Public Meeting Regarding Citicorp and Travelers Group
Thursday, June 25, 1998
Transcript of Panel Six
|
Public Meeting Regarding Citicorp and Travelers Group |
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17 MR. LONEY: Thank you.
18 Any other questions from the panel?
19 If not, it is very interesting. We thank you
20 for coming.
21 Our next panel is Panel Six. Howard
22 Sommer, George Schmitz, Eric Powell, John
23 Ferrandino, Mark Emmert and Howard Banker.
24 Mr. Sommer.
25 MR. SOMMER: Yes. Are you ready for
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2 my remarks? Fine.
3 I am Howard Sommer. I am president
4 and CEO of the New York Community Investment
5 Company. I am pleased to have this opportunity
6 to briefly share with you the activities of the
7 New York Community Investment Company, commonly
8 referred to as NYCIC, an investment and loan
9 fund located in Manhattan and servicing the
10 capital needs of small businesses throughout
11 the City of New York, as well as comment this
12 morning on the important role played by
13 Citibank in that effort.
14 MR. LONEY: Could we have quiet,
15 please.
16 MR. SOMMER: NYCIC was created in
17 1995 as a New York clearinghouse association
18 multibank effort to meet the lack of
19 institutional sources of equity capital and
20 subordinated debt to the small business
21 community. Traditional sources of such funding
22 venture capital funds, SBICs, and investment
23 banking firms, almost exclusively focus on
24 larger companies with relatively high-funding
25 requirements, and with potential to convert to
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2 public ownership within a few years.
3 The overwhelming share of small
4 businesses, privately owned, with sales of
5 $500,000 or, perhaps, $5 million, whose funding
6 need is $100,000 or even $1 million, with no
7 near-term IPO potential, but with potential for
8 revenue growth and employment gains, have no
9 choice but to rely on limited personal funds,
10 excessive debt levels or, as is often the case,
11 conclude that they are unable to pursue
12 expansion opportunities.
13 This problem is even more acute among
14 women and minority-owned businesses and those
15 located in and near the city's low- and
16 moderate-income areas, as these companies tend
17 to be smaller, newer, and more
18 undercapitalized.
19 A related goal of NYCIC is to provide
20 similar types of risk capital to nonbusiness
21 economic development efforts, including private
22 sector initiatives launched by not-for-profit
23 groups and other community-based activities
24 related to fostering entrepreneurial energies.
25 For the past two-and-one-half years,
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2 NYCIC has been identifying growing small
3 companies with a need for patient, risk capital
4 in the range of $50,000 to $1 million. We are
5 close to funding our twentieth deal, pushing
6 our investment level past the $5 million level.
7 Equally important is the fact that
8 NYCIC's moneys have leveraged an additional $8
9 million in coinvestor and bank support, thereby
10 causing over $13 million of investment funds to
11 support New York City's small businesses.
12 I should also add that close to 80
13 percent of closed deals were to companies
14 either women-owned, minority-owned, or located
15 in LMI census tracts.
16 Citibank's active role in this
17 success story has been most impressive.
18 Citibank's Mary Cosgrove played a pivotal and
19 leading part during the concept and planning
20 stages, as evidenced by Ms. Cosgrove's election
21 to the position of vice chairman. This
22 leadership role has been further enhanced by
23 Citibank's financial support where the bank
24 participated at the highest of levels of bank
25 investment at over $1 million.
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2 Citibank Community Development
3 continues in an ongoing basis to offer its
4 financial, creative and personnel resources to
5 advance NYCIC's mission. Examples include
6 referrals of small business clients and
7 prospects in need of long-term capital and
8 access to and funding of a variety of NYCIC
9 sales or marketing activities.
10 Equally important has been Citibank's
11 commitment to the spirit of NYCIC's mission.
12 My personal working experience with
13 Ms. Cosgrove and other Citibank personnel has
14 been clearly evidenced by a devotion to the
15 cause of community development, and in NYCIC's
16 particular case to the advancement of economic
17 development throughout the five boroughs of New
18 York City. I see I have just a few seconds
19 left. Let me consolidate my final comments.
20 Just coincidentally, more recently I
21 have had an opportunity to work on a same and
22 similar mission with the other partner in this
23 merger, Travelers.
