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Public Meeting Transcripts
Public Meeting Regarding Citicorp and Travelers Group
Friday, June 26, 1998
Transcript of Panel Seventeen
439 18 With that, I would like to begin this 19 morning's proceedings. The first panel, Number 20 Seventeen in the agenda is made up of Marie 21 Nahikian, George McDonald, Freddy Espaillat and 22 Julie Colon. If those folks would come 23 forward. 24 Ms. Nahikian, is that how you say 25 your name? . 440 1 2 MS. NAHIKIAN: That's right. 3 MR. LONEY: Will you begin for us, 4 please. 5 MS. NAHIKIAN: Certainly. I do have 6 copies, which I can either give you now. 7 MR. LONEY: You can leave it at the 8 table out front. 9 MS. NAHIKIAN: The Queens County 10 Overall Economic Development Corporation, which 11 was created in 1978, has a central focus -- 12 MR. LONEY: Excuse me. Could you 13 move the mike closer to you, please. 14 MS. NAHIKIAN: The Queens County 15 Economic Development Corporation has a central 16 focus to increase economic opportunity for the 17 residents of Queens County, and this really 18 requires Queens County to maintain multiple 19 roles in the economic life of an area that is 20 probably the nation's most diverse area in 21 population and has a population equal in size 22 to the fourth largest city in the United 23 States. 24 Our mission could not be met without 25 close working relationships with sources of . 441 1 2 national and international capital. We work 3 with over 75 financial institutions, and how we 4 work with these institutions is probably best 5 summed up in one word, and that is that we 6 sell. We sell Queens neighborhoods, locations, 7 businesses, residents as essentially good 8 investments. And the interest in our sales 9 pitch, so to speak, varies, but one fact is 10 critical, and that is that the financial's 11 institutions listen much more closely since the 12 passage and the strengthening of the Community 13 Reinvestment Act. 14 The matter before the Board this 15 morning, the acquisition of Citicorp by 16 Travelers, speaks somewhat to our concerns and 17 our hope. Citicorp and its affiliates, such as 18 Citibank, has worked closely with Queens County 19 for the past ten years. We've been fortunate 20 in having the direct participation of Citibank 21 in much of our work, and this work has taken 22 the form of Citibank employees who were civic 23 leaders, provide leadership within the county 24 itself, who live in Queens County, but also 25 more directly in lending to small business . 442 1 2 clients. As a financial supporter, we have 3 enjoyed Citibank philanthropic support and 4 providing technical assistance, particularly 5 around issues of how to structure real estate 6 investment. 7 The question that is posed for this 8 acquisition is harder. After listening to 9 community developers, which Citibank I think 10 does very well, the question is, would there be 11 action? And action is another way of defining 12 the purpose of this public hearing. What 13 actions had been taken or are proposed to be 14 taken to meet the credit needs of our 15 community? 16 We have very little experience with 17 the Travelers Group. The issues of the 18 availability of insurance products and the 19 cost/risk analysis that seems to always produce 20 higher premiums in a place like Queens County 21 is well-known. One hopeful note, however, we 22 believe that the Travelers Group can learn from 23 Citicorp: Investing in our communities is a 24 good business and profit does not need to come 25 from higher costs charged for a perception of . 443 1 2 higher risk. 3 More information is needed about the 4 potential for a bank holding company to conduct 5 nonbanking activities. If access to affordable 6 products is available as a result of this 7 relationship, these nonbanking activities could 8 produce significant benefits to our community 9 For example: Investment health and retirement 10 products for nonprofits and specific groups of 11 individuals; local recruitment for training and 12 employment opportunities. 13 The other part of the question is, 14 will there be a strategy to invest the $6 15 billion increased commitment by Citicorp in 16 community development? So far Citibank's 17 participation has been significant. The 18 commitment to increase lending and support for 19 community economic development from the current 20 level of $136 million to $6 billion over the 21 next ten years should mean that the impact will 22 be even larger. The commitment is a major 23 challenge, and we have encouraged that 24 implementation strategies with the community 25 development partners must begin immediately. . 