Inner City Press' Wachovia Watch
Click here for Inner City Press' weekday news reports, from the United Nations and elsewhere. Click here for media reports
See, e.g, "Wachovia-Golden West Deal Challenged," by Paul Davis, American Banker, July 25, 2006; "NY group challenges Golden West deal," Business Journals of Sacramento, Charlotte and elsewhere, July 24, 2006; "Wachovia purchase of Golden West challenged," by Riva Froymovich, Investment News, July 24, 2006; "Group Tries to Block Wachovia/Golden West Merger" Reuters, May 8, 2006; "Wachovia's New Reply to Fed," by Hannah Bergman, American Banker, August 10, 2004, Pg. 4; "Wachovia gets partial merger approval: SouthTrust merger passes 1st hurdle in Justice antitrust review," by Rick Rothacker, Charlotte Observer, Tuesday, August 10, 2004; "Wachovia Sets Funds for Community Loan Needs," by Tom Shean, Virginian-Pilot (Norfolk), August 6, 2004; "Group challenges payday loans: 'Next stop Wachovia,'" by Sherri C. Goodman, Birmingham News, July 22, 2004; "Pawn Shops Set Activist Against SouthTrust Deal,"Reuters, June 21, 2004
Click here of ICP Predatory Bender For or with more information, contact us.
Updated December 15, 2008
Update
of December 15, 2008: After
most big banks and
even many non-banks have already drawn down their bailout funds from
the government's
Troubled Assets Relief Program, there's belated interest in Congress in
what banks
have been doing. On the afternoon of December 8 on the Senate floor,
Byron Dorgon of
North
Dakota expressed shock at Wachovia's
purchase and lease-back of German sewer
system, just so it could use the depreciation of the German pipes to
avoid its
U.S. taxes.
Update
of November 10, 2008: How will the bailout
funds be used? For opportunistic mergers, as we noted last week. And
now we can
say, for political contributions and lobbying. ICP Fair Finance Watch
was
interviewed
on November 7
"Bank
of America Corp.,
largely through its political action committees, gave candidates and
parties
$3.7 million this election cycle, according to an analysis of Federal
Election
Commission reports. Wachovia Corp. PACs gave $1.2 million. Wells Fargo
&
Co., which announced a deal for Wachovia last month, gave out nearly $1
million
through its PAC.... Bank of America spent $6.5 million lobbying federal
officials over the same period; Wachovia spent $2.7 million and Wells
Fargo,
$3.6 million."
There is no commitment that
the bailout
funds will not be put to these uses. In fact, if Wachovia is any
indication, the banks are entirely smug:
“'These
are … voluntary, employee
funded, nonprofit and nonpartisan committees,' said Wachovia
spokeswoman Carrie
Ruddy. PACs, she added, give to candidates and groups 'that promote
responsible
government and support effective financial legislation important to
Wachovia
and its stockholders.'
Lee
sees little difference in
money from a bank or its employee PAC.
'It's
a fig leaf,' he said
Friday. 'When people are through their place of employment giving
funds, you'd
have to be pretty naive to think that there's not some corporate
influence
involved.'
More than a little
corporate influence...
Update
of October 27, 2008: From Dow Jones on the Fed's self-approval
of Wells
Fargo - Wachovia: " The Fed said a commenter had requested a
public
meeting, but the Bank Holding Company Act does not require the board to
grant
that request. A Federal Reserve spokeswoman wouldn't disclose the name
of the
group that had requested the hearing." So now, like North Korea, the
Fed
tries to cover up even who has commented. For the record, ICP Fair
Finance
Watch made the request...
Update
of October 13, 2008: Tales for a time of
lawless regulators giving rubber stamp bank merger approvals without
any public
notice or comment -- while Inner City Press / Fair Finance Watch has
already
commented to the Fed demanding they hold a comment period on Wells
Fargo's
proposal to buy Wachovia, now Wachovia says it will bypass its own
shareholders
-- with the NYSE's rubber stamp. Note to Fed: this doesn't make it an
emergency
to bypass the public too. But the Fed on Friday said, vaguely, that it
will
begin "immediate consideration" of Wells Fargo's application. But no FDIC involvement = no emergency.
Update
of October 6, 2008: With Wells Fargo's
announcement that is it outbidding Citigroup for Wachovia, and would
consummate
its proposal, without FDIC assistance, by the end of the year the
question
arises: how could the regulators bypass public notice and comment on a
transaction that has no FDIC involvement?
Citigroup's
low-ball $2.16 billion supposed deal, announced Monday, had rubberstamp
approval with no public notice or comment, including under the
Community
Reinvestment Act on CitiFinancial's widespread involvement in
controversial
subprime lending. Now, in the face of
Wells
Fargo's announced, the regulators have rushed out a strange press
release:
Statement
by the Board of Governors of the Federal Reserve and the Office of the
Comptroller of the Currency
A new
proposal to acquire
Wachovia has emerged from Wells Fargo.
The Citigroup proposal has undergone extensive review by the
Federal
Reserve and the Office of the Comptroller of the Currency.
We have not yet reviewed the new Wells Fargo
proposal and the issues that it raises.
The regulators will be working with the parties to achieve an
outcome
that protects all Wachovia creditors, including depositors, insured and
uninsured, and promotes market stability.
The scuttlebutt is that the regulators,
although having no basis to waive public participation this time, are
considering doing it, among other things to equalize the playing field
between
Citigroup's and Wells Fargo's bid. It is clear which bid is financial
superior
-- but Wells Fargo, too, has been involved in predatory lending,
through Wells
Fargo Financial and overseas. Some
advocates are saying they prefer the Wells proposal on the basis that
it should
finally allow some public process in the spate of supposedly emergency
mergers
and conversions.
Citigroup
- Wachovia Approved by Fed and Bush,
Public and CRA Excluded, Laws Repealed?
Byline:
Matthew R. Lee of Inner
City Press on Wall Street: News Analysis
NEW YORK, September 29 -- With
Monday morning's
announcement that Citigroup, whose subprime write-off helped hearken
the
current financial crisis, will buy Wachovia at fire sale prices with no
public
comment, banking law has been turned on its head or repealed. Bank
mergers and
conversions are supposed to be subject to public notice and comment,
unless in
emergencies such as failure and FDIC take-over. But last Sunday the
Federal
Reserve gave immediate approval to applications by Morgan Stanley and
Goldman
Sachs to convert to bank holding companies.
A week later, Citigroup
is shielded
from public comment without its target, Wachovia, being taken over by
the FDIC.
Henceforth regulators can exclude the public for any reason, or no
reason at
all. And the same predatory lenders who brought about the crisis now
stand to
benefit from it.
On
September 22, Inner City Press asked Federal Reserve chairman Ben
Bernanke on
what legal basis he has rubber-stamped Goldman and Morgan applications.
Bernanke scoffed that legal authority existed, to talk to the Fed's top
lawyer,
who was in the room. He in turn pointed to a 2 a.m. press release which
mentioned emergency and that the transactions would be "consummated
immediately." Thus, no court could review the Fed's decision to exclude
the public. Any case filed for review would be moot. Click here for
that story.
When
the
Office of the Comptroller of the Currency, a unit of the Treasury
Department,
later in the week rubber-stamped JPMorgan Chase's acquisition of most
of
Washington Mutual, at least it could cite to the FDIC's involvement.
But on
Citigroup - Wachovia, the FDIC has bragged that Wachovia did not fail
and was
never in receivership. How then can the public be excluded? But the
press
release states:
"Citigroup Inc. will acquire the banking operations of Wachovia Corporation; Charlotte, North Carolina, in a transaction facilitated by the Federal Deposit Insurance Corporation and concurred with by the Board of Governors of the Federal Reserve and the Secretary of the Treasury in consultation with the President."
So the President approves bank mergers without any public notice or comment. Since the Community Reinvestment Act is only enforced during the public comment period on merger applications, the CRA is effectively being repealed.
Update
of September 22, 2008: On the rumors of
Wachovia looking to buy Morgan Stanley, just as its bigger sibling Bank
of
America bought Merrill Lynch (click here
for Inner City Press' 10% deposit cap
analysis
Update of July 28, 2008: This week, from the mail bag, a story
involving Wachovia's HomEq --
Subj:
JP Morgan Chase
From:
[Name withheld in this
format]
To:
Inner City Press
Date:
7/22/2008 9:29:41 P.M.
Eastern Daylight Time
Dear
Mr. Lee,
I am
wondering if there are any
other people who have had a similar problem to mine with JP Morgan
Chase. I am a 68 year old senior who lost
her home
to these vultures in an unbelievable manner.
In brief this is what happened to me.
Leon
D. Black had just purchased
WMC Mortgage Corp. when I did a refi with WMC in March 1998.... Loan
was equity
based. I never received any copies of
the loan documents and had statements
from WMC saying they were lost or destroyed.
Even had inter office communications at WMC as late as July 1998
referencing the loan documents.
The loan was a bait and switch.
The reason for the refi was to permanently
get rid of a loan I had with, The Money Store.
WMC was to be the new first mortgagor AFTER they paid, The Money
Store
("TMS"). Loan was to be
conventional fixed rate. Instead payments
went from 2900.00 a month to 4800.00 a month by September 2000. I had little recourse but to try and save my
home of 18 years and its tons of equity and so, I filed Bankruptcy. Big mistake!
I was never told that the loan was sold to
Fairbanks four months before I filed BK.
WMC fraudulently represented themselves throughout my BK as the
first
mortgagor when they were not.
I had a Confirmed Plan in Bk that was current
yet WMC somehow managed to have the Stay Lifted in January 2005. My home was sold at Trustee Sale by JP Morgan
Chase on June 22, 2005.... In June, 2006....I was sent a thank you
letter from
HomEq on behalf of TMS who unknown to me had closed their doors a month
after
my loan closed with WMC. Oddly, during
my Bk I would get Notices from FirstUnion who could never find any
reference to
me, not even by my social security number.
Turned out WMC used someone else's SS number for my loan, I
don't know
why but they did. First Union had taken
over TMS which was ultimately taken over by HomEq. The HomEq letter
also
contained the cancelled Note & Deed of trust for TMS.
In short, my home was ultimately sold by JP
Morgan Chase who knew there was always a question that TMS was never
paid and
none of these vultures had any standing to sell my home on June 22,
2005 and as
noted in the Trustee Guaranty Report which clearly showed the only
first mortgage
to be TMS for 281,000.00. They paid the
TMS mortgage off in full three months after they sold my home at
trustee sale,
using a company called ALTA which turned
out to be another alias of Fairbanks.
Update
of July 14, 2008: Shouldn't it be illegal
for Robert Steel to go directly from the Treasury Department, which
regulates
Wachovia Bank, N.A., to become CEO of Wachovia, complete with $10
million in
stock and a $38 million pay package? Wasn't this revolving door
supposedly
closed in the wake of the Riggs Bank scandal?
Update
of June 16, 2008: This week, Inner
City Press / Fair Finance Watch filed comments against
the Federal Reserve's
secret process with banks, in essence a rule-making excluding the
public even
those the topic, credit derivatives, has come up because of the
subprime
lending crisis. The financial institutions invited -- and now
challenged -- included
Wachovia. The Administrative Procedures Act (5 U.S.C. Section 553) and
related
laws require that when the government engages in rule-making, it must
provide
notice to the public, and allow and weigh public comments. Press
accounts
make clear that the financial instruments and regulatory issues
discussed
behind closed doors at the FRBNY on June 9 are related to issues of
public
interest, which in fact are disproportionately impacting low- and
moderate-
income people and communities of color -- subprime and predatory
mortgages.
Watch this site.
Update
of April 7,
2008: In
the first study of the just-released 2007 mortgage lending data, Inner
City
Press / Fair Finance Watch finds that at Wachovia, the nation's fourth
largest
bank, Latinos in 2007 were confined to high cost loans 1.71 times more
frequently than whites.
Update of December 3, 2007: Story of the week, capturing the decade, is the Charlotte Observer's Sunday overview, "Banks fail to escape sting of subprime." The subtitle is "They pulled back from scrutinized loans, but investment arms didn't," and the two main banks covered are the Charlotte twins, Bank of America and Wachovia. Both claimed to have gotten out of subprime. Then this quarter they have announced subprime-related write-downs of $3 billion and $1.1 billion (for Wachovia), respectively. Clearly, Wachovia was not out of subprime. And it continues, with subprime auto loans...
Update of October 29, 2007: So Merrill's CEO reached out to Wachovia without his board's approval. One assumes that preliminary testing of the waters for mergers takes place all the time. But when a CEO's under fire, and a deal would result in huge payout, it's more controversial. Mix in Merrill's subprime follies and O'Neal is on thin ice...
Update of June 11, 2007 -- we've said it for three years, and now from the South Carolina State of June 8, 2007: "In July 2004, Wachovia Corp... arranged a $265 million credit line for Advance America... Not long after, Advance America announced an IPO that raised $195 million In a 2004 filing to the SEC, Advance America, which is headquartered in Spartanburg and is the nation's largest payday lender, essentially said it wouldn't be as big or as successful at corralling borrowers without banks. 'We depend on loans from banks to operate our business. If banks decide to stop making loans to companies in the payday cash advance services industry, it could have a material adverse affect on our business, results of operations and financial condition,' the company states in the SEC document." That's one indicator of what we've been calling Wachovia's "enabling" of predatory lending...
Update of May 28, 2007: Fed governor nominee Elizabeth "Betsy" Duke listed major holdings of a previous employer, Wachovia Corp., in financial disclosure forms filed in conjunction with her nomination to join the Fed Board. According to the disclosure forms, released Friday by the Office of Government Ethics, Duke reported holdings of Wachovia stock valued at between $5,000,001 and $25 million. She also reported holding Wachovia stock options.
Note: mere divestiture would not cure this conflict...
The U.S. negotiator in North Korean disarmament Christopher Hill talks and a delegation from Pyongyang attended Asia's security forum in Manila on Friday, but the American diplomat ruled out separate bilateral meetings. Hill told reporters when he arrived late Thursday that he had no plans to meet the North Koreans on the sidelines of the forum. "Those are different North Koreans from the ones who deal with at the six-party talks," he said earlier this week in Vietnam. Hill bragged that the U.S. will not let a dispute over $25 million in North Korean funds, allegedly tied to money laundering and counterfeiting, stand in the way of achieving progress in the North's nuclear disarmament. The money has since been freed, but the transfer has been delayed because other banks are apparently hesitant to touch the tainted funds.
But maybe not Wachovia...
Update of May 21, 2007: on May 17, Wachovia's spokeswoman Christy Phillips-Brown announced that Wachovia was asked "by the U.S. State Department to help them process an interbank transfer of funds held at other banks, which are the subject of negotiations with North Korea. We have agreed to consider this request and our discussions with various government officials are continuing." Since dealing with Banco Delta Asia is still illegal, one wonders both how the U.S. could cynically waive the law for one transaction, and what it would owe Wachovia for this "service." It creates conflicts, which will be explored...
Update of February 19, 2007: In Philadelphia, a bill providing that all banks in the City must provide prior notice to the City of all planned branch closings passed City Council unanimously last Thursday, Feb. 8, 2007. Another bill, set for further hearing on Feb. 20th, would strike Wachovia from the City's approved list of depositories for City funds, based on disparities in Wachovia's home mortgage and small business lending...
Update of February 12, 2007: We can this week report, only in skeletal form for now, that there has been a development in the litigation sparked by the Federal Reserve's withholding of information concerning Wachovia's subprime connections, and refusal to conduct a search of public records to make sure it is not withholding information that is otherwise publicly available. The Federal Reserve has agreed, at the federal District Court's suggestion, to reconsider whether it should have made the search (and in implication should conduct such searches in the future before issuing blanket denials of FOIA requests). The Fed has 20 working days to decide; we'll see.
Update of December 18, 2006: The battle in Philadelphia against Wachovia's branch closings and under-performance has continued. Last week the Office of the Comptroller of the Currency agreed to hold public hearings about the branch closings. Wachovia has told locals that it will not, and does not, commit to anything in writing. Was this the experience of West Coast advocates in connection with Wachovia's acquisition of Golden West / World Savings? Or does it just prove that without the leverage provided by a merger deal important to the bank, the mind wanders and the community's ill-served?
Update of November 27, 2006: When Corestates was bought by First Union, many promises were made. Now, as Inner City Press foreshadowed, the Philly Inquirer now reports that Wachovia
"expects to shut its Coatesville, Clifton Heights, Five Points (Levittown), Lower Chichester, and Township Line (Drexel Hill) branches Dec. 6. It has previously said it planned to close two Philadelphia branches, at Front Street and Allegheny Avenue and at Germantown and Lehigh Avenues, that day; two branches in Allentown will also be shut. The protesters say... Wachovia failed to consult community groups in advance of the closures, or to develop specialized loan programs targeting neighborhood residents, as the bank's predecessor, First Union, promised in 1998 agreements with the groups. The Coatesville branch is more than three miles from the nearest surviving Wachovia branch, making it tough on lower-income customers."
This while Wachovia's CEO Ken Thompson is getting in line to collect $200,000 a year to be on the board of directors of scandal-plagued Hewlett-Packard... Developing.
Update of November 20, 2006: On the subprime tip, Wachovia now brags that its merger this year with WFS Financial enables it to serve nonprime vehicle customers. Wachovia also pitches financing for used vehicles, which don't qualify for captives' promotional rates, gushes Tom Wolfe, who heads dealer services for the merged company.
