By Matthew Russell Lee
UNITED NATIONS, December 18 -- The US government's ongoing corporate bailout following the 2008 meltdown triggered by predatory lending continues to reverberate in one of the largest proposed mergers of 2014.
On December 18 the CIT Group submitted to the Federal Reserve statements from the FDIC, in essence not to worry about the Loss Share Agreements OneWest has won from the FDIC:
"OWB acquired assets from three failed banks — IndyMac Federal Bank, FSB ('IMFB'), First Federal Bank of California, and La Jolla Bank, FSB (the 'Failed Banks'). The FDIC entered into Shared-Loss Agreements with OWB in these acquisitions with respect to certain of the acquired assets."
Now the regulators say, don't worry as CIT seeks to take these loss-shares over, although their value will not for now be disclosed:
“The FDIC's Division of Resolutions and Receiverships does not release shared-loss payment information on individual acquirers or assets because those records often contain material, non-public information, and their release could harm the negotiating posture of the acquirer with respect to a particular borrower or asset, thereby potentially increasing the amount of a covered loss to the FDIC.”
This is called stonewalling, or a cover-up. We'll have more on this.
* * *
Back on November 17, four days before a rare Senate hearing on the regulatory capture of the Federal Reserve, the Federal Reserve Bank of New York posed a series of questions to CIT Group, trying to buy OneWest.
CIT provided Inner City Press with a copy of its answer to the Fed's November 17 questions (answers to the Fed's November 25 questions have not yet been provided.)
CIT says "OneWest has discussed the Transaction with staff of each of FannieMae and FreddieMac (the 'GSEs') and will be filing an application in connection with the change of control of OWB in order for OWB to continue as a seller/servicer for the respective GSE. OneWest is now in the process of preparing the appropriate applications, which it expects to submit as soon as possible, and no later than year-end."
But will OneWest provide notice of these applications to the GSEs to the groups which have timely protested its applications to the Fed and OCC? The OCC heard much about OneWest, and CIT, at a December 2 EGRPRA hearing in Los Angeles. Why not just hold public hearings on this proposed mega-merger? And on another one, announced but not yet applied for?
Here are the still-outstanding Fed questions of November 25:
Based on staff’s review of the applications, the following information is requested. Please provide a complete, detailed response to each of the following questions. Provide
supporting documentation as appropriate.
supporting documentation as appropriate.
1. From the following activities, identify those in which either CIT Group, Inc. or its subsidiaries (“CIT”) or IMB Holdco LLC or its subsidiaries (“IMB”) is involved. To the extent not already provided in the applications, describe the nature of the activities and provide dollar volumes for CIT and IMB, and include any available information relating to the national market share of CIT and IMB, along with a brief description of other firms that engage in the same activity in the United States. You may confine your responses to information that is maintained in the regular course of business.
a. Holding assets under custody;
b. Provision of short-term funding through bilateral repurchase
agreements;
c. Provision of short-term funding in the tri-party repo market;
d. Provision of prime brokerage services;
e. Provision of short-term lines of credit to financial firms;
f. Securities lending;
g. Lending in the Fed funds market;
b. Provision of short-term funding through bilateral repurchase
agreements;
c. Provision of short-term funding in the tri-party repo market;
d. Provision of prime brokerage services;
e. Provision of short-term lines of credit to financial firms;
f. Securities lending;
g. Lending in the Fed funds market;
h. Provision of bond and equity underwriting services in any of the following markets:
i. Commercial paper;
ii. Asset-backed commercial paper;
iii. Corporate bonds;
iv. High-yield bonds;
v. Municipal bonds;
vi. U.S. Agency debt;
vii. U.S. Agency mortgage backed securities;
viii. Private label asset backed securities;
ix. Seasoned offerings; or
x. Initial public offerings;
i. Tri-party repo dealing;
j. Clearing and settlement;
k. Provision of business credit in any of the following markets:
i. Commercial and industrial lending;
ii. Commercial real estate lending;
iii. Construction loans;
iv. Middle market lending;
v. Small business lending;
vi. Receivables factoring;
vii. Equipment financing/leasing; or
viii. Syndicated lending;
i. Commercial paper;
ii. Asset-backed commercial paper;
iii. Corporate bonds;
iv. High-yield bonds;
v. Municipal bonds;
vi. U.S. Agency debt;
vii. U.S. Agency mortgage backed securities;
viii. Private label asset backed securities;
ix. Seasoned offerings; or
x. Initial public offerings;
i. Tri-party repo dealing;
j. Clearing and settlement;
k. Provision of business credit in any of the following markets:
i. Commercial and industrial lending;
ii. Commercial real estate lending;
iii. Construction loans;
iv. Middle market lending;
v. Small business lending;
vi. Receivables factoring;
vii. Equipment financing/leasing; or
viii. Syndicated lending;
l. Direct dollar lending to foreign institutions and dollar lending
through foreign exchange swaps;
m. Trade letters of credit;
n. Interest rate and credit derivatives trading;
o. Commodities trading;
p. Credit card lending;
q. Mortgage servicing;
r. Corporate trust;
s. Correspondent banking; and
t. Reinsurance.
