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


   6               MR. LONEY:  At this point we will

   7     move to Panel Five, Josh Zinner, Karen Thomas,

   8     Shanna Smith, Mark Silverman, Sarah Ludwig and

   9     Hilary Botein.

  10               It appears to me that you folks have

  11     just changed the order.

  12               Ms. Thomas.

  13               MS. THOMAS:  Good morning.  My name

  14     is Karen Thomas, representing the Independent

  15     Bankers Association of America.  Thank you for

  16     the opportunity to present our views.

  17               The IBAA strongly opposes the

  18     Travelers/Citicorp application.  The proposed

  19     merger carries serious adverse consequences for

  20     consumers, community banks, and the entire

  21     financial services industry.

  22               The merger is the largest in American

  23     business history and portends awesome

  24     restructuring of the financial landscape.

  25     There are a lot of problems with this union,


   2     but the gratuitous way it treats U.S. banking

   3     law and regulation is, perhaps, the most

   4     unsettling.  It is an illegal merger, announced

   5     with the express intent of pressuring Congress

   6     into making it legal.

   7               First, it violates the Bank Holding

   8     Company Act by seeking to combine insurance

   9     underwriting and banking, under the guise of a

  10     conditional promise to divest the prohibited

  11     insurance activities.  Second, it violates the

  12     Glass-Steagall Act by invading the barriers

  13     between investment and commercial banking

  14     established by Congress 65 years ago.

  15               With a hubris not often exhibited to

  16     the Federal Reserve Board, the merger parties

  17     have admitted they are well aware that existing

  18     law prohibits the insurance activities.  They

  19     ask the Board to allow the merger anyway, in

  20     the hope that Congress will change the law.

  21               Contrary to their belief, the

  22     divestiture provisions of the Bank Holding

  23     Company Act do not allow Citigroup up to five

  24     years to warehouse its insurance activities.

  25     The provisions are intended to allow orderly


   2     disposition of impermissible activities within

   3     two years.  It is not available to a bank

   4     holding company with no bona fide intent or

   5     plan to divest, and is vigorously lobbying to

   6     change the law to avoid divestiture.

   7               Despite thousands of pages filed with

   8     the Fed, Citigroup fails to offer even the

   9     beginnings of an approach to divestiture.

  10     Nowhere do they say it will divest its

  11     underwriting companies, precisely because it

  12     has no such intention.

  13               On April 6, Travelers CEO Sanford

  14     Weill dismissed the need for divestiture

  15     saying, "I don't think we have to spin anything

  16     off to make this happen; maybe what we are

  17     doing will cause the legislation to change."

  18               Citicorp's CEO John Reed added he

  19     "reasonably believes there will not be a legal

  20     problem," but noted that pending legislation

  21     would make this merger, in fact, quite legal.

  22     They can't have it both ways.

  23               The Federal Reserve's policy

  24     statement on divestiture says an affected

  25     company should "submit a divestiture plan


   2     promptly" and "complete divestiture as early as

   3     possible during this specified two-year

   4     period."  Extensions are not to be granted

   5     unless the company "has made substantial and

   6     continuous good faith efforts to accomplish the

   7     divestiture within the prescribed period."

   8     Even if divestiture were available, Citigroup

   9     has no intention of complying with this policy

  10     because it has no honest intent to divest.

  11               Equally unprecedented is the scope of

  12     the merger's combination of banking and

  13     securities activities in violation of Section

  14     20 of the Glass-Steagall Act.

  15               The new Citigroup's Section 20

  16     subsidiaries would have combined capital of $23

  17     billion, making it the second largest

  18     securities firm in the nation behind Merrill

  19     Lynch.

  20               The unprecedented impact and size of

  21     these securities activities render the Fed's

  22     current 25-percent-of-revenues test ineffective

  23     and an inappropriate measure of what

  24     constitutes "engaged principally" in securities

  25     underwriting.  Indeed, back in 1988 when the


   2     Second Circuit reviewed the then

   3     5-percent-of-revenues cap, the court said that

   4     size alone could contravene Section 20.  The

   5     court specifically rejected one interpretation

   6     of "engaged principally" because it would have

   7     allowed a bank to be affiliated with one of the

   8     nation's largest investment bankers, Merrill

   9     Lynch, a result, the court said, is

  10     inconsistent with congressional intent.  If

  11     Salomon Smith Barney and Robinson-Humphrey are

  12     permitted to coalesce into commercial banking,

  13     Section 20 of Glass-Steagall has no meaning at

  14     all.