24 New York State recently passed new
25 legislation for the creation of certified
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2 capital companies, where moneys raised from the
3 insurance industry is to be used to fund, in a
4 venture capital format, small businesses
5 throughout the State of New York.
6 Without hesitation I can tell you
7 that without the efforts of Travelers Insurance
8 Group and the Salomon Smith Barney Group we
9 would never have been successful raising $30
10 million to be used to support investment
11 activity for small businesses within the City
12 of New York and surrounding areas.
13 Thank you for your time. I hope
14 these comments have been helpful.
15 MR. LONEY: Yes. Thank you for
16 providing them.
17 Mr. Schmitz.
18 MR. SCHMITZ: Thank you. Good
19 morning. My name is George Schmitz. I am the
20 executive director of the Leviticus Alternative
21 Fund in Yonkers, New York.
22 Leviticus Fund is a certified
23 community development financial institution
24 serving the New York, New Jersey, Connecticut
25 tristate area. We offer loans to nonprofit
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2 housing groups, to women and minority-owned
3 businesses, and recently we are establishing a
4 niche as a lender in the childcare industry.
5 I'd like to begin this morning by
6 speaking of the positive impact that Citibank
7 has had in the world of CDFIs and, in
8 particular, to loan funds.
9 Leviticus Fund is one of 43 members
10 of the National Community Capital Association,
11 most of whom are regional or national loan
12 funds. Citibank was among the first financial
13 institutions to recognize the role that CDFIs
14 play in the delivery of financial services in
15 underserved geographic areas to nonprofit
16 community-based organizations and to women and
17 minority entrepreneurs.
18 Citibank encouraged the NCCA to help
19 its members define and conform to industry
20 standards consistent with its community
21 development mission and then committed $1
22 million to provide equity grants to the member
23 funds. Citibank has subsequently made an
24 additional $1 million funding commitment to the
25 NCCA. The second commitment is structured in
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2 such a way that it increases the leveraging
3 capability of NCCA and its member funds.
4 I believe that Citibank, particularly
5 through its community development unit, has
6 shown an eagerness to support a variety of
7 community development efforts, a willingness to
8 try looking with community development
9 organizations and community development
10 financial institutions as to their needs and,
11 most importantly, Citibank has demonstrated
12 flexibility and creativity in striving to help
13 us meet these needs.
14 Having outlined my very positive
15 personal impressions, I will tell you that my
16 personal experience in working with the
17 Citibank Community Development staff has been
18 excellent. Citibank and Citibankers have
19 provided financial support and valuable
20 technical assistance to Leviticus Funds. We
21 are a stronger organization able to reach a
22 wider range of community development borrowers
23 because of our relationship with Citibank.
24 However, the recent history of
25 mergers and acquisitions in the banking
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2 industry does give me pause. I am concerned
3 about how these mergers might affect the
4 delivery of financial services, particularly in
5 low-income neighborhoods, inner cities, to
6 minority groups and to immigrants.
7 I'm aware that the Community
8 Reinvestment Act has been strengthened in
9 recent years, but the Community Reinvestment
10 Act does not apply beyond the banking industry.
11 I believe that we'd all be better
12 served if CRA could have a wider reach; in
13 particular, if CRA could be applied in other
14 areas of the financial services industry, in
15 particular to the insurance industry, to
16 investment brokerage firms, to mutual funds,
17 and even FCRA could have stronger clout with
18 some of the GSEs, particularly Freddie Mac.
19 It is my hope that as the Travelers
20 Group and Citicorp form Citigroup that Citibank
21 may play a leading role, as it has in the past,
22 in educating other sectors of the financial
23 services industry about the important role that
24 community development organizations play in our
25 day-to-day lives.
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2 I welcome the recent announcement of
3 the ten-year $115 billion commitment to lending
4 and investing in low-income and moderate-income
5 communities and to small businesses. I look
6 forward to continuing a positive relationship
7 with Citigroup, and I anticipate further
8 dynamic and creative initiatives that will
9 challenge other financial institutions over a
10 range of industries to follow suit.
11 I also hope that many of the issues
12 that arise around this merger would also
13 challenge Congress and the regulatory agencies
14 to relook at the Community Reinvestment Act and
15 its impact.
