Feb. 26 marked one year since the Office of the Comptroller of the Currency and the Federal Reserve hosted a public hearing on CIT Group's proposed acquisition of OneWest Bank. The merger was approved in July, but of special note was the OCC's "conditional approval" requiring CIT to submit a comprehensive business plan as well as an updated Community Reinvestment Act plan. It now appears the bank is about to test just how conditional the OCC's approval really is.
Comptroller Thomas Curry drew applause earlier in the month when he touted the benefits of conditional bank approvals, in remarks to the National Interagency Community Reinvestment Conference, to address concerns raised by the public about pending mergers. The OCC's directive and leadership changes at CIT Group and CIT Bank inspired hope among California community groups that the new bank would develop a robust plan to help meet the convenience and credit needs of low-income communities.
But, unfortunately, it does not appear that CIT plans to deliver an effective CRA plan in response to the OCC's charge. From our conversations with the bank, we have analyzed its current pending CRA program, and its new reinvestment programs total even less for California communities than CIT had pledged to do before last year's hearing.
A robust CRA plan is especially important in light of the both support CIT received from taxpayers in the crisis and the assistance provided by the Federal Deposit Insurance Corp. to the leadership of OneWest in launching the Southern California bank from the ashes of the failed IndyMac Bank and in OneWest's ensuing failed-bank acquisitions. It is also important to scrutinize CIT's CRA plans in light of OneWest's track record — of stripping wealth from California families by executing 36,000 foreclosures — and OneWest's flimsy reinvestment record, which ranks near the bottom of its California peers. Meanwhile, the CRA plan that CIT submitted before last year's public hearing was not at all commensurate with its size. (CIT exceeds the $50 billion-asset asset threshold to be considered "systemically important" by the Federal Reserve.)
CIT's peer banks have proven that strong CRA plans can be designed in partnership with stakeholders in order to meet the needs of the local communities where they do business. Community groups were so hopeful that new leadership at the bank would follow the example set by other banks that we agreed to hit "pause" on our campaign to hold the bank accountable to serving California communities, in order to allow CIT more time to develop a strong CRA plan.
But today we are left shaking our heads in disappointment with CIT's response. We have been in conversations with the bank since the start of the year. Those discussions now indicate that CIT will propose an approach that will result in reinvestment of less than 4% of deposits annually. It is disheartening that this is even less than the bank had proposed prior to the public hearing. The proposed commitment also represents a much smaller commitment than banks a fraction of CIT's size have already committed to make. More than six months after regulators' conditional approval, we are left to wonder if the pending CRA plan — should CIT not commit to do more — will satisfy the OCC's conditional approval requirements, especially since the plan represents a reduction in proposed annual CRA activity.
Notably, in the same period in which CIT has been planning to reduce community reinvestment, the bank has awarded huge compensation packages to departing executives. One such windfall is for John Thain, the chairman and chief executive set to retire at the end of March. The bank reportedly changed its retirement policy to allow him to keep stock he otherwise might have lost — a move that could be worth an estimated $13 million. Reuters Breakingviews columnist Richard Beales, recalling Thain's notoriously lavish spending as former CEO of Merrill Lynch, called the stock deal a "fine-print equivalent of a decorative cabinet." Similarly, when CIT Group fired 14 employees in December, including the former CEO of OneWest, the acquirer softened the blow with $60 million worth of severance packages.
Where is the soft landing for communities that suffered tens of thousands of foreclosures and negligible reinvestment at the hands of OneWest and now CIT? Should we be surprised that CIT Group executives receive millions while California communities are asked to be content with a CRA plan that would place the bank significantly below its peers in investments in affordable housing, small-business lending and philanthropy?
The OCC's conditional approval is only as good as CIT Group's compliance with it. If CIT Group is sincere about addressing concerns raised about the merger, we suggest that it not try to sell the community on a "less is more" plan, but rather commit to substantially more and to mean it. Communities have waited long enough.
Paulina Gonzalez is the executive director of the California Reinvestment Coalition. Roberto Barragan is president and chief executive of VEDC and a board member of the California Reinvestment Coalition.