through foreign exchange swaps;
m. Trade letters of credit;
n. Interest rate and credit derivatives trading;
o. Commodities trading;
p. Credit card lending;
q. Mortgage servicing;
r. Corporate trust;
s. Correspondent banking; and
t. Reinsurance.
2. Describe any financial markets (trading-type activities) in which either CIT or IMB is a “market-maker.”
3. Report the current market value, gross and net of collateral, and other risk mitigants for the three largest OTC derivatives counterparties of each of CIT and IMB as measured by the following metrics:
a. by positive current market value (after netting arrangements); and
b. by negative current market value (after netting arrangements).
We'll see.
On November 21, Federal Reserve Bank of New York President Dudley described anti revolving door safeguards and a desire for "good culture" at banks.
Good culture? How then did the predatory lending meltdown take place? And anti-revolving door? How can it be, then, that a former Federal Reserve Legal Division supervisor is writing for BB&T's deals to those who used to work under her?
As soon as Dudley left the stand, a more serious anti revolving door protection was proposed.
Dudley was asked about Goldman Sachs' warehouses, and JPM Chase's abuse of the energy markets, but didn't directly answer. Since then he has toured The Bronx - we'll see what if any difference it makes.
The Fed on November 17 asked for answers to four questions it sent to the CIT Group, with a copy to Inner City Press.
Inner City Press and others have challenged CIT's application to acquire OneWest; as set forth below, Inner City Press / Fair Finance Watch has been challenging BB&T even before its November 12 proposal to acquire Susquehanna Bank for $2.5 billion. What questions will the Federal Reserve have on that one?
Here's a new one that we have: in the December 4 presentation by BB&T CFO Daryl N. Bible, there's reference to BB&T and the Pennsylvania energy market. Does that mean fracking? We'll have more on this.
As to CIT - OneWest, the Fed on November 17 asked:
Based on staff’s review of the applications, the following information is requested. Please provide a complete, detailed response to each of the following questions. Provide supporting documentation as appropriate.
1. Provide a pro forma shareholders list that identifies any shareholder or group of shareholders that would own or control, directly or indirectly, five percent or more of any class of voting securities, or 10 percent or more of the total equity, of the combined organization. Your response should indicate whether any identified shareholder is a bank or bank holding company. In calculating the voting ownership, include any warrants, options, and other convertible instruments, and show all levels of voting ownership on both a fully diluted and an individually diluted
basis. Aggregate the interests of any related shareholders, including, for example, shareholders that are acting in concert (pursuant to definitions and presumptions in 12 CFR 225.41) and shareholders that are commonly controlled or advised.
basis. Aggregate the interests of any related shareholders, including, for example, shareholders that are acting in concert (pursuant to definitions and presumptions in 12 CFR 225.41) and shareholders that are commonly controlled or advised.
2. Your October 8, 2014, letter responding to staff’s request for additional information (the “Response”) states that while “CIT and OneWest do not believe the proposed Transaction requires the consent of the GSEs . . . [t]he parties will provide the GSEs with formal notice of the transaction and engage with them as appropriate.” Provide the specific timeframes in which the parties will file a formal notice and consult with the GSEs about this proposed transaction.
3. The Response indicates that several integration planning decisions and actions have already been made or taken with respect to the integration of the CIT and IMB organizations. Confirm or clarify our understandin that the decisions and actions identified in the Response will not apply to the companies and their operations prior to the Board’s approval of the proposed transactions.
4. The Response also indicates that the parties will execute a number of actions prior to the closing of the proposed transaction “to ensure that, on ‘Legal Day One’, the combined institution operates in manner consistent with . . . expectations.” To the extent not already provided, identify all pre-closing actions that will be executed in connection with the integration of the CIT and IMB organizations.
We will report on the responses, upon receipt.
On BB&T, well before the bank's November 12 mega-merger announcement seeking to buy Susquehanna Bancshares for $2.5 billion, Inner City Press / Fair Finance Watch has been showing the disparities in BB&T's lending record.
