Inner City Press Bank Beat Archive #4 2000 (Sept. 25-Dec. 26, 2000)
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December 26, 2000
In the week before Christmas, there were a few U.S. bank deals. Regions Financial bought Morgan Keegan, for $789 million. Getting a little more grassroots, Pennsylvania's F.N.B. Corp. agreed to buy Citizens Community Bancorp Inc. for about $39.2 million in stock to gain more branches in Florida. From grassroots to down-home: on December 20, South Alabama Bancorp Inc. announced it's in talks to merge with Peoples BancTrust Co. Inc., based in Selma, Ala., to form the seventh-biggest publicly-traded bank in Alabama, with a pro forma $1.2 billion in assets.
On the regulatory front, the U.K.'s Office of Fair Trading says it will rule on Abbey National - Bank of Scotland by January 18. Lloyds, which has long eyed Abbey National, remains waiting in the wings...
Click here for an update on U.S. Bancorp - Firstar; click here for an update on Fleet - Summit. There's also an interesting application by Chase (or would that be, "Morgan Chase"?), to acquire Paymentech's (and Bank One's) Utah commercial credit card bank, with a rare Needs to Improve rating under the U.S. Community Reinvestment Act. And the Fed's given a Christmas present to Citigroup, changing the law so that its acquisition of Associates and Associates National Bank (which has a Needs to Improve CRA rating) does not have the ramifications that were specified in 1999's Gramm-Leach-Bliley Act... ICP is pursuing this, with the Federal Reserve... More next week (that is, next year...). Happy New Year.
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December 18, 2000
Bank merger deals in the U.S. plodded along, seemingly oblivious to the uproar in Washington and, before that, Florida. On December 11, United Community Financial Corp. of Youngstown, Ohio, agreed to buy Industrial Bancorp Inc. for $91.8 million. Down in Mississippi on December 13, Trustmark Corp. agreed to buy Barret Bancorp Inc. for $102.5 million to expand into Memphis. "You ain't nothing but a hound dog," Trustmark. In New Jersey on December 14, Ridgewood Financial Inc signed a merger agreement with Boiling Springs Bancorp., for $18.00 a share. And out in Utah, Zions Bancorp reached a deal to buy Eldorado Bancshares Inc. for about $190 million. Bank One (desperately) announced yet further "re-shuffling;" National City said it aims to ramp up its direct subprime lending through First Franklin; its cross-Cleveland rival Keycorp has its wants to "flatten" its bureaucracy; and Morgan Stanley Mortgage Capital stepped in to help out the subprime lender New Century...
December 11, 2000
Bank deals were again slow last week, the major one being BB&T's proposal to acquire Century South Banks Inc., with $1.6 billion in assets in Georgia, Tennessee, North Carolina and Alabama, for $428 million. This comes on top of BB&T's $150 million buy of Tennessee-based BankFirst Corp. in August, and the $227 million acquisition of FCNB, based in Frederick, Md., in July. We may have more to say about this bank, as it continues to grow...
Well alright! When the Fed asked Chase about its dealings with subprime lenders, as warehouse lending or underwriter, it did not ask Chase to name the companies, just the "procedures." The New York Banking Department DID ask Chase to name the companies -- but is, for now, allowing Chase to withhold the names of the non-publicly traded subprimers Chase lends to. ICP has appealed that withholding, but it seems that the fix is in, at the NYBD and the Fed, to give Chase approvals by mid-December (that is, this coming week). In fact, at press time, the Fed has placed Chase's application on its agenda for Dec. 11. Chase is now of a size that when it snaps its fingers, the regulators jump, in ways they don't for smaller banks. The Fed's acquiescence in this case is shameful; we will analyze the Fed's Dec. 11 action on this site-- developing.
Also surprisingly, on the personalized part of this Bank Beat, was M&A lawyer Rodgin Cohen ("that's H. Rodgin, to you") appearing at the NYC City Council, defending the banks against a proposed ordinance against ATM surcharges, calling the measure unconstitutional. N.Y. Post of Dec. 7, 2000, at 36. We thought it was beneath him (in two ways), but no. Meanwhile, we question why cities don't get around the OCC's preemption of such ATM fee ordinance by adopting measures like Chicago's against predatory lending, saying that banks that surcharge -- can't get the city's bond underwriting (or other) business...
Finally, for this week, some banking news from the Global South. Now, some banking news: in Nicaragua, the National Assembly on Dec. 5 approved a deposit guarantee, up to $20,000 per account. President Arnoldo Aleman sent the bill to the legislature after the bankruptcy in November of Banco del Cafe, the second Nicaraguan bank to go under in less than 100 days.
In the Ivory Coast, banks were closed on Dec. 4 due to protests in the streets of Abidjan. They had also been closed during the military coup in December 1999. The more recent demonstrations were by supporters of former Prime Minister Alassane Ouattara, who are protesting at a court decision to bar him from standing in parliamentary elections -- echoes of Tallahassee...
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December 4, 2000
Bank merger deals slowed down against last week, after the previous burst of Midwest action. The week's bank news was mostly regulatory, and compliance violation-related. The General Accounting Office on November 29 released a report finding that Citibank has been involved in money laundering, in the cases examined by the GAO, until at least April 2000 (nevertheless, on Nov. 30, the OCC, FDIC and New York Banking Department approved Citigroup's notices to acquire Associates First Capital). Bank of New York lost its motion to dismiss Russian money laundering cases against it; a Federal judge confirmed that the EEOC is investigating Morgan Stanley Dean Witter for racial discrimination.
Something of a surprise, as least as to timing, was the Federal Reserve's Nov. 29 approval of Queens County Bancorp's application to acquire Haven Bancorp and CFS Bank. Queens County Savings Bank has a "Needs to Improve" rating under the CRA investment test; CFS Bank was deemed "Needs to Improve," on all counts, in the entire state of Connecticut. While the application was pending at the Fed (since August, and ICP's protest, by the way), Queens County Bancorp on November 20 issued a press release saying it anticipated closing the deal on November 30. And, surprised, surprise, the Fed approved the application on November 29. While the Fed left ICP a message saying that it can "request reconsideration" of the approval for the next fifteen days, Queens County Bancorp consummated the holding company merger on November 30. It might appear that the Fed told Queens County Bancorp, in advance, when it would be approving its application. There is no apparent logic to the lack of a fifteen day waiting period on applications to acquire a savings bank -- applications to acquire a commercial bank invariably include a fifteen day stand-still. Just another irrationality of the Bank Holding Company Act that the Fed has never seen fit to ask Congress to fix... Queens County Bancorp's bank merger applications remain pending at the New York Banking Department and FDIC... And the Fed continues to consider the Chase - Morgan application.
November 27, 2000
In the days before Thanksgiving, the (U.S.) Bank Beat heated up, mostly in the Midwest. Firth Third announced it's acquiring Old Kent, for $4.7 billion, to bull its way into Chicago. ABN Amro announced a $2.75 billion deal with National Australia Bank, to buy NAB's Michigan National Corp. unit, which NAB bought in 1995 for $1.56 billion. Now that -- is a five year return in investment, no? Park National Corp. of Newark, Ohio announced it will pay $306 million to buy Security Banc Corp. of Springfield, Ohio. And, the day after Thanksgiving, New York's Hudson River Bancorp said it will pay $158 million ($19.50 a share) to buy Cohoes Bancorp, turning back Trustco's ongoing (and inept) $18 a share bid for Cohoes.
