Matthew R. Lee, executive director of Inner City Press/Community on the Move, is using every means possible to derail the Citicorp-Travelers Group merger.
Mr. Lee recently asked the Federal Reserve Board to throw out the May 4 application to form $700 billion-asset Citigroup and force the companies to file a new merger request.
If the Fed refuses, Mr. Lee has also asked that several regulators recuse themselves from deliberations on the deal, including Fed Chairman Alan Greenspan.
"We've got to start over, clean the slate," Mr. Lee said in an interview.
This objection follows Inner City Press' 52-page protest filed after the merger was announced April 6. In that protest Mr. Lee requested a public hearing on the deal, arguing that Citicorp's Citibank unit has abandoned low-income areas in violation of the Community Reinvestment Act.
While much has been made of Mr. Greenspan's meeting with Citicorp and Travelers executives the week before the $70 billion deal was announced, in this latest objection Mr. Lee is focused on discussions lawyers for the companies had with Fed General Counsel J. Virgil Mattingly Jr.
According to Mr. Lee, Mr. Mattingly improperly assured the companies' lawyers that the deal would be approved. "We want this application dismissed and a formal statement that all bets are off," Mr. Lee said. "And there should be a full disclosure of everything that was said."
But in an interview Thursday, Mr. Mattingly said there was nothing wrong with his conversations with William J. Sweet Jr., a Skadden, Arps, Slate, Meagher & Flom partner working for Travelers, and Bradley K. Sabel, a Shearman & Sterling partner working for Citicorp.
"I do this all the time, that's why I'm here," Mr. Mattingly said. "They know it (his advice) is not binding because I can't bind the (Fed) board."
In separate interviews, Mr. Sweet and Mr. Sabel agreed, noting the merger will be approved or denied by the Fed governors, not Mr. Mattingly.
Several other lawyers with no connection to the case said deals are routinely run by regulators before they are formally filed.
"There is nothing out of the ordinary here," said Alfred J.T. Byrne, a former general counsel to the Federal Deposit Insurance Corp. "Anyone who thinks otherwise is either ill-informed or naive."
"It is exactly the type of communication one would expect to have and is absolutely normal," said Rodgin Cohen, a partner with Sullivan & Cromwell.
But Mr. Lee does not accept this. "You have an incredible insiders game going on," he said, arguing that the Fed board is unlikely to overturn the advice of its general counsel. But Mr. Lee is not confining his fight to the Fed. He has filed protests at several state banking departments and insurance commissions.
For example, Mr. Lee's organization, based in the Bronx, N.Y., has joined a community group in Delaware to protest the merger before that state's insurance department.
Delaware regulators have scheduled a June 4 hearing on the deal, but Mr. Lee is trying to postpone it. He said state law allows protesters to interrogate executives of companies with applications before the agency. To explore "the competence, experience and integrity of those persons who would come to control" a Citicorp unit based in Delaware, Mr. Lee has asked the insurance department to allow him to depose Mr. Sweet and Mr. Sabel as well as Sanford I. Weill and John S. Reed, the top executives of Travelers and Citicorp, respectively.
In addition to its size, the deal is noteworthy because it would be the first to result in a full-service financial firm with commercial banking, securities, and insurance underwriting powers.
By law, the Fed may approve such a merger but must require the company to divest within two years any business barred to bank holding companies. The company would be eligible for up to three one-year extensions.
Citicorp and Travelers officials have insisted that they are prepared to sell the insurance underwriting business if Congress does not reform the financial laws.
But Mr. Lee's objections are based on two letters sent to Mr. Mattingly by Mr. Sweet and Mr. Sabel. In a March 30 letter the lawyers assure Mr. Mattingly that the merged company would operate its insurance underwriting activities as a separate entity so it could be sold if necessary. They also lay out how the merged company would cross-sell its insurance, banking, and securities products.
The letter outlines Citigroup's plans to use a common brand name for a range of products, even if manufactured by an outside firm; to offer price cuts to customers who buy multiple products; to share customer data bases; and to provide one statement to customers buying banking, insurance, or securities products.
Mr. Sweet and Mr. Sabel told Mr. Mattingly that their clients "are comfortable proceeding with the transaction provided you are not uncomfortable with the type of practices outlined above."
The lawyers specifically stated that they did not want a written response, but "ask that you advise us if you disagree with the approach and analysis we have outlined in this letter." The lawyers told Mr. Mattingly they would call the next day.
During that call, Mr. Mattingly said he told the lawyers that the cross- selling plans should not interfere with the divestiture requirement or give the company an unfair competitive advantage.
In a March 31 letter, the lawyers assured the Fed general counsel that cross selling would not impede a sale of the insurance underwriting unit or give the company an edge over competitors.
"The entire deal is premised on using the two-year waiver to integrate the two businesses," Mr. Lee said. "The deal itself hinged on the Fed general counsel not being uncomfortable.
Mr. Lee said the Fed must give the public and potential competitors a chance to comment on the safeguards needed to ensure cross marketing does not violate customer privacy.
"The whole reason for the comment period is the Fed doesn't know everything," Mr. Lee said. "This is the only window and it feels rigged."
Inner City Press opposes plans to merge the companies' customer data bases. "There is a danger of abuse when private information that you have to give your health insurer is shared with your lender," he said. "It's a setup for abuse."
Mr. Mattingly said the Fed will consider all comments on safeguards that might be needed. But he reiterated: "There is nothing in federal law that prohibits people from coming in and asking for advice."
Mr. Mattingly said he did not know if the Fed would rule on Mr. Lee's request separately or bundle it with the decision on the merger application.
Comments are due on the Citigroup merger June 16. Mr. Lee said Thursday that Inner City Press will sue the Fed if his objections are brushed off. "If they do nothing, or not enough, we would try to get a court to look at it," he said.
