After ICP Challenges TIAA-Everbank, Fed's 3d Round of Qs, CRA Included

By Matthew R. Lee

NEW YORK, November 29 -- The lack of seriousness in US bank regulation grows from the relatively smaller to the largest banks like Goldman Sachs - down to People's United Bank now trying to buy Suffolk County National Bank while barely lending to people of color in New York. 

  Then there are cross-industry proposals like TIAA's attempt to acquire Everbank of Florida, which Inner City Press / Fair Finance Watch on October 29 challenged, and attempts from overseas to buy Genworth.

The Federal Reserve has asked a third round of questions of TIAA, which we publish here in full, including one on CRA:

"In connection with the request for the Board’s prior approval pursuant to section 10(e)(1)(A)(iii) of the Home Owners’ Loan Act, as amended, 12 U.S.C. 1467a(e)(1)(A)(iii), and 12 CFR 238.11(e) by TIAA Board of Overseers, Teachers Insurance and Annuity Association of America (“TIAA”), and TCT Holdings, Inc., each of New York, New York, to acquire control of EverBank Financial Corp., a savings and loan holding company, and EverBank, a federal stock savings association, both of Jacksonville, Florida, the following information is requested. Supporting documentation should be provided as appropriate.

1. If the transaction is consummated as proposed, describe in detail any authority that the New York Department of Financial Services (“DFS”) or any other regulatory entity (apart from the Federal Reserve Board) may have to:

a. Prevent TIAA from down streaming funds or otherwise acting as a source of financial strength to a subsidiary, including a subsidiary depository institution;

b. Directly or indirectly prevent the Surviving Intermediate HoldCo (as that term is defined and used in the application) from down streaming funds or otherwise serving as a source of financial strength to the resultant subsidiary depository institution;

c. Directly or indirectly require Surviving Intermediate HoldCo to dividend or otherwise distribute funds to TIAA; or

d. Directly or indirectly require a subsidiary depository institution to dividend or otherwise distribute funds to TIAA. For each of the scenarios described above, include a detailed discussion of the circumstances in which the regulator could exercise such authority, and include citations as appropriate.

2. Indicate any dollar amount or percentage thresholds or limitations on transactions that TIAA may conduct with a subsidiary or affiliate, including with the Surviving Intermediate HoldCo, without prior approval of DFS, and provide any statutory or regulatory authority that addresses this limitation.

3. To the extent not previously disclosed in the application, and to the extent known with respect to EverBank, discuss any pending or recently resolved litigation with or investigations by regulators, including, but not limited to, those pertaining to consumer protection laws and regulations, against TIAA-CREF Trust Company, FSB (“TIAA FSB”) or EverBank.

4. Clarify the extent to which the consumer compliance, fair lending compliance, and Community Reinvestment Act programs of the resultant depository institution will consist of the current programs of TIAA FSB or EverBank. Discuss any aspects of these programs that differ from those currently in place at TIAA FSB or EverBank."

Earlier, some of TIAA's answers were provided to Inner City Press on November 10 and are published here (here and embedded below in full)

"We are grateful for this opportunity to respond to the comment letter filed by Inner City Press  /Fair Finance Watch on 29 October 2016 (the “Comment Letter”), regarding the application submitted by TCT Holdings, Inc., Teachers Insurance and Annuity Association of America (“TIAA”)... The Comment Letter makes a series of assertions regarding the lending practices of TIAA-CREF Trust Company, FSB (“TIAA FSB”) and EverBank by referencing certain Home Mortgage Disclosure Act (“HMDA”) data for 2015. It also suggests that TIAA does not satisfy the requisite managerial standards consistent with approval. Finally, the Comment Letter requests an extension of the public comment period and a public hearing on the Application...

EverBank has advised the Applicants that it has carefully evaluated and investigated the allegations and it has provided the Applicants with information following its manual review of each of the eight declined applications underlying the data cited in the Comment Letter...

The commenter also suggests that allegations in a dated news article that TIAA has engaged in improper business practices in Brazil should be considered by the Federal Reserve Board as a factor when considering the managerial resources of the Applicants. The news article cited in the Comment Letter does not provide a complete or accurate portrayal of how TIAA conducts business in Brazil and other markets... TIAA is a signatory to the U.N. Principles for Responsible Investment."

  Ah, the United Nations... We'll have more on this.

