The Mizuho Watch
Dai-Ichi + IBJ + Fuji = ???
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Updated October 7, 2013
On February 5, 2003, ICP filed comments with
the Federal Reserve
Board, opposing applications by Mizuho which are covered by the Community
Reinvestment Act. The
comment is below. Following Mizuho's attempt to withhold all
substantive portions of its
response, ICP on Feb. 17, 2003, commented to the Japanese FSA,
also below. For or
with more information, contact
us.
Update of October
7, 2103:
It's back on: "Mizuho
Bank, a core unit of Japan's second-largest
lender, lent money to crime-syndicate members for
more than two years
without cutting them off or alerting the
authorities."
Then,
"Mizuho Bank said that at least four senior
executives in charge
of legal compliance knew about loan transactions
with crime-syndicate
members for more than two years from 2010 but that
they didn't alert
the bank's chief executive or its board." Can you
say,
scapegoat?
Update of
February 4, 2008:
Mizuho Financial Group Inc., by
far the hardest hit by subprime among Japanese banks, said its
subprime-related loss for the nine months ended Dec. 31 more
than doubled from its forecast two months ago to 345 billion yen
($3.24 billion). It warned that the damage could grow to 395
billion yen for the year ending March 31. Mizuho's net profit
for the April-December period tumbled 32% from a year earlier to
393 billion yen. For the full fiscal year, it now forecasts a
group net profit of 480 billion yen, down 23% from the previous
year. Hate to say it, but we told ya so...
Update of February 20, 2006: In Japan,
Mizuho Bank will open about 100
branches in six major cities over the next three year starting
in April to target individual borrowers, group officials said
last week. "Our main battlefield will be the retail banking
sector," Mizuho Financial Group President Terunobu Maeda said.
We’ll see... For or with more information, contact us.
Sample earlier reports:
Update
of May 2, 2005:
Ah, Mizuho, we didn’t forget you. Mizuho
Financial Group announced on April 26 that it has expanded its
relationships with,
alongside Bank of New York, also Wachovia and Wells Fargo. Both
lend to payday lenders, so
that’s something. Mizuho said it plans to collaborate with both
Wells Fargo and
Wachovia in four areas: cash management, trade finance, customer
referrals, and
distribution of investment trusts in Japan. It said the
partnership with Wachovia also
includes Web site collaboration. Mizuho said that Wells Fargo
gives it access to the U.S.
West and Midwest, and Wachovia to the East. One
wag asked, and what about the South? Mizuho’s been known to lend
to subprime lenders
there.
Update of March 3, 2003: Sneaky ol' Mizuho -- on
Feb. 27, it responded
to ICP's comments to the N.Y. Banking Department, without
providing any more of the CRA
and other information it has been withholding. ICP has replied,
and has filed a timely
"request for reconsideration" with the Federal Reserve. Here's a
cursory summary
of ICP's reply to the NYBD:
Mizuho's response ignores the issues raised in
ICP's comments about
the withholding of CRA-relevant information, and the continued
withholding of basic
information such as the "list of principals of the U.S. Subsidiary
Banks
("Confidential" Exhibit 14), "information on the principals of
MHHD
("Confidential" Exhibit 13), the "organizational chart for MHFG
("Confidential" Exhibit 15) and the "list of companies engaged in
nonbanking activities in the United States in which MHFG [would]
own or control more than
5 percent of the voting shares ("Confidential" Exhibit 20). Yet
Mizuho insists
on and expects an unconditional N.Y. Banking Board approval on
March 6 (despite that fact
that, to ICP's knowledge, the NYBD staff have not asked Mizuho any
the needed CRA-related
or managerial / financial related questions). Mizuho's main
response / defense appears to
be the Feb. 24 Federal Reserve Board ("FRB") order which it
annexes -- and of
which ICP has now timely requested reconsideration, under 12
C.F.R. §262.3(k)) -- as it
that relieves the NYBD/BB of any responsibility to look into the
issues.
On CRA matters, the FRB Order at n.12 states
that "[t]he
commenter questioned whether MCB (USA) suspended its CRA
activities for a portion of 1999
and 2000" -- actually, this statement was made directly in
Mizuho's application to
the FRB, and yet until ICP "questioned" (that is, quoted) it in
its Feb. 6
comment, no FRB inquiry had been made. ICP urges the NYBD/BB to
inquire further into this
issue.
Since Mizuho's stakes its response on the FRB Order,
consider: the initial
FRB H2A notice listed a comment period running through March 7;
subsequently it was
clarified as Feb. 6, 2003. ICP submitted a timely comment; the FRB
staff, again to accede
to Mizuho, churned out a responsive question-letter on Feb. 10,
requesting a response by
Feb. 14. But on that day, Mizuho requested confidential treatment
for virtually all
substantive portions of its response. ICP inquired and then
submitted a FOIA request (to
which the FRB has yet to respond). ICP also then commented to the
NYBD. Mizuho then
released a small portion of the CRA information, while continuing
to withhold basic
information such as its organizational chart and list of
principles, information that is
routinely released in other proceedings on applications by
Mizuho's competitors.
The reason for the rush? The FRB approval
order contains, by law,
a 15 day waiting period. But the rush has led to an FRB order that
mis-characterizes the
facts (to put it mildly) -- something that the NYBB, particularly
following this timely
reply, should not do. Leaving aside for the moment the continuing
black-out on
CRA-relevant information, the FRB Order states blithely that
"Mizuho Holdings' stated
capital levels exceed the minimum levels that would be required
under the Basle Capital
Accord... No debt would be issued by the Applicants...". In timely
rebuttal, to be
addressed by the NYBD/BB, consider: Reuters of Feb. 25, 2003,
reported that
Mizuho Financial Group said on Tuesday it planned to
issue up to 150 billion yen ($1.27 billion) in preferred
shares to overseas investors. The group did not name the
investors in its statement. The plan was within expectations
after Mizuho, the world's largest bank by assets, said it was
seeking to raise around one trillion yen in capital before the
end of March.
Merrill Lynch has been identified in a number of
media reports in
connection with the above-referenced $1.27 billion [citations
omitted, but see:] Time
International of Feb. 3, 2003, "Faced with vast losses, Japanese
banking giant Mizuho
must drum up capital or be nationalized."
We also direct the NYBD/BB to the end of FRB
footnote 13: that the FRB
does not consider "the manner in which Mizuho's [constituent]
institutions reacted to
the terrorist attacks on September 11, 2001." Given inter alia the
NYBD's statements
on 9/11 matters, it would be surprising if the NYBD/BB did not
address what ICP has
raised, or stated that it is outside their jurisdictions.
ICP is troubled by -- and asks the NYBD/BB to
consider and adopt a
more appropriate position on -- the FRB's logic in note 13 of the
Mizuho Order. How ever
qualified, it's that "[t]he Board does not consider the non-U.S.
lending performance
of an applicant" -- ICP argues that the FRB (and NYBD/BB) SHOULD.
For example, the
FRB and NYBD inquire into global banks' non-U.S. problems with
money laundering, as they
should. Mizuho's cut-off of small businesses in its home country
is, as ICP's timely
commented pointed out, consistent with and a predictor of its
deteriorated CRA performance
in the United States and in New York. ICP is also troubled by the
logic in that, for
example, as Citigroup exports CitiFinancial's practices beyond the
U.S., the NYBD and FRB
is turning a blind eye. It works both ways -- but currently at the
FRB, particularly when
a bank needs a favor (while still withholding basic information),
it doesn't work at all.
This should not be repeated (or relied on) by the NYBD/BB. On the
current record, Mizuho's
applications should not be approved. For or with more information,
contact us.
Update of February 24, 2003: the secretive
Mizuho has now
"unredacted" some but not all of its response on CRA issues; it
continues to
withhold its organizational chart and even the list of the
"principals" (or
would that be, "principles"?) of its banks in the United States.
Mizuho's
counsel states that the CRA information was withheld because it
would "reveal the
strategy" of Mizuho's banks. Among the matters finally unredacted?
That Mizuho made
"donations of surplus office furniture;" that Mizuho paid for a
"Gala"
at which, not coincidentally, Mr. Tanaka of (the old) Fuhi and Mr.
Noguchi of the old IBJ
were honored -- wait, pay-to-play is one of Mizuho's strategies...
Meanwhile, on Feb. 21
the Nihon Keizai Shimbun reported that Merrill Lynch plans to
"inject" $186
million into a Japanese corporate rehabilitation fund it will run
with Mizuho.
Update of February 17, 2003: Here is a
portion of ICP's Feb. 17
comment to Japan's FSA:
...ICP is hereby asking the FSA to request, obtain
and make public
Mizuho's Feb. 13 CRA submission to the FRB. On Feb. 5, ICP
submitted a comment to the FRB.
On Feb. 10, the FRB posed questions to Mizuho, asking for a
response by Feb. 14. ICP
anticipated that it would receive its copy of Mizuho's response,
and be able to comment
thereon in this submission to the FSA. As set forth below, Mizuho
is for some reason
trying to keep confidential all substantive portions of its
response, on CRA relevant
issues -- the FSA should obtain Mizuho's response, and ICP is
hereby formally requesting
to be provided with a copy thereof. Here were the FRB's Feb. 10
questions to Mizuho [see
Update of February 11, 2002, below.]
ICP anticipated receiving its copy of Mizuho's
response and being
able to comment thereon in this submission to the FSA. However, on
Feb. 14 ICP received
from Mizuho's counsel a letter which confines virtually all of the
substantive portions of
Mizuho's response to purportedly "Confidential" exhibits (numbered
36-40). In
response to above-quoted Question 1, Mizuho refers to
"Confidential" Exhibits
36, 37, and 38. To Question 2, Mizuho refers to "Confidential"
Exhibit 39; to
Question 3, Mizuho refers to "Confidential" Exhibit 40. Then, in
response to
Question 4, Mizuho states inter alia that the FSA and
other agencies have received
all of the necessary information to consider the applications.
It is unclear to ICP if the FSA has yet
received a copy of Mizuho's
response(s) on these issues. The FSA should obtain, and provide
the public and ICP with
copies of these relevant exhibits. On the current record, Mizuho's
applications to the FSA
should not be approved.
We will report on the FSA's (and Mizuho's)
responses, upon receipt.
For or with more information, contact
us.
Update of February 11, 2003 -- Following ICP's
Feb. 5-6 comment, the
Federal Reserve on February 10 faxed the following Question Letter
to Mizuho:
To complete the record on this application, please provide the
following information (with supporting documentation, as
appropriate).
1. For the period covering January 1, 2001, through December
31, 2002, please provide separately, for each calendar year, the
number and dollar volume of the community development lending
and qualified investment activity of Mizuho Corporate Bank
(USA), New York, New York (formerly, Fuji Bank and Trust
Company). Include the activity of IBJ Whitehall Bank and Trust
Company, New York, New York, and Industrial Bank of Japan Trust
Company, New York, New York, prior to these institutions'
subsequent merger into Fuji Bank and Trust Company. In addition,
provide details describing the qualified loans and investments.
2. Please provide the number and dollar volume of loans to
small businesses (i.e., loans to businesses with revenues of $1
million or less) and loans to small businesses located in low-
and moderate-income census tracts extended by Mizuho Corporate
Bank of California, Los Angeles, California, during calendar
year 2002. Provide the information for the institution in its
combined assessment areas, and separately, in each of its two
assessment areas (i.e., Los Angeles and Santa Clara).
3. Footnote number four on page thirty-three of the application
notes that Mizuho Trust and Banking Co. (USA), New York, New
York ("MTBC-USA"), suspended its Community Reinvestment Act
("CRA") activities "for part of 1999 and 2000 in conjunction
with a plan to convert its status to that of a limited purpose
trust company." Please elaborate on that statement. Identify the
CRA activities that were ceased during the period referenced and
explain why such activities were discontinued. In addition,
explain why MTBC-USA abandoned its plan to become a limited
purpose trust company. Please provide the number and dollar
volume of MTBC-USA's community development lending, qualified
investment, and any other significant CRA-related activity(ies)
since its last examination by a federal supervisory agency.