16 Thank you very much.
17 MR. LONEY: Thank you.
18 Mr. Powell.
19 MR. POWELL: Good morning. My name
20 is Eric Powell, and I currently serve as the
21 vice president, director of finance, for the
22 New York City Housing Partnership. I am
23 formerly the executive director for the New
24 York Mortgage Coalition.
25 The New York City Housing Partnership
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2 is a national leader in housing development and
3 advocacy. Since 1982, the Housing Partnership
4 has developed more than 13,000 homes in 50
5 neighborhoods across New York City. Working
6 with the government, community groups for
7 profit developers and banks, the Partnership
8 Housing programs have transformed city
9 neighborhoods and resulted in private
10 investment totalling nearly $1 billion.
11 The New York Mortgage Coalition is a
12 five-year organization administered by the New
13 York City Housing Partnership. The coalition
14 is a consortium of eleven lenders and eight
15 not-for-profit community-based organizations
16 providing home ownership counseling to low- to
17 moderate-income communities throughout New York
18 City, Long Island and Westchester.
19 The New York City Housing Partnership
20 has had a positive working relationship with
21 Citibank for several years. Citibank has been
22 a leader, among leading institutions, in its
23 commitment to affordable housing and community
24 development initiatives.
25 In 1994, Citibank established a $1
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2 million line of credit to provide low cost
3 loans for minority builders, contractors and
4 subcontractors, working in the Housing
5 Partnerships, New Homes, and Neighborhood
6 Builders programs.
7 These loans have enabled small
8 businesses, enterprises owned by minorities and
9 women, to gain access to credit and to benefit
10 from business opportunities generated by
11 Partnership developments.
12 Citibank has also provided nearly $17
13 million in construction loans for several
14 Housing Partnership developments, including 147
15 two-family homes at Soundview Village in the
16 Bronx, five two-family homes in Elmhurst,
17 Queens, and 31 units at Lakewood Gardens in
18 South Jamaica, Queens.
19 This year Citibank is expected to
20 provide nearly $17 million in construction
21 financing for 216 units in the Saratoga Square
22 section of Brooklyn.
23 In addition, Citibank has provided
24 permanent mortgage loans for partnership home
25 buyers in several developments. The
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2 partnership has also benefitted from Citibank's
3 involvement in the Neighborhood Entrepreneurs
4 program which helps locally-based property
5 managers renovate and acquire city-owned
6 buildings.
7 Citibank has provided loans totalling
8 nearly $53 million for the rehabilitation of
9 more than 600 neighborhood entrepreneur units
10 in Brooklyn, the Bronx and Harlem.
11 Earlier this year Citibank awarded an
12 $80,000 grant to the Housing Partnership's new
13 initiatives program, which administers the
14 working-capital loans for neighborhood
15 contractors in both the New Homes and
16 Neighborhood Entrepreneurs program, and
17 provides technical assistance to program
18 participants.
19 Under new initiatives, the Housing
20 Partnership is working with the U.S. Department
21 of Housing and Urban Development to preserve
22 federally-assisted affordable housing units.
23 Citibank has been an active partner
24 in the New York Mortgage Coalition. As a
25 member of the New York Mortgage Coalition,
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2 Citibank has helped the New York Mortgage
3 Coalition Group provide free purchase
4 counseling to prospective home buyers in New
5 York City, Long Island and Westchester.
6 The bank offers attractive,
7 affordable housing loan products with low
8 downpayment and low interest products. It also
9 offers flexible financing for two- to
10 four-family homes, and provides support for
11 outreach and community group seminars for
12 first-time home buyers.
13 Recently Citibank awarded the New
14 York City Housing Partnership $4,000 as a part
15 of its community summer intern program. With
16 funds from this program, the partnership will
17 hire an intern to work as an assistant project
18 manager in the New Homes program.
19 In closing, our partnership with
20 Citibank has helped us achieve our mission of
21 creating affordable housing and assisting local
22 communities in realizing the benefits of
23 economic development. We anticipate the
24 following approval of its merger with Travelers
25 Group, Inc.
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2 Citibank will remain an active
3 part -- at least we expect Citibank to remain
4 an active partner in support of the New York
5 City Housing Partnership as well as the New
6 York City Mortgage Coalition.
7 Thank you.
8 MR. LONEY: Thank you, Mr. Powell.
9 Mr. Ferrandino.
10 MR. FERRANDINO: Thank you. Good
11 morning.
