Home > Banking Information & Regulation > Public Meeting Transcripts > PMT - Agendas June 25-26, 1998
Public Meeting Transcripts
Public Meeting Regarding Citicorp and Travelers Group
Thursday, June 25, 1998
Transcript of Applicant Presentation
10 24 MR. LONEY: Thank you, Ms. McCall. 25 With that we will begin with our first panel . 11 1 2 which is made up of representatives from the 3 corporations involved in this application. 4 We have John S. Reed the chairman and 5 chief executive officer of Citicorp, Pamela 6 Flaherty, the Sr. Vice-President of Citicorp, 7 and Charles O. Prince, executive 8 vice-president, general counsel and secretary 9 of Travelers Group. 10 Mr. Reed. 11 MR. REED: Thank you very much. Mr. 12 Loney, Ms. McCall, Mr. Hodgetts and 13 Mr. Alvarez. 14 I'd like on behalf of my colleagues 15 first of all, to thank you for the opportunity 16 to kick off these hearings and to participate 17 in what is going to be I'm sure an interesting 18 day and a half. I really would like to make 19 some comments first with regard to the merger 20 and second with regard to the community aspects 21 that you have highlighted in your own comments. 22 With regard to the proposed merger 23 itself I think, as has been correctly 24 characterized, this is an important merger 25 because it does bring together two very large . 12 1 2 and I think two very committed institutions. 3 It is, as you have pointed out, a different 4 merger, because there is not a consolidation of 5 like enterprises. 6 Quite to the contrary, this is a 7 merger that has at its core a commitment on 8 both of our parts to try to expand our 9 business. In that sense it is a merger about 10 growth, it is a merger about expansion, and it 11 is a merger really that focuses on the consumer 12 throughout the United States, and, more broadly 13 around the world, and our commitment to serve 14 the consumer better than the consumer today is 15 able to be served. 16 We believe that we can accomplish 17 this by putting together our two institutions 18 in such a way that expand the product line that 19 is available to consumers, but may be even more 20 importantly, greatly expands the channels of 21 distribution, and hopefully will allow us to 22 improve the offering of financial services to 23 the community, and reduce their costs, make 24 them more efficient and make them more 25 effective. There is a very competitive . 13 1 2 marketplace out there. 3 Our success is going to require that 4 this core concept underlying the merger be 5 successful, and the marketplace will make very 6 clear whether it is or it is not, because 7 consumers will of course continue to have the 8 choice of funding to the traditional suppliers 9 in a more traditional kind of arrangement. So 10 the first thing I'd like to say with regard to 11 this merger is it speaks to new opportunities. 12 It is not a merger that speaks to 13 consolidation or a restriction of 14 opportunities, but, instead, it speaks to 15 substantial growth and its success requires 16 that we get growth and we get growth of revenue 17 that can only come from serving consumers and 18 other customers better than we are today doing 19 it. I think this is very important in taking 20 into consideration in our application, because 21 I think it speaks at a very positive way to 22 improving the quality of service that will be 23 available throughout the market areas that we 24 hope to serve. 25 Secondly, with regard to the . 14 1 2 community, I wanted particularly to come 3 personally because I wanted to reiterate our 4 commitment to the community. I think, speaking 5 on behalf of Citicorp and Citibank, the 6 institutions that I have been associated with, 7 but prospectively on behalf of Citigroup we 8 understand full well the centrality of having 9 to serve the community. 10 We cannot be successful in our 11 business if we don't serve the community. It 12 is something that the law requires of us, but 13 frankly, beyond the law, I think common sense 14 and any sense of business makes very clear that 15 our success over time requires that we be good 16 citizens and that we run our business in ways 17 that are compatible with the values of the 18 community and I think that that commitment goes 19 well beyond the specification of the law, and 20 it speaks more wholesomely, if you will, to 21 what it takes to build a successful enterprise 22 to attract good people to work for you, to keep 23 your customers happy, and so I'm here 24 personally not only to reiterate the 25 commitments that we have made and the . 15 1 2 requirements of the law, but also to make 3 public record of the fact that we believe that 4 service to the community is central to our 5 business success. It has been for many years, 6 and it will continue to be going forward. 