FEDERAL RESERVE SYSTEM

Citigroup Inc.
New York, New York

Citigroup Holdings Company
Wilmington, Delaware

Citicorp
New York, New York

Order Approving Acquisition of a Bank Holding Company

Citigroup Inc., Citigroup Holdings Company, and Citicorp, financial
holding companies within the meaning of the Bank Holding Company Act
(“BHC Act”) (together, “Citigroup”), have applied under section 3 of the BHC Act
(12 U.S.C. § 1842) to acquire at least 51 percent of the voting shares of
Grupo Financiero Banamex Accival, S.A. de C.V. (“Banacci”), and
Banco Nacional de Mexico, S.A. (“Banamex”), both in Mexico City, Mexico, and
thereby indirectly acquire Banamex USA Bancorp, and its subsidiary, California
Commerce Bank, both in Los Angeles, California (“CCB”).1

Citigroup also has filed a notice under section 4(c)(13) of the
BHC Act (12 U.S.C. § 1843(c)(13)) and the Board’s Regulation K (12 C.F.R. 211)
to acquire Banamex, and its foreign banking and nonbanking investments.2
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1 Citigroup also has proposed to form another intermediate bank holding company
between Citigroup and CCB.
2 Banacci is a financial services holding company organized under the laws of
Mexico. In addition to CCB and Banamex, Banacci’s main financial subsidiaries

1
Notice of the proposal, affording interested persons an opportunity to
submit comments, has been published (66 FederalRegister 31,649 (2001)). The
time for filing comments has expired, and the Board has considered the proposal
and all comments received in light of the factors set forth in the BHC Act and other
applicable statutes.
Citigroup, with total consolidated assets of $902.2 billion, is the
largest commercial banking organization in the United States, controlling
approximately 3.9 percent of the total assets of insured commercial banks in the
United States, and is one of the largest commercial banking organizations in the
world.3 In California, Citigroup operates Citibank, Federal Savings Bank,
San Francisco (“Citibank FSB”), the eleventh largest depository organization in
California, with $6 billion in deposits, representing approximately 1.3 percent of
total deposits in insured depository institutions in the state (“state deposits”).4
Citigroup also operates depository institutions in New York, Connecticut,
Delaware, Florida, Georgia, Illinois, Maryland, Nevada, New Jersey, South
Dakota, Texas, Utah, Virginia, the District of Columbia, Guam, Puerto Rico, and
the U.S. Virgin Islands.
CCB operates only in California and is the 41st largest depository
institution in the state, with $1.3 billion in deposits, representing less than
are Acciones y Valores de Mexico, S.A. de C.V., which engages in securities
activities, and Seguros Banamex AEGON, S.A. de C.V., which engages in
insurance underwriting and related activities. As a financial holding company,
Citigroup has proposed to acquire these Banacci nonbanking subsidiaries pursuant
to section 4(k) of the BHC Act. 12 U.S.C. § 1843(k).
3 Asset and U.S. ranking data are as of December 31, 2000.
4 In this context, depository institutions include commercial banks, savings banks,
and savings associations. Deposit and state ranking data are as of June 30, 2000.


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1 percent of state deposits. After consummation of the proposal, Citigroup would
become the seventh largest depository organization in California, with $7.3 billion
in deposits, representing approximately 1.6 percent of state deposits.
Interstate Analysis
Section 3(d) of the BHC Act allows the Board to approve an
application by a bank holding company to acquire control of a bank located in a
state other than the home state of such bank holding company if certain conditions
are met. 5 For purposes of the BHC Act, the home state of Citigroup is New York,
and CCB is located in California. Based on a review of the facts of record,
including a review of the relevant state statutes, the Board finds that all the
conditions enumerated in section 3(d) of the BHC Act for an interstate acquisition
are met in this case.6 In light of all the facts of record, the Board is permitted to
approve the proposal under section 3(d) of the BHC Act.
Competitive Considerations
Section 3 of the BHC Act prohibits the Board from approving a
proposal that would result in a monopoly or be in furtherance of a monopoly. The
BHC Act also prohibits the Board from approving a proposal that would
5 See 12 U.S.C. § 1842(d). A bank holding company’s home state is the state in
which the total deposits of all banking subsidiaries of such company were the
largest on July 1, 1966, or the date on which the company became a bank holding
company, whichever is later. 12 U.S.C. § 1841(o)(4)(C).
6 See 12 U.S.C. §§ 1842(d)(1)(A) and (B) and 1842(d)(2)(A). Citigroup is well
capitalized and well managed. On consummation of the proposal, Citigroup would
control less than 10 percent of the total amount of deposits of insured depository
institutions in the United States and less than 30 percent of the total amount of
deposits of insured depository institutions in California. CCB has been in
existence and operated continuously for at least 5 years, the period of time required
by California law. See 12 U.S.C. § 1842(d)(1)(B); Cal. Fin. Code § 3825 (1999).
The other requirements of section 3(d) also have been met.



3
substantially lessen competition in any relevant banking market unless the
anticompetitive effects of the proposal in that banking market are clearly
outweighed in the public interest by the probable effects of the proposal in meeting
the convenience and needs of the community to be served.7
Citigroup’s subsidiary savings association, Citibank FSB, competes
directly with CCB compete in the Los Angeles, California banking market
(“Los Angeles banking market”).8 The Board has reviewed carefully the
competitive effects of the proposal in the Los Angeles banking market in light of
all the facts of record, including the number of competitors that would remain in
the market, the relative shares of total deposits in depository institutions in the
market (“market deposits”) controlled by Citigroup and CCB,9
the concentration
level of market deposits and the increase in this level as measured by the
Herfindahl-Hirschman Index (“HHI”), and other characteristics of the market. 10
7 See 12 U.S.C. § 1842(c).
8 The Los Angeles banking market is defined as the Los Angeles Ranally Metro
Area and the towns of Acton, Rancho Santa Margarita, and Rosamond, California.
9 Market share data are as of June 30, 2000, and are based on calculations that
include the deposits of thrift institutions, except the deposits of Citibank FSB,
weighted at 50 percent. The Board has indicated previously that thrift institutions
have become, or have the potential to become, significant competitors of
commercial banks. See, e.g., Midwest Financial Group, 75 Federal Reserve
Bulletin 386 (1989); National City Corporation, 70 Federal Reserve Bulletin 743
(1984). Thus, the Board regularly has included thrift deposits in the calculation of
market share on a 50-percent weighted basis. See, e.g., First Hawaiian, Inc.,
77 Federal Reserve Bulletin 52 (1991). Because Citibank FSB is affiliated with a
commercial banking organization, its deposits are included at 100 percent.
See First Banks, Inc., 76 Federal Reserve Bulletin 669 (1990).
10 Under the Department of Justice Merger Guidelines (“DOJ Guidelines”),
49 Federal Register 26,823 (June 29, 1984), a market is considered moderately
concentrated if the post-merger HHI is between 1000 and 1800. The Department


