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Fed Gives Nod to Citigroup's West Coast Thrift Acquisition
Golden State approval includes scrutiny of subprime operations
October 31, 2002
By CHRISTY ROBINSON
|The Federal Reserve Board approved on Monday a request by Citigroup, Inc. to acquire Golden State Bancorp, Inc. and its savings subsidiary, California Federal Bank, both of San Francisco. But it's also keeping an eye on the lending practices of Citigroup's mortgage subsidiaries, in light of a recent record settlement and allegations of predatory practices.
The acquisition was reported to be worth $5.8 billion in May when Citigroup first announced the intended purchase. The Office of Thrift Supervision (OTS) must approve the merger next.
After reviewing Citigroup's proposal, the board concluded that the merger "can reasonably be expected to produce benefits to the public ... that outweigh possible adverse effects, such as undue concentration of resources, decreased or unfair competition, conflicts of interest, or unsound banking practices," according to the Federal Reserve System announcement.
Upon completion of the acquisition, Citigroup would remain the largest commercial banking organization in the United States, with total consolidated assets at about $1.1 trillion, representing 3.2% of total U.S. deposits. The company also would also have a stronger West Coast presence, becoming the third largest commercial banking organization in both California and Nevada, the announcement said.
Citigroup has said the acquisition will make its conforming mortgage business the seventh largest loan originator, up from the 10th spot. It will also make the company the nation's sixth largest servicer of these loans, up from No. nine.
The OTS held a formal meeting July 8 to hear comments from the public regarding the merger. Representatives of 15 organizations testified and submitted comments, and more than 80 organizations and individuals such as members of Congress and union representatives submitted comments on the proposal. While some commented favorably, most opposed the proposal, the announcement said. Many of the critical remarked on Citigroup's spotted subprime lending practices, particularly by its subsidiary CitiFinancial Credit Company, Inc.
Citigroup recently reached a record settlement of $215 million with the Federal Trade Commission for alleged predatory subprime lending by CitiFinancial.
In response, the Federal Reserve Board and the Federal Reserve Bank of New York are examining the effectiveness of initiatives proposed by Citigroup to ensure its compliance with fair lending laws and to prevent predatory lending by CitiFinancial and CitiFinancial Mortgage, the announcement said. The board also stated it would "require Citigroup to take any other steps necessary to address deficiencies that might be identified in the examination."
In addition, the National Association of Securities Dealers (NASD) has been investigating research practices at the company's Salomon Smith Barney brokerage unit, including the stock-choosing of its former telecommunications-stock analyst Jack Grubman, The Wall Street Journal reported. In September, Citigroup paid $5 million to settle NASD's charges that Grubman issued unrealistically optimistic research about Winstar Communications Inc., the publication reported. Grubman is fighting the charges and said he has done nothing wrong, and Citigroup has neither admitted nor denied the allegations.
The company reported $3.92 billion in GAAP net income for the third quarter, a 23% increase from the same time last year. Golden State reported $128 million in net earnings for the third quarter, compared with $103.3 million during the same time last year. Golden State reported a 12% decrease in third quarter mortgage production from the same period last year to $7.2 billion, an amount likely to be included in the future production numbers for Citigroup -- which doesn't report quarterly mortgage production. Golden State reported that its servicing portfolio at the end of the quarter was about 1 million accounts for $110.5 billion.
Christy Robinson is the editor of MortgageDaily.com. She received a bachelor's degree in news-editorial journalism from The University of Texas at Arlington. Her work has previously been published in The Dallas Morning News.