444 1 2 In order to move $6 billion into 3 community development over the next ten years, 4 I think Citicorp has realized that it requires 5 increased resources, staff and support, to move 6 those kinds of commitments. 7 We urge the strategy to include the 8 use of community development intermediary and 9 technical assistance providers which have a 10 knowledge of local communities. It is the only 11 way we'll ever seen the resources in Maspeth, 12 in Cambria Heights or on Sutphin Boulevard, 13 which I should just footnote has already been 14 supported by Citicorp. 15 I think it is important, one final 16 concept, that there be created an investor 17 environment. Over the last 15 years, as you 18 all well know, we have seen a major change in 19 how affordable housing gets financed in this 20 country. In New York City alone, thousands of 21 units have been created. The reason why is 22 because there was an economic concept of 23 creating value in the marketplace, where none 24 previously existed by coupling investment with 25 tax credits is a strategic way of rebuilding . 445 1 2 and revitalizing communities. 3 This has allowed investors to analyze 4 a different way of analyzing return and has 5 mitigated the traditional discussion of 6 underwriting risk. I can remember trying to 7 structure some of the very early tax credit 8 deals with some of Fannie Mae's very early 9 investments with banks in Philadelphia, and we 10 weren't even sure what those investments should 11 look like, but the same economic concept needs 12 to be used. 13 The same economic concept must be 14 used in economic development. Small business 15 owners, and particularly minority and 16 women-owners rarely have the luxury of 17 considering an investment. Most financial 18 institutions cannot mitigate the risk of 19 lending to startups or when an operation needs 20 to grow and expand. 21 So hopefully the combination of the 22 Travelers and Citicorp, with Travelers' history 23 in investment, will bring about a different 24 kind of risk analysis that includes 25 nontraditional equity, such as labor, family . 446 1 2 cosigners or intellectual property, developing 3 a secondary market for small business loans, 4 using a pooled risk concept, and, finally, the 5 possibility of providing leadership for 6 federal, state and local tax credits, and to 7 create value in small minority-owned businesses 8 in our neighborhoods will make a huge 9 difference. 10 Is the $6 billion commitment enough? 11 The answer is no. Is it significant? Yes. 12 The only correlation I can draw is that Queens 13 County is a 60-percent owner of a shopping 14 center, one of the first built in the Hollis 15 neighborhood in Queens. We've received about 16 $200,000 in income from the ownership, net 17 income from the ownership of this shopping 18 center as a limited partner. 19 Recently the corporation made a 20 commitment to invest $25,000 in the Queens 21 Access Neighborhood Fund with two premises. 22 One, it can be used to be invested or loaned as 23 risk and, two, that it would be a magnet to 24 pool other funds. 25 Is $25,000 significant in that . 447 1 2 neighborhood? No. But the way that money is 3 structured is significant because it could be 4 used for the risk and because it represents 5 almost 15 percent of the total net income on 6 that project. 7 I think that those kinds of 8 guidelines in looking at the notion of making 9 an investment in a community versus just 10 lending products to a community could make a 11 dramatic difference in how the $6 billion 12 increases. 13 Thank you very much. 14 MR. LONEY: Thank you. 15 Mr. McDonald. 16 MR. MCDONALD: Thank you for the 17 opportunity to testify this morning. I gladly 18 volunteered to testify before you today 19 regarding the many years of support that 20 Citibank has offered The Doe Fund, which I am 21 the president and founder of, and the 22 confidence I have that Citibank will continue 23 its commitment to our work well after the 24 merger with Travelers. 25 The mission of The Doe Fund is to . 448 1 2 empower formerly homeless individuals to work 3 and to realize their potential to live as 4 responsible, productive and self-sufficient 5 individuals. 