Public Meeting Regarding Citicorp and Travelers Group
Thursday, June 25, 1998
Transcript of Panel Nine
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10 The next is Panel Nine, Gilbert
11 Rivera, Mark Pinsky, Clara Miller, Paula Gavin,
12 Peter Elkowitz and William Dorsey.
13 Mr. Rivera is not here, I take it.
14 All right.
15 We will start with Mr. Pinsky.
16 MR. PINSKY: Thank you. Good
17 morning.
18 MR. LONEY: Afternoon.
19 MR. PINSKY: Good afternoon. My name
20 is Mark Pinsky. I am the executive director of
21 the National Community Capital Association,
22 which is a membership organization representing
23 more than 210 organizations around the nation,
24 including 50 member community development
25 financial institutions or CDFIs.
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2 Just to give you a sense of who we
3 are, at year end 1997 those CDFIs managed about
4 $475 million in predominantly private-sector
5 capital, had loaned and invested about $710
6 million, with a cumulative loss rate of about
7 1.2 percent in working in many of the nation's
8 poorest and most distressed communities. That
9 lending and investing had created about 4,000
10 jobs and about 22,000 affordable housing units.
11 National Community Capital believes
12 that every financial institution that received
13 a public benefit should provide a commensurate
14 public return. Through its performance and its
15 practices, Citibank has proven to National
16 Community Capital that it is committed to
17 providing a public return more than
18 commensurate with the benefits it receives at
19 taxpayer expense.
20 Over the past six years, Citibank has
21 been a key player in building and expanding the
22 CDFI industry. In the U.S. in particular, it
23 has done four things that I want to highlight.
24 First, it's embraced community
25 development finance as integral to its core
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2 business. Second, it's invested invaluable
3 expertise, as well as capital in its community
4 development finance work. Third, it's treated
5 CDFIs as customers rather than as applicants.
6 Fourth, it's supported the expanding CDFI
7 industry without regard to geographic
8 boundaries.
9 Citibank has never required National
10 Community Capital to limit the use of its
11 equity, debt or operating support to the
12 Citibank service area. Citibank understands
13 that building a strong CDFI industry requires
14 National Community Capital to pursue market
15 opportunities where they exist.
16 Citibank has worked closely with
17 National Community Capital and many CDFIs, and
18 a couple are here today. In its work with
19 CDFI, Citibank has exceeded every reasonable
20 expectation.
21 National Community Capital's
22 relationship with Citibank began in 1992 when
23 Citibank made a $1.1 million grant to launch
24 our National Equity Grants program. By year
25 end 1998, National Community Capital will have
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2 awarded more than $3.3 million in equity grants
3 to nonprofit CDFIs, including the money that
4 has been provided to us some years ago.
5 The success of this program has been
6 important. It's influenced three other
7 major -- three other important initiatives.
8 First, National Community Capital's experience
9 providing equity grants helped shape the
10 federal community financial institutions of the
11 CDFI. Second, National Community Capital's
12 success paved the way for Citibank's $1 million
13 grant to the National Federation of Community
14 Development Credit Unions, that you heard about
15 earlier, for an Equity Grants program that was
16 modeled on ours. And, finally, in 1997
17 Citibank made 17 equity grants directly to
18 CDFIs across the nation.
19 National Community Capital and
20 Citibank partnered again in 1996 to develop an
21 innovative equity financing product called the
22 Equity Equivalent, or the EQ2. The EQ2 is, in
23 our perspective, a win-win-win product.
24 Banks win because they make high-risk
25 equity investments in CDFIs that promise to
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2 return their principal and because they receive
3 multiplied CRA credits for making these
4 investments. An EQ2-investing bank can receive
5 lending test credit equal to the pro rata share
6 of the CDFI's lending over the life of the EQ2
7 investment. The share is based on the bank's
8 percentage of total equity in the CDFI. In the
9 alternative, the bank can receive investment
10 test credit.
11 CDFIs win because the EQ2 leverages
12 debt to fuel the CDFI's lending and investing
13 activities; and low-income -- most importantly,
14 low-income and low-wealth communities benefit
15 because more financing is available to them
16 through CDFIs.
17 In late 1996, Citibank made a $2
18 million equity equivalent investment in
19 National Community Capital to put this
20 ambitious concept into practice. Citibank also
21 has provided substantial financial support for
22 National Community Capital's human capital
23 building activities, including our training and
24 our consulting business.
