exhibited to
16 the Federal Reserve Board, the merger parties
17 have admitted they are well aware that existing
18 law prohibits the insurance activities. They
19 ask the Board to allow the merger anyway, in
20 the hope that Congress will change the law.
21 Contrary to their belief, the
22 divestiture provisions of the Bank Holding
23 Company Act do not allow Citigroup up to five
24 years to warehouse its insurance activities.
25 The provisions are intended to allow orderly
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2 disposition of impermissible activities within
3 two years. It is not available to a bank
4 holding company with no bona fide intent or
5 plan to divest, and is vigorously lobbying to
6 change the law to avoid divestiture.
7 Despite thousands of pages filed with
8 the Fed, Citigroup fails to offer even the
9 beginnings of an approach to divestiture.
10 Nowhere do they say it will divest its
11 underwriting companies, precisely because it
12 has no such intention.
13 On April 6, Travelers CEO Sanford
14 Weill dismissed the need for divestiture
15 saying, "I don't think we have to spin anything
16 off to make this happen; maybe what we are
17 doing will cause the legislation to change."
18 Citicorp's CEO John Reed added he
19 "reasonably believes there will not be a legal
20 problem," but noted that pending legislation
21 would make this merger, in fact, quite legal.
22 They can't have it both ways.
23 The Federal Reserve's policy
24 statement on divestiture says an affected
25 company should "submit a divestiture plan
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2 promptly" and "complete divestiture as early as
3 possible during this specified two-year
4 period." Extensions are not to be granted
5 unless the company "has made substantial and
6 continuous good faith efforts to accomplish the
7 divestiture within the prescribed period."
8 Even if divestiture were available, Citigroup
9 has no intention of complying with this policy
10 because it has no honest intent to divest.
11 Equally unprecedented is the scope of
12 the merger's combination of banking and
13 securities activities in violation of Section
14 20 of the Glass-Steagall Act.
15 The new Citigroup's Section 20
16 subsidiaries would have combined capital of $23
17 billion, making it the second largest
18 securities firm in the nation behind Merrill
19 Lynch.
20 The unprecedented impact and size of
21 these securities activities render the Fed's
22 current 25-percent-of-revenues test ineffective
23 and an inappropriate measure of what
24 constitutes "engaged principally" in securities
25 underwriting. Indeed, back in 1988 when the
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2 Second Circuit reviewed the then
3 5-percent-of-revenues cap, the court said that
4 size alone could contravene Section 20. The
5 court specifically rejected one interpretation
6 of "engaged principally" because it would have
7 allowed a bank to be affiliated with one of the
8 nation's largest investment bankers, Merrill
9 Lynch, a result, the court said, is
10 inconsistent with congressional intent. If
11 Salomon Smith Barney and Robinson-Humphrey are
12 permitted to coalesce into commercial banking,
13 Section 20 of Glass-Steagall has no meaning at
14 all.
15 Finally, approval of the application
16 would violate the separation of powers doctrine
17 embodied in the Constitution. Approval would
18 improperly usurp the powers of Congress at the
19 very time Congress is considering
20 legislation -- supported by the Fed -- that
21 would amend both the Bank Holding Company and
22 Glass-Steagall Acts to permit the proposed
23 transaction.
24 This unique deal would create a new
25 bank holding company with $700 billion in
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2 assets, engaged at the outset in a number of
3 activities Congress has thus far prohibited for
4 bank holding companies. The transaction is
5 essentially too big to unravel. As such,
6 approval of the application would effectively
7 coerce Congress to amend a law to legitimize
8 the transaction.
9 The Board is being asked to tie
10 Citigroup to the railroad tracks and as the
11 time for divestiture approaches, Congress will
12 have little practical choice but to save the
13 day by amending the law.
14 The Federal Reserve has always
15 recognized the importance of the rule of law as
16 the law exists, not as some might wish it to
17 be. We urge the Board to resist the temptation
18 to advance a legislative agenda by preempting
19 Congress. The Board should deny the
20 application.
21 Thank you.
22 MR. LONEY: Thank you, Ms. Thomas.
23 Mr. Silverman.
24 MR. SILVERMAN: Hi. Good morning.
25 My name is Mark Silverman. I am speaking today
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2 on behalf of Citicorp-Travelers Watch.