6 In 1990, The Doe Fund launch Ready, 7 Willing & Able, an innovative work and job 8 skills training program which provides homeless 9 participants with meals, housing, social 10 services, basic education training and above 11 all, paid work opportunities. Since its 12 inception, the program has helped over 500 13 individuals to secure full-time employment and 14 permanent housing and to achieve lives of 15 productivity and independence. 16 The Doe Fund's original Ready, 17 willing & Able residence is located in Bedford 18 Stuyvesant, Brooklyn. 19 In 1996, The Doe Fund expanded the 20 program to the formerly city-operated Harlem 21 Men's Shelter, and on May 4th of this year, The 22 Doe Fund launched a Ready, Willing & Able 23 program in Jersey City, New Jersey. We also 24 operate the same program in Washington D.C. 25 Today The Doe Fund serves over 800 . 449 1 2 formerly homeless member and women annually and 3 Ready Willing & Able stands as a model welfare 4 to work program for homeless service providers 5 nationwide. 6 The success and expansion of Ready 7 Willing & Able as has been experienced over the 8 years would not have been possible without the 9 support and guidance of Citibank. In 1991, 10 shortly after The Doe Fund opened the doors of 11 its first Ready Willing & Able residence, vice 12 president and director of corporate 13 contributions, Mr. Paul Ostergard, and several 14 Citibank colleagues, visited the program. 15 Impressed by the program's work-based 16 philosophy and recognizing the great need and 17 potential among our city's homeless population, 18 Citibank awarded The Doe Fund a grant of $5,000 19 and expressed a sincere interest in developing 20 a relationship with what was then a fledgling 21 organization. 22 Since that first visit, Citibank has 23 provided The Doe Fund with annual grants in 24 support of our work in excess of $50,000. 25 Citibank employees also frequently make . 450 1 2 matching gifts to support our work, and one 3 employee, Ms. Peggy Cohen, a vice president of 4 private banking, has served on The Doe Fund's 5 board of directors since 1995. Ms. Cohen, who 6 served as chairperson of our board from 1996 to 7 1997, has tirelessly given of her time and 8 energy in support of our work. 9 In addition to financial support over 10 the years, Citibank has generously provided 11 banquet rooms in its corporate headquarters for 12 community and board of director's meetings. 13 Last spring Citibank hosted a community 14 breakfast for prospective individuals and 15 foundation donors which resulted in a grant of 16 $75,000 from a local family foundation. 17 Most recently, the Citicorp 18 Foundation has awarded The Doe Fund a grant of 19 $10,000 in support of a revenue-generating shoe 20 making business, Harlem Shoemakers, Inc. With 21 the help of internationally renowned shoe 22 designer, Joe Famolare, The Doe Fund is working 23 to open a shoe factory in Harlem. Harlem 24 Shoemakers will employ low-income Harlem 25 residents, graduates and trainees of the Ready . 451 1 2 Willing & Able program. 3 Citibank is currently considering a 4 $500,000 line of credit for that business. I 5 might add parenthetically on lines of credit, 6 we're a small not-for-profit. We do about $12 7 million a year now and have about 150 employees 8 from none in 1990. So we grew during a period 9 of time that was -- we could call it a 10 depression in the northeast. And it is very 11 difficult to get banks to give lines of credit 12 to not-for-profits. I went to every bank in 13 New York City, and the only bank that would 14 give us the line of credit was Citibank. 15 Given that relationship, I feel 16 confident that they will continue to support 17 our work and grassroots organizations like our 18 own after they merge with Travelers. 19 Now, I might say, and I know it is 20 the not the subject of the hearing today, but 21 Travelers has been very supportive of our work. 22 Travelers is a terrific philanthropic company. 23 We only see good things coming about, as the 24 merger of these two great companies make for 25 greater support for our organization. . 452 1 2 Thank you for the opportunity to 3 testify. 4 MR. LONEY: Thank you, Mr. McDonald. 5 Mr. Espaillat. Is that how you say 6 that? 7 MR. ESPAILLAT: Yes. 8 Good morning, ladies and gentlemen, 9 my name is Freddy Espaillat and I am a graduate 10 of the Academy of Finance at Brandeis High 11 School in New York City. 12 Last summer I had what I felt was the 13 opportunity of a lifetime -- 14 MR. LONEY: Could you put the mike 15 closer to you, please. 