  15               Finally, approval of the application

  16     would violate the separation of powers doctrine

  17     embodied in the Constitution.  Approval would

  18     improperly usurp the powers of Congress at the

  19     very time Congress is considering

  20     legislation -- supported by the Fed -- that

  21     would amend both the Bank Holding Company and

  22     Glass-Steagall Acts to permit the proposed

  23     transaction.

  24               This unique deal would create a new

  25     bank holding company with $700 billion in


   2     assets, engaged at the outset in a number of

   3     activities Congress has thus far prohibited for

   4     bank holding companies.  The transaction is

   5     essentially too big to unravel.  As such,

   6     approval of the application would effectively

   7     coerce Congress to amend a law to legitimize

   8     the transaction.

   9               The Board is being asked to tie

  10     Citigroup to the railroad tracks and as the

  11     time for divestiture approaches, Congress will

  12     have little practical choice but to save the

  13     day by amending the law.

  14               The Federal Reserve has always

  15     recognized the importance of the rule of law as

  16     the law exists, not as some might wish it to

  17     be.  We urge the Board to resist the temptation

  18     to advance a legislative agenda by preempting

  19     Congress.  The Board should deny the

  20     application.

  21               Thank you.

  22               MR. LONEY:  Thank you, Ms. Thomas.

  23               Mr. Silverman.

  24               MR. SILVERMAN:  Hi.  Good morning.

  25     My name is Mark Silverman.  I am speaking today


   2     on behalf of Citicorp-Travelers Watch.

   3               Citicorp-Travelers Watch is a

   4     coalition of advocates and community groups

   5     concerned about the impact of the proposed

   6     merger on communities and consumers.  We formed

   7     this coalition because we believe the proposed

   8     merger is one of such unprecedented magnitude

   9     and complexity that it warranted special

  10     scrutiny.

  11               Citicorp-Travelers Watch is opposed

  12     to this proposed merger for several reasons.

  13               First, the merger is illegal.  The

  14     affiliation between Citibank, as a member bank

  15     of the Federal Reserve Board and Travelers'

  16     subsidiaries that are engaged principally in

  17     securities dealings is simply prohibited by the

  18     Glass-Steagall Act.  Further, the proposed

  19     Citigroup would be in violation of the Bank

  20     Holding Company Act by continuing to hold

  21     Travelers' subsidiaries dealing in insurance.

  22               As we discussed this morning,

  23     Citicorp and Travelers are relying on the

  24     two-year grace periods under the law to divest

  25     themselves of their impermissible insurance


   2     holdings.  I want to say a couple of things

   3     about that.

   4               First, that is of no help to the

   5     securities holdings insofar as it does violate

   6     Glass-Steagall.  To the extent that the

   7     reliance of the two-year provision has any

   8     merit whatsoever, and it has none for all the

   9     reasons discussed, it is of no help for the

  10     securities holders.  There is no grace period

  11     in Glass-Steagall, and Mr. Prince this morning

  12     failed to address that, and the application

  13     nearly fails to address that.

  14               Further, Citicorp and Travelers, with

  15     respect to its insurance holdings, have so far

  16     put forward no plan for divestitures.  And as

  17     they candidly admit in their application, their

  18     willingness to use the grace period is to get

  19     the law changed so they don't have to divest.

  20     Indeed, they have already begun to lobby

  21     Congress about it.

  22               The Board should not allow Citicorp

  23     and Travelers to follow the strategy for at

  24     least three reasons:

  25               First, this is not what the two-year


   2     provision was designed to do.  It is supposed

   3     to give newly-formed bank holding companies

   4     time to conform to the law, not time to force

   5     the law to conform to them.

   6               Second, the law may well not change

   7     within that time, and if not, the proposed

   8     Citigroup hardly could simultaneously divest

   9     from, and integrate into itself, the various

  10     impermissible insurance holdings.  It is more

  11     likely that in the absence of a change in the

  12     law Citigroup will be forced into an

  13     ill-conceived, hurried divestiture that would

  14     threaten the health not only of itself, but

  15     given its would-be status of the world's

  16     largest financial institution, the health of

  17     the financial markets as well.

