POSSIBLE BANK MERGER BREAKS NEW GROUND IN CORPORATE WELFARE
As part of a five-day public awareness campaign, Californians are asking bank regulators, including the FDIC, the Federal Reserve Bank of New York, the Federal Reserve, the Office of the Comptroller of the Currency, and the Consumer Financial Protection Bureau, questions about the possible negative impacts of a Too Big To Fail Bank merger that would combine CIT Group and OneWest Bank.
The questions on the fourth day focus on the subsidies both banks have already received from taxpayers in the form of TARP money and tax breaks the newly merged bank plans to use after the merger. These subsidies are in addition to the ongoing support OneWest investors are probably still receiving under the FDIC’s shared loss agreements. In response, community groups are asking how much government welfare one bank can receive.
Despite these government handouts, the bank plans big payouts to investors, executives, and shareholders, while only offering a meager community benefit and reinvestment plan as part of the merger, and zero plans to repay the $2.3 billion it received from taxpayers under TARP. Ironially, the LA Times reports that OneWest bank has paid out $2.3 billion in dividends as of June 30- the exact same amount of money that CIT Group never repaid to the US Government.
“Once again, we see there are two sets of rules for Wall Street and Main Street,” commented California Reinvestment Coalition Executive Director Paulina Gonzalez. “Bank CEOs and investors will potentially ‘earn’ millions from this merger, despite no clear community benefits from the merger, and despite the fact this merger dramatically increases risks for the US financial system. Americans who are working two or three jobs to keep their head above water will have a hard time understanding how bank regulators would approve a merger that includes a plan for exorbitant executive salaries and planned corporate tax breaks and no guarantees of a clear public benefit.”
Leadership of CIT Group and OneWest Bank refused to tell CRC members how much money they have received from the FDIC (via the Shared Loss agreement), so CRC submitted a FOIA request to the FDIC. Thus far, the FDIC has denied CRC’s FOIA fee waiver request, informing CRC that “The subject matter of your request is not now of interest to the general public.”
This shocking response from the FDIC flies in the face of intense public interest in the recent This American Life/Propublica story about bank regulators coddling Goldman Sachs and the considerable interest generated by the recent AIG trial about the government bailout of AIG.
Kevin Stein, associate director at the California Reinvestment Coalition, comments: “CIT wants regulatory approval to buy OneWest, which will bring expected corporate profits, billions for investors, and millions for bank executives. It also wants: to not to have to pay back $2.3 billion in TARP money it received from the US Government; to take advantage of merger’s expected profits and use tax gimmicks to lower its IRS bill; to have the FDIC agree to cover certain future losses; and to not offer a meaningful plan to serve and reinvest in the community. Has a merger ever had so much public subsidy, so much private gain, and so little public and community benefit?”
Under the merger application, the CEO of the newly merged bank will receive a $4.5 million annual salary plus over $12 million in stock options, for a potential total of $26 million over the course of three years. Meanwhile, the chair of the merged institution may earn $4.5 million annually working for the bank, though his offer letter allows him to retain his other job of running a private equity fund at the same time.
CRC’s questions for regulators include:
1) Is there a contradiction between a bank arguing that its strong enough to become the first SIFI created, while at the same time holding out its hand for subsidies from the FDIC via the Shared Loss Agreement?
2) Are regulators concerned about the outsized compensation for bank executives under this merger, especially in light of the miserly goals the bank’s leadership has created in regards to community reinvestment activities?
Today is the fourth of five days of questions for regulators about this merger, to review previous questions for regulators, visit these links:
Tomorrow’s release will focus on Community Benefit and Reinvestment Plans and how CIT Group and OneWest can improve their current plan.
CRC’s detailed letter to the Federal Reserve Bank of New York includes an analysis of the merger and a long list of concerns and unanswered questions about the proposed merger.