16 MR. ESPAILLAT: I applied to Salomon 17 Smith Barney for a summer internship they 18 sponsor as part of the Academy of Finance 19 program. I sent in my resume, was interviewed 20 for the position and was placed in the high net 21 worth department at Salomon Smith Barney. 22 This was my first job in the real 23 world and everyone at Salomon Smith Barney made 24 me feel like I was part of the organization. 25 My supervisor, Tina Monahan, took me out to . 453 1 2 lunch at least once a week and give me many 3 responsibilities. 4 I worked on the computer inputting 5 data into the database. I updated client 6 portfolios, and I was included in daily 7 department meetings. My internship at Salomon 8 Smith Barney taught me the value of teamwork, 9 punctuality, and gave me the ability to network 10 with coworkers. I feel all of these things 11 will help me build a better future. 12 In addition, I feel that my 13 internship greatly advanced my computer skills 14 which will help me when I go either to Barouch 15 College or DeVry Institute where I plan to 16 study computer programming and business 17 management. 18 I don't believe that I would have had 19 the opportunity to do any of these things if 20 Sandy Weill and the Travelers Group did not 21 create these opportunities for the students in 22 the Academy of Finance. 23 In conclusion, I would like to say 24 that I believe that the expansion of the 25 Travelers Group will make even more internship . 454 1 2 opportunities for many more students in the 3 Academy of Finance. 4 Thank you very much for the chance to 5 speak to you today. 6 MR. LONEY: Thank you very much. 7 I can't see that far. 8 MS. CHIN: My name is Margaret chin. 9 MR. LONEY: You are speaking for 10 Mr. Galan? 11 MS. CHIN: I am speaking on behalf of 12 Mr. Julie Colon. 13 Good morning. My name is Margaret 14 Chin. I am the executive director of the Asian 15 Americans for Equality Fair Housing Center. 16 I'm also speaking on behalf of our affiliates, 17 Asian Americans for Equality and Renaissance 18 Economic Development Corporation. 19 AAFE is a community-based nonprofit 20 organization founded in 1974 to advocate for 21 equal opportunities for minorities. We are 22 located in Chinatown, Lower East Side and 23 Flushing, Queens. Serving an estimated 20,000 24 people annually, AAFE's programs and services 25 include housing development, home ownership, . 455 1 2 housing rights, entitlement services 3 counseling, citizenship counseling, civil 4 rights, economic development and technical 5 assistance. AAFE has been actively advocating 6 for greater community reinvestment by banks 7 since its inception in the '70s. 8 The AAFE Fair Housing Center conducts 9 education and outreach, testing and assists in 10 the filing of complaints in the areas of fair 11 housing and fair lending to Asian American 12 communities in all five boroughs. The 13 Renaissance Economic Development Corporation is 14 a federally certified Community Development 15 Financial Institution, with a loan pool of 16 approximately $1 million to conduct lending 17 throughout the five boroughs in concentrated 18 areas of Asian and Latino immigrant 19 communities. 20 Today I would like to make you more 21 aware of the specific needs of the Asian 22 community generated by cultural and linguistic 23 differences, the impact of the Community 24 Reinvestment Act on the Asian-American 25 community, specific ways in which CRA can be . 456 1 2 strengthened to benefit low-income and minority 3 communities and the recommendation to Citibank 4 in light of this merger. 5 Asian-Americans are the fastest 6 growing population in both the United States 7 and New York City. The number of 8 Asian-Americans in New York City has doubled 9 from 1980 to 1990 from 3 percent to 7 percent 10 of the city's population, accounting for nearly 11 half a million people. By the year 2,000, 12 Asians are expected to compose over 10 percent 13 of the New York City's population. 14 Today, the diversity of the Asian 15 community is represented by over two dozen 16 nationalities, each with its distinct language, 17 religion and culture, its distinct challenges 18 and potential. Two out of three of us were 19 born in our native countries, and the majority 20 of those who chose to come here have difficulty 21 with language and its dominant culture. 