After ICP Challenges TIAA-Everbank, Here's TIAA's Defense to Federal Reserve of Lending Disparities, Land G... by Matthew Russell Lee on Scribd

There's also the Fed's "Second request for additional information

In connection with the request for the Board’s prior approval pursuant to section 10(e)(1)(A)(iii) of the Home Owners’ Loan Act, as amended, 12 U.S.C. 1467a(e)(1)(A)(iii), and 12 CFR 238.11(e) by TIAA Board of Overseers, Teachers Insurance and Annuity Association of America (“TIAA”), and TCT Holdings, Inc.  (“TCT”) (collectively “Applicants”), each of New York, New York, to acquire control of EverBank Financial Corp. (“EFC”), a savings and loan holding company, and EverBank, a federal stock savings association, both of Jacksonville, Florida, the information discussed below and in the confidential annex is requested. Supporting documentation should be provided as appropriate.

1. Figure 5 on page 7 of the application to the Board of Governors indicates that the Applicants will engage in a number of business activities as a result of obtaining control of the subsidiaries of EFC and EverBank if the transaction is consummated.

Provide the authority on which Applicants would rely to engage in such activities and any supportive analysis.

2. Provide financial statements and regulatory capital ratios (including components for each calculation), as of both December 31, 2015, and September 30, 2016, for the following entities:

a. TCT – on a parent-only and consolidated basis;

b. EFC – on a parent-only and consolidated basis;

c. TIAA-CREF Trust Company, FSB (“TIAA FSB”); and

d. EverBank.

3. Provide pro forma balance sheets and regulatory capital ratios as of September 30, 2016 (including components for each calculation), for the entities listed below. Include adjusting entries and detailed notes to explain assumptions and adjustments:

a. Surviving Intermediate Holding Company (“New Holdco”), on a parent only and consolidated basis. Pro forma balance sheets should include any proposed capital infusion from TIAA and subordinated debt originally issued by EFC, as well as all outstanding obligations to EFC’s trusts that have issued trust preferred securities.

b. Resultant Institution (“New FSB”).

4. Provide the following asset quality information, as of September 30, 2016, for TIAA FSB and EverBank as well as pro forma asset quality information for New FSB.

a. For classified assets, provide:

i. The amount of internally classified assets, comprised of the separate categories of substandard, doubtful, and loss, with relevant components of other real estate owned (“OREO”) separately identified in each category;

ii. A breakdown of each category (for example, commercial real estate, 1-4 family, consumer loans) of internally classified assets;

iii. A detailed calculation for the classified assets ratio, including the level of classified assets compared to the total amount of tier 1 capital and allowance for loan loss reserves.

b. For nonperforming assets, provide:

i. The total amounts of nonaccrual loans, all restructured loans, and OREO.

ii. A breakdown of each category (for example, commercial real estate, 1-4 family, consumer loans) of nonperforming assets.

iii. A detailed calculation for the nonperforming assets ratio, including the level of nonperforming assets compared to the total equity capital (common stock, perpetual preferred stock, surplus, retained earnings accumulated other comprehensive income) and the allowance for loan loss reserves.

5. Provide the following information with respect to Applicants’ response number 4 to the letter dated October 26, 2016. Applicants indicated that TIAA is permitted to extend loans to its subsidiaries of up to 3 percent of its admitted assets without notice to or approval from the New York State Department of Financial Services:

a. Provide the amount of admitted assets as of December 31, 2015, and September 30, 2016; and

b. Explain why TIAA would provide an uncommitted $300 million credit line rather than a committed line of credit to New FSB following consummation.

Please provide your response within eight business day."

  Confidential questions? We'll have more on this.

Inner City Press / Fair Finance Watch has written to the Federal Reserve:

On behalf of Inner City Press/Fair Finance Watch (ICP), this is a timely first comment opposing and requesting public hearings and an extension of the FRB's public comment period on the Applications of TCT Holdings Inc., Teachers Insurance and Annuity Association of America and TIAA Board of Overseers, all of New York, New York; to acquire EverBank Financial Corp and thereby indirectly acquire EverBank. This first comment is timely.

This is in essence a proposal for a major cross-industry acquisition, in which TIAA (accused among other things of land grabs in Brazil, see below), which has limited experience in banking and a limited and highly disparate record in mortgage lending, seeks to acquire the largest Florida-based bank, with its own issues. Public hearings are needed.

In the St. Louis MSA, TIAA-CREF Trust in 2015, the most recent year for which Home Mortgage Disclosure Act data is available, reported data but lent only to whites.

Meanwhile Everbank, in the Miami MSA in 2015 for home mortgage loans in HMDA Table 4-1 had a 77% denial rate for African Americans, versus a 36% denial rate for whites. In Tampa for Table 4-1 it had a 100% denial rate for African Americans. Public hearings are required.