  18               Third, in deciding whether to pass

  19     financial modernization legislation, Congress

  20     should be concerned only with legitimate policy

  21     arguments regarding what is best for

  22     communities and the economy.  If the Board

  23     approves this merger prior to any change in the

  24     law, Congress, pressured by Citigroup and

  25     concerned about the consequences of a forced


   2     divestiture, can enact one of the most

   3     embarrassingly blatant pieces of

   4     private-interest legislation in recent memory.

   5     In short, by serving as an accomplice to

   6     Citicorp's and Travelers' strategy of

   7     manipulating the law to ends not originally

   8     within its contemplation, the Board risks

   9     undermining the legitimacy of itself and the

  10     legislature, and robs the public of a

  11     policy-focused debate of what is being called

  12     financial modernization.

  13               Further, as documented in

  14     Citicorp-Travelers Watch's written comments to

  15     be filed with this Board, Citicorp's extremely

  16     poor service and lending record is in clear

  17     violation of the Community Reinvestment Act

  18     and, as such, on its own requires denial of

  19     this merger application.  In addition, the

  20     proposed activities of Citigroup clearly fail

  21     the public benefits test of the Bank Holding

  22     Company Act, and thereby similarly require

  23     denial of the application.

  24               We are also concerned that our

  25     repeated and reasonable requests for


   2     information from these companies have been

   3     largely met with delay and denial.  Travelers

   4     has been particularly unresponsive, providing

   5     us with almost none of the information

   6     requested.

   7               Citicorp, while responding somewhat

   8     more to our request than Travelers, took until

   9     just yesterday to do so, and still is

  10     unresponsive to certain crucial elements of our

  11     request from these companies.  Of course, in

  12     response to the Board's own request for

  13     information, Citicorp and Travelers continue,

  14     on their own authority, to deem certain

  15     information confidential and simply to not turn

  16     it over.

  17               The public must be given the

  18     opportunity to adequately analyze all aspects

  19     of this merger by having full access to

  20     information, and the Board should be cognizant

  21     of its role in ensuring that access.

  22               Finally, Citicorp-Travelers Watch

  23     requests that the Board asks all parties

  24     testifying before it at this meeting to

  25     disclose any financial contributions they may


   2     have received from Citicorp or Travelers.  We

   3     believe that such disclosures are crucial to

   4     preserving the legitimacy and propriety of this

   5     public meeting.

   6               In sum, the poor service records of

   7     these companies, the clear legislative mandates

   8     of Glass-Steagall and the Bank Holding Company

   9     Act, and the cynical strategy of these

  10     companies in manipulating the law, all require

  11     denial of the application to merge as a matter

  12     of both law and policy.

  13               Thanks very much for your time.

  14               MR. LONEY:  Thank you, Mr. Silverman.

  15               Ms. Botein.

  16               MS. BOTEIN:  Thank you.

  17               My name is Hilary Botein, and I am

  18     the associate director of the Neighborhood

  19     Economic Development Advocacy Project or NEDAP.

  20     But I'd just like to point out it is advocacy,

  21     not advisory.  I don't know why it appears that

  22     way in this schedule.  NEDAP is also a member

  23     of the coalition Citicorp-Travelers Watch.

  24               I'd like to thank the Federal Reserve

  25     Board for holding this hearing because I think


   2     it is a very important one, one very important

   3     step in soliciting broad public input on a

   4     merger that is this big and this complex.

   5               NEDAP is a resource center for groups

   6     and advocates working on economic justice

   7     issues in low-income neighborhoods and

   8     communities of color all over New York City,

   9     and thus we have a unique perspective on

  10     community reinvestment issues as they affect

  11     neighborhoods all over the city.  Accordingly,

  12     my testimony today is going to focus on the

  13     impact of Citicorp and Travelers' practices on

  14     local economies and residents and the

  15     neighborhoods where NEDAP works.

  16               It is worth noting that many

  17     organizations testifying in support of the

  18     merger are recipients of Citibank grants, and

  19     we urge you to ask all testifiers if their

  20     organizations receive funding from Citibank.