In Brazil, Santander was declared the winning bidder for Banespa, for $3.6 billion. Dutch insurer ING said it will decide by February about selling its ING Barings investment bank unit. The seven rumored interested bidders include HSBC Holdings Plc, ABN Amro Holding NV, Deutsche Bank AG, Dresdner Bank AG, Bank of America Corp., Bank One Corp., and Bear Stearns. This is seen as an opportunity for Deutsche Bank, which, in fall-out from its failed merger try with Dresdner, announced last month that Josef Ackermann will be the successor to Rolf Breuer, who's schedule to leave (falling on his sword in slow motion) in two year's time...
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November 20, 2000
Deals last week were, as is the trend, of non-banking businesses, many of them outside the United States. In the U.S., KeyCorp bought the Denver-based investment bank Wallach Co.. BB&T bought Edgar M. Norris & Co., "the largest independent broker-dealer in South Carolina." Meanwhile, Prudential and ING are reportedly considering selling their U.S. investment banking operations. The action, you see, is overseas. Morgan Stanley is reportedly moving in on bankrupt Japanese insurance company Daiichi Mutual Fire & Marine; AIG bought a 90% stake in Egyptian insurer Pharaonic Insurance Co.; J.P. Morgan's newly acquired bank in Korea, KorAm, is nearing a deal for Hana Bank, which would create Korea's second-largest lender...
November 13, 2000
...ICP has submitted a second comment opposing MetLife's application to get into banking, by buying a one-branch bank in New Jersey, Grand Bank, N.A.. Here's the substantive portion:
Dear Chairman Greenspan, Governors, Secretary Johnson:
On behalf of Inner City Press/Community on the Move and its members and affiliates, including the Inner City Public Interest Law Center (collectively, "ICP"), this is a supplemental comment in opposition to, containing requests in connection with, the applications/notices of MetLife, Inc. to become a bank holding company by acquiring Grand Bank, N.A. and to become a financial holding company...
ICP notes that MetLife's purported response of November 10 (the "Resp.") begins by claiming that it will "address the erroneous and unfortunate impression of the Company which [ICP's] letter creates." But many of the matters raised in ICP's timely November 2 comment are not mentioned in the Resp., much less addressed. For example, MetLife's Resp. neither mentions nor addresses:
"The Federal Reserve Board should also inquire into the status of Schifferman, et. al., v. Metropolitan Life Insurance Company, et. al. (Los Angeles, CA Superior Court, Case No. BC22435, filed February 4, 2000);"
Thomson's Liability Week of March 20, 2000, reported that "[t]he American Medical Association and the Medical Society of the State of New York joined with a New York doctor and his patient March 16 to file a proposed class-action lawsuit against Metropolitan Life Insurance Co, and United Healthcare Corp. over payment practices. The lawsuit filed in state court in Manhattan alleges that the two companies used flawed and invalid data from the Health Insurance Association of America to reduce payments for medical services."
As to what MetLife does mention:
On "allegations of race-based insurance underwriting," MetLife characterized ICP's comment as having placed most weight on the class action litigation that has been filed, and says "[b]ecause these cases are still pending, it is not appropriate to comment further on the matters involved...". Resp. at 2. But, inter alia, ICP's comment put into the record [See, e.g., Miami Herald, July 19, 2000, Florida, Georgia Regulators Crack Down on Discriminatory Life Insurance Firms, which also quotes MetLife spokesman Kevin Foley that "[w]e've been asked by the New York Insurance Department to look into historical sale of insurance which obviously takes a long time because we're talking about a period going back as many as 80 years... We haven't reached any final conclusions"] that the New York State Insurance Superintendent ("NYSID") has directed MetLife to investigate its own record. MetLife does not say that it has found no evidence of discrimination, only that it "has concluded that the plaintiff's claims are without merit and has filed an answer in Court...". Resp. at 2. Similarly evasively, MetLife's next paragraph says it "was not collecting any race-based premiums," without specifying the time frame alluded to. What is the status of MetLife's internal investigation, called for by the NYSID? Also, MetLife's referenced "answer" should be made part of the record.
Ironically, in light of MetLife's statement that it is "denying virtually every allegation" in the race-based premiums class action, MetLife says that the deceptive sales practices class actions it settled, for $1.7 billion, in 1999 were "settlement[s] of claims which had been vigorously defended by MetLife for several years." Clearly, from this record, there is no legitimate connection between MetLife's (initial) "vigorous defen[ses]" and the subsequent outcome on claims. MetLife also attempts to minimize the many regulatory actions against MetLife (MetLife calls them "a small number," without further specificity) because they resulted in resolutions -- that is, fines -- that MetLife's Resp. characterizes as "voluntary and amicable." Resp. at 3. [Andrews Publications' Insurance Industry Litigation Reporter of March 1, 2000 reported that "MetLife has been ordered by Florida Attorney General Bob Butterworth and Insurance Commissioner Bill Nelson to pay the state $7.5 million. The carrier reached a settlement agreement with the state of Florida, ending a three-year investigation into what state authorities described as 'churning' in the sale of life insurance policies in the state. The investigation centered on the sale of additional life insurance policies to policyholders, which were financed with existing policies, draining the cash values of the existing policies allegedly without the policyholders' knowledge... Three MetLife companies are involved: Metropolitan Life Insurance Co., Metropolitan Insurance and Annuity Co. and Metropolitan Tower Life Insurance Co." Emphasis added.] As noted above, all information about these issues has been improperly withheld from ICP, and from the public.
MetLife refers back to the founding of its "Welfare Division in 1909," and makes various vague claims about its "Social Investment Program," without providing a single example. While ICP is sure that some examples exist (and perhaps they are provided, in the withheld CRA plan), MetLife's inappropriate request for confidential treatment for its CRA plan (see supra) renders the vague representations made in the Resp. at 3-5 non-responsive: they cannot, on this record, be given weight in this proceeding.
MetLife neither mentions, explains nor addresses the following:
"the City Council of Waltham, Massachusetts has "public condemned" MetLife, whose "subsidiary, SSR Realty... last fall purchased the Northgate Heights apartment complex in the city and announced rent increases that forced many tenants to move." Boston Globe, July 4, 1999, Waltham Issues MetLife Boycott."
MetLife has said publicly that it intends, if it acquires Grand Bank, N.A., to solicit insured deposits from its policyholders, who number 11 million. MetLife says it will request "wholesale bank" treatment under the CRA (ICP contends MetLife Bank would not be eligible for such treatment, given its frankly "retail" plans); MetLife is seeking to withhold all further information. The comment period must be extended; the troubling matters above must be addressed; and, on the current record, this application could not legitimately be approved.
If you have any questions, please immediately telephone the undersigned, at (718) 716-3540.
Very truly yours,
Matthew R. Lee, Esq.
Executive Director
Inner City Public Interest Law Center
& Inner City Press/Community on the Move
A little update, on late week's report (and filing with the New York Banking Department) that Credit Suisse's and DLJ's lawyer had (erroneously) claimed that DLJ hadn't done warehouse lending to a U.S. subprime lender for the last two years: in a November 10 letter (styled as an "Additional Response[] to the [NYBD's] Letter of October 19"), CS's and DLJ's lawyer amends his previous answer. He writes that DLJ "has had a warehousing relationship during the past two calendar years [with] BNC Mortgage [and] StarNet Mortgage...The facility for BNC was not included in our letter of October 25, 2000, due to an inadvertent oversight. Personnel who assembled information to respond to the Department's questions had focused more on facilities that were open at that time. The BNC facility, which was originated in 1995, expired by its terms in March 2000... The facility for StarNet was also omitted from the earlier letter, but for a slightly different reason... CSG and DLJ regret not having included these facilities in the earlier correspondence." ICP tends to be amenable to apologies -- but the above-quoted letter, responding to a point raised in ICP's submission to the NYBD, was not even "cc-ed" to ICP. "Accordingly" (as the legalese would have it), the characterizations in last week's Report still apply. ICP's been granted an opportunity to submit further comment -- and will. Developing...