For the record, under the Managerial Resources and integrity factors, consider this:

“TIAA-CREF, U.S. Investment Giant, Accused of Land Grabs in Brazil NOV. 16, 2015

SÃO PAULO, Brazil — As an American investment giant that manages the retirement savings of millions of university administrators, public school teachers and others, TIAA-CREF prides itself on upholding socially responsible values, even celebrating its role in drafting United Nations principles for buying farmland that promote transparency, environmental sustainability and respect for land rights.

But documents show that TIAA-CREF’s forays into the Brazilian agricultural frontier may have gone in another direction.

The American financial giant and its Brazilian partners have plowed hundreds of millions of dollars into farmland deals in the cerrado, a huge region on the edge of the Amazon rain forest where wooded savannas are being razed to make way for agricultural expansion, fueling environmental concerns.

In a labyrinthine endeavor, the American financial group and its partners amassed vast new holdings of farmland despite a move by Brazil’s government in 2010 to effectively ban such large-scale deals by foreigners.”

For obvious reasons anticipating regulatory push-back against this proposal, TIAA got a clause to withdraw if too much questions are asked or restrictions proposed.

What is the public benefit? The fact that TIAA is run by a former FRB vice chairman militates even more strongly for the requested public hearings."

As to the proposal to acquire Genworth, like the application to buy Fidelity & Guaranty Life, withdrawn in New York, we predict heightened scrutiny.
 
We note that "regulators in Delaware, New York, North Carolina and Virginia, as well as in Australia, Canada, China, Mexico and officials at mortgage-finance companies Fannie Mae and Freddie Mac must sign off on the transaction for it to be completed. In addition, the transaction must be reviewed by the Committee on Foreign Investment in the U.S. and similar foreign investment review boards elsewhere. The regulatory review process is expected to take several months."

 Or more...

Inner City Press / Fair Finance Watch on August 13 challenged  People's United, as it did BancorpSouth in 2014, which led to redlining charges by the Department of Justice and Consumer Financial Protection Bureau.

After BancorpSouth settled the redlining charges, Inner City Press / Fair Finance Watch immediately wrote to the Federal Reserve urging that its pending merger applications be denied or withdrawn. Now the latter has happened. The Fed has informed Inner City Press of the formal withdrawal of BancorpSouth's application; we've published the letter here, and will stay on this, to December 2017, as long as it takes.

As to People's United, using the just-released 2015 Home Mortgage Disclosure Act data. Inner City Press has now commented to the Federal Reserve:

 "in 2015 in the New York City MSA, People's United made 110 home purchase loans to whites and only ONE to an African American and only four to Latinos...  In 2015, for refinance loans in the New York City MSA, People's United made 103 loans to whites, only five to African Americans and only two to Hispanics.

   People's United record is scarcely better on Long Island, where it snapped up Bank of Smithtown and Citizen's Bank as it now proposes to do to Suffolk County National Bank. In 2015 for home purchase loans on Long Island People's United made 49 home purchase loans to whites, only four to African Americans and only four to Latinos. For refinance loans it mad 70 loans to whties, only one to an African American and only four to Latinos. Again, this is systematic redlining; this proposed acquisition could not legitimately be approved and People's United should be referred for prosecution for redlining by the Department of Justice and CFPB."

  Responding to ICP and NCRC, People's claims that acquiring another suburban bank would improve this disparate record in New York City. How?

On September 7, the General Counsel of People's United Robert E. Trautmann filed a response, which as to the analysis of New York City redlining submitted by Inner City Press / Fair Finance Watch argues that the disparities are OK because People's supposedly only recently entered the market.

  But it entered in 2010. How long can it call this recent? And why should it be permitted to build itself up on Long Island while this redlining of New York City's lower income communities of color persists?

Tellingly, People's United Bank's purported response to Inner City Press' redlining analysis calls New York Times the “Lower Hudson Valley region.”

  Inner City Press / Fair Finance Watch filed with the US Office of the Comptroller of the Currency:

"a timely first comment opposing and requesting an extension of the OCC's public comment period on the Application by People's United to buy The Suffolk County National Bank of Riverhead, NY. The newspaper notice says the comment period runs at least through August 16; this comment is timely.

People's United proposes to buy Suffolk County National Bank and its 27 branches in New York. But in the the New York City MSA in 2014, the most recent year for which Home Mortgage Disclosure Act data is publicly available, People's United made 82 home purchase loans to whites and NONE to African Americans or Latinos. This is redlining; this proposed acquisition could not legitimately be approved and People's United should be referred for prosecution for redlining by the Department of Justice and CFPB.