3 Citicorp-Travelers Watch is a
4 coalition of advocates and community groups
5 concerned about the impact of the proposed
6 merger on communities and consumers. We formed
7 this coalition because we believe the proposed
8 merger is one of such unprecedented magnitude
9 and complexity that it warranted special
10 scrutiny.
11 Citicorp-Travelers Watch is opposed
12 to this proposed merger for several reasons.
13 First, the merger is illegal. The
14 affiliation between Citibank, as a member bank
15 of the Federal Reserve Board and Travelers'
16 subsidiaries that are engaged principally in
17 securities dealings is simply prohibited by the
18 Glass-Steagall Act. Further, the proposed
19 Citigroup would be in violation of the Bank
20 Holding Company Act by continuing to hold
21 Travelers' subsidiaries dealing in insurance.
22 As we discussed this morning,
23 Citicorp and Travelers are relying on the
24 two-year grace periods under the law to divest
25 themselves of their impermissible insurance
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2 holdings. I want to say a couple of things
3 about that.
4 First, that is of no help to the
5 securities holdings insofar as it does violate
6 Glass-Steagall. To the extent that the
7 reliance of the two-year provision has any
8 merit whatsoever, and it has none for all the
9 reasons discussed, it is of no help for the
10 securities holders. There is no grace period
11 in Glass-Steagall, and Mr. Prince this morning
12 failed to address that, and the application
13 nearly fails to address that.
14 Further, Citicorp and Travelers, with
15 respect to its insurance holdings, have so far
16 put forward no plan for divestitures. And as
17 they candidly admit in their application, their
18 willingness to use the grace period is to get
19 the law changed so they don't have to divest.
20 Indeed, they have already begun to lobby
21 Congress about it.
22 The Board should not allow Citicorp
23 and Travelers to follow the strategy for at
24 least three reasons:
25 First, this is not what the two-year
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2 provision was designed to do. It is supposed
3 to give newly-formed bank holding companies
4 time to conform to the law, not time to force
5 the law to conform to them.
6 Second, the law may well not change
7 within that time, and if not, the proposed
8 Citigroup hardly could simultaneously divest
9 from, and integrate into itself, the various
10 impermissible insurance holdings. It is more
11 likely that in the absence of a change in the
12 law Citigroup will be forced into an
13 ill-conceived, hurried divestiture that would
14 threaten the health not only of itself, but
15 given its would-be status of the world's
16 largest financial institution, the health of
17 the financial markets as well.
18 Third, in deciding whether to pass
19 financial modernization legislation, Congress
20 should be concerned only with legitimate policy
21 arguments regarding what is best for
22 communities and the economy. If the Board
23 approves this merger prior to any change in the
24 law, Congress, pressured by Citigroup and
25 concerned about the consequences of a forced
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2 divestiture, can enact one of the most
3 embarrassingly blatant pieces of
4 private-interest legislation in recent memory.
5 In short, by serving as an accomplice to
6 Citicorp's and Travelers' strategy of
7 manipulating the law to ends not originally
8 within its contemplation, the Board risks
9 undermining the legitimacy of itself and the
10 legislature, and robs the public of a
11 policy-focused debate of what is being called
12 financial modernization.
13 Further, as documented in
14 Citicorp-Travelers Watch's written comments to
15 be filed with this Board, Citicorp's extremely
16 poor service and lending record is in clear
17 violation of the Community Reinvestment Act
18 and, as such, on its own requires denial of
19 this merger application. In addition, the
20 proposed activities of Citigroup clearly fail
21 the public benefits test of the Bank Holding
22 Company Act, and thereby similarly require
23 denial of the application.
24 We are also concerned that our
25 repeated and reasonable requests for
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2 information from these companies have been
3 largely met with delay and denial. Travelers
4 has been particularly unresponsive, providing
5 us with almost none of the information
6 requested.
7 Citicorp, while responding somewhat
8 more to our request than Travelers, took until
9 just yesterday to do so, and still is
10 unresponsive to certain crucial elements of our
11 request from these companies. Of course, in
12 response to the Board's own request for
13 information, Citicorp and Travelers continue,
14 on their own authority, to deem certain
15 information confidential and simply to not turn
16 it over.
17 The public must be given the
18 opportunity to adequately analyze all aspects
19 of this merger by having full access to
20 information, and the Board should be cognizant
21 of its role in ensuring that access.