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Citigroup operates the 15th largest depository organization in the
Los Angeles banking market, controlling market deposits of $1.7 billion,
representing approximately 1.2 percent of market deposits. CCB is the
22nd largest depository organization in the market, with deposits of $1.3 billion,
representing less than 1 percent of market deposits. On consummation of the
proposal, Citigroup would operate the ninth largest depository organization in the
market, controlling deposits of $3 billion, representing approximately 2.1 percent
of market deposits. The HHI for the market would increase 2 points to 1019. The
Los Angeles banking market would remain moderately concentrated after
consummation of the proposal, with numerous competitors in the market.
The Department of Justice has reviewed the proposal and advised the
Board that consummation of the proposal would not likely have any significantly
adverse competitive effects in the Los Angeles banking market or any other
relevant banking market. The Office of the Comptroller of the Currency (“OCC”)
and the California Department of Financial Institutions (“CDFI”) also have been
provided an opportunity to comment and have not objected to consummation of the
proposal. 11
After carefully reviewing all the facts of record, and for the reasons
discussed in this order, the Board concludes that consummation of the proposal
would not likely result in a significantly adverse effect on competition or on the
of Justice has informed the Board that a bank merger or acquisition generally will
not be challenged (in the absence of other factors indicating anticompetitive
effects) unless the post-merger HHI is at least 1800 and the merger increases the
HHI by more than 200 points. The Department of Justice has stated that the higher
than normal HHI thresholds for screening bank mergers or acquisitions for
anticompetitive effects implicitly recognize the competitive effects of
limited-purpose lenders and other nondepository financial institutions.
11 The CDFI approved Citigroup’s proposed acquisition of CCB on July 12, 2001.


5
concentration of banking resources in the Los Angeles banking market or in any
other relevant banking market.12
Convenience and Needs Factor
In acting on a proposal under section 3 of the BHC Act, the Board is
required to consider the effect of the proposal on the convenience and needs of the
communities to be served and take into account the records of the relevant insured
depository institutions under the Community Reinvestment Act (“CRA”).13 The
purpose of the CRA is to require the federal financial supervisory agencies to
encourage insured depository institutions to help meet the credit needs of local
communities in which they operate, consistent with safe and sound operation.
Accordingly, the CRA requires the appropriate federal supervisory agency to take
into account an institution’s record of meeting the credit needs of its entire
community, including low-and moderate-income (“LMI”) neighborhoods, in
evaluating certain types of expansion proposals.
The Board has carefully considered the convenience and needs and
the CRA performance records of Citigroup’s subsidiary insured depository
institutions and CCB in light of all the facts of record, including comments
received on the effect the proposal would have on the communities to be served by
the relevant insured depository institutions. In this regard, the Board recently
conducted a detailed review of the CRA performance records of the insured
12 Several commenters urged the Board to deny this transaction because it would
result in the acquisition by Citigroup of a banking organization that controls assets
representing more than 10 percent of the assets controlled by banks in Mexico.
These commenters argued that the provision restricting banking organizations from
acquiring in excess of 10 percent of the total deposits in depository institutions in
the United States should be applied to the acquisition by Citigroup of a Mexican
bank. This provision of law does not apply outside the U.S., and the Mexican
governmental authorities have already reviewed this transaction and found it to be
in accordance with applicable Mexican law.


6
depository institutions controlled by Citigroup and found those records to be
consistent with approval of a bank expansion proposal. 14 The Board notes that the
OCC also recently conducted a detailed review of the CRA performance record of
Citibank, N.A., New York, New York (“Citibank NA”), the lead subsidiary insured
depository institution of Citigroup, and found that record to be consistent with
approval of a bank expansion proposal. 15
A. Summary of Public Comments
Approximately eighty commenters responded to the Board’s request
for public comment on this proposal. All the commenters opposed the proposal,
suggested that the Board approve the proposal subject to conditions suggested by
the commenter, or expressed concerns about the record of Citigroup in meeting the
convenience and needs of the communities it serves. One commenter also
questioned whether CCB served the credit needs of its entire assessment area. 16
13 12 U.S.C. § 2901 et seq.
14 Citigroup, Inc., Order dated July 2, 2001, 87 Federal Reserve Bulletin ____
(2001) (proposal by Citigroup to acquire European American Bank)
(“Citigroup/EAB Order”).
15 Citibank, N.A., Order dated July 2, 2001 (proposal by Citibank NA, to merge
with European American Bank).
16 Several commenters requested that Citigroup provide certain commitments and
answer certain questions, or that the Board impose specific conditions or take
specific actions, particularly with respect to the subprime lending activities of
Citigroup’s affiliates. Several commenters also criticized the CRA-related pledge
that Travelers Group Inc. (“Travelers”) and Citicorp made in connection with their
merger in 1998 as being vague, ineffective, and insufficient as compared to
commitments by other commercial banking organizations. Commenters also
alleged that Citigroup’s senior management had declined requests for meetings
with some community groups. The Board notes that the CRA requires that, in
considering an acquisition proposal, the Board carefully review the actual
performance records of the relevant depository institutions in helping to meet the