25 Let me in the interest of time sort
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2 of jump to the conclusion and say that the
3 ultimate goal for CDFIs is to link economically
4 poor people to the financial products and
5 services they need to act in their own
6 self-interest. To do this, CDFIs need to
7 recognize change and respond with creative,
8 innovative solutions.
9 We feel that CDFIs and community
10 development in general will not succeed if we
11 get caught up perpetuating CDFI for their own
12 sake -- because they exist -- defending the
13 CRA, without acknowledging the revolutionary
14 changes in the financial services industry, or
15 justifying the behavior of financial services
16 companies without regard to their performance
17 in serving low-income and low-wealth people in
18 communities. We need a community investment
19 strategy that builds on the strengths of the
20 financial services industry as it is, not as we
21 want it to be.
22 The industry is in the midst of a
23 major and rapid transformation which will
24 reshape how poor people, like most people, use
25 financial services. The proposed
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2 Citibank/Travelers merger is now the cutting
3 edge of this transformation.
4 The question before us today is
5 whether the proposed Citigroup can lead the way
6 on community development finance in the
7 financial services marketplace of the future.
8 Given Citibank's past performance and practice,
9 particularly, from our perspective, its vision
10 in helping to develop the CDFI industry as a
11 distribution system that bridges gaps between
12 poor people and conventional capital and
13 financial services, National Community Capital
14 is confident that Citigroup will continue
15 Citibank's leadership in community development
16 finance.
17 Thank you.
18 MR. LONEY: Thank you, Mr. Pinsky.
19 Ms. Miller.
20 MS. MILLER: Hello. Good afternoon.
21 My name is Clara Miller. I am the president of
22 the Nonprofit Facilities Fund. I also chair
23 the Board of the National Community Capital
24 Association, and I am an advisory board member
25 of the U.S. Department of the Treasury's
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2 Community Development Financial Institutions
3 Fund, which together give me a fairly broad
4 perspective on the field.
5 I am speaking today, however, from
6 the perspective of NFF, the Nonprofit
7 Facilities Fund. We operate nationally and
8 have about $23 million in assets, and we make
9 loans and provide development services to
10 nonprofit organizations that make broad and
11 diverse contributions to low- and
12 moderate-income communities. We have financed
13 approximately $90 million in projects, with $25
14 million in loans, most of them being in the New
15 York area, but we have offices now in five
16 sites throughout the nation.
17 Small- and medium-sized nonprofit
18 organizations, especially those serving low-
19 and moderate-income communities, have a
20 difficult time accessing capital in general.
21 Their access to debt is complicated by the
22 underlying problem of lack of access to money.
23 The debt is not always the problem in the
24 growth of these organizations. They are
25 frequently engaged in low- or no-margin
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2 businesses, thus lack retained earnings to fund
3 their growth needs. They lack the ability to
4 raise equity because individual ownership is
5 not an option for nonprofits.
6 We at the NFF work in a variety of
7 ways to improve their access to capital. One
8 of the main strategies we have in doing so is
9 to partner with banks -- as direct lenders to
10 nonprofits, as investors in NFF's loan program,
11 and as partners in innovation, to help us
12 create new products, understand the industry,
13 go to scale and provide services to address the
14 changing needs of our market.
15 NFF has a long history of bank
16 partnerships. Ten banks are direct investors
17 in NFF's loan funds now; some take part in
18 other ways. With a few, we have relationships
19 that include a complex mix: Volunteer
20 involvement, financial and business advice,
21 product development, participation in deals and
22 referrals -- in addition to investment and
23 grant support. Citibank has really been such a
24 partner for us, working with us not only to
25 fill the capital gap, but to strengthen the
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2 nature and volume of financial and advisory
3 services that we can provide to the nonprofit
4 sector in order to increase its capacity
5 overall.
6 Citibank has been a particularly
7 valuable contributor to innovation in our
8 sector because of the quality as well as the
9 size of its investment.
10 Mark mentioned the EQ2 investment,
11 which NFF has undertaken as well. Citibank has
12 made long-term commitments -- and long term is
13 in many ways more important than scale, in my
14 opinion -- to the field and to NFF in the form
15 of innovative subordinated loan product, and we
16 are currently working closely with Citibank to
17 develop a nondebt financial product that helps
18 build essentially the equity-like part of a
19 nonprofit organization, even though that is not
20 really the correct term.
21 We have found that Citibank is
22 willing to take the long view, and that is a
23 rare and enormously important piece of this.
24 It looks at the long-term growth needs of
25 borrowers, including CDFI such as the Nonprofit
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2 Facilities Fund. It is curious about and
3 engaged in the community development market and
4 understands the broad needs of the market. We
5 together are trying to serve, including
6 management development, non-debt financing and
7 ongoing financial advice, as well as capital.