In Philadelphia, Wachovia branch closings, and community fight-back, are brewing. We'll have more on this as more next comes in.
Update of October 9, 2006: The Federal Reserve on September 19 asked Wachovia to "discuss the extent of any subprime loans in the World Savings Bank loan portfolio." Wachovia's Courtney D. Allison's misleading answer, dated September 25 but mailed only days later to Inner City Press, was received after the Fed had approved the merger, and it had been consummated...
Update of October 2, 2006: Florida is suing a "Tampa-area company called Global Information Group Inc., claiming it made thousands of calls impersonating customers of companies including Verizon Communications Inc., tricking them into providing private call records. Earlier this year the company's principals agreed to pay $250,000 to settle the case, and to cease any pretexting activities." Global Information's customers include Wachovia's subprime auto lending WFS...
The Federal Reserve's approval on Sept. 25 of Wachovia - Golden West reaches new loans. The Fed writes for example that ICP Fair Finance Watch
"also alleged that World Savings directs customers to low- or no-documentation loan products as a means to exaggerate the customer’s income and places the customers in loan products that exceed their ability to repay, which ultimately results in foreclosures. According to information provided by Wachovia and Golden West, World Savings requires low- or no-documentation on 90 percent of the loan applications it processes and uses the same underwriting standards for all applications."
But ICP Fair Finance Watch pointed out that this absurd level of no- and low-doc lending results in forced sales of homes, not foreclosures. The Fed recites that ICP Fair Finance Watch
"expressed concern about Wachovia’s relationships with unaffiliated pawn shops and other nontraditional providers of financial services. As a general matter, the activities of the consumer finance businesses identified by the commenter are permissible, and the businesses are licensed by the states in which they operate when so required. Wachovia stated that it makes loans to these types of nontraditional providers under terms, circumstances, and due-diligence procedures that are more stringent than those it applies to other borrowers."
But again the information was withheld. The Fed gives weight to
"more than 200 comments supporting the proposed transaction. These commenters stated that Wachovia and Golden West have been responsive to the needs of their communities through innovative mortgage products designed for LMI borrowers and have provided significant financial, technical, and personnel support for community development projects."
None of these were sent to Inner City Press, despite its timely challenge to the deal. For or with more information, contact us.
Update of September 4, 2006: Wachovia is moving to export predatory lending from the U.S. to UK. Wachovia tells Money Marketing it will specifically target the sub-prime and non-conforming home loan sector via intermediaries, adding to the commercial mortgage operation it is building. A spokesman says: "We will be looking at mortgages, sub- prime, non-conforming as well as consumer loans and credit cards." If only Wachovia were nearly as honest in the USA...
Update of August 21, 2006: The Federal Reserve has received, via Wachovia, a response from World Savings to comments FFW filed "with respect to World's Quick Qualifier (QQ) loan process." The purported response states that under World's QQ, "the customer may specify his or her income without necessarily having to pull together the documentation traditionally associated with the mortgage loan application process."
Yeah -- like a form W-2...
The letter continues that "turning to the specific questions asked by FFW in its letter, we are glad to provide the following information. FFW first asked what percentage of World's loans are QQ loans. To date in 2006, approximately 94% of World's loan originations have been submitted as QQ loans... FFW questions why World would allow a loan applicant who can produce a W-2 for earned wages to apply on a QQ basis." Yes, FFW is asking that -- as the Federal Reserve should. Developing....
Update of August 14, 2006: The Federal Reserve on August 11 telephone Fair Finance Watch for the second time denying any extension of that day's expiration of the comment period on Wachovia's application to acquire Golden West. Then at 5:36 p.m. on August 11, the Federal Reserve faxed FFW documents responsive to its FOIA request of July 16, including various support letters that Wachovia solicited. A new low...
Update of August 7, 2006: As presented by the Sarasota Herald-Tribune in a July 31 report on Fair Finance Watch's opposition to Wachovia's application to acquire Golden West, the group also notes the bank will wind up with an 'anti-competitive' market share in Charlotte. As of Dec. 31, Wachovia's 11 branches held $763.8 million in deposits in Charlotte, a 22.17 percent market share. Adding World's single office and $184 million in deposits in Punta Gorda would boost its market share to 27.51 percent.... Wachovia isn't even the largest bank in Charlotte County right now. Bank of America's seven branches held $775.9 million in deposits, a 22.52 percent market share, as of Dec. 31." So where is Wachovia's divestiture plan?
Update of July 31, from FFW's second comment to the Federal Reserve: A recent employee of World Savings has contacted Inner City Press, describing in detail what he calls World Savings' predatory lending. He states that over time, World Savings' no- and low-documentation loan program, initially designed for small business owners who might have difficulty fully documenting their income, grew to account for a larger and larger portion of World Savings' business. He states that applicants' incomes were routinely overstated, on forms the applicants did not themselves fill out. He states that these applicants, whose incomes were overstated, were put in loans that they could not afford, on which they would foreseeably fall into delinquency -- an indicator of predatory lending used by the FRB itself. This does not show up in World Savings' "default" or foreclosure rate, the individual states, because the borrowers sell their homes to avoid losing them.
The individual states that many of these abuses take place under World Savings' "Q Q" or "Quick Qualifying" program. The FRB should forthwith ask World Savings to submit an answer, into the record and to FFW while the comment period is open, information concerning what percentage of World Savings' loans are QQ, Quick Qualifying or otherwise no- or low-documentation. World Savings should be required to explain, into the record with a copy to FFW, why it would accept and encourage no- and low-documentation applications by salaried employees with IRS Form W-2s. World Savings should be required to respond to the two pages attached hereto, supplied to FFW by the recent World Savings employee, who states that they reflect illegal targeting of protected classes. The individual states to FFW that he is willing to speak with regulators (as for example were FFW's similarly proffered CitiFinancial witnesses, leading to an FRB enforcement action) -- but he is concerned with further retaliation. He was already fired, he states, for having pointed out the above-described abuses, and having stated that he would inform Wachovia, during due diligence, of them. Therefore protection against retaliation should be arranged, as a first step.
Additionally regarding Wachovia, see the Philadelphia Inquirer of July 28, 2006, by the ever-intrepid Joe DiStefano:
"Wachovia and PNC Bank, which together handle the majority of city deposits, sharply reduced their mortgage lending in what the government calls low- and moderate-income neighborhoods from 1999 to 2004, while mortgages from other lenders in those same neighborhoods rose, according to federal loan records. That includes census tracts where families typically make less than $40,000 a year. Most of those tracts in Philadelphia and its four surrounding Pennsylvania counties are in the city: North, West and South Philadelphia, Germantown, Frankford, Kensington and Olney, including many African American and immigrant communities, as well as some of the city's oldest predominantly white neighborhoods... What happened to Wachovia? Spokeswoman Barbara Nate blamed a shift in the bank's small-business-lending tactics, from specialized business lenders to branch-based lending, along with changes in the way Wachovia reports business loans.... For this year, the banks have set conservative loan targets for lower-income Philadelphia neighborhoods. For example, Wachovia hopes to make 1,770 home mortgages in low- and moderate-income neighborhoods this year. But Nate, the spokeswoman, pointed out that that included refinancing and home-improvement loans as well as home-purchase loans -- and the total is slightly below what the bank did in 2005. "
See also, the analysis of systemic disparities in Wachovia's 2005 lending submitted as part of FFW's first comment.
Given this record, Fair Finance Watch is requesting public evidentiary hearings, and that, on the current record, Wachovia's applications be denied. For now the comment period runs through August 11.
Update of July 24, 2006: Fair Finance Watch has just filed a 15-page challenge to the proposed announced on May 8 by Wachovia to acquire Golden West Financial Corp. for $25.5 billion. In comments filed with the Federal Reserve Board in Washington, Fair Finance Watch demands public hearings on the proposal's potential to raise prices, on Wachovia's continuing enabling of payday lenders and pawnshops, and on the disparities in Wachovia's 2005 mortgage data, including disproportionately confining people of color to higher cost loans.
Fair Finance Watch presents in its July 24 challenge an analysis of the 2005 data of Wachovia four HMDA data-reporting affiliates, cumulating these four lenders (referred to as "Wachovia") and calculating the distribution of loans over the Federally-defined rate spread of 3% over comparable Treasury securities on first lien loans, 5% on subordinate liens (referred to as "high cost loans").
In its home state of North Carolina in 2005, Wachovia confined African Americans to high cost loans 2.93 times more frequently than whites, while denying African Americans' applications for loans more than twice as frequently as whites. Specifically, Wachovia confined 12.38% of its African American borrowers to higher cost loans over the rate spread, versus only 4.22% of its white borrowers. Also in North Carolina, Wachovia in 2005 denied the applications of Latinos 1.8 times more often than whites.
In 2005 in Texas, a state in which Wachovia wants to further expand, Wachovia confined African Americans to high cost loans 2.36 times more frequently than whites, while denying African Americans' applications for loans 1.75 times more frequently than whites. Also in Texas, Wachovia in 2005 confined Latinos to high cost loans 1.86 times more frequently than whites, and denied the applications of Latinos 1.54 times more frequently than whites.
In Pennsylvania, a state whose consumers were injured by Wachovia under its previous name First Union, through massive branch closings and otherwise, Wachovia in 2005 confined 14.76% of its African American borrowers to higher cost loans over the rate spread, versus only 3.61% of its white borrowers. That is, Wachovia confined African Americans to high cost loans a whopping 4.09 times more frequently than whites, while denying African Americans' applications for loans 1.54 times more frequently than whites. Also in Pennsylvania, Wachovia in 2005 confined Latinos to high cost loans 1.99 times more frequently than whites, and denied the applications of Latinos fully 2.03 times more frequently than whites.
In California, a state it which Wachovia wants to further expand after buying a subprime auto lender and exotic mortgage originator based in the state, Wachovia in 2005 denied African Americans' applications for mortgages 2.11 times more frequently than whites. In Delaware in 2005, Wachovia denied African Americans' applications for mortgages 2.02 times more frequently than whites. In New Jersey in 2005, Wachovia confined African Americans to high cost loans 2.32 times more often than whites, while denying African Americans' applications for loans 1.85 times more often than whites.
Wachovia's disparities are not limited to African Americans and Latinos. Note for further example that in New York State in 2005, Wachovia denied fully 72.82% of the applications it received from American Indians, 3.79 times its denial rate for whites in NYS in 2005. Also in New York State, Wachovia denied the applications of African Americans 2.03 times more frequently than whites.
While FFW is formally asking the Federal Reserve to investigate and act on these regional disparities, overall in 2005 Wachovia confined African Americans to higher cost loans 2.54 times more frequently that whites. FFW requesting public hearings, and that Wachovia's applications be denied.
Wachovia has continued supporting subprime lenders, after previously misinforming the FRB about support of subprime lenders, then demanding secrecy, giving rise to FOIA litigation, a partial chiding of the FRB by District Court Judge Cote, and the recently-heard appeal in the Second Circuit. An August 6, 2004, letter from Wachovia to the Federal Reserve admitted active credit relationships with ten pawnshops "or related entities," and tried to explain why this is not inconsistent with its earlier claim, in its merger application, about a "policy not to lend to pawn shops, pay day lenders, check cashing companies or other MSBs" [Money Service Businesses]. That statement was made without equivocation, in Exhibit 6 of the merger application, filed July 12, 2004. When that merger was announced, Fair Finance Watch issued a report showing that both SouthTrust and Wachovia fund pawnshops, payday and car title lenders. The banks said they would respond, and included the above-quoted, about SouthTrust's "policy," in their application. FFW submitted to the FRB 45 Uniform Commercial Code filings showing SouthTrust's loans secured by pawnshops, including all of their proceeds.
Wachovia's August 6, 2004, response stated: "Of the 15 SouthTrust
relationships cited by FFW, four loans have been paid out and a loan
relationship no longer exists. Two other UCC filings reflect
loans to parties for which the businesses in question served solely as
collateral. Four other entities cited are not pawnshops or money
service busineses or provide MSB services only as an incidental
service. Five such relationships do exist with pawnshops and were
made as exceptions to SouthTrust's policy. In addition to those five
relationships, we have identified five other credit relationships with
pawnshops or related entities, some of which were acquired through
mergers with other institutions. However, the total loan outstandings
of these 10 credit totals just $755,056... Moreover, it is standard
industry practice to allow exceptions to credit policies based on
legitimate reason."
But what are those reasons? Wachovia told the Fed
that "It is SouthTrust's policy not to lend to pawn shops, pay day
lenders, check cashing companies or other MSBs." There was no
footnote, no statement "except for ten pawnshops." The statement
was false, and militates for public hearings in this case.
Wachovia itself stated that it "has commercial lending
relationships with select check cashing companies, pawnshops and payday
lenders. In recognition of the higher risk these businesses present,
the Credit Risk policy on lending to them is very restrictive. Any new
credit, or the renewal or modification of such a credit, requires the
approval of one of the top found Chief Risk Offices of Wachovia...
Please see Confidential Exhibit 3 for information concerning these
customers." FFW filed a FOIA appeal, and later sued.
FFW's comment also include sample UCC filings. For example, on January 4, 2006, after the above-described, Wachovia made a new loan to Value Pawn Holdings, Inc. of 101 Sunnytown Road, Casselberry, Florida;
--in November 2004, Wachovia made a new loan, secured by "all inventory," to Alvarado Pawn, Inc. of Alvarado, Texas;
--in June 2005, Wachovia formally continued a loan to A 1 Pawn Shop of Goldsboro, North Carolina;
--in March 2005, after the above-described, Wachovia formally continued a loan to Garden State Check Cashing Services, Inc.; and
--on April 10, 2006, Wachovia made a new loan to Atlanta Check Cashers, Inc. of 1000 Hurricane Shoals Road, Lawrenceville, Georgia.
As yet another adverse managerial issue, see Associated Press of July 6, 2006, "Wachovia pays nine states $25M in settlement" --
(AP) - The nation's fourth-largest bank, Wachovia Corp., has agreed to pay nine states, including Utah, $25 million to settle allegations that its stock analysts issued biased research to win investment-banking business. The Charlotte, N.C.-based company agreed Wednesday to pay $20 million for failing to supervise its employees, $1.65 million for not retaining required e-mail records, and $350,000 for costs of the investigation. Investigators said Wachovia employees had conflicts of interest between equity research and investment banking. They said the company did not comply with state securities laws by failing to keep certain electronic records. The probe was led by securities regulators in Nebraska, Virginia and North Carolina, according to the Washington, D.C.-based North American Securities Administrators Association. Alabama, Georgia, Maine, Connecticut and New Jersey were also involved."
FFW is requesting public hearings, including on managerial issues, and that Wachovia's applications be denied. The hearing and denial-request are also on competition and higher-pricing grounds. Even Wachovia's application admits that at least three markets are outside of the antitrust guidelines:
--West Palm Beach, where Wachovia already has an anticompetitive 25% market share (and Golden West has 5.9% -- the application blacks out the percentage of Golden West's deposits in certificates of deposits, which FFW contests);
--the Punta Gorda market, where Wachovia already has a25.2% market share; and
--the Indian River market, where Wachovia already has an anticompetitive 28% market share, and Golden West has 5% -- the application blacks out the percentage of Golden West's deposits in certificates of deposits, and the entire last paragraph of the argument, which Fair Finance Watch has now contested to the Federal Reserve. So much for transparency.
FFW has formally requested such public hearings on Wachovia's applications, and contends that on the current record, these applications could not legitimately be approved.
FFW will be submitting further comments once the banks submits their response.
Update of July 17, 2006: The Federal Reserve, which has spent many hours of legal work trying to withhold information about Wachovia's assistance to subprime lenders, now has before it an application by Wachovia to acquire Golden West and World Savings. Inner City Press / Fair Finance Watch has submitted a FOIA request which "includes a complete copy of the application, it also includes all other communications and records during the time frame that relate to the issues, including managerial issues, that the FRB must consider in connection with the application. We specifically refer to Wachovia's engagement with subprime lenders, regarding which the Federal Reserve has previously withheld information from Inner City Press, giving rise to FOIA litigation, a partial chiding of the FRB by District Court Judge Cote, and the recently-heard appeal in the Second Circuit. We note as part of this request the arguments in the FRB reply brief in that case is that Wachovia's provision of a list of the subprime lenders it assists was "voluntary" because Wachovia submitted it early in the process. The FRB acknowledges that in cases "prior to Wachovia" SouthTrust, it asked for the names of subprime lenders assisted, but that Wachovia include this in its application, making it voluntary. That sleight of hand cannot legitimately be used to evade FOIA." We'll see. For now the comment period runs through August 11. For or with more information, contact us.
Update of June 26, 2006: In the Second Circuit Court of Appeals on June 22, arguments were heard on Wachovia's and the Federal Reserve's despite Inner City Press' Freedom of Information Act request a list of subprime lenders assisted by Wachovia. Since the arguments on both sides involved whether the names on the list are "otherwise publicly available" in SEC documents, the Fed was asked who thought of checking the SEC database. Rather than acknowledge that the issue was raised in ICP's comments on the Wachovia - Southtrust merger, the Fed's lawyer claimed that the District Court judge in the subsequent FOIA case thought it up. But that wasn't true....
