WASHINGTON — Citigroup Inc., renowned for getting its way in Washington, has been working overtime here recently, and the effort has paid off.

The $900 billion-asset company needed just six weeks to win Federal Reserve Board approval of its groundbreaking, $12.5 billion deal for Mexico’s second-largest bank. In four business days after the deadline for public comment, the Fed staff speed read 80 letters opposing the acquisition of Grupo Financiero Banamex Accival and recommended approval of the deal, which was given July 16.

The quick decision shocked community advocates.

“That the Fed would approve an application as complex and multiply protested as Banamex in less than the rule-of-thumb 60 days is amazing,” Inner City Press/Community on the Move executive director Matthew Lee said in an interview. “The Fed is almost in denial. No matter what is said about Citigroup, the Fed just can’t believe it’s true.”

After the deal was approved by Mexican authorities in early July, Citigroup moved up its closing date to August, from the fourth quarter. To expedite Fed approval, it filed a simpler application on July 12. Mr. Lee said the Fed notified him of the new application at 4:55 p.m. on July 13, a Friday. The Fed approved the amended request the next Monday.

A Fed spokesman denied any favor was done for Citigroup, a company whose very creation required significant political muscle.

The 1998 marriage of banking giant Citicorp and insurance heavyweight Travelers Group is credited with spurring Congress to finally enact sweeping financial reform legislation that allowed banks, brokers, and insurers to own each other. Citi’s top executives, Sanford I. Weill and Robert E. Rubin, are among business’ best connected. Mr. Weill had a personal relationship with then-President Clinton, phoning him the Sunday night before the Travelers Group/Citicorp deal was announced and working with him on a number of initiatives. Mr. Rubin was Treasury Secretary then, and his decision to join Citigroup was considered a huge coup for the company.

Citigroup, unlike many large financial companies, has a stable of lobbyists here led by Roger Levy. Mr. Levy’s ties to the Clinton administration were so tight that when lawmakers hammering out the final version of financial reform needed to know what the White House thought about a particular provision, Sen. Phil Gramm quipped that maybe Mr. Levy could call the President and find out.

Citi’s key regulatory applications are entrusted to former Fed lawyer William J. Sweet Jr., a partner at Skadden, Arps, Slate, Meagher & Flom.

After waving off critics with little more than promises last year, Citigroup realized it must take concrete steps to pacify policymakers upset about predatory lending and money laundering. So it made at least four key moves: dropping a controversial product, courting a powerful lawmaker, rebutting critics’ claims head-on, and luring a senior Fed employee onto its payroll.

Citigroup’s wake-up call came in March when the Fed decided to make a federal case of the company’s relatively small, uncontroversial deal for European American Bank, the ABN Amro Holding NV subsidiary in Uniondale, N.Y. That $1.9 billion merger was scrutinized by Fed officials for more than four months.

Before approving the EAB acquisition on July 2, Fed officials peppered Citi’s lawyers with at least 10 rounds of detailed questions about the company’s subprime lending operations. The process was time-consuming and expensive, and it supplied embarrassing ammunition to the company’s critics because the questions, and Citi’s answers, were sent to 16 parties that had protested the deal.

The Fed’s painstaking review had to jolt Citigroup, which is accustomed to smooth regulatory approvals. For instance, its controversial deal for Associates First Capital Corp. last year, which drew flak on many fronts, from consumer groups to members of Congress, was approved in just 73 days.

The Fed, however, did not weigh in on that deal because the Gramm-Leach-Bliley Act, in a bid to streamline the merger process, had dropped the requirement for the central bank’s sign-off when a bank buys a nonbank. (Associates had three limited-service banks, so the application was treated as a simple change in control by the OCC and the FDIC.)

But if the Fed was denied its say on the Associates application, it more than made up for this on the EAB application, with its lengthy review of Citigroup’s moves to clean up Associates’ lending practices.

That got Citigroup’s attention, and the company abandoned the strategy used last fall when the Associates deal was announced. Then, critics demanded that Citi clean up Associates’ lending tactics, but the financial services giant made small concessions and basically asked regulators to trust it to “lead the market and set the highest standards in the consumer finance industry.”

The days of vague promises are gone.