7 Let me detail a few of the ways that 8 we think that this is made real. We have made 9 a public commitment that says going forward in 10 this merger we will expand the resources that 11 are available to the community, particularly in 12 making available mortgages and community 13 development funds, and this commitment is real, 14 and if you tear the numbers apart and Pam 15 Flaherty, my colleague, is going to do this a 16 little bit. It really says this merger will 17 result in an expansion of our financial 18 commitment under these kind of numbers to the 19 community. 20 But I believe if you look at our 21 business that the first commitment and the 22 first contribution we make to the community is 23 jobs. We are a company that creates jobs. 24 They are good jobs. They are well-paying. 25 They have good fringe benefits, and these are . 16 1 2 jobs where people could come in at entry levels 3 and can have a whole career with the 4 organization. They can grow, they can be 5 trained. They are not dead end jobs. 6 In community and community across the 7 United States we are currently today and have 8 been over the years, big-time hirers of entry 9 level people, graduates from high school, first 10 entrance into jobs. More than 50 percent of 11 the 110,000 jobs with these two companies. We 12 have in the United States more than 50 percent 13 of those jobs involve employees who earn less 14 than $40,000 per year. So this is a company 15 whose job imprint, if you will, on the 16 community is strong and important. We are a 17 good employer. We create good jobs with good 18 fringe benefits that have good careers, and I 19 think that this is a very important aspect of 20 our impact on the community. 21 We are big taxpayers. We are 22 important taxpayers in communities across the 23 country. This will continue to be the case, 24 and I think it's an important contribution that 25 we make to this society, and it's one that you . 17 1 2 can count on, and, obviously, as we are more 3 successful, we will in fact pay more taxes. 4 We recognize full well that we have 5 to make the services that we provide available 6 broadly within the community. This merger has 7 as its core an expansion of distribution 8 capability well beyond the traditional branches 9 through which banks have typically operated. 10 The Travelers Group is a major 11 provider of services through direct face to 12 face selling, and the combination will allow us 13 to make services available not only through 14 branches, not only over electronic cash 15 machines, telephones, the Internet and so 16 forth, but significantly through the expansion 17 of direct face-to-face selling throughout the 18 community. 19 We understand full well that we have 20 to work hard to make sure that the services 21 that we provide are uniformly available and 22 freely available across the community. We have 23 a pretty good record on this. You can count on 24 us to continue to push it. I think it's 25 important. . 18 1 2 We are very conscious of the equal 3 opportunity requirements. I would tell you 4 from a personal point of view I've been 5 involved in Citibank's equal opportunity 6 activities. The policies that we have within 7 Citibank with regard to equal opportunities, 8 fair lending, I have personally written because 9 I was involved in some of the original work in 10 this area, and I felt that it was very 11 important that the company understand that our 12 fair lending policies were more than just 13 something that had been written by an 14 administrator, and so I think that we have a 15 clear record of commitment in this area, and a 16 recognition that it is a difficult area in 17 which to consistently perform well, but one 18 that we are committed to doing. 19 We believe seriously in transparency 20 with regard to the services we offer, privacy 21 for our customers. We have a privacy statement 22 that tries to make sure that as the world moves 23 towards an electronic world that our customers 24 can be sure that the business we do with it 25 will maintain the privacy that they would . 19 1 2 expect of a banking institution, and we believe 3 that is part of our commitment as well. 4 So I'm here really to reiterate what 5 has been a long standing commitment of Citibank 6 and Citicorp. It's something that we take very 7 seriously, and I can say that we anticipate 8 with regard to City Group that if this 9 application were to be approved, that we would 10 in fact maintain that commitment and that we 11 would in fact strengthen it because as a 12 combined group we will be in a position to 13 offer more complete services, more broadly 14 throughout the United States. 15 I would hope that these facts, plus 16 the testimony of the many other people that you 17 are going to hear from during this day and a 18 half session or this two-day session, would 19 make clear to you that these commitments are 20 real, and that they are something that you 21 could count on going forward. 