Update of June 19, 2006: This coming week, on June 22, the Federal Reserve and presumably Wachovia will be in the Second Circuit Court of Appeals in New York, on the cross-appeals concerning the Fed's withholding of the names of subprime lenders assisted by Wachovia and SouthTrust. The outcome will be inserted into Wachovia - Golden West, as Wachovia continues enabling predatory lenders...
Update of June 5, 2006: Among the slipperier arguments in the Federal Reserve reply brief in the ICP v. FRB Second Circuit FOIA case is that Wachovia's provision of a list of the subprime lenders it assists was "voluntary" because Wachovia submitted it early in the process. The Fed acknowledges that in cases "prior to Wachovia" SouthTrust, it asked for the names of subprime lenders assisted, but that Wachovia include this in its application, making it voluntary. How this will play out in Wachovia - Golden West is anyone's guess. On that, the story told in the SEC filings is as follows:
Golden West executives began meeting with
investment bankers at Lehman Brothers Holdings Inc. in March and April
about "potential strategic alternatives." On the evening of April 27,
Lehman called a partner at Wachovia's outside counsel, Sullivan &
Cromwell LLP in New York, about the bank's possible interest. A day
later, Lehman Brothers contacted Wachovia Chairman Ken Thompson, who
contacted the Sandlers "subsequent to this discussion." Wachovia
and Golden West began talking about a general outline of a deal, and by
May 2 the two sides had signed confidentiality agreements. After a
number of meetings, both boards signed off May 7, and the deal was
announced.
The timing of the talks is important because
two top Wachovia executives, Vice Chairman Ben Jenkins and investor
relations head Alice Lehman, sold company stock April 27 and April 28,
respectively. The bank has said they were not aware of the possibility
of a deal when they made the sales. We'll see... For or with more
information, contact
us.
Update of May 22, 2006: on March 24, 2006, subprime lender NovaStar simultaneously announced the purchase of a $940 million pool of payment option adjustable rate mortgages, and plans to structure its first securitization of the year as an on-balance sheet transaction. The $1.35 billion on-balance sheet deal closed April 28, led by Wachovia Securities -- enabler of predatory lending, as is coming to a head in the FOIA litigation now in the 2d Circuit Court of Appeals in New York...
Update of May 15, 2006: Inner City Press / Fair Finance Watch has filed its reply brief in the ongoing case about the Federal Reserve's withholding of information about the subprime lenders enabled by Wachovia. The Fed's arguments have been shifting; we'll see what they say at oral argument next month. Developing...
Update of Monday, May 8, 2006 -- Late on Sunday, Wachovia Corporation announced a proposal to buy Golden West Financial Corporation, for over $25 billion. Wachovia's applications for regulatory approval will be opposed. The consumers’ organization Inner City Press/Community on the Move and the Fair Finance Watch (together, "ICP") intends to challenge the deal under the Community Reinvestment Act, based on Wachovia's continuing enabling of pawnshops and payday lenders, and on the disparities in Wachovia's just-released 2005 mortgage data, including disproportionately confining people of color to higher cost loans over the federally-defined rate spread of three percent over Treasury securities on first lien loans, five percent on subordinate liens.
Nationwide, Wachovia in 2005 for conventional first-lien loans confined African Americans to higher cost loans over the rate spread 2.58 times more frequently than non-Hispanic whites. Wachovia denied 33.35% of applications from African Americans, versus only 17.56% of applications from whites, a disparity of 1.90. Additionally, even while Wachovia's lending to pawnshops and payday lenders is being litigated in Federal appeals court in New York, in Inner City Press v. Federal Reserve Board, 380 F. Supp. 2d 211, Wachovia has continued this line of business, continuing loans to, among others, A1 Pawn Shop in Goldsboro NC, Alvarado Pawn of Alvarado, Texas and Value Pawn of Casselberry, Florida.
ICP has designed a way to consider income correlations, by calculating upper and lower income tranches based on lenders' own customers. At Wachovia for conventional home purchase loans nationwide in 2005, upper income non-Latino African Americans were confined to higher cost loans over the rate spread 4.71 times, and Latinos 2.02 times more frequently than upper income non-Latino whites. Income does not explain the disparities at Wachovia. Public hearings should be held on Wachovia's proposal to expand by acquiring Golden West Financial.
ICP has analyzed Wachovia's 2005 lending in major states. In Pennsylvania, site of Wachovia's controversial and ill-considered acquisition of CoreStates, at Wachovia for conventional first-lien loans in 2005, non-Latino African Americans were confined to higher cost loans over the rate spread 4.03 times more frequently than non-Latino whites. Wachovia's Latino to white disparity in Pennsylvania in 2005 was 2.83.
Comparing in the same income tranches, at Wachovia for conventional first-lien loans in Pennsylvania in 2005, upper income non-Latino African Americans were confined to higher cost loans over the rate spread 4.58 times, and Latinos 3.29 times more frequently than upper income non-Latino whites. Income does not explain the disparities at Wachovia. Public hearings should be held, including in Pennsylvania.
In its home state of North Carolina, at Wachovia for conventional home purchase loans in 2005, non-Latino African Americans were confined to higher cost loans over the rate spread 4.13 times more frequently than non-Latino whites. Wachovia's Latino to white disparity in North Carolina in 2005 was 2.51. Comparing in the same income tranches, at Wachovia for conventional home purchase loans in North Carolina in 2005, upper income non-Latino African Americans were confined to higher cost loans over the rate spread 7.94 times more frequently than upper income non-Latino whites. Income does not explain the disparities at Wachovia. Public hearings should be held, including in North Carolina.
In neighboring South Carolina, at Wachovia for conventional home purchase loans in 2005, non-Latino African Americans were confined to higher cost loans over the rate spread 4.92 times more frequently than non-Latino whites. Comparing in the same income tranches, at Wachovia for conventional home purchase loans in South Carolina in 2005, upper income non-Latino African Americans were confined to higher cost loans over the rate spread a whopping 9.8 times more frequently than upper income non-Latino whites. Income does not explain the disparities at Wachovia. Public hearings should be held.
In Tennessee, at Wachovia for conventional home purchase loans in 2005, non-Latino African Americans were confined to higher cost loans over the rate spread 4.13 times more frequently than non-Latino whites. Comparing in the same income tranches, at Wachovia for conventional home purchase loans in Tennessee in 2005, upper income non-Latino African Americans were confined to higher cost loans over the rate spread 4.08 times more frequently than upper income non-Latino whites. Income does not explain the disparities at Wachovia. Public hearings should be held.
In New Jersey, at Wachovia for conventional first-lien loans in 2005, non-Latino African Americans were confined to higher cost loans over the rate spread 2.38 times more frequently than non-Latino whites. Comparing in the same income tranches, Wachovia for conventional first-lien loans in 2005, upper income non-Latino African Americans were confined to higher cost loans over the rate spread 3.16 times. Income does not explain the disparities at Wachovia.
In Maryland, at Wachovia for conventional home purchase loans in 2005, non-Latino African Americans were confined to higher cost loans over the rate spread 3.34 times more frequently than non-Latino whites. Comparing in the same income tranches, at Wachovia for conventional home purchase loans in Maryland in 2005, upper income non-Latino African Americans were confined to higher cost loans over the rate spread 5.06 times more frequently than upper income non-Latino whites. Income does not explain the disparities at Wachovia. Public hearings should be held.
In Virginia , at Wachovia for conventional home purchase loans in 2005, non-Latino African Americans were confined to higher cost loans over the rate spread 2.61 times more frequently than non-Latino whites. Comparing in the same income tranches, at Wachovia for conventional home purchase loans in Virginia in 2005, upper income non-Latino African Americans were confined to higher cost loans over the rate spread 3.3 times more frequently than upper income non-Latino whites. Income does not explain the disparities at Wachovia. Public hearings should be held.
In Georgia, a state in which Wachovia cut off standard FHA loans in light of anti-predatory lending controls passed over Wachovia's lobbying by the state legislature, in 2005 at Wachovia for conventional first-lien loans, non-Latino African Americans were confined to higher cost loans over the rate spread 2.93 times more frequently than non-Latino whites. For home purchase loans, non-Latino African Americans were confined to higher cost loans over the rate spread 3.83 times more frequently than non-Latino whites. Comparing in the same income tranches, Wachovia for conventional first-lien loans in 2005, upper income non-Latino African Americans were confined to higher cost loans over the rate spread 4.16 times, and Latinos 1.49 times more frequently than upper income non-Latino whites. Income does not explain the disparities at Wachovia, including in Georgia, where as noted Wachovia sought to overturn and undermine anti-predatory lending controls passed over Wachovia's lobbying by the state legislature.
Most recently, the U.S. District Court for the Southern District of New York denied a motion by the Federal Reserve Board to get reconsideration of a decision won by Inner City Press, requiring the disclosure of Wachovia's connections with a range of subprime lenders, including payday as well as mortgage lenders. Inner City Press v. Federal Reserve Board, 380 F. Supp. 2d 211. On the Federal Reserve Board's motion, the Court ruled that:
"The Board made absolutely no showing in its summary judgment submissions, however, that the disclosure of data regarding Wachovia's aggregate exposure and loan outstandings to the [subprime lending] clients listed in Exhibit 3 would cause competitive harm to Wachovia or that the public disclosure of this information would make it difficult for the Board to elicit similar information in the future... The Board points to portions of a document entitled 'Subprime Lending and Related Activities' that Wachovia submitted in the public portion of the Merger Application as a 'glimpse into the conclusory statements [regarding due diligence practices] defendant can expect in future filings' if merger applicants know such information is to be released to the public. This argument was not made in the Board's original submission. In any event, without more specific testimony from Wachovia's representative regarding why Wachovia would not wish its due diligence practices with regard to its subprime lending clients to be made public, it cannot be said that this document represents the limits of what Wachovia would willingly reveal at the Board's request."
These issues will be explored, including at the public hearings that ICP will be requesting.
Update of May 8, 11:10 a.m. -- on Wachovia's 10 a.m. conference call, participants were told to press Star-1 to ask a question. During the presentation, Wachovia CEO Ken Thomson said that Golden West does "no subprime;" Wachovia's CFO said that 55 branches will be closed, but no significant divestiture.
Inner City Press had called in at 10 a.m., to 888-357-9787, and was put on the call. Then a staffer came back on, and asked, "I-N-N-E-R?". Inner City Press confirmed that, then pressed Star-1. And waited. Various congratulatory questions were taken (one questioner even prefaced his softball with "great transactions, congratulations"), then Ken Thomson said, "Seeing no more questions," the call is over.
Inner City Press again called 888-357-9787, and asked how was in charge of allowing or disallowing questions. "The call's leader," was eventually the answer of the woman who responded. "Ken Thompson?" "He answered the questions, and chose which questions to answer." We note he also said, "Seeing no more questions." Developing...
Some earlier reports:
Update of April 24, 2006: As noted by the Charlotte Observer, Wachovia, Charlotte's biggest employer, added 3,100 employees from its Westcorp acquisition, giving it a total of about 97,000 worldwide. The company, however, continues to move forward with an efficiency initiative that it has said will cost up to 4,000 jobs by 2007. As part of this effort, the company plans to start sending some business processing functions to India-based Genpact later this spring or early summer. For or with more information, contact us..
Update of April 10, 2006: Last week the Federal Reserve Board filed a 59-page brief in the Second Circuit Court of Appeals, continuing it defend its withholding of information about assistance to subprime lenders provided by Wachovia. The Fed continues to argue, as Wachovia did, that it can withhold the names of subprime lenders with which an applicant bank does business, even if these business connections and names are required to be public in SEC filings, as long as the requester doesn't read the Board's mind and name the precise names, without having seen them. Equally to blame is Wachovia, which demanded confidential treatment for information that several of its peers release to the public. Inner City Press / Fair Finance Watch has just released a study of the new 2005 Home Mortgage Disclosure Act data, including a first cut at Wachovia's (which was received on April 8), click here for more.
Update of March 20, 2006: Wachovia plans to close 65 branches on May 24..
Update of March 13, 2006: Inner City Press / Fair Finance Watch last week filed its brief in the Second Circuit Court of Appeals in the ongoing case about Wachovia's withholding information about its funding of subprime lenders. On another issue, Wachovia Corp. remains under investigation for the improper use of tax shelters, in conjunction with KPMG LLC.
Update of February 6, 2006: In the run-up to Super Bowl XL in Detroit, Inner City Press / Fair Finance Watch has analyzed mortgage lending patterns in the Detroit Metropolitan Statistical Area in the most recent year for which data is available, 2004. At Wachovia Mortgage, American Americans were over 3.1 times more likely to be confined to higher cost loans than whites.
Update of December 5, 2005: Last week Wachovia bragged that it has signed a seven-year deal with Genpact to outsource the regional banking giant's business-process work in India. Genpact is a joint venture between General Electric and “private equity” firms General Atlantic and Oak Hill Capital Partners. Wachovia’s director of corporate development, Peter Sidebottom, said-in-a-statement: “Over the past year, Wachovia has made several decisions to outsource work to domestic and global partners…We believe that establishing a presence in India with Genpact will improve productivity for our company and enable us to explore overseas growth opportunities.'' What was that sucking sound?
Update of October 17, 2005: This week, some quotes from last week’s
decision in the Southern District of New York, denying the Federal
Reserve’s request
that the FOIA decision in Inner City Press v. FRB, 380 F.
Supp. 2d 211, be
reconsidered:
“The Board made
absolutely no showing
in its summary judgment submissions, however, that the disclosure of
data regarding
Wachovia’s aggregate exposure and loan outstandings to the [subprime
lending] clients
listed in Exhibit 3 would cause competitive harm to Wachovia or that
the public disclosure
of this information would make it difficult for the Board to elicit
similar information in
the future... The Board points to portions of a document entitled
‘Subprime Lending
and Related Activities’ that Wachovia submitted in the public portion
of the Merger
Application as a ‘glimpse into the conclusory statements [regarding due
diligence
practices] defendant can expect in future filings’ if merger applicants
know such
information is to be released to the public. This argument was not made
in the Board’s
original submission. In any event, without more specific testimony from
Wachovia’s
representative regarding why Wachovia would not wish its due diligence
practices with
regard to its subprime lending clients to be made public, it cannot be
said that this
document represents the limits of what Wachovia would willingly reveal
at the Board’s
request.”
The
scam here is
that the Fed is arguing that unless it gets the FOIA decision
reconsidered or reversed, it
will not be able to get banks to submit information about their
practices with regard to
subprime lending -- even when banks are applying for mergers that can
only be consummated
with Federal Reserve approval. Here’s a
hint for the Fed: if a bank doesn’t answer your questions, don’t
approve their
merger application. How about that? And
what,
we continue to ask, is Wachovia so paranoid and/or embarrassed about,
in its dealings with
subprime lenders?
Update of September 19, 2005:
Guess who’s been
a correspondent for Macau’s Banco Delta Asia, named last week as a
money launderer
for North Korea, and a primary money-laundering concern?
Wachovia, of course. As
noted by
the newspaper The Standard, “the Web site of U.S. bank Wachovia also
lists a
correspondent relationship with Banco Delta Asia.”
Meanwhile, Wachovia
last
week announced two subprime-relevant proposed acquisitions: Westcorp
and AmNet Mortgage...
Update of August 29, 2005: De rumores -- last week the Wall Street Journal reported that Wachovia is on the hunt for an auto lender. They did so well with The Money Store, you know...
Update of July 25, 2005: Last week a decision came down from the
U.S.
District Court for the Southern District of New York in Inner City
Press’ FOIA
lawsuit against the Federal Reserve Board. The
court granted ICP summary judgment on the Fed’s inappropriate
withholding of
information about Wachovia’s due diligence and aggregate support to
subprime lenders,
while accepting the FRB’s argument that the names of the subprime
lenders lent to by
Wachovia weren’t, in context, “required.”
The decision states
“Wachovia provided
Exhibit 3 in
response to a telephone conversation with a member of the Board's
staff, in which the
staff member told a Wachovia representative, in essence, that the Board
‘had taken
into account applicants' relationships with subprime lenders in
assessing financial and
managerial factors in past applications in which public commenters had
raised questions
regarding these relationships,’ leading Wachovia to believe that the
submission of
such information might expedite the processing of the Merger
Application.... such a
request would reasonably be construed to require, at the very least,
two categories of
information in the document withheld by the Board: aggregate "financial
data on
Wachovia's exposure and loan outstandings to commercial customers who
engage in subprime
lending" and ‘details regarding the due diligence Wachovia performs in
evaluating particular lenders' requests for credit facilities,’
corresponding to
numerals (iv) and (v) in the Board's description of the information in
Exhibit 3. The
telephonic request is too amorphous, however, to be construed as a
demand that Wachovia
provide the identities of specific clients, specific loan terms and
amounts, and
descriptions of other services provided to those customers,
corresponding to numerals (i),
(ii), and (iii). These latter categories of information were provided
voluntarily by
Wachovia. According to the Rizer Declaration, in the ordinary course, a
bank would be
unlikely to disclose client lists, loan terms, and similar data to the
public for fear of
competitive harm. ICP does not dispute this, although it argues that
certain information
regarding the underwriting of securities must be disclosed to the SEC.”
Actually, ICP does dispute this.
The court says that the Fed must review public sources
like SEC filings (and
by implication UCC filing) to see which of the relationships the banks
want to keep
confidential are already publicly available. Developing...