Provide these totals separately for each year and provide
details describing the qualified loans and investments.
4. Please discuss the status of the applications that Mizuho
has submitted in connection with the proposal with New York,
California, Georgia, and Japan's Financial Services Authority.
To facilitate timely processing of the application, provide six
copies of the requested information... by no later than February
14, 2003. If Mizuho should desire confidential treatment for any
portion of its response, it should request such treatment... In
addition, please send a copy of the non-confidential portion of
the your response to [ICP].
Sincerely
[Helen M. Troy for]
Shawn McNulty, Associate Director
We will report (and
comment on) Mizuho's
response, upon receipt. For or with more information, contact
us.
Report of February 10, 2003 (ICP Comment):
On behalf of Inner City
Press/Community on the Move and
its members and affiliates, and the Fair Finance Watch
(collectively, "ICP"),
this is a timely comment opposing the applications of Mizuho
listed in the Federal Reserve
Board's (the "FRB's") Form H2A, with initial comment periods
running through
February 6, 2003.
As reflected in the Federal Reserve Bulletin
of November 2000, ICP
in 2000 raised numerous Community Reinvestment Act- ("CRA-")
relevant issues in
connection with the three-way merger that formed Mizuho at the
world's largest banking
organization by assets. ICP also raised managerial and financial
resources issues, many of
which subsequently corroborated in the numerous snafus (and worse)
that have plagued
Mizuho since 2000. Now there is this proposal, which Mizuho
cavalierly expects the FRB to
approve "no later than February 24, 2003," according to Mizuho's
counsel's cover
letter accompanying the Applications. The FRB's H2A initially
stated that the comment
period ran to March 7, 2003; ICP was then informed that it meant
February 6, 2003. Either
way, this comment is timely, and the issues raised below must be
appropriately inquired
into, responded to and addressed.
As set forth below, even in its home country,
and even after
receiving massive public subsidy, Mizuho has "slashed lending to
small and
medium-size[d] business by $42 billion in the half-year to
September 30 [2002], by far the
biggest cut among Japan's top seven banking groups." See,
Reuters of Jan. 14,
2003, further addressed infra. If this is Mizuho's
performance -- criticized by its
home country supervisor even in the absence of a CRA-like statute
-- closely scrutiny of
and action on Mizuho's performance in the U.S., under the CRA, is
needed, in connection
with these applications.
Take, for instance, the record of IBJ
Whitehall Bank & Trust.
Subsequent to the Mizuho merger, this institution's CRA rating was
downgraded. The
post-Mizuho performance evaluation, conducted by the FRS, states
at BB5 that "only
one loan was originated during the examination period... Total
loans at this examination
represent a 32 percent decrease since the previous
examination...". The Exam notes
"few new initiatives," and that "[d]uring the examination period,
the loans
originated by the bank's SBIC were outside IBJ Whitehall's
assessment area," which
consists of the five boroughs of New York City. Further on in the
Exam, it is stated that
"IBJ Whitehall capitalized a bank subsidiary, IBJ Whitehall
Capital Corporation, an
SBIC that invests in small business operations in an area that
includes the bank's
assessment area." But since none of IBJ Whitehall's SBIC's loans
were IN the
assessment area (where there is no lack of credit needs), it is
entirely unclear why the
capitalization of this subsidiary is given positive weight in the
Performance Evaluation.
The Exam re-emphasizes that "most of its activities were
outstanding loans and
investments originated during the previous examination period." Id.
at BB7.
Since it has been part of Mizuho, its performance has
deteriorated.
The FDIC's more detailed performance
evaluation, post-Mizuho, of
Dai-Ichi Kangyo Bank of California notes inter alia that
"the distribution of
small business loans and letters of credit reflects poor
penetration among business
customers with Gross Annual Revenues of $1 million or less;" the
bank is awarded a
Low Satisfactory on the CRA Lending Test. The Exam states that
"during the
reorganization, the bank's lending activity slowed... The drop in
volume impacted the
lending in low-income census tracts." Id. at 8, 22.
Surprisingly, the CRA-relevant data that is
presented in Mizuho's
Applications, for which it is requesting expedited approval,
covers a time-frame ending in
2001 -- more than 13 months ago. See App. at 30-33. Extremely
troubling to ICP is the
statement, which Mizuho confines to a footnote, that "MTBC (USA)
suspended its CRA
activities for parts of 1999 and 2000 in conjunction with a plan
to convert its status to
that of a limited purpose trust company. Upon withdrawal of that
plan, MTBC (USA) resumed
its CRA activities." App. at n.4, running from page 33 to 35. ICP
is not aware of any
authority for an insured depository institution to "suspend[] its
CRA
activities" while it contemplates converting to another status. We
also note -- and
contest the "segmentation" of this proposal implied by the
statement that
"MHAT plans to close its New York representative office as part of
the
Reorganization. MHAT will submit appropriate notices at a later
date." App. at n.2,
p. 12. ICP contends that the "appropriate" notices for this
proposed office
closure should be filed at this time, particularly since the
proposed office closure is
explicitly planned "as part of th[is] Reorganization."
Reuters of Jan. 14, 2003, quoted supra,
reported
Japan's Mizuho Holdings Inc said on Tuesday it would
relist on Tokyo's stock exchange on March 12 after completing
a realignment aimed at cutting costs and increasing profits.
On that day, Mizuho Holdings, the world's largest bank by
assets, will become Mizuho Financial Group, under which Mizuho
Holdings will become a full unit. Under the new structure,
core bank units will come under the umbrella of the Mizuho
Holdings unit.
Shares of Mizuho Holdings, widely considered one of the
weakest of Japan's four megabanks, and Mizuho
Financial Group will be swapped one-for-one. The current
ordinary shares of Mizuho Holdings will be delisted on March 6
ahead of the birth of the financial group.
Alongside the launching of the new financial group on March
12, Mizuho will also merge its two trust banking units --
Mizuho Asset Trust & Banking Co Ltd. and unlisted Mizuho
Trust & Banking Co Ltd. The new trust banking subsidiary,
Mizuho Trust & Banking Co Ltd., will come under the
umbrella of Mizuho Financial Group.
Like other big Japanese banks, Mizuho Holdings is under
pressure to step up restructuring and improve its financial
health as the government pushes ahead with plans to reduce banks'
bad loans. Mizuho, created through a three-way
merger in 2000, returned to profit in the first half to
September but the company expects to incur losses for
the full year ending in March. (Emphasis added).
Having above sketched a review of Mizuho's and its
components' continuing
under-performance in the United States, consider for the record
Mizuho's weak record of
lending to small businesses in its home country: Reuters of
January 31, 2003, reported
that Japan's
Financial Services Agency said on Friday it has issued a
business improvement order against Mizuho Holdings Inc to
boost lending to smaller firms to meet the bank's target.
Mizuho, the world's biggest bank by assets, slashed
lending to small and medium-size businesses by five
trillion yen ($42 billion) in half year to September 30,
by far the biggest cut among Japan's top seven banking
groups. Mizuho had planned to raise such lending
by 10 billion yen in the current business year to March.
Japanese banks set targets for lending to small firms in their
restructuring plans after receiving public funds in the late
1990s. Mizuho received nearly three trillion yen in
taxpayers' money to shore up its capital.
(Emphasis added).
See also, AFX News of Jan. 31, 2003,
reporting that the FSA
will order Mizuho Holdings Inc to improve its lending
practices after the bank cut lending to small and medium-sized
firms by 5 trillion yen (38 billion euro, 42 billion dollars)
as of end-September 2002 from end-March levels, the Jiji Press
news agency reported without citing sources. The report said
the FSA will issue the order later Friday.
The FSA believes Mizuho is not making enough effort to boost
its lending to the small business sector, as is required of
banks receiving public fund injections, Jiji said. Economic
and Financial Affairs Minister Heizo Takenaka said at a
briefing after a Cabinet meeting that the FSA is still
investigating the matter and declined to comment further.
Again: even in its home country, and even after
receiving massive public
subsidy, Mizuho has "slashed lending to small and medium-size[d]
business by $42
billion in the half-year to September 30 [2002], by far the
biggest cut among Japan's top
seven banking groups." If this is Mizuho's performance --
criticized by its home
country supervisor even in the absence of a CRA-like statute --
close scrutiny of and
action on Mizuho's performance in the U.S., under the CRA, is
needed, in connection with
these applications. The issues raised above must be inquired into,
responded to, and acted
on. On the current record, Mizuho's applications could not
legitimately be approved.
Despite ICP's FOIA request, we have not been
provided with the many
exhibits for which Mizuho has requested confidential treatment.
ICP hereby contests
Mizuho's attempt to withhold even the "list of principals of the
U.S. Subsidiary
Banks ("Confidential" Exhibit 14), "information on the principals
of MHHD
("Confidential" Exhibit 13), the "organizational chart for MHFG
("Confidential" Exhibit 15) and the "list of companies engaged in
nonbanking activities in the United States in which MHFG [would]
own or control more than
5 percent of the voting shares ("Confidential" Exhibit 20). Given
the centrality
of an assessment of Mizuho's widely-reported "asset quality"
problems, see
supra, ICP also specifically contests inter alia the
withholding of
"Confidential" exhibits 3 ("Information related to MHCB's asset
quality"), 7 ("Information related to MHAT's asset quality"), and
9
("Information related to MHTB's asset quality"). ICP contests
Mizuho's attempt
to confine the entirety of its response to (required) Question 1,
regarding Consent to
Jurisdiction and other (FBSEA-relevant) commitments, to
"Confidential" Exhibit
21 (and 26). ICP contests the withholding of "Confidential"
Exhibit 23
("information concerning the subsidiaries of New MHTB," including
name, place of
incorporation, etc.). (ICP has been unable to find the references
or identifiers of
"Confidential" Exhibits 11, 12 and 22 in the text; the list of
"Confidential" Exhibits has also apparently not been provided to
ICP, but should
be, now, along with the improperly withheld Exhibits).
Finally, for now, we must note (as Bloomberg News of October 4,
2001, did) that Mizuho has
a strange and inappropriate approach to the countries beyond Japan
in which is does
business:
Mizuho Holdings Inc. was quick to announce that most of
its employees survived terrorist attacks that destroyed the
World Trade Center. The world's biggest bank neglected to say
the tally excluded more than 1,000 foreign staff, seven of
whom are still missing... Mizuho, formed last year through a
merger of Fuji Bank, Dai-Ichi Kangyo Bank and Industrial Bank
of Japan, gave its first estimate of casualties four hours
after the tragedy. At Fuji's offices, on the 79th through 82nd
floors of the trade center's South Tower, 113 of a total 125
employees were confirmed alive, Ide said on Sept. 12. Dai-Ichi
Kangyo confirmed the safety of its 80 Japanese workers in the
North Tower, while 101 of a total 102 Japanese at IBJ were
alive, he said.
Those totals didn't include 273 locally hired workers at
Dai- Ichi Kangyo, 500 at Fuji and 411 at IBJ.
While Ide later provided a breakdown of Japanese and
non-Japanese staff at the three banks, he and other spokesmen
couldn't give figures for those still missing.
Mizuho also produced a list of names and ages of missing
Japanese employees within hours of the attacks. Spokesman
Hiroshi Takahashi declined to provide names of missing local
workers. Non- Japanese Mizuho employees in Tokyo say the bank
didn't provide information on local employees in New York.
Fuji now says 12 Japanese and 6 local staff are still
unaccounted for and IBJ says one local employee is missing.
Dai- Ichi Kangyo says all its 353 workers are safe, working in
New Jersey. Almost 6,000 people in total are either missing or
confirmed dead.
