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Public Meeting Regarding Citicorp and Travelers Group
Thursday, June 25, 1998
Transcript of Panel Three

   7               MS. MC CALL:  No.  Thank you very

   8     much for your contribution this morning.

   9               Could I ask.  Some of the folks who

  10     missed testifying on panel two and are here,

  11     could I call Glenn VanNostritch, Walter

  12     McCaffrey, Peter Rivera and Dennis Walcott.

  13               Why don't we start from left to

  14     right, Mr. VanNostritch.

  15               MR. VAN NOSTRITCH:  Thank you.  My

  16     name is Glenn Van Nostritch and I'm research

  17     director for public advocate Mark Green.  He

  18     was supposed to be on the 9:35 panel.  As you

  19     know there were a few delays and he had another

  20     meeting he had to get to.

  21               If you approve the Travelers Group

  22     application you will be giving a green light to

  23     the structuring of the bulk of the nations

  24     financial services industry into a handful of

  25     massive financial services conglomerates.  I


   2     urge you to reject this application because

   3     such restructuring would occur in the absence

   4     of crucial laws to protect consumers and expose

   5     taxpayers to substantial liability.

   6               First, I'd like to talk about the

   7     cross-marketing and de facto product tie-in

   8     concern.

   9               Although Citicorp and Travelers had

  10     stated that the chief motivation is to

  11     cross-market their wide array of financial

  12     services and products, they haven't provided

  13     you with any actual cross-marketing plan.  They

  14     said that these plans will quote unquote

  15     develop over time.  But since cross-marketing

  16     presents serious consumer pitfalls it is

  17     important to know now, not after you've reached

  18     your decision, how Citigroup is going to

  19     cross-market among its affiliates.

  20               One of these pitfalls is product

  21     tying -- the de facto requirement for a

  22     customer buying one financial product to

  23     purchase another at the same time.  Consider

  24     the position of someone applying for a car loan

  25     from one Citigroup affiliate who is handed a


   2     credit insurance application to another

   3     Citigroup affiliate.

   4               It would be very understandable if

   5     she believed that not completing the insurance

   6     application would hurt her chances for a loan

   7     approval, even if no one directly told her that

   8     there was a quid pro quo.

   9               The same holds true for the hopeful

  10     home owner waiting word on a mortgage

  11     application to get the call from Citigroup

  12     insurance affiliate about applying for a

  13     homeowners insurance.  The resulting harm is

  14     that the individuals might well have purchased

  15     the insurance elsewhere at lower cost had they

  16     not felt compelled to buy everything under the

  17     Citigroup umbrella.

  18               The applicant that says that as part

  19     of it's cross-marketing will use quote unquote

  20     relationship pricing in which discount is

  21     granted if you buy a package of financial

  22     products and that relationship pricing has

  23     numerous consumer advantages such as

  24     convenience and more personalized service.

  25               Experience with Citibank's


   2     relationship pricing illustrates how it can

   3     discourage comparison shopping and raise

   4     consumer costs. According to the consumer bank

   5     scorecard of 50 banks that is issued annually

   6     by Mark Green, Citibank has consistently ranged

   7     amongst the five most expensive banks in New

   8     York City like services like checking accounts

   9     and a six thousand dollar minimum balance of

  10     free checking is far higher than it's major

  11     competitors.

  12               Recently Citibank had added mortgages

  13     and other credit card products to this

  14     relationship to reach a six thousand dollar

  15     minimum.  The down side of consumers is that

  16     mostly Citibank's products including mortgage

  17     and credit cards could be obtained somewhat

  18     less expensive by shopping around and it's

  19     deposit accounts pay less than most other

  20     banks.

  21               So even should a consumer get a

  22     seemingly good deal on one Citibank product the

  23     savings could easily be offset by high prices

  24     for the other services.  For instance, savings

  25     from the free checking could be offset by the


   2     comparatively high annual finance charge in

   3     most Citibank credit cards.

   4               In short, cross-marketing as

   5     encouraged by relationship bank pricing is

   6     anti-competitive from shopping around for

   7     better pricing.

   8               Then there is the issue of product

   9     tie-in.  Last month Nations Bank paid a $7

  10     million federal fine for misleading its

  11     customers, many of them elderly people who have

  12     been investing in federally insured CDs about

  13     the risk of investing in mutual funds.  This

  14     case illustrates the dangers and temptations of

  15     putting securities in banking businesses under

  16     one roof.  Yet common ownership every

  17     securities and banking affiliates should only

  18     increase the motivation to cross-market these

  19     products.