On BB&T's application to acquire 41 branches in Texas from Citibank, Fair Finance Watch showed the FDIC for example that for conventional home purchase loans in the Houston Metropolitan Statistical Area in 2013, BB&T made 65 such loans to whites, and NONE to African Americans.
The FDIC's Acting Deputy Regional Director for Compliance replied that "the FDIC deems your correspondence to constitute a protest."
The FDIC's Acting Deputy Regional Director for Compliance replied that "the FDIC deems your correspondence to constitute a protest."
BB&T through law firm Wachtell, Lipton, Rosen & Katz submitted a response which admitted that in Houston “the percentage of Mortgage Loans made to low and moderate income borrowers during the first six months of 2014 was also below the 2013 aggregate industry average.” BB&T Response at Page 11, which also notes at 10 that at least one of the Citibank branches BB&T seeks to acquire, it would shutter.
And so on November 10 Fair Finance Watch submitted more extensive comment opposing BB&T's application to acquire Bank of Kentucky, including that bank's disparities in the Cincinnati regional area and BB&T's in the Louisville MSA, where in 2013 BB&T made 229 conventional home purchase loans to whites, and only 12 to African Americans and only six to Latinos, while denying 41.7% of applications from Latinos versus only 17.5 of application from whites, a disparity of 2.38 to 1.
Now BB&T announces a much larger proposal, to buy Susquehanna and its 245 branches in Pennsylvania, New Jersey, Maryland and West Virginia. Such an application requires approval, after a comment period and possible public hearings, by the Federal Reserve. We'll have more on this.
For now, here's the absurd line of the week: “analysts at BB&T Corp. downgraded shares of Susquehanna to a “market perform” rating in a research note on Wednesday, November 12th." How can BB&T objectively rate Susquehanna?
The secret recordings of then Federal Reserve examinerCarmen Segarra about Goldman Sachs and regulatory capture have given rise to calls for oversight hearings by at least two US Senators. Their hearing will now occur on November 21. Relatedly, BB&T's response from the law firm of Wachtell, Lipton, Rosen & Katz is penned by a former Federal Reserve Board Legal Division supervisor.
On November 7, Inner City Press was sent a redacted copy of CIT Group's "Cash Flow Projections" and "Risk Management" from its application to acquire OneWest and go above the $50 billion, Too Big Too Fail threshold. Inner City Press immediately put the partially redacted document online on its website, here.
First, how could such information be withheld for a bank seeking to become Too Big To Fail?
Second, how could the Federal Reserve insist that the comment period is closed, while information that was improperly withheld is belatedly released?
On October 10, Inner City Press was sent heavily redacted copies of two letters from the CIT Group concerning its proposed acquisition of OneWest to the Federal Reserve Bank of New York, supposedly in compliance with the Freedom of Information Act - nowuploaded to Scribd here and here.
On October 18, Inner City Press & Fair Finance Watch challenged these redactions under FOIA, and submitted comments on CIT's mockery of the Community Reinvestment Act to both the Federal Reserve and the Office of the Comptroller of the Currency.
CIT sought to withhold even its CRA plan. Inner City Press raised the issue to Fed Chair Yellen in Washington - and on October 15, the Federal Reserve called Inner City Press and left a voice mail to say its request for extension of the comment period, because of the incorrectly withheld CIT documents, has been granted until October 22.
While appreciating the Fed's comment period extension, the context and public policy questions recently raised must be noted.
For now, on October 18 Inner City Press & Fair Finance Watch submitted a fourth timely comment to the Fed, critiquing the belatedly released CRA Plan, and demanding release of still - withheld information:
The CIT CRA Plan which CIT improperly withheld states, in Section III, that “the Bank has lending and support operations primarily located in Florida, New York and New Jersey” -- then states its CRA Program is in Salt Lake City, Utah and “the western United States.”
This is makes a mockery of CRA, explicitly separating the bank's lending operations from its “CRA” operations.
In Section IV, CIT makes claims about outreach and “public participation” in its CRA Plan - but in outreach and participation excluded the communities in which CIT has its lending operations (FLA, NY and NJ) and from which, on information and belief, it collects insured deposits.
This is makes a mockery of CRA, explicitly separating the bank's deposit taking from its “CRA” operations and outreach. See limited list of contacts in Appendix C, and proof of publication in (only) the Salt Lake Tribute and Deseret News.
Even in its artificial limited assessment area, CIT's “New CRA Assets” are less than 1% of its Assets.
While still improper, the above provide a motive for CIT's attempt to withhold its CRA Plan from the public...
This is makes a mockery of CRA, explicitly separating the bank's lending operations from its “CRA” operations.