12 My name is John Ferrandino. I am the
13 vice president for the National Academy
14 Foundation and the national director of the
15 Academy of Financing at the National Academy
16 Foundation.
17 The National Academy Foundation is a
18 not-for-profit educational organization that
19 combines the knowledge and experience of
20 education, business, and government leaders to
21 better prepare young people in high school for
22 their future.
23 The National Academy Foundation uses
24 a model that involves career academies -- which
25 are theme-based schools -- within schools
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2 across the country that provide young people
3 with the experience and opportunity to combine
4 a curriculum that is industry validated with an
5 internship in the financial area, the financial
6 field, or other fields related to it. As these
7 partnerships take place in forming academies,
8 it is critical to understand that these are
9 located throughout the country and mostly in
10 the urban centers of the country.
11 The first academy, in the area of
12 finance, opened in Brooklyn in 1982 with 35
13 students. As of September 1998, the National
14 Academy Foundation will have nearly 300
15 academies in finance, travel and tourism, and
16 public service in 33 states across the
17 currently, plus the District of Columbia. In
18 just three years, projections say that we will
19 have over 500 academies in all 50 states.
20 Through its extensive outreach and
21 expansion, we are on the forefront of the
22 school-to-work movement. It is a focus of and
23 model for reform within American education. Of
24 the more than 20,000 students who have gone
25 through the academies, at the present time it
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2 is estimated that 65 percent have been
3 identified as being at risk of dropping out of
4 school due to their socioeconomic
5 circumstances. Over 65 percent of these
6 students are also identified as being young
7 people of color.
8 The Travelers Group and Sandy Weill
9 have served as the key factor in the growth and
10 development of the National Academy Foundation,
11 from one Academy of Finance in 1982 to a
12 national leader in the school-to-career
13 movement. Roundly acknowledged as the founder
14 of the Academy of Finance, Mr. Weill has played
15 a major role with the Travelers Group in making
16 sure that this program has grown.
17 It is of important interest to
18 understand that academies of finance, which
19 were designed by educators as a replicable
20 model appropriate for various industries and
21 geographic regions, with measured benefits to
22 young people, teachers, schools, and the
23 corporate community at large. With this
24 win-win proposition in place, the academy model
25 has grown rapidly, with broad corporate support
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2 nationally.
3 At the present time the Travelers
4 Group and its subsidiary companies provides
5 leadership in the following areas: There are
6 over 250 to 300 summer internships provided
7 across the United States, 100 of which are in
8 New York City. There are members of the local
9 advisory board in every major city of the
10 country represented by various components of
11 the Travelers Group. And in addition to that,
12 there is major corporate funding that goes into
13 providing scholarships and direct support for
14 curriculum-enrichment activities and other
15 kinds of growth activities for young people in
16 the country.
17 From 1990 to the present, the
18 Travelers Group has donated over 4.5 million to
19 the National Academy Foundation which has
20 helped to support the development of
21 computerized, industry-validated curriculum,
22 comprehensive staff development programs, and
23 technical assistance and quality assurance from
24 the national staff. This academy program has
25 been acknowledged nationwide and is now being
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2 developed to pursue the various other parts of
3 the urban communities of our country.
4 In addition to the support provided
5 to NAF's national activities, the Travelers
6 Group and its subsidiaries, local offices, and
7 employees, and the Travelers Foundation
8 sponsors paid internships, scholarships, grants
9 to local programs and other services that
10 directly impact the education and improve the
11 lives of the young people involved in the
12 National Academy Foundation programs.
13 In the New York City area alone, as I
14 said, there are a hundred student interns.
15 Together Salomon Smith Barney and the Copeland
16 Companies -- both Travelers Group
17 subsidiaries -- provide business advisory board
18 leadership, paid internships and scholarships
19 for Academy of Finance students in nearly every
20 major city of the United States.
21 Employees from all of these companies
22 go into classrooms on a regular basis and
23 discuss with students the future of the
24 financial services industry and provide direct
25 content instruction as part of their community
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2 involvement.