  21               My comments here are limited by time,

  22     but they are also limited by the complexity of

  23     the merger.  We simply haven't had enough time

  24     to digest all of the material in the

  25     application and elsewhere.  And we have urged


   2     the Board, and urge you again, to extend the

   3     comment period.

   4               Furthermore, as my colleague stated,

   5     Citicorp and Travelers have been barely

   6     responsive to our request that they provide

   7     basic information about their companies, and

   8     that has hindered our ability to analyze the

   9     impact of the merger.

  10               Travelers, in particular, has been

  11     unforthcoming, and that is one of the reasons

  12     why my testimony today is going to focus

  13     primarily on Citibank's record.

  14               As a threshold matter, NEDAP's

  15     position is that the proposed merger is

  16     illegal, as it will create an affiliation

  17     between a bank holding company and securities

  18     and insurance companies that is prohibited by

  19     the Glass-Steagall Act and the Bank Holding

  20     Company Act.  If the Board approves the merger

  21     without developing standards to be applied to

  22     such an unprecedented transaction, it will make

  23     a mockery of the regulatory process, by

  24     allowing Citicorp and Travelers to brazenly

  25     violate existing law.


   2               In addition, and the focus of my

   3     testimony, Citibank has violated the Community

   4     Reinvestment Act by failing to meet the credit

   5     needs of low-income communities.  From the

   6     neighborhood perspective, Citibank is an

   7     elusive entity with scant presence in terms of

   8     bank services, loans, or community reinvestment

   9     personnel.

  10               Citibank's retail banking services

  11     utterly disregard the needs of low-income

  12     communities and consumers.  Only six of

  13     Citibank's 200 New York City branches are

  14     located in low-income neighborhoods.

  15               In 1996, Citibank closed and

  16     downgraded to ATM service a total of 55

  17     branches, harming low-income neighborhoods

  18     disproportionately.  The bank is now

  19     promoting -- we heard this morning about

  20     them -- two new video branches in low-income

  21     neighborhoods where customers will have no

  22     opportunity to speak to a teller or loan

  23     officer in person.  This plan is an insult to

  24     residents, who might wonder why this special

  25     new technology is not appearing in upper-income


   2     neighborhoods.

   3               By raising its minimum deposit amount

   4     for free checking to $6,000 in linked accounts,

   5     Citibank sent a further message it is not

   6     interested in the business of low-income

   7     people, as does its increased emphasis on

   8     computer banking, despite the bank's absurd

   9     claim in its application to the Board that

  10     Citibank-sponsored research shows that a large

  11     percentage of this population plans to buy a

  12     computer in the near future.  Meanwhile,

  13     ironically, a Citicorp subsidiary, Citibank EBT

  14     Services, will soon be profiting from

  15     electronic delivery of public assistance

  16     benefits and food stamps to New York State

  17     recipients.

  18               There has been a lot of talk,

  19     actually, about this this morning and how it is

  20     wonderful because it is going to bring

  21     low-income people into the banking mainstream.

  22     I just want to point out that EBT is not going

  23     to give the public a real bank account.  It is

  24     more like a Metrocard or something that they

  25     can put in the ATM machine to get their public


   2     assistance benefits out of that.  So I don't

   3     really see how that brings low-income people

   4     into the banking mainstream.

   5               Citibank's own reported Home Mortgage

   6     Disclosure Act data demonstrate that the bank

   7     targets its home mortgage lending to affluent

   8     white borrowers and communities.  For example,

   9     in 1996, Citibank made only six loans to

  10     low-income neighborhoods in the New York City

  11     metropolitan area.

  12               As ACORN stated, Citibank rejected

  13     African-American and Latino applicants for

  14     conventional home purchase mortgages

  15     two-and-a-half times more frequently than white

  16     applicants.  And in Manhattan, predominantly

  17     white neighborhoods received 75 percent of

  18     Citibank's loans in 1996.

  19               This redlining of low-income and

  20     minority neighborhoods and communities of color

  21     sets the stage for predatory lenders such as

  22     Travelers' subsidiaries Primerica and

  23     Commercial Credit, to target their high-rate

  24     low products at low-income communities,

  25     stepping into the credit void created by


   2     Citibank.

   3               In 1996, Citibank made no permanent

   4     direct loans for purchase of multifamily

   5     housing in all of the New York City

   6     metropolitan area, where most residents -- at

   7     all income levels -- live in multifamily rental

   8     housing.  Instead, the bank has financed

   9     multifamily housing only through large

  10     intermediary organizations, many of which are

  11     testifying here today.