22 Thank you very much. 23 MR. PRINCE: Thank you. My name is 24 Chuck Prince, I'm the executive president of 25 Travelers Group. In the short time we have . 20 1 2 today I'd like to make just a few you key 3 points. First, the combination of Travelers 4 and Citicorp is permissible under current law. 5 Under the express provisions of the Bank 6 Holding Company Act as it exists today 7 Travelers is permitted to combine with Citicorp 8 subject to approval by the Federal Reserve and 9 other banking authorities, and will have a 10 period of two years with the possibility of 11 three one-year extensions in which to come into 12 conformance with the terms of the bank audit 13 company act. 14 In that regard, I would note that 15 most of the current activities of Travelers 16 Group are today permissible activities for bank 17 holding companies. We are not, for example, in 18 any businesses commonly referred to as 19 commercial. Of those activities which are not 20 today permissible, most can be modified to 21 conform to the requirements of banking law. The 22 activity of insurance underwriting does not 23 today fit within these requirements, but 24 frankly, we are hopeful that the current law 25 will be modernized within the next two years . 21 1 2 I do want to emphasize, however, that we do not 3 seek and do not require any change in the law 4 in order to consummate this merger. 5 This merger will bring together two 6 well capitalized companies with strong 7 management teams and the new Citigroup of 8 banking securities and insurance subsidiaries 9 will be financially strong and independently 10 viable whether or not there is any change to 11 our banking laws. 12 The second point I would like to 13 emphasize is that cross-marketing activities 14 which are important to us in the context of 15 this transaction exist today. Banks all over 16 the United States cross market other financial 17 service products, including insurance products 18 today. 19 What is different here is that 20 instead of cross marketing the financial 21 service product of unaffiliated providers, we 22 will combine the ownership of multiple 23 companies under one umbrella, and I suggest to 24 you that there is nothing different about the 25 cross marketing of affiliated products compared . 22 1 2 to today's widespread cross marketing of 3 unaffiliated product. 4 The third point I would make is the 5 importance to us of customer privacy. As Mr. 6 Reed just indicated, both of our companies 7 recognize the high trust that our customers 8 place in us when they provide individual 9 financial data to us. Citibank has privacy 10 principles on its Internet web site and the 11 combined Citigroup will be publishing privacy 12 guidelines for the combined company in the near 13 future. 14 We will treat each individual's 15 information with the same high privacy 16 protection that each of us wants for our own 17 personal data, yours, and mine. Our policies 18 and procedures will be fully consistent with 19 the caution expressed by regulators including 20 most recently by Ms. Dewey Williams the acting 21 comptroller of the currency. 22 Lastly, I want to mention the 23 commitment Travelers Group has made to increase 24 the availability of home owners and other 25 insurance in low and moderate income . 23 1 2 neighborhoods in 1994 we began our urban 3 availability of insurance program to improve 4 the availability of insurance in these areas. 5 Under Travelers underwriting guidelines 6 coverage on residential properties in urban 7 areas is issued and renewed regardless of 8 location, regardless of value, and regardless 9 of the age of the property. 10 Recently Travelers property casualty 11 insurance voluntarily joined in Citigroup a 12 community commitment to expand the urban 13 availability of insurance. Our program will 14 provide special education, enhanced 15 availability and special pricing to Citibank's 16 low and moderate income customers. We will 17 over time expand this important program to 18 additional cities where we have a significant 19 presence. 20 Our program also includes aggressive 21 efforts to recruit and develop minority agents 22 who can represent our insurance company. 23 I want to emphasize that all of the 24 current banking subsidiaries of Citicorp and 25 Travelers Group will remain subject to the . 24 1 2 Community Reinvestment Act and other fair 3 lending and consumer protection laws and 4 regulations just as they are today. The 5 commitment of the banking subsidiaries to their 6 communities will remain strong. 7 More importantly, we believe that the 8 high level of community involvement that 9 already exists within our companies will 10 increase as a result of our merger. The reason 11 for this is simple. 