  20               Representative John Dingell has

  21     proposed giving the SEC more power to regulate

  22     brokerage activities in banks because current

  23     protections are insufficient.  The Travelers

  24     Group acquisition of Citicorp would occur

  25     without such necessary protection.


   2               Nationsbank is not an

   3     isolated case.  A May, 1996, study by the FDIC

   4     found that more than one-fourth of the banks

   5     surveyed failed to tell on-site customers that

   6     products are not insured and 55 percent failed

   7     to inform telephone customers.

   8               Consumers regrettably are vulnerable

   9     to misinformation and manipulation.  A 1994

  10     survey conducted for the American Association

  11     of Retired Persons found that fewer than one in

  12     five bank customers understood that products

  13     such as mutual funds and annuities are

  14     uninsured.

  15               The board should not approve

  16     Travelers application until new privacy

  17     protections applying to financial services

  18     conglomerates are enacted into law.

  19               Primerica, Credit Corporation,

  20     Citibank and Salomon Smith Barney possess

  21     intimate, private information about tens of

  22     millions Americans.  Through loan applications

  23     they know about the jobs many people hold, from

  24     credit card records they know about recent

  25     purchases, from mortgage applications they know


   2     the age and value of their residences, from

   3     auto insurance files they know about driving

   4     records, and from banking files they know if

   5     there was recently a large deposit in an

   6     account.

   7               Travelers promised to adopt the quote

   8     unquote opt-out system by which consumers

   9     affirmatively indicate that they do not want

  10     their personal information shared.  Recently

  11     one of serious problems the opt out method were

  12     currently used such as the opt out disclosure

  13     are buried in the middle or near the end of a

  14     multi-page agreement.

  15               A much better approach is to

  16     affirmatively opt in to approve dissemination

  17     of personal information among Citigroup

  18     affiliates.

  19               The rest of our testimony discusses

  20     how taxpayers will be put on the line by such a

  21     merger because of the dangers of under

  22     regulation of insurance affiliates and the

  23     inadequacy of the overall regulatory structure

  24     for such a large multifaceted conglomerate.

  25               Thank you.


   2               MR. LONEY:  Thank you for your

   3     consideration of our time restraints and we

   4     will certainly put the rest of your testimony

   5     in the record.

   6               Before we go to Mr. McCaffrey I want

   7     to introduce Barbara Kent from the New York

   8     State Banking System.

   9               MR. MC CAFFREY:  Thank you very much.

  10     I am counsel member Walter McCaffrey

  11     representing the people of the 26th council

  12     district in western Queens.

  13               I come today with an experience in

  14     dealing with Citibank borne not just during my

  15     position as an elected official, but having

  16     served as a chair of a community board in

  17     western Queens and district chief of staff to a

  18     member of the House of Representatives.

  19               In 1985 Citibank originally came to

  20     Long Island City with a proposal to build what

  21     is now their fifty story headquarters in

  22     Queens.  The facility at that time was

  23     obviously going to be something significantly

  24     and dramatically different from that which is

  25     in the community.


   2               Queens did not have such a skyline as

   3     it has now.  But Citibank came not to be in

   4     Long Island City but rather to be part of Long

   5     Island City.  Through the process the bank

   6     ended up agreeing readily to the request of the

   7     community to participate in a whole host of

   8     activities.  For example, Citibank has set up

   9     over the years an amenities package.  The

  10     amenities package that was agreed to by the

  11     bank and developed in cooperation with the

  12     community became in many ways quintessential

  13     example of amenities packages not really in

  14     this city but around the nation.

  15               Programs for senior citizens,

  16     programs for the youth in the community,

  17     housing funds were all readily available and

  18     there was a set period of time in which the

  19     bank had a legal obligation to provide those

  20     resources.

  21               At the expiration of that period of

  22     time, however, the bank could have walked away

  23     and said wealth we have discharged our

  24     responsibility but rather they chose to

  25     continue that financial involvement with the


   2     community over the years without any sort of

   3     obligation whatsoever.

   4               The institution also as it was going

   5     up was one of the first private construction

   6     sites in the City of New York to aggressively

   7     have an MBE, a minority business employee

   8     enterprise component, and a WB, a woman

   9     business enterprise component in the

  10     construction phase, and that was something in

  11     that period of time that was not seen really in

  12     the private sector.  It was something that had

  13     been looked at and used in terms of development

  14     of public projects.

  15               So the bank over the years has had

  16     that type of involvement.  It is one of the two

  17     institutions in the City of New York that has

  18     really moved forward in the development in

  19     terms of programs to deal with elder abuse.