In terms of upcoming proceedings, the Federal Reserve on November 9 disclosed that Fleet has now applied to acquire Summit (and closed 85 branches), and the Firstar has now applied to acquire the (subprime-involved) U.S. Bancorporation. More on these applications in the coming weeks...
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November 6, 2000
MetLife's announcement, on August 6, 2000, that it would try to get into banking by buying the one-branch Grand Bank, N.A. of Kingston, New Jersey was reportedly the first "real" Gramm-Leach-Bliley Act application, of an insurer applying to the Federal Reserve to become a bank and financial holding company. ICP requested the application and related documents from the Fed on October 6, noting in its request that the comment period was scheduled to expire on November 3. The Federal Reserve Board, as of November 2, had not responded to ICP's FOIA request. The New York Fed sent ICP the portions of the application for which MetLife had not requested "confidential treatment" -- which turned out, as set forth in ICP's November 2 comment below, to not be very much:
Dear Secretary Johnson, Ms. Buttrill White, Mr. Bernstein & others in the FRS:
On behalf of Inner City Press/Community on the Move and its members and affiliates, including the Inner City Public Interest Law Center (collectively, "ICP"), this is a timely comment in opposition to, containing timely requests in connection with, the applications/notices of MetLife, Inc. to become a bank holding company by acquiring Grand Bank, N.A. and to become a financial holding company.
As set forth in greater detail below, MetLife is an insurance company that has, inter alia, recently been charged with racial discrimination in class action litigation, and has had cease-and-desist orders issued against it on this issue by state insurance regulators in Georgia and Florida. MetLife has also recently settled charges of deceptive sales practices. MetLife here proposes to buy a bank, and to solicit deposits, including from its insurance policyholders, nationwide. However, MetLife has inappropriately requested confidential treatment for nearly all information about its proposal, including its Community Reinvestment Act ("CRA") Plan (which, it appears, is premised on MetLife's proposed bank inappropriately obtaining designation as "wholesale bank" for CRA purposes, see infra). The erroneously withheld information must be released, the comment period must be extended, and, on the current record, MetLife's applications could not legitimately be approved.
On October 5, 2000, ICP faxed to the Board and the New York Reserve Bank a request, explicitly under the Freedom of Information Act ("FOIA"), for this application "and for related records including those reflecting communications between the FRS and [MetLife]." ICP's October 5, 2000, letter stated: "ICP is sending this request to both the Federal Reserve Bank of New York and to the Board, so that the Reserve Bank can send all documents in its possession as quickly as possible, while the Board acts on the balance of the FOIA request. The FRS’ H2A lists a comment period extending to November 3, 2000; we ask for the responsive records (including from the Board) sufficiently before that date to allow FOIA appeal (if necessary) and analysis."
ICP subsequently received, from the FRBNY, the portion of the Application for which MetLife had not requested confidential treatment. However, no formal FOIA response has been received from the Board -- despite the fact that MetLife's counsel's September 29, 2000 cover letter to the Applications references "pre-filing meetings and [] subsequent conversations" with FRS staff, and purportedly confidential sections III.B & C of the letter. In fact, the letter requests confidential treatment for "the MetLife Organizational Chart," the "Bank Stock Purchase Agreement," and the entirety of the "Business Plan for MetLife Bank, N.A.," including the "MetLife Bank CRA Plan," among many other things.
ICP has not received these responsive, timely-requested and relevant records, including records of the referenced "pre-filing meetings," and even MetLife's Organizational Chart. In fact, ICP has not received a determination of any kind from the Board, and, hence, not even a denial that ICP could appeal. Accordingly, ICP is requesting an extension of the comment period.
In the interim, consider the following about MetLife: on July 17, 2000, state insurance regulators in Georgia and Florida issued cease-and-desist orders against MetLife, forbidding it "from collecting higher premiums from African Americans based on their race." See, e.g., Miami Herald, July 19, 2000, Florida, Georgia Regulators Crack Down on Discriminatory Life Insurance Firms, which also quotes MetLife spokesman Kevin Foley that "[w]e've been asked by the New York Insurance Department to look into historical sale of insurance which obviously takes a long time because we're talking about a period going back as many as 80 years... We haven't reached any final conclusions." Class action litigation has been filed against MetLife on precisely this issue. The case, Thompson v. Metropolitan Life, No. CV-5071, is pending before Judge Harold Baer Jr., in the U.S. District Court of the Southern District of New York. The Federal Reserve Board should also inquire into the status of Schifferman, et. al., v. Metropolitan Life Insurance Company, et. al. (Los Angeles, CA Superior Court, Case No. BC22435, filed February 4, 2000).
Since the Community Reinvestment Act ("CRA") addresses income more explicitly than race, consider that the City Council of Waltham, Massachusetts has "public condemned" MetLife, whose "subsidiary, SSR Realty... last fall purchased the Northgate Heights apartment complex in the city and announced rent increases that forced many tenants to move." Boston Globe, July 4, 1999, Waltham Issues MetLife Boycott.
In terms of consumer compliance, consider that MetLife in late 1999 settled, for $1.7 billion, claims of deceptive sale practices, including churning and so-called "vanishing premiums." "About 20,000 class members excluded themselves from the settlement. MetLife said that insurance regulators and state attorneys general 'in a small number of states' continue to investigate the company's sales practices. The National Association of Securities Dealers also has an ongoing investigation in connection with sales of individual life policies or annuities, the company said." A.M. Best Company's BestWire, March 23, 2000. BestWire of June 9, 2000, subsequently reported that "Metropolitan Life Insurance Co. has completed a settlement reached last year with the Massachusetts Attorney General's office and has agreed to pay $1.2 million to cover the cost of a state investigation. The payment also includes the cost of advertising used to inform Massachusetts residents that they could be eligible for payments under MetLife's $1.7 billion nationwide class-action settlement, which includes a $750 million consumer-relief program."
Andrews Publications' Insurance Industry Litigation Reporter of March 1, 2000 reported that "MetLife has been ordered by Florida Attorney General Bob Butterworth and Insurance Commissioner Bill Nelson to pay the state $7.5 million. The carrier reached a settlement agreement with the state of Florida, ending a three-year investigation into what state authorities described as 'churning' in the sale of life insurance policies in the state. The investigation centered on the sale of additional life insurance policies to policyholders, which were financed with existing policies, draining the cash values of the existing policies allegedly without the policyholders' knowledge... Three MetLife companies are involved: Metropolitan Life Insurance Co., Metropolitan Insurance and Annuity Co. and Metropolitan Tower Life Insurance Co."
Thomson's Liability Week of March 20, 2000, reported that "[t]he American Medical Association and the Medical Society of the State of New York joined with a New York doctor and his patient March 16 to file a proposed class-action lawsuit against Metropolitan Life Insurance Co, and United Healthcare Corp. over payment practices. The lawsuit filed in state court in Manhattan alleges that the two companies used flawed and invalid data from the Health Insurance Association of America to reduce payments for medical services."