Update of July 18, 2005: Wachovia Corp. has hired a former insurance executive to lead its efforts to outsource technology functions to India, according to an e-mail sent to employees on July 11. Mukesh Mehta will be director of global services / outsourcing, reporting to CIO Martin Davis. Wachovia, which has a total of about 93,600 employees, said the move will cut an undisclosed number of jobs...
Update of June 27, 2005: On June 22, Reuters reported that “Wachovia
plans by the end of 2006 to open 10 to 12
branches on Long Island, primarily on the north shore, beginning this
fall with a branch
in Greenvale, according to Mike Slocum, chief executive of the bank's
Atlantic region.”
For a bank that claims to consider the Community Reinvestment Act
(which requires service
to low and moderate income areas), Wachovia’s entry into New York, via
midtown
Manhattan and straight to the suburbs, sure raises questions. As does
the bank’s
continued withholding of information about the pawnshops and other
fringe financiers it
supports. ICP’s FOIA case is still pending; watch (ovia) this space...
Update of June 20, 2005: Wachovia
Securities will
pay Missouri regulators $300,000 over allegations it failed to
supervise an agent, the
secretary of state's office and the company announced on June 15. The
secretary of state's
securities division issued a consent order against Everen Securities
Inc. and First Union
/ Wachovia Securities. The securities division said William Ramey Mead
Jr. worked for the
companies in Clayton, Mo., and Illinois from 1992 to 2002. It alleges
Mead made unsuitable
investment recommendations but was not disciplined by the companies
until he was fired in
May 2002. Wachovia claims that it has stepped up its supervisory
procedures to ensure
agents don't recommend unsuitable investments...
Update of May 23, 2005: ICP on May 20 submitted to the Florida Attorney General’s office an analysis of and demand for action on the glaring disparities in Wachovia’s 2004 mortgage lending in Florida:
Whites:
47,004 applications,
leading to 10,627 denials (22.61% denied) and 26,558
originations; 1754 [or 6.6%] exceeded rate spread.
African Americans: 4996 applications, leading to 1896 denials
(37.95% denied, 1.68
times higher than whites) and 2101
originations; 202 [or
9.61 percent] exceeded rate spread [1.46 times higher / more likely to
be over rate spread
than whites].
Latinos: 9206
applications,
leading to 3014 denials (32.74% denied, 1.45 times higher than whites)
and 4114
originations; 254 [or 6.17 percent] exceeded rate spread
[0.93 times “higher” / more likely to be over rate spread than whites].
The Florida AG’s office has confirmed receipt...
Update of May 9, 2005: ICP Fair
Finance Watch
continues drilling deeper into the 2004 Home Mortgage Disclosure Act
data. Following its petitioning last week
of state
attorneys general, ICP was asked to produce a study of disparities by
gender as well as
race. The results, being forwarded to those who requested them, are not
pretty.
Here’s Wachovia:
White men: 92,209 originations of which 3428 (or
3.72%) were at rate
spread
White women: 36,684 originations of which 1806 (or
4.92%) exceeded
the rate spread (1.32 times higher / more likely to be rate spread than
white men)
African American men: 9011 originations of which
926 (or 10.28%)
exceeded the rate spread (2.76 times higher / more likely to be rate
spread than white
men)
African American women: 7912 originations of which
827 (or 10.45%)
exceeded the rate spread (2.81 times higher / more likely to be rate
spread than white
men)
Hispanic men: 7400 originations of which 390 (or
5.27%) exceeded the
rate spread (1.42 times higher / more likely to be rate spread than
white men)
Hispanic women: 3462 originations of which 253 (or
7.31%) exceeded
the rate spread (1.97 times higher / more likely to be rate spread than
white men)
ICP has provide this and other analysis to the regulators and
state attorneys
general, demanding investigation and action.
of May 2,
2005: With money from payday
lenders,
skyscrapers rise. Last week Wachovia
unveiled (disrobed?) plans to combine an office tower with condos, a
park, a theater and
an art museum in a real estate move on a tract bought from Duke Energy. The 30- to 35-story office tower would be the
area's first since the city's second tallest - the 46-story Hearst
Tower - opened in 2001.
Which was the year of...
Update of April 11, 2005: This
week it’s
logistic. On February 28, ICP Fair Finance Watch made a formal request
for Wachovia’s
2004 mortgage lending data; the data by regulation must be provided “by
March 31 for
a request received on or before March 1.” ICP’s request, directed to
the signer
of Wachovia’s previous responses to ICP’s regulatory comments, also
inquired as
a fair lending matter about Wachovia’s “safeguards, if any, for
purchasing from,
securitizing or serving as trustee for and otherwise assisting
(including through
warehouse lending) other subprime lenders, including payday lenders and
car title
lenders.”
Numerous other institutions began provided ICP with their data
as early as March 4, usually in a single
.DAT file, allowing analysis of
holding company-wide patterns all at one time. But as of April 3,
Wachovia had not
provided any data. ICP complained to the Federal
Reserve. Some disks arrived, with Wachovia's and SouthTrust's data
separate. Analysis as
begun. Click here
Update of March 21, 2005: While
Wachovia gilds the
parachute of SouthTrust’s Wallace Malone, as disclosed in its proxy
statement, the
bank last week laid off an additional 254 SouthTrust workers in
Birmingham, bringing the
total merger-caused job cuts in that city to 1,512....
Update of March 14, 2005: And now it can be told: earlier this month,
ICP and
its excellent
pro bono counsel
Plaintiff Inner
City Press/Community
on the Move (ICP) submits this reply brief in further support of its
Motion for Summary
Judgment and in opposition to Defendant's Motion for Summary
Judgment. In this FOIA
action, Plaintiff ICP seeks the release of information regarding the
subprime lending
activities of Wachovia and SouthTrust banks, information that was
submitted to Defendant
Board of Governors of the Federal Reserve System as part of the banks'
merger
application... In its opposition brief, the Board attempts to backpedal
from its earlier
statement that it can require applicants to submit information
regarding their
relationships with subprime lenders by claiming that the CRA "sets no
standards"
regarding what the Board must take into consideration in evaluating a
merger application.
See Def.'s Opp. Mem. at 14. Assuming the accuracy of the
Board's
characterization of the CRA - as insupportable as it may be - then the
Board would have
had even more authority to require Wachovia to submit the information
contained in Exhibit
3. "[T]he Board is the agency responsible for federal regulation
of the
national banking system, and its interpretation of pertinent federal
statutes is entitled
to substantial deference." Lee v. Bd. of Governors of the Fed.
Reserve Sys.,
118 F.3d 905, 914 (2d Cir. 1997). Thus if the Board directs a
bank to submit
information regarding its subprime lending activities as part of the
merger approval
process, the applicant bank has little choice but to comply - as
Wachovia did in this
case. [FN The Board states that it informed Wachovia (via a
telephone call between
unidentified individuals) that Wachovia's merger application would be
"expedited" if the bank provided the information contained in Exhibit
3, and
that the Board had "taken similar information into account in past
applications." Def.'s Opp. Mem. at 13. The coercive effect
of that
telephone call upon Wachovia cannot be discounted - indeed, Wachovia
promptly produced the
requested information - dispelling any notion that the Board did not
exercise its
authority to compel production of Exhibit 3 (assuming that such an
exercise of authority
is relevant).] Exhibit 3 must therefore be considered "mandatory" in
nature...
In its opposition
brief, the Board
argues for the first time that the competitive harm analysis must be
limited to a
"specific product market," without regard to Wachovia's other business
activities. Def.'s Opp. Mem. at 3-5. The Board, however,
does not cite any
case to support this proposition - because it cannot. To the
contrary, an agency
cannot self-servingly define what the relevant market is for Exemption
4 purposes;
otherwise, an agency could easily evade any FOIA request simply by
defining the
"relevant market" small enough, rendering FOIA's promise of broad
disclosure
wholly illusory...
In support of its
claim that
Wachovia will suffer competitive harm, the Board has submitted
declarations from a
Wachovia Senior Vice President and a senior Board attorney asserting
that the subprime
lenders with whom Wachovia has banking relationships have a privacy
interest in the
information contained in Exhibit 3. Def.'s Opp. Mem. at 5; Rizer
Decl.
1-2,7-8; Baer Decl. 10. Exemption 4, however, has nothing
to do with
third-party privacy interests. See Nat'l Parks, 547 F.2d at 686
("Since
exemption six may be available to protect any privacy interests of the
concession owners
in this case, we see no reason to read a privacy concern into exemption
four.").
Rather, Exemption 4 is concerned with "competitive harm," i.e.,
the
"affirmative use of proprietary information by competitors," and
"should
not be taken to mean" harms such as "customer [] disgruntlement."
Public Citizen, 704 F.2d at 1291 n.30 (emphasis added). The
assertion of subprime
lenders' privacy interests belies Wachovia's true reason for seeking
confidential
treatment of Exhibit 3 - potential embarrassment - which is not a
cognizable harm under
the competitive harm prong analysis. See,
e.g., Gen. Elec. Co. v. NRC, 750 F.2d 1394,
1402 (7th Cir. 1984). [The privacy protections of Exemption 6 are
applicable only to
individuals, not corporations. Sims v. CIA, 642 F.2d 562, 573
n.47 (D.C. Cir.
1980)]....
According to
Wachovia, Exhibit 3
contains information on "several relationships [Wachovia] ha[s] with
entities that
make and/or purchase subprime residential mortgage loans" and on
whether Wachovia
"will act as a market maker or underwriter with respect to securities
issued by some
of the clients." Rizer Decl. 5. Thus, as the Board
concedes, some
of the information contained in Exhibit 3 must therefore be made
publicly available
through SEC filings. See Def.'s Opp. Mem. at 8 (acknowledging
that "some
references to Wachovia's role as an underwriter might technically be
public").
ICP has thus met its burden of producing evidence of the information's
public
availability, and the Board has failed to offer any contrary evidence
to meet its burden
of persuasion.... ICP, once in possession of this information, would be
able to research
the activities of Wachovia's partners to determine whether Wachovia has
enabled and
profited from predatory lenders and thereby failed to live up to its
obligations under the
CRA... For the foregoing reasons, this Court should grant Plaintiff
ICP's motion for
summary judgment, and deny Defendant Board's motion for summary
judgment.
The results will be reported here.
Update of March 7, 2005: In continued merger fall-out, Wachovia announced last week 174 branch closings, most of them SouthTrust branches. The local press reported, in Tampa/St. Pete: SouthTrust at 201 E Kennedy Blvd., 4240 W Kennedy Blvd., 14802 N Dale Mabry Highway, 19440 Bruce B. Downs Blvd. in Tampa; 13175 Walsingham Road, Largo; 34650 U.S. 19 N, Palm Harbor; 4501 Mainlands Blvd., Pinellas Park and 9400 Dr. Martin Luther King Jr. St. N, St. Petersburg. Wachovia at 5144 E Busch Blvd. and 7919 Gunn Highway, Tampa; 7600 U.S. 19 N, 8851 U.S. 19 N and 6700 66th St. N, Pinellas Park; 110 W Bloomingdale Ave. and 510 Oakfield Drive, Brandon; 28163 U.S. 19 N and 2140 Gulf-to-Bay Blvd., Clearwater. Other hit-lists to follow, along with quotes from Wachovia’s wacky claims in the Freedom of Information Act case in which it claims that disclosing the subprime lenders it works with would cause it substantial competitive harm.
Update of February 28, 2005: Wachovia has belatedly
discontinued its
arbitrage-trading practices at a Los Angeles-area branch as the company
probes allegations
of misconduct, according to Wachovia spokesman Tony Mattera. He said
that Wachovia is
“continuing its investigation” to determine whether any of its brokers
violated
securities laws. Wachovia declined to comment on what the arbitrage
trading practice
entailed -- but a source familiar with the investigation told Dow Jones
that "the
brokers created an account for an individual, with the ultimate
beneficiary being another
individual." Sounds like a money
laundering technique...
Update
of February 21, 2005: Wachovia
is
being forced to investigate its stock trading, including the possible
use of fake accounts
to reap short-term gains, at an office in southern California, the Los
Angeles Times
reported on Feb. 16. The NASD has also opened a probe into the office,
located in Westlake
Village, California. A Wachovia spokesman, Tony Mattera, told the
newspaper that there was
a "wide-ranging" internal investigation...
Update
of February 14, 2005: From the
Feb. 9
Bradenton Herald: “March 7 is a big day for Wachovia and one that has
big changes for
current SouthTrust customers. All SouthTrust accounts will be
automatically transferred to
Wachovia accounts that day.” Can you say,
out of the frying pan and into the fire?
Update
of February 7, 2005: And the beat goes on: Wachovia has
notified Alabama
officials that a further 75 SouthTrust workers in Birmingham will lose
their jobs. The
layoffs bring the total number of Birmingham workers affected by
Wachovia's acquisition of
SouthTrust to at least 1,258, or more than a quarter of SouthTrust's
pre-merger work force
in Birmingham. Wachovia spokeswoman Nannette Sheaffer declined to say
which departments
were affected by the latest round of cuts....
Update
of January 31, 2005: Talk about ghoulish -- while it moves to
lay off thousands
of employees, Wachovia is taking out more life insurance on other
employees. “Wachovia
Corp. this week told some employees that it
wants to carry additional life insurance on them as a way to defray the
rising cost of
employee benefits, according to an e-mail obtained by the [Charlotte]
Observer... Wachovia
this week sent an e-mail to officer-level employees asking them to
consent to the
increased coverage by Feb. 15. Individual employees receive no income
from the insurance,
but it would help offset the cost of benefits for all company
employees, the e-mail says.
Wachovia spokeswoman Christy Phillips said the company decided to
purchase the additional
insurance because of its ‘commitment to provide comprehensive,
competitive
benefits’ to employees. The nation's No. 4 bank by assets carries an
undisclosed
amount of insurance on about 15 percent of its employees, she said. It
reaps the death
benefit even if the employee has left the company.”
As many employees are...
Update
of January 24, 2005: on the January 19 earnings call, after
the disclosure that
Wachovia has so far made 700 of the 4000 planned lay-off, CEO Ken
Thompson bragged,
"The company has the capability to do all these things and expand
through acquisition
if we find the right acquisition.” Outsourcing
is also on the agenda. CFA Bob Kelly told the Observer’s intrepid Rick
Rothacker that
Wachovia is “undertaking a methodical review of outsourcing options.
‘If it can
be done better and cheaper, we will look at it,’ Kelly said.” Of the additional job cuts, Reuters quotes a
stock
analyst that "It's
a little worrisome that
they seem to be trying to achieve their earnings goals through job cuts
rather than
through revenue growth. You can only cut so much before you start to
cripple growth
opportunities." The Charlotte Observer of Jan. 19 exposed an
intra-Wachovia
email memo, sent to employees and executives, saying that the bank is
exploring its
options for moving some technology operations overseas. The e-mail,
sent by Martin Davis,
the bank's chief information officer, said that Wachovia is aiming at
$300 million in
savings from its technology operations by the end of 2007... The Philly
Inquirer reported
that Wachovia “employs 96,000 nationwide, including 7,200 in the
eight-county
Philadelphia area... less than half the number employed locally in the
mid-1990s by
Wachovia's predecessors, including CoreStates and First Fidelity banks.” Yes, it’s slash-and-burn banking -- even
beyond the hide-the-ball predatory lending issues reported on below...
Update
of January 10, 2005: Wachovia
has
boosted the number of layoffs as a result of its SouthTrust Corp.
merger to at least 1,180
in Birmingham. The layoff numbers were updated earlier this week by
Wachovia, according to
Larry Childers, spokesman for the Alabama Department of Economic and
Community Affairs.
The state received notification of the latest cuts in late December,
but technical
problems prevented the state from updating its Web site before this
week, Childers said.
Robert Holmes, dean of UAB's business school, said it will be difficult
for the local
economy to absorb all of the displaced workers. ``It will take a long
time for this to
settle out,'' he said. Great merger...
Update of December 27, 2004: From the Federal
Reserve’s court
filings last week in ICP v. FRB, Civ. No. 04
CV 8337 (DLC), in the U.S. District Court for the Southern District of
New York:
“In
a number of past applications, where public commenters have raised the
issue, the Board
has taken into accounting information on the acquiring and target
institutions’
relationships with commercial customers who are engaged in subprime
lending in assessing
financial and managerial resources. In these applications, such
information was necessary
to the Board’s assessment of financial and managerial factors because
lending to
commercial customers who engage in subprime lending can present legal,
credit and
reputational risks to the lending institutions.”
There’s also an affidavit from Wachovia’s Michael Rizer, stating that the still-withheld “Confidential” Exhibit 3 to Wachovia’s SouthTrust application names nine subprime lenders “which whom Wachovia does business, either as the provider of credit or funding facilities or other financial relationships.” Both Wachovia and Rizer said the names should not be released; the Fed claims that it -- but not the public -- having the names allows it to assess the adequacy of safeguards and standards. But as previously raised, what inquiry does the Fed make into the compliance records of various subprime lenders? Very little. Which is another reason they should release the names -- if, that is, the Fed wanted to know the truth. It’s troubling that they don’t...
