California Reinvestment Coalition Asks Regulators “Is There Community Benefit in Too Big To Fail Merger of OneWest and CIT Group?

OneWest Bank MergerCapping a five-day awareness public awareness campaign, the California Reinvestment Coalition focused on the community benefits (or lack thereof) of a merger between OneWest Bank (former IndyMac) and CIT Group.

Both banks have already received considerable financial support and subsidy from taxpayers and bank regulators. Under the Bank Holding Company Act, regulators are required to consider the public benefit of a proposed bank merger.
CIT Group Merger

One way regulators can measure public benefit is through a bank’s Community Reinvestment Act (CRA) Plan,  a written commitment outlining how the bank will serve the community in the future.

Thus far, the draft plan offered by the leadership at CIT Group and OneWest appears to have been created without community input, commiting the bank to very little in the way of reinvesting in California communities.

CRC, and 37 other organizations have sent letters to bank regulators, opposing the merger in its current form.

According to Kevin Stein, associate director at the California Reinvestment Coalition, the community benefit is lacking from the proposed merger: “Right now, this merger doesn’t pass muster. Investors and the CEOs will benefit greatly, but what about California communities, especially those that were already harmed by OneWest through thousands of foreclosures and inadequate reinvestment? This merger will create the newest Too Big To Fail Bank, facilitate investor and bank officer windfalls, and provide for ongoing public subsidy. Yet the merger offers no public or community benefit. The regulators should reject this merger until a strong public benefit is guaranteed through a Community Reinvestment Plan to ensure communities don’t lose out again.”

CIT Group Merger with OneWest Bank

Roberto Barragan, president of Valley Economic Development Corporation, comments: “Here’s two banks that wouldn’t be alive without the support of taxpayers and bank regulators, and yet, they’re not willing to outline a strong plan of reinvesting in the communities where they do business? Until they are willing to come to the table with the community, this is a no-brainer for regulators. No public benefit means no merger approval.”

Regulators can also assess whether a bank is meeting the community’s credit needs by examining a bank’s history of reinvestment in the community. 

OneWest’s Community Reinvestment Record:

1) Bank Branches: 15% of OneWest’s branches are located in low and moderate-income census tracts, as compared to a statewide average of 30% of bank branches being located in LMI tracts.  Only two of the bank’s 73 branches are located in low-income tracts, according to research by the LA Local Development Corporation.

2) Small Business Lending: The majority of “small-business” loans originated by OneWest bank are to businesses with revenue of over $1 million, leaving smaller businesses behind.

3) Foreclosures: 35,000 Californians have lost their homes due to foreclosures by OneWest and its subsidiary, Financial Freedom.

4) CRA Grades: The Bank earned a “Low Satisfactory” on its last Performance Evaluation for its investments in the community

5) Contracting with MWDBE: The Bank hesitates in setting goals to hire businesses owned by Minorities, Women, and Disabled Persons (MWDBE).

6) Philanthropy: It appears OneWest’s historical charitable contributions are below the level of its peers.

7) Reinvesting Consumer Deposits: The Bank currently takes $14 billion in deposits via the Internet from throughout the country, but only reinvests these deposits back into its Salt Lake City assessment area, frustrating the purposes of the Community Reinvestment Act. It has no meaningful plans to reinvest Internet deposits back into communities where its Internet customers reside.

Additional Background on other Banks Creating Community Benefit and Reinvestment Plans as Part of Mergers
There is a precedent for banks committing to the communities they serve through the development of Community Benefit and Reinvestment Plan. Recent examples include:

1) Banc of California: After opposition from the California Reinvestment Coalition and 46 other organizations, in September 2014, leadership at Banc of California negotiated a five-year, public Community Benefit and Reinvestment Plan as part of its acquisition of 20 Banco Popular branches. Under the plan, Banc of California (which about one-tenth the size of the proposed CIT/OneWest merger) is devoting an amount equal to or greater than 20% of its annual deposits to community reinvestment activities.

2) Pacific Western Bank acquired CapitalSource, which was also opposed by the California Reinvestment Coalition, citing a record of “low satisfactory” CRA ratings and a lack of a public CRA plan. After an FDIC-facilitated meeting with CRC and the Greenlining Institute, PacWest Bank agreed to develop a CRA plan with input from the community.

3) Umpqua Bank applied to purchase Sterling Bank, but did not have a CRA plan. CRC opposed the merger, and the Federal Reserve later made its approval of the merger contingent on Umpqua developing a CRA plan.

To see the previous four issues highlighted in this week’s campaign:

Day 1: Bank Merger Would Benefit Investors, But What About Communities?

Day 2: Advocates Question If FDIC Loss-Share Agreements Should Continue As Part of Bank Merger

Day 3: Community Groups Question OneWest’s Foreclosure Record

Day 4: How Much Government Welfare Can One Bank Accept?

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.

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