  12               Given Citibank's failure to provide

  13     retail banking services or loans to low-income

  14     neighborhoods, it is perhaps not surprising

  15     that the bank's community reinvestment staff --

  16     the people who are charged with ensuring that

  17     Citibank meets the credit needs of all

  18     communities that it serves -- display very

  19     little familiarity with communities and their

  20     needs.  Groups have commented to us that

  21     Citibank is reluctant to send high-level staff

  22     to community meetings, and that staff, when

  23     they do appear, are defensive and combative.

  24               In closing, I'd just like to say, if

  25     the Board approves this merger, it will be


   2     approving the unprecedented creation of a

   3     financial services giant that subscribes to a

   4     separate and unequal philosophy.  Affluent

   5     customers will continue to avail themselves of

   6     Citibank's loans, private-banking services, and

   7     electronic innovations.  Low-income customers

   8     will be served by Primerica, Consumer Credit,

   9     and Citibank EBT Services.

  10               NEDAP joins with the other nine

  11     members of Citicorp-Travelers Watch in urging

  12     the Board to deny the application.

  13               MR. LONEY:  Thank you.

  14               Ms. Ludwig.

  15               MS. LUDWIG:  Thank you for the

  16     opportunity to testify today to register our

  17     absolute opposition to the proposed merger of

  18     Travelers Group and Citicorp.  I am testifying

  19     in my capacity as coordinator of the New York

  20     City Community Reinvestment Task Force.

  21               The task force was established in

  22     1995 to promote meaningful reinvestment in

  23     affordable housing preservation and

  24     development, microenterprise, and community

  25     development institutions in New York City's


   2     low-income neighborhoods.  Since then, the task

   3     force has grown to more than 100 community and

   4     citywide organizations throughout New York

   5     City.

   6               Through its Regulatory Working Group,

   7     the task force has engaged in meetings over the

   8     past eight months with each of the federal

   9     banking agents, including representatives of

  10     the Federal Reserve Bank of New York, to

  11     discuss deficiencies community group and

  12     advocates see in regulators' enforcement of the

  13     Community Reinvestment Act.

  14               It will be impossible to convey all

  15     of the grave concerns we have concerning the

  16     proposed Citicorp-Travelers merger in the five

  17     minutes allotted.  I will keep it simple and

  18     refrain like every other panel.

  19               The Federal Reserve Board must not

  20     approval Travelers' application because the

  21     proposed transaction is illegal.

  22               To sign off on the merger will

  23     constitute an affront to the public, and

  24     underscore that large and powerful corporations

  25     influence government decision making even to


   2     the point of obtaining approval on illegal

   3     transactions.

   4               Some would argue, and some have

   5     argued this morning, that structural changes in

   6     the financial services industry are well

   7     underway, and that our laws are antiquated and

   8     need to be revamped to reflect these changes.

   9     The Glass-Steagall and Bank Holding Company

  10     Acts are still on the books, however, and the

  11     task force's firm position is that as long as

  12     laws forbid this merger, the Fed would be

  13     grossly overstepping its bounds to approve it.

  14               Second, approving the application

  15     would constitute hideously unsound policy on

  16     the part of the Federal Reserve Board.

  17               Travelers and Citicorp would have us

  18     think that the proposed merger is simply a

  19     routine application to create a bank holding

  20     company and that no special scrutiny is

  21     warranted.  As we all know, the planned

  22     Citigroup would be the first of its kind in

  23     this country, a new and mammoth holding company

  24     that engages in banking, securities, and

  25     insurance business.


   2               The largest in the country's history,

   3     the proposed merger has implications for people

   4     and economies at local, regional, national and

   5     global levels.  It presents serious new

   6     regulatory questions, contrary to what

   7     Travelers and Citicorp purport, for which the

   8     Federal Reserve has yet to develop a set of

   9     standards.

  10               It is not surprising that many regard

  11     this proposed merger not only as a fait 

  12     accompli, but also as a brazen attempt by

  13     powerful corporations to take advantage of

  14     regulatory and legislative processes to create

  15     a giant company organized to maximize profits,

  16     at whatever expense the communities and

  17     consumers.