For refinance loans in the New York City MSA in 2013, People's United made 24 loans to whites, 1 to an African American and four to Hispanics. For home improvement loans in the New York City MSA in 2013, People's United made eight loans to whites, and NONE to African Americans or Latinos.

People's United record is scarcely better on Long Island, where it snapped up Bank of Smithtown and Citizen's Bank as it now proposes to do to Suffolk County National Bank. In the Nassau-Suffolk MSA in 2014, People's United made 48 home purchase loans to whites and NONE to African Americans. For home improvement loans it made 16 loans to whites and NONE to African American or Latinos.

In this context, the comment period should be extended so that public evidentiary hearings can be held, and the application should be denied."

   In April 2014, Inner City Press submitted a protest to the Federal Reserve of the "Applications of BancorpSouth to merge with Ouachita Bancshares Corporation and thereby indirectly acquire Ouachita Independent Bank, and with Central Community Corporation, and thereby indirectly acquire First State Bank Central Texas, Austin, Texas - Round Two."

Fair Finance Watch's analysis to the Fed showed that "in the Jackson MS MSA for conventional home purchase loans, BancorpSouth made 258 loans to whites, only 17 to African Americans and five to Latinos. BancorpSouth's denial rate for whites was 7.4% while for African Americans it was 25.8% -- 3.49 times higher. This was troubling.

NOW, more troubling: in 2013 for conventional home purchase loans in the Jackson MS, BancorpSouth's denial rate for whites was 4.5% while for African Americans it was 26.4% -- now 5.87 times higher.

  In 2012 in the Baton Rouge LA MSA for conventional home purchase loans in 2012, BancorpSouth made 60 such loans to whites; only three to African Americans and one to a Latino.
NOW, more troubling: in 2013 for conventional home purchase loans in the Baton Rouge MSA, BancorpSouth was up to 72 loans to whites - but NONE to African Americans."

BancorpSouth was then changed by the government with "redlining by placing its branches in the Memphis area outside of minority neighborhoods and directing nearly all its marketing away from such neighborhoods." That should happen here.

  There's also those in the middle, seeking to become a Systemically Important Financial Institution like New York Community Bancorp is, applying to buy Astoria Bank.

 After Inner City Press / Fair Finance Watch filed a timely protest, the Federal Reserve On January 8 asked NYCB 14 questions. Inner City Press has put the Additional Information letter online here, including a request to know which branches NYCB would close, how it would try to sell of Astoria's loans, etc. Inner City Press said, there should now be more fair lending questions, and the comment period should be extended.

 On January 21, the Federal Reserve informed Inner City Press / Fair Finance Watch that the Fed is re-opening and extending its comment period on NYCB - Astoria until Tuesday, February 16. We'll have more on this (see here).

Back on January 15, after Inner City Press / Fair Finance Watch also filed comments with the FDIC, that agency has written to NYCB's Joseph Ficalora asking for a response, and stating that

"We are writing in reference to the enclosed e-mail that we received from Executive Director Matthew Lee, of Inner City Press/Fair Finance Watch concerning your institution's application to acquire Astoria Bank. We reviewed the subject e-mail in accordance with the guidelines of 12 C.F.R. Section 303, and deemed it a Community Reinvestment Act (CRA) protest for the purpose of your application. The subject e-mail raises issues regarding your institution's record of lending to African American and Latino persons. The anticipated time and research required to investigate these issues has contributed to the removal of your institution's application from expedited processing."

 NYCB's home mortgage lending is extremely disparate; its multi-family lending, some to slumlords, is no defense. Inner City Press / Fair Finance Watch has filed this with the Fed:

  “On behalf of Inner City Press / Fair Finance Watch, this is a timely first comment opposing and requesting a complete copy of an and an extension of the FRB's public comment period on the Application by New York Community Bancorp ('NYCB') to acquire 100% of the voting shares of Astoria Financial Corp and indirectly acquire Astoria Bank.

  The applicant NYCB in the New York City MSA in 2014 made 109 home purchase loans to whites -- and only THREE to African Americans. For refinance loans, NYBC in the the NYC MSA in 2014 made 27 loans to whites and only ONE to an African American.

  While NYCB may attempt to minimize these severe disparities by pointing to multi-family loans, there are significant complaints about that lending; note also this account of the CFPB which lists the ostensibly mostly multi-family NYCB with more complaints against it than banks that are both larger and more “retail."

  In the Nassau Suffolk (Long Island) MSA in 2014 NYCB made 107 home purchase loans to whites -- and only ONE to an African American, while denying African Americans 4.7 times more frequently than whites. For refinance loans, NYBC in the the Long Island MSA in 2014 made 52 loans to whites and only three to African Americans and only TWO to Latinos, while denying Latinos 2.32 times more frequently than whites.
 