12 The purpose of the merger is to bring 13 more and better product to a greater number of 14 people. The various businesses within the 15 newly created Citigroup are innovative 16 producers of these products as are banking and 17 nonbanking organization work together to bring 18 better products to more people. Citigroup as a 19 whole will better serve the needs of its entire 20 community, including low and moderate income 21 and minority individuals. 22 With that, I will thank you for the 23 opportunity to be here today and turn to my 24 colleague, Pam Flaherty. 25 MS. FLAHERTY: Thank you, Chuck. My . 25 1 2 name is Pam Flaherty, and I'm responsible for 3 Citibank's community involvement. 4 Add to Pamela Flaherty. 5 Thank you. My name is Pamela 6 Flaherty. As John Reed explained, I am 7 responsible for Citibank's community 8 involvement. 9 This merger breaks new ground in its 10 combination of insurance and banking services. 11 While many of our community partners are 12 excited by the opportunities this suggests, 13 some are concerned that this will somehow 14 diminish Citibank's community commitment. 15 Nothing could be further from the truth. 16 I want to make three points this 17 morning. 1. Our lending record is good and 18 improved dramatically in 1997, particularly in 19 terms of lending to low and moderate-income 20 consumers and to minorities. 21 2. We provide a broad range of 22 products and services and access to consumers 23 of all income levels, and, 3, we intend to do 24 even more in the future, as evidenced by our 25 community commitment. . 26 1 2 Let me first address lending. In the 3 eight areas around the country where we serve 4 the local retail banking market, we have a 5 strong record of lending to all segments of the 6 community. In 1997 in those markets we 7 provided $9 billion of credit to low and 8 moderate-income consumers, to small businesses 9 and to organizations engaged in community 10 economic development. 11 We are particularly proud of our 12 commitment to our local neighborhoods. Since 13 their emergence thirty years ago, we have 14 partnered with local community development 15 organizations, combining their knowledge of 16 local community needs with our human and 17 financial resources. 18 Today our program is significantly 19 expanded, and Citibank's community development 20 lending supports affordable and special needs 21 housing, small business and economic 22 development, health and human services, as well 23 as the educational and cultural activities in 24 LMI communities. 25 New community development lending . 27 1 2 originations in 1997 in all US Citibank markets 3 totaled $238 million versus $146 million the 4 year before, up 63 percent. 5 Of the 1997 lending, 42 percent was 6 in metropolitan New York, Citibank's largest US 7 marketplace. Here in New York our lending 8 commitments have doubled over the last two 9 years to $100 million in 1997. 10 We apply a comprehensive strategy 11 based on building strategic partnerships with 12 nonprofit, government and other financial 13 partners to respond to the specific needs of 14 local communities. In addition to lending, 15 Citibank employees a range of investment tools. 16 In 1997, our community investment 17 portfolio totaled $47 billion, while we made 18 $26 billion in grants to community and 19 educational programs. Citibank has also long 20 provided the financing that addresses small 21 business credit needs. In 1997, nationwide, 22 Citibank lent approximately $1.9 billion to 23 small businesses, a total of more than 13,000 24 loans. We are especially proud that 10,000 of 25 these loans were for less than $100,000, the . 28 1 2 loan size most often needed by small 3 businesses. 4 What's more, 29 percent of the 5 dollars lent were in LMI census tracts. In New 6 York we provided $768 million in credit to 7 small businesses. 35 percent of our loans were 8 for less than $25,000, and 30 percent of the 9 dollars lent were in LMI census tracts. 10 Communities are also stabilized 11 through home ownership. As early as 1978, 12 Citibank began to reach out to LMI families 13 eager to purchase homes through our stretch 14 mortgage piloted in Brooklyn, the first 10 15 percent down payment product in New York. 16 Until 1991, Citibank was a leader in 17 mortgage financing, but the economic downturn 18 in the early '90s and the collapse of the real 19 estate market forced us to restructure and cut 20 back on our lending. We regained momentum in 21 1996 and 1997. 22 In 1997, Citibank made a 3,000 23 HMDA-reportable loans for a total of $9.5 24 billion, almost a 50 percent increase from the 25 prior year. Our lending to LMI consumers and . 29 1 2 communities grew even faster, at $1.2 3 billion -- nearly doubling. 4 During 1997, Citibank also 5 dramatically increased its lending to 6 minorities with $1.5 billion in HMDA-reportable 7 lending. Lending to African-Americans doubled 8 as did lending to Hispanics. 