  18               Then there is Citibank and Travelers'

  19     respective records.  The task force in the last

  20     three years has frequently heard reports

  21     concerning Citibank's illusory presence in

  22     low-income communities throughout New York

  23     City, as well as a host of concerns over

  24     Citibank's remarkably heavy investment and

  25     intermediaries in lieu of or absence of more


   2     direct lending programs.

   3               We first heard about Citibank's

   4     practices in the sort of concerted way when the

   5     bank engaged in aggressive bank branch closings

   6     and conversion to ATM service only, a few years

   7     ago.  Most task force members see a direct

   8     correlation between Citibank's presence in

   9     low-income communities and the bank's failure

  10     to engage in direct lending in low-income

  11     neighborhoods.

  12               You will hear today and tomorrow from

  13     a long list of people representing

  14     intermediaries and other organizations who will

  15     testify on behalf of Citibank and the proposed

  16     merger -- even though we have heard from some

  17     directly and some indirectly that many of them

  18     personally agree that the merger is legally

  19     impermissible.  Many are even keenly aware that

  20     Citibank is notorious for its illusory presence

  21     in the very neighborhoods their organizations

  22     serve.

  23               We understand that the proposed

  24     merger -- and the bank's public relation

  25     efforts surrounding it -- results in sometimes


   2     even unspoken pressure on groups to register

   3     with regulators.  The situation we find at this

   4     public meeting is problematic and disturbing,

   5     because -- correct me if I'm wrong -- every

   6     single person and organization that testified

   7     on behalf of the merger or the proposed merger

   8     is a beneficiary of Citibank, and in a few

   9     instances Travelers.

  10               We also request that you ask each

  11     panelist, as part of his or her testimony,

  12     first, to disclose all benefits received from

  13     Citibank and Travelers, and, second, to

  14     indicate whether or not he or she was asked to

  15     testify on behalf of the application or in

  16     favor of the application.

  17               Task force members have been

  18     flabbergasted by Citicorp and Travelers' $115

  19     billion commitment, which dedicates more than

  20     half of the ten-year pledge to student loans,

  21     credit cards and consumer finance, making the

  22     commitment among many local groups a farce.

  23               The task force has also been, since

  24     its inception, greatly concerned about the

  25     banking industry for communities and for the


   2     CRA.  In the instance of the proposed

   3     Citigroup, we see numerous contradictions.

   4     Citigroup would constitute an enormous

   5     concentration of economic and political power,

   6     with both companies working to reduce their

   7     on-the-street operations, and instead using

   8     their networks to cross-market products.  By

   9     definition, the proposed entity is too big to

  10     address local community needs.  We have already

  11     seen Citibank limiting its presence in

  12     low-income communities.

  13               One part of the -- well, these things

  14     have been said and I hear the beeper.

  15               We urge the Federal Reserve Board to

  16     hold off on deciding this application as long

  17     as the transaction is illegal.  We also request

  18     that you ensure that Citicorp and Travelers are

  19     not improperly withholding information from the

  20     public by improperly deeming material

  21     confidential, and that the public is included

  22     in all relevant communications.

  23               We take for granted that Citicorp and

  24     Travelers will push for all they can get.  It

  25     is up to the Federal Reserve Board to do what


   2     is right.

   3               MR. LONEY:  Thank you, Ms. Ludwig.

   4               Mr. Zinner.

   5               MR. ZINNER:  I run the foreclosure

   6     projection project for seniors at South

   7     Brooklyn Legal Services.  We represent

   8     low-income seniors who have been ripped off by

   9     high-rate finance companies, and in this

  10     capacity I see daily the effects of redlining

  11     and reverse redlining on low-income

  12     communities.

  13               I have come here this morning to

  14     register my absolute opposition to the

  15     Citicorp-Travelers merger.  This opposition is

  16     based on a number of reasons, but in the short

  17     amount of time given this morning, I am going

  18     to focus on one.

  19               This would be the record of the two

  20     companies in low-income communities.  You have

  21     heard a lot of testimony this morning about

  22     Citicorp's record of -- Citibank's record of

  23     lending and low-income communities.  What I am

  24     going to do is focus on the Travelers Group.

