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 Panel Nine
273 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. . 274 1 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 . 275 1 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 . 276 1 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 . 277 1 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 . 278 1 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 . 279 1 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 . 280 1 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 . 281 1 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 . 282 1 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 . 283 1 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 . 284 1 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 . 285 1 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 . 286 1 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 . 287 1 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 . 288 1 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 . 289 1 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, . 290 1 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 . 291 1 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 . 292 1 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 . 293 1 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 . 294 1 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 . 295 1 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 . 296 1 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 . 297 1 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.
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