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In Three-Way Bank Deal, 10% Deposit Cap and Barclays' Subprime Loom As Issues

NEW YORK, April 23 -- The proposed three way cross-border deal between Barclays, ANB Amro and Bank of America would raise questions under the ten percent deposit cap applicable in the United States, documents and SNL banking data reviewed by Inner City Press show. Additional questions are raised by Barclays recently expanded involvement in subprime lending in the U.S., where it has bought from Wachovia the mortgage servicer HomEq, previously known as The Money Store, and from Regions, the subprime originator EquiFirst. Opposition to Barclays' applications for regulatory approvals can be expected, and not only in the U.S..

    Bank of America is already at the ten percent limit on ownership of U.S. deposits which is contained in the country's interstate banking legislation. The Federal Reserve Board's order have noted -- and manipulated, critics say -- the proximity to this limit as Bank of America has acquired Fleet Finance, MBNA and U.S. Trust. In the last two instances, of a credit card bank and a "private" bank, respectively, Bank of America has argued that retail deposits were not implicated. But LaSalle is a major retail bank. The spirit as well as letter of the ten percent deposit cap would be implicated, and could complicate the proposed deal.

   In the United States, parts of the deal would presumptively be subject to the Community Reinvestment Act, and would require regulatory approvals after public comment periods. Consumers and civil rights groups can be expected to file challenges. As part of a study of major banks' 2006 mortgage lending released earlier this month, the watchdog group Fair Finance Watch noted that Barclays' subprime lender EquiFirst had refused to provide its data in useful form, and the Bank of America had not provided its data at all.

Proposed three day deal: burning money?. And see,

4/4/07-- "Banks Prone to Sell Minorities Pricy Loans," Reuters / Washington Post

   Globally, there are environmental issues and protests, on April 23 as it happened, of ANB Amro's involvement, along with ANZ Bank of Australia and others, with a controversial mining project in the Philippines, with picket lines also in front of the ABN Amro Institutional Banking office at 2 Queens Road, Central Hong Kong and at the ABN Amro headquarters, Gustav Mahlerlaan 10 1082, Amsterdam, The Netherlands.

   Observers note that ANB Amro sold its New York bank, EAB, to Citigroup, then later sold its mortgage company to Citigroup as well. Now with the proposed sale of LaSalle to BofA at the same time it is proposes to sell itself to Barclays, it looks to have been a strategy of total debanking, with the effect of avoiding an application in the U.S. subject to the Community Reinvestment Act, as the Financial Times noted in connection for example with HSBC's 2002 deal for the subprime lender Household International. Another motive is to entice ABN Amro shareholders with some cash, and not just Barclays shares.
Either way, beyond the competing bidders waiting in the wings, there are and should be other obstacles, on the consumer and community front...

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Subprime Disparities Grew Worse in 2006 at Citigroup, HSBC and Other Large Banks, -FFW

   New York, April 4 -- In the first study of the just-released 2006 mortgage lending data, the watchdog and technical assistance organization Fair Finance Watch has identified worsening disparities by race and ethnicity in the higher-cost lending of some of the nation's largest banks. Coupled with the chaos roiling the subprime industry, the trend raises concerns for regulators: 2006 is the third year in which the data distinguishes which loans are higher cost, over the federally-defined rate spread of three percent over the yield on Treasury securities of comparable duration on first lien loans, five percent on subordinate liens.

            Citigroup in 2006, in its headquarters Metropolitan Statistical Area of New York City, confined African Americans to higher-cost loans above this rate spread 4.41 times more frequently than whites, according to Fair Finance Watch. Citi's disparity to Latinos was 2.38. Meanwhile Citigroup has propped up and taken an option to buy Argent Mortgage, 91.65% of whose loans in 2006 were subprime. At HSBC, over 63% of 2006 mortgages were subprime, including 6295 super high-cost loans subject to the Home Ownership and Equity Protection Act (HOEPA) -- that is, at least eight percent over comparable Treasury securities -- more than HSBC made in 2005.