9 Let me now turn to access to 10 financial services. Citibank has made a deep 11 commitment to the use of technology to increase 12 choice and convenience for all customers. We 13 introduced the first ATMs in 1977. Since then, 14 we have expanded the use of telephone access as 15 well as PC banking. 16 Our data on customer usage patterns 17 show that across all income levels, customers 18 increasingly perform their financial 19 transactions outside a branch, on the phone, 20 through a PC or at an ATM. 21 Customers who live in low and 22 moderate income census tracts do not differ 23 significantly in their usage from the rest of 24 our customers. 25 Our data show that these customers . 30 1 2 perform 76 percent of their transactions 3 outside a branch, versus 80 percent for all 4 customers, and 25 percent on the phone or the 5 PC, versus 30 percent for all customers. 6 Because consumers use the branch less 7 frequently, the quality has to be uniformly 8 great. Our branches have been recently 9 upgraded with better training for our people, 10 better and more user friendly technology and 11 longer hours. 12 Two years ago, in New York we closed 13 a number of branches and converted several to 14 Citicard Banking Centers, while renovating and 15 upgrading the remaining branches. When we 16 started this process, 16 percent of our 17 branches were located in LMI census tracts. 18 Today, 22 percent of our branches are located 19 in LMI tracts. 20 And we continue to open different 21 kind of specialized stores like our new manned 22 electronic banking facility on Burnside Avenue 23 in the Bronx, a loan store in Harlem, both of 24 which will open this summer, and a retirement 25 store in Oakland, California. . 31 1 2 Electronic benefits transfer is 3 another innovation which has opened a new 4 opportunity for us to serve low income people. 5 The most important benefit for EBT recipients 6 may well be the ability to participate in the 7 mainstream world of electronic banking and 8 payments systems. 9 We're encouraging customers to use 10 technology and alternative access points in two 11 ways, pricing and education. In New York we 12 eliminated fees for our ATMs, PC banking, and 13 telephone bill payment. 14 With regard to education, we have 15 multilingual hosts to assist us in branch 16 customers and a unit of full-time educators who 17 give seminars on banking, credit and 18 technology. Each year we conduct roughly four 19 hundred seminars on sight, with nonprofits and 20 at schools across New York. 21 We also support a number of nonprofit 22 organizations dedicated to improving education 23 and job skills training through technology in 24 our schools including Classroom, Inc., City 25 Tech, and Junior Achievement. . 32 1 2 Finally, let me talk about our ten 3 year $115 billion lending and investment 4 commitment. Our Citigroup commitment is a 5 national pledge that responds to our community 6 partners by focusing on lending and investing, 7 financial literacy and insurance. 8 We will execute the commitment by 9 working with our community partners. We will 10 also aggressively market these products 11 ourselves. We seek to increase this lending in 12 all our markets, being responsive to each of 13 them individually. We will report publicly on 14 how we're doing on an annual basis. 15 Citigroup built its pledge through 16 conversations with some 300 community 17 organizations across the country. They told us 18 they wanted to ensure that we would remain an 19 active partner through community development 20 lending and investing; increasing our small 21 business and mortgage lending; expanding our 22 work in financial literacy; and offering 23 greater access to insurance. 24 Our pledge was also designed as a 25 challenge to our business. To meet our . 33 1 2 targets, we must grow the areas our community 3 partners are particularly concerned about, 4 mortgages, small business and community 5 development lending, at an average annual rate 6 of eight to ten percent over the ten-year 7 period, and social investing must average over 8 12 percent growth per year. We believe this 9 pledge is a very aggressive commitment. 10 The commitment is more than numbers 11 and growth rates. It includes insurance for 12 the first time, as Chuck Prince described. It 13 also addresses financial literacy, a critical 14 need of consumers of all income levels. 15 Let me close by saying that we 16 believe we have done a great job of meeting the 17 credit and convenience needs of the communities 18 where we accept deposits, as required by CR A. 19 And beyond that, we also believe we have met 20 the test of being an excellent corporate 21 citizen in all the communities where we do 22 business. 23 But we intend to do more. We intend 24 to use the resources of the combined company to 25 improve the financial lives of all customers as . 