22 Finally, Citicorp-Travelers Watch
23 requests that the Board asks all parties
24 testifying before it at this meeting to
25 disclose any financial contributions they may
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2 have received from Citicorp or Travelers. We
3 believe that such disclosures are crucial to
4 preserving the legitimacy and propriety of this
5 public meeting.
6 In sum, the poor service records of
7 these companies, the clear legislative mandates
8 of Glass-Steagall and the Bank Holding Company
9 Act, and the cynical strategy of these
10 companies in manipulating the law, all require
11 denial of the application to merge as a matter
12 of both law and policy.
13 Thanks very much for your time.
14 MR. LONEY: Thank you, Mr. Silverman.
15 Ms. Botein.
16 MS. BOTEIN: Thank you.
17 My name is Hilary Botein, and I am
18 the associate director of the Neighborhood
19 Economic Development Advocacy Project or NEDAP.
20 But I'd just like to point out it is advocacy,
21 not advisory. I don't know why it appears that
22 way in this schedule. NEDAP is also a member
23 of the coalition Citicorp-Travelers Watch.
24 I'd like to thank the Federal Reserve
25 Board for holding this hearing because I think
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2 it is a very important one, one very important
3 step in soliciting broad public input on a
4 merger that is this big and this complex.
5 NEDAP is a resource center for groups
6 and advocates working on economic justice
7 issues in low-income neighborhoods and
8 communities of color all over New York City,
9 and thus we have a unique perspective on
10 community reinvestment issues as they affect
11 neighborhoods all over the city. Accordingly,
12 my testimony today is going to focus on the
13 impact of Citicorp and Travelers' practices on
14 local economies and residents and the
15 neighborhoods where NEDAP works.
16 It is worth noting that many
17 organizations testifying in support of the
18 merger are recipients of Citibank grants, and
19 we urge you to ask all testifiers if their
20 organizations receive funding from Citibank.
21 My comments here are limited by time,
22 but they are also limited by the complexity of
23 the merger. We simply haven't had enough time
24 to digest all of the material in the
25 application and elsewhere. And we have urged
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2 the Board, and urge you again, to extend the
3 comment period.
4 Furthermore, as my colleague stated,
5 Citicorp and Travelers have been barely
6 responsive to our request that they provide
7 basic information about their companies, and
8 that has hindered our ability to analyze the
9 impact of the merger.
10 Travelers, in particular, has been
11 unforthcoming, and that is one of the reasons
12 why my testimony today is going to focus
13 primarily on Citibank's record.
14 As a threshold matter, NEDAP's
15 position is that the proposed merger is
16 illegal, as it will create an affiliation
17 between a bank holding company and securities
18 and insurance companies that is prohibited by
19 the Glass-Steagall Act and the Bank Holding
20 Company Act. If the Board approves the merger
21 without developing standards to be applied to
22 such an unprecedented transaction, it will make
23 a mockery of the regulatory process, by
24 allowing Citicorp and Travelers to brazenly
25 violate existing law.
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2 In addition, and the focus of my
3 testimony, Citibank has violated the Community
4 Reinvestment Act by failing to meet the credit
5 needs of low-income communities. From the
6 neighborhood perspective, Citibank is an
7 elusive entity with scant presence in terms of
8 bank services, loans, or community reinvestment
9 personnel.
10 Citibank's retail banking services
11 utterly disregard the needs of low-income
12 communities and consumers. Only six of
13 Citibank's 200 New York City branches are
14 located in low-income neighborhoods.
15 In 1996, Citibank closed and
16 downgraded to ATM service a total of 55
17 branches, harming low-income neighborhoods
18 disproportionately. The bank is now
19 promoting -- we heard this morning about
20 them -- two new video branches in low-income
21 neighborhoods where customers will have no
22 opportunity to speak to a teller or loan
23 officer in person. This plan is an insult to
24 residents, who might wonder why this special
25 new technology is not appearing in upper-income
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2 neighborhoods.
3 By raising its minimum deposit amount
4 for free checking to $6,000 in linked accounts,
5 Citibank sent a further message it is not
6 interested in the business of low-income
7 people, as does its increased emphasis on
8 computer banking, despite the bank's absurd
9 claim in its application to the Board that
10 Citibank-sponsored research shows that a large
11 percentage of this population plans to buy a
12 computer in the near future. Meanwhile,
13 ironically, a Citicorp subsidiary, Citibank EBT
14 Services, will soon be profiting from
15 electronic delivery of public assistance
16 benefits and food stamps to New York State
17 recipients.