           "Alongside the chaos in the subprime industry, predatory lending has grown and not diminished at Citigroup, HSBC and other companies," the study by Fair Finance Watch opines. "The disparities in this new data call out more than ever for immediate action by the public and private sectors, from governmental enforcement agencies and private attorneys general to grassroots consumers and community groups. Despite corporate claims of best practices, predatory lending is getting worse, and is now being exported overseas."

Subprime disparities: diplomatically, discomfort. And see,

4/4/07-- "Banks Prone to Sell Minorities Pricy Loans," Reuters / Washington Post

            Redlining and continued disproportional denials to people of color are also sketched by FFW's report on the new 2006 data. Nationwide for home purchase loans, Citigroup denied the applications of African Americans 2.10 times more frequently than those of whites, and denied the applications of Latinos 1.84 times more frequently than whites. Wells Fargo, 19.23% of whose 2006 mortgage were subprime, denied the applications of African Americans 1.72 times more frequently than whites, while denying those of Latinos 1.57 times more frequently than whites. Wells Fargo in 2006 made 889 super high-cost HOEPA loans.

         JP Morgan Chase, 19.28% of whose 2006 mortgages were subprime, was particularly disparate in the New Orleans MSA, where Chase confined African Americans to higher-cost loans 2.74 times more frequently than whites.   

  Nationwide and Citigroup in 2006, 59.24% of African American borrowers were confined to higher cost loans over the rate spread, versus only 31.62% of whites. At HSBC, half of white borrowers were confined to rate spread loans, versus 68.97% of African Americans and 63.27% of Latinos.

        HSBC, which bought Household International in 2002 just after its predatory lending settlement with state attorneys general for $484 million, in 2005 made some five thousand super high-cost loans subject to HOEPA. This rose to 6295 HOEPA loans by HSBC in 2006, even as HSBC gave earnings warnings.

           The Fair Finance Watch report has found that nationwide at Royal Bank of Scotland's Charter One Bank unit, African Americans were confined to higher cost loans over the rate spread 1.49 times more frequently than whites. And at Countrywide and its higher-cost Full Spectrum, upper income African Americans were confined to higher cost loans over the rate spread 1.92 times more frequently than whites. In 2006, 24.70% of Countrywide's total mortgages were subprime. Combining General Electric's two mortgage units, GE Money Bank and WMC Mortgage, fully 86.89% of 2006 GE mortgages were subprime.

            Bank of America, which thus far like just-bankrupt New Century has refused to provide its 2006 data despite a requirement that it be available on March 31, also assists other subprime lenders in 2006, the report says, by securitizing loans for Ameriquest, which last year settled predatory lending charges with state attorneys general for $325 million. The settlement only required reforms at Ameriquest Mortgage and two affiliates, but not its largest affiliate, Argent Mortgage, which Citigroup now has an option to buy. The 2006 data show that Argent made 117,328 mortgages, of which 107,530 or 91.65% were higher cost loans over the rate spread.

   According to Fair Finance Watch, several large lenders have sought to avoid being scrutinized by refusing to provide their data in computer analyzable form.  Institutions insisting on providing their data in paper or PDF form have included Lehman Brothers, AIG, Delta Funding, Fremont Investment & Loan and other large subprime lenders, as well as banks such as Whitney Bank, Fifth Third Bank, New York Community Bancorp, Regions Financial and EquiFirst, the subprime lender which Barclays just bought. Fair Finance Watch says it will be pursuing those issues as well, with each lender's regulator.

            "Even with the downturn, predatory lending is a still-growing problem, impacting not only homebuyers but also consumers who take out payday, car title and tax refund anticipation loans," the Fair Finance Watch study states. "We will be redoubling our efforts to reign in the predatory lenders, using this data as a road map."

[Optional cut]

            The report was issued on what, globally, is World Landmines Day, and these subprime mortgages, with their hidden explosive features, are considered by some to be financial landmines. How they will be defused remains a topic of debate, in a process that many of the large companies which have held lay the mines now seek to influence, at the national and local level.

            The Fair Finance Watch report also casts its glance locally. The nation's largest bank, Citigroup, was most disparate in the lowest-income borough its headquarters city. Citigroup in 2006 confined borrowers in Bronx County to higher cost loans 19.6 times more frequently than borrowers in Manhattan. The disparity between Manhattan and Brooklyn at Citigroup in 2006 was 14.77.

  Citigroup was disparate in Metropolitan Statistical Areas all over the country in 2006. In Los Angeles in 2006, Citigroup confined African Americans to higher cost rate spread loans 1.70 times more frequently than whites; its disparity for Latinos was worse, at 1.90. Citigroup's African American to white disparity in the Chicago MSA in 2006 was 2.44.

The Federal Reserve has said that

”black and Hispanic borrowers taken together are much more likely than non-Hispanic white borrowers to obtain credit from institutions that report a higher incidence of higher-priced loans. On the one hand, this pattern may be benign and reflect a sorting of individuals into different market segments by their credit characteristics. On the other hand, it may be symptomatic of a more serious issue. Lenders that report a lower incidence of higher-priced products may be either less willing or less able to serve minority neighborhoods. More troubling, these patterns may stem, at least in part, from borrowers being steered to lenders or to loans that offer higher prices than the credit characteristics of these borrowers warrant. Reaching accurate determinations among these alternative possible outcomes is one goal of the supervision system.”

   What the Federal Reserve, which missed the foreseeable crisis in the subprime lending industry, hasn't yet disclosed is that these disparities are most stark at the largest conglomerate in the country, Citigroup, including in its headquarters city's lowest-income borough.

  "Where the rubber will meet the road will be in how the Federal Reserve and other agencies act on specific disparities at specific lenders, including as these are formally raised to them in timely comments on merger applications," Fair Finance Watch concluded.

In DC, Sen. Dodd Focuses on Brokers, HSBC Blames Its Victims, Citigroup Escapes, Complaints Lost

Byline: Matthew R. Lee

INNER CITY PRESS, March 22 -- Executives from four embattled subprime mortgage lenders bobbed and weaved Thursday at a Senate hearing which frequently mentioned, but mostly let off the hook, predatory lending. HSBC, for example, which purchased Household International and its $486 million settlement for abuse of consumers, sent executive Brendan McDonagh, who in essence blamed his company's victims, saying they need more "financial literacy." [Ed.'s note: It has been pointed out, and we in fairness run, that Mr. McDonagh also said that "we believe that uniform legislation could benefit the industry and consumers. There are numerous versions of Federal anti-predatory lending legislation that contain many of the key best practices our retail branch network has employed for several years. HSBC supports guidelines that put everyone in the industry on an even playing field."]

            New Century, the shares of which have been delisted from the New York Stock Exchange, declined the invitation to testify from Senate Banking Committee chairman Chris Dodd, Democrat of Connecticut. Sen. Dodd did not summon, even as a fill-in for New Century, Citigroup, which is the fourth largest subprime lender and the only lender with predatory lending settlements with two separate federal agencies. WMC Mortgage, a company that few have heard of, despite being owned by General Electric, was present, as was First Franklin, whose ownership by Merrill Lynch was not noted on Senator Dodd's committee webpage.

            Senator Dodd, who is running for the Democratic nomination for the presidency in 2008, began the hearing by saying that "the purpose is not to point fingers." Republican Senators Shelby and Crapo both said they would favor "market-based solutions." Idaho Senator Crapo went further, questioning whether the Community Reinvestment Act's encouragement to banks to lend in low- and moderate-income neighborhoods might have led to the current market turmoil. Republican Senator Bunning blamed the crisis on former Federal Reserve chairman Alan Greenspan.

            The Federal Reserve sent regulator Roger T. Cole, who finally acknowledged that "we could have done more sooner," while making much of the less than a handful of actions the Fed has taken, including its $70 million fine of Citigroup in 2004. But again, why was Citigroup not invited by Senator Dodd?  Why did North Carolina banking commissioner Joe Smith feel a need to say that "HSBC has been terrific"?

HSBC's McDonagh: a new face of predatory lending?

            Janis Bowlder of the National Council of La Raza described the plight of consumers that come to mortgage counselors. Consumer attorney Irv Ackelsberg put the blame on Wall Street and the process and profits of securitizing high-cost mortgages, and said that focus on mortgage brokers was just a diversion. Immediately after this statement, Senator Dodd went back to speaking about a mortgage brokers' trade association web site's characterization of brokers as mentors. It seems this statement had already been taken down from the web site, but it allowed Sen. Dodd to ask Countrywide's representative if his company made such representations. Of course not, Countrywide said.

            Apparently, while there are predatory practices, there are no predators, even among companies like HSBC and Citigroup which have paid hundreds of millions of dollars to settle charges of predatory lending. Those payments were only made in order to move forward, the companies said. And move forward they will: both are exporting the same predatory lending models to the developing world, and Citigroup recently scooped up an option to be a piece of another predatory lender settling company, ACC / Ameriquest. On Capitol Hill as elsewhere, Senator Dodd is focused on brokers, and the lenders blame their own victims. And so it goes.

            In the process of seeking under the Freedom of Information Act copies of mortgage borrowers' companies, Inner City Press has seen many examples of the  breakdown in regulation of subprime lenders. As far back as December 2003, Inner City Press asked the Kentucky Department of Financial Institutions for copies of complaints against Washington Mutual Finance, a WaMu subsidiary that Citigroup was buying. The Kentucky DFI wrote back:

"We have received numerous complaints against Washington Mutual, most concerning their failure to properly credit customers' accounts but, unfortunately, the Department does not have copies of those complaints. The lady who handles consumer complaints was under the mistaken impression that anything having to do with Washington Mutual was not to be handled by our Department but was to be forwarded to the Office of Thrift Supervision. She thought, since the banking business of Washington Mutual was federally regulated, that the consumer loan business of Washington Mutual was also federally regulated. She has no record of the number or content of such complaints registered over the past three years."

            Subsequent request and appeal to the Office of Thrift Supervision under the Freedom of Information Act did not turn up the mis-forwarded complaints. The complaints were simply lost. Now we'll see where Thursday's hearing's testimony leads.

Predatory Lending and the No-Name Game: Barclays and Citigroup Escape Deserved Indictments

NEW YORK, March 19 -- As Capitol Hill fills with subprime lending invective, and Wall Street thrills at the chance to buy low to sell high, two of the largest predatory lenders, one long-time and one a recent entrant, continue dodging bullets. 

   Citigroup has twice been fined for predatory lending: for $240 million by the Federal Trade Commission in 2002, and for $70 million by the Federal Reserve Board in 2004.  And yet when Senator Chris Dodd, Democrat of Connecticut, put out a press release Monday that he has invited the CEOs of five subprime lenders to testify on the Hill, Citigroup was not among them.

            What could explain the omission? Some including Inner City Press recalled back to the Hartford days of Sandy Weill's and Chuck Prince's Travelers Insurance. Others looked more present day, to campaign contributions. Given Citigroup's deal to acquire a stake in Ameriquest's Argent, the omission while unexplained appears transparent. Even Ameriquest, long the largest subprime lender, fined over $325 million for its practices, was not among the five invited / summoned. As Mel Brooks said in another context, It's good to be the king.

Citigroup's (and before that, the IMF's) Fischer: taking homes with few fingerprints

            Ameriquest's parent ACC Capital last week laid off most of its workforce. The Orange County Register reported that those laid-off would be getting severance, as if this were benevolence. Employees have pointed out to Inner City Press that sixty days notice of lay-offs is required under the Federal WARN Act. So if there's anyone to thank, it's those who enacted that law. And employees tell Inner City Press that the game here is for ACC to do the layoffs, before Citigroup makes its purchase.

            There is interest at last in how it all feel through the cracks. It is grounded in excuses, that Citigroup would clean up Associates First Capital Corp. back in the year 2000, and HSBC do the same with Household International in 2002.

            Now the global markets riff on another rumored merger: Barclays to buy Holland's ABN Amro, for $80 billion dollars, says the Wall Street Journal. Not mentioned is Barclays significant entry into subprime lending, buying Juniper in 2004 (opposed on consumer protection grounds by the Fair Finance Watch, click here for Federal Reserve response), then more deeply by buying Wachovia's subprime mortgage servicer HomEq, then a nationwide lender, EquiFirst, from Alabama's Regions.

   Why is this angle not being covered? The sole predatory reference in the Google News database for the past month is to a Barclays Capital report of February 22, about other companies' predatory lending and delinquency rates. Apparently a glass house does not dictate what one can throw, having the right friends.

            Inner City Press has interviewed a number of mortgage brokers, who requested anonymity in order for to become scapegoats for the flaws of the lenders they sent to. One maverick broker in eastern Tennessee says that January 2007 was his slowest month in five years, closing only three loans, for $5,000 in fees. "And all three loans," he says, "couldn't be done today." He spot-checked 20 recent loans, and found five of them in foreclosure. "There's a bad season coming," he said. Not for the lenders, it seems.

            Deutsche Bank bought Chapel Funding and something called MortgageIT. Royal Bank of Scotland has long propped up subprime lenders through its Greenwich Capital Markets subsidiary. Morgan Stanley bought Saxon. Some in fact surmise that Wall Street is pulling the strings. Merrill  Lynch bought the major subprime lender First Franklin, then called in its loans to California-based OwnIt, previously controlled by Bank of America.

   Similar pressure led to New Century's delisting.  Fair Finance Watch has commented to the Federal Reserve about New Century, when U.S. Bancorp owned a controlling one-quarter stake. The Federal Reserve bent logic to deem U.S. Bancorp's holding to be only 24.99 percent, in order to ignore New Century issues. Now the Fed is mumbling about the fundamental strength of the economy. They too think  that no names will be named...

At the IMF, Comment on Global Subprime Contagion Deferred For Already-Leaked Report

Byline: Matthew Russell Lee of Inner City Press in DC: News Analysis

WASHINGTON, March 15 -- As the failures of two dozen subprime lenders and rising delinquency and foreclosure rates roil the global markets, on Thursday the spokesman for the International Monetary Fund was asked for the IMF's view on slow downs and housing. David Hawley, formally the Fund's senior advisor for external relations, largely dodged the question. He repeated a view that "recent turbulence appears to reflect a market correction," then deferred any more specific comment until the IMF releases its World Economic Outlook publication in April.

            Also garnering no-comments or dodges were questions about Turkey exceeding the IMF's budget target, and about Italy. The entire bi-weekly press conference took barely 11 minutes. No questions were taken online. Whether any were submitted is not known.

            Mr. Hawley declined to comment on a Dow Jones reporter's question about leaks of the WEO data. Earlier on Thursday, Reuters reported on a purloined WEO draft, that the IMF's projection for U.S. economic growth in 2007 is now 2.6%, down from the 2.9% it projected back in September. Is the melt-down in the mortgage market part of the reason for the revision downward? Mr. Hawley wouldn't say.

IMF @ UN, on peace-building, not predatory lending

            In fact, beyond the contagions that now spread from one stock market to the next, several Europe- and Asia-based banks are deeply involved in the U.S. subprime market. Inner City Press has fielded calls from reporters in London and the Netherlands about what they call the U.S. mortgage crisis. Royal Bank of Scotland, for example, has been a major provider of financing to subprime lenders, through its Greenwich Capital Markets subsidiary.  HSBC's problems since buying Household International are well known. Barclays has bought a subprime servicer, from Wachovia, and now an originator too. Nomura is involved in the securitization of such loans. Deutsche Bank has gone further, buying up dubious originators in order to guarantee themselves a stream of high-cost loans.  Now Wall Street is feeling the heat, at least temporarily. As Jesse Jackson said here on Wednesday night, "now the hunter is being trapped with the game."

            And as while question mount about the role and future of the IMF, it would seem they'd have something to say on this global subprime contagion. We'll see.

Other, earlier Inner City Press are listed here, and some are available in the ProQuest service.

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