"This response showed a real lack of concern for the
bigger picture of the disaster," said Tamio Hattori, a
sociology professor at Kyoto's Doshisha University.
"Of course what happened to Japanese people is a tragedy, but
we need to remember the global impact is even worse."
Within hours of the disaster, other Asian companies in the
buildings, including five Korean financial firms and
Singapore's Overseas Union Bank, reported the total of all
their New York employees, mostly local hires.
Based on all of the above, ICP is
opposed to Mizuho's
applications, asks to timely receive a copy of Mizuho's response
to this Comment (and an
opportunity to reply), and contends that, on the current record,
these applications could
not legitimately be approved. ICP requests an evidentiary hearing.
For or with more
information, contact us.
Update of June 24, 2002: Ah, Mizuho. On
June 19, Japan's FSA
ordered Mizuho to improve its operations following computer
problems that affected
millions of transactions in April. Mizuho Holdings President
Terunobu Maeda denied a local
media report that the bank had obstructed the agency's
investigation. Financial Services
Minister Hakuo Yanagisawa has expressed concern that the problem
could affect Mizuho's
profitability...For or with more information, contact
us.
Update of April 22, 2002: extensive computer
glitches this month are
leading to plans to postpone by more than a year the full linkage
of two computer systems
for individual accounts. Mizuho said it believed problems in a
system that linked two host
computers -- that of Fuji Bank and DKB -- caused the glitches.
"Our top priority at
the moment is to repair these system failures," a Mizuho spokesman
said...
"Mizuho's top people just don't understand how important it is for
a bank to have
solid information technology," said one banker. "It's like car
makers rolling
out new cars without full inspection and recalling them after
accidents, or airline firms
saying they thought a plane could fly after it crashes." Great
merger, eh?
Update of August 6, 2001: Mizuho continues to
get out of consumer
finance in the United States. On July 30, Mizuho agreed to sell
its 52% stake, and 77%
voting power, in Heller Financial to GE Capital. Earlier in 2001,
Mizuho sold its stake in
CIT to Tyco. This Report has been slow, because... so's Mizuho,
right now.
Update of April 2, 2001: Ah, Mizuho...
The Japanese press
reported that last that Mizuho and its constituent banks, Dai-ichi
Kangyo, Fuji and
Industrial Bank of Japan (IBJ), will take a 600 billion yen ($4.91
billion) loan loss
charge in the year ending on March 31, up 50 percent from the
previous estimate of of 430
billion yen. This has led to threats of litigation against 12
Mizuho officials, including
chief executives Masao Nishimura, Yoshiro Yamamoto and Katsuyuki
Sugita, if they fail to
compensate the bank for the losses within one month. If the case
goes ahead, it could set
precedents on the liability of corporate directors under Japan's
1997 Antimonopoly Act
revision, which allows corporate groups to restructure themselves
into holding firms... Great
merger, Mizuho...
Update of March 19, 2001: Last week, Tyco
announced its
intention to apply for regulatory approval to buy a stake in the
CIT Group (in which
Mizuho has a large stake, analyzed below). For more, see
ICP's Bank
Beat report...
Update of October 2, 2000: It has begun, the new
era of Mizuho. Its
stock went up, as it opens, because it's been including in the
benchmark Morgan Stanley
Capital International index. But observers note that this year,
Fuji shares have fallen 18
percent, DKB have fallen 13 percent and IBJ is down 8 percent.
Robert Zielinski, an
analyst at ABN Amro in Japan, said, "the merger through a holding
company is just an
artificial show -- it'll just be the same, except they're now
lumped together." But
at the opening ceremony, Katsuyuki Sugita, president and co-chief
executive officer of
Mizuho Holdings, said "Mizuho does not only become a financial
group that enjoys
overwhelming superiority in the home market, but also wins a
ticket to be a top-five
powerful player on the global financial stage." "I don't think
Mizuho will be
able to compete with foreign banks in the overseas market anytime
soon," said Nozomu
Kunishige, senior banking analyst at Lehman Brothers. "Still, it
will have new
business chances based on its solid client base at home," he said
Mizuho -- which
means fresh and fruitful rice harvests -- also owns brokerage and
trust banking arms and
aims to integrate fully the operations of the three banks by March
2002. And,
sporadically, we'll be watching (especially but not only as these
companies continue their
involvement in questionable subprime lending in the United
States).
* * *
On April 27, 2000, Inner City Press / Community on
the Move filed a
challenge with the U.S. Federal Reserve Board to the applications
of Dai-Ichi Kangyo Bank,
Industrial Bank of Japan and Fuji Bank to merge, and form a
company proposed to be called
"Mizuho." DKB, Fuhi and IBJ all own banks in the United
States, covered by
the Community
Reinvestment Act.
As ICP's challenge (set forth below on this page)
demonstrates, all three are
involved and intertwined in high-interest rate, so-called
"subprime" lending in
the U.S. -- lending that ICP contends is predatory, just the sort
of lending that the
Federal Reserve and other U.S. regulators have recently been
decrying.
Update of September 25, 2000: The formation of Mizuho,
to replace Deutsche
Bank as the world's largest financial institution, is slated for
September 28. Bloomberg
on September 21 ran a sort of obituary for the constituent banks,
noting IBJ's bail out by
the Japanese government in 1989, and that each bank's share price
has declined to
pre-merger announcement levels. Is bigger better? We shall see...
Update of September 18, 2000: Little to report, except
that the Mizuho-ites
are moving into a new building in Tokyo, and hope to begin
trading, as Mizuho, on
September 28.
Updated of September 11, 2000: On
September 6, the Fed
acted on, and approved, three Japanese banks' application to form
the world largest
financial institution, Mizuho. On the predatory lending issues
that had been raised, the
Fed's Order is laughable: it simply recites, and claims to have
considered the issues,
without rebutting them. For example, in a footnote on page 15 of
the Order, the Fed states
that
"ICP contends that DKB, Fuji and IBJ have indirectly
supported predatory
lending by providing financing to Delta Funding Corporation,
Woodbury, New York ('Delta'),
Ameriquest Mortgage Company, Orange, California ('Ameriquest');
and PinnFund USA,
Carlsbad, California ('PinnFund'). Mizuho represents that the
business relationships cited
by ICP were limited to equipment leases to Delta and Ameriquest
by subsidiaries of DKB and
Fuji, and that a credit facility arranged by IBJ for PinnFund
expired without being
funded. The Board has considered these assertions in evaluating
the managerial and
convenience and needs factors in this case."
This avoids the main question raised in
ICP's comments: what
standards do these companies have, in doing business with high
interest rate, subprime
lenders? IBJ chose to make funding available to PinnFund. That
PinnFund, for its own
reasons, didn't draw down the loan does not answer the question
that the Fed must
consider, under the statutory factors: what safeguards does IBJ
have in place in working
with subprime lenders? Had PinnFund drawn down IBJ's funds --
would the Fed answer this
question? Apparently not: in a half-page footnote on page 9 of the
Order, the Fed states
that
"ICP's comments include contentions that CIT Group, Inc.,
Livingston, New
Jersey ('CIT'), a subsidiary of DKB, engages in predatory
lending by making subprime loans
and imposing prepayment penalties more frequently than
competitors, and engages in these
practices more often in certain metropolitan areas with respect
to African Americans than
do its competitors. ICP also asserts that CIT has supported
predatory lending by
purchasing loans from Long Beach Mortgage Company, Orange,
California ('Long Beach'). CIT
purchased no mortgage loans or had any other business with Long
Beach since 1998. The
Board has forwarded ICP's comments on CIT to [HUD, DOJ and the
FTC], which have
responsibility for fair lending law compliance by nondepository
companies like CIT and
Long Beach. In addition, the Board has considered information
submitted by Mizuho on CIT's
consumer lending practices, including the processes by which CIT
makes credit available to
consumer, the compliance procedures established by CIT, the
methodology employed by CIT in
setting risk-based interest rates, and the relationship of CIT
with loan brokers and
correspondents."
Here, the Board says it has
"considered information
submitted" by the banks, without discussing what that information
was. In fact, the
banks' submission included admissions that few to no background
checks (on brokers, for
example) are performed. It is in another footnote, number 24, that
the Fed wheels out its
overall buck-passing strategy: as long as a bank holding company
doesn't
"control" a subprime company that it funds, there are no
repercussions:
"ICP contends that CIT has supported predatory lending by
providing
financing to... Cityscape Financial Corporation, Elmsford, New
York ('Cityscape'). The
only business relationships that CIT had with Cityscape involved
two credit facilities
totaling $105 million. Mizuho represents that CIT did not
control Cityscape's underwriting
or lending practices, and the CIT was not involved in
Cityscape's credit review
process...".
So a new standard is erected: as
long as you don't
"control," you can freely fund and profit from questionable
subprime lending.
ICP's sense is that even if CIT HAD exercised some control over
Cityscape's lending
practices, the Fed would simply come up with another defense,
another excuse. ICP will be
requesting reconsideration of the Fed's approval, under the Fed's
rules.
Update of September 4, 2000: While the
Mizuho-ites announced, with
some arrogance, that their combined company would be listed and
begin trading in its own
name at the beginning of September, the Federal Reserve Board at
the time of that
announcement had not voted to approve or disapprove their
applications. Late last week,
the Fed announced that it had put the Mizuho application on its
agenda for Tuesday,
September 5. How convenient… And this despite the Mizuho-ites
evasive answers the
Fed's questions about their involvements in questionable subprime
mortgage lending in the
United States. In our next installment, we will analyze the Fed's
decision and order..
Update of August 21, 2000: Evidence of the Mizuho
applicants’
standardless involvement in subprime lending continue to emerge,
in response to Federal
Reserve questions. An August 11 letter from the applicants to the
Fed discloses yet
another instance of IBJ’s funding of subprime lenders, one that
ICP’s comments
didn’t even raise: a facility for “FirstPlus Financial, Inc.,
Dallas,
Texas.” Just last week, the Federal Trade Commission announced
that FirstPlus has
agreed to settle charges that its advertisements for "debt
consolidation" loans
were false and misleading. In re FirstPlus Financial Group Inc.,
FTC, File No. 992 3121,
8/17/00).
Another subprimer than IBJ agreed to finance,
Pinnfund, USA, wrote ICP a
letter on August 15. As reported by National Mortgage News of
September 21, 1998,
“PinnFund USA and Industrial Bank of Japan have closed a
first-of-its-kind subprime
warehouse facility that has provided the former with immediate
access to a $70 million
revolving credit line.” ICP’s comments to the Fed, available at
the bottom of
this page, stated that “[s]imply to document for the record that
the IBJ-funded
subprime lender PinnFund USA disproportionately targets protected
classes with its...
high-interest rate loans, consider PinnFund USA’s refinance
mortgage lending in the
Chicago MSA in 1998: 247 loans to African Americans, 116 loans to
whites, a ratio of 2.13
to one. The aggregate industry in this MSA in 1998 had a ratio of
0.120 to one. In
Chicago, IBJ-funded PinnFund USA targets African-Americans 17.8
times more frequently than
the aggregate with its high interest rate loans.”
IBJ’s and its co-applicants’, Dai-Ichi Kangyo Bank’s
and
Fuji Bank’s, August 11, 2000 letter to the Fed stated that “[t]he
facility for
PinnFund, USA, Carlsbad, California, was established in August
1998 and terminated in
November 1998 without even having been utilized; liquidity
problems in the fall of 1998
were the primary reason that the facility was not used.”
Then, dated August 15, comes a letter from PinnFund,
USA’s CEO,
Michael Fanghella, to ICP:
Pinnfund, USA is pleased to respond to your inflammatory
and misinformed remarks
about its lending practices... Pinnfund, USA is surprised Inner
City Press
(“ICP”) exhibits such an elitist and arrogant attitude toward
Pinnfund, USA
borrowers: individuals who, because of past credit problems, or
the need for special loan
terms, cannot obtain the benefits of credit from traditional
sources, such as FNMA or
FHLMC lenders... Pinnfund, USA does not try to fit each borrower
into a single, “take
it or leave it” program so common with other lenders, but offers
rates and terms to
fit almost every credit need, and credit rating: from A to C-...
