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Fed Approves Citigroup Purchase of Golden State Bancorp

The agency will continue to review banking giant's sub-prime units. CalFed branches will be converted.

October 29, 2002|E. Scott Reckard | Times Staff Writer

The Federal Reserve voted unanimously Monday to approve Citigroup Inc.'s takeover of California Federal Bank parent Golden State Bancorp, but said it would continue to review the banking giant's much-criticized sub-prime lending operations.

The deal will convert about 350 CalFed offices across California and Nevada to Citibank branches, creating the third-largest commercial banking company in both states, with 5.8% of California's deposits and 11.4% of Nevada's.

New York-based Citigroup, the largest U.S. bank, with $1.1 trillion in assets, will gain 1.5 million customers and a major retail presence in the region with San Francisco-based Golden State.

The Fed announced its decision at 6 p.m. in the East, and Citigroup executives couldn't be reached for comment. But it was welcome news for Citigroup, which is battling allegations that it helped Enron Corp. conceal massive debts and that analysts at its Salomon Smith Barney brokerage issued misleading reports in recent years to lure investment banking business.

Those controversies, corporate governance concerns and complaints about lending practices weren't enough to derail the acquisition, which the Fed said would benefit consumers by making more products available.

However, the Fed said it hasn't completed a review of lending at CitiFinancial Credit Co. and other Citigroup sub-prime units that lend to people with blemished credit records.

It said Citigroup was making substantial progress in cleaning up lending practices at the sub-prime units, but it required the bank to provide quarterly reports on Associates First Capital Corp., a huge sub-prime lender that Citigroup acquired in 2000.

Citigroup last month agreed to pay a record $215 million to settle Federal Trade Commission charges of lending abuses at Associates First, including charges that the company manipulated people into buying credit insurance.

Consumer groups that have complained about Citigroup's lending criticized the Fed's decision. Alan Fisher, head of the California Reinvestment Coalition, said, "Predatory lending and monthly corporate scandals show Citigroup is not a responsible corporate citizen."

Bob Gnaizda, policy director for the Greenlining Coalition, cited federal home-loan data showing that 2.4% of the conventional mortgages that Citigroup originated last year in Los Angeles County were to Latinos, compared with more than 35% at Bank of America and more than 15% at Wells Fargo & Co.

On the New York Stock Exchange before the Fed's announcement, Citigroup closed up 60 cents at $36.30, making its stock-and-cash deal for Golden West worth about $4.8 billion. Golden West shares rose 24 cents to $36.24 on the NYSE.

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