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The commenters generally criticized Citigroup’s record of home
mortgage lending to LMI and minority residents and in LMI communities and
communities with predominantly minority populations (“minority communities”),
particularly in New York and California. 17 Some commenters asserted that
Citigroup had low levels of home purchase mortgage lending to LMI or minority
residents or in LMI or minority communities.18 Several commenters alleged or
expressed concern that data submitted under the Home Mortgage Disclosure Act
(“HMDA”)19 demonstrated that Citigroup engaged in disparate treatment of LMI
or minority individuals in various areas in the United States, including New York,
credit needs of their communities. Neither the CRA nor the federal banking
agencies’ CRA regulations require depository institutions to make pledges
concerning future performance under the CRA, confer authority on the agencies to
enforce pledges made to third parties, or require depository institutions to meet
with particular persons.
17 Commenters were concerned about Citigroup's stated intention to use the
Banamex brand name to market banking products and services to Hispanics and
predominantly Hispanic communities in the United States. These commenters
were particularly concerned that Citigroup would focus its strategy on credit cards
with high fees and interest rates and would not invest in or provide lower cost
loans to these individuals or communities. In addition, commenters urged
Citigroup to reduce the fees for and increase the availability of money transmission
services.
18 Commenters also criticized Citigroup for providing electronic benefit transfers
("EBT") to low-income individuals in areas where it has no bank branches and
otherwise offers no access to other banking services and noted that this business
practice resulted in a lawsuit against Citigroup by the State of New York. The
parties settled the lawsuit in April 2001 after Citigroup agreed to provide a
number of automatic teller machines for use by EBT recipients without a
surcharge.
19 12 U.S.C. § 2801 et seq.


8
and Los Angeles, Oakland, San Diego, and San Jose, California.20 In addition,
several commenters expressed concern that consummation of the proposal would
adversely affect Mexican national interests. 21
In addition, commenters criticized the lending and credit insurance
practices of Citigroup’s subprime lending subsidiaries, particularly those of
Associates First Capital Corporation and its subsidiaries (together, “Associates”),
which Citigroup acquired in November 2000. The commenters asserted that these
entities are engaged in certain abusive lending practices, commonly referred to as
“predatory lending,” that are harmful to LMI and minority borrowers.22 Several
20 A commenter asserted that Citigroup has discriminated in providing
homeowners insurance by citing a complaint that was filed against Travelers in
1997. The Board considered a substantially identical comment in connection with
its approvals of the proposed acquisition of EAB by Citicorp and the proposed
acquisition of Citicorp by Travelers. See Citigroup/EAB Order; Travelers Group
Inc., 84 Federal Reserve Bulletin 985, 1001 n.66 (1998). As noted in these orders,
Travelers denied the allegations of discrimination in the complaints, and there has
been no adjudication of wrongdoing by Department of Housing and Urban
Development (“HUD”), or any court regarding this matter.
21 Included among these concerns are that consummation of the proposal could
adversely affect the Mexican economy and banking system, in addition to LMI
individual and communities in Mexico, through anticipated Banamex branch
closures by Citigroup to achieve reductions in Banamex operating costs. Citigroup
has not announced any decisions regarding the closing of branches of Banamex in
Mexico. If Citigroup determines to close any branches of Banamex, the Board
expects Citigroup and Banamex to make and implement that decision in full
compliance with applicable Mexican law. This is a matter that is not governed by
U.S. banking law, and is within the jurisdiction of the Mexican banking authority,
not the Board.
22 Commenters asserted that Associates engaged in abusive marketing and sales
practices that included misleading customers about key terms of a loan, such as the
cost of credit insurance associated with the loan and the effect of balloon
payments, and coercing customers to refinance loans that result in high points

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commenters requested that the Board deny the application in light of the recent
lawsuit filed by the Federal Trade Commission (“FTC”) against Associates and
Citigroup, as the successor owner of Associates, or delay action on the proposal
until this lawsuit and other consumer lawsuits concerning the lending and credit
insurance sales activities of Associates and Citigroup are resolved.23 Some
commenters also asserted that Citigroup’s other subprime lender affiliates, such as
CitiFinancial Credit Company (“CitiFinancial”), engage in many of the same
lending practices as Associates.24 In addition, some commenters contended, based
(interest paid at settlement) and other refinance charges. Commenters also asserted
that Associates engaged in aggressive collection and foreclosure practices.
23 As noted in the Citigroup/EAB Order, the consumer protection claims in the
FTC’s lawsuit allege that Associates, before its acquisition by Citigroup in
November 2000, engaged in abusive lending practices and lending law violations.
There has been no adjudication of wrongdoing or injunctive action taken against
Citigroup or any of its affiliates in connection with the FTC lawsuit.
See Citigroup/EAB Order. A commenter asserted that the Board should deny
Citigroup’s proposal, citing the Board’s earlier denial of an application of
Shawmut National Corporation (“Shawmut National”) to acquire a bank while
Shawmut National’s past mortgage lending operations were under investigation by
the Department of Justice. See Shawmut National Corporation, 80 Federal
Reserve Bulletin 47 (1994) (“Shawmut Order”). Unlike the facts in the Shawmut
Order, where the mortgage subsidiary under investigation was controlled by
Shawmut National at all relevant times, the activities at issue in the FTC’s
complaint in the pending lawsuit involving Associates relate solely to the
operations of Associates’ affiliates before their acquisition by Citigroup. The
Board will monitor Citigroup’s progress in addressing any adverse findings that
may result from the FTC lawsuit or any other litigation.
24 Several commenters also asserted that the management of Citigroup has failed
to take an appropriate leadership role in addressing abusive lending problems in
the subprime lending market and has lobbied against some state and municipal
legislative efforts to address predatory lending. In addition, commenters noted that
the lending and insurance practices of Associates, CitiFinancial, and Citigroup’s
Primerica Financial Services have resulted in several pending judicial proceedings