Pinnfund, USA is proud of
its HMDA information, and its involvement in offering a helping
hand to all, especially to
racial and ethnic minorities. If its HMDA numbers show that
Pinnfund, USA provided credit
to African Americans 17.8 times more frequently than other
lenders, the converse is also
true: African Americans are 17.8 times more likely to be denied
credit by traditional
lenders, a fact borne out by Department of Housing and Urban
Development Studies...
Pinnfund, USA would have to base its lending practices on the
basis of race to be more in
line with the “aggregate industry” and accommodate ICP. That
would not only be
bad for business, but it would be unlawful. We suggest ICP
become more acquainted with the
Equal Credit Opportunity Act before it suggests further
race-based lending. Pinnfund, USA
declines to practice racial discrimination to satisfy
ICP...Despite ICP’s misinformed
criticism, Pinnfund, USA will continue to provide credit to
persons other lenders decline,
even if they are members of a minority groups. Very Truly Yours,
Michael J. Fanghella,
Chairman & CEO, Pinnfund, USA
Before responding, ICP reviewed Pinnfund,
USA’s 1999 HMDA data.
In the Chicago MSA, Pinnfund USA in 1999 again made more of its
subprime refinance loans
to African Americans than whites. We decided to look at other
MSAs. In the Memphis MSA in
1999, Pinnfund, USA made 80 refinance loans to whites, and 65 to
whites: a ratio of 1.23
to one. The aggregate industry made 3120 refinance loans to
African Americans, and 7441 to
whites: a ratio of 0.42 to one. Pinnfund, USA in this MSA targets
African-Americans 2.93
times more frequently than the aggregate with its high interest
rate loans.
In the Los Angeles MSA in 1999, Pinnfund, USA made
47 refinance loans to
whites, and 109 to whites: a ratio of 0.43 to one. The aggregate
industry made 8986
refinance loans to African Americans, and 60,653 to whites: a
ratio of 0.15 to one.
Pinnfund, USA in this MSA targets African-Americans 2.86 times
more frequently than the
aggregate with its high interest rate loans.
Having established this pattern of Pinnfund,
USA’s
greater-than-average targeting of African Americans with its
(subprime) loans, it’s
time to answer Pinnfund’s CEO’s questions. One problem is that
Pinnfund simply
asserts, without proof or any safeguards in place, that the people
it lends to at higher
than normal interest rates “cannot obtain the benefits of credit
from traditional
sources.” Furthermore, while Pinnfund claims it would be
“unlawful,” it
seems clear that mortgage lenders, particularly subprime lenders,
should be reviewing the
correlation between interest rate, race, the credit score. Long
Beach Mortgage (now owned
by Washington Mutual) was sued by, and settled with, the
Department of Justice on
precisely these grounds: it was charging people of color more, and
failed to review and
correct these disparities. It would seem that Pinnfund, USA (and a
number of other
low-profile, “wholesale” subprime lenders) may be wide open for a
fair lending
suit, by DOJ or others. And yes, Mr. Fanghella, we will try to
“acquaint”
ourselves with the Equal Credit Opportunity Act. We’d suggest that
IBJ, Fuhi and DKB
do the same...
The Fed has still not placed the Mizuho application
on its agenda for
decision.
Update of August 7, 2000: The Federal Reserve Board’s
questioning of the
three banks applying to form Mizuho, on issues of subprime
lending, continues. Last week
ICP received a copy of the banks’ July 31 submission to the Fed,
responding to a July
26 question-letter from the Fed. The Fed asked if various
“assurances” the banks
gave, as to CITCNF, “allow appl[y] to CITCNF (NY), CITCNF (TN),
and/or CITSF”
(see below for explanation of this torrent of acronyms). Only in
response to this last
minute question did the banks, on July 31, disclose that “2
percent of
CITCNF(NY)’s loans, 1.5 percent of CITCNF(TN)’s loans and a ‘de
minimus’ amount of CITSF’s loans are to D credit.” Subprime
mortgage
lending is often referred to as “B and C lending” (with “A” being
prime credits). D loans are at the highest interest rates. The
banks had initially
claimed, in their May 16 submission, that CITCNF “makes loans
almost exclusively to
A, B, and C credits... fewer than one percent of its loans are to
D credits.” The
reality, for CITCNF’s New York subsidiary is double that...
The banks’ July 31 submission also discloses that,
before CIT
accepts loans from correspondents, “no Better Business Bureau
contact is made and no
references obtained for a Correspondent.” The Fed also asks if CIT
gives its
correspondents copies of the fair lending compliance booklet that
CIT described in its
previous submissions. The banks’ respond that “such a booklet is
not provided to
Correspondents.”
These banks’ inattention to fair lending compliance
has become more
and more apparent as this proceeding has developed. The Federal
Reserve Board held the
second of its four hearings on the Home Ownership and Equity
Protection Act on August 4 in
Boston. Governor Gramlich comments to reporters before the hearing
again claimed that the
Fed can do very little about predatory lending: “[o]ur authority
in the overall
scheme of things is a bit limited... We certainly can't do it
all,” Gramlich said.
But how about doing SOMETHING? On this application? Developing...
Update of July 31, 2000: The Federal Reserve Board STILL
has not place the
Mizuho application on its agenda for a vote. Last week, ICP
received documents from the
Fed in response to ICP’s June 12 appeal of the Fed’s withholding
of documents
under the Freedom of Information Act. On appeal, the Fed provided
several dozen pages it
had previously withheld, including a letter, dated before the
Mizuho applications were
even filed with the Fed, in which the banks’ lawyers met with Fed
officials to
discuss the applications behind closed doors. ICP contends that
such meetings, and
withholding all documents (beyond the scheduling letter) are
unfair. The application is
subject to public comment, and the Fed’s “Ex Parte” rules,
prohibiting communications between the Fed and either party to the
dispute. The Fed now
holds its ex parte communications before the application is even
filed. It’s as if a
party about to file a lawsuit went in to meet with the judge, the
day before filing (and
then adhering to the rules of due process and against ex parte
communications).
Governor Ferguson’s July 26 letter to ICP states that “notes were
taken at the
meeting,” but they are “not required to be produced.” The
increasingly
routine unfairness of the Fed’s procedures needs to be challenged.
But first, Mizuho:
Also last week, ICP received a copy of IBJ’s lawyers’ response to
Fed
questions of July 19. The Fed asked:
“Page 6 of Mizuho’s May 16 submission refers to three
securitizations
of certain mortgage loans, for which [IBJ] acted as arranger.
Explain more specifically
the role played by IBJ in these securitizations, and the extent
to which IBJ was involved
in the origination of the mortgage loans involved in the
securitizations.”
ICP note: here, the Fed is asking the wrong
question(s).
Underwriters of pool of mortgage loans, particularly subprime
mortgage loans, should
perform due diligence on the fairness of the loans whatever their
involvement in the
originations. But in this case, IBJ’s involvement went further.
It’s response
states that “IBJ’s New York Branch is the manager of WCMC pursuant
to an
agreement for which it receives a management fee.” The response
refers to
“short-term arrangements to ‘warehouse’ mortgage loans until the
time that
the lender could arrange longer-term funding. IBJ’s role in
connection with these
facilities was as an arranger, for which it received a structuring
fee.” IBJ’s
presents its due diligence as having been limited to “weighted
loan-to-property
values and borrower credit characteristics” -- not fair lending,
or any review of
prepayment penalties, even compliance with HOEPA. For shame...
Update of July 23, 2000: As of July 23, the Federal
Reserve had still not
provided the 48-hour notice required before it votes on the Mizuho
applications.
Meanwhile, this month in Japan it was disclosed that Fuji Bank
stands to lose 36.57
billion yen on its loans to the Sogo Group department store firm;
DKB is said to be
purchasing Shinsei Bank Ltd.'s 42 billion yen in bad loans to
struggling construction
company Hazama Corp.. A merger premised on a bail-out? We shall
see...
Update of July 5, 2000: On June 28, the lawyers for the
three banks applying to
form Mizuho responded to a series of questions the Federal Reserve
asked, by letter dated
June 16. The Fed’s (vague) questions included: “For each
subsidiary... please
describe the process through which the subsidiary makes credit
available... and how the
Banks currently ensure that the consumer credit granting
subsidiaries comply with the
applicable consumer protection laws and regulations, particularly
the fair lending and
fair housing laws.” The applicants’ first answer, as to CIT, is
that they
“maintain a legal staff.” Reference is made to a “consumer
compliance
manager (a former regulator with the Texas Office of Consumer
Credit Commissioner).”
The Fed then asked if any of the banks’ subsidiaries make “high
cost” loans
under the Home Ownership and Equity Protection Act of 1994, HOEPA.
At least three CIT
subsidiaries make such (very) “high cost” loans; the companies
have sought
“confidential treatment” for their responses describing how
many....
Update of June 26, 2000: The Federal Reserve has still not
place the Mizuho
application on its agenda (and, with the June 27-28 FOMC meeting,
it may be unlikely this
week). The New York State Banking Board meets on June 28, and may
act on the state
application at that time. The Mizuho-ites have announced their
plan to list the stock of
the still-to-be-approved holding company on September 28, 2000.
Meanwhile, in Tokyo, ING
Baring analyst James Fiorillo expresses disappointment at “the
lack of identifiable
focus in this group's business plan.” In the United States, a
company which already
registered, and is using, the web site
<mizuhofinancialgroup.com> has intimated that
the three Japanese banks may need a different name in the U.S....
The substantive concerns
about these banks involvement in questionable subprime mortgage
lending have yet to be
addressed. The U.S. Treasury Department and HUD on June 20
released a report urging, among
other things, the Federal Reserve to more closely examine the
subsidiaries of bank holding
companies (like these three) for their involvement in questionable
subprime lending.
We’ll see...
Update of June 12, 2000 -- Last week, ICP finally received
the Federal Reserve
Board’s response to ICP’s April 18, 2000 FOIA request about the
“Mizuho” application. Included were time-line sheets, indicating
the Fed’s
plan to “circulate[]” a “draft/Legal memo” by May 6, “final
memos” by May 21, “Order and Record Released” (to the Governors)
by May 27,
“Date of Press Release/Order June 2.” Also reflected is that the
Federal Reserve
System held a closed-door meeting with the applicants and their
lawyers on January 27,
2000. The memorandum on this meeting has been heavily redacted by
the Fed. The Fed has,
however, released (after the close of the comment period) exhibits
that the applicants
improperly withheld -- for example, a list of the Principals of
DKB (including Tadashi
Kudo, Nobuhiro Mori and Akira Miyagawa -- while still withholding
their ownership
percentages in other depository institutions); and the “Regulatory
History of DKF
(USA).” The Fed even redacted the length of the “grace period for
noncomforming
nonbanking activities” that the applicants are requesting. The Fed
is doing the
public’s business -- but in an increasingly non-public way... Also
last week, the
applicants’ lawyer submitted a 21 page response to the New York
State Banking Board,
identical to their May 16 submission to the Fed. The NYSBB will
rule, at earlier, on June
28. Developing...
Update of June 5, 2000: The Federal Reserve’s
long-delayed response
to ICP’s April 19 Freedom of Information Act (FOIA) request was
received, at least
the cover letter, last week. The Fed states: “By letter dated May
17, 2000, the
deadline for our response to your request was extended... Staff
search of appropriate
Board records has revealed 20 additional documents that are
responsive to your request.
Sixteen of these documents will be provided to you in their
entirety... Four hundred and
five full pages, and portions of others, will be withheld from
you... You may appeal this
determination...”. Which is exactly what ICP is doing. The
documents that ARE being
released -- will be reviewed here, upon receipt.