8 Based on our direct experience with
9 over an 18-year period, we believe that the
10 proposed acquisition of Citicorp by Travelers
11 Group will not affect Citibank's proven
12 commitment and track record in long-term
13 community investment.
14 Thank you.
15 MR. LONEY: Thank you.
16 Ms. Gavin.
17 MS. GAVIN: Good afternoon. My name
18 is Paula Gavin. I am president of the YMCA of
19 Greater New York, which is the largest YMCA in
20 our country. We were founded in 1985, and we
21 are a community service organization which
22 supports positive values, development in
23 programs that range from spirit, mind and body
24 activities. We serve today 144,000 young
25 people and by the millennium expect to serve
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2 200,000.
3 I am here today to strongly support
4 the merger of Citibank and Travelers as one of
5 the organizations who today and in the future
6 will continue to help organizations like the
7 YMCA serve young and very needy children
8 throughout our urban areas.
9 We have had a very long and
10 supportive relationship with both the Citibank
11 and Travelers Group. Over the last decade,
12 Citibank has contributed well over $200,000 to
13 our YMCA, and the rest to go into the course of
14 communities. Similarly, Travelers, including
15 Salomon Smith Barney, has also contributed
16 $200,000. As a result, our programs have
17 expanded again in areas of youth sports,
18 character and leadership development, community
19 service and literacy -- to as many as thousands
20 of children who otherwise would have gone
21 unserved.
22 I am most proud of their support of a
23 new program we launched in 1997 called the
24 Virtual Y, which brings afterschool programming
25 to the poorest and most needy schools. We have
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2 sponsors for this program, and early on
3 Citibank, Salomon Smith Barney and Travelers
4 were all strong supporters of this program in
5 three schools in the Bronx, Brooklyn and
6 Chinatown.
7 What we do is go in, help children
8 learn to read, and love to read, and they have
9 been extremely supportive in all cases. We
10 have been very grateful for their support. And
11 on a personal note, I would like to say that
12 the leadership of the foundations have
13 demonstrated themselves not only to me, but to
14 my counterparts, to be extremely strong
15 supporters of community groups like ours. I
16 specifically highlight Paul Ostergard from
17 Citicorp Foundation, Chip Raymond from the
18 Travelers Foundation, and Jane Heffner from
19 Salomon Smith Barney.
20 I do believe a lot of this turns out
21 to be people, and these people who are leading
22 these organizations are pledged to continue to
23 support community groups like ours. So in
24 closing I just want to say thank you for giving
25 us this opportunity to testify on behalf and in
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2 support of this merger of Citibank and
3 Travelers.
4 Thank you.
5 MR. LONEY: Thank you.
6 Did you say a Virtual Y?
7 MS. GAVIN: I did.
8 MR. LONEY: And do you serve virtual
9 children?
10 MS. GAVIN: But now the Y is
11 virtually all over.
12 MR. LONEY: Interesting concept.
13 Mr. Elkowitz.
14 MR. ELKOWITZ: Good afternoon. My
15 name is the Peter Elkowitz. I am the executive
16 vice president and chief financial officer of
17 the Long Island Housing Partners and its
18 affiliates.
19 The Housing Partnership is a
20 not-for-profit organization whose mission is to
21 create housing opportunities for those who,
22 through the unaided operation of the
23 marketplace, would be unable to secure decent
24 and safe, affordable home ownerships.
25 LIHP has been accomplishing its
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2 mission through the development and sale of
3 homes to persons of very low, low and moderate
4 incomes as well as through the provisions of
5 various support services such as mortgage and
6 financial counseling, technical assistance and
7 downpayment assistance.
8 I would like to take this opportunity
9 to thank the Federal Reserve Bank of New York
10 for allowing me to speak at this hearing. On
11 behalf of the Long Island Housing Partnership
12 and its affiliates, I would like to express
13 sincere support of the proposed acquisition of
14 Citicorp by Travelers Group, Inc. on the
15 assistance that the Housing Partnership has
16 received from Citibank/Citicorp Foundation.
17 LIHP and its various affiliated
18 corporations have been extremely productive
19 with various accomplishments relating to
20 housing production, community development and
21 supportive programs. Since its founding ten
22 years ago, the Partnership has constructed and
23 sold over 400 units of affordable housing and
24 has counseled thousands of prospective
25 first-time home buyers. In addition, the
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2 Partnership administers municipal community
3 development programs and downpayment assistance
4 programs throughout Long Island.