18 There has been a lot of talk,
19 actually, about this this morning and how it is
20 wonderful because it is going to bring
21 low-income people into the banking mainstream.
22 I just want to point out that EBT is not going
23 to give the public a real bank account. It is
24 more like a Metrocard or something that they
25 can put in the ATM machine to get their public
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2 assistance benefits out of that. So I don't
3 really see how that brings low-income people
4 into the banking mainstream.
5 Citibank's own reported Home Mortgage
6 Disclosure Act data demonstrate that the bank
7 targets its home mortgage lending to affluent
8 white borrowers and communities. For example,
9 in 1996, Citibank made only six loans to
10 low-income neighborhoods in the New York City
11 metropolitan area.
12 As ACORN stated, Citibank rejected
13 African-American and Latino applicants for
14 conventional home purchase mortgages
15 two-and-a-half times more frequently than white
16 applicants. And in Manhattan, predominantly
17 white neighborhoods received 75 percent of
18 Citibank's loans in 1996.
19 This redlining of low-income and
20 minority neighborhoods and communities of color
21 sets the stage for predatory lenders such as
22 Travelers' subsidiaries Primerica and
23 Commercial Credit, to target their high-rate
24 low products at low-income communities,
25 stepping into the credit void created by
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2 Citibank.
3 In 1996, Citibank made no permanent
4 direct loans for purchase of multifamily
5 housing in all of the New York City
6 metropolitan area, where most residents -- at
7 all income levels -- live in multifamily rental
8 housing. Instead, the bank has financed
9 multifamily housing only through large
10 intermediary organizations, many of which are
11 testifying here today.
12 Given Citibank's failure to provide
13 retail banking services or loans to low-income
14 neighborhoods, it is perhaps not surprising
15 that the bank's community reinvestment staff --
16 the people who are charged with ensuring that
17 Citibank meets the credit needs of all
18 communities that it serves -- display very
19 little familiarity with communities and their
20 needs. Groups have commented to us that
21 Citibank is reluctant to send high-level staff
22 to community meetings, and that staff, when
23 they do appear, are defensive and combative.
24 In closing, I'd just like to say, if
25 the Board approves this merger, it will be
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2 approving the unprecedented creation of a
3 financial services giant that subscribes to a
4 separate and unequal philosophy. Affluent
5 customers will continue to avail themselves of
6 Citibank's loans, private-banking services, and
7 electronic innovations. Low-income customers
8 will be served by Primerica, Consumer Credit,
9 and Citibank EBT Services.
10 NEDAP joins with the other nine
11 members of Citicorp-Travelers Watch in urging
12 the Board to deny the application.
13 MR. LONEY: Thank you.
14 Ms. Ludwig.
15 MS. LUDWIG: Thank you for the
16 opportunity to testify today to register our
17 absolute opposition to the proposed merger of
18 Travelers Group and Citicorp. I am testifying
19 in my capacity as coordinator of the New York
20 City Community Reinvestment Task Force.
21 The task force was established in
22 1995 to promote meaningful reinvestment in
23 affordable housing preservation and
24 development, microenterprise, and community
25 development institutions in New York City's
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2 low-income neighborhoods. Since then, the task
3 force has grown to more than 100 community and
4 citywide organizations throughout New York
5 City.
6 Through its Regulatory Working Group,
7 the task force has engaged in meetings over the
8 past eight months with each of the federal
9 banking agents, including representatives of
10 the Federal Reserve Bank of New York, to
11 discuss deficiencies community group and
12 advocates see in regulators' enforcement of the
13 Community Reinvestment Act.
14 It will be impossible to convey all
15 of the grave concerns we have concerning the
16 proposed Citicorp-Travelers merger in the five
17 minutes allotted. I will keep it simple and
18 refrain like every other panel.
19 The Federal Reserve Board must not
20 approval Travelers' application because the
21 proposed transaction is illegal.
22 To sign off on the merger will
23 constitute an affront to the public, and
24 underscore that large and powerful corporations
25 influence government decision making even to
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2 the point of obtaining approval on illegal
3 transactions.
4 Some would argue, and some have
5 argued this morning, that structural changes in
6 the financial services industry are well
7 underway, and that our laws are antiquated and
8 need to be revamped to reflect these changes.
