Los Angeles Times
by E. Scott Reckard
A leading public advocacy group that had opposed the sale of Pasadena’s OneWest Bank asked federal regulators for a formal investigation into what it called the bank’s efforts to “buy community support” for the deal.
The Greenlining Institute, in a letter released Thursday, contends that OneWest Chief Executive Joseph Otting had threatened to withhold funding to church and community groups unless they spoke in favor of the $3.4-billion purchase by CIT Group in New York at a special hearing last week.
Otting, in a bid to counter calls for the hearing, had launched an unusual online effort in early January to swing support for the controversial deal by urging business leaders, friends and community groups to send regulators a form letter backing the transaction.
The Federal Reserve, however, decided to call the meeting at its Los Angeles offices so the public could comment on whether the purchase would create a bank that would operate safely and benefit all sectors of the community.
Opponents, including Greenlining, said the merger would create a too-big-to-fail bank with inadequate commitment to poor and minority neighborhoods.
But members of many church and community groups praised OneWest, saying it had promised them substantial financial support if the merger were approved.
Greenlining’s executive director, Orson Aguilar, also said in his letter that Otting had told him in October that the bank would not provide support for any community-based groups that opposed the merger.
Aguilar later said Otting eventually reversed himself in an email saying that was not the bank’s policy.
Neither could be reached for comment Thursday.
“After attending the public hearing on this proposed transaction, we fear these threats have in fact increased public support and muted public opposition to the proposed merger,” Aguilar wrote.
“Do regulators support CEOs promising monetary assistance to groups to gain support for mergers? We hope not,” Aguilar said in his letter to the Fed and the Office of the Comptroller of the Currency.
Both regulators must approve the deal.
The deal with CIT Group, a national commercial lender, would provide OneWest with more types of loans for businesses and would supply CIT with a large base of deposits. Spokesmen for the financial firms did not respond to requests for comment.
The proposal has proved controversial on a number of fronts.
For starters, it would create what’s known as a systemically important financial institution — a bank that requires strict oversight because it would have more than $50 billion in assets and, thus, might present a threat to the stability of the financial system if it failed.
Opponents also have objected to what they describe as taxpayer-funded welfare for both institutions.
The current owners of OneWest, a group of wealthy private investors who outbid a long list of potential buyers, created the bank from the ruins of IndyMac Bank, an aggressive mortgage lender whose collapse in 2008 cost the federal deposit insurance fund a record $13 billion.
Regulators agreed to shoulder billions of dollars in losses on IndyMac loans to induce the buyers to take over the failed bank.
One of the investors, billionaire hedge fund operator Christopher Flowers, later boasted that the government got all the downside of the deal while the buyers got all the upside.
The investors put in more than $1.5 billion to recapitalize OneWest in 2009 and reaped $2.3 billion in dividends before agreeing to sell the bank to CIT.
For its part, CIT never repaid $2.3 billion in taxpayer bailout funds during the Great Recession, getting the debt wiped out in bankruptcy.
Officials at the Fed and the OCC did not provide comment; much of the government’s business in Washington was shut down by snow.
CIT Chief Executive John Thain promised at last week’s hearing that the planned OneWest buyout would be good for poor neighborhoods and pledged that the bank would provide $5 billion in loans, philanthropy and additional support over four years to low-income areas.
Otting said the deal would create a “hometown bank” big enough to compete with megabanks based elsewhere.
He said OneWest would ramp up small-business lending, appoint minority representatives to an advisory board and provide funds for nonprofits and smaller banks to make small-dollar loans in poor areas.
Gilbert Vasquez, chairman of the Los Angeles Latino Chamber of Commerce, said he supported the merger not only because Otting pledged to help nonprofits but because he believed OneWest would follow through on promises to increase lending to minority businesses and to put a Latino on the bank’s board of directors.
“We think OneWest can be a trend-setter,” said Vasquez, head of a downtown Los Angeles accounting firm. “We think they can be a model for the other banks.”