22 The staggering four-fold growth in 23 the past 20 years of the Asian population has 24 spawned many challenges in its wake. The Asian 25 community lives in one of the most densely . 457 1 2 populated areas in the nation. In New York 3 City's Chinatown, there are 189 persons per 4 acre. Other areas of the city have only 37 per 5 acre. This density is accurately reflected in 6 the fact that in Chinatown, two or three 7 families often live together in a single 8 apartment. 95 percent of the housing stock in 9 Chinatown predates 1939, exacerbating the lack 10 of services and investment by the larger 11 community. 12 The Asian community is a savers 13 community. The increased population brought 14 tremendous deposits into banks operating in 15 Asian-concentrated enclaves. In Chinatown 16 alone, the deposits total $4 billion. But most 17 banks do not have mortgage officers who speak 18 Asian languages. Also, Chinatown landlords are 19 unable to access affordable financing for 20 building improvements. This lack of capital 21 allows for extensive housing deterioration, 22 causing dangerous conditions that leads to 23 fires, deaths and homelessness. Chinatown's 24 housing stock is among New York City's oldest 25 and has some of the most run-down conditions. . 458 1 2 According to a letter published by 3 Ming Pao Daily News, this was in 1997, this was 4 the rate of home ownership, and the Asian was 5 rated among the lowest in terms of home 6 ownership rate. Nationally among whites is 7 70.8 percent; women at 49.5 percent; 8 African-American at 44 percent; Latinos at 9 43.9; and Asian at 42 percent. 10 AAFE has found that home ownership 11 rate is an important vehicle for the Asian 12 community to enter the mainstream society and 13 to improve local communities. The lack of 14 Asian home ownership is caused by a dire lack 15 of information about home ownership and access 16 to credit and its related benefits available to 17 the local communities. 18 To overcome these obstacles, AAFE has 19 led a multipronged effort to meet the 20 challenges of the Asian community. Our work to 21 meet the challenges of the language and 22 cultural barriers has resulted in unprecedented 23 success, accounting for more awareness and 24 access to mainstream services. 25 In 1984, AAFE developed the first . 459 1 2 ever housing development project to utilize the 3 federal Low Income Housing Tax Credit program, 4 launching a public/private partnership that 5 continues to gain steam today. In the past ten 6 years, AAFE has raised over $40 million to 7 develop 400 units of affordable housing. Also 8 working with public and private partnership, we 9 counsel and access over $5 million of 10 affordable mortgages for over 500 families. 11 AAFE has a long history of 12 partnership with Citibank. Citibank holds the 13 largest proportion of AAFE's financial 14 businesses. AAFE is one of Citibank's Partners 15 In Progress, which contributes to AAFE's 16 housing development on the lower east side. We 17 have seen Citibank take a leadership position 18 in serving the Asian-American community in the 19 delivery of retail products, but we encourage 20 Citibank to deeper its commitment to economic 21 and community development to the Asian-American 22 community in the New York metropolitan area and 23 in Citibank's other major service areas. 24 AAFE looks to continue to work with 25 Citibank to deepen their investments and . 460 1 2 activities with the Asian-American and other 3 immigrant and minority communities. 4 We recommend, one, focusing on 5 partnering to provide long-term credit, 30 6 years versus the typical 10-year term, for 7 investment in new construction, such as new 8 in-fill housing throughout on the Lower East 9 Side. Today AAFE needs over 10 million in 10 long-term equity to continue our rate of 11 development. More would be needed to meet the 12 needs, or to spur greater activities on a 13 national level. 14 Partnership to spur community 15 development and home ownership initiatives with 16 the Asian-American community on a national 17 level. Cosponsoring national economic 18 development summits for the Asian-American 19 community. Cosponsoring technical assistance 20 workshops to increase the development capacity 21 of community groups. 22 Partnership with other organizations 23 and AAFE to create a community advisory group 24 to provide input directly to Citibank on local 25 and national issues that affects low and . 