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Citigroup Takeover Raises Ire

Banking: Advocacy groups will challenge the N.Y. firm's acquisition of Golden State Bancorp.

June 04, 2002|E. SCOTT RECKARD | TIMES STAFF WRITER

Community groups said Monday that they will challenge Citigroup Inc.'s $5.8-billion takeover of Golden State Bancorp Inc., parent of savings and loan California Federal Bank, on grounds the New York financial giant does too little to help lower-income customers.

The California Reinvestment Committee and the Inner City Press group in New York each filed protests of the acquisition with the Federal Reserve Board, the nation's chief bank regulator, and the Office of Thrift Supervision, which regulates S&Ls.

Kevin Stein, associate director of the San Francisco-based California Reinvestment Committee, which represents about 200 groups, said the groups regard Citigroup as having the worst community-lending record among major U.S. banking companies. Inner City Press complained to the Fed of "pervasive anti-consumer practices ... including interest rates over 20%" and deceptive and excessive add-on fees at Citigroup's consumer lending subsidiary, CitiFinancial.

Much of the criticism stems from Citigroup's $30-billion purchase of Associates First Capital Corp., the nation's largest sub-prime lender. The Federal Trade Commission is seeking hundreds of millions of dollars on behalf of consumers with poor or limited credit histories who allegedly were victimized by Associates.

Citigroup contends it has addressed the problems at Associates, now part of CitiFinancial, in the two years since the acquisition. It is phasing out a costly add-on to mortgages known as single-premium credit insurance and has cut ties with thousands of loan brokers it said didn't meet its standards.

A Citigroup statement said the bank "has an excellent record of lending to all communities," with "the highest standards of integrity." Spokeswoman Christina Pretto said Citigroup "will work with community groups to address any concerns they may have" as the acquisition of San Francisco-based Golden State proceeds.

Federal law requires banks to serve lower-income customers in areas where they do business. Because bank mergers require regulatory approval, takeovers present advocacy groups with opportunities to wring pledges of better services from the financial firms.

If the Federal Reserve requires hearings on the merger, it could add months to completion of the Golden State deal, which was announced May 21 and is an important one for Citigroup.

Citigroup, the nation's largest financial services company, has only about 80 retail banking offices in California. The acquisition would give it an additional 352 branches, mostly in California.

In addition to concerns over allegedly predatory lending practices at CitiFinancial, advocacy groups contend Citigroup's Citibank subsidiary has focused its efforts in California too heavily on upper-income customers.

They also express concerns that Citigroup's purchase last year of Grupo Financiero Banamex, Mexico's second-largest bank, would provide new opportunities for predatory lending. Citigroup has denied any intention to take advantage of Banamex customers.

Despite protests, the Federal Reserve approved the Associates and Banamex deals.

Spokespersons for the Fed and for the Office of Thrift Supervision, which also must approve the Golden State takeover, declined to comment.

In the FTC lawsuit, Citigroup is resisting government discovery motions requiring it to turn over documents that are more than 3 years old and those relating to Citigroup's own loan practices. Citigroup contends those documents are not relevant to the case, said Joel Winston, a top financial-practices supervisor at the FTC.

Citigroup "has taken a number of positive steps" since acquiring Associates, Winston said. "But we need not only to address what they do in the future, but the injury caused by Associates' past behavior."

Citigroup shares fell 40 cents to $42.78 on the New York Stock Exchange. Golden State fell 21 cents to $38, also on the NYSE.

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Bloomberg News and Reuters were used in compiling this report.

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