  20               Other banks in the city did not live

  21     up to their obligation after it was pointed out

  22     that the banking community generally had a poor

  23     record.  They stepped forward and aggressively

  24     so.  In terms of the ATM law in the City of New

  25     York which is the toughest law in the United


   2     States, and having been the author of that, I

   3     have to say that Citibank did not come into

   4     that process dragging its heels but rather

   5     aggressively moved, with only a few exceptions

   6     of those members of the banking company.  Sad

   7     to save that the State of New York has tried to

   8     gut that law.  The fact of the matter is we

   9     have seen that Citibank has been aggressive in

  10     terms of customer safety and ATM.

  11               I understand that we look at this in

  12     a perspective of national context, but

  13     certainly I want you to understand what the

  14     context is in terms of the specific community.

  15               We've heard testimony from people

  16     today as to some policies but I wanted to give

  17     you a specific example, and it would have been

  18     very easy for that institution to come in to

  19     use its power to be able to get approval and

  20     not do anything for the community.

  21               Matt Lee rightly points out that

  22     there is uncertainty as to whether or not

  23     federal law will change in terms of that which

  24     has been considered a firewall for many years

  25     in terms of financial institutions.  But I


   2     think at the time in which it was passed we had

   3     a much different type of financial institution

   4     at hand.

   5               Nearly 70 percent of the investment

   6     and financial institutions at that time was in

   7     banks.  It is now down to under 30 percent.  We

   8     never saw the development of credit unions at

   9     that time.  We now see that and we see now

  10     billions of dollars invested in the

  11     metropolitan area in other institutions and

  12     certainly on the national basis we see that the

  13     credit union concept is something that has a

  14     major impact now and as an alternative source.

  15               I understand the position of our

  16     distinguished public advocate in terms of

  17     concerns, and there are legitimate concerns in

  18     terms of privacy, but I think from the consumer

  19     point of view we now see entities in the City

  20     of New York who are banks that came from afar

  21     for New York's customers who are now here.  We

  22     see that type of diversity, and, again we see

  23     that type of competition and the competition is

  24     out there.

  25               Now, some consumers will choose not


   2     to be savvy and some will choose to be able to

   3     watch very, very closely and to be able to make

   4     competitive decisions.  The fact of the matter

   5     is I think with education out there that that

   6     is something that can be addressed.  So I would

   7     suggest that this is a good proposal on

   8     balance.  It is not a perfect one, but it is

   9     one which I think will benefit.

  10               MR. LONEY:  Thank you.  Mr. Walcott.

  11               MR. WALCOTT:  Good morning to you.  I

  12     should say good afternoon probably to all of

  13     you who are here since morning.  You started

  14     early.

  15               I want to approach this both as

  16     president of the New York Urban League as well

  17     as a former member of the City of New York city

  18     board of education and talk about the

  19     opportunities that are presented before us

  20     right now with this potential merger and I want

  21     to focus on several items included in the

  22     potential merger.  One, taking a look at the

  23     merged opportunities for investment in the

  24     office of financial literacy, and creating the

  25     advisers panel on financial literacy, also


   2     Citigroup initiative dealing with education

   3     both at a student level and an elementary level

   4     as well as middle and high school level.

   5               Talk about the area of developing the

   6     financial skills of young Americans and how the

   7     Citigroup will be responsive in developing

   8     that, and also talk about their public

   9     awareness campaigns in trying to deal with both

  10     the literacy and math initiatives within the

  11     New York City public school system.

  12               It is proposed that 25 million

  13     dollars will be developed for the banking

  14     education initiative making sure that children

  15     regardless of their families' income become

  16     computer literate.  Also talk about the

  17     development of the new technology that's being

  18     proposed with the merger as well.

  19               In addition to that, I want to talk

  20     about the center for community development

  21     enterprise that's being proposed with the

  22     merger, and I think there are a lot of great

  23     opportunities with the potential merger.  One

  24     of the other things that I think is extremely

  25     important to talk about that I really have not


   2     heard dealt with at all this morning is the

   3     corporate involvement on the part of the

   4     leadership of both Travelers as well as

   5     Citibank as well.

   6               For example, Citibank vice-president

   7     has become the newest member of the New York

   8     City Board of Education on the Travelers side.

   9     One of their members it's now on the New York

  10     State board of regents.  Former vice-president

  11     of Citibank was a former president of the New

  12     York City board of education who is now the

  13     state comptroller of the State of New York.