461 1 2 moderate and minority communities. 3 Provide more multiyear capacity 4 building grants to stabilize and expand the 5 work of nonprofit partners who have been forced 6 to fill the void of shrinking government 7 resources to spur economic growth in our 8 communities. 9 In this time of mega-merger, we 10 expect Citibank to expand its role in providing 11 financial services and spurring economic and 12 community development within the communities 13 they serve, especially the low and moderate 14 income, immigrant and minority communities. It 15 will be a big challenge but continuing to work 16 with community groups who understand the needs 17 can make the difference. 18 Thank you for the opportunity to 19 speak today. 20 MR. LONEY: Thank you. I might ask 21 you, Ms. Chin, have you asked Citibank about 22 that? You presented that list of your requests 23 to them. Have you gotten a response? 24 MS. CHIN: We've been having 25 discussions with Citibank. The executive . 462 1 2 director is not here for AAFE, but we do have a 3 long-working relationship with them, and I know 4 they support many of our projects, and I think 5 one of their vice presidents, Wendy Takhaja, 6 she is on the board of the Fair Housing Center. 7 So we will be discussing some of this, but we 8 would like to make the proposal in public. 9 MR. LONEY: Any questions? 10 MR. ALVAREZ: I had a question for 11 Ms. Nahikian. You spoke of the importance of 12 having both equity investments as well as 13 credit available for starting small businesses 14 and revitalizing communities. If you start 15 from the premise that banks have very limited 16 ability to make equity investments, their legal 17 authority is very limited in that area so they 18 are primarily lenders, and you look at 19 Citibank's commitment, or commitments of other 20 banks that have made similar kinds of 21 commitments to make CRA kind of lending, what 22 would, in your view, be the most effective way 23 that the banks could use their credit abilities 24 in order to help revitalize the community? 25 What kind of partnerships are available to . 463 1 2 bring equity into serve as a base for that kind 3 of bank credit? 4 MS. NAHIKIAN: I raise the issue of 5 equity or investment because I think the 6 opportunity with Travelers presents some of 7 that, perhaps for the first time. Banks, of 8 course, do loan money. That is their function. 9 I think there are three or four different ways 10 that credit issues could be addressed. 11 One is the notion that you have to 12 view underwriting of small businesses and what 13 brings value and what can be used as collateral 14 or equity in a lending situation. I think that 15 has to be looked at differently. I think that 16 you do have to look at things like family 17 equity, labor, some of the things that may not 18 traditionally be on the chart when you try to 19 value enough equity into a business to support 20 a loan. 21 I think another critically important 22 thing is the creation or working maybe in a 23 pool-risk situation to create some secondary 24 markets for small business loans. I think 25 everyone recognizes that on one hand small . 464 1 2 businesses have a high failure rate. On the 3 other hand, they are the fastest growing source 4 of employment in our country. I think it is 5 particularly true with minority and women 6 owners, that because of leadership from some of 7 our financial institutions and CRA, we are 8 seeing a number of new businesses and the 9 business owners get loans. 10 What we found is that the second loan 11 is even higher because it falls in a much more 12 traditional hole of do you have enough equity, 13 do you have enough operation. Particularly 14 women business owners seem to have a very hard 15 time getting the second line, the expansion, 16 the growth loan. Those are some of the 17 recommendations I would make. 18 I certainly think that AAFE has made 19 some excellent suggestions, because I think 20 that having direct input through an advisory 21 group will make a big difference. I'm not sure 22 that any of us know exactly what these products 23 look like. We just know that the risk analysis 24 doesn't work, but these are strong economic 25 institutions in our community that need . 465 1 2 support. 3 MR. LONEY: Thank you. 4 Any other questions? If not, I will 5 thank the panel.
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