In the portions of the applications that have been provided to ICP, none of these matters are addressed, or even mentioned. ICP notes that when, for example, Travelers Insurance applied to the Federal Reserve Board ("FRB") in 1998 to acquire Citicorp, the FRB requested full boxes of information from Travelers, regarding its consumer compliance, investigations by state insurance regulators and the like. MetLife's current application, to become a bank holding company and financial holding company, appears premised on a reading of the Gramm-Leach-Bliley Act of 1999 under which approval of such applications is virtually automatic, with no meaningful public input, with virtually all portions of the applications withheld. ICP contests all of this, and, as set forth above, reiterates its timely request (including under FOIA) for the improperly withheld portions of the applications and related records, urges the FRB to inquire into the adverse issues put into the record, supra, and contends that on the current record, these applications could not legitimately be approved.
On the Community Reinvestment Act, the portions of the applications provided to ICP say virtually nothing. FRB application form F.R Y-3 explicitly asks for information concerning the "[p]olicies and activities of Applicant designed to meet existing or anticipated credit needs of its entire community, including low- and moderate-income neighborhoods...". MetLife responds that "MetLife Bank intends to file a request to be treated as a wholesale institution for Community Reinvestment Act ('CRA') purposes with the Office of the Comptroller of the Currency. For additional CRA-related information, please see the proposed MetLife Bank CRA Plan included as part of the MetLife Bank Business Plan attached as Confidential Exhibit 11." (Emphasis in original).
First, it is entirely illegitimate to request confidential treatment for this CRA Plan. The Plan must be released, and the comment period must be extended. Second, ICP contends that MetLife's planned activities (as reflected by its public statements, see infra, since MetLife seeks to improperly withhold the entirety of its Plan, including its CRA Plan) are ineligible for wholesale bank status.
Consider, first, MetLife's own press release announcing this proposal (Business Wire, August 16, 2000): "'This agreement is an important step towards reaching our ultimate goal of being in the retail banking business,' said Judy Weiss, Executive Vice President in charge of MetLife's newly created banking unit." Emphasis added.
Phillips Business Information's Retail Delivery News of August 30, 2000, quoted MetLife spokesperson Holly Sheffer that "this acquisition will give us an opportunity to offer our current customers traditional banking service such as savings and checking accounts."
See also, American Banker of August 17, 2000, at 1, MetLife Has Big Plans For One-Branch Bank: "MetLife revealed its model for entering retail banking Wednesday when it announced a deal to buy a tiny New Jersey bank that it plans to use as a springboard to offer cradle-to-grave financial services to its 11 million policyholders across the nation... Though Grand Bank is small it will provide exactly what MetLife needs, said Carmen Effron, president of consulting firm C.F. Effron Co. in Westport, Conn. 'They don't really need to have storefronts all over the place; they already have their agents all over the country,' Ms. Effron said."
The American Banker's follow-up story, on August 18, 2000, provided more detail: "MetLife hopes the pending purchase of a small New Jersey bank will let it keep on its books much of the $17 billion it pays out each year in death benefits and other insurance payments.... MetLife announced Wednesday that it had agreed to buy Kingston-based Grand Bank, which would be renamed MetLife Bank. The company's goal, said spokesman Kevin Foley, is to retain the assets that it pays out by offering checking and savings accounts to beneficiaries, as well as other investment products. For example, when an individual dies, beneficiaries can sometimes receive several hundred thousand or a million dollars in cash, noted Carmen Effron, president of C.F. Effron Co. in Westport, Conn. The money paid to grieving relatives presents a huge, if somewhat morbid, opportunity for MetLife, she said. Through its new bank, Ms. Effron said, MetLife can say: 'We can set up a checking account for you until you decide what you want to do. When you're ready, we have a financial planner who can help you determine how to invest it -- and, by the way, we already have a series of mutual funds that we sell.'" And see supra, regarding the multiple allegations against MetLife for deceptive sale practices, vanishing premiums, churning, etc..
The (New Jersey-based) Home News Tribune of August 18, 2000 quoted Grand Bank's president and CEO, Mark Wolters (who "will serve as president of MetLife Bank when it is launched early next year in its new South Brunswick headquarters at 4287 Route 1. The facility is a free-standing, two-story building. Grand Bank will move into the new location in early September") that "[t]hey don't want a lot of branches throughout the country. They'll do a lot based on the Internet and with their own 33 million employees and members throughout the country -- all on a very highly technological basis."
A.M. Best Company's BestWire of August 21, 2000 reported that "Robert Tortoriello, an attorney with Cleary, Gottlieb, Steen & Hamilton... said MetLife's move into this kind of banking wouldn't have been possible a year ago. 'Now, MetLife's announced its intention to operate a real bank,' Tortoriello said. 'MetLife must have a phenomenal business plan that required a bank...'."
As noted, MetLife has inappropriately sought confidential treatment for the entirety of its plan, including its CRA Plan.
See also A.M. Best Company's BestWire of August 16, 2000, MetLife Plans to Break into Retail Banking with Purchase of Grand Bank: "MetLife Inc. plans to acquire Grand Bank N.A. of Kingston, N.J., in order to provide additional services for its customers. The purchase will also help MetLife break into retail banking, a spokeswoman said.... Before the adoption of the Gramm-Leach-Bliley financial services modernization law last fall, insurance companies were not able to buy commercial banks, though they could buy thrifts and trusts. MetLife's pending purchase may be the first of its kind by an insurer... Kathleen McClave, practice leader, Strategy Economics in the Americas for Tillinghast-Towers Perrin... "said owners of commercial banks enjoy an easier approval process when they try to make future acquisitions because the detailed application process for owning a commercial bank demonstrates that the acquiring organization has already met anti-trust and consumer and regulatory requirements. 'So potentially there are a lot of operating and financial-management opportunities that came with financial modernization,' McClave said."
The Gramm-Leach-Bliley Act's "detailed applications process for owning a commercial bank" (see supra) is not evident in this proceeding, at least based on the portions of the applications that have been provided to ICP to date. As set forth above, ICP reiterates its timely request (including under FOIA) for the improperly withheld portions of the applications and related records, urges the FRB to inquire into the adverse issues put into the record, supra, and contends that on the current record, these applications could not legitimately be approved.
ICP faxed its comment to the Fed on the night of November 1. Suddenly, late on November 3, the Fed finally responded to ICP's FOIA request. But, the Fed is still trying to withhold MetLife's CRA plan (ICP is appealing). The Fed did provide two memos: one before, and one after, a September 6 meeting between MetLife and the Fed. The "before" memo is little more than a print-out about MetLife, from SNL Securities. The "after" memo reflects that no fewer than 13 Fed staffers attended the meeting, with two MetLife inside lawyers, two MetLife outside counsels (one of whom... used to be the Secretary of the NY Banking Board, see below), and MetLife EVP Judy Weiss. Two of the Fed attendees are identified as "Relationship Management," whatever that is. The memo is heavily redacted: for example, "MetLife Bank is expected to have [REDACTED] customers and [REDACTED] in assets in 3 years... it is currently involved in [REDACTED] class action lawsuits... Allegations of discriminatory pricing and policies toward African-Americans have been brought against MetLife [THREE LINES REDACTED].
ICP will be appealing these redactions -- but consider the last one. It does not appear to involve Fed staffers' "deliberations," but rather some characterization of the racial discrimination claims presented by MetLife. Doesn't the public have a right to know what MetLife's argument is? To say nothing of the CRA Plan... See also, "Activists Ask Fed to Bar MetLife Bank Deal," by Rob Blackwell, American Banker, November 6, 2000, and forthcoming editions of A.M. Best's publications, and National Underwriter. New Jersey Citizen Action has also protested the deal, as covered in the Newark (NJ) Star-Ledger of November 3, 2000. Developing..