3 The Travelers Foundation makes grant
4 funding available to every Academy of Finance
5 across the country that demonstrates it has
6 involvement from Travelers Group employees.
7 While Travelers Group has made a
8 significant contribution to the National
9 Academy Foundation and the Academy of Finance
10 as an individual corporation, its impact on
11 broadening the base of NAF's support to more
12 young people has been one of its greatest
13 contributions.
14 Under the leadership of Mr. Weill,
15 who is chairman of the board of directors of
16 the National Academy Foundation, a base of
17 support has expanded to include the CEO of
18 Merrill Lynch, the CEO of Prudential
19 Securities, the CEO of Bloomberg Information
20 Services, and the CEO of McGraw Hill companies.
21 These additional companies coming on
22 board and becoming partners with the National
23 Academy Foundation have allowed us to grow and
24 make sure that every young person who is
25 involved in the program has access to paid
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2 internships during the summer that are
3 educational, experiential within the industry,
4 and provide young people with career
5 opportunities for the future.
6 At the present time, 90 percent of
7 all the students who have graduated from the
8 academy programs have gone on to post-secondary
9 education. As the Academy of Finance student
10 population has grown, we presently have 70
11 percent of these young people are of color and
12 over 60 percent are female.
13 In conclusion, I know that this
14 merger will bring together two major forces
15 that will continue to support the growth and
16 development of American urban education.
17 Thank you.
18 MR. LONEY: Thank you,
19 Mr. Ferrandino.
20 Mr. Emmert.
21 MR. EMMERT: I am Mark Emmert, the
22 chancellor of the University of Connecticut,
23 and I'd like to thank you for the opportunity
24 to testify today in this public meeting.
25 I'd like to specifically speak to the
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2 record of the Travelers Group as a corporate
3 partner in its manifestation of corporate
4 responsibility and its relationship with the
5 University of Connecticut and its support of
6 education and community development in the City
7 of Hartford in the State of Connecticut.
8 The University of Connecticut is the
9 flagship of the Connecticut State higher
10 education system, with specific
11 responsibilities for enhancing social, cultural
12 and educational environments of the state. As
13 well as its core mission as an educational
14 institution, we have to worry a good deal about
15 economic development of our communities and how
16 we are participants in that development.
17 Fulfilling this multifaceted mission requires
18 us to seek out and join with mutually-supported
19 partners, such as the partnership that exists
20 with the Travelers Group and the University.
21 Let me briefly describe some
22 manifestations of this partnership. Earlier
23 this year the University and Travelers
24 announced a major agreement under which
25 Travelers has donated over 30,000 square feet
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2 of space in Travelers Education Center in
3 downtown Hartford to the University for three
4 years.
5 The Travelers Education Center has
6 now given the University a high-quality urban
7 location from which we offer courses and
8 programs that enhance the vitality of downtown
9 Hartford. This space also permits the
10 University to expand our educational activities
11 into Connecticut's urban centers, which were
12 heretofore impossible for us to do.
13 Under the Education Center agreement
14 with Travelers, we are now able to offer
15 undergraduate and general studies courses,
16 courses on information systems and operations
17 management, and MBA level coursework. We have
18 just also decided to offer our masters of
19 science in accounting program at the Education
20 Center. And in this way we are able to use
21 educational resources more effectively and to
22 serve larger and more diverse populations than
23 we could have otherwise.
24 The University and Travelers are also
25 working together to promote the business
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2 education -- excuse me -- to promote the
3 education of talented high school students from
4 inner city Hartford through the continuing
5 support of the Academy of Finance, which we
6 just heard so nicely described.
7 There are two high schools inside the
8 Hartford community that are involved in the
9 Academy of Finance, as well as the University,
10 in this partnership. The University is now
11 also matching the scholarship commitments
12 supported by an endowment that Travelers has
13 provided for a Travelers' scholarship fund by
14 offering tuition scholarships to Academy of
15 Finance graduates that attend the University of
16 Connecticut.
17 These most recent actions on the part
18 of Travelers are an extension of the
19 University's long history of partnership with
20 the company.