10
in part on HMDA data, that Citigroup improperly markets higher-cost subprime
loan products to minority and LMI communities while it markets lower-cost prime
loan products to nonminority and more affluent communities. Several commenters
also alleged that Citigroup has indirectly supported predatory lending through its
business relationships with unaffiliated third parties engaged in subprime lending.
B. CRA Performance Examinations
As provided in the CRA, the Board has evaluated the convenience and
needs factor in this case in light of examinations by the appropriate federal
supervisors of the CRA performance records of the relevant depository institutions.
An institution’s most recent CRA performance evaluation is a particularly
important consideration in the applications process because it represents a detailed
evaluation of the institution’s overall record of performance under the CRA by its
appropriate federal supervisors.25 Citibank N.A., the lead insured depository
institution of Citigroup, received a “satisfactory” rating at its most recent CRA
performance examination by the OCC, as of October 26, 1998. The other
subsidiary depository institutions of Citigroup, with one exception discussed
below, received “outstanding” or “satisfactory” ratings at their most recent CRA
performance examinations.26 CCB received a “satisfactory” CRA performance
rating from the FDIC, at its most recent CRA examination as of January 10, 2000.
(in addition to the FTC litigation involving Associates) and that these pratices are
the subject of consumer complaints filed with several state and federal supervisory
authorities. There has been no adjudication of wrongdoing by any Citigroup
affiliate in these matters.
25 See Interagency Questions and Answers Regarding Community
Federal Register 25,088 and 25,107 (2000).
26 Citibank (New York State), Pittsford, New York (“Citibank NYS”), received an
“outstanding” rating from the Federal Deposit Insurance Corporation (“FDIC”), as
of March 6, 2000; Citibank Delaware, New Castle, Delaware, received a

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Associates National Bank (Delaware), Wilmington, Delaware
(“Associates Delaware”), a limited-purpose bank that engages only in credit card
operations and represents less than 1 percent of the consolidated assets of
Citigroup, received a “needs to improve” rating from the OCC, as of
May 30, 1997, before Citigroup acquired the bank as part of its acquisition of
Associates in November 2000.27 The Board has carefully reviewed the steps taken
by Associates Delaware and those taken by Citigroup since it acquired the bank to
“satisfactory” rating from the FDIC, as of May 15, 2000; Citibank (Nevada), N.A.,
Las Vegas, Nevada (“Citibank Nevada”), received an “outstanding” rating from
the OCC, as of March 29, 1999; Citibank (South Dakota), N.A., Sioux Falls,
South Dakota (“Citibank South Dakota”), received an “outstanding” rating from
the OCC, as of May 24, 1999; Citibank FSB received an “outstanding” rating from
the Office of Thrift Supervision (“OTS”), as of July 12, 1999; Travelers Bank and
Trust, fsb, Newark, Delaware, received an “outstanding” rating from the OTS, as
of February 5, 2001; Universal Bank, N.A., Columbus, Georgia, received a
“satisfactory” rating from the OCC, as of February 22, 1999; Citibank USA
(formerly The Travelers Bank USA), Newark, Delaware, received an
“outstanding” rating from the FDIC, as of March 15, 1999; Universal Financial
Corporation, Salt Lake City, Utah, received a “satisfactory” rating from the FDIC,
as of March 31, 1999; Associates Capital Bank, Inc., Salt Lake City, Utah,
received an “outstanding” rating from the FDIC, as of September 27, 1999; and
Hurley State Bank, Sioux Falls, South Dakota, received a “satisfactory” rating
from the FDIC, as of April 19, 1999.
27 Several commenters asserted that the Board should deny the proposal on the
basis of the “needs to improve” CRA rating of Associates Delaware. In addition to
representing less than 1 percent of Citigroup’s consolidated assets, Associates
Delaware received its “needs to improve” rating before it was acquired by
Citigroup. Moreover, examiners stated in the CRA performance evaluation that
the bank had completed a majority of the corrective actions that it had initiated to
address examiner concerns identified during a fair lending examination of the bank
that was conducted concurrently with the CRA examination. Examiners also noted
that Associates Delaware was taking steps to strengthen policies, procedures,
training programs, and internal assessment efforts to prevent illegal discriminatory
credit practices. See Citigroup/EAB Order; See also Sun Trust Banks, Inc.,
76 Federal Reserve Bulletin 542 (1990). 12
correct the deficiencies noted in the examination and has consulted with the OCC,
the appropriate federal supervisor of Associates Delaware. 28 Examiners found no
evidence of prohibited discrimination or other illegal credit practices, or any
substantive violations of fair lending laws at any of the other subsidiary insured
depository institutions of Citigroup or at CCB. The Board also has evaluated
substantial information submitted by Citigroup concerning the CRA performance
of its subsidiary insured depository institutions since the dates of their most recent
CRA performance evaluations. In addition, the Board has consulted with the OCC
and has considered confidential supervisory information regarding Citigroup’s
CRA performance provided by the OCC.
C. CRA Performance Record of Citigroup
Citigroup proposes to acquire CCB and continue to operate it as a
separate insured depository institution at this time. Citigroup has represented that
it expects CCB will expand its CRA offerings to include products and programs
offered by Citigroup, including Citigroup’s community development programs for
lending, investing, and services. In addition, Citigroup stated that it anticipates

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28 Several commenters disagreed with regulations promulgated by the Board that
permit Citigroup, as a financial holding company (as defined in section 4 of the
BHC Act), to continue to engage in expanded financial activities that are
permissible for financial holding companies while Associates Delaware has a less
than satisfactory CRA performance rating. As noted above, Associates Delaware
received its CRA rating before it was acquired by Citigroup. Under the Board’s
regulations, Citigroup would become subject to activity restrictions if
Associates Delaware does not receive at least a satisfactory rating at its next CRA
examination. See Federal Reserve System, 66 Federal Register 400, 404 (2001).
As required in the regulations, Citigroup submitted to the OCC a corrective action
plan outlining the steps that are necessary for the bank to achieve at least a
“satisfactory” rating at its next CRA examination. See id. at 402 and 416 (to be
codified at 12 C.F.R. 225.82(d)).