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How shall we define apparent regulatory capitulation, and / or (relatedly) apparently sleazy corporate law practice? We have two examples this week. The first involves Credit Suisse - DLJ, the New York State portion of which ICP challenged on September 30, and which we have been following on this page. As readers will recall (or can see below, in previous weeks' Reports), the NYS Banking Department asked CS and DLJ a series of questions about their involvements in subprime lending, and cancelled a vote scheduled for early October on CS-DLJ.
In an October 25 response to the NYSBD's October 19 questions, the Applicants' lawyer, Mr. Bradley Sabel of Shearman and Sterling, stated among other things that "[n]either DLJ nor its subsidiaries have been engaged in a warehousing relationship with any subprime mortgage lenders doing business in the United States during the past two calendar years." ICP was given until November 2 to comment on this response.
Well, ICP's researchers quickly came across the June 30, 1999 SEC Form 10-K of the subprime mortgage lender BNC Mortgage, Inc. (CS and DLJ had elsewhere acknowledged that BNC Mortgage is a subprime lender). This 10-K states, under the heading "Warehouse Facilities," that [s]ince August 1995, the Company has funded its business primarily through a warehouse line of credit with DLJ Mortgage Capital, Inc. ('DLJ') under which it has borrowed money to finance the origination of loans. The current warehouse line of credit with DLJ (the 'DLJ Facility') provides a $150.0 million warehouse line of credit to the Company... The term of the DLJ Facility is until March 2000.... DLJ has purchased, and it is contemplated that it may continue to purchase, loans under the Master Loan Purchase Agreement with a view towards securitization or other resale transactions in the secondary mortgage market...". Emphasis added.
So, there's a problem. And ICP raised this in its November 2 submission to the NYSBD, faxing a copy to CS's and DLJ's lawyer, Mr. Sabel. ICP also included in its November 2 submission the following: "a market observer yesterday informed ICP that CS and DLJ have stated that they will consummate their merger on November 2 or 3, 2000. It is difficult for ICP to understand how this could legitimately be done, given the explicit requirement for the prior approval of the Banking Board, under Sections 143-b of the Banking Law."
Credit Suisse had applied to the NYBD to acquire Winthrop Trust Company, a New York trust company bank owned by DLJ. CS's and DLJ's postponement of their closing in early October was based on not having obtained NYBD approval. The NYBD had asked questions, and DLJ and CS had, as shown above, mis-answered them. But on November 3, CS's and DLJ's lawyer Mr. Sabel faxed a letter to the NYBD, stating that ICP's November 2
"Letter raises a matter on which comment might be appropriate: the discussion at pages 203 concerning the closing of the DLJ acquisition without prior approval of the Banking Board. As you know, the Stock Purchase Agreement among CSG, AXA, Axa Financial, Inc. and other parties dated August 30, 2000... provides in Section 5.09(a) that Axa Financial will acquire all of the outstanding stock of Winthrop prior to CSG's acquisition of the shares of DLJ owned by AXA and its affiliates in the event that Banking Board approval is not acquired prior to that time... Because Axa Financial controlled Winthrop by virtue of its ownership and control of the shares of DLJ, the transfer of Winthrop to it did not involve a change in control and accordingly did not require prior approval... This matter was noted at our meeting with NYBD staff on August 29 and in subsequent conversations with staff as the arrangement that would be used in the event that approval was not obtained in time to meet CSG's anticipated closing date. The transfer of Winthrop's shares to AXA Financial was consummated on November 2, prior to the transfer of the DLJ shares held by AXA and its affiliates to CSG on November 3. CSG continues to respond to staff's questions on various matters with the view of obtaining approval to acquire Winthop. We believe that the above information fully responds to the point raised by the Letter. We may response to other point in the Letter shortly."
The apparent sleaze at issue here was and is even worse that would appear from the above-quoted letter. Here's the record on what CS's and DLJ's lawyer presents as an "option" approved by the NYBD, as presented (and raised to the NYBD) in ICP's October 25, 2000, comment:
Among the documents transmitted to [ICP] on October 12, 2000, was a copy of an e-mail from [NYBD] Assistant Deputy Superintendent Abballe to the Department's Robert R. Krueger, which states in pertinent part that:
Bob, apparently no one has done (or is doing) a memo on that meeting we had last week with CSFB execs on their acquisition of DLJ... Our Article XII will be dis[s]olved, however, since they are unsure about their ability to get the court's sign off on the documents, they are also filing a change in control app with us which would effectively spin the Art XII under DLJ's current French parent, AXA, until the court signs off and it can be dis[s]olved. This would purely be an accom[m]odation by us... (Emphasis added).
It appears, from the Department's FOIL response, that no memo (of the August 29, 2000 ex parte meeting) was ever prepared. Also included in the records the Department transmitted to us on October 12 were two copies of the redacted document entitled Meetings with Staff of the New York Banking Department, "upon which some small notations were made by members of the Banking Department who attended the August 29th meeting." On the second of these two copies (the one with smaller handwriting), it is noted that:
Possibilities for NY LPTC - Withtrop Trust, DLJ Art. 12
Art XII: 1. Dissolve Art XII prior to tx 2. or, just waive need for change in control 3. or, grant change in control.
LPTC 1. Board mtg Oct - grant change in control.
Alternatively -- move LPTC and Art 12 to underneath AXA, who controls them today, and thus there will be no change in control needed.
Emphases in original
For the record, ICP strenuously opposes both the "accommodation" referred to in Assistant Deputy Superintendent Abballe's above-quoted e-mail, and the "possibilities" and "alternative[s]" set forth in the above-quoted handwritten notes. Given the issues that have arisen -- both in ICP's September 30 comment, and in the Department's October 19 letter to the Applicants' counsel -- to attempt to revert to either of these proposed "accommodations" would be illegitimate.
The Applicants' October 18 response (the "Resp.") to ICP's September 30, 2000, comment (the "Comment") states that ICP's purported "implication that the Department would agree to 'rubber stamp' the Applications is insulting to the Banking Board and the Superintendent." That certainly was not, and is not, ICP's intent. ICP is concerned that this major proposal be fully reviewed, in light of the adverse issues raised in ICP's Comment. With all due respect, ICP questions the legitimacy of the August 29, 2000 ex parte meeting, particularly since no memorandum was prepared thereafter...Here, all we have are handwritten notation on redacted copies of a presentation that CSFB made to Department staff. And those handwritten notations appear to memorialize, however informally, CSFB's requests for "accommodations," to allow faster consummation of the proposal, and, not incidentally, to eliminate the possibility for pre-consummation public comment and review. ICP's comments on this issue were directly at CSFB's expectation that it could submit incomplete application for these proposals, the initial comment periods on which would extend to October 2, 2000, and nonetheless consummate the proposals on October 9, 2000. ICP stands by its comments, even more so, in light of the documents the Department transmitted to ICP on October 12, 2000.
Well, despite the requirement for prior approval, Credit Suisse simply went ahead and acquired DLJ, leaving Winthrop Trust behind, without AXA having submitted any application. This, even after CS's and DLJ's October 25 response to the NYBD's October 19 questions on subprime lending had been shown to have been... false. Of course, we could say "apparently false"... CS's and DLJ's lawyer Mr. Sabel saw no need to respond to this glaring disparity regarding DLJ's warehouse lending to subprime lenders, and wrote only that they "may" respond to the point later. Readers may remember that Mr. Sabel was among the lawyers who met secretly with the Fed's chairman and its general counsel, in 1998, about the Travelers - Citicorp proposal, communications that were never fully disclosed by the Fed, Mr. Sabel, or anyone else. Then again, they "may" respond to those questions later, right? It may be that this situation crystallized as characterized ("apparent sleaze") in looking back at CS' and DLJ's lawyer's October 25 "response," which archly said that it "is not in any way improper for a supervised entity such as CSG to meet with one of its supervisors in order to discuss a major transaction for which the supervisor's prior approval will be necessary...The notion that the Department might make an improper 'accommodation' for the Applications was addressed in our October 18 letter." In this letter, CS' and DLJ's lawyer referred to the "necess[ity]" of prior approval, and scoffed at the "notion" that the NYBD might make an improper "accommodation." And then, on November 2-3, CS and DLJ closed the deal without having obtained the approval at issue. What a "notion," huh?