Update of November 29, 2004: Last
week’s
Bloomberg News article about the funding of payday loans and lenders (“JPMorgan,
Banks Back Lenders Luring Poor With 780 Percent Rates,” Nov. 23)
reported
that “in
July 2004, Wachovia... co-arranged a $265
million syndicated credit line for Advance America, according to SEC
documents. Two months
later, Advance America announced an IPO to raise $183 million.” Presumably, beyond the Wachovia/SouthTrust
payday
connections that ICP has shown from UCC filings, this connection too is
in the
“Confidential” exhibits that Wachovia is still fighting to withhold,
now in the
face of FOIA litigation. Meanwhile, the layoffs have begun, starting in
Alabama. Wachovia plans to cut
829 jobs in Birmingham -- fully 20 percent of the 4,000 people
SouthTrust employs in
Birmingham. Under the WARN Act, notice was
given here
--
Update of November 22, 2004:
November 24 is the
due-date for the Federal Reserve’s (and perhaps Wachovia’s) answer to
the
Freedom of Information Act complaint Inner City Press filed contesting
the Fed’s and
the banks’ withholding of basic information about Wachovia’s and
SouthTrust’s support of payday lenders and pawnshops...
Update of November 8, 2004: Speaking to a nearly empty room at the end of the SIA annual meeting on November 5, Fed governor Bies called for greater clarity to help banks comply with the anti-tying rules. "Ensuring compliance can be an extremely difficult endeavor because there is no prohibition against cross selling products or aggressive marketing," Bies said, adding that "the goal is to ensure that banks don't cross the line between offering choices and illegally tying products and services.” Clarity’s a good thing -- but why then has Gov. Bies (and the rest of the Fed) aggressively withheld basic information about banks’ secured loans to payday and car title lenders? Inner City Press has challenged the Fed’s Wachovia - SouthTrust FOIA denial, and is awaiting the Fed’s response. Interesting, isn’t it, how the Fed doled out approval just before Wachovia’s $37 million fine by the SEC was announced...
Update of November 1, 2004: ICP/Fair Finance Watch continues to wait word from the Federal Reserve, which FFW timely sued under the Freedom of Information Act, and petitioned for reconsideration. If the fix is in, the issues will nevertheless be pursued... For or with more information, contact us.
Update of October 28, 2004: Some
simple questions
for Wachovia and SouthTrust: why are these two banks so fixated on
keeping the list of the
payday and car title lenders and pawnshops they fund secret? Why is
Wachovia funding such
businesses, contrary to what it says about its position on predatory
lending? (Consider
that SunTrust, in response to ICP's comments, committed to stop funding
such businesses,
based on consumer harm and reputational harm). Why did it or SouthTrust
misrepresent
SouthTrust as not funding such businesses, then refuse to acknowledge
the misstatement?
Update of October 25, 2004: Earlier this month, Federal Reserve Governor Bies denied Inner City Press' Freedom of Information Act appeal for a list of the payday lenders and pawnshops funded by merger partners Wachovia and SouthTrust. On October 21, Inner City Press filed a FOIA lawsuit in the U.S. District Court for the Southern District of New York, challenging the Fed's systematic withholding of predatory lending-related information. The case has been filed; we will update its progress on this site.
Update of October 18, 2004: From
the Federal
Reserve’s Oct. 15 Wachovia-SouthTrust order:
Several
commenters also expressed
concern that Wachovia and SouthTrust finance unaffiliated lenders who
provide alternative
products such as payday loans. Wachovia reviews loans to payday
lenders, check cashing
companies, and pawnshops; and it imposes increased documentation
requirements, monitoring,
and annual reviews of these loans to account for the potential
increased risks, including
legal and reputational risks, associated with these loans. Wachovia
plays no role in the
lending practices or credit review processes of these lenders.
One commenter disagreed with a statement in the application that
SouthTrust has a policy
not to lend to payday lenders, pawnshops, and other “money service
businesses”
(“MSBs”). Wachovia acknowledged that SouthTrust has made several
exceptions to
this policy and, as a result, has ten loans outstanding to pawnshops or
related entities
worth $755,056, representing a de minimis portion of SouthTrust’s total
loan
portfolio.
Question: so “de minimus” lying is okay with the Fed? We will be following (up on) this...[See Oct. 25 Report. above.]
Update
of October 4, 2004: Wachovia
Corp. quietly disclosed in a September 27 SEC filing that it would
close 175 to 200
branches within 15 months of consummating its SouthTrust proposal.
Previously it had said
-- including to the Federal Reserve and to the public, during the
comment period - that it would close 130
to 150 branches...
Update
of September 27, 2004: While the
clock ticks on Wachovia / SouthTrust (in
the most recent S-4, the records date for SouthTrust holders has moved,
but not for
Wachovia, viewed as springing from differences in NC and Delaware law
but who knows),
Wachovia last week settled discrimination charges. So it was gender,
and employment -
discrimination in one field is often mirrored in another (lending). And still they withhold the list of payday and
car
title lenders, and pawnshops, that they fund...
Update
of September 20, 2004: ICP has
now filed a formal FOIA appeal for the
information Wachovia and the Fed are withholding about Wachovia’s and
SouthTrust’s support of payday and car title lenders, pawnshops and
other fringe
financiers. Meanwhile by letter dated September 13, Wachovia responded
to Fed questions of
September 9 about SouthTrust’s fair lending compliance program. The
answer’s
convoluted - but not was bogus as the answer to the Fed’s question
about branch
closing. Developing...
Update of September 13, 2004: In a smaller incident reminiscent somehow of Wachovia's claims that loans to fringe financiers is not inconsistent with an unequivocal claim to have a POLICY against making such loans, down in Tampa / St. Pete after Hurricane Charlie, fliers appeared urging victims to take out Wachovia home equity loans. The fliers asked whether, without a Wachovia loan, "will you be able to wait two or three weeks to get the money for repairs, to buy a generator, to house your family in another location?" Call it the hard sell. Once it was raised, including by the St. Pete Times, Wachovia disclaimed the fliers. It's against their policy, you see... Wachovia continues withholding the list of fringe financiers that it and SouthTrust fund; we'll see.
Update of September 6, 2004: Last week, ICP received from Wachovia a copy of its August 27 response to the FRB's questions of August 19, including on issues ICP has timely and repeatedly raised. The FRB's August 19 question 3, for example, notes as ICP has that
"Exhibit 6 of the application says that it is SouthTrust's policy not to lend to pawn shops, payday lenders, check cashing companies, or similar companies. Indicate how long this policy has been in effect. Also indicate whether SouthTrust or any of its subsidiaries, including SouthTrust Bank and any of its predecessor depository institutions, has made loans to such companies that are still help by SouthTrust or SouthTrust Bank, and whether these loans (if any) were made before or after implementation of SouthTrust's policy. If they were made after implementation of the policy, please explain why."
The banks' August 27 response, at least as provided to ICP, is non-responsive. While claiming that "SouthTrust's policy not to lend to pawn shops, payday lenders, etc., has been in effect for over five years," since "March 31, 1999," ICP has shown numerous loans to just such businesses, by SouthTrust, well after March 31, 1999." The FRB's question explicitly asks, if the loans "were made after implementation of the policy, please explain why." But as provided to ICP, no attempted explanation is even offered. There is an off-handed reference to "Confidential Exhibit 6," and to five other withheld exhibits, all of which ICP hereby requests, both under the FRB's rules prohibiting ex parte communications, and under FOIA. The statement that such loans represent only a small percentage of SouthTrust's business, even if true, only undermines the claim of competitive harm on which a request for confidential treatment would have to rest. The information must be released, the comment period should be extended, and the requested hearing held.
ICP also contests Wachovia's response to FRB August 19 question 1, in which Wachovia states that it "does not have any ownership interest in a subprime lending entity." As you know, Wachovia (First Union) bought The Money Store, and continues to be "engaged in subprime (or near-prime) lending" activities through HomEq.
ICP notes the banks' response that "SouthTrust Mortgage Corporation originates loans from a wholesale channel referred to as EquiBanc Mortgage Corporation" -- a subprime lender whose "compensation to brokers is in the form of yield spread premium." But a search of 2003 HMDA data finds no HMDA reporter named EquiBanc... ICP has put in a supplemental comment to this effect; developing....
Update of August 30, 2004: DOJ's sell-out, a mere 18 branches to be divested in Wachovia - SouthTrust: nine in Jacksonville, one in DeLand, five in Lakeland and three in Augusta, GA. They're seeking agreements the branches would be kept open. But what about the 130 to 150 that Wachovia would close? That, along with the two banks' lies about their support for payday lenders and pawnshops, is what the Federal Reserve is supposed to be looking at...
Update of August 23, 2004: The CEO of Wachovia, Ken Thompson. He has bundled more than $200,000 for the Bush campaign, making him like Bank of America’s vice chairman Jim Hance a so-called "ranger." (Those bundling over $50,000 are merely "mavericks;" over $100,000 and you’re a "pioneer"). Wachovia also funds high-cost payday lenders, and is applying to the Federal Reserve for regulatory approval to buy SouthTrust, which counter-factually denies that it funds payday lenders and pawnshops (see below in this Report).
Update of August 16, 2004: At Wachovia, the scandals don't stop. On August 11, the SEC announced that Wachovia Securities is being censured and fined $250,000 for registration, reporting and sales practice deficiencies and supervisory violations. Dow Jones of August 13 reported, "Wachovia Corp.'s Evergreen Investments identified its two funds caught up in the mutual-fund trading scandal as the Evergreen Mid Cap Growth and Evergreen Precious Metals funds. Evergreen also said a former fund manager at the center of the Securities and Exchange Commission investigation managed the Precious Metals fund, raising the likelihood the agency was looking into transactions by well-known former Evergreen manager Prescott Crocker.... Evergreen named the funds in a filing this week with the SEC, following its recent disclosure that the agency might bring an enforcement action against it for improper fund trading. The company also gave more details about the matter in statements posted on its Web site from Dennis H. Ferro, chief executive of Evergreen Investments, and Michael S. Scofield, chairman of the board of trustees of Evergreen Funds. According to the filing and statements, the short-term trading by the Evergreen Precious Metals Fund portfolio manager took place between September 2001 and January 2003. At the time, the fund was co-managed by Mr. Crocker, who also managed Evergreen's High-Yield Bond fund. Evergreen didn't name him in the filing, but a spokeswoman confirmed that he managed the precious- metals fund at the time. Mr. Crocker is no longer at Evergreen. The firm said the SEC also is investigating an alleged arrangement between a former Evergreen Investment Management Co. officer and a broker at an affiliated broker-dealer. The broker allegedly engaged in short-term trading in the Evergreen Mid Cap Growth Fund on behalf of a client, the filing said.
ICP's August 16 third timely comment to the Federal Reserve argues that the Fed has created a Catch-22. As soon as ICP saw notice of the application, it submitted a FOIA request for the entire application. Upon receipt, ICP noted this statement in Exhibit 6:
"Wachovia has commercial lending relationships with select check cashing companies, pawnshops and payday lenders. In recognition of the higher risk these businesses present, the Credit Risk policy on lending to them is very restrictive. Any new credit, or the renewal or modification of such a credit, requires the approval of one of the top found Chief Risk Offices of Wachovia... Please see Confidential Exhibit 3 for information concerning these customers."
This exhibit was not provided to ICP, despite the fact that Wachovia’s secured lending relationships with various "check cashing companies, pawnshops and payday lenders" are of public record, and therefore cannot legitimately be withheld under FOIA. ICP submitted a FOIA request / appeal, annexing print-outs of sample UCC filings, in an attempt to ensure that it would receive this wrongfully withheld exhibit during the comment period, to comment thereon. But ICP received a response from deputy secretary Frierson, dated August 5, 2004, that this FOIA request / appeal would not be acted on, because it was the Board’s position that (despite the commitment to provide copies of applications in three days) the FRB has a full twenty working days to respond to ICP’s FOIA request for the application.
The result is a Catch-22 in which comment periods can expire without any ruling on the applicants request to withhold even the names of payday lenders and other fringe financiers it funds, even when these names are otherwise publicly available. In answering a call from FRB staff, ICP reiterated and explained its position that these named cannot legitimately be withheld, even if a bank intentionally mixes this with other information: the solution is redaction and provision of all segregable information, and/or instructing the applicant to submit information that is NOT otherwise publicly available separately. A bank shouldn’t benefit from mixing the information, and not following the instructions on the FRB application forms. This is an abuse, and ICP reiterates its request for the information, and for an extension of the comment period. This is particularly important in this case, in which the two banks have made counter-factual statements on this issue in their applications, not explained or remedied by their August 6 "response"... Wachovia is a company around which these scandals swirl, a company which has, in connection with this application, made counter-factual statements to the FRB. The comment period must be extended; the merger should be denied.
Update of August 10, 2004: Wachovia and SouthTrust, bob and weave. The Charlotte Observer of August 10 reports that "in a letter to Inner City Press, Wachovia acknowledged SouthTrust had a limited number of relationships with pawn shops but said the loans were either exceptions to the bank's credit policy or had been acquired through mergers. 'SouthTrust and Wachovia are committed to fair lending and fair practices,' Wachovia spokeswoman Christy Phillips said."
These policies, if they exist, have not been applied to the two banks' funding of fringe financiers. Digging back through the march of time, earlier this year -- in the March 5, 2004 News & Observer -- this same Wachovia spokeswoman Christy Phillips was asked about Wachovia's lease-out tax shelters: "spokeswoman Christy Phillips said Wachovia's deals 'comply with all applicable tax laws, regulations and judicial decisions, and are supported by tax opinions from a number of major, reputable law firms.' Nevertheless, she added, 'Wachovia had decided to discontinue the specific transactions described in the broadcast well before' the "Frontline" and "Marketplace" reports aired. She said 'the evolving regulatory environment' triggered the change." Wachovia's August 6, 2004, statements about (undisclosed) exceptions to policies cast Wachovia's claims about tax shelters in a new light. Also, one would think that the regulatory environment concerning Wachovia's funding of payday lenders and other fringe financiers would be viewed as similarly "evolving"...
The American Banker newspaper ("Wachovia's New Reply to Fed," by Hannah Bergman) reports:
In its application to the Richmond Fed last month, Wachovia, of Charlotte, said that "it is SouthTrust's policy not to lend to pawnshops, payday lenders, check-cashing companies, or other" money services businesses. Mr. Glassberg wrote on Friday that the loans in question were made "as exceptions to SouthTrust's policy. ... It is standard industry practice to allow exceptions ... based on legitimate reasons." His letter did not say why the loans had not been disclosed before, cast judgment on them, or say whether the combined company would make such loans. On Monday a Wachovia spokeswoman said, "It's still very early in the merger integration process." Business decisions like what the policy would be toward such loans in the future had not been made, she said.
Matthew Lee, the director of Inner City Press/Community on the Move, has argued that regulators should bar banks from lending to "predatory, fringe finance" outfits, because banks are obligated under the Community Reinvestment Act to treat poor neighborhoods fairly. Funding lenders that target low-income consumers with high-interest loans violates that duty, he says. "I'm really outraged" that Wachovia would say SouthTrust did not lend to pawnshops, Mr. Lee said Monday. "Then it turns out that even by" the companies' admission the bank lends to 10 such businesses, "and we think it's more," he said. "That was very misleading, and there should be repercussions."
Yes, there should be repercussions, in this "evolving regulatory environment." And, given the projections for example of 130 to 150 branch closures, management rosters and other announcements -- well, saying "we don't know yet" just doesn't cut it.
Update of August 9, 2004: On Friday afternoon, Wachovia finally attempted to explain away the lie in its SouthTrust application, that "It is SouthTrust’s policy not to lend to pawn shops, pay day lenders, check cashing companies or other MSBs." The response, claiming that "it is standard industry practice to allow exceptions to credit policies based on legitimate reason," gives rise to more questions than it answers. The day prior to their August 6 "response," the two banks issued a press release and 20-page brochure about a "community commitment." As correctly noted in the Norfolk Virginian-Pilot of August 6, 2004, it wasn't even "clear whether the $75 billion of designated lending would surpass the amounts that Wachovia and SouthTrust would have lent over the next five years had they not agreed to merge... [ICP] contends that the two banks have provided loans to lenders that prey on vulnerable consumers, such as payday lenders, car-title lenders and check-cashing companies. Despite the dollar amounts involved, Wachovia’s pledge... doesn’t address those concerns from [ICP]." Below is a summary of ICP's August 9 submission to the Federal Reserve. For or with more information, contact us.
August 9, 2004
Board of Governors of the Federal Reserve System
Attn: Chairman Alan Greenspan, Governors, Secretary Johnson
20th Street and Constitution Avenue, N.W.
Washington, DC 20551
Dear Chairman Greenspan, Governors, Secretary Johnson, FRB:
On behalf of Inner City Press/Community on the Move and its members and affiliates, including the Fair Finance Watch (collectively, "ICP"), this is a second timely comment opposing, requesting public hearings on the applications by Wachovia Corporation (along with its affiliates, including the subprime servicer HomEq, "Wachovia") to acquire SouthTrust Corporation and its affiliates ("SouthTrust").
On July 26, 2004, ICP filed a detailed comment opposing this Wachovia - SouthTrust proposed merger, under the Community Reinvestment Act, based on systemic lending disparities, the more than 100 foreseeable branch closures, service reductions, antitrust (in Jacksonville and elsewhere), and, particularly, both Wachovia’s and SouthTrust’s enabling of high-cost payday lenders, car title lenders, pawnshops and other predatory fringe finance.