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conforming CCB’s current lending activities to Citigroup’s fair lending policies
and procedures.
The Board has carefully reviewed the CRA performance records of
the insured depository institution subsidiaries of Citigroup. A detailed description
of the CRA lending, investment, and service activities of those subsidiaries is
included in the Citigroup/EAB Order. Based on its review of the record in this
case, the Board reaffirms and adopts in this case the facts and findings detailed in
the Citigroup/EAB Order.
Because the proposal in this case involves the acquisition by Citigroup
of an insured depository institution in California, the Board has devoted particular
attention to the CRA performance records of Citibank FSB, Citigroup’s subsidiary
insured depository institution operating in California, as well as the CRA
performance record of CCB.
Citibank FSB
Overview. As previously noted, Citibank FSB received an
“outstanding” CRA performance rating from the OTS in its 1999 CRA
performance evaluation (“1999 CRA Evaluation”). Examiners commended the
savings association for its lending performance in its assessment areas during the
review period.29 Examiners reported that Citibank FSB made more than 25 percent
of its total HMDA-reportable loans in its combined nationwide assessment areas in
LMI census tracts during the review period.30 Examiners noted that this
-------------
29 At the time of the CRA performance evaluation, Citibank FSB had
20 assessment areas in California, Illinois, Florida, Maryland, Virginia,
Connecticut, New Jersey, Texas, and the District of Columbia. The review perriod
was from January 1, 1997, through March 31, 1999.
30 The evaluation of Citibank FSB’s HMDA-reportable lending included lending
of the following Citigroup entities in Citibank FSB’s assessment areas:


14
percentage exceeded the percentage of total owner-occupied housing units in LMI
census tracts in its combined assessment areas and the percentage of total HMDAreportable
loans made by the aggregate of lenders (“aggregate lenders”) in these
LMI census tracts in 1997. 31 Examiners also noted that Citibank FSB offered a
variety of home mortgage products and programs designed to meet the needs of
first-time homebuyers and LMI borrowers, including programs that offer reduced
closing costs and downpayment requirements and flexible underwriting standards.
In addition, examiners commended Citibank FSB for the variety of
small business loan programs it provided and noted that the geographic distribution
of its small business lending in low-income areas was generally favorable.32
Examiners also indicated that the savings association ranked first in small business
loan originations (based on dollar amount) among savings associations nationwide
and 12th in small business lending among all banks and savings associations in its
combined assessment areas.
In the 1999 CRA Evaluation, examiners determined that
-----------------------------------
Citibank FSB’s overall community development lending was excellent. The
examiners favorably noted that the savings association engaged in a variety of
community development lending activities, including multifamily home mortgage
lending that provided housing for LMI families and lending to community
Citibank FSB; Citibank; Citicorp Mortgage (renamed CitiMortgage, Inc.); Citibank
NYS; Citibank Nevada; Commercial Credit (renamed CitiFinancial).
31 The lending data of the aggregate lenders represent the cumulative lending for
all financial institutions that have reported HMDA data in a given market.
32 The evaluation of Citibank FSB’s small business lending included lending of
the following Citigroup entities in Citibank FSB’s assessment areas:
Citibank FSB; Citibank NA; Citibank NYS; Citibank Nevada; and Citibank South
Dakota.


15
development organizations that focused on affordable housing programs and the
stabilization or revitalization of economically distressed areas. Citibank FSB
originated community development loans totaling more than $365 million during
the review period.
Examiners also commended Citibank FSB for its community
development investment program, which focused on providing equity investments
for affordable housing, improving liquidity in the market for affordable mortgages,
and strengthening community development financial institutions. During the
review period, Citibank FSB doubled the amount of its CRA-qualified investments
to approximately $63 million. Examiners also commended the savings association
for making almost $5 million in community development grants during the review
period.
In addition, examiners commended Citibank FSB for offering an
extensive number of alternative systems for delivering retail banking services in
LMI areas. Examiners also indicated that Citibank FSB provided an exceptional
level of community development services, including educational seminars for LMI
individuals, first-time homebuyers, and small business owners.
California. In the 1999 CRA Evaluation, examiners indicated that
Citibank FSB had a strong overall record of lending in its assessment areas in
California during the review period.33 Examiners also found that the savings
association’s HMDA-reportable lending to LMI borrowers increased significantly
each year during the review period. For example, the percentage of
Citibank FSB’s total number of HMDA-reportable loans to LMI borrowers almost
33 The assessment areas of Citibank FSB include the following PMSAs:
Los Angeles-Long Beach, Orange County, Ventura, San Francisco, Oakland, and
San Jose, all in California.


16
tripled to 33 percent from the beginning of 1996 and through the first quarter of
1999.34
Citigroup stated that Citibank FSB increased the number and dollar
volume of its home purchase lending in LMI census tracts in California by
25 percent and 32 percent, respectively, as compared to its 1999 totals.35 In 2000,
23 percent of Citibank FSB’s total home purchase loans were made to borrowers in
LMI census tracts in California, and more than 14 percent of its total home
purchase loans were made to LMI households.36
In addition, Citigroup represented that the number of home purchase
loans that Citibank FSB made to Hispanic and African-American borrowers
increased by 10 percent and 5 percent, respectively, in 2000 as compared to its
1999 totals. Citigroup stated that more than 22 percent of its total home purchase
34 Examiners noted that the large increase in lending in LMI geographies from
1997 to 1998 resulted from the introduction by Citigroup of a program offering
home improvement loans with low principal amounts. This program is discussed
in more detail in the Citigroup/EAB Order.
35 Citigroup’s representations regarding Citibank FSB’s home mortgage lending
included lending by the following Citigroup entities in Citibank FSB’s California
assessment areas: Citibank FSB; Citibank NA; CitiMortgage, Inc.
(“CitiMortgage”), including Source One Mortgage Corporation, which was merged
into CitiMortgage in 2000; Citibank NYS; and Citibank Nevada.
36 As noted in the Citigroup/EAB Order, Citigroup represented that CitiMortgage
has initiated a five-year program with the Federal National Mortgage Association
(“FNMA”) under which CitiMortgage has committed to originate, and FNMA has
committed to purchase, $12 billion in affordable mortgage loans nationwide
through a number of affordable mortgage programs of Citigroup. Of this amount,
$1.4 billion is allocated to Northern California and $1.2 billion is allocated to
Southern California/Nevada.