It is still unclear to us if the NYBD formally acquiesced in this apparent sleaze, or whether the NYBD was among its victims (but is keeping quiet, as a sort of "victim of corporate (as opposed to domestic) violence," with all the attendant psychological pressures and syndromes. One of the syndromes is the "revolving door" syndrome. As one example, the NYBD's previous head of CRA moved directly from the Department to one of its most problematic banks, North Fork. North Fork's CRA rating was quickly upgraded by the Department, with no notation of any recusals. More recently, another of the Department's CRA staffers has sent out, over an Internet, his resume, baldly (well, he's relatively young, so let's change that to "boldly") stating that "I am currently a CRA analyst with the New York State Banking Department, but am exploring opportunities outside of government, particularly with a financial institution...". Is it appropriate? We think not. Of course, our raising it might be considered "insulting," as CS and DLJ said, through their lawyer (above), just before lawlessly consummating a merger...
You do what you can. One thing ICP has done, since receiving a copy of the NYBD's letter to CS and DLJ about subprime lending, is to ask other agencies to pose these same questions to other companies involved in subprime lending. For example, Goldman Sachs has applied to the Office of the Comptroller of the Currency, to charter Goldman Sachs Trust Company, N.A.. ICP's requested the application under FOIA, but, in the interim, formally asked the OCC to ask Goldman the subprime lending questions the NYBD has asked Credit Suisse and DLJ. Portions of ICP's letter to the OCC, on Goldman, are on this week's ICP CRA Reporter. So we await the OCC's and Goldman Sachs' responses, and the denouement of the CS / DLJ apparent sleaze summarized above. For ICP's challenge to Chase - Morgan, click here. We over-use this phrase, but here it's particularly appropriate: "developing...".
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October 30, 2000
Inner City Press has challenged Credit Suisse's applications to the New York Banking Department to acquire DLJ, on predatory lending and other grounds. On October 19, the NYBD asked CSFB and DLJ a series of questions, quoted in last week's report. Well, the answers, such as they are, are in, and portions are reproduced below, from Credit Suisse's lawyers' submissions to the NYBD:
The following is a list of names... of each [subprime lending] entity with which CSFB has had a warehousing relationship during the past two calendar years:
1. AMRESCO Residential Capital Markets
2. Conseco Finance Corp.
3. Bayview Financial Trading Group
4. Delta Funding Corporation
5 ContiFinancial Corporation
6. New Century Mortgage Corporation
7. IndyMac, F.S.B.
8. WMC Mortgage Corp.
9. Financial Network Alliance L.L.P.
10. Associates Home Equity Loan Trust 1999-1A
Neither DLJ nor its subsidiaries have been engaged in a warehousing relationship with any subprime mortgage lenders doing business in the United States during the past two calendar years.
A list of transactions in which DLJ participated as underwriter during the past two calendar years of mortgage-backed securities backed in part by subprime mortgage loans will be submitted as soon as possible.
For a list of subprime lenders, identified by name... with whom CSFB has underwritten transactions during the past two calendar years, see [below]:
Transactions Underwritten by CSFB Since 1998
Amresco 1998-1, 1998-2, 1998-3
Freddie Mac T-014 (Amresco)
ContiMortgage 1998-1, 1998-2, 1998-3, 1998-4, 1999-1, 1999-2, 1999-3
CIT 1998-1
Delta 1999-1, 1999-2, 1999-3, 2000-1
Fremont 1999-1, 1999-2, 1999-3
Green Tree 1998-A, 1998-B, 1998-C, 1998-D, 1998-E, 1999-A, 1999-C, 1999-F
Conseco Finance 1999-H, 2000-A, 2000-B, 2000-D, 2000-E
WMC 1998-1, 1998-A, 1998-B
Asset Backed Securities Corp 1999-LB1, 2000-LB1 (Long Beach Mortgage Co.)
Bayview Financial 1999-1, 1999-C, 2000-A
Provident 2000-2
Countrywide 2000-2
Residential Asset Securities Corp. 2000-KS3, 2000-KS4 (GMAC RFC)
The inclusion of Associates, on CSFB's list, is most interesting. DLJ's answers came in a few days later:
This is a "list of transactions in which a subsidiary of Donaldson, Lufkin & Jenrette, Inc. ('DLJ') participated as underwriter during the last two calendar years of mortgage-backed securities back in part by subprime mortgage loans:
CMC Securities Corportation III, Collateralized Mortgage Obligations, Series 2000-1
Lender:
BNC Mortgage Company
Crossland Mortgage Corp.
Downey Savings and Loan Association
Life Financial, Inc.
Master Financial, Inc.
Old Kent Mortgage Company
Pinnacle Financial Corp
Total Dollar Amount Issued: $230,440,654.29
DLJ Mortgage Acceptance Corp., Mortgage Pass-Through Certificates, Series 2000-2
Bank of America
Crossland Mortgage Corp.
Downey Savings and Loan Associates
First National Bank of Nevada
Life Financial, Inc.
Master Financial, Inc.
North American Mortgage Company
NuMax Mortgage Corporation
Pinnacle Financial Corp.
Total Dollar Amount Issued: $155,628,400.85
DLJ Mortgage Acceptance Corp., Mortgage Pass-Through Certificates, Series 2000-3
Aames Capital Corporation
CBSK Financial Group, Inc.
Cendant Mortgage Corporation
Crossland Mortgage Corp.
Downey Savings and Loan Association
Life Financial, Inc.
Market Street Mortgage Corporation
Master Financial, Inc.
Mortgage Network, Inc.
Old Kent Mortgage Company
Pinnacle Financial Corp.
Provident Federal
Starnet Mortgage
Total Dollar Amount Issued: $204,598,975.29
The inclusion of Freddie Mac, on DJL's list, is most interesting. ICP has now asked the Office of the Comptroller of the Currency to ask Goldman Sachs (which is applying for a national bank) the same questions the New York Banking Department asked Credit Suisse and DLJ. Here's Developing...
* * *
October 23, 2000
... ICP commented to the NYSBB; now the NYSBD has asked Credit Suisse and DLJ the following questions:
Please state whether Credit Suisse Group, DLJ, Inc. or any of their subsidiaries are engaged in warehousing relationships with any sub-prime lenders doing business in the United States. If so:
a. Please identify by name and principal place of business each entity with which Credit Suisse Group, DLJ Inc. or any of their subsidiaries have had a warehousing relationship during the past two calendar years.
b. Please describe the nature of the business relationship(s), including the respective roles and responsibilities of the warehouse lender(s) and the sub-prime lender(s).
c. Do the warehouse lender(s) play any role, formal or otherwise, in the lending practices and credit review practices of the sub-prime lender(s)?
d. Do Credit Suisse Group, DLJ Inc. or any of their subsidiaries have in place any policies, programs or procedures concerning their warehousing relationships to determine whether the activities of the sub-prime lenders comply with applicable consumer protection laws and regulations, in particular Section 296-a of the Executive Law and Part 41 of the General Regulations of the Banking Board? If so, please describe and include any related documentation.