9 The Glass-Steagall and Bank Holding Company
10 Acts are still on the books, however, and the
11 task force's firm position is that as long as
12 laws forbid this merger, the Fed would be
13 grossly overstepping its bounds to approve it.
14 Second, approving the application
15 would constitute hideously unsound policy on
16 the part of the Federal Reserve Board.
17 Travelers and Citicorp would have us
18 think that the proposed merger is simply a
19 routine application to create a bank holding
20 company and that no special scrutiny is
21 warranted. As we all know, the planned
22 Citigroup would be the first of its kind in
23 this country, a new and mammoth holding company
24 that engages in banking, securities, and
25 insurance business.
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2 The largest in the country's history,
3 the proposed merger has implications for people
4 and economies at local, regional, national and
5 global levels. It presents serious new
6 regulatory questions, contrary to what
7 Travelers and Citicorp purport, for which the
8 Federal Reserve has yet to develop a set of
9 standards.
10 It is not surprising that many regard
11 this proposed merger not only as a fait
12 accompli, but also as a brazen attempt by
13 powerful corporations to take advantage of
14 regulatory and legislative processes to create
15 a giant company organized to maximize profits,
16 at whatever expense the communities and
17 consumers.
18 Then there is Citibank and Travelers'
19 respective records. The task force in the last
20 three years has frequently heard reports
21 concerning Citibank's illusory presence in
22 low-income communities throughout New York
23 City, as well as a host of concerns over
24 Citibank's remarkably heavy investment and
25 intermediaries in lieu of or absence of more
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2 direct lending programs.
3 We first heard about Citibank's
4 practices in the sort of concerted way when the
5 bank engaged in aggressive bank branch closings
6 and conversion to ATM service only, a few years
7 ago. Most task force members see a direct
8 correlation between Citibank's presence in
9 low-income communities and the bank's failure
10 to engage in direct lending in low-income
11 neighborhoods.
12 You will hear today and tomorrow from
13 a long list of people representing
14 intermediaries and other organizations who will
15 testify on behalf of Citibank and the proposed
16 merger -- even though we have heard from some
17 directly and some indirectly that many of them
18 personally agree that the merger is legally
19 impermissible. Many are even keenly aware that
20 Citibank is notorious for its illusory presence
21 in the very neighborhoods their organizations
22 serve.
23 We understand that the proposed
24 merger -- and the bank's public relation
25 efforts surrounding it -- results in sometimes
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2 even unspoken pressure on groups to register
3 with regulators. The situation we find at this
4 public meeting is problematic and disturbing,
5 because -- correct me if I'm wrong -- every
6 single person and organization that testified
7 on behalf of the merger or the proposed merger
8 is a beneficiary of Citibank, and in a few
9 instances Travelers.
10 We also request that you ask each
11 panelist, as part of his or her testimony,
12 first, to disclose all benefits received from
13 Citibank and Travelers, and, second, to
14 indicate whether or not he or she was asked to
15 testify on behalf of the application or in
16 favor of the application.
17 Task force members have been
18 flabbergasted by Citicorp and Travelers' $115
19 billion commitment, which dedicates more than
20 half of the ten-year pledge to student loans,
21 credit cards and consumer finance, making the
22 commitment among many local groups a farce.
23 The task force has also been, since
24 its inception, greatly concerned about the
25 banking industry for communities and for the
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2 CRA. In the instance of the proposed
3 Citigroup, we see numerous contradictions.
4 Citigroup would constitute an enormous
5 concentration of economic and political power,
6 with both companies working to reduce their
7 on-the-street operations, and instead using
8 their networks to cross-market products. By
9 definition, the proposed entity is too big to
10 address local community needs. We have already
11 seen Citibank limiting its presence in
12 low-income communities.
13 One part of the -- well, these things
14 have been said and I hear the beeper.
15 We urge the Federal Reserve Board to
16 hold off on deciding this application as long
17 as the transaction is illegal. We also request
18 that you ensure that Citicorp and Travelers are
19 not improperly withholding information from the
20 public by improperly deeming material
21 confidential, and that the public is included
22 in all relevant communications.
23 We take for granted that Citicorp and
24 Travelers will push for all they can get. It
25 is up to the Federal Reserve Board to do what
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2 is right.
3 MR. LONEY: Thank you, Ms. Ludwig.
4 Mr. Zinner.
5 MR. ZINNER: I run the foreclosure
6 projection project for seniors at South
7 Brooklyn Legal Services. We represent
8 low-income seniors who have been ripped off by
9 high-rate finance companies, and in this
10 capacity I see daily the effects of redlining
11 and reverse redlining on low-income
12 communities.