17
loans were made to Hispanic individuals and almost 4 percent were made to
African-American individuals.37
Examiners indicated that the geographic distribution of
Citibank FSB’s small business loans in low-income census tracts compared
favorably with the number of small businesses in these census tracts. Examiners
also noted that Citibank FSB offered a diverse array of products to address
short- and long-term financing needs of small businesses in California. In
addition, examiners commended the savings association for creating a pilot small
business program called Capital Access that provided loans to creditworthy,
underserved small businesses, such as high technology businesses, export
businesses, and businesses owned by minorities, women, and veterans. Examiners
also noted that Citibank FSB actively promoted small businesses through
workshops and seminars for small business owners, and that the savings
association had an active Small Business Administration loan program in
California.
Citigroup stated that, in 2000, it more than doubled the number of
loans to small businesses in California to more than 30,300 loans, and it increased
the dollar volume of such loans by 45 percent to more than $372 million. 38
Citigroup added that more than 95 percent of its small business loans in 2000 were
in amounts less than $100,000. In addition, Citigroup stated that it increased its
37 Some commenters criticized the percentage of Citigroup’s total home mortgage
loans made to Hispanic individuals and communities as being too low and lagging
behind the percentages achieved by other large depository organizations in the
market.
38 Citigroup’s representations regarding Citibank FSB’s small business lending in
its California assessment areas included lending by the following entities:
Citibank FSB; Citibank South Dakota; and Universal Financial Corporation
(Utah).


18
lending to small businesses in LMI census tracts by 100 percent to more than
7,400 loans in 2000. Citigroup also stated that it made more than 9,100 small
business loans in majority-minority census tracts in its California assessment areas
in 2000, which more than doubled its total in 1999.39
In the 1999 CRA Evaluation, examiners determined that
Citibank FSB’s community development loans in California, which totaled more
than $63 million, represented an excellent volume of community development
lending. Examiners also commended the savings association for making
CRA-qualified investments totaling more than $21 million during the review
period.
Citigroup stated that it increased the amount of its community
development financing in California to more than $153 million in 2000, more than
double its 1999 total. Of this amount, more than $136 million was provided for
development of affordable housing. Citigroup noted that this community
development financing included a financing package of more than $30 million for
an affordable housing/redevelopment project in the Mission Bay neighborhood in
San Francisco that will include 100 apartments for low-income residents;
$33.6 million in financing for three affordable housing projects that include
324 units of affordable housing in a low-income district of San Francisco; and
financing for a housing rehabilitation project by a Hispanic community
development organization serving East Los Angeles.
In addition, Citigroup stated that it made more than $17 million in
qualified CRA investments in California during 2000 and the first six months of
2001. These investments included $5 million in a venture capital fund formed to
39 The term “majority-minority census tracts” means those tracts in which minority
populations comprise at least 50 percent of the tract’s population.


19
invest in commercial real estate in LMI areas of Los Angeles; $10 million in a
syndication formed to invest in telecommunications companies owned or managed
by minority individuals; and $4 million in a Habitat for Humanity-related entity to
help generate liquidity to build new housing for LMI community residents.
Citigroup also stated that the Citigroup Foundation awarded more than $3 million
in grants to organizations in California during the last two years.40 Seventy percent
of this funding was provided to organizations that work to revitalize
neighborhoods, help low-income individuals develop assets, increase financial
literacy, and improve educational opportunities for children.
In the 1999 CRA Evaluation, examiners noted favorably that
Citibank FSB delivered retail banking services throughout its assessment areas in
California through its branch network, a large network of ATMs, and alternative
delivery systems.41 Examiners also indicated that Citibank FSB offered a wide
range of deposit and loan products at all its branches, including a low-cost
checking account.
D. CRA Performance Record of CCB
As noted above, CCB received a “satisfactory” rating for CRA
performance from the FDIC, as of January 10, 2000. CCB’s primary business
focus, as noted by examiners, is international lending, particularly commercial
lending to companies doing business in or with Mexico. Examiners reported that
CCB also offers secured and unsecured consumer credit cards nationwide,
40 Some commenters asserted that Citigroup did not provide a sufficient amount
of grants to nonprofit organizations operated by Hispanics.
41 Some commenters asserted that Citibank FSB maintained few branches in
California, particularly in LMI areas. Citigroup stated that Citibank FSB currently
has 78 branches in California, including 18 located in majority-minority census
tracts.


20
purchases mortgage loans originated within its assessment area, offers mortgage
warehouse lines of credit, and engages in community development lending,
investment, and services activities.42
Examiners rated CCB’s performance under the lending test during the
review period as “high satisfactory,” and stated that the bank’s lending levels
reflected a strong responsiveness to the credit needs of its assessment area. In
particular, examiners commended the bank for its excellent distribution of loans
among borrowers of different income levels.43 Examiners also commended the
bank for its good record of serving the credit needs of the most economically
disadvantaged areas of its assessment area and low-income individuals.
Examiners noted that CCB had substantially increased the volume of
purchased HMDA-reportable loans in its assessment area since 1998. In 1999,
53 percent of CCB’s purchased HMDA-reportable loans by number and dollar
volume were in LMI census tracts. Examiners noted that this percentage of
HMDA-reportable lending in LMI census tracts well exceeded that of the
aggregate lenders in 1998. Examiners also noted that the number and dollar
volume of the HMDA-reportable loans to LMI individuals that CCB purchased
exceeded the percentage of LMI households in its assessment area.
In addition, examiners noted that CCB provided mortgage warehouse
lines of credit to mortgage banking companies that extend funds primarily for
loans guaranteed by the Federal Housing Administration and the
Veterans Administration. In 1998 and 1999, CCB provided approximately
$58 million through these lines of credit to finance 400 homes within its
42 The assessment area of CCB includes about 80 percent of the Los Angeles-Long
Beach PMSA.
43 The review period was from January 1, 1998, through September 30, 1999.