  14               So they have an active involvement as

  15     far as making sure that they are involved as

  16     corporate citizens as well, and I must be very

  17     honest with you in that my own board treasurer

  18     is a member of Travelers, as he has been I

  19     think a very responsive Travelers person who

  20     has been there for us.

  21               We are one of those organizations

  22     that do not receive monies from Citibank, not

  23     because of Citibank.  We just never approached

  24     Citibank.  So we are not there and here as a

  25     result of Citibank as indicated earlier forcing


   2     nonprofits to be here.  We're here because we

   3     see a potential opportunity that will increase

   4     the diversity in New York City as well as

   5     opportunity for investment in the education of

   6     New York City making our students brighter as

   7     far as computer literacy and also getting into

   8     the financial industry.

   9               I thank you for this opportunity to

  10     testify before you.

  11               MR. LONEY:  Thank you, Mr. Walcott.

  12     Assemblyman Rivera.

  13               MR. TRAYLOR:  Good morning.  My name

  14     is Peter Rivera.  I'm a member of the New York

  15     State assembly.  I represent the 76th assembly

  16     district in the Bronx which is comprised of the

  17     communities known as Parkchester, Castle Hill,

  18     Fordham Road and westbound.  The ethnic makeup

  19     of my district is 35 percent Hispanic.  25

  20     percent African American, 20 percent white.

  21               My purpose here is to express my

  22     opinion saying the Citibank my district in fact

  23     was a district that was affected when Citibank

  24     closed the branch that was the Parkchester

  25     branch.  However, the closure of that branch


   2     have very little adverse impact on my district

   3     due in large part to the good work that

   4     Citibank did in one, notifying the residents of

   5     the district that they were closing the branch,

   6     two, providing an ATM machine, three providing

   7     alternative ways for the seniors in the

   8     district to be able to get to the closest

   9     available branch, and, four, the assistance

  10     that Citibank gave to educate many residents of

  11     my district to banking at home.

  12               Citibank has always had a commitment

  13     to the communities it serves, particularly to

  14     the residents of the 76th assembly district.

  15     It starts with the faces that greet you

  16     whenever I visit one of their branches.  As you

  17     know the Hispanic community has become quite

  18     sensitive as of late as a result of an episode

  19     on Seinfeld and as a result of other articles

  20     that have been written characterizing the way

  21     that Hispanics are viewed on the media as

  22     suspect rather than as potential purchasers.

  23               However, the corporate responsibility

  24     at Citibank has indicated that they really have

  25     gone out and attempted to reach and attempted


   2     to hire people from every segment of the

   3     communities that service New York City.  It's

   4     community development program have helped

   5     tremendously in improving the quality of life

   6     in the communities in which it has a strong

   7     presence.

   8               For example, the community

   9     development program is a comprehensive strategy

  10     that is built upon partnership with nonprofits,

  11     government agencies and other strong financial

  12     partners.  In the 76th assembly district they

  13     helped two major important programs that I want

  14     to refer to.

  15               One is NETS which works with senior

  16     citizens and the other is the East Bronx Hunger

  17     Program.  The East Bronx Hunger Program is the

  18     only food pantry in the east side of the Bronx

  19     servicing approximately a half a million people

  20     and sponsored basically by the churches in the

  21     area.  About two years ago they had a deficit

  22     of $10,000 and if it wasn't for the assistance

  23     of Citibank in trying to overcome that deficit

  24     the East Bronx Hunger Program would have gone

  25     out of business.


   2               Last year alone Citibank committed

   3     one hundred fifty thousand dollars to community

   4     development corporation for the creation of

   5     affordable housing commercial stores and

   6     community revitalization.

   7               In the district that I represent this

   8     type of commitment is truly important.  The

   9     76th assembly district is primarily populated

  10     by low to moderate income families.  These many

  11     families deserve every opportunity to fulfill

  12     dreams such as obtaining credit, owning a home

  13     and starting their business.

  14               Citibank has enabled many families in

  15     my district to realize these goals.  For

  16     example, Citibank is the largest lender in

  17     Parkchester here.  My working close to

  18     community groups after the Castle Hill branch

  19     closed has been able to identify and meet the

  20     needs of the community.

  21               Just recently over one hundred

  22     members of the Crossroads Congregation attended

  23     Citibank seminars on budgets and home

  24     ownership.  The seminar was just one of the

  25     many that Citibank offers on a regular basis.


   2     These have been offered in English and in

   3     Spanish so as to meet the needs of every

   4     consumer, Citibank has also consistently

   5     created commitments to the community by paying

   6     close attention to every detail that will make

   7     it bond to the community stronger.