13 I have come here this morning to
14 register my absolute opposition to the
15 Citicorp-Travelers merger. This opposition is
16 based on a number of reasons, but in the short
17 amount of time given this morning, I am going
18 to focus on one.
19 This would be the record of the two
20 companies in low-income communities. You have
21 heard a lot of testimony this morning about
22 Citicorp's record of -- Citibank's record of
23 lending and low-income communities. What I am
24 going to do is focus on the Travelers Group.
25 Now, it is hard to get information
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2 about Travelers' record of underwriting in
3 low-income communities because Travelers is not
4 forthcoming with that information, and there is
5 no legal requirement that they provide it.
6 There is a requirement in five states that
7 insurance companies provide zip code data of
8 their underwriting. In one of those states,
9 Massachusetts, there was a study done by the
10 Massachusetts Affordable Housing Alliance in
11 which Travelers was found "fair poorly in
12 anti-regulatory ranking." In fact, it had the
13 worst record of any of the insurance companies
14 in the state.
15 You heard testimony from ACORN this
16 morning about Travelers' agent location.
17 Again, 71 percent, just in New York, 71 percent
18 of the agent offices are located in communities
19 that are over 85 percent white, and of the 109
20 agent offices in the New York metropolitan
21 area, only 20 are in New York City; almost all
22 of those cluster around the two Manhattan
23 business districts.
24 There was recently two Fair Housing
25 complaints filed with HUD regarding Travelers'
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2 redlining practices. The complaints found that
3 Travelers maintains policies and practices that
4 serve to discriminate against low-income
5 communities and minority communities in the
6 provision of home owner's insurance, using such
7 policies as minimum policy values, again agent
8 location, disparate treatment of low income and
9 minority -- low income and minority people
10 seeking insurance, higher rates in low-income
11 communities, pricing their home owner's income
12 products out of low-income markets and the
13 markets in minority communities, limiting
14 replacement coverage on older homes, using
15 credit to determine eligibility, and the list
16 goes on.
17 In other words, these comprehensive
18 studies, using testers and research, found that
19 Travelers systematically had policies and
20 practices that served to discriminate against
21 low-income and minority communities.
22 Now I raise this issue in particular
23 because Citicorp and Travelers have been
24 touting consistently in the press, or
25 consistently, publicly, this one-stop shopping.
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2 Really what this one-stop shopping is is a
3 two-tier shopping system, in which affluent
4 white communities are privy to conventional
5 Citigroup products, potential Citigroup
6 products, in which low-income and minority
7 communities are, in effect, only given access
8 to inferior and higher cost products.
9 We haven't heard a lot of testimony
10 today about Primerica Financial Services. In
11 fact, Primerica Financial Services is the real
12 profit engine of the Travelers Group.
13 Primerica Financial Services has its roots in
14 the AO Williams Organization, which was a very
15 controversial evangelical-type pyramid scheme
16 in which lots of high-cost term insurance was
17 pawned off on low-income and middle-income
18 communities. Now the AO Williams Organization
19 has become Primerica, and now Primerica is part
20 of the Travelers Group.
21 What Primerica Financial Services
22 does is it uses this part-time army of very,
23 very loosely-regulated salespeople to push the
24 high-price term insurance, often replacing cash
25 value policies with high-price term insurance
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2 that is more expensive than most term insurance
3 that is in the market. They use exaggerations,
4 misrepresentations, to push these products,
5 particularly in low-income and minority
6 communities, in communities where there are a
7 lot of immigrants, in communities where there
8 are less-sophisticated consumers.
9 This is very important to note
10 because these are the same communities in which
11 Travelers, in their insurance practices, are
12 redlining. In other words, this is not
13 one-stop shopping.
14 What is happening is that Travelers
15 is offering conventional home owner's insurance
16 in affluent white communities and offering
17 high-priced -- in fact, aggressively marketing
18 through this sort of evangelical-pyramid
19 scheme -- high-priced term insurance in
20 low-income communities.
21 I am going to try and rush through,
22 but I want to mention one other important point
23 before I close.
24 Again, we haven't heard any testimony
25 today about Commercial Credit Corporation.
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2 That is an entity of the Travelers Group.