34 1 2 well as the communities in which we operate. 3 We will do this primarily through our business, 4 offering quality banking services, loans, 5 insurance, and investments, and participating 6 in the financing of community improvements. 7 We will also continue to innovate to 8 expand access to financial services and 9 information so individuals and family of even 10 modest means can improve their economic well 11 being. 12 We have listened to our community 13 partners, those organizations which work 14 everyday in our communities. Many of them are 15 speaking at this meeting, and we thank them. 16 We intend to continue to listen to them and to 17 work with them. 18 Thank you for your time this morning. 19 MR. LONEY: Thank you. Do we have 20 questions from the panel? 21 MR. ALVAREZ: I have a couple of 22 questions. Mr. Prince, you mentioned in your 23 opening remark the requirement of the Bank 24 Holding Company Act that the organization 25 combined organizations conform the nonbanking . 35 1 2 activities to the limitations of the Act. In 3 particular you noted that insurance 4 underwriting is not a permissible activity at 5 this point. 6 If the current law is not changed, 7 can Travelers Group, combined Travelers Group 8 realistically meet the requirements of the Bank 9 Holding Company Act and how will the proposed 10 costs marketing services that you hope to do 11 affect the ability of the company to meet those 12 requirements? 13 MR. PRINCE: The companies within 14 Travelers Group and companies within the 15 combined Citigroup are operated at separate 16 independently viable company. 17 Each company is separately staffed, 18 separately organized, has its own board of 19 directors. The company in the insurance 20 business, Travelers Property Casualty, for 21 example, is not only separately organized, it 22 is already publicly held in part. It's already 23 listed on New York Stock Exchange, and the 24 companies will continue to be operated in that 25 fashion. . 36 1 2 The cross-marketing activities will 3 not involve any combination of the company 4 staff or organizations in a way which would 5 prevent the orderly restructuring of the 6 company in the event that were to become 7 necessary. 8 So the short answer to your question, 9 Mr. Alvarez, I believe is that, yes, we would 10 be able to comply with the requirement even if 11 the law did not change, and if it became 12 necessary at some point, for example, to spin 13 off the insurance companies they would be 14 strong independently viable companies, and our 15 company would continue to be strong and 16 independently viable, and there is nothing in 17 the cross-marketing that would change any much 18 that. 19 MR. ALVAREZ: I had another question. 20 A number of comments have been expressed 21 concerned that the wind Travelers Citigroup 22 would as far as loan marketing individuals and 23 communities be concerned perhaps be worse than 24 the sum of the parts of the two organizations 25 in part because the new organization might . 37 1 2 target low and moderate income and minority 3 individuals in communities from marketing 4 higher cost lending and higher cost insurance 5 products. 6 How is it that Citigroup if this 7 transaction is improved, would insure that all 8 individuals in all communities will have access 9 to the full range of products, including lower 10 cost products that might be available through 11 the organization? 12 MS. FLAHERTY: I guess I would first 13 say that the record shows with regard to 14 Citibank and with regard to Travelers that, and 15 I can certainly speak more specifically to 16 Citibank, that we already do today provide 17 extensive credits to low and moderate income 18 communities and we have made a pledge to 19 continue to do that going forward. 20 MR. ALVAREZ: Ms. Flaherty, you 21 mentioned that Citicorp has closed branches in 22 the past. 23 Are any branch closing proposed as 24 part of this transaction? 25 MS. FLAHERTY: No. . 38 1 2 MR. ALVAREZ: One final question from 3 me. Travelers Group made several commitments 4 and were subject to several conditions in an 5 order by the OCS when it applied to acquire its 6 thrift. What would be the status of those 7 commitments going forward if this transaction 8 is approved because Travelers Group would no 9 longer be subject to the OCS? 10 MS. FLAHERTY: We intend to continue 11 to meet those commitments. 12 MS. MC CALL: I have a question. We 13 would be very interested in the Department in 14 receiving a little more detail on the very 15 large commitment that you made, the breakdown 16 that is available. 17 MS. FLAHERTY: I'll be happy to do 18 that. 19 MR. LONEY: Any other questions from 20 the panel? If not, I will thank you very much. 21 MS. FLAHERTY: Thank you very much. 22 MR. REED: Thank you.
Last update: December 3, 2010