On June 28, Citi announced it would stop selling single-premium credit insurance, the poster product for predatory lending.

Last week, Citigroup told Senate Banking Committee Chairman Paul Sarbanes it would back off earlier objections to proposed changes in rules enforcing the Home Ownership and Equity Protection Act. The Fed’s proposal would count the cost of single-premium credit insurance toward a points-and-fees threshold that triggers the law’s protections. Citi had argued in a March 30 comment letter that including this cost in the trigger would limit access to credit insurance.

But in a July 23 letter to Sen. Sarbanes, the chief executive officer of Citi’s consumer group, Robert B. Willumstad, said the company has stopped selling the product and would withdraw its objection. “Our shift in position had a great deal to do with our conversations last week,” Mr. Willumstad wrote in a letter to the Maryland Democrat. “We appreciate your thoughtful comments on how inclusion would extend HOEPA protection to more borrowers.”

To smooth the Fed’s consideration of the Banamex deal, Citigroup on July 3 submitted a 20-page paper addressing its critics’ concerns. The paper outlined Citi’s “strong record of servicing minority communities,” including its branch network in California minority communities (where Banamex operates a bank, too), as well as its “leadership in addressing predatory lending issues and in anti-money-laundering.”

Much of what’s in the paper was covered by the Fed during its consideration of the EAB application. In fact, the Fed’s 36-page order approving the Banamex deal makes 30 references to the EAB order, most explaining that an issue raised in the Banamex deal had already been aired and resolved to the Fed’s satisfaction in the EAB deal.

On the money-laundering front — a key consideration in cross-border deals — Citigroup hired the Fed’s longtime leading staffer on the issue, Richard Small, to be director of global anti-money-laundering. The company’s paper rebutting critics also stated that it employs 300 anti-money-laundering compliance officers and has an executive-level advisory group that meets monthly to set policy on the matter.

Though Citigroup was able to secure quick approval of the Banamex application, it still faces potential problems.

The Greenlining Coalition wrote Fed Chairman Alan Greenspan last week, asking him to withdraw the Banamex approval and schedule a hearing within 30 days.

Comparing the Fed’s approval to “Alice in Wonderland” where a verdict is reached before the trial, the San Francisco-based umbrella group for 37 religious, minority, and ethnic organizations said the “hastily crafted approval … would embarrass even an old-style Banana Republic regime.”

The Fed is planning a special exam to see how well Citigroup carries out various “consumer protection measures proposed or adopted” to address “weaknesses in the historical performance record of Associates’ subprime lending.” If the exam turns up any problems, the Fed said it has broad authority “to take any other steps necessary to address deficiencies.”

Critics point out that the results of an exam are not made public, but industry lawyers contend that the Fed still has plenty of leverage over Citigroup. If the exam reveals that it is not delivering the promised reforms, the Fed could reprimand and fine the company or even require a change in management.

To help the Fed track progress, it also required Citi to submit quarterly reports for at least two years detailing the status of litigation involving its subprime units and the company’s compliance with any court orders or settlements.

Litigation is another huge unknown for the company. Among the lawsuits filed over abuses alleged against Associates, the most prominent was filed in March by the Federal Trade Commission. Citigroup’s motion to dismiss the case is pending. If it goes to trial, the government’s case could become a public relations nightmare. A settlement would be lower-profile but could prove costly.

The FTC case is based in part on complaints by Associates employees — complaints now being used in protests of Citi’s merger applications. Inner City Press’ Mr. Lee claimed the Fed ignored sworn statements by ex-CitiFinancial Mortgage employees, alleging lending violations as well as moves by Citi to silence them by withholding final checks until they signed “gag orders.” (See related story on page 4.)

Fed spokesman David W. Skidmore said the Fed investigated all complaints, found no reason to block the EAB or Banamex acquisitions, and will continue to monitor Citigroup via the exam ordered in the EAB approval.

He said that the Banamex application took less time to review than usual because the Fed had just finished evaluating Citigroup for the EAB deal. “We act on applications when they are ready,” he said. “In this case we had just reviewed the applicant two weeks earlier in connection with the EAB application.”

The change Citigroup made in its application July 12 had to do with the deal’s structure, Mr. Skidmore said, so it did not require additional public comment.

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