In Section IV, CIT makes claims about outreach and “public participation” in its CRA Plan - but in outreach and participation excluded the communities in which CIT has its lending operations (FLA, NY and NJ) and from which, on information and belief, it collects insured deposits.
This is makes a mockery of CRA, explicitly separating the bank's deposit taking from its “CRA” operations and outreach. See limited list of contacts in Appendix C, and proof of publication in (only) the Salt Lake Tribute and Deseret News.
Even in its artificial limited assessment area, CIT's “New CRA Assets” are less than 1% of its Assets.
While still improper, the above provide a motive for CIT's attempt to withhold its CRA Plan from the public...
As to CIT's October 8 letter, ICP has already timely commented “there is also the question of the agreement the FDIC reached with IndyMac / OneWest, and whether wannabe SIFI CIT would assume it, as a windfall. These are important questions militating for both the required extension of the comment period, and for public hearings.”
In the October 8 letter, CIT begins a sentence on page 3 “Clawback provisions exist for the First Fed and La Jolla portfolios [REDACTED.]” CIT also redacts, on page 6, information related to the OnWest / IndyMac Consent Order; HAMP (Page 7); deposits collected over the Internet (Page 8); Lending (Page 9); Governance and Risk Management (page 10-12); and Resolution Plan (Page 12). CIT also heavily redacts what it calls “confidential questions” (pages 14-16), and exhibits. This information must be released, and the comment period extended. In an abundance of caution, ICP has submitted a FOIA request to this effect.
In the October 8 letter, CIT begins a sentence on page 3 “Clawback provisions exist for the First Fed and La Jolla portfolios [REDACTED.]” CIT also redacts, on page 6, information related to the OnWest / IndyMac Consent Order; HAMP (Page 7); deposits collected over the Internet (Page 8); Lending (Page 9); Governance and Risk Management (page 10-12); and Resolution Plan (Page 12). CIT also heavily redacts what it calls “confidential questions” (pages 14-16), and exhibits. This information must be released, and the comment period extended. In an abundance of caution, ICP has submitted a FOIA request to this effect.
The Fed's secrecy is endemic. The head of the FRBNY since 2009, William Dudley, has insisted that supervision by the Fed and its regional banks is "completely in the public interest." He cites, in support of this, something he calls "horizontal" supervision, which to many has the context of being supine.
And the Federal Reserve Banks are, in fact, owned by the banks they ostensibly regulate. And as Inner City Press has previously reported, while merger applications go in the first instance to the Federal Reserve Bank, they have only the power to approve, not deny or even impose conditions, the applications.
Horizontal, indeed.
This horizontal position is the rule, not the exception. Inner City Press routinely submits Freedom of Information Act requests for communication between the Fed and banks applying for mergers.
Most recently, the Fed has extended its deadline for responding to Inner City Press' request on CIT - OneWest, on which it purported to close its public comment period on September 24:
FOIA Request No. F-2014-00380
Dear Mr. Lee,
On August 27, 2014, the Board of Governors ("Board") received your electronic message dated August 26, pursuant to the Freedom of Information Act ("FOIA"), 5 U.S.C. § 552... On August 28, 2014, the Board’s Freedom of Information Office made an interim production of responsive documents consisting of the public portion of the application by CIT Group Inc. and Carbon Merger Sub LLC to acquire and merge with IMB HoldCo LLC, and thereby indirectly acquire voting shares of OneWest Bank... Pursuant to section (a)(6)(B)(i) of the FOIA, we are extending the period for our response until October 9, 2014, in order to consult with two or more components of the Board having a substantial interest in the determination of the request. If a determination can be made before October 9, 2014, we will respond to you promptly.
How can the public be shut out before it has the basic information it has requested? Now, only because CIT mis-published public notice, the Fed's comment period has been extended to October 10. (A new Office of the Comptroller of the Currency comment period has opened, through October 24.)
The Federal Reserve Board has asked CIT some questions, including “discuss CIT Group's plans to manage OneWest Bank's mortgage servicing assets and nontraditional mortgage loan portfolio." Nontraditional mortgages - that would be, subprime.
Tellingly, when lawyers leave the Federal Reserve's Legal Division, many go to white shoe law firms that submit bank merger applications to the same people they until recently worked with or supervised.
Inner City Press, Bronx-based Fair Finance Watch and NCRC have repeatedly raised this to the Fed, without meaningful response.
So here's hoping that Carmen Segarra's courage, in secretly making the recordings and then releasing them, leads to increased oversight of and reform at the Fed.
The problem is, while some in Congress are willing to criticize the Fed, the real parties in interest here are the largest banks and investment banks in the country. Who in Congress will directly challenge those? Watch this site.