  25               Now, it is hard to get information


   2     about Travelers' record of underwriting in

   3     low-income communities because Travelers is not

   4     forthcoming with that information, and there is

   5     no legal requirement that they provide it.

   6     There is a requirement in five states that

   7     insurance companies provide zip code data of

   8     their underwriting.  In one of those states,

   9     Massachusetts, there was a study done by the

  10     Massachusetts Affordable Housing Alliance in

  11     which Travelers was found "fair poorly in

  12     anti-regulatory ranking."  In fact, it had the

  13     worst record of any of the insurance companies

  14     in the state.

  15               You heard testimony from ACORN this

  16     morning about Travelers' agent location.

  17     Again, 71 percent, just in New York, 71 percent

  18     of the agent offices are located in communities

  19     that are over 85 percent white, and of the 109

  20     agent offices in the New York metropolitan

  21     area, only 20 are in New York City; almost all

  22     of those cluster around the two Manhattan

  23     business districts.

  24               There was recently two Fair Housing

  25     complaints filed with HUD regarding Travelers'


   2     redlining practices.  The complaints found that

   3     Travelers maintains policies and practices that

   4     serve to discriminate against low-income

   5     communities and minority communities in the

   6     provision of home owner's insurance, using such

   7     policies as minimum policy values, again agent

   8     location, disparate treatment of low income and

   9     minority -- low income and minority people

  10     seeking insurance, higher rates in low-income

  11     communities, pricing their home owner's income

  12     products out of low-income markets and the

  13     markets in minority communities, limiting

  14     replacement coverage on older homes, using

  15     credit to determine eligibility, and the list

  16     goes on.

  17               In other words, these comprehensive

  18     studies, using testers and research, found that

  19     Travelers systematically had policies and

  20     practices that served to discriminate against

  21     low-income and minority communities.

  22               Now I raise this issue in particular

  23     because Citicorp and Travelers have been

  24     touting consistently in the press, or

  25     consistently, publicly, this one-stop shopping.


   2     Really what this one-stop shopping is is a

   3     two-tier shopping system, in which affluent

   4     white communities are privy to conventional

   5     Citigroup products, potential Citigroup

   6     products, in which low-income and minority

   7     communities are, in effect, only given access

   8     to inferior and higher cost products.

   9               We haven't heard a lot of testimony

  10     today about Primerica Financial Services.  In

  11     fact, Primerica Financial Services is the real

  12     profit engine of the Travelers Group.

  13     Primerica Financial Services has its roots in

  14     the AO Williams Organization, which was a very

  15     controversial evangelical-type pyramid scheme

  16     in which lots of high-cost term insurance was

  17     pawned off on low-income and middle-income

  18     communities.  Now the AO Williams Organization

  19     has become Primerica, and now Primerica is part

  20     of the Travelers Group.

  21               What Primerica Financial Services

  22     does is it uses this part-time army of very,

  23     very loosely-regulated salespeople to push the

  24     high-price term insurance, often replacing cash

  25     value policies with high-price term insurance


   2     that is more expensive than most term insurance

   3     that is in the market.  They use exaggerations,

   4     misrepresentations, to push these products,

   5     particularly in low-income and minority

   6     communities, in communities where there are a

   7     lot of immigrants, in communities where there

   8     are less-sophisticated consumers.

   9               This is very important to note

  10     because these are the same communities in which

  11     Travelers, in their insurance practices, are

  12     redlining.  In other words, this is not

  13     one-stop shopping.

  14               What is happening is that Travelers

  15     is offering conventional home owner's insurance

  16     in affluent white communities and offering

  17     high-priced -- in fact, aggressively marketing

  18     through this sort of evangelical-pyramid

  19     scheme -- high-priced term insurance in

  20     low-income communities.

  21               I am going to try and rush through,

  22     but I want to mention one other important point

  23     before I close.

  24               Again, we haven't heard any testimony

  25     today about Commercial Credit Corporation.


   2     That is an entity of the Travelers Group.

   3     Commercial Credit Corporation primarily works

   4     in what is called the BC&D, or subprime market,

   5     providing low equity loans in a low-income

   6     community.  Home equity loans are extremely --

   7     when compared to Citibank's conventional loans

   8     are very high closing costs, very high rates

   9     and, basically, only appeal to people who are

  10     desperate for credit.  In fact, companies that

  11     provide high rate loans produce -- do so in

  12     communities that have been redlined by

  13     conventional banks.