3 Commercial Credit Corporation primarily works
4 in what is called the BC&D, or subprime market,
5 providing low equity loans in a low-income
6 community. Home equity loans are extremely --
7 when compared to Citibank's conventional loans
8 are very high closing costs, very high rates
9 and, basically, only appeal to people who are
10 desperate for credit. In fact, companies that
11 provide high rate loans produce -- do so in
12 communities that have been redlined by
13 conventional banks.
14 It is a vicious cycle, because when
15 communities are redlined by conventional banks
16 they have to turn to high-rate lenders when
17 they need credit. Because they are turning to
18 high-rate lenders, the default rates are
19 higher, and then the conventional banks have an
20 excuse to redline them.
21 This type of high-rate lending that
22 Commercial Credit does can often lead to
23 foreclosure, if abusive, and, in fact, the
24 Primerica Financial Services is selling
25 Commercial Credit loans in the billions of
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2 dollars using this completely,
3 loosely-regulated sales force with the same
4 sort of AO Williams evangelical fervor.
5 Again the data shows, and this data
6 will be submitted with a comment that
7 Commercial Credit does high-rate lending in the
8 same communities that Citibank has been
9 redlining.
10 I will just sum up in saying there is
11 a great danger in this merger. Basically what
12 could happen is Citibank -- and this is borne
13 out by the record of the two companies --
14 Citibank would actually have a profit incentive
15 to redline low-income communities because this
16 would fuel the market for high-rate lending,
17 and this is particularly dangerous because the
18 engine for marketing Commercial Credit loans is
19 an unregulated pyramid scheme, that I have
20 discussed before.
21 Again, the two corporations have
22 given no indication that they won't take full
23 advantage of any profit opportunities that take
24 place even when they encompass taking advantage
25 of low-income communities.
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2 So, again, I'd like to register my
3 absolute opposition to this merger.
4 MR. LONEY: Thank you.
5 I have a couple of questions.
6 Ms. Botein, did I understand you to say that
7 Citicorp has made no loans, no mortgage loans,
8 in the New York City area?
9 MS. BOTEIN: No multifamily. I was
10 talking about permanent multifamily direct
11 loans, which is the kind of housing that most
12 people, as I said, of all income levels live in
13 in New York City. They have made those loans
14 through intermediaries by giving money to large
15 housing intermediaries.
16 MR. LONEY: I got that part. When
17 you say the New York City area, how far --
18 MS. BOTEIN: The MSA.
19 MR. LONEY: Mr. Silverman and, I
20 think, Ms. Botein raised concerns about getting
21 information from Citicorp and Travelers. What
22 kind of information have you asked for and not
23 gotten?
24 MS. BOTEIN: I am going to turn the
25 mike over to Mr. Silverman because he has kind
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2 of been designated the point person on that
3 issue.
4 MR. SILVERMAN: I regret to say that
5 I don't have the list with me of which things
6 we asked for. Some of it was, I believe,
7 deposit information that Citicorp didn't turn
8 over; all kinds of information from Travelers.
9 Really nothing that we asked for from Travelers
10 did we get back. To a certain degree of data,
11 we didn't get information on what loan services
12 are offered at individual banks from Citicorp.
13 Off the top of my head, I can't remember.
14 MS. BOTEIN: One of the things I want
15 to point out is we have copied the Fed on all
16 of our correspondence to Citicorp and
17 Travelers, so you should have our letters.
18 The way that -- we didn't hear any
19 response for a long time, and then we just kind
20 of were deluged with boxes and boxes of papers,
21 of which was completely, completely
22 unresponsive to our request. But then, you
23 know, we had all these boxes stacked up in our
24 offices and we had to spend time, of which we
25 don't have much, and research, of which we have
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2 even little, kind of sifting through. And the
3 letter said that some of the information you
4 requested is in here, find it.
5 So we were kind of put in the
6 position of sifting through this material to
7 try to find pieces of it that might be
8 responsive to our request.
9 MR. SILVERMAN: Then we wrote again,
10 and cc'd the Fed, and said this is what we
11 didn't receive. Almost everything from the
12 initial letter was duplicated in the second.
13 Just yesterday I got some partial
14 response from Citicorp, not to the rest of it,
15 and still almost nothing from Travelers. So we
16 were concerned about that.
17 MR. LONEY: Thank you.
18 Any other questions from the panel?
19 If not, it is very interesting. We thank you
20 for coming.