Update of May 30, 2000: On June 1, the Federal
Reserve Board is supposed
to provide ICP with documents responsive to ICP’s April 18 Freedom
of Information Act
request about the “Mizuho” companies. They will be reported here
upon receipt.
The Mizuho-ites have announced they’ll try to combine their
brokerages on October 1,
2000; they’ve also announced that they’ll be opening an “Internet
shopping
mall, with publisher Kadokawa Shoten and others. Given their
involvement with questionable
subprime lenders in the United States, we wonder if among the
“virtual tenants”
of their mall will be the sarakin (Japanese “street money
lenders,”
otherwise known as loan sharks). Developing...
Update of May 22, 2000: On May 16, Fuji, IBJ and DKB
submitted a joint response
to ICP’s April 27 comment. ICP’s May 19 Reply, summarized below,
gives a sense
of the companies’ interesting, if nothing else, response:
May 19, 2000
Board of Governors of the Federal Reserve System
Attn: Jennifer J. Johnson, Secretary
Chairman Greenspan and Governors
20th Street and Constitution Avenue, N.W.
Washington, DC 20551
RE: SUPPLEMENTAL COMMENT / REPLY /EXTENSION REQUEST IN
OPPOSITION TO THE
APPLICATIONS MIZUHO HOLDINGS, INC., FUJI BANK, LIMITED (AND
HELLER FINANCIAL), INDUSTRIAL
BANK OF JAPAN AND THE DAI-ICHI KANGYO BANK, LIMITED (AND CIT
GROUP, NEWCOURT FINANCIAL USA
AND CIT ONLINE BANK)
Dear Secretary Johnson and 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 supplemental comment, including reply (and
request for an
extension of the comment period, for the reasons set forth
below) on the applications and
notices of the proposed Mizuho Holdings, Inc., the Industrial
Bank of Japan, Limited (with
its subsidiaries, “IBJ”), The Fuji Bank, Limited (with its
subsidiaries,
including Heller Financial, “Fuji”) and The Dai-Ichi Kangyo
Bank, Limited (with
its subsidiaries and controlled companies, including The CIT
Group, the proposed CIT
OnLine Bank, and Newcourt Financial USA, “Dai-Ichi”).
Due to the Federal Reserve Board’s
inexplicably delayed
transmission of ICP’s April 27, 2000 Protest to the Applicants,
the Applicants had
until May 16, 2000 to respond. On May 16, the Applicants
submitted a Joint Response, 12
pages in length, to which ICP hereinbelow replies.
DKB’s, IBJ’s and Fuji’s Joint Response
mis-summarizes ICP’s protest, claiming that that ICP “asserts”
that
“[s]ubprime lending is synonymous with predatory lending.” JR at
3. The JR
ignores that ICP’s Protest specifically alleges that the
subprime lending of
DKB’s CIT Group/Consumer Finance and the other IBJ-, DKB- and/or
Fuji-enabled
companies named in the Protest (and CIT’s and its pre-payment
penalties, see infra)
are disproportionately directed at minorities, protected classes
under the fair lending
laws, as reflected by Home Mortgage Disclosure Act (“HMDA”)
data.
The JR’s quotation of the FRB’s comments
about HMDA data
(JR at 4) is inapposite: those FRB statements did not concern
HMDA data’s irrefutable
ability to show the demographics of lending (targeting), they
concerned analysis of denial
rates, and/or using HMDA as a “[]complete measure of an
institution’s
lending.” Id. The JR’s purported rebuttal of ICP’s HMDA
(targeting)
analysis is simply incorrect when it claims that ICP’s aggregate
figures “lump
statistics on conforming loans together with non-conforming
loans” (JR at 9).
ICP’s Protest compared each named companies’ conforming lending
with the
industry’s conforming loans -- as the Applicants’ and their
counsel(s) would
have seen, had they merely reviewed the aggregate conforming
HMDA data for themselves. The
Joint Response is perfunctory and ill-informed, as, apparently,
are DKB’s, IBJ’s
and Fuji’s compliance programs, particularly as regards each
company’s
acknowledged involvement in subprime lending.
The Joint Response makes a number of
acknowledgments, which should be
highlighted for the FRB’s record:
--DKB’s CIT Group/Consumer Finance “makes subprime mortgage loans
and charges
prepayment penalties” (JR at 7);
--“CIT committed to $75 million of a $150 million credit facility
mad with other
lenders to United [Companies Financial Corp....” (JR at 5);
--“CIT provided a $30 million pre-[bankruptcy] petition credit
facility [to
Cityscape Financial Corp.], and CIT committed to $75 million of a
$150 million D[ebtor]
I[n] P[ossession] credit facility made with other lenders” [Note
that while, as to
United Companies, the JR makes a representation as to CIT’s
“average loan under
the facility,” no such representation is made, in the JR’s same
paragraph, to
CIT’s “average loan under the [Cityscape] facility”] (Id.);
--[CIT’s] “Newcourt [Financial] leased approximately $3 million
of computers
and equipment to Delta [Funding]” (Id.);
--“CIT purchased... loans from L[ong] B[each] M[ortgage]...”[
While the JR
says that these CIT loan purchases from Long Beach Mortgage were
“in the past,”
this does not address ICP’s point: that CIT bought LBM’s mortgage
during the
time frame for which LBM was sued for discrimination by the DOJ,
based on a referral from
the OTS. It does not even address whether CIT continued to buy
LBM’s mortgage after
the DOJ had charged LBM with discrimination] (Id.);
--Fuji participated in a syndicated loan to United Companies (JR
at 6);
--Fuji’s Heller Financial has an on-going “transaction” with
Ameriquest
[The JR’s response that ICP’s “comment is inaccurate” in that it
calls
Heller a “creditor” of Ameriquest is a defense so technical and
semantic as to
reflect the entirely evasive nature of the Response, and of the
companies’ approach
to their fair lending and other responsibilities. The twice-posed
question, “what
standards do [these companies] have for their involvements in
subprime lending” -- is
never answered, in the Joint Response] (Id.);
--“IBJ acted as arranger for.. three [high-loan-to-value
mortgage]
securitizations” (Id.). The JR claims that the National Mortgage
News article cited
by ICP is “misleading.” But the article unequivocally ranks IBJ as
the SEVENTH
largest “High LTV Underwriter” in 1998, based on data from
Moody’s;
--IBJ did arrange a facility for PinnFund USA [The Response
misses the point, leaving
unanswered what the companies’ (here, IBJ’s) standards for
involvement (here, a
warehouse line of credit) with subprime lenders are. In this light
-- the light of
IBJ’s acknowledged warehouse line of credit to PinnFund USA --
PinnFund USA’s
presumptive targeting of minorities with its high-interest rate
loans remains relevant]
(Id.); and, again
--DKB’s CIT Group/Consumer Finance “makes subprime mortgage loans
and charges
prepayment penalties” (JR at 7).
On this central point -- DKB’s CIT’s
imposition of
prepayment penalties, a practice described as predatory by
numerous experts in the field,
the Joint Response defense (at 7) is that “ICP claims that
CIT... imposes prepayment
penalties on these loans more than other lenders in the subprime
industry. ICP has no
basis for this comment.”
But the National Mortgage News article that the Joint
Response quotes from (at
7) itself provides a “basis,” reporting that “Tom Hallman,
president and
chief executive of the CIT Group’s subprime mortgage lending
unit... said about 70%
of CIT Consumer Finance’s total existing portfolio carries some
kind of prepayment
protection and 75% of its new originations are similarly
protected. More than 90% of
CIT’s home equity loans that are legally eligible for such
protection have it.”
It is comparing these statistics, provided by DKB’s CIT itself,
with disclosures in
SEC filings for other subprime securitizations, that provide the
basis for ICP’s
comment. The quoted article itself says that CIT’s extensive
imposition of prepayment
penalties distinguishes it from its “peers.” The Response is
simply evasive.
Furthermore, while JR acknowledges that
DKB’s CIT makes
“C” loans, it emphasizes a low percentage of “D” loans (JR at
7). But
at 10, the JR brags that CIT provides “disclosure for Section 32
loans under the Home
Ownership and Equity Protection Act” (“HOEPA”). Given HOEPA’s
high
threshold for “high cost loans,” it would appear that CIT is
charging
“D” prices to... “A, B and C” eligible borrowers.
While the Applicants are applying for a
needed pre-approval to form
the largest bank in the world, the JR claims that “there is
nothing unusual about the
Application” (JR at 11). Despite the JR’s energetic (but often
hollow, see
supra) “disput[ing]” of the presentation in ICP’s Protest, the
JR then
claims that there are no “disputed issues of fact” (JR at 11).
The JR states
that “ICP admits that the Board already provided ICP ‘with the
portions of the
Mizuho and DKB Trust Company (USA) applications for which the
applicant has not requested
confidential treatment” (JR at 12) -- this misses the point: the
FRB has yet to
respond to ICP’s Freedom of Information Act request for the
entire applications, and
for all records reflecting communications between the FRB and
the Applicants. In light of
all of the above, this comment must be made part of the record,
and the comment period
should be extended.
On the current record, the Applications
could not legitimately be
approved. If you have any questions, please telephone the
undersigned, at (718) 716-3540.
Very Truly Yours,
Matthew Lee
Executive Director
Inner City Public Interest Law Center
& Inner City Press/Community on the Move
cc: Mr. Paul S. Pilecki, Esq.
Shaw Pittman
Fax: 202-663-8007
Update of May 15, 2000: Fuji, IBJ and Dai-Ichi have yet to
respond to ICP’s
April 27 comments to the Federal Reserve Board; their response is
due, at latest, on May
16, and will be reported in this space. On May 14-15, ICP filed a
19-page protest to the
Mizuho applications to the New York State Banking Department,
similar to the summary
below, but emphasizing that the NYSBD’s Acting Superintendent has
recently spoken of
the need to scrutinize investment banks’ and wholesale banks’
standards for
involvement in subprime lending. Also, on May 12, information
regarding Fuji’s,
IBJ’s and DKB’s involvements in questionable subprime lending was
submitted to
the Joint HUD / Treasury Department Task Force on Predatory
Lending. These agencies’
responses and actions should also prove interesting...
Update of May 8, 2000 -- While Fuji, IBJ and Dai-Ichi
became aware of ICP’s
challenge on April 27, they have yet to submit their response to
the Federal Reserve. On
May 5, ICP telephone Federal Reserve staff, inquiring into this.
ICP was provided with a
copy of a Fed letter, dated May 4, 2000, to the lawyers for Fuji,
IBJ and DKB, stating
that “your response should be received within eight business days
of the date of this
letter.” Which would be... May 16. Meanwhile, the Fed has yet to
respond to
ICP’s Freedom of Information Act request of April 18. Hence, the
following
letter:
May 8, 2000
Board of Governors of the Federal Reserve System
Attn: Jennifer J. Johnson, Secretary
Chairman Greenspan and Governors
20th Street and Constitution Avenue, N.W.
Washington, DC 20551
RE: SECOND TIMELY COMMENT/EXTENSION REQUEST BY INNER CITY
PRESS / COMMUNITY ON
THE MOVE AND THE INNER CITY PUBLIC INTEREST LAW CENTER
Dear Secretary Johnson and 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 second timely comment (and request for an
extension of the
comment period, for the reasons set forth below) on the
applications and notices of the
proposed Mizuho Holdings, Inc., the Industrial Bank of Japan,
Limited (with its
subsidiaries, “IBJ”), The Fuji Bank, Limited (with its
subsidiaries, including
Heller Financial, “Fuji”) and The Dai-Ichi Kangyo Bank, Limited
(with its
subsidiaries and controlled companies, including The CIT Group,
the proposed CIT OnLine
Bank, and Newcourt Financial USA, “Dai-Ichi”).