ICP’s July 26 Comment took specific exception to, and requested an evidentiary hearing on, the Application’s statement in Exhibit 6 that "It is SouthTrust’s policy not to lend to pawn shops, pay day lenders, check cashing companies or other MSBs." ICP’s July 26 Comment annexed a number of UCC filings showing SouthTrust making just such loans.
On August 6, ICP received from Wachovia a five-page response, which on this issue states:
"Of the 15 SouthTrust relationships cited by ICP, four loans have been paid out and a loan relationship no longer exists. Two other UCC filings reflect loans to parties for which the businesses in question served solely as collateral. Four other entities cited are not pawnshops or money service businesses or provide MSB services only as an incidental service. Five such relationships do exist with pawnshops and were made as exceptions to SouthTrust's policy. In addition to those five relationships, we have identified five other credit relationships with pawnshops or related entities, some of which were acquired through mergers with other institutions... Moreover, it is standard industry practice to allow exceptions to credit policies based on legitimate reason."
But what are those reasons? And given the specious reasoning Wachovia’s response attempts to use to explain the counter-factual statement in Exhibit 6 of the Application, one wonders what other "policies" Wachovia makes exceptions to for unstated reasons: anti-money laundering policies? Policies Wachovia has promised to adopt against mis-using tax shelters like the lease-in, lease-out sleight of hand for which it was exposed? See, e.g., "Wachovia Says It Stopped Questionable Transactions," Winston-Salem Journal, February 21, 2004; "Wachovia Backs Off Aggressive Use of Tax Shelters: Deals Cut Taxes – And Drew Criticism," News & Observer, March 5, 2004, and see below. ICP specifically requests that, in light of Wachovia's above-quoted statement about exceptions to policy, its earlier statement in Exhibit 6 of the Application that "It is Wachovia's policy not to originate sub-prime loans" be more closely scrutinized, by the FRB including at the requested hearings.
There are obvious holes in Wachovia’s above-quoted response. For example, Wachovia states that four of these "are not pawnshops or money service businesses or provide MSB services only as an incidental service." Even assuming arguendo that "Double Cash LLC of Dandridge, Tennessee" is not a money service business, it seems clear that Wachovia must be trying to exclude the two rent-to-own businesses (see ICP’s July 26 Comment, and see below) from its definition of money service business. But the Federal Reserve includes rent-to-own in its questions to banks about alternative providers of banking services, for example in its May 20, 2004, Additional Information letter to North Fork / GreenPoint, incorporated herein by reference. And characterizing a "money service" like payday lending as "incidental" is problematic, since much payday lending and check cashing (which Wachovia and SouthTrust include in their definition of MSB) is done in convenience stores, including liquor stores and the like. See, e.g., the recent "Analysis of Alternative Financial Services" study. FN1
Wachovia’s "response," which makes seemingly specific arguments about SouthTrust’s pawnshop and other fringe finance loans without actually applying any particular argument to any particular loan that ICP has identified, has caused ICP to re-examine the 15 sample Uniform Commercial Code documents it submitted into the record. Even if Wachovia’s above-quoted response were true, the statement in Exhibit 6 of the Application would remain counter-factual, and a basis for dismissal of the application and/or the requested evidentiary hearing. But Wachovia’s attempt to reduce 15 SouthTrust loans to fringe financiers to five is unavailing, when examined loan-by-loan, as ICP submitted them into the record:
"a Florida Secretary of State record dated June 15, 2004, an initial filing, evidencing a loan by SouthTrust Bank to Shoot Straight Pawn & Auction, Inc. of Apopka, Florida" –
ICP supplement: a search of Florida UCC filings finds only four filings listing "Shoot Straight Pawn." Three of these, dated October 19, 2001, June 11, 2003, and June 15, 2004, name SouthTrust Bank. The only other filing lists another smaller bank, which terminated its credit relationship with Shoot Straight Pawn & Auction Co. in 1997. Thus it appears that SouthTrust is not just A funder of Shoot Straight Pawn & Auction, but THE ONLY bank funder, or at least the only secured bank funder. But what of SouthTrust’s claimed "policy not to lend to pawn shops"? And if this was an (undisclosed) "exception" to the policy, what is the "legitimate reason" to which Wachovia’s response refers? ICP reiterates its request that the application be dismissed or denied.
"an Alabama UCC filing, dated January 8, 2004, evidencing a secured loan by SouthTrust Bank to A&B Check Cashing, Inc. of Tuscaloosa, Alabama" –
ICP supplement: a search of UCC filings finds SouthTrust as the only bank funder for this company, a self-identified check casher -- a business line SouthTrust itself says it has a policy against lending to.
"an Alabama UCC filing, dated April 16, 2004, evidencing a secured loan by SouthTrust Bank to Best Pawn & Exchange Co. of Montgomery, Alabama" –
ICP Supplement: a search of Alabama UCC filings finds only one filing listing "Best Pawn & Exchange," that being the April 16, 2004 filing, which was recorded as a "Continuation." This is presumptively an active loan, to a type of company which SouthTrust (and Wachovia) claim SouthTrust has a policy of not lending to. Again, if this was an (undisclosed) "exception" to the policy, what is the "legitimate reason" to which Wachovia’s response refers? ICP reiterates its request that the application be dismissed or denied.
"a Texas UCC filing, dated October 23, 2003, evidencing a secured loan by SouthTrust Bank to JJ's Pawn of Orange, Texas, with the relationship lasting at least through 2008"
ICP Supplement: a search of Texas UCC filings finds only one filing listing "JJ's Pawn," that being the October 23, 2003 filing, which was recorded as "active as of 10/23/03." Also listed as a debtor is James P. Hedrick of Beaumont, Texas (with the word "Business" after his name); the collateral is "all pawn shop inventory, whether any of the foregoing is owned now or acquired later… all records of any kind relating to any of the foregoing; all proceeds relating to any of the foregoing (including insurance, general intangibles and account proceeds." If this is one of the (unnamed) cases in which Wachovia claims the loan was not "for" the pawnshop, ICP contests it, noting that SouthTrust took a secured interest in all proceeds, all records: everything. ICP reiterates its request for an evidentiary hearing.
"an Alabama UCC filing, dated November 15, 2002, evidencing a secured loan by SouthTrust Bank to Quick Cash Pawn, Inc."
ICP Supplement: this filing was recorded as a "continuation," and there is no termination on record. Presumptively, this is one of the active credit relationships Wachovia evasively acknowledges.
"a South Carolina UCC filing, dated October 10, 2001, evidencing a secured loan by SouthTrust Bank to Crown Pawn, LLC of Columbia, South Carolina"
ICP supplement: a search of South Carolina UCC filings finds only two filings listing "Crown Pawn," both of which are loans by SouthTrust. Thus it appears that SouthTrust is not just A funder of Shoot Straight Pawn & Auction, but THE ONLY bank funder, or at least the only secured bank funder. But what of SouthTrust’s claimed "policy not to lend to pawn shops"? And if this was an (undisclosed) "exception" to the policy, what is the "legitimate reason" to which Wachovia’s response refers? ICP reiterates its request that the application be dismissed or denied.
"an Alabama UCC filing evidencing SouthTrust's secured loan(s) to Gun Runner and Pawn LLC of Florence, Alabama" –
ICP Supplement: a search of UCC filings finds only three filing listing "Gun Runner and Pawn," including SouthTrust’s, "Roberts Supply, Inc." and another, smaller bank (Citizens Bank of Perry). Also listed as a debtor is J. Henry Lee of Perry, Florida. SouthTrust’s collateral includes "inventory and proceeds, chattel paper and proceeds, account(s) and proceeds, equipment and proceeds, general intangibles and proceeds." If this is one of the (unnamed) cases in which Wachovia claims the loan was not "for" the pawnshop, ICP contests it, noting that SouthTrust took a secured interest in all proceeds, all chattel paper: everything. ICP reiterates its request for an evidentiary hearing.
"a Georgia UCC filing evidencing the relationship between SouthTrust Bank and A-1 Jewelry & Pawn, Inc. of Augusta, Georgia" – ICP Supplement: the "initial filing" ICP submitted has not been terminated, according to any public record ICP has found.
"a Florida UCC filing evidencing the relationship between SouthTrust Bank and Ame[r]ican Trading Post Pawn, Inc. of Crystal River, Florida" – ICP Supplement: while ICP has now identified a (12/22/03) termination, this record uses a different spelling. Wachovia’s "Confidential" Exhibit C should be released, along with the specific information Wachovia relied on in making the representations in Exhibit 6 of its application, and in its August 6, 2004, response.
"a Florida UCC filing evidencing SouthTrust Bank's relationship with American Rent to Own, Inc. of Hollywood, Florida" – ICP Supplement: see above, regarding Rent to Own and its inclusion in the applicable FRB’s definition.
"a North Carolina UCC filing, dated March 21, 2003, evidencing SouthTrust Bank's relationship with Gaston Music & Pawn, Inc. of Gastonia, North Carolina"
ICP supplement: a search of UCC filings for this name finds only this one, by SouthTrust. Thus it appears that of this pawn shop, SouthTrust is not just A funder, but THE ONLY bank funder, or at least the only secured bank funder. But what of SouthTrust’s claimed "policy not to lend to pawn shops"? And if this was an (undisclosed) "exception" to the policy, what is the "legitimate reason" to which Wachovia’s response refers? ICP reiterates its request that the application be dismissed or denied.
"a Florida UCC filing, dated May 15, 2003, evidencing SouthTrust Bank's relationship with OK Pawn and Jewelry, Inc. of Daytona Beach, Florida"
ICP supplement: a search of UCC filings for this name finds only this one, by SouthTrust. Thus it appears that of this pawn shop, SouthTrust is not just A funder, but THE ONLY bank funder, or at least the only secured bank funder. But what of SouthTrust’s claimed "policy not to lend to pawn shops"? And if this was an (undisclosed) "exception" to the policy, what is the "legitimate reason" to which Wachovia’s response refers? ICP reiterates its request that the application be dismissed or denied.
"a Virginia UCC filing evidencing SouthTrust Bank's relationship with Double Cash LLC of Dandridge, Tennessee" -- ICP supplement: a search of UCC filings for this name finds only this one, by SouthTrust.
"a Texas UCC filing evidencing SouthTrust Bank's relationship with Cash Saver Rentals, Inc. of San Antonio, Texas" – ICP Supplement: see above, regarding Rent to Own and its inclusion in the applicable FRB’s definition.
"a Mississippi UCC filing showing SouthTrust Bank's relationship with Ryder Pawn & Gun of Gautier, Mississippi"
ICP supplement: a search of UCC filings for this name finds only this one, by SouthTrust. Thus it appears that of this pawn shop, SouthTrust is not just A funder, but THE ONLY bank funder, or at least the only secured bank funder. But what of SouthTrust’s claimed "policy not to lend to pawn shops"? And if this was an (undisclosed) "exception" to the policy, what is the "legitimate reason" to which Wachovia’s response refers? ICP reiterates its request that the application be dismissed or denied.
As noted above, Wachovia states that four of these "are not pawnshops or money service businesses or provide MSB services only as an incidental service." Even assuming arguendo that "Double Cash LLC of Dandridge, Tennessee" is not a money service business, it seems clear that Wachovia must be trying to exclude the two rent-to-own businesses from its definition of money service business. But the Federal Reserve includes rent-to-own in its questions to banks about alternative providers of banking services, for example in its May 20, 2004, Additional Information letter to North Fork / GreenPoint. And how could the SouthTrust0-funded "Safe Cash Systems LLC" (UCC attached) not fall within Wachovia's (or any common-sense) definition of "money service business"? Further research has identified, and ICP requests a hearing to discuss and get to the bottom of, these other SouthTrust loans to what may well be "money service businesses: CashRetriever Systems of Birmingham, Alabama; Premier Cash of Houston, Texas; etc.
Wachovia’s Response’s attempt to characterize a "money service" like payday lending as "incidental" is problematic, since much payday lending and check cashing (which Wachovia and SouthTrust include in their definition of MSB) is done in convenience stores, including liquor stores and the like. Simple as examples, further research has identified SouthTrust loans to Highway Park Liquors, Inc. of Lake Placid, Florida; Lucky Liquors, Inc. of Beaumont, Texas (see supra, regarding JJ's Pawn); Pristine Liquors, Inc. of Lutz, Florida; and Moreland Liquor Store, Inc. of Atlanta, Georgia. See attached.
The day prior to its August 6 submission attempting to explain or clarify the counter-factual statement that "It is SouthTrust’s policy not to lend to pawn shops, pay day lenders, check cashing companies or other MSBs," the two banks issued a press release and 20-page brochure about a "community commitment." Ironically, the brochure states that "To fight unfair or predatory lending practices, we will: Provide national leadership in ending predatory lending practices by working with lenders, advocates, bank regulators and government officials to protect consumers. Continue national leadership in financial services fair lending best practices through training and speaking at prominent conferences." But the above, and continued lending by Wachovia to payday lenders, the identities of which Wachovia is seeking to withhold (ICP awaits FOIA response), is inconsistent with this claim.
As correctly noted in the Norfolk Virginian-Pilot of August 6, 2004, it wasn't even "clear whether the $75 billion of designated lending would surpass the amounts that Wachovia and SouthTrust would have lent over the next five years had they not agreed to merge... [ICP] contends that the two banks have provided loans to lenders that prey on vulnerable consumers, such as payday lenders, car-title lenders and check-cashing companies. Despite the dollar amounts involved, Wachovia’s pledge... doesn’t address those concerns from [ICP]."
Wachovia's Response admits, as it must, that its "approval rate for African American / Black applicants in the Jacksonville FL MSA is lower than the aggregate peer rate," and that the same is true for Latinos / Hispanics in the Washington DC MSA (Resp. at 3). Its admission regarding the Columbus, Georgia market is more indirect, claiming only that ICP’s "assertions fail to fully reflect Wachovia’s overall success in the Georgia market;" it tries to explain away its Philadelphia disparities by reference to "greater-than-normal outreach." Note that Wachovia Bank's denial rate for African Americans' application for conventional home purchase loans was higher in 2003 (in the just-released data) than for Wachovia in 2002. ICP reiterates its request for public hearings.
Wachovia’s Response cites to its and its predecessors’ records of branch closing, claiming that "[w]e remain committed to our customers and have a proven track record of maintaining the highest level of customer service through our retail branch system." This is highly debatable, for example in the Philadelphia market. Here are just some of Wachovia’s branch closures: [tabular material omitted in this format] See also the Connecticut Post of July 10, 2004, "Wachovia Site Closing in Shelton: 270 Jobs Cut."
There are other serious managerial issues which must be inquired into, and which militate for hearings and denial of the applications. See, e.g., "Wachovia Unit Gets Notice of Possible SEC Action," Reuters, August 3, 2004. According to Dow Jones of August 3 ("Unusual Stock Buys at Center of SEC Probe into Wachovia"), the irregularities have specifically to do with trading about Wachovia’s last major merger – militating for a full airing and resolution of the issue prior to any ruling other than a denial on this Wachovia mega-merger proposal.
SEC inquiries into Wachovia have a way of having legs: see, e.g., "SEC Says Wachovia – KPMG Probe Now Formal," American Banker, November 17, 2003. Then see, "Wachovia Backs Off Aggressive Use of Tax Shelters: Deals Cut Taxes – And Drew Criticism," News & Observer, March 5, 2004:
Wachovia, whose use of controversial tax shelters to avoid federal income tax recently attracted a national spotlight, has halted such deals. Last week the Charlotte-based bank was criticized on the PBS news show "Frontline" and on Minnesota Public Radio's "Marketplace" for not paying any federal income tax in 2002 -- despite making $3.6 million in profit. Instead of paying taxes, the bank received a $159 million refund.... Wachovia's past use of tax shelters involving leasing deals from 1993 through 1996 was challenged by the Internal Revenue Source in November 2001, according to filings by the company, which is defending the tax deductions. The IRS challenges involve deductions taken by both First Union and Wachovia, which combined in 2001 to form today's Wachovia.,., Wachovia's filings don't detail how Wachovia uses leasing deals as a tax shelter, but "Marketplace" reported one deal was a complex transaction in which the German city of Bochum leased its sewer system to the bank. Bochum netted a $20 million fee, and Wachovia got a tax shelter.
"I think this is about as ugly as you can get," said Robert McIntyre of the Institute on Taxation and Economic Policy in Washington. Transactions such as the Bochum leasing deal "are completely without economic substance" other than generating tax breaks, McIntyre said.
According to SEC documents, in 2002 Wachovia was able to defer $1.17 billion in taxes because of "leasing activities." Phillips said those leasing transactions went beyond the type criticized by "Frontline" to include leases involving aircraft, railroad cars and tractor-trailer trucks. Leasing deals were among several different types of tax breaks Wachovia reported. Others included a $338 million loss related to The Money Store, a consumer finance business it shut down.
Or did it? Given Wachovia's statement about exceptions to policy, its statement in Exhibit 6 of the Application that "It is Wachovia's policy not to originate sub-prime loans" needs to be more closely scrutinized, by the FRB and at the requested hearings. On the current record, Wachovia's applications should be dismissed or denied.
