Inner City Press -- Investigative Reporting From the Inner City to Wall Street to the United Nations

With Even Fed's Hoenig Doubting Capital One - ING Direct, Fed Withholds Info on Income & Control, Rebuffs Public

By Matthew R. Lee

SOUTH BRONX, August 25 -- Doubts about Capital One's proposal to buy ING Direct have now been admitted by senior Federal Reserve official Thomas Hoenig, even as the Federal Reserve Board has rebuffed over 200 requests to extend the comment period and schedule public hearings on the proposal.

 The Federal Reserve in a August 25 Freedom of Information Act to Inner City Press says that

"subsequent to the Secretary's response of August 3, 2011, Board staff was informed that an employee at the Federal Reserve Bank of Richmond located additional responsive material. The employee had been traveling between the date of your request on July 22, 2011 and the date of the Secretary's response on August 3, 2011. Accordingly, Board staff was not aware that these additional responsive material existed until after the Secretary had responded to your request on August 3, 2011."

  While mistakes can be and are made, this further militates for an extension of the Fed's comment period. On Thursday afternoon, Inner City Press / Fair Finance Watch put in a fifth comment, noting that

Less than two hours ago, the Federal Reserve belatedly provided material responsive to ICP's timely FOIA request: specifically, a Capital One presentation that makes representations about the income demographics of its bank and ING Direct, and states that ING would get a seat on Capital One's board. ICP continues to argue that ING should be required to apply, to own anything more than 4.9% of Capital One.

ICP and others should be given an opportunity to review and comment on this just released (and improperly withheld until now) material, and the comment period should be extended for this purpose.

Also for the record, Kansas City Fed official Hoenig has earlier today told Reuters that

"he has serious doubts about Capital One Financial Corp's (COF.N) proposed purchase of ING Groep NV's (ING.AS) online bank ING Direct. 'I have very grave concerns about allowing these amalgamations of institutions that by their very structure are too big to fail, too interconnected to fail and I think the burden should be very heavily against that,' Hoenig said."

With even Fed officials now openly expressing these concerns, the comment period must be extended and the requested public hearings held.

  When Capital One applied to the Fed to acquire ING Direct, the US Internet banking subsidiary of Amsterdam-based ING, community groups like ours around the country and Washington based NCRC began to file protests, based on Capital One's anti-consumer practices.

  But the impending addition to Capital One of the predatory lending platform HSBC bought along with Household International, while Household was being pursued by state Attorneys General around the country, would make matters worse.

   With these two acquisitions, Capital One could become a fifth "too big to fail" bank in the US, after JP Morgan Chase, Bank of America, Wells Fargo and Citigroup. The anachronistic gang in Capital One's television ads, along with Alec Baldwin, may be funny, but less so if considered too big to fail, possibly requiring bailouts.

  In group's  initial comments to the Fed, less has been said about ING, in part because ING's US business had been directed at a more affluent clientele, and because ING was not viewed as the applicant.

  But after Inner City Press filed a Freedom of Information Act request with the Federal Reserve Board on July 22, a partial response from the Federal Reserve shows that ING has quietly sought a ruling from Fed General Counsel Scott Alvarez that ING should not have submit any application subject to public comment to own up to 9.9% of Capital One. Click here to view the Fed's (first) FOIA partial denial letter, from which Inner City Press has already appealed.

  This would exclude public comment and consideration of ING doing business with the likes of Sudan, Iran, Cuba, Syria and others on the US state sponsors of terrorism list. ING had admitted being under investigation for, and negotiating with the US Department of Justice about, such violations, and there have been expressions of Congressional concern, which the Fed could ignore by granting ING's stealth request.

Fed board & Bernanke, ING's Sudan & Syria business & HSBC's predatory cards not shown

  The documents obtained under FOIA show that ING, represented by the Wall Street law firm of Sullivan & Cromwell, on July 15 wrote to the Fed's Alvarez asking for "written confirmation that [ING] will not be deemed to directly or indirectly 'control' Capital One for purposes of the Bank Holding Company Act upon the consummation of the Bank Sale."

Earlier in ING's 13 page request, on which the Fed has until now not solicited or accepted any public comment, ING says that the shares with which Capital One would pay it for ING Direct would "represent between 9.7% and 9.9% of the outstanding shares of Capital One's Common Stock on the closing date." Click here to view some of the released records, including Sullivan & Cromwell's letter to the Fed for ING.

Under the Bank Holding Company Act, any holding over 4.9% can be considered control. One would think, given the issues raised, that the Fed would solicit comment and hold the requested public hearings on ING's request to own nearly 10% of Capital One. But it has only come about because of the Fed's partial FOIA response.

Inner City Press / Fair Finance Watch immediately submitted a comment to the Fed and its chairman Ben Bernanke formally demanding the ING submit an application, and joining in requests by NCRC and others for public meetings and an extension of the comment periods until at least October 22.

In a FOIA appeal already filed with but not yet even acknowledged by the Fed, Inner City Press has demanded all withheld records about ING's stealth request, as well as the withhold portions of Capital One's application, which range from exhibits about money laundering to ING's mortgage portfolio.

Amazingly, the Fed mis-read Inner City Press' FOIA request as only asking from Fed communications with ING and Capital One about the proposed acquisitions, when in fact Inner City Press requested all records reflecting Fed communications concerning either of the two companies.

The Fed has provided such records, including internal Fed emails about the Industrial & Commercial Bank of China and Governor Warsh's meeting with its chairman, in previous responses to Inner City Press.

  The Fed has also withheld records about an "ex parte" meeting as far back at May 26 between Capital One's Kevin Murray (SVP of Regulatory Relations), John Finneran and Gary Perlin with a range of Fed officials.

  It seems the Fed, ING and Capital One have already had something to hide in this transaction, including seeking to exclude from public comment and consideration ING illegally doing business in and with Syria, Iran, and Sudan. Now they seek to sweep through and under the carpet Capital One's proposed acquisition of the predatory lending platform of Household International from HSBC. But it will continue to be opposed. Watch this site.