Two major community advocacy groups called on federal regulators to reject CIT Group Inc.'s proposed $3.4-billion takeover of Pasadena’s OneWest Bank, contending that the bankers are catering to the rich and neglecting lower-income California borrowers.
The California Reinvestment Coalition in San Francisco and the Greenlining Institute in Berkeley called on regulators to halt the deal or, at least, hold public hearings on issues the groups are raising in the biggest bank merger of the year.
“For the past five years, OneWest has been positioning itself as a bank for the wealthy,” Orson Aguilar, executive director at Greenlining, said Monday. “The last thing California needs is a too-big-to-fail bank for the 1%.”
The California Reinvestment Coalition questioned the stability of CIT, which filed for bankruptcy after receiving a federal bailout in 2009 and, thus, avoided repaying nearly $2.3 billion in taxpayer assistance.
It also complained that OneWest executives would enjoy “excessive compensation” under the terms of the merger agreement.
Executives at OneWest and national commercial lender CIT of New York did not respond to requests for comment Monday or last Friday, when the advocacy groups filed their challenge with the Federal Reserve and other regulators.
OneWest was created in 2009 by a group of billionaires — including hedge fund operator George Soros and computer baron Michael Dell — from the ruins a year earlier of the nation’s costliest bank failure, IndyMac Bank, itself a spinoff of subprime mortgage behemoth Countrywide Financial Corp. in Calabasas.
The investors recapitalized the failed bank with more than $1.5 billion, but only after the Federal Deposit Insurance Corp. agreed to shoulder most of the losses from IndyMac’s loans. The losses to the insurance fund, originally estimated at $4 billion to $8 billion, mushroomed eventually to more than $13 billion.
The investors already have recovered their money and more: OneWest had paid them $2.3 billion in dividends as of June 30, regulatory filings show.
In a comment letter to the Fed, Greenlining complained that the FDIC was allowing the loss-sharing agreement to be transferred to the new bank and “could leave taxpayers on the hook.” The activists also are demanding that the FDIC provide a detailed accounting of the money spent to cover the bad loans.
“The transfer of this valuable loss-share agreement from [OneWest] to CIT serves no public purpose, especially without clear evidence that [OneWest] complied with its obligations to faithfully administer loan-modification programs and otherwise comply with the terms of the loss-share agreement,” the California Reinvestment Coalition said. “The FDIC should not rubber stamp this proposed transfer.”
FDIC spokesman David Barr said the agency would have no comment.
The merger agreement, reviewed by The Times, incorporates peculiar references to OneWest as “Oxygen” and CIT as “Carbon.” It was not clear why the code names were used.
Under the terms of the acquisition, OneWest Chief Executive Joseph Otting would earn $4.5 million a year for three years. He also would get $12.5 million in restricted stock, awarded as a retention bonus for remaining at the bank.
OneWest’s chairman, Steven Mnuchin, a hedge fund operator who organized the takeover of failed IndyMac, would be paid $4.5 million a year for three years as executive vice chairman of CIT. The agreement does not bar Mnuchin from also continuing to run his Las Vegas fund, Dune Capital.
Otting, by contrast, is required to devote “substantially all” his business time and attention to the bank in return for his total compensation of $26 million over three years.
In their comments to the Fed, the FDIC and other regulators that must approve the merger, the advocacy groups contended the bankers are doing too little to support low- and moderate-income neighborhoods as required by the Community Reinvestment Act of 1977.
The California Reinvestment Coalition represents scores of groups serving low-income and minority neighborhoods, more than 30 of which also have filed comments opposing the merger, said its associate director, Kevin Stein.
“Our main message is no more regulatory rubber stamps and no more public subsidy of large investors and financial institutions,” Stein said. “We need banks that serve their communities, and regulators that ensure mergers provide a community and public benefit, not just investor enrichment.”
Greenlining’s Aguilar noted that the merged company would have nearly $70 billion in assets, putting it into the regulatory category of strategically important financial institutions — firms large enough to create a crisis should they fail.
He said OneWest’s Community Reinvestment Act plan “appears to commit the bank to no new lending whatsoever.”
Bank regulators have rated OneWest “satisfactory” in meeting its CRA obligations. The CIT Bank subsidiary of CIT also earns satisfactory marks, though its grade was termed “needs to improve” in 2009.
The advocacy groups often protest bank mergers with fiery rhetoric and mixed results.
At a hearing on Bank of America Corp.'s 2008 takeover of troubled lender Countrywide, Stein warned that the merger would “not only impact working families and neighborhoods, but also the strength of the national economy.” The Fed approved the merger; BofA has since suffered about $60 billion in losses, most of it from Countrywide loans and securities.
Earlier this year, the California Reinvestment Coalition challenged Banc of California’s acquisition of 20 Southern California branches once owned by Puerto Rico’s Banco Popular.
After negotiations, the activists reached an accord with the bank, which pledged to devote 20% a year of its $3.5 billion in deposits to lending, public benefit programs and charitable giving that qualify for Community Reinvestment Act credit.