21 Travelers has supported numerous
22 other programs at the University of
23 Connecticut. Its nearly $2 million in
24 contributions to the University -- beyond the
25 recent Education Center donation -- include the
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2 Travelers Chair in Geriatrics and Gerontology
3 at the Health Center, continuing support for
4 the Travelers Center on Aging, at all of our
5 campuses, scholarships, and a variety of
6 contributions to the University's Research
7 Foundation to assist faculty efforts in high
8 school writing programs, in math and science
9 laboratories, in corporate training, small
10 business development, our pharmacy school, and
11 evaluation of tutorial programs for Hispanic
12 students.
13 I am pleased to testify to Travelers'
14 well-defined and productive sense of corporate
15 responsibility toward higher education and to
16 underline the positive impact it is having on
17 higher education and community development in
18 Connecticut.
19 Let me end by responding to what I
20 believe was an assertion that I heard earlier
21 today, that those testifying in support of
22 Travelers or Citicorp are a direct or indirect
23 beneficiary of their largess. On behalf of the
24 students and faculty and communities who we
25 serve and who have been supported through
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2 Travelers philanthropy, I plead guilty.
3 Indeed, I hope to be guilty for many years to
4 come of being a recipient of the largess of
5 these corporations.
6 Thank you very much.
7 MR. LONEY: Thank you, Mr. Emmert.
8 Mr. Banker.
9 MR. BANKER: Thank you and good
10 morning. We appreciate the opportunity to
11 describe and to disclose Citibank's support of
12 the Low Income Housing Fund, of which I am the
13 program manager for New York.
14 LIHF is a 14-year-old national
15 community development lending institution. We
16 have made loans in about 19 states, about $135
17 million in originations and packages, and I
18 need to describe a little bit more about LIHF
19 to properly put into perspective the support
20 Citibank has rendered.
21 Our mission is to address problems
22 created by lack of capital in low-income
23 neighborhoods by acting as a link between
24 community-based development organizations,
25 capital markets, and other sources of financing
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2 and support. Our goal, since our creation in
3 '84, is to increase capital for low-income
4 communities, primarily by providing funding for
5 low-income housing and community facilities at
6 affordable rates and terms.
7 Our work has contributed to the
8 creation of almost 14,000 units of housing, and
9 77 percent of our financed projects serve very
10 low-income individuals, families or supportive
11 housing persons, and 20 percent target
12 low-income families. So LIHF's name is, in
13 fact, clear and true in that we seek to finance
14 the very lowest income, individuals and
15 families, throughout the projects around the
16 country that we provide financing for.
17 Since our inception, Citibank has
18 provided $715,000 in capital grants from four
19 banks and affiliates, primarily, they are a
20 California Savings Bank affiliate, but also
21 made loans to us from their affiliate in
22 Nevada, in the mid-Atlantic regions, with fixed
23 loans in Washington, D.C. So they have
24 supported us around the country and have
25 accepted packaged loans of approximately $4.7
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2 million. That is the second largest loan
3 packaging agreement we have with any lender.
4 The key to the capital grants for the
5 Low Income Housing Fund is, over two-thirds of
6 our operating budget comes from fees and
7 interest spread, and so capital grants are
8 critical not only to fund, in an ongoing way,
9 projects we see before us, but to allow us to
10 not have to compete with our borrowers for
11 scarce operating support.
12 So a capital grant is a better
13 approach to working with the Low Income Housing
14 Fund than an administrative grant. Although,
15 Citibank has provided about $65,000 in
16 administrative grants in New York and
17 California.
18 It is the policy of the Low Income
19 Housing Fund, some might say cleverly, to
20 neither support nor argue against nor provide
21 for CRA challenges to the lender. We seek to
22 act as a true intermediary between the
23 development, nonprofit development communities
24 and lenders. We do that by making loans.
25 Citibank has been a supporter of the
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2 Low Income Housing Fund since its inception.
3 Before we had a $10 million fund balance.
4 Before our balance sheet didn't look like much
5 of anything at all, and that is difficult to
6 quantify, but it is clear to say that their
7 support has been long-standing, far-reaching
8 and not in a single approach.
9 We thank you.
10 MR. LONEY: Thank you, Mr. Banker.
11 Any questions from the panel?
12 If not, then I will thank the panel.
13 We are scheduled to take a break
14 until 12:50 for lunch.
15 (Luncheon recess)
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