21
assessment area. Examiners noted that CCB reduced its processing fee for loans
extended within its assessment area as an incentive for these mortgage banking
companies to increase their lending in the area.
Examiners commended CCB for using innovative and flexible lending
practices to serve the credit needs of its assessment area. In particular, examiners
commended CCB for its secured consumer credit card program, which was
designed to help meet the needs of LMI individuals, particularly new residents and
immigrants without credit or employment history. In CCB’s secured credit card
program, the credit is secured by a savings account that is opened at the time the
credit application is submitted. Originally, the minimum savings account needed
to open and secure a CCB credit card was $300, but CCB lowered this amount to
$200 in 1999. CCB also offers a semi-secured credit card program to participants
in the secured card program who have maintained a good payment record for a
defined period of time. Under this program, CCB increases the credit limit by
100 percent of the amount in the participant’s savings account, up to a maximum
credit limit of $2,000. CCB also offers a further upgrade to a fully unsecured
credit card with a maximum credit limit of $3,000. Qualification for this upgrade
also is based on the participant’s tenure in the CCB credit card program and
maintenance of a good payment record.
Examiners rated CCB’s performance under the investment test as
“high satisfactory.” In particular, examiners commended CCB for increasing its
qualified community development investment and grant levels by more than
350 percent since the previous CRA performance examination, which resulted in
$14.1 million in qualified investments and grants. CCB’s qualified investments
included the purchase of three government-sponsored mortgage-backed securities
with 90 percent of the securities’ principal amount backed by loans to LMI
borrowers in Los Angeles County; commitments to invest in two equity funds


22
established to help rebuild distressed neighborhoods in California; and investments
community development corporations in California that provide small business and
real estate loans to borrowers who do not qualify for conventional bank loans,
loans to small businesses in LMI areas, or loans to LMI borrowers.
Examiners noted that the bank operates two branches in Los Angeles.
One branch is in an upper-income census tract in Century City and the other
branch is in a moderate-income census tract in East Los Angeles. CCB also has
established an ATM to serve East Los Angeles. Examiners found that the branches
offered reasonable accessibility to all portions of CCB’s assessment area. 44 In
addition, examiners found that the bank used its Call Center effectively as an
alternative delivery system by offering bilingual telephone banking service with a
toll-free number that is available 24 hours a day. Examiners noted that the Call
Center processed more than one million customer inquiries and requests in 1999.
E. Subprime Lending of Citigroup
As noted above, the Board carefully reviewed the issues raised by
commenters concerning the subprime lending activities of Citigroup. Many
commenters raised substantially the same issues as were raised in connection with
Citigroup’s proposal to acquire EAB. These issues were carefully and fully
reviewed by the Board in that case.45 The Board reiterates its expectation that bank
44 A commenter asserted that CCB’s branch in East Los Angeles provided little
access to traditional banking services.
45 Commenters have expressed various concerns about the lending practices of
Associates and other subsidiaries of Citigroup, including matters related to the sale
of insurance, matters raised in affidavits or statements by former or current
employees of these subsidiaries, and concerns about foreclosure practices of these
subsidiaries. In connection with the Board’s recent review of the proposed
acquisition by Citigroup of EAB, the Board carefully and extensively considered
these concerns, including information provided by commenters and the affidavit of
a former CitiFinancial employee filed in the FTC litigation. Commenters have

23
holding companies and their affiliates conduct their subprime lending operations
free of abusive lending practices.46 The Board has carefully considered the record
of lending of Citigroup’s affiliates, including those engaged in subprime lending,
in light of all the comments received. In addition, the Board has consulted with
each federal supervisory agency responsible for overseeing Citigroup’s subprime
lending affiliates.
CitiFinancial and Citigroup’s other subsidiaries that engage in
subprime lending have underwriting policies and procedures designed to prevent
abusive lending practices, which include requiring all real estate-secured loan
applications to be evaluated on an applicant’s creditworthiness and ability to repay,
using credit bureau scoring and proprietary models, and limiting points charged on
certain refinanced loans. In addition, Citigroup’s subprime lending affiliates have
adopted a number of programs and other policies and procedures, including
centralized loan underwriting systems, fair lending self-assessments (including
matched-pair analyses), branch and corporate audits, and fair lending and
compliance training, that are designed to prevent deceptive and abusive lending
practices.47
provided no additional information that warrants a change in the Board’s findings
on these matters in the Citigroup/EAB Order. As discussed in that order and
below, the Board will conduct an examination of CitiFinancial pursuant to its
supervisory authority.
46 Several commenters contended that Citigroup will employ at Banamex and its
affiliates in Mexico various lending practices that commenters believe are abusive.
The lending activities of Banamex and its affiliates in Mexico are subject to the
supervision and legal requirements of Mexican law and the Mexican banking
authorities. The Board expects Citigroup to operate with the highest integrity
worldwide and in compliance with the laws of each country in which it operates.
47 See Citigroup/EAB Order.


24
In January 2001, the network of retail branches of Associates was
transferred to CitiFinancial, and the former Associates consumer finance
businesses in the United States and Canada became subject to the underwriting and
compliance policies, procedures, and programs of Citigroup and CitiFinancial. In
connection with its proposed acquisition of Associates in November 2000,
Citigroup announced consumer protection initiatives that are in the process of
being implemented at CitiFinancial (including the former branch offices of
Associates) and certain other affiliates.48 These initiatives relate to loans secured
by real estate in the United States and include enhancing oral and written
disclosures to purchasers of credit insurance products concerning the cost,
coverage, terms, and cancellation policies of the insurance products offered.49 In
addition, Citigroup affiliates that engage in subprime lending will not originate
subprime real estate loans with balloon payments and will not originate or
purchase real estate loans with negative amortization features.50 The initiatives
also include plans for a “referral-up” program to be implemented nationwide by
the end of 2001 that will refer CitiFinancial loan applicants who meet certain
qualification criteria to CitiMortgage for a prime mortgage loan. In addition,
Citigroup is implementing a program at CitiFinancial to provide rate reductions to
48 Some commenters challenged the adequacy of these initiatives and expressed
concern that Citigroup would not implement them effectively.
49 Citigroup recently announced that it will discontinue the sale of single premium
credit insurance for all real estate-secured loans by the end of 2001. Citigroup
represented that CitiFinancial is in the process of obtaining the appropriate state
insurance licenses so that it may offer nationwide credit life insurance with a
premium paid monthly by the borrower.
50 Citigroup has represented that, in the case of purchased or existing subprime
loans in Citigroup’s portfolio, borrowers with balloon payments coming due will
be given the option to refinance the loan in lieu of making the balloon payment.