Again, Wachovia's withholding of even the names of the pawnshops, payday lenders, and other fringe financiers to which it lends is untenable; the information must be released (including for the reasons ICP has explained to the FRB), and the comment period extended. (The same is true of all of the material redacted from Wachovia's antitrust submission, see, e.g., Volume V, Part B, at pp. 53-55). Furthermore, these are only some of Wachovia's relationships with fringe financiers -- Wachovia should be asked, at a minimum, the questions the BNP has been asked (securities underwriting and other relationships, see BNP's July 20, 2004, submission to the FRB, copied to ICP, and incorporated herein by reference). [Also incorporated herein by reference and to be made part of the record, for obvious reasons, is the July 12, 2004, submission of SunTrust Banks, Inc., on these issues.] On the current record, these Wachovia - SouthTrust application must be denied and other appropriate actions taken.
More needs to be (and will be) said, but ICP will await the improperly withheld information, copies of the FRB's correspondence with and about Wachovia and SouthTrust, and the banks' responses.
For the reasons set forth above, the FRB should forthwith schedule the requested evidentiary hearings. On the current record, the FRB must deny this proposal.
Respectfully submitted,
Matthew Lee, Esq., Executive Director
To be continued; developing... For or with more information, contact us.
* * *
Update of August 2, 2004: From the editorial board of the Orlando Sentinel from their July 30 edition, "SunTrust was Right to End Business with Payday and Car Title Lenders" -- "SunTrust made its decision to cut ties with such lenders after a consumer group filed a complaint with the Federal Reserve opposing the bank's pending merger with National Financial Corp. of Memphis, Tenn. Among other complaints, Inner City Press/Fair Finance Watch said records showed SunTrust had at least 60 customers making payday or car-title loans. Announcing its decision, SunTrust cited the ‘potential reputational risks and consumer harm’ that could come from lending to such companies. How candid, and how refreshing. ICP believes SunTrust's decision could persuade other banks -- especially those seeking government approval for mergers -- to follow suit. Let's hope so." Thanks, Orlando Sentinel. The last reference in the editorial is plainly to the proposed takeover of SouthTrust by Wachovia, whose lead bank, Wachovia National Bank, funds a range of fringe financiers (as does SouthTrust, despite its denials). And what does Wachovia have to say? We're still waiting for their response; we’ll report it here. Here also is an editorial in the Memphis Commercial Appeal of July 31:
"National Commerce Financial Corp. and SunTrust Banks recently decided to stop doing business with companies that provide payday or car title loans. The move, while commendable, appears to have been done to win favor with federal regulators who will decide whether to approve a merger between NCF and SunTrust. Whatever the motives, the decision shows why high interest loans that are frequently made to lower income borrowers deserve careful scrutiny....A protest by the Inner City Press/Community on the Move and Fair Finance Watch apparently helped NCF and SunTrust see the light... Those words should be a wake-up call to local companies that want to deal in those types of loans. Unless they're willing to accept more regulation and greater accountability, maybe more major financial institutions will follow the lead of NCF and SunTrust.
And then car title lenders will know what it feels like to struggle to get a loan."
That last sentiment, we like how the Commercial Appeal's editorial board put it. (Click here for the full text of these editorial, and more). Still, what's up with Wachovia? Developing...
Update of July 26, 2004: Inner City Press / Fair Finance Watch has just filed with the Federal Reserve a 45-page challenge to the proposed merger of Wachovia and SouthTrust. Along with the lending disparities, antitrust, branch closing and, especially, payday lending, pawnshop and predatory fringe finance issues sketched below, ICP discovered last week when it received its copy of the banks' application that the banks have told that Fed that "It is SouthTrust’s policy not to lend to pawn shops, pay day lender, check cashing companies or other MSBs." As set forth below in ICP's just-filed comments, this statement is false. ICP has requesting public hearings, and the denial or dismissal of the application. This will be updated.
July 26, 2004
Board of Governors of the Federal Reserve System
Attn: Chairman Alan Greenspan, Governors, Secretary Johnson
20th Street and Constitution Avenue, N.W.
Washington, DC 20551
Dear Chairman Greenspan, Governors, Secretary Johnson, FRB:
On behalf of Inner City Press/Community on the Move and its members and affiliates, including the Fair Finance Watch (collectively, "ICP"), this is a timely comment opposing, requesting public hearings on the applications by Wachovia Corporation (along with its affiliates, including the subprime servicer HomEq, "Wachovia") to acquire SouthTrust Corporation and its affiliates ("SouthTrust").
ICP is opposed to this Wachovia - SouthTrust proposed merger, under the Community Reinvestment Act, based on systemic lending disparities, the more than 100 foreseeable branch closures, service reductions, antitrust (in Jacksonville and elsewhere), and, particularly, both Wachovia’s and SouthTrust’s enabling of high-cost payday lenders, car title lenders, pawnshops and other predatory fringe finance (see below, & attached). ICP take particularly exception to, and requests an evidentiary hearing on, the Application’s statement in Exhibit 6 that "It is SouthTrust’s policy not to lend to pawn shops, pay day lender, check cashing companies or other MSBs." As set forth below, that statement is patently false. ICP has found, and annexes hereto a number of UCC filing showing SouthTrust making just such loans. In fact, the two banks' were on notice of this evidence: (see, e.g., "Pawn Shops Set Activist Against SouthTrust Deal," Reuters of 6/21/04. ICP is requesting a hearing and that the application be dismissed.
In announcing this proposal, Wachovia stated (to justify the high premium with which it induced SouthTrust's management) that it projected closing 130 to 150 branches. The locations and effects of such closures are clearly among the issues on which the FRB must allow, accept and consider public comments in this proceeding. But Wachovia's application provides no detail in this regard. Similarly, Wachovia has redacted material information from its antitrust presentation. The proposed merger would be presumptively anti-competitive, even with the too-small divestiture Wachovia proposes in the Jacksonville market. On the current record, the application should be dismissed.
Before turning to predatory fringe finance (and the Application's blatant misstatements), here is an analysis of the mortgage lending of Wachovia Bank and Wachovia Mortgage (together, their HMDA data cumulated, hereinbelow referred to as "Wachovia") in the most recent year for which HMDA data is available: 2002.
In the Augusta, Georgia Metropolitan Statistical Area ("MSA") in 2002, for conventional home purchase loans, Wachovia Bank plus Wachovia Mortgage ("Wachovia") denied the applications of African Americans 4.64 times more frequently than whites, and denied the applications of Latinos 3.03 times more frequently than whites. These higher-than-industry-average denial rate disparities are not explained by any greater-than-normal outreach to African Americans or Latinos. In 2002 in this MSA, Wachovia made 425 conventional home purchase loans to whites, only 33 to African Americans, and only four to Latinos. For the record, the aggregate industry in this MSA in 2002 made 552 such loans to African Americans, 69 to Latinos, and 3676 to whites. For these three groups, the aggregate made 12.8% of its loans to African Americans, and 1.6% to Latinos. For Wachovia, the figures were much lower: 7.1% of loans to African Americans, and 0.9% to Latinos. Meanwhile, SouthTrust Bank for such loans in this MSA denied 12 of the 18 applications it received from African Americans. [The 2002 HMDA data of SouthTrust Mortgage is presumptively less-than-credible, with 100% approval rating indicating a violation of HMDA and ECOA, which requires notices of adverse action. See the data, and see below.]
In the Charleston, South Carolina MSA in 2002, for conventional home purchase loans, Wachovia denied the applications of African Americans a whopping 8.81 times more frequently than whites. This high denial rate disparity is not explained by any greater-than-normal outreach to African Americans, or Latinos. In 2002 in this MSA, Wachovia made 694 conventional home purchase loans to whites, only 37 to African Americans, and only six to Latinos. For the record, the aggregate industry in this MSA in 2002 made 845 such loans to African Americans, 114 to Latinos, and 7628 to whites. For these three groups, the aggregate made 9.8 % of its loans to African Americans, and 1.3% to Latinos. For Wachovia, the figures were much lower: only 5.0% of loans to African Americans, and 0.8% to Latinos. [Meanwhile, SouthTrust Bank for such loans in this MSA denied nine of the 17 applications it received from African Americans.]
In the Charlotte, NC MSA in 2002, for conventional home purchase loans, Wachovia denied the applications of Latinos 4.5 times more frequently than whites, and denied the applications of African Americans 2.25 times more frequently than whites. These high denial rate disparities are not explained by any greater-than-normal outreach to African Americans or Latinos. In 2002 in this MSA, Wachovia made 1292 conventional home purchase loans to whites, only 120 to African Americans, and only 34 to Latinos. For the record, the aggregate industry in this MSA in 2002 made 2615 such loans to African Americans, 697 to Latinos, and 20,604 to whites. For these three groups, the aggregate made 10.9% of its loans to African Americans, and 2.9% to Latinos. For Wachovia, the figures were lower across the board. [Meanwhile, SouthTrust Bank for such loans in this MSA denied 30 of the 35 applications it received from African Americans.]
In the Jacksonville, Florida MSA (where this proposed merger is presumptively anticompetitive) in 2002, for conventional home purchase loans, Wachovia denied the applications of African Americans 2.6 times more frequently than whites. This high denial rate disparity is not explained by any greater-than-normal outreach to African Americans, or Latinos. In 2002 in this MSA, Wachovia made 567 conventional home purchase loans to whites, only 24 to African Americans, and only 14 to Latinos. For the record, the aggregate industry in this MSA in 2002 made 1388 such loans to African Americans, 488 to Latinos, and 13,794 to whites. For these three groups, the aggregate made 8.9% of its loans to African Americans, and 3.1% to Latinos. For Wachovia, the figures were much lower: only 4.0% of loans to African Americans, and 2.3% to Latinos. [Meanwhile, SouthTrust Bank in this MSA made 39 such loans to whites, and none to African Americans or Latinos.]
In the Columbus, Georgia MSA in 2002, for conventional home purchase loans, Wachovia denied the applications of African Americans 2.96 times more frequently than whites (while denying 100% of applications from Latinos). These disparities are not explained by any greater-than-normal outreach to African Americans or Latinos. In 2002 in this MSA, Wachovia made 49 conventional home purchase loans to whites, only five to African Americans, and none to Latinos. For the record, the aggregate industry in this MSA in 2002 made 273 such loans to African Americans, 32 to Latinos, and 1529 to whites. For these three groups, the aggregate made 14.9% of its loans to African Americans, and 1.7% to Latinos. For Wachovia, the figures were much lower: only 9.3% of loans to African Americans, and zero percent to Latinos. [Meanwhile, SouthTrust Bank for such loans in this MSA denied 10 of the 11 applications it received from African Americans.]
In the Raleigh-Durham NC MSA in 2002, for conventional home purchase loans, Wachovia denied the applications of Latinos a whopping 5.49 times more frequently than whites. Meanwhile, following the methodology set forth above, a lower percentage of Wachovia's loans were to Latinos than was true for the aggregate. [Meanwhile, SouthTrust Bank for such loans in this MSA denied 11 of the 15 applications it received from African Americans.]
In the Norfolk, Virginia MSA in 2002, for conventional home purchase loans, Wachovia denied the applications of African Americans 3.72 times more frequently than whites. In this MSA, SouthTrust Bank denied 50% of such application is received from African Americans.
In markets in which Wachovia has made previous acquisitions or expansions-by-branching, Wachovia's record is even worse. For example in the Washington DC MSA in 2002, for conventional home purchase loans, Wachovia denied the applications of Latinos a whopping 4.9 times more frequently than whites, and denied the applications of African Americans 2.83 times more frequently than whites. These high denial rate disparities are not explained by any greater-than-normal outreach to African Americans or Latinos. In 2002 in this MSA, Wachovia made 1224 conventional home purchase loans to whites, only 177 to African Americans, and only 76 to Latinos. For the record, the aggregate industry in this MSA in 2002 made 11,902 such loans to African Americans, 6894 to Latinos, and 64,826 to whites. For these three groups, the aggregate made 14.2% of its loans to African Americans, and 8.2% to Latinos. For Wachovia, the figures were lower across the board: 12% to African Americans, and only 5.1% to Latinos.
In the Newark NJ MSA in 2002, for conventional home purchase loans, Wachovia denied the applications of Latinos 3.60 times more frequently than whites, and denied the applications of African Americans fully 4.11 times more frequently than whites.
In the Philadelphia MSA -- where Wachovia and its predecessor First Union made many promises, in acquiring CoreStates, for conventional home purchase loans in 2002 Wachovia denied the applications of Latinos 3.62 times more frequently than whites, and denied the applications of African Americans 3.33 times more frequently than whites.
As sketched above in some of the overlap markets, SouthTrust's lending record contains similar disparities. SouthTrust Mortgage's 2002 HMDA also presumptively reflects violation of the Equal Credit Opportunity Act, which requires that denied applicants receive notice of adverse action. In market after market, SouthTrust Mortgage reports a zero percent denial rate. Consider Houston, Texas (where SouthTrust Bank denied the conventional home purchase loan applications of African Americans 2.48 times more frequently than whites), or Jackson, Mississippi (where SouthTrust Bank denied the conventional home purchase loan applications of African Americans 3.46 times more frequently than whites), or Dallas, Texas (where SouthTrust Bank denied the conventional home purchase loan applications of Latinos 3.92 times more frequently than whites), or Montgomery, Alabama (where SouthTrust Bank denied the conventional home purchase loan applications of African Americans 3.46 times more frequently than whites). Montgomery is also the location, at 4448 Wetumpka Highway, of Best Pawn & Exchange Co., a pawnshop that according to a Uniform Commercial Code (UCC) filing dated April 16, 2004, SouthTrust has lend to, contrary to the Application's statement.
ICP is particularly troubled by both Wachovia’s and SouthTrust’s enabling of high-cost payday lenders, car title lenders, pawnshops and other predatory fringe finance ICP requests an evidentiary hearing on, the Application’s statement in Exhibit 6 that "It is SouthTrust’s policy not to lend to pawn shops, pay day lender, check cashing companies or other MSBs." But see attached, and below.
ICP in June 2004 publicly raised SouthTrust’s relationships with particular pawnshops and other fringe financiers (see, e.g., "Pawn Shops Set Activist Against SouthTrust Deal," by Chris Sanders, Reuters, June 21, 2004. See also, The Economist’s CFO.com of June 23, 2004. The Reuters article quoted Wachovia spokeswoman Mary Eshet that "[w]e will be glad to look at the concerns of Inner City Press." The article reported on ICP's release of documentation of Wachovia's and SouthTrust's funding of fringe financiers, including, as to SouthTrust, "Gun Runner and Pawn in Alabama." ICP's release, and its Web site, named further fringe financiers enabled by Wachovia [For example, "CASH ADVANCE, INC.; PAYDAY ADVANCE, (Georgia); SUPERIOR PAWN OF NORFOLK, INC. (Virginia); FAST CASH PAWN, (North Carolina); COLUMBIA CHECK CASHERS INC. (South Carolina) and PALM BEACH PAWN, INC. (Florida)"] and specifically by SouthTrust:
"A-1 JEWELRY & PAWN, INC. (Georgia); AMERICAN TRADING POST PAWN INC. (Florida); BEST PAWN & EXCHANGE CO INC (Alabama); CROWN PAWN, LLC (South Carolina); GASTON MUSIC & PAWN INC. (North Carolina); CHECK CASHING INC. (Alabama); JJ'S PAWN (Texas); OK PAWN AND JEWELRY, INC. (Florida); QUICK CASH PAWN, INC. (Alabama); SHOOT STRAIGHT PAWN AND AUCTION CO., INC. (Florida); RYDER PAWN & GUN (Mississippi)"
Given this context, Wachovia's June 21 quote and the public records already raised by ICP, it is extremely troubling that the two banks' application, apparently filed on July 12, 2004, states that "It is SouthTrust’s policy not to lend to pawn shops, pay day lender, check cashing companies or other MSBs." The statement is not true, and militates for immediate public hearings, for the dismissal or denial of the application, and other appropriate action.
For the record, annexed hereto are additional UCC filings showing these sample secured loans by SouthTrust:
a Florida Secretary of State record dated June 15, 2004, an initial filing, evidencing a loan by SouthTrust Bank to Shoot Straight Pawn & Auction, Inc. of Apopka, Florida -- this is less than forty days ago, entirely contrary to the above-quoted statement in Exhibit 6 of the Application;
an Alabama UCC filing, dated January 8, 2004, evidencing a secured loan by SouthTrust Bank to A&B Check Cashing, Inc. of Tuscaloosa, Alabama;
an Alabama UCC filing, dated April 16, 2004, evidencing a secured loan by SouthTrust Bank to Best Pawn & Exchange Co. of Montgomery, Alabama;
a Texas UCC filing, dated October 23, 2003, evidencing a secured loan by SouthTrust Bank to JJ's Pawn of Orange, Texas, with the relationship lasting at least through 2008 (again, entirely contrary to the above-quoted statement in Exhibit 6 of the Application);
an Alabama UCC filing, dated November 15, 2002, evidencing a secured loan by SouthTrust Bank to Quick Cash Pawn, Inc.;
a South Carolina UCC filing, dated October 10, 2001, evidencing a secured loan by SouthTrust Bank to Crown Pawn, LLC of Columbia, South Carolina;
an Alabama UCC filing evidencing SouthTrust's secured loan(s) to Gun Runner and Pawn LLC of Florence, Alabama (the relationship specifically named in the Reuters article of June 21, 2004 -- Wachovia and SouthTrust can and should be charged with knowledge of that article, making the statement in Exhibit 6 intentional and all the more troubling);
a Georgia UCC filing evidencing the relationship between SouthTrust Bank and A-1 Jewelry & Pawn, Inc. of Augusta, Georgia;
a Florida UCC filing evidencing the relationship between SouthTrust Bank and Ame[r]ican Trading Post Pawn, Inc. of Crystal River, Florida;
a Florida UCC filing evidencing SouthTrust Bank's relationship with American Rent to Own, Inc. of Hollywood, Florida;
a North Carolina UCC filing, dated March 21, 2003, evidencing SouthTrust Bank's relationship with Gaston Music & Pawn, Inc. of Gastonia, North Carolina;
a Florida UCC filing, dated May 15, 2003, evidencing SouthTrust Bank's relationship with OK Pawn and Jewelry, Inc. of Daytona Beach, Florida;
a Virginia UCC filing evidencing SouthTrust Bank's relationship with Double Cash LLC of Dandridge, Tennessee;
a Texas UCC filing evidencing SouthTrust Bank's relationship with Cash Saver Rentals, Inc. of San Antonio, Texas; and
a Mississippi UCC filing showing SouthTrust Bank's relationship with Ryder Pawn & Gun of Gautier, Mississippi.