2. Please state whether Credit Suisse Group, DLJ Inc. or any of their subsidiaries are involved in underwriting securities backed by United States sub-prime loans. If so:
a. Please identify by name and principle place of business each sub-prime lender for which Credit Suisse Group, DLJ Inc. or any of their subsidiaries have underwritten transactions during the past two calendar years, indicating the number and dollar value of each such transaction.
b. Do the underwriter(s) have any role, formal or otherwise, in the lending practices and credit review practices of the sub-prime lender(s)?
c. Do the underwriter(s) have a role, formal or otherwise, in establishing the criteria applicable to the inclusion of loans in these securitizations? Do they have a mechanism for detecting whether loans meet these criteria, and for determining whether any loans that do not are removed from the pool(s)? If so, do Credit Suisse Group, DLJ Inc. or any of their subsidiaries have in effect any polices, programs or procedures that could cause or influence the sub-prime lender to discriminate, either in the origination of loans or the selection of loans for transfer and sale, on a basis prohibited under Section 296-a of the Executive Law? If so, please describe and attach any related documentation.
d. Do Credit Suisse Group, DLJ Inc. or any of their subsidiaries have in effect any policies, programs or procedures to determine whether the activities of the sub-prime lenders comply with applicable consumer laws and regulations, including Part 41 of the General Regulations of the Banking Board? If so, please describe and include any related documentation.
3. Please state whether Credit Suisse Group, DLJ Inc. or any of their subsidiaries are presently engaged directly in sub-prime lending or have been so engaged within the past two years. If so:
a. Please identify by name and principal place of business each such entity and describe in full the nature of any sub-prime lending activities in which each is or has been engaged.
b. As to any sub-prime lending activities identified above, please state whether or no the sub-prime entity, its holding company or both have in effect any policies, programs or procedures to ensure that such sub-prime lending activities are conducted in compliance with all applicable consumer protection laws and regulations, particularly the requirements of Section 296-a of the Executive Law and Part 41 of the General Regulations of the Banking Board? If so, please describe and include any related documentation.
Please submit your responses to the undersigned by Wednesday, October 25, 2000. If your client wishes to request confidential treatment for any portion of its response, you are asked to specifically indicate so.
Credit Suisse's and DLJ's answers are due on October 25; ICP should be obtaining a copy of the responses, and will update this on this site. Credit Suisse and DLJ now seem to be assuming they will receive approval at the next NYS Banking Board meeting, on November 2, 2000. It would seem that it would depend on the institutions' answers to the above -- but what do we know? Developing...
* * *
October 16, 2000
We have news -- even, an "exclusive"(!) -- to report, on Credit Suisse's proposal to acquire DLJ. As discussed in our October 2, 2000 report, ICP filed comments with the NYS Banking Department opposing the deal, and requesting documents Credit Suisse was (and is) trying to withhold. The NYS Banking Board declined to vote on Credit Suisse's application on October 5, and on October 9, Credit Suisse announced that it was pushing back the closing date, into November, "for technical reasons."
Last last week, the NYSBD provided ICP with the first part of its Freedom of Information Law appeal response. Included was a copy of an internal NYSBD e-mail, from Assistant Deputy Superintendent Thomas Abballe to the NYSBD's London representative, Robert Krueger:
Bob, apparently no one has done (or is doing) a memo on that meeting we had last week with CSFB execs on their acquisition of DLJ. In essence, they hope to close the deal by as early as 10/9, but at least by sometime in mid-October. In addition to the Article XII [subsidiary], DLJ has a Limited Purpose T[rust] C[ompany] (Winthrop). They intend to keep the LPTC, so they will be filing a change in control application with us for the October Banking Board meeting (the Domestic side will be processing that, since they supervise Winthrop). Our Article XII will be dissolved, however, since they are unsure about their ability to get the court's sign-off on the documents, they are also filing a change in control app with us which would effectively spin the Art XII under the DLJ's current French parent, AXA, until the court signs off and it can be dissolved. This would be purely an accommodation by us, which would be done with the knowledge that, since they were only recently chartered, their operations are minimal. I hope this answers your questions on DLJ.
The NYSBD has informed ICP that it will be providing further documents (and Credit Suisse's response to ICP's October 2, 2000 comments), on October 16 or soon thereafter. The e-mail quoted above provides insight into the deal that was not apparent from the application. One of the two DLJ subsidiaries subject to NYSBD jurisdiction, Credit Suisse intends to "dissolve." Several arbitrageurs have told ICP that Credit Suisse has assured "the market" that they don't (or didn't) need NYSBD approval, to consummate the deal. Upon further analysis, it would seem that Credit Suisse was referring to the "accommodation" they'd requested from the NYSBD (see e-mail above). But Credit Suisse absolutely needs the NYSBD's prior approval of its application to acquire DLJ's Winthrop Trust Company, before it can close the deal. It would seem that these were the "technical reasons" alluded to, but not explained, by Credit Suisse's October 9 announcement (of the push-back of closing into November). Developing..
* * *
October 9, 2000
The surreal end-game of Credit Suisse - DLJ. ICP filed timely comments opposing the deal (at least the part of it subject to the prior approval of the New York State Banking Board), on October 2. A summary is in last week's report: ICP has raised both institution's involvement in predatory lending, and Credit Suisse's recently revealed relationship with Nigeria's ex-dictator, Sani Abacha. ICP submitted a Freedom of Information Law appeal, because Credit Suisse is trying to withhold, in full, a list of the enforcement proceedings pending against it.
On October 4, the NYSBD informed ICP it will be allowed to submit further comments, once its FOIL appeal is decided. The NYS Banking Board, at its monthly meeting on October 5, did not act on Credit Suisse's application.
However, on October 6, a close observer of the market informed ICP that Credit Suisse still intends to consummate the deal on October 10 (a date that was mentioned in one of the Applicants' letter to the NYSBD). How? When Credit Suisse requires the prior approval of the NYS Banking Board to acquire DLJ's Winthrop Trust Company? ICP has inquired; it was speculated that perhaps DLJ intends to "leave Winthrop Trust Company behind," on October 10, in order to be acquired on that day. But it is not that simple: it is not AXA which owns Winthrop Trust Company, but rather the intermediate holding company, DLJ Asset Management Group. Will that be left behind as well? Perhaps the market observer who telephoned ICP on October 6 is misinformed, and Credit Suisse knows it has to wait. Developing...
* * *
October 2, 2000: Credit Suisse - DLJ Issues Raised to the NYS Banking Department
This week, a few purchases: Royal Bank of Canada bought the Minneapolis-based securities firm Dain Rauscher Corp. for $1.46 billion; BB&T bought a brokerage in South Carolina; CSBI in upstate New York confirmed its deal to buy Citizens National Bank of Malone, for $22.4 million. Some deals died: Hudson River Bancorp and Cohoes Bancorp, both in New York State, called off their merger, and North Fork let its hostile tender for Dime's stock lapse, while speaking vaguely about renewing its efforts at Dime's next annual shareholders' meeting. Rumors continued: Fleet, no longer North Fork's partner, to perhaps buy New Jersey's Summit; Lehman Brothers reportedly on the block. There was no movement on the Wells Fargo - Charter One front. These are just that: rumors.
What we present as news this week is a comment ICP filed on October 1 with the NYS Banking Department, opposing Credit Suisse Group's applications to the NYSBD to buy DLJ. ICP has requested the applications from the NYSBD on September 7, but only received them on Sept. 27. ICP has raised Credit Suisse's (and DLJ's) involvement, as underwriters and otherwise, in predatory lending (with Delta Funding, Conseco / Green Tree, and others), and the recent disclosure, by Suisse banking authorities, that Credit Suisse handled the blood money of Nigeria's ex-dictator, Sani Abacha.
