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The Too Big To Fail Bank Merger of OneWest and CIT Group

How public subsidy could lead to private gains

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Transcript of The Too Big To Fail Bank Merger of OneWest and CIT Group

In 2009, a group of investors purchased IndyMac from the FDIC and renamed it "OneWest." The FDIC granted them a controversial "
shared loss agreement
" whereby the FDIC would share in the bank's cost as OneWest foreclosed on IndyMac mortgages.


Michael Dell George Soros John Paulson Christopher Flowers Steve Mnuchin

As part of the "shared loss" agreement with the FDIC, OneWest agreed to modify mortgages where possible.

However, OneWest has foreclosed on a 36,382 Californians.

36,382 foreclosures may not be surprising, since housing counselors surveyed by the California Reinvestment Coalition consistently ranked OneWest as one of
the most difficult mortgage
servicers to work with in trying to help homeowners avoid foreclosure.


Indymac has the worst performance in terms of foreclosure prevention. Very difficult to obtain any assistance. We had a client that was a victim of dual tracking and had their home foreclosed on.
” -2012 quote from housing counselor


OneWest Bank: How did it start?
In 2008, IndyMac Bank failed after making tens of thousands of predatory mortgages.

It was one of the largest bank failure in the US and the FDIC was forced to seize the bank.

Fast Forward to July 2014:

OneWest announces plans to merge with CIT Group, creating a Systemically Important Financial Institution, also known as a
Too Big To Fail
bank.
Does CIT Group sound familiar? It should if you followed the bank bailouts....
In 2008, the US Treasury Dept. "invested" $2.3 billion of taxpayer dollars in CIT Group, via TARP.

The Federal Reserve justified it by saying small businesses depended on the access to the capital provided by CIT, and that the benefits outweighed the risks.

CIT Group filed bankruptcy in 2009, erasing its obligation to repay taxpayers the $2.3 billion it had received in 2008.
Now, these two banks, who have received enormous public subsidies, are proposing to merge, creating a bank with nearly $70 billion in assets.

In evaluating proposed mergers, bank regulators are required to assess:

potential anti-competitive concerns
the public benefit of the merger
the bank's past Community Reinvestment Act (CRA) exam results
Let's look at CIT Group's CRA record first:

CIT Bank, part of CIT Group, accepts $14 billion in deposits from around the US, via the Internet.

However, it
only reinvests
those deposits near its Salt Lake City headquarters.

This practice flies in the face of the spirit of the Community Reinvestment Act, which requires banks to reinvest in the communities where they accept deposits.
During the next year, CIT Group only made 142 SBA small business loans. That's 1,053 loans
fewer
than the year before.
A protest against OneWest foreclosures
at the $26 million mansion owned by
Steve Mnuchin, the Chair of OneWest Bank.
(photo credit: Walt Mancin, Pasadena Star-News)
OneWest Bank's CRA Record is also very weak:

Only 2 of its 71 branches are in low income areas;
In 2013, the industry average for mortgage loans made to Asians in California was 16%. However, only 7% of OneWest's mortgages went to Asian borrowers.
The majority of OneWest's "small business" loans actually go to companies with $1 million or more in revenue.
The bank's CRA activities places it at the bottom of the rankings when compared to its peer banks in California.
Bank run: Customers try to get their
money out of IndyMac

Shared Loss = OneWest's Gain
Even in 2014, the CEO of OneWest Bank, Joseph Otting, refuses to talk about the IndyMac shared loss agreement.

At a community input meeting about the proposed merger with CIT that he hosted with John Thain (CEO of CIT Group), they
encouraged
invited community members to ask questions.

However, they then
refused
to answer questions about how much money OneWest has received from the shared loss agreement from IndyMac. OneWest also has another shared loss agreement that it secured when it purchased La Jolla, FSB, another failed bank.


Since the bank CEOs wouldn't be transparent, the California Reinvestment Coalition submitted a Freedom of Information Act (FOIA) request to the FDIC, asking how much money it has paid to OneWest.


According to data we received from the FDIC, CRC calculated that the FDIC has
already
paid $1,028,404,397 to OneWest.

And it's not done.


Before 2019, the FDIC estimates it will pay the bank another 1,430,023,160.

That's over $2.4 billion!
Some suggested the shared loss agreement gave OneWest incentive to foreclose (in order to collect shared loss payments from the FDIC), instead of modifying people's mortgages.





Until now, the FDIC frequently defended the arrangement by pointing out it hadn't paid any money to OneWest, like in this 2010
NYT
article:

"Here are the facts: OneWest has not been paid one penny by the FDIC in loss-share claims. " -FDIC Director of Public Affairs ("Charges in Web Video Bring Unusual Rebuttal From F.D.I.C."
New York Times
, Feb 14, 2010)
Some of the billionaire investors who bought IndyMac

The OneWest Bank and CIT Group merger

A Too Big To Fail bank merger built on public subsidies and private gains.

Here's what you need to know.
Maybe CIT's bail-out wasn't so helpful for small businesses?
How many Americans would have kept their homes if that $2.3 billion had been used
instead
to provide mortgage modifications for IndyMac mortgages?
source:
CNN Money:
"CIT's Long Goodbye" Nov. 2009
It gets worse:
These two banks, which wouldn't be alive without the
public
subsidies they've
already
received, plan to use CIT Group's Net Operating Loss from its 2009 bankruptcy to
reduce
the taxes the new bank would pay.
In sum, two banks with troubled histories and weak records of community reinvestment are now asking regulators to merge together, increasing risk to our financial system, and providing little to no public benefit.
(photo credit: Andrew Gombert, European Pressphoto Agency, from NYT "Financial Finger-Pointing Turns to Regulators" (Nov 2011).
CIT Group CEO John Thain quoted in CIT Group press release, dated July 22, 2014: “The transaction diversifies and lowers the cost of CIT's deposits, broadens the products we can offer to our middle market clients, is accretive to earnings and return on equity, and
accelerates the utilization of our NOL
, (emphasis added) while maintaining a strong capital position.” (NOL is abbreviation for Net Operating Loss)

Does what you just read concern you?

Join with over 21,000 individuals and 100 organizations throughout the US who are opposing this merger and calling on Federal Reserve and the Office of the Comptroller of the Currency to thoroughly analyze the public benefit (if any) of this merger vs. the outsized risks it creates.

You can learn more about this merger, how to oppose it, and see our sources for this presentation at:
www.badbankmerger.com
Full transcript