Appropriate action must be taken the clear contradiction between this evidence, now of record, and that statement in Exhibit 6 of the Application that "It is SouthTrust’s policy not to lend to pawn shops, pay day lender, check cashing companies or other MSBs" -- including public hearings, and the dismissal or denial of the application.
Wachovia tries to withhold even the names of the fringe financiers to which it lends. This is contrary to FOIA; some of the improperly concealed relationships with fringe financiers are already publicly available, for example in the attached sample filings:
a Georgia UCC filings evidencing Wachovia Bank, N.A.'s relationship with Payday Advance of Riverdale, Georgia;
a North Carolina UCC filing evidencing Wachovia Bank's relationship with Fast Cash Pawn of Greensboro, NC;
a Virginia UCC filing evidencing Wachovia Bank, N.A.'s relationship with Superior Pawn Company of Virginia Beach, VA;
a Virginia UCC filing evidencing Wachovia Bank, N.A.'s relationship with Superior Pawn Company of Norfolk, Inc.;
a Florida UCC filing evidencing Wachovia Bank's relationship with Palm Beach Pawn, Inc. of Florida;
a South Carolina UCC filing evidencing Wachovia Bank NA's relationship with Columbia Check Cashers, Inc.;
a Virginia UCC filing evidencing Wachovia Bank, N.A.'s relationship with Cash Connection, Inc. of Springfield, VA;
a Florida UCC filing evidencing Wachovia Bank N.A.'s relationship with Rent to Own of Sarasota, Inc;
a Florida UCC filing evidencing Wachovia Bank N.A.'s relationship with Rent to Own, Inc. of Tampa, FL;
a Florida UCC filing evidencing Wachovia Bank N.A.'s relationship with Rent to Own Leasing Co, Inc. of St. Petersburg, FL; and
a Georgia UCC filing evidencing Wachovia Bank, N.A.'s relationship with Cash Advance, Inc. of Riverdale, GA.
Wachovia's withholding of even the names of the pawnshops, payday lenders, and other fringe financiers to which it lends is untenable; the information must be released and the comment period extended. (The same is true of the material redacted from Wachovia's antitrust submission, see, e.g., Volume V, Part B, at pp. 53-55). Furthermore, these are only some of Wachovia's relationships with fringe financiers -- Wachovia should be asked, at a minimum, the questions the BNP has been asked (securities underwriting and other relationships, see BNP's July 20, 2004, submission to the FRB, copied to ICP, and incorporated herein by reference). [Also incorporated herein by reference and to be made part of the record, for obvious reasons, is the July 12, 2004, submission of SunTrust Banks, Inc., on these issues.] On the current record, these Wachovia - SouthTrust application must be denied and other appropriate actions taken.
More needs to be (and will be) said, but ICP will await the improperly withheld information, copies of the FRB's correspondence with and about Wachovia and SouthTrust, and the banks' responses.
For the reasons set forth above, the FRB should forthwith schedule the requested evidentiary hearings. On the current record, the FRB must deny this proposal.
Respectfully submitted,
Matthew Lee, Esq., Executive Director
To be continued; developing... For or with more information, contact us.
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Update of June 21, 2004: Earlier today, Wachovia announced a proposal to buy SouthTrust, for $14.3 billion. Wachovia's applications for regulatory approval will be opposed: ICP / Fair Finance Watch will challenge the deal under the Community Reinvestment Act, based on lending disparities and the two banks' support of predatory fringe financial institutions, including payday lenders and pawn shops. See, e.g., "Wachovia to buy SouthTrust for $14.3 billion," by Rick Rothacker, Charlotte Observer, June 22, 2004; "Wachovia Unveils Texas-Size Deal to Buy SouthTrust," by Paul Nowell, Associated Press, June 21, 2004, (here via ABC); "Pawn Shops Set Activist Against SouthTrust Deal,"Reuters, June 21, 2004.
Mortgage lending (HMDA) data reported for 2002 show that Wachovia Bank and its mortgage company disproportionately exclude and deny Latinos and African Americans. For example, in 2002 in Atlanta Metropolitan Statistical Area ("MSA"), for conventional home purchase loans, Wachovia Bank plus Wachovia Mortgage (hereinbelow, "Wachovia") denied the applications of African Americans for conventional home purchase loans 2.30 times more frequently than whites, and denied the applications of Latinos 2.06 times more frequently than whites. In the Baltimore MSA, Wachovia denied African Americans' applications 2.44 times more frequently than whites. In the Charlotte, NC MSA, Wachovia denied the applications of African Americans for conventional home purchase loans 2.25 times more frequently than whites, and denied the applications of Latinos a whopping 4.5 times more frequently than whites. More analysis will follow.
Most troubling to ICP is the two banks' support and enabling of predatory fringe finance. A search of Uniform Commercial Code filings reveals that Wachovia funds and enables:
CASH ADVANCE, INC.; PAYDAY ADVANCE, (Georgia); SUPERIOR PAWN OF NORFOLK, INC. (Virginia); FAST CASH PAWN, (North Carolina); COLUMBIA CHECK CASHERS INC. (South Carolina) and PALM BEACH PAWN, INC. (Florida)
SouthTrust funds and enables:
GUN RUNNER AND PAWN, L.LC. (Alabama); A-1 JEWELRY & PAWN, INC. (Georgia); AMERICAN TRADING POST PAWN INC. (Florida); BEST PAWN & EXCHANGE CO INC (Alabama); CROWN PAWN, LLC (South Carolina); GASTON MUSIC & PAWN INC. (North Carolina); CHECK CASHING INC. (Alabama); JJ'S PAWN (Texas); OK PAWN AND JEWELRY, INC. (Florida); QUICK CASH PAWN, INC. (Alabama); SHOOT STRAIGHT PAWN AND AUCTION CO., INC. (Florida); RYDER PAWN & GUN (Mississippi)
These are serious matters, ones into which ICP will further inquire in regulatory proceedings on Wachovia's SouthTrust proposal. Reuters of June 21 quotes Wachovia spokeswoman Mary Esher that "'[w]e will be glad to look at the concerns of Inner City Press.'" We'll see... For or with more information, contact us.
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On May 13-14, 2001, Inner City Press / Community on the Move (ICP) filed with the Federal Reserve a 20-page comment opposing First Union's application to acquire Wachovia. On May 21, ICP filed a comment on SunTrust's hostile bid for Wachovia, announced May 14. On May 24, 2001, First Union and Wachovia announced a (vague) $35 billion "Community Commitment;" the banks' press release did not specify a time period for this lending, and did not address the 250 to 300 branches that they would close, much less the criteria they would use for closures in low- and moderate income communities. On May 25, First Union filed a response; on May 28, ICP filed a reply. On June 18, ICP filed comments on both SunTrust's and First Union's applications. ICP's filings, and weekly updates, are below. See also, "Reject Delay, Fed Urged," by Jane Seccombe, Winston-Salem (N.C.) Journal, July 7, 2001; "Critics of Merger Try to Be Heard: Some Advocates For Poor Say First Union, Wachovia, SunTrust Need to Improve Lending Records," by Christian Millman, The Morning Call (Allentown, Pa.), June 21, 2001, Pg. B11; "Groups Oppose Wachovia Bank Deal," by Paul Nowell, Associated Press, June 20, 2001; "Fed Hearings Urged On Wachovia Deal," by Rob Blackwell, American Banker On-Line, June 19, 2001; "Farm Group Questions Banks' Plans," Richmond (Va.) Times-Dispatch, June 12, 2001; "The Battle for Wachovia: SunTrust Win Could Affect More State Branches," Richmond Times-Dispatch, June 9, 2001; "Bank Pledges More in Loans to Poor Areas," Roanoke Times & World News, May 26, 2001; "First Union, Wachovia Vow $35 Billion of Loans," American Banker, May 25, 2001; "First Union Vows Millions In Low-Income Lending," by Tom Shean, The Virginian-Pilot, May 25, 2001; "Banks Parade Benefits of Deal," by Jane Seccombe, Winston-Salem Journal, May 25, 2001; and see "Group Pans 1st Union-Wachovia Deal," American Banker, May 16, 2001, Pg. 5.
Beyond documenting Wachovia's, First Union's and SunTrust's under-service of African-American and Latino borrowers with normal interest rate loans, First Union's under-performance since it acquired CoreStates in 1998, and the branch closings and lay-offs that are the rationale for both Wachovia take-over proposals, ICP's comments focus on an issue that may require the Fed to hold public hearings, and deny the proposals: antitrust. For or with more information, contact us. In this space, we will be running short weekly (or more frequent) updates.
Update of May 5, 2003: This week we analyze the staff-driven lobbying of the fifth largest bank in the United States, Wachovia. The successor to First Union, it remains involved in subprime and predatory lending through its "servicer," HomEq. In February it announced a plan to acquire the brokerage business of much-sued Prudential Financial; in March it disclosed that securities regulators are investigating stock purchases it made surrounding its merger with First Union. And now this: on April 29, 2003, Wachovia sent the following e-mail to all employees (several of whom forwarded it on to Inner City Press' Wachovia Watch):
"Office of Public Policy" <OfficeofPublic.Policy@wachovia.com> on 04/29/2003 11:50:54 AM
Subject: Call to Action: Class Action Reform Legislation
DATE: April 29, 2003
TO: All Employees
FROM: Office of Public Policy
RE: Call to Action: Class Action Reform Legislation
** This memo is being e-mailed to all employees. **
In the past 10 years, there has been a dramatic increase in the filing of class action lawsuits. Abuse of the class action process has encouraged the filing of frivolous suits that are costly to both businesses and consumers. A class action reform bill is expected to be considered by the Senate in the next few weeks.
Reform would include provisions to ensure fair distribution of damage awards to all plaintiffs and to prohibit settlements in which class members lose money to pay costly attorney fees. In addition to providing these and other important consumer protections, class action reform would reduce the expense that Wachovia and many of its corporate customers incur as a result of frivolous class action lawsuits.
Wachovia Office of Public Policy supports critical reforms to restore balance and efficiency to the class action process. It is important that members of Congress hear from their constituents that meaningful class action reform legislation should include comprehensive protections to safeguard class members from abuse.
To read more on this issue and to send a letter to your Senator:
1. Visit the Public Policy site on Exchange...2. In the left margin of the Public Policy homepage select SpeakOut Wachovia! 3. Click on Call to Action Login and log on using your Employee ID number and your CIPRS password (same as your HROnline password). 4. Scroll down to the section Take Immediate Action on These Hot Issues and click on Class Action Reform to voice your opinion. If you are not able to access the site through the direct link above, click on Business Units on the Exchange homepage, choose Corporate and Community Affairs and then Office of Public Policy and continue with the steps as outlined above. Thanks for your support.
Apparently it's not enough for the corporation and its executives to try to dominate legislative processes with campaign contributions: employees must be enlisted to lobby, and their "cooperation" tracked electronically. For shame... For or with more information, contact us.
Update of February 24, 2003: Deal news of the week was wacky Wachovia, going into a joint venture of a kind with Prudential Securities. Under the agreement announced Feb. 19, Wachovia and Prudential would combine their retail securities brokerage and clearing operations. Wachovia would have a 62 percent ownership interest in the new firm, and Prudential would own the remaining 38 percent. "The merger is expected to close in the third quarter, the companies said." There just might be some antitrust issues there, no?
Update of September 16, 2002: on September 9, Wachovia announced a proposal to acquire E-Risk Services, a New Jersey agency that specializes in providing management liability insurance to privately held organizations. Reuters: " The acquisition will allow Wachovia to market specialty insurance products to the private business sector, including directors and officers, employment practices, fiduciary, crime, miscellaneous errors and omissions, and cyber errors and omissions liability coverage, Wachovia said." Yep: let's insure businesses against their own crimes. Post-Enron, that appears to be a booming business...
Update of August 5, 2002: on August 2, Wachovia announced an agreement to buy Cameron M. Harris & Co., the largest privately held insurance broker in North Carolina; the deal's terms were not disclosed.
Update of February 18, 2002: Report from inside Wachovia. As the company continues with the lay-offs that were the rationale of the First Union - Wachovia merger, Wachovia has included in the pay envelopes of employees, including departing employees, a solicitation to refer "your friends for employment through the RAVE! program" in exchange for $1,000. That is to say, we may be laying you off, but why not refer your friend to work here? Then again, why?
Another message on Wachovia's "Green.com" intranet asks all Wachovia Tier One, Two and Three leaders to "join me in welcoming" John Silva as Wachovia's new chief economist, replacing David Orr, who retired on February 15. The e-mail, from Steve Kohlhagen, head of Fixed Income, brags that Mr. Silva served on the advisory committees of the Federal Reserve Banks of Chicago and Cleveland, and more recently as chief economist of the Senate Banking Committee. Welcome, John! Click here for a recent ICP travelogue re Charlotte, N.C....
Update of February 4, 2002: Wachovia and woods: on January 28, Wachovia Timberland Investment Management Group, a unit of Wachovia, announced it paid Bowater Inc. $124.5 million for 147,000 acres of timberlands in the Southeastern United States. Wachovia Timberland said it completed the deal "of behalf of an affiliate and certain other investment clients."
Update of January 22, 2002: Wachovia has announced that it plans to close 200 branches, including 34 in low- and moderate-income census tracts. A question to ask: how many more branches are adjacent to LMI tracts, and serve the residents of such communities?
Update of December 31,2001: The end of 2001 seems like a propitious time to check in of the Wachovia-First Union "integration." In the Fort Lauderdale Sun-Sentinel of December 28, Wachovia's Harry Weede is quoted that "[c]hange and adjustments are not always easy. But in what we're trying to do, and at the pace we're trying to do it, we're trying to be very sensitive to that.... If our employees are well-informed and feel comfortable with this then we're are going to touch the customers very well. If we serve our customers well then we're going to do this beautifully." On the flip side, we have this account, from within the company:
Subj: compliments! very honest
Date: 12/22/01 10:05:26 AM Eastern Standard Time
From: [Name withheld]
To: WachoviaWatch [at] innercitypress.orgI appreciate the Inner City Press very much. It is so good to remember that someone does know the truth, even though greedy people try to cloak it. With great foresight you raised the issue of Royal Bank of Scotland's possible financing links with the terrorist attacks. Even good people put their heads in the sand, though. They go with what they are told by the ruling wealth organizations.
I wrote to you about Wachovia and First Union's merger, and how I felt about it. I am an employee there at this time. This merger is going to be a big mess. At this time, First Union is making the decisions. No longer is Wachovia having a say. The bad thing about this is that First Union will be doing what it has always done in the past with mergers. Even with a bank as great as Wachovia can't stay great when run by First Union. The press was told that the merger would create a bigger, better and more powerful institution, utilizing the best of both organizations.
The best of First Union is not even equal to the worst that Wachovia has to offer. I was amazed of the disparities of the two. I am finding out that Wachovia's technology is vastly superior to First Union's. But guess whose will win out? My department of 10 people and some very good software will eventually be replaced by about 4 different departments of about 100 people and "dumb terminals" and cut and paste operations. I couldn't believe it! Wachovia was an intelligent operation, focusing on customer service. I thought we could do even better in that, and with new technology we were heading that way. Wachovia made very smart decisions in updating its technology. It has some very intelligent and creative systems analyst and programmers who created some of the programs that are rolled out globally. Wachovia was a bank I was proud of.
Now, it has been told to some employees that "The New Wachovia will not go anywhere near providing the emphasis on customer service that it has in the past". How would youlike to work somewhere that was downgrading its quality?
First Union is trying to figure out right now how to get rid of most of Wachovia's Corporate office and replace it with way inferior "non-systems" and "non-sense". I feel that First Union bought Wachovia's deposits only, and will anger many customers who chose Wachovia because of customer service mainly. First Union had a "D" in that area. In fact they didn't have good grades in any area. Including the way they treat their employees. For the first time in 20 years, I will have to punch a "computer time clock" every day. This is ridiculous. First Union seems to focus their technology in the wrong areas, instead of creating pride in the organization, they seek to demoralize the employees. Penny for penny. It causes a re-bounding effect, however, of the employees doing the same thing, trying to make sure that they get every little thing they can from the organization. Thanks for listening, thanks for reporting the truth! Please keep my name anonymous, because I want to receive my severance package, and pension.
Which account do you believe? The Wachovia Watch will continue. Keep those cards and letters coming.
U