ICP requested copies of these Applications from the Department on September 7, 2000, under the Freedom of Information Law ("FOIL"). ICP reminded the Department of that FOIL request on September 25, 2000. On September 27, 2000, ICP received the majority of the Applications. Some documents that ICP contends are material, and not legitimately exempt from disclosure under FOIA, have been withheld. ICP has submitted a FOIL appeal for these documents, and intends to provide further comment once the Department has ruled on its FOIL appeal, and provided some or all of the withheld information -- which includes, according to the Department's September 26 letter to ICP, a "summary of certain legal and regulatory proceedings (the 'Proceedings Report') pending against member companies of Credit Suisse First Boston." We believe that information about of these "proceedings" is "otherwise publicly available," and thus not legitimately exempt from disclosure under FOIL.
Both Credit Suisse (through such entities as Credit Suisse First Boston Mortgage Capital, LLC, and its Asset Backed Securities Corporation) and DLJ (through DLJ Mortgage Acceptance Corporation, DLJ ABS Corporation, DLJ Mortgage Capital, and CALMCO Servicing Corp.) are deeply involved with questionable (ICP alleges, predatory) mortgage lending. Investment Dealers Digest, in a June 26, 2000 article entitled "The Predatory Lending Fracas: Wall Street comes under scrutiny in the subprime market as liquidity suffers and regulation looms," lists Credit Suisse as the eighth largest underwriter of these loans, and DLJ as the fourteenth largest.
ICP has put into evidence before the NYSBD a September 22, 2000 Prospectus Supplement for subprime Conseco / Green Tree loans, underwritten by Credit Suisse First Boston, and an analysis of Green Tree's questionable subprime lending practices. Beyond the data, see, e.g., Durham (N.C.) Herald-Sun, July 7, 1999, at C1: "One Durham borrower... was charged $11,630 in one insurance premium payment on a $58,800 loan from Green Tree Financial Servicing Corp. in Raleigh, the loan papers state. After that payment and other fees were added, she ended up financing a $71,365 loan over 15 years. Her payment is $695 a month, and on Jan. 4, 2014, she will owe a one-time balloon payment of $63,771. All told, the loan will require her to pay $188,596, or more than three times the original $58,800."
See also Mortgage-Backed Securities Letter of July 19, 1999, reporting an 11th Circuit U.S. Distract Court case involving "soliciting a high-rate home-improvement loan," in which the court found Green Tree’s mandatory arbitration clause "to be unenforceable and unconscionable."
ICP has been concerned about Green Tree's (and Conseco's, after Conseco bought Green Tree) lending for some time. In 1999, ICP opposed Conseco's and Green Tree's applications for a thrift charter from the Office of Thrift Supervision. ICP requested a hearing, and the following information came out:
ICP asked what range of interest rates Green Tree currently charges. Conseco responded:
Home Equity Loans: First Liens: 9 1/2 to 14 percent
Second Liens: 11 to 16 or 17 percent
Manufactured Housing Loans: 9 1/4 to 11 1/2 percent
One of Conseco's representatives subsequently stated that some manufactured housing loans carry interest rates of 7 1/2 or 7 3/4 percent.
ICP asked, and the Applicants confirmed, that Green Tree does not offer a conforming (i.e., normal interest rate) product. ICP inquired into the Applicants’ fair lending compliance and self-testing programs. The Applicants’ responded that they do not review their portfolio for the inter-relation of interest rate and race. ICP asked if Green Tree reports all payment histories, including positive payment histories, to the credit bureaus. The Applicants stated that Green Tree DOES NOT report such information, as to home equity loans.
Credit Suisse was also a warehouse lender to the subprime lender Contifinancial (see American Banker of May 19, 2000), and co-managed an issuance by Delta Funding, and has served as adviser to Ocwen (see Money Marketing, June 22, 2000).
And so we've asked: what standards does Credit Suisse have, for working with subprime lenders? Apparently none.
ICP has focused its comments on Credit Suisse, the Applicant to the NYSBD. But of DLJ's Calmco subsidiary, the June 30, 2000 Prospectus of DLJ Mortgage Acceptance Corp. states: "Calmco Servicing L.P. ('Calmco'), a Delaware limited partnership, is a subsidiary of the underwriter and an affiliate of the depositor. The principal executive offices of Calmco are located at 9600 Great Hills Trail, Suite 300-E, Austin, Texas 78759. Calmco, established in December 1998, as successor in interest to Calmco Inc., a Delaware corporation established in December 1995 as a subsidiary of the underwriter and an affiliate of the depositor to perform default servicing for approximately 30,000 subprime residential mortgage loans." The National Mortgage News of August 28, 2000 reported that Wall Street firm Donaldson, Lufkin & Jenrette here is reportedly planning to increase its purchases and servicing of subprime loans and expand into the subperforming area by building on its acquisition of subprime and special servicer Calmco Servicing L.P., Austin, Texas. DLJ has hired 'quite a few folks' to lead the effort, including a team of former GMAC-RFC staffers that previously worked with that company's HomeComings special servicing platform, market participants say."
ICP's comment: the extensive involvements of both companies in standardless subprime lending, disproportionately to protected classes, must be reviewed in this proceeding, and, on the current record, these applications could not legitimately be approved.
* * *
The ramifications of the Swiss Federal Banking Commission's (the "SFBC's") September 4, 2000 report on Credit Suisse's involvement with Sani Abacha are not yet clear. As the Financial Times of September 5, 2000, reported, "Switzerland yesterday severely reprimanded Credit Suisse, the country's second biggest bank... for accepting [somewhat less than] $660 million from the family of the former Nigerian dictator Sani Abacha... who is accused of stealing more than Dollars 2bn from his country during his five-year rule... General Abacha seized power in November 1993 and died in June 1998. Opponents were executed and the country was increasingly ostracized following evidence of widespread corruption and violations of human rights. Billions of dollars are believed to have been siphoned off into offshore companies and bank accounts linked to the dictator's family. Credit Suisse, which had the biggest exposure of any Swiss bank...".
ICP's comment: the Department's and Board's review should be based on facts, not just perception. We call for such a review, in this proceeding, similar to the reviews, in the applications context, that the Department has performed in connection with UBS, Deutsche Bank and other institutions. We are concerned that Credit Suisse and DLJ apparently take for granted the "rubber stamping" of these applications by the Board and Department. DLJ has already laid off some European staff, anticipating their replacement by Credit Suisse personnel. Bloomberg of September 25, 2000 reported: "Donaldson, Lufkin & Jenrette Inc. closed its European and Asian trading business as Credit Suisse Group prepares to acquire the eighth-largest U.S. securities firm, people familiar with the company said. DLJ told about 200 traders, salespeople and analysts last week to go home, the people said." Companies for which DLJ was doing IPOs have added Credit Suisse as co-manager. See, e.g., Bloomberg of September 29, 2000.
And, most troubling to ICP, AXA's counsel's September 6 letter to the Department's General Counsel stated that "[t]he parties believe that the acquisition might be consummated as early as October 10, 2000." Given when they submitted the applications, triggering a comment period that runs until October 2, this proposed closing date is premised on either (1) no comments being filed, or (2) the Department and Board ignoring, and refusing to inquire into, issues raised in timely comments. For the reasons set forth above, on the current record, these applications could not legitimately be approved. We'll see...
Until next time, for or with more information, contact us.
* * *
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