25
subprime loan borrowers who make timely payments and a graduation program at
CitiFinancial and CitiFinancial Mortgage (AHES) that refers qualifying borrowers
who have CitiFinancial subprime loans to CitiMortgage for a prime loan product.51
As part of the initiatives, CitiFinancial also has created a compliance department
that reviews pending and potential foreclosures to protect against inappropriate
foreclosure proceedings against the borrowers’ homes.52
For the reasons explained in this order and the Citigroup/EAB Order,
the Board believes that Citigroup has adopted comprehensive policies and
procedures that are reasonably designed to ensure compliance with the fair lending
laws and to prevent abusive lending practices by its holding company affiliates.
As noted above, Citigroup has begun to implement many of these practices and
51 Citigroup represented that qualifying subprime borrowers of CitiFinancial will
not be required to pay prepayment penalties for refinancing their loans with
CitiFinancial or any other Citigroup affiliate.
52 In addition, the initiatives being implemented include (i) giving subprime loan
borrowers a choice of paying a higher interest rate loan in exchange for the
elimination of a prepayment penalty fee; (ii) limiting prepayment fees to the lesser
of three years after a loan is made or the maximum term mandated by state law;
(iii) establishing toll-free “hotlines” for customers to seek redress for complaints
and problems concerning their loans; (iv) implementing a “mystery shopper”
program at CitiFinancial branches (including former Associates branches)
administered by a third party to help ensure that compliance procedures are
followed; (v) providing updated training on compliance (including fair lending) for
all consumer finance employees, (vi) strengthening compliance by and oversight of
loan brokers; (vii) enhancing fair lending self-evaluations in consultation with
outside counsel; (viii) prohibiting refinancing of certain below-market rate loans
by nonprofit organizations and certain other programs within a specified
timeframe; (ix) implementing additional limits on points charged on the
refinancing by CitiFinancial of some of its loans; (x) enhancing disclosures
regarding refinancing; and (xi) evaluating CitiFinancial’s policies and procedures
to prevent “loan flipping” (e.g., repeated refinancing of a loan to charge high
points or fees) and implementing additional appropriate safeguards.


26
consumer protection initiatives at CitiFinancial, including the former branch
offices of Associates.
As indicated in the Citigroup/EAB Order, the Board will conduct a
thorough examination to assess the effectiveness of the implementation of the
initiatives and other consumer protection measures proposed or adopted by
Citigroup at its subprime lending affiliates, CitiFinancial and CitiFinancial
Mortgage (AHES).53 The Board has broad supervisory authority under the banking
laws to require Citigroup to take any other steps necessary to address deficiencies
identified in the examination.
F. HMDA Data
The Board also has carefully considered Citigroup’s lending record in
light of comments about HMDA data reported by its subsidiaries.54 These HMDA
data-related comments were substantially similar to those considered by the Board
in connection with its approval of Citigroup’s proposed acquisition of EAB. The
Board’s analysis of Citigroup’s HMDA data, as detailed in the Citigroup/EAB
Order, is incorporated by reference herein.
As noted in the Citigroup/EAB Order, the HMDA data generally do
not indicate that Citigroup is excluding any race or income segment of the
population or geographic areas on a prohibited basis. The data, however, reflect
certain disparities in the rates of loan applications, originations, and denials among
members of different racial groups and persons at different income levels generally
53 This examination will include CitiFinancial’s offices in various areas in the
United States, including Southern California.
54 Based on 1999 and 2000 HMDA data, commenters criticized Citigroup’s record
of home mortgage lending to African-American, Hispanic, or Native-American
individuals or to LMI individuals in various areas throughout the United States,
particularly in New York and California.


27
and in certain local areas. The Board is concerned when the record of an
institution indicates disparities in lending and believes that all banks are obligated
to ensure that their lending practices are based on criteria that ensure not only safe
and sound lending, but also equal access to credit by creditworthy applicants
regardless of their race or income level. The Board recognizes, however, that
HMDA data alone provide an incomplete measure of an institution’s lending in its
community because these data cover only a few categories of housing-related
lending. HMDA data, moreover, provide only limited information about the
covered loans.55 HMDA data, therefore, have limitations that make them an
inadequate basis, absent other information, for concluding that an institution has
not assisted adequately in meeting its community’s credit needs or has engaged in
illegal lending discrimination.
Because of the limitations of HMDA data, the Board has considered
these data carefully in light of other information, including examination reports
that provide an on-site evaluation of compliance by the subsidiary depository
institutions of Citigroup with fair lending laws. As noted in the Citigroup/EAB
Order, examiners found no evidence of prohibited discrimination or other illegal
credit practices at any of the subsidiary depository institutions controlled by
Citigroup.56 The record also indicates that Citigroup has taken a number of
55 The data, for example, do not account for the possibility that an institution’s
outreach efforts may attract a larger proportion of marginally qualified applicants
than other institutions attract and do not provide a basis for an independent
assessment of whether an applicant who was denied credit was, in fact,
creditworthy. Credit history problems and excessive debt levels relative to income
(reasons most frequently cited for a credit denial) are not available from HMDA
data.
56 As noted above, Associates Delaware received a “needs to improve” rating in its
most recent CRA performance evaluation. This rating was received before
Citigroup acquired control of Associates. Examiners stated that the bank had


28
affirmative steps to ensure compliance with fair lending laws. As discussed in the
EAB Order, Citigroup has instituted corporate-wide compliance policies and
procedures to help ensