Bank regulators will hold a public hearing later this month in Los Angeles on the planned $3.4-billion takeover of OneWest Bank in Pasadena, rejecting efforts by its chief executive to win approval without such an inquiry.
The decision, announced Friday, came one month after the bank’s top officer, Joseph Otting, had set up a website that generated form letters urging the regulators to approve the merger without a hearing.
Supporters of the purchase by CIT Group, a major New York commercial lender, flooded the Federal Reserve and the Office of the Comptroller of the Currency with more than 2,000 form letters. Opponents delivered petitions to regulators this week with more than 15,000 signatures calling for the deal to be denied.
Analysts had questioned Otting's tactic, saying it ran the risk of alienating the Fed and some community groups that might otherwise have supported the deal.
Eventual approval of the deal was expected, nonetheless.
“At worst, this may delay the transaction for a few months,” said Jaret Seiberg, an analyst who monitors bank regulatory matters for Guggenheim Partners.
“We must have attended at least a dozen Federal Reserve hearings on bank mergers during the bank [merger and acquisition] wave of the late 1990s,” Seiberg said. “The Federal Reserve approved every single merger after the hearing.”
The Fed, which regulates bank holding companies, and the Office of the Comptroller of the Currency, which regulates national banks, said the public hearing would provide an opportunity to examine the public benefit provided by the merger, including a review of the banks' performance under the Community Reinvestment Act of 1977.
The law requires banks with government-insured deposits to serve the needs of low- and moderate-income customers. Proposed bank mergers often provide groups advocating for the poor a chance to obtain additional pledges of assistance from the banks.
Regulators previously have held hearings on controversial bank deals, such as the merger of Bank of America with NationsBank in 1998, BofA's 2008 agreement to acquire Countrywide Financial in Calabasas and the combination of Capital One and ING Direct in 2011.
For the CIT-OneWest deal, regulators said they also would consider “the effects of the proposal on the stability of the U.S. banking or financial system.” The merger would create a bank close to the size considered large enough that a failure might affect the financial system.
Other factors to be considered are “the financial and managerial resources and future prospects of the companies and banks involved in the proposal, and competition in the relevant markets,” the regulators said.
Advocacy groups have split on the proposal, with some saying OneWest has worked well with troubled mortgage borrowers and has made major commitments to supporting education in underprivileged neighborhoods.
Other groups protested the merger, arguing that OneWest has done too little to support minority and low-income neighborhoods and that the deal would create a too-big-to-fail bank underwritten by taxpayer subsidies.
OneWest's owners, including hedge fund operators George Soros and John Paulson and computer baron Michael Dell, created OneWest from the remains of IndyMac Bank, a high-risk mortgage lender whose failure cost the Federal Deposit Insurance Corp. a record $13.1 billion.
As part of that deal, the FDIC agreed to shoulder billions of dollars in losses on defaulted IndyMac loans under a loss-share agreement, which would continue to benefit the merged bank.
Opponents also noted that CIT was one of the few financial firms that received bailout funds but never repaid the money. CIT’s $2.3 billion in taxpayer aid was discharged later in bankruptcy proceedings.
The hearing on the deal will be held Feb. 26 at the Federal Reserve building on Grand Avenue in downtown Los Angeles beginning at 8 a.m.
Those who want to testify must submit written requests describing their planned comments by Feb. 20.
Requests may be mailed to Scott Turner, Federal Reserve Bank of San Francisco, 101 Market St., San Francisco, CA 94105 or emailed to email@example.com.
The banks’ application to merge and comment letters received so far may be reviewed at a Federal Reserve website.
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