5 The Housing Partnership has many
6 members from business, labor, religious,
7 education and financial sectors. Much of our
8 support, including administrative grants,
9 construction loans for our affordable housing
10 programs, and mortgage loans for our
11 purchasers, comes from our member financial
12 institutions.
13 I am pleased to say that the
14 Citibank/Citicorp Foundation has been an active
15 member of the Long Island Housing Partnership
16 and has provided financial support and
17 expertise over the past ten years. In fact,
18 Citicorp has been one of LIHP's most responsive
19 partners, consistently demonstrating a
20 commitment to affordable housing and community
21 development. Over the years the institution
22 has provided the Housing Partnership with well
23 over $179,250 in contributions for various
24 programs and operating expenses.
25 Citibank serves as an active member
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2 of the Long Island Housing Partnership board of
3 directors and its regional lending consortium,
4 as well as the Mastic/Shirley, Long Beach,
5 Membership, Minority Outreach, Bablyon,
6 Nominating and Foreclosure Task Force
7 committees and the partnership. Specifically,
8 Citibank's representative on the Partnership
9 board, Michelle DiBenedetto, is chairman of the
10 Mastic/Shirley, Long Beach, Nominating and
11 Membership Committees.
12 In addition, Citibank cosponsored
13 mortgage counseling seminars for very low, low
14 and moderate Long Islanders. Citibank has
15 provided mortgage loans to low- and
16 moderate-income persons who purchased homes
17 through the Long Island Housing Partnership.
18 Citibank is also a member of the New
19 York Mortgage Coalition, an effort by financial
20 institutions and community organizations,
21 including the Long Island Housing Partnership,
22 who are committed to increasing home ownership
23 opportunities for persons of low and moderate
24 income by helping them qualify for mortgages.
25 As part of the New York Mortgage Coalition,
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2 Citibank offer mortgage products that it make
3 easier for lower income persons to qualify for
4 loans.
5 Citicorp Foundation funds were given
6 to LIHP for training to the not-for-profit
7 mortgage counselors in Brooklyn, Queens, and
8 Long Island, and to assist with the development
9 of 78 low- and moderate-income rental and home
10 ownership units in downtown Bayshore.
11 Specifically, the funds were used to offset
12 administrative costs associated with securing
13 public funds and to hire a social worker to
14 assist with the relocation of current
15 residents.
16 Citibank is also an active
17 participant in the Long Island regional lending
18 consortium, a group of lending institutions
19 that pool their funds and share the risk so
20 that socially and creditworthy affordable
21 housing can be financed and constructed.
22 It should also be pointed out that
23 Michelle DiBenedetto from Citibank was
24 instrumental in the success of the Federal
25 Reserve Long Island Home Purchase Process
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2 Initiative. In addition, as an LIHP board
3 member, Ms. DiBenedetto kept the Board informed
4 of the progress made by this initiative.
5 It is noteworthy that, in
6 anticipation of the merger, the new Citigroup
7 has indicated that it would continue to provide
8 substantial administrative support and special
9 project grant funds for affordable housing
10 initiatives to low- and moderate-income home
11 buyers. In addition, the Housing Partnership
12 has been assured that the new Citigroup will
13 continue to provide both construction and
14 mortgage loans for its various affordable
15 housing development programs.
16 Over the next five years, the Housing
17 Partnership will be embarking on many of the
18 affordable housing projects, the largest of
19 which are redevelopment efforts in the Town of
20 Islip and Riverhead that are projected to yield
21 over 150 affordable housing units for families
22 of low income.
23 The Housing Partnership also plans to
24 develop other housing units in Nassau and
25 Suffolk County will which require both
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2 construction and end-loan financing. While it
3 is difficult to estimate the value of end loans
4 projected for our affordable home buyers over
5 the next five years, it is expected that such
6 values will exceed $10 million. Based on past
7 experiences, the Housing Partnership is certain
8 that the new Citigroup will be an active
9 participant in the financing of its affordable
10 housing and community development programs.
11 The Housing Partnership is grateful
12 to Citibank for its support through various
13 community development programs. Furthermore,
14 it commends the new Citigroup for its foresight
15 of the importance of such programs. Again, the
16 Housing Partnership would like to express its
17 support of the acquisition of Citicorp by
18 Travelers Group. Based upon our past
19 interactions with Citicorp, it is our belief
20 that Citicorp's demonstrated commitment to
21 development of affordable housing and community
22 development in this region will continue.