  14               It is a vicious cycle, because when

  15     communities are redlined by conventional banks

  16     they have to turn to high-rate lenders when

  17     they need credit.  Because they are turning to

  18     high-rate lenders, the default rates are

  19     higher, and then the conventional banks have an

  20     excuse to redline them.

  21               This type of high-rate lending that

  22     Commercial Credit does can often lead to

  23     foreclosure, if abusive, and, in fact, the

  24     Primerica Financial Services is selling

  25     Commercial Credit loans in the billions of


   2     dollars using this completely,

   3     loosely-regulated sales force with the same

   4     sort of AO Williams evangelical fervor.

   5               Again the data shows, and this data

   6     will be submitted with a comment that

   7     Commercial Credit does high-rate lending in the

   8     same communities that Citibank has been

   9     redlining.

  10               I will just sum up in saying there is

  11     a great danger in this merger.  Basically what

  12     could happen is Citibank -- and this is borne

  13     out by the record of the two companies --

  14     Citibank would actually have a profit incentive

  15     to redline low-income communities because this

  16     would fuel the market for high-rate lending,

  17     and this is particularly dangerous because the

  18     engine for marketing Commercial Credit loans is

  19     an unregulated pyramid scheme, that I have

  20     discussed before.

  21               Again, the two corporations have

  22     given no indication that they won't take full

  23     advantage of any profit opportunities that take

  24     place even when they encompass taking advantage

  25     of low-income communities.


   2               So, again, I'd like to register my

   3     absolute opposition to this merger.

   4               MR. LONEY:  Thank you.

   5               I have a couple of questions.

   6     Ms. Botein, did I understand you to say that

   7     Citicorp has made no loans, no mortgage loans,

   8     in the New York City area?

   9               MS. BOTEIN:  No multifamily.  I was

  10     talking about permanent multifamily direct

  11     loans, which is the kind of housing that most

  12     people, as I said, of all income levels live in

  13     in New York City.  They have made those loans

  14     through intermediaries by giving money to large

  15     housing intermediaries.

  16               MR. LONEY:  I got that part.  When

  17     you say the New York City area, how far --

  18               MS. BOTEIN:  The MSA.

  19               MR. LONEY:  Mr. Silverman and, I

  20     think, Ms. Botein raised concerns about getting

  21     information from Citicorp and Travelers.  What

  22     kind of information have you asked for and not

  23     gotten?

  24               MS. BOTEIN:  I am going to turn the

  25     mike over to Mr. Silverman because he has kind


   2     of been designated the point person on that

   3     issue.

   4               MR. SILVERMAN:  I regret to say that

   5     I don't have the list with me of which things

   6     we asked for.  Some of it was, I believe,

   7     deposit information that Citicorp didn't turn

   8     over; all kinds of information from Travelers.

   9     Really nothing that we asked for from Travelers

  10     did we get back.  To a certain degree of data,

  11     we didn't get information on what loan services

  12     are offered at individual banks from Citicorp.

  13     Off the top of my head, I can't remember.

  14               MS. BOTEIN:  One of the things I want

  15     to point out is we have copied the Fed on all

  16     of our correspondence to Citicorp and

  17     Travelers, so you should have our letters.

  18               The way that -- we didn't hear any

  19     response for a long time, and then we just kind

  20     of were deluged with boxes and boxes of papers,

  21     of which was completely, completely

  22     unresponsive to our request.  But then, you

  23     know, we had all these boxes stacked up in our

  24     offices and we had to spend time, of which we

  25     don't have much, and research, of which we have


   2     even little, kind of sifting through.  And the

   3     letter said that some of the information you

   4     requested is in here, find it.

   5               So we were kind of put in the

   6     position of sifting through this material to

   7     try to find pieces of it that might be

   8     responsive to our request.

   9               MR. SILVERMAN:  Then we wrote again,

  10     and cc'd the Fed, and said this is what we

  11     didn't receive.  Almost everything from the

  12     initial letter was duplicated in the second.

  13               Just yesterday I got some partial

  14     response from Citicorp, not to the rest of it,

  15     and still almost nothing from Travelers.  So we

  16     were concerned about that.

  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.


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Last update: September 27, 2002