  In the Cleveland, Ohio MSA (where NYCB bought Ohio Savings), NYCB in 2014 made 17 refinance loans to whites in 2014 and only one to an African American, while denying African Americans, while denying African Americans three times more frequently than whites. Similar disparities exist for NYCB in New Jersey, Arizona and Florida -- ICP is requesting public hearings on this ill-conceived proposed merger.
 
  As the Federal Reserve surely knows, this proposal was driving by activist investor pressure on Astoria (by Basswood Capital Management LLC); both institutions' securities fell significantly in price when it was announced. The price to consumers would include the closure of branches, disclosure of which should be demanded during the extended comment period and at the requested public hearing(s).

 The comment period should be extended; evidentiary hearings should be held; and on the current record, the application should not be approved.”

  Inner City Press / Fair Finance Watch, which also opposes NYCB's requests for approvals from the FDIC, New York and other regulators, has prepared this comparison of NYCB to other lenders:

  “In the Nassau Suffolk (Long Island) MSA in 2014 NYCB made 107 home purchase loans to whites -- and only ONE to an African American, while denying African Americans 4.7 times more frequently than whites.”
  
   While NYCB made 107 home purchase loans to whites for one to an African Americans (ratio of 107-to-1), the aggregated in 2014 for home purchase loans on Long Island had a ratio of 13.41 loans to whites for every loan to an African American (15,081 loans to whites, 1125 loans to African Americans).  NYCB is eight times more disparate than other lenders.

  Also on Long Island, compared to NYCB's 4.7 denial rate disparity between African Americans and whites, the aggregate denied African Americans 1.66 times more frequently than whites. NYCB is 2.83 times more disparate than other lenders.

  NYCB in the New York City MSA in 2014 made 109 home purchase loans to whites -- and only THREE to African Americans.

  While NYCB made 109 home purchase loans to whites and three to African Americans in NYC (ratio of 36.3-to-1), the aggregated in 2014 for home purchase loans in the New York City MSA had a ratio of 11.39 loans to whites for every loan to an African American (47,166 loans to whites, 4,140 loans to African Americans).  NYCB is 3.19 times more disparate than other lenders in the New York City MSA.

 Meanwhile Goldman Sachs is trying to speed through Federal Reserve approval to buy $16 billion in insured deposits from GE Capital, and the Fed, documents  released to Inner City Press under the Freedom of Information Act (FOIA) show, is inappropriately bent on helping, including by closing its comment period...  The Federal Reserve has belatedly responded to Inner City Press / Fair Finance Watch's September 2 FOIA request, with some of its internal documents, many heavily redacted. FOIA letter here; FOIA documents released to ICP here, and embedded below.

 While Inner City Press is appealing, even as released the documents show that Goldman Sachs through its law firm Sullivan & Cromwell reached out to Fed General Counsel Scott Alvarez in May 2015 about the transaction, and was largely able to vet it with the Fed's staff by July, even receiving an "additional information" request before any application was filed.

  Since the public cannot comment or ask questions before a transaction is announced, this "pre-review" by the Fed in essence cuts public review and transparency out of the process. The Fed's rules against ex-parte communications can't be triggered before there is an application. But should Fed review be held, and apparently completed, before there is any public notice?

 The deal was publicly announced on August 13 and Goldman Sachs on August 18 submitted the apparently pre-approved application. Inner City Press / Fair Finance Watch submitted a comment and FOIA request (delayed until now); the end of the FOIA response has a redacted reaction to the "public comment." Now others have commented and a campaign has begun. But has the Fed already made up its mind?

On Goldman Sachs, Federal Reserve's Initial FOIA Response to Inner City Press on GE Capital Bank by Matthew Russell Lee

 On October 20, the Federal Reserve asked Goldman Sachs five questions, but not on the predatory lending issues raised... Only this from Goldman Sachs, only snail-mailed by its counsel:

Goldman Sachs' 2d Reply to Inner City Press, As Fed Withholds FOIA Documents by Matthew Russell Lee

 On October 13 Inner City Press published the Federal Reserve's communications with the CIT Group's outside counsel, which shows how the release of public documents is allowed by the Fed to be delayed. CIT made disingenuous requests for confidential treatment of information that could not be withheld, without any repercussion. They were rewarded with FOIA appeal denials by Fed Governor Jay Powell; now Goldman is trying to withhold information that should be public. Will there be any repercussion or accountability? Watch this site.

Revealed: Federal Reserve Asking CIT Group About Inner City Press FOIA Request: Now Goldman Sachs? by Matthew Russell Lee

 

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