23 Thank you for the opportunity to
24 speak to you today. The Housing Partnership
25 looks forward to working with the new Citigroup
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2 to fulfill its pledge of $115 billion for
3 affordable housing and community development.
4 Thank you.
5 MR. LONEY: Thank you.
6 Mr. Dorsey.
7 MR. DORSEY: Good afternoon. My name
8 is William Dorsey. I am the executive director
9 of the Grow Bridgeport Fund.
10 The Grow Bridgeport Fund is a capital
11 access program designed to provide credit to
12 small- and medium-sized businesses in the
13 greater Bridgeport region. GBF is a
14 partnership made up of the City of Bridgeport,
15 the State of Connecticut, Bridgeport Economic
16 Development Corporation, Community Economic
17 Development Fund, and three banks, including
18 Citibank.
19 I came here today to talk about the
20 crucial role that Citibank has played in the
21 formation of the Grow Bridgeport Fund and how
22 the bank's continued involvement is critical to
23 the fund's future development.
24 GBF grew out of Bridgeport's
25 empowerment zone application process, when the
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2 entire community recognized that a key
3 impediment to the city's economic growth was
4 that credit from traditional lenders was not
5 available for small businesses. This sentiment
6 was particularly acute in the wake of the New
7 England banking crisis, which witnessed the
8 demise of several local financial institutions
9 and the removal of credit institutions from
10 local to regional banking centers.
11 The community as a whole suffered
12 from this lack of access to credit because it
13 stunned Bridgeport's ability to expand its tax
14 base and create job opportunities for low- to
15 moderate-income residents.
16 In early 1995, the City of Bridgeport
17 set out to request 18 banks operating in
18 southwestern Connecticut to participate in the
19 Grow Bridgeport Fund. Citibank was only one of
20 three banks that responded. From the earliest
21 planning sessions, it has actively participated
22 in the fund through its representative Ellen
23 Tower, and its counsel, Larry Brown. They
24 asked tough questions, but they were also
25 willing to make the compromises necessary to
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2 make this unusual coalition of the private and
3 public sectors work.
4 Further, once our operating agreement
5 was put into place in late 1997, Citibank was
6 the first bank to provide an equity
7 contribution in the amount of $250,000.
8 Since that time, the Grow Bridgeport
9 Fund has gone on to make loan commitments
10 totaling $61,000, with another million seven in
11 requests. Ellen Tower sits as a member of our
12 board of managers and Michael LaBella serves on
13 our investment committee, which reviews and
14 approves all requests for credit.
15 They continue to bring resources to
16 the table, both human and financial, which
17 contribute to the growth and stability of GBF.
18 Citibank has made training available to develop
19 and expand the capacity of our staff and
20 classes, taught by the National Development
21 Council on the Design and Administration of
22 Rabb Funds. It has helped to defray a portion
23 of our marketing expenses, it has helped shape
24 a risk rating system for our loan portfolio,
25 and it has identified potential sources of
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2 capital, which will allow GBF to expand its
3 lending activities.
4 I think Citibank's participation in
5 the Grow Bridgeport Fund and other
6 Bridgeport-based organizations is all the more
7 praiseworthy because there are no Citibank
8 branches or loan offices in our city. What we
9 are witnessing is not the infiltration of some
10 marketing strategy, but, rather, the type of
11 corporate citizenship that has recognized the
12 genuine needs of an underserved community and
13 has taken steps to serve those needs.
14 Citibank's commitment to Bridgeport
15 represents an act of leadership that is all too
16 often absent in this era of consolidation
17 within the financial services industry, which
18 has been marred by rampant disinvestment of
19 smaller and less wealthy communities.
20 The collective expertise and wisdom
21 of a Citibank is an invaluable resource and it
22 is the most valuable asset to a fledgling
23 organization such as the Grow Bridgeport Fund.
24 As the financial services industry
25 continues to contract, and creative alternative
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2 lenders continue to emerge to serve the needs
3 of those business borrowers at the low end of
4 the spectrum, we don't need additional credit
5 criteria. Energetic participation by lenders
6 is needed to support the efforts to manage and
7 expand these portfolios. It is the transfer of
8 the larger institution's expertise that is
9 almost as critical as capital in making these
10 alternative lending institutions viable.
11 Citibank's participation in Grow
12 Bridgeport Fund has been a model of how those
13 knowledge transfers can take place, and we hope
14 this example of responsible and enlightened
15 corporate support will continue in the future.
16 Thank you.
17 MR. LONEY: Thank you, Mr. Dorsey.
18 Any questions from the group? If
19 not, then I will thank the panel.
20 Let's take till 2:45, take a break.