The comment periods on two of the (at
least) four
inter-related “Mizuho” applications expire today (see FRBNY
Weekly Bulletin of
May 1, 2000, at 3). On April 18, ICP faxed to the Board and to
the FRBNY a Freedom of
Information Act request for the complete Applications, and for
all records reflecting
communications between the FRS and the Applicants. The FRBNY
provided portions of the
Applications, and, based thereon, ICP faxed a timely comment
opposing the Applications to
the Board on April 26-27. Thereafter, ICP heard nothing from the
Board or from the
Applicants. So, on May 5, ICP contacted the FRS. It appears that
ICP’s April 27
protest was not formally transmitted to the Applicants until May
4. As ICP has noted to
FRB Legal Division staff, this delay is inconsistent with the
Board’s Rules for
Processing Applications, and, in this case, prejudices ICP’s
rights as a commenter.
ICP desires to reply to whatever response the Applicants submit,
and requests an extension
of the comment period to do so. ICP as notes the Board’s failure
to provide documents
responsive to ICP’s April 18 FOIA request, as of the time of
this submission. On May
5, ICP telephoned four separate FRB staffers attempting to
obtain these responsive
document: it appears that inquiries for responsive documents had
already been made to the
Legal Division staff; however, at day’s end, ICP was informed
that the paralegal
handling ICP’s request wanted to further inquire with other
staff. ICP requested an
interim response / production of documents, but none has been
forthcoming as of the time
of this submission.
ICP has raised detailed, adverse issues in
opposition to the
Applications, as to each of the Applicants (each of which,
beyond owning banks in the
United States subject to the Community Reinvestment Act, 12
U.S.C. §2901, et seq. (the
“CRA”), is also involved in the mortgage, business and consumer
finance lending
industries in the United States, including the so-called
“subprime” (high
interest rate) consumer finance lending business.
Given the detail with which ICP has timely
raised and documented
these issues, and given the Board’s expressed concern with the
part of the subprime
lending industry that may be characterized as predatory, ICP
believes it is important, for
the completion of the record on these Applications, that it be
afforded an opportunity to
reply to the Applicants’ response(s) on these issues. The
unexplained delay by the
FRB in requesting a response from the Applicants should not
prevent ICP from being able to
reply. Accordingly, the comment periods should be extended. On
the current record, the FRB
should deny the Application. If you have any questions, please
telephone the undersigned,
at (718) 716-3540.
Very Truly Yours,
Matthew Lee
Executive Director
Inner City Public Interest Law Center
& Inner City Press/Community on the Move
* * *
Update of May 1, 2000: IBJ spokesman Osamu Odawara,
in Tokyo, confirmed to
Bloomberg News reporter Takahiko Hyuga that the banks need U.S.
regulators’ approval;
spokesmen for DKB and Fuji declined to comment. We await the
banks’ formal response.
The Fed's procedure is that the banks will be given
eight business days to
respond to the protest. This page will be updated at least
weekly, including once
the banks' responses, and the other documents ICP has requested
from the Federal Reserve
under the Freedom of Information Act, are received. For or
with more information, contact us.
PETITION TO DENY AND HEARING REQUEST BY INNER CITY
PRESS / COMMUNITY ON
THE MOVE AND THE INNER CITY PUBLIC INTEREST LAW CENTER IN
OPPOSITION TO THE APPLICATIONS
MIZUHO HOLDINGS, INC., FUJI BANK, LIMITED (AND HELLER FINANCIAL),
INDUSTRIAL BANK OF JAPAN
AND THE DAI-ICHI KANGYO BANK, LIMITED (AND CIT GROUP, CIT ONLINE
BANK AND NEWCOURT
FINANCIAL USA)
APRIL 27, 2000
I. PRELIMINARY STATEMENT
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 opposing and requesting hearings
on the
applications and notices of the proposed Mizuho Holdings, Inc.,
the Industrial Bank of
Japan, Limited (with its subsidiaries, “IBJ”), The Fuji Bank,
Limited (with its
subsidiaries, including Heller Financial, “Fuji”) and The Dai-Ichi
Kangyo Bank,
Limited (with its subsidiaries and controlled companies, including
The CIT Group, the
proposed CIT OnLine Bank, and Newcourt Financial USA, “Dai-Ichi”).
While the three Japan-based banking corporations
which propose to merge to
form Mizuho have operations on a global scale, each owns banks in
the United States
subject to the Community Reinvestment Act, 12 U.S.C. §2901, et
seq. (the
“CRA”). Significantly, each is also involved in the mortgage,
business and
consumer finance lending industries in the United States,
including the so-called
“subprime” (high interest rate) consumer finance lending business.
Dai-Ichi has
long held a controlling stake in a major U.S. finance company that
is involved in subprime
lending: The CIT Group (“CIT”). In Section II, infra, this
Comment
analyzes Dai-Ichi-controlled CIT’s lending patterns, which raise
troubling questions
under the fair lending laws: the Fair Housing Act, 42 U.S.C. §§
3601-3619, and the Equal
Credit Opportunity Act, 15 U.S.C. §§ 1691-1691f. CIT’s lending
patterns are also
relevant under the CRA, given CIT’s, Dai-Ichi’s and Mizuho’s
applications
to charter and control an FDIC-insured institution, the CIT OnLine
Bank, to which
CIT’s subprime consumer finance business would be shifted (see
Sections II and
IV, infra).
Dai-Ichi’s CIT and Newcourt, IBJ, and Fuji’s Heller
Financial,
have also provided direct financing to some of the most
questionable (oft-characterized as
predatory) subprime lenders, including (for CIT) Cityscape, based
in New York, and United
Companies, based in Louisiana. Dai-Ichi’s and CIT’s Newcourt
Financial has
financed and enabled Delta Funding, a subprime lender sued for
discrimination by the New
York State Attorney General, the Department of Justice, HUD and
the Federal Trade
Commission. Fuji’s subsidiary Heller Financial is a creditor of
the controversial
subprime lender Ameriquest (whose high interest rate lending
targeted at minorities is
analyzed in Section III, infra). Dai-Ichi’s CIT is an “approved
investor”
for Long Beach Mortgage, sued for discrimination by the Department
of Justice (the
“DOJ”). Industrial Bank of Japan is a major securitizer of
problematic
high-loan-to-value (“high LTV”) loans: the eighth largest
securitizer of such
loans in the United States, according to the National Mortgage
News of February 1, 1999.
IBJ also directly provides loans to questionable subprime lenders;
for example, IBJ
provided a “subprime warehouse facility” (essentially, a $70
million revolving
line of credit from which to make high interest rate loans) to the
questionable B&C
lender PinnFund USA (whose high interest rate lending targeted at
minorities is also
analyzed below). See, e.g., National Mortgage News of
September 21, 1998, at 21
(“B&C Warehouse Breaks New Ground”), and see infra Section
III.
This Comment timely raises and documents each of
these adverse issues into
the record before the Federal Reserve Board (the “FRB”). ICP is
requesting an
evidentiary hearing (and other actions, including referral to the
DOJ for a fair lending
enforcement action, see infra), and contends that on the
current record, the
Applications could not legitimately be approved.
II. THE FRB’S EXPRESSED CONCERN WITH SUBPRIME / PREDATORY
LENDING; DAI-ICHI’S
CIT GROUP’S DIRECT SUBPRIME LENDING, DISPROPORTIONATELY TO
MINORITIES, WITH
PRE-PAYMENT PENALTIES
The Federal Reserve Board’s Chairman has recently
expressed the
Board’s worries about predatory lending, stating: “Of concern are
abusive
lending practices that target specific neighborhoods or vulnerable
segments of the
population and can result in unaffordable payments, equity
stripping, and foreclosure. The
Federal Reserve is working on several fronts to address these
issues...”.
“Remarks of Chairman Alan Greenspan Before the Annual Conference
of the National
Community Reinvestment Coalition,” March 22, 2000. See also,
Reuters newswire
of March 22, 2000: “Greenspan Says Fed to Target Abusive Lending;”
American
Banker of March 23, 2000, “Greenspan Wades In On Predatory
Lending, Joining Other
Regulators.”
Given the FRB’s recently expressed concern about
predatory lending,
and the Chairman’s statement that the FRB is “working... to
address these
issues,” this Comment will begin with an examination of Dai-Ichi’s
involvement,
through CIT, in direct subprime and, ICP contends, predatory
lending. (Dai-Ichi’s
practices merit particular scrutiny in this proceeding, given
inter alia the report that
“IBJ officials will handle risk management and personnel affairs
at Mizuho Holdings,
DKB [Dai-Ichi] will take charge of planning and of monitoring
regulatory compliance and
Fuji Bank will send officials to take responsibility for internal
financial affairs and
information technology-related operations,” Asia Pulse, April 4,
2000, emphasis
added).
The FRB increasingly claims that while it is
concerned about predatory and
abusive subprime lending, there is little the FRB can do about it,
because few (“less
than a third,” according to FRB Governor Gramlich, see infra) of
the lenders
specializing in subprime loans are banks or bank affiliates.
Mizuho would own at least
five FDIC-insured institutions (“banks”), and a retail subprime
consumer finance
company, the CIT Group, which is seeking to charter and shift its
subprime lending to
another bank, which would be Mizuho’s sixth in the United States.
Furthermore,
Dai-Ichi through CIT and Newcourt, IBJ, and Fuji through Heller
Financial, have
collectively been major lenders to (and enablers of)
non-bank-affiliated subprime lenders.
See infra Section III.
Dai-Ichi’s CIT Group Consumer Finance is a subprime
lender.
Dispositively, it is listed as such in the publication that the
FRB is using for its
definition of the subprime market: Randall M. Scheessele, 1998
HMDA Highlights, U.S.
Department of Housing and Urban Development, Housing Finance
Working Paper Series HF-009,
1999, at Table D5b. Thomson’s subprime industry publication
Origination News of April
2000 lists CIT Group Consumer Finance of Livingston, NJ as the
14th largest wholesale
subprime lender in the country: larger, in this channel, than
Delta Funding, than National
City’s Altegra unit, than Chase’s Chase Home Finance unit. In
terms of retail
subprime presence, National Mortgage News of January 25, 1999
listed CIT Group Consumer
Finance as the 30th largest retail subprime lender, by number of
retail outlets, of which
CIT has 31, more than Huntington Mortgage Company, more than
KeyCorp’s Champion
Mortgage unit. National Mortgage News of March 27, 2000, at 14,
lists CIT Group Consumer
Finance as the 16th largest servicer of subprime loans in the
country: larger than GE
Capital Home Equity Services, than Old Kent Financial, than
(again) KeyCorp’s
Champion Mortgage unit. Note that CIT’s <BrokerEdge.com> Web
site confirms that
CIT makes not only “B and C,” but even “D” loans.
Given CIT’s extensive subprime consumer finance
business (national
ranking are recited in the text above, and <CIT.com> states
that “[t]he CIT
Group is one of the country's premier national mortgage and home
equity lenders”), it
is noteworthy that the Mizuho application tries to downplay this
(unsavory, see infra)
side of CIT’s and Dai-Ichi’s business, stating (misleadingly) that
CIT “is
principally engaged directly and indirectly in commercial finance
and equipment
finance.” Mizuho App. at 6, emphasis added. The Board should not
allow itself to be
misled by this statement; in any event, CIT’s subprime consumer
lending must be
considered in this proceeding not only as a fair lending /
managerial issue, but also as a
CRA issue, since this business would be placed under an
FDIC-insured institution (the
proposed CIT OnLine Bank) that Dai-Ichi and Mizuho would control.
See infra.
Given that Dai-Ichi’s CIT Group is clearly a
subprime
(higher-than-normal interest rate) lender, it is relevant to
examine the racial
demographics of its lending, under the fair lending laws. CIT’s
lending patterns are
also relevant under the CRA, given CIT’s, Dai-Ichi’s and Mizuho’s
applications to charter and control an FDIC-insured institution,
the CIT OnLine Bank, to
which CIT’s subprime consumer finance business would be shifted.
