Critics Attack Citicorp-Travelers Merger Community Activists Criticize Bank’S Record Of Lending To Minorities, Lower Income Areas

Citicorp and Travelers Group Inc.’s proposed $73 billion merger was panned Thursday by community groups, who condemned everything from the companies’ records of lending to minority communities to the legality of the merger.

The Federal Reserve Bank of New York is hosting the informal public hearings to gather comment from community groups and politicians before it votes on whether to approve the biggest merger in history.

Citigroup, as the combined companies would be called, would have more than 100 million customers in 100 countries. The historic combination would provide a wide array of businesses from commercial banking to insurance, mutual funds, securities lending and investment banking.

“We’re all mindful that this transaction has to be done right, because it’s a model for future transactions,” said Charles Prince, an executive vice president and general counsel of Travelers Group.

The U.S. Federal Reserve and Justice Department must review the proposed merger to weigh its impact on competition and lending to underserved communities. While U.S. law bars banks and insurance companies from owning one another, the institutions are expected to seek, and receive, a waiver of that restriction that could last as long as five years.

Community activists criticized what they allege is the bank’s poor record in lending to lower income and minority neighborhoods.

“We are being a little more aggressive than we have been in the past,” said Andy Reid, executive director of the Spokane Low Income Housing Consortium.

Although merging financial institutions often promise to increase their commitment to community lending, he said, subsequent mergers involving the same institutions make it difficult to track their performance.

Also, major banks better able to take on riskier large loans are more likely to be involved in a merger, Reid said.

The Spokane consortium, a federation of low-income housing providers, is a member of the National Community Reinvestment Act Coalition.

In a letter to the Federal Reserve Board of Governors, coalition President John Taylor said granting the waiver sought by Citicorp and Travelers would violate federal law.

He also alleged there had been improper contact between the Federal Reserve’s general counsel and attorneys for the two companies.

His letter, Taylor noted, is unprecedented for his organization, which typically tries to work with lenders.

Another Group, Inner City Press/Community on the Move, plans legal action based on the issues raised by Taylor.

Executive Director Matthew Lee also said Traveler’s doesn’t have a plan to divest its insurance business, which is required under current law.

“The Federal Reserve’s policy statement on divestiture says that an affected company should ‘submit a divestiture plan promptly,”’ said Karen Thomas, of the Independent Bankers Association of America. She said Citigroup doesn’t intend to comply with the policy statement.