   8               The staff at Castle Hill are deeply

   9     committed to their community whether its

  10     reading to third grade, through their read

  11     aloud program or conducting clothing drives for

  12     the less fortunate in our community.

  13               Citibank has supported after school

  14     programs.  As a result I have contacted

  15     Citibank right now because we hope to be able

  16     to establish the first Internet cafe in

  17     Parkchester due in large part through the

  18     cooperation of Citibank.  St. Helen's is a

  19     small private group school that services for

  20     the most part, parents have programs that allow

  21     them to work with their assurance that their

  22     children are taken care of in a safe and

  23     nurturing environment.

  24               Citibank has always positioned itself

  25     as a leader in the area of technology with its


   2     plans for opening up a new state-of-the-art

   3     electronic banking facility in the Bronx.

   4               They will have the opportunity to

   5     establish itself as an even stronger partner in

   6     the community.  Citibank uses its human

   7     resources strength to invest time and

   8     leadership to community groups and residents.

   9     This past April I had an opportunity to

  10     participate in a program called Christmas in

  11     April, a project that Citibank has been a long

  12     supporter.  In the Christmas in April project

  13     Citibank and I chose a house owned by a senior

  14     citizen approximately 75 years of age who was

  15     blind and who was living alone, and we cleaned

  16     out the house.  The cleaning up was done with

  17     their employees.  We cleaned out the house.  We

  18     took out all the garbage from the house.  We

  19     repainted the house.  We put it in a new stove

  20     and a new refrigerator.

  21               You can see how it is from these

  22     activities in my district and throughout the

  23     entire Bronx that Citibank demonstrates its

  24     pledge to provide access of the highest quality

  25     and financial services and products and make


   2     these available to everyone regardless of where

   3     they live or how much they make.

   4               I look forward to continuing my

   5     office's partnership with Citibank and I am

   6     confident that we will be able to effecutate

   7     positive changes in my district and throughout

   8     the entire Bronx.

   9               I thank you very much for your time

  10     and attention and hope that the consideration

  11     of all of this testimony that will be presented

  12     here today will lead to the obviously

  13     beneficial rewards that this merger will

  14     provide.

  15               MR. LONEY:  Thank you.  Any

  16     questions?

  17               MR. ALVAREZ:  I have one question.

  18     There has been a lot expressed by this panel

  19     and earlier panels about protecting customer

  20     information particularly.  Are there any state

  21     or local laws here that govern the sharing of

  22     customer information and protect customer

  23     information?

  24               MR. MC CAFFREY:  We in the City of

  25     New York are precluded in terms of that.  That


   2     is a function of the State and obviously you

   3     would be able to have information readily

   4     available as to the State.

   5               If I can just indulge one other

   6     thing, let me say that one of the assets that

   7     Citibank did in a community that had no library

   8     whatsoever built at the expense of two and a

   9     half million dollars a library fully equipped,

  10     turnkey, gave it over to the Queensborough

  11     library system as part of the commitment to the

  12     community.  That was a fairly significant

  13     contribution and I'd be derelict if I didn't

  14     mention it.

  15               MR. RIVERA:  I'm not aware of any

  16     specific section of state law that prevents,

  17     I'm sure that it does, although I really can't

  18     recite it.

  19               MR. ALVAREZ:  Mr. Van Nostritch.

  20               MR. VAN NOSTRITCH:  I believe one of

  21     their motivations is to be able to share all

  22     kinds of information among affiliates to

  23     develop a large database on the customers so

  24     certainly that is what they are planning to do

  25     and apparently there is no law that can stop


   2     them from doing that.

   3               MR. WALCOTT:  If I can just make one

   4     modification to my testimony, because normally

   5     as a not-for-profit we always think of

   6     receiving grants from corporations or

   7     foundations.  I do want to say with Citibank we

   8     have recently established the New York Urban

   9     League a cash reserve with Citibank and that

  10     has been tremendously helpful to us.

  11               I do want to modify my testimony to

  12     say that while we never have pursued them for

  13     any grants whatsoever or corporate support for

  14     dinners, at the same time they have been very

  15     helpful as far as the cash reserve, and that

  16     will help us during emergency times if the city

  17     council and the mayor are at odds at times and

  18     holding up budgets for not-for-profit.

  19               I do need to put that on the table.

  20     That's been extremely helpful to an

  21     organization like us.

  22               MR. LONEY:  Thank you.  Any other

  23     questions?  We'll takes a ten minute break, and

  24     reconvene at 10:30.

  25               (Recess)

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