The context for the
analysis below is not only that CIT is a higher than normal
interest rate lender, but also
that it imposes pre-payment penalties on these loans, more than
other lenders in the
industry. National Mortgage News of December 28, 1998 reports that
CIT “charg[es]
prepayment penalties” -- among the practices now widely viewed as
predatory, in
connection with subprime loans -- and quotes the president of CIT
Group’s
“subprime mortgage lending unit,” Tom Hallman, that “about 70% of
CIT
Consumer Finance's total existing portfolio carries some kind of
prepayment protection and
75% of its new originations are similarly protected,” as are “more
than 90% of
CIT's home equity loans.”
So, CIT is a lender which charges higher than
normal interest rates, and
which, more than the rest of the subprime industry, imposes
pre-payment penalties. As
demonstrated below, CIT and its practices are disproportionately
targeted at African
Americans and Latinos, protected classes under the fair lending
laws. In this proceeding,
the Federal Reserve Board (1) must closely consider these patterns
(under both the fair
lending laws and CRA), (2) should, ICP contends, make a referral
for an enforcement action
by the Department of Justice, and, (3) on the current record,
should deny the
Applications.
Consider the record of CIT Group Consumer Financial
(NJ)
(“CIT-NJ”) in the Philadelphia Metropolitan Statistical Area
(“MSA”):
it made 87 refinance mortgage loans to African-Americans in this
MSA in 1998, and 115 such
loans to whites, a ratio of 0.76 to one. The aggregate industry in
this MSA in 1998 had a
ratio of 0.091 to one. In Philadelphia, Dai-Ichi’s CIT, a subprime
lender proud of
its imposition of pre-payment penalties, targets African-Americans
8.35 times more
frequently than the aggregate for these terms.
In the Chicago MSA, CIT Group Consumer Finance in
1998 made 63 refinance
mortgage loans to African-Americans, and 50 to whites, a ratio of
1.26 to one. The
aggregate industry in this MSA in 1998 had a ratio of 0.120 to
one. In Chicago,
Dai-Ichi’s CIT, a subprime lender proud of its imposition of
pre-payment penalties,
targets African-Americans 10.5 times more frequently than the
aggregate for these terms.
[snip - contact ICP
for more recent data]
III. DAI-ICHI’S, CIT’S, NEWCOURT’S, IBJ’S, AND FUJI’S /
HELLER’S ENABLING OF SUBPRIME AND PREDATORY LENDERS
As noted above, the FRB’s Chairman has recently
expressed the
Board’s worries about predatory lending, stating: “Of concern are
abusive
lending practices that target specific neighborhoods or vulnerable
segments of the
population and can result in unaffordable payments, equity
stripping, and foreclosure. The
Federal Reserve is working on several fronts to address these
issues...”. Chairman
Greenspan’s Speech Before NCRC’s Annual Conference, March 22,
2000.
One “front” that the FRB should be “working on” to
address the scourge of predatory lending is close scrutiny of bank
holding companies’
(“BHCs’”) and their subsidiaries’ financing and enabling of
predatory
subprime lenders. This is not only common sense (see, e.g., the
New York Times’ March
15, 2000 exposé’s focus on Lehman Brothers’ role in enabling First
Alliance,
and the Times’ previous expose of Delta Funding, which focused on
Bankers
Trust’s enable of this company) -- the FRB should note that other
regulatory agencies
are explicitly considering these issues. For example, in 1999, the
Office of Thrift
Supervision (“OTS”) imposed a condition on Lehman Brothers, in
connection with
its emergency acquisition of Delaware Savings Bank and with
reference to Lehman’s
business with Delta Funding, requiring Lehman to implement fair
lending safeguards for
this business.
Inquiry into BHCs’ (here, IBJ’s, Dai-Ichi’s, and
Fuji’s, see infra) enabling of predatory subprime lenders is
particularly important
in light of the FRB’s apparent perception that its relative
inaction on the issue is
justified by a superficial count of how many “pure” subprime
lenders are banks
or BHC-subsidiaries. See, e.g., FRB Governor Gramlich’s April 14,
2000 speech in
Syracuse, New York (justifying the FRB’s lack of action on the
issue of predatory
lending by noting that only a third of the 239 HUD-identified
subprime lenders are bank
affiliates). Governor Gramlich stated:
“HUD compiles an annual list of the subprime lenders
that report data
under the Home Mortgage Disclosure Act (HMDA). For 1998, this list
showed 239 subprime
lenders, of which 168 were regulated only by the Federal Trade
Commission (FTC).
Thirty-six of these institutions were banks or subsidiaries of
banks and savings and loans
that were regulated, and the remaining thirty-five were banks or
subsidiaries of bank
holding companies, where the holding company was regulated but the
subsidiary operated
with some freedom from the holding company and its regulator.”
ICP contends that Governor Gramlich’s presentation
is misleading,
including in a way relevant to this proceeding, in which the FRB
must scrutinize Dai-Ichi,
IBJ and Fuji and the companies they control, for CRA, managerial
resources, and fair
lending. First, the HUD study that Governor Gramlich cited (the
above-referenced 1998 HMDA
Highlights, HUD Housing Finance Working Paper Series HF-009, 1999)
makes clear that the
list of 239 lenders includes only those HMDA-reporters which
“specialize” (or
are limited to) subprime lending. (In any event, the
above-analyzed CIT Group Consumer
Finance, controlled by Dai-Ichi, is therein listed as a company
specializing in high
interest rate loans). The report, in the introduction to the list
Governor Gramlich
referred to, says that “since HMDA does not identify... subprime
loans, we were
unable to separate out the... subprime loans of lenders that do
not specialize in those
loans.” It should be noted that several companies financed and
enabled by Dai-Ichi
and/or Fuji, even beyond those listed below, are in fact engaged
in problematic subprime
lending.
Gov. Gramlich’s quotation, above, ends by discussing
“the
remaining thirty-five were banks or subsidiaries of bank holding
companies, where the
holding company was regulated but the subsidiary operated with
some freedom from the
holding company and its regulator.” One thing that Governor
Gramlich didn’t say
is that this “freedom” from the regulators is one that the Fed
itself has
DECIDED to give. The FRB can conduct examinations, including fair
lending examinations, of
any bank holding company subsidiary, including subprime lenders.
In fact, the General
Accounting Office, in November 1999 released a report, Large Bank
Mergers: Fair Lending
Review Could Be Enhanced With Better Coordination (GGD-00-16, Nov.
3, 1999), which urged
the Fed to begin doing such exams, of BHC-subsidiary subprime
lenders.
Chairman Greenspan signed a September 20, 1999
letter to the GAO
expressing the Fed disagreement with the GAO Report’s
recommendation (“that the
Board monitor the lending activities of nonbank mortgage
subsidiaries of bank holding
companies and reconsider [its] policy with respect to routine
examination”). Chairman
Greenspan stated that “[t]he matter is one that we recently
studied at length.”
The GAO report, at 14, stated that “[a]ccording to FRB officials,
a long-standing FRB
policy of not routinely conducting consumer compliance
examinations of nonbank
subsidiaries was formally adopted in January 1998.” The FRB’s
decision not to
examine BHC subsidiaries has let off the hook not only the 35
companies (on the HUD list)
that Gov. Gramlich referred to, and note only the subprime PARTS
of other BHC-subsidiary
lenders, but also the activities of BHC-subsidiaries like
Dai-Ichi’s CIT Group, and
Fuji’s Heller, which finance and enable predatory subprime
lenders. That must stop,
in this proceeding. ICP hereby timely enters into the record in
this proceeding the
following:
Industrial Bank of Japan: Securitizer,
Warehouse Lender and Enabler
of Subprime / Predatory Lending in the U.S.
Industrial Bank of Japan is a major securitizer of
problematic
high-loan-to-value (“high LTV”) loans: the eighth largest
securitizer of such
loans in the United States, according to the National Mortgage
News of February 1, 1999).
IBJ also provides warehouse lines of credit to subprime and high
LTV lenders. See, e.g.,
National Mortgage News of October 5, 1998, at 23, Warehouse
Providers Adapt Their Products
to Market Changes: “[D]emand for MBS has fallen, particularly
those backed by
products that are perceived as carrying higher levels of risk -
such as subprime or high
loan-to-value mortgages... Michael Strauss, a vice president in
the Industrial Bank of
Japan's securities department, said his firm, in response, is
offering a hybrid
warehouse - securitization structure that gives originators some
flexibility in terms of
when and where they sell their loans. ‘This might be a time
in the market when
people are looking for something like this,’ said Mr. Strauss. IBJ
recently provide
[a] subprime warehouse of this type. Previously, the structure was
used primarily by high
loan-to-value originators.” Emphasis added.
Industrial Bank of Japan’s direct enabling and
financing of subprime
(and, ICP contends, predatory) loans is evidenced by IBJ’s
“subprime warehouse
facility” to the questionable B&C lender PinnFund USA. See,
e.g., National
Mortgage News of September 21, 1998, at 21, B&C Warehouse
Breaks New Ground, by Bonnie
Sinnock: “PinnFund USA and Industrial Bank of Japan have closed a
first-of-its-kind
subprime warehouse facility that has provided the former with
immediate access to a $ 70
million revolving credit line. The credit facility is backed by a
senior subordinate
securitization structure...”.
Simply to document for the record that the
IBJ-funded subprime lender
PinnFund USA disproportionately targets protected classes with its
(IBJ-funded)
high-interest rate loans, consider PinnFund USA’s refinance
mortgage lending in the
Chicago MSA in 1998: 247 loans to African Americans, 116 loans to
whites, a ratio of 2.13
to one. The aggregate industry in this MSA in 1998 had a ratio of
0.120 to one. In
Chicago, IBJ-funded PinnFund USA targets African-Americans 17.8
times more frequently than
the aggregate with its high interest rate loans.
Dai-Ichi’s CIT and Newcourt: Enablers of
Predatory Lending
(Delta Funding, United Companies, Cityscape, e.g.)
Dai-Ichi’s CIT Group last year stepped in to
“save,” via a
$500 million debtor-in-possession loan and a warehouse line of
credit to, the
controversial subprime lender United Companies Financial Corp..
See, e.g., American Banker
of March 2, 1999, at pg. 28. The next day’s American Banker
reported that
“[t]his is the third time CIT Group has arranged similar financing
for a failing
subprime company,” and quoted an industry analyst that CIT Group
“‘is
uniquely positioned to take advantage of the fall of this
industry.’" Emphasis
added. Note that Fuji Bank, Dai-Ichi’s co-Applicant here, has also
financed United
Companies. For a description of United Companies’ questionable
practices, see, e.g.,
Merchants of Misery, by Michael Hudson (1996, Common Courage
Press), at 80-84, reporting
for example that “United Companies also charge upfront fees of 7
percent, compared to
a national average of 1.75 percent...,” and a slew of
pre-bankruptcy consumer and
civil rights litigation against the company.
To document for the record that the
Dai-Ichi/CIT-saved subprime lender
United Companies disproportionately targets protected classes with
its
(Dai-Ichi/CIT-enabled) high-interest rate loans, consider United
Companies Lending
Corp.’s refinance mortgage lending in the Philadelphia MSA in
1998: 120 loans to
African Americans, 102 loans to whites, a ratio of 1.18 to one.
The aggregate industry in
this MSA in 1998 had a ratio of 0.091 to one. In Philadelphia,
Dai-Ichi/CIT-saved United
Companies targets African-Americans 13 times more frequently than
the aggregate with its
high interest rate refinance loans. In the New York City MSA,
Dai-Ichi/CIT-saved United
Companies targets African-Americans 15 times more frequently than
the aggregate with its
high interest rate refinance loans.
For further example, Dai-Ichi’s CIT stepped in with
loans for the
embattled Cityscape Financial Corp. of Elmsford, New York, both
pre- and post-bankruptcy.
See, e.g., Mortgage Banking magazine, May 1998, at 22
(pre-bankruptcy loan); Securities
Data Publishing’s Bank Loan Report of December 7, 1998 (CIT as
lead lender and agent
for $250 million post-bankruptcy debtor-in-possession loan). See
also Baton Rouge (La.)
Advocate of May 2, 1999, Conflict Issue Raised in United Companies
Deal: “In both
bankruptcies... The CIT Group Inc.... [is] providing hundreds of
millions of dollars worth
of interim financing for the two troubled lenders. Midanek said
she called upon the
companies because they have expertise in lending to companies in
bankruptcy and financing
subprime lenders such as Cityscape and United Companies.”
To document for the record that the
Dai-Ichi/CIT-saved subprime lender
Cityscape disproportionately targets protected classes with its
(Dai-Ichi/CIT-enabled)
high-interest rate loans, consider Cityscape Corp.’s refinance
mortgage lending in
the Chicago MSA in 1998: 29 loans to African Americans, 102 loans
to whites, a ratio of
0.28 to one. The aggregate industry in this MSA in 1998 had a
ratio of 0.120 to one. In
Atlanta, Dai-Ichi/CIT-saved Cityscape targets African-Americans
2.33 times more frequently
than the aggregate with its high interest rate loans. In the New
York City MSA,
Dai-Ichi/CIT-saved Cityscape targets African-Americans 6.25 times
more frequently than the
aggregate with its high interest rate refinance loans.
Dai-Ichi’s involvement in predatory lending is not
limited to CIT
Group. Dai-Ichi’s more recently acquired affiliate, Newcourt
Finance, is listed as a
creditor and financier of Delta Funding (see, e.g., Florida UCC
Filing 99000157316,
available on the Florida Secretary of State’s Web site, listing
Newcourt
Financial’s security interests in Delta Funding facilities in
Florida and New York.
By the time of Newcourt’s financing (and decisions to participate
with Delta), not
only had the New York Times run a detailed account of problems,
including predatory
pricing and apparent discrimination, at Delta -- the NYS Attorney
General had openly
accused Delta of race discrimination, in violation of the federal
Equal Credit Opportunity
Act. See, e.g., Bureau of National Affairs, June 24, 1999:
WASHINGTON (BNA) -- [...] Delta Funding was in the
news earlier this year
in connection with Deutsche Bank's acquisition of Bankers Trust
Co. The Bronx-based Inner
City Press / Community on the Move urged the Federal Reserve
Board to turn down the deal,
arguing among other points that Bankers Trust had business
relationships with Delta, which
Inner City Press at that time accused of "predatory lending"
practices (72 BBR
292, 2/15/99). --Emphasis added.
See also, “U.S. Cites Abuses by Subprime
Lender Delta
Funding,” Reuters newswire, March 30, 2000, quoting the Director
of the FTC’s
Bureau of Consumer Protection that “Delta targeted these low
income homeowners for
high monthly payments, turning the American dream of homeownership
into a nightmare,”
and reporting that the Justice Department “alleged in the federal
suit that the
company had deliberately charged black women more for loans than
similarly situated white
men.”
Despite all this, Newcourt Financial, controlled by
Dai-Ichi and CIT,
continued, and continues, to do business with Delta, and to make
money off these predatory
(and, according to the NYS Attorney General, discriminatory)
loans. ICP has previously
submitted to the FRB a study of Delta’s foreclosures in New York
City, showing that
they are disproportionately in predominantly minority
neighborhoods. The study is
incorporated herein by reference, as is the recent DOJ, HUD and
FTC action, which speaks
for itself.
What standards do CIT / Dai-Ichi / Fuji / IBJ /
Mizuho have for working
with subprime lenders? None, apparently -- CIT “is uniquely
positioned to take
advantage” of the subprime industry (and its customers).
Dai-Ichi’s CIT is an
“approved investor” for Long Beach Mortgage, another subprime
lender sued for
discrimination by the DOJ.
Fuji: Lender to United Companies and Ameriquest
This enabling of predatory subprime lending is not
confined, in this
proceeding, to Dai-Ichi and IBJ. As noted above, Fuji Bank has
financed the embattled
subprime (predatory) lender United Companies (see analysis, supra,
in connection with
Dai-Ichi’s CIT’s debtor-in-possession loan that “saved” United
Companies). Beyond that, Fuji’s subsidiary Heller Financial
(explicitly part of the
CRA performance evaluation of Fuji Bank & Trust Company (see,
e.g., FDIC Exam, Exhibit
43 to the Mizuho Application, at Appendix A, “Scope of
Examination,” listing
Heller and First Capital Corp.), and going forward, of Dai-Ichi
Kangyo Fuji Trust Company,
formerly Yasuda) is a creditor of Ameriquest, a subprime lender
currently the subject of
much controversy, and previously sued for discrimination by the
Department of Justice.
To document for the record that the Fuji-funded
subprime lender Ameriquest
disproportionately targets protected classes with its
(Fuji-enabled) high-interest rate
loans, consider Ameriquest Mortgage Co.’s refinance mortgage
lending in the New York
City MSA in 1998: 371 loans to African Americans, 214 loans to
whites, a ratio of 1.73 to
one. The aggregate industry in this MSA in 1998 had a ratio of
0.240 to one. In the NYC
MSA, Fuji-funded Ameriquest targets African-Americans 7.21 times
more frequently than the
aggregate with its high interest rate refinance loans. In
the Buffalo, New York MSA,
Fuji-funded Ameriquest targets African-Americans 10.9 times more
frequently than the
aggregate with its high interest rate refinance loans... In the
Birmingham, Alabama MSA,
Fuji-funded Ameriquest targets African-Americans 6.25 times more
frequently than the
aggregate with its high interest rate refinance loans. And in the
Wilmington, Delaware
MSA, Fuji-funded Ameriquest targets African-Americans 6.9 times
more frequently than the
aggregate with its high interest rate refinance loans.
Again, what standards do FUJI / Dai-Ichi / IBJ /
Mizuho have for working
with subprime lenders? Apparently none.
The Applicants here are involved in, and engaged
with, subprime,
presumptively predatory, lending on a nationwide scale.
Appropriate actions should be
taken, including referral to the Department of Justice, and denial
of these Applications.
IV. OTHER ISSUES
OVERALL: HIGH DEBT, I.T., HOME COUNTRY
SUPERVISION, ETC.
There are, of course, other issues that must be
considered in connection
with the Applications. The overall rationale of the mega-merger
(and the financial and
managerial resources of the Applicants) were nicely summarized in
an article in Forbes
magazine of March 20, 2000, Godzilla Bank: Can the Japanese
Megamerge Their Way Out of
Bad Loan Portfolios?:
Mizuho Financial Group will be too big for
competing U.S. and
European banks to ignore, but too technologically backward and
burdened by bad debt to
pose a serious threat at the time of its October launch... [A]n
executive at Citigroup in
Tokyo feels cocky enough to dismiss the new rival -- also double
Citigroup's size -- as
"three drunks in a ditch who are trying to stand up."...
"We would
not have merged if we did not have an extreme sense of crisis,"
responds an agitated
Masao Nishimura, president of IBJ. IBJ is on the verge of losing
its main source of
financing, the exclusive right to issue five-year debentures it
enjoyed as one of Japan's
three designated long-term credit banks.... DKB, meanwhile, saw
its ex-chairman commit
suicide and 11 top executives be indicted in 1997 in a
racketeer-payoff scandal ...
Nishimura offers: "The merger of the three banks may not be the
end. We might link up
with a major U.S. bank, or we might buy one."
Each of the above-described -- high debt burdens,
low spending on
information technology, previous less-than-successful mergers,
and, behind it all, the
questionable home country supervision that the Board must
consider, under FBSEA -- must be
fully scrutinized in connection with this Application. This
supervision is not only
questionable, but also disparate, as regards the different level
of scrutiny and
enforcement actions directly at in-country versus non-Japanese
institutions. See, most
recently, Financial Times of April 20, 2000, at 23 (actions of
Japanese Ministry of
Finance). While this is far from ICP’s main concern, it is raised
to discourage any
FRB “rushing” of this Application (a concern to ICP in light of
Governor
Meyer’s recent letter proclaiming that foreign banks will be
treated
“fairly” [and presumably “quickly”] by the FRB. The Applicants’
lack of seriousness is reflected by the presentation, Mizuho App.
at 30, of
“reputation risk” management only in terms of “tak[ing]
appropriate action
against rumors and false information that might cause reputational
risk.” What if the
“information,” like CIT’s lending patterns, and IBJ’s funding of
questionable subprime lenders, etc., is true? The Application (and
Mizuho, Dai-Ichi, et
al.) do not address this. The Application should not be approved.
OTHER COMMUNITY REINVESTMENT ACT ISSUES
As noted above, Dai-Ichi’s CIT’s lending patterns
are of
particular relevance to this proceeding because CIT’s lending
would be placed into /
under an FDIC-insured institution, the proposed CIT OnLine Bank,
which not only Dai-Ichi
(in the San Francisco Fed application) but also Mizuho (in the New
York Fed application)
is seeking prior approval to acquire and run. See, e.g., Mizuho
Application at 3:
“Mizuho... requests authorization to engage de novo indirectly in
the United States
in industrial loan company activities...”. The CRA issues
surrounding CIT OnLine Bank
(and CIT’s subprime consumer finance lending) cannot be separated
from the Mizuho
application, and relegated to some separate Board deliberation and
decision on
Dai-Ichi’s (San Francisco Fed) application. ICP timely contends:
since Mizuho,
Dai-Ichi and CIT intend to use CIT OnLine Bank to conduct
nationwide subprime consumer
finance business, the statement that its CRA “policy... will
benefit low to moderate
income individuals in Salt Lake County, Utah” is a request for a
mis-application of
the CRA: a nationwide subprime business, the purported benefit of
which is a CRA program
in one city, the arbitrarily-selected headquarters city. ICP
opposes this; and, for the
reasons set forth above, the Applications should be denied.
V. PROCEDURAL POSTURE, AND REQUESTS
ICP made a request to the FRB under the Freedom of
Information Act
(“FOIA”) on April 18, 2000, for copies of all the applications
related to these
proposals, and for all records reflecting communications between
the FRS and the
Applicants and their affiliates. On April 21, the Federal Reserve
Bank of New York
provided ICP with the portions of the Mizuho and DKF Trust Company
(USA) Application for
which the Applicant had not requested confidential treatment. On
April 24, ICP received
from the Federal Reserve Bank of San Francisco a portion of
Mizuho’s, Dai-Ichi’s
and CIT’s application to charter and own the proposed FDIC-insured
institution, CIT
OnLine Bank. This related Application reference to (and
incorporates) a “Charter and
Insurance Application;” however, no portion of this has been
provided. As of the date
of this filing, the FRB has yet to provide any of the other
responsive documents,
including those reflecting its communications with the Applicants.
The Applicants should be directed to respond to the
issues raised in this
Comment in, at maximum, eight business days (see FRB’s procedural
rules). ICP should
have (and hereby explicitly requests) an opportunity to reply to
the Applicant’s
response. The initial comment period on two of the three
applications is said to expire on
May 8, 2000; on the third, May 11, 2000. In light of the FRS’
delay in providing any
portion of one of the three Applications, and any records
reflecting the FRS’
communications with the Applicants, ICP requests a consolidation
and extension of the
comment periods.
VI. CONCLUSION
For the reasons set forth above, ICP requests an
evidentiary hearing on
the Applications. On the current record, the Applications could
not legitimately be
approved.
Respectfully submitted,
____________________
Matthew R. Lee, Esq.
Executive Director
Inner City Public Interest Law Center
& Inner City Press/Community on the Move
1919 Washington Avenue
Bronx, New York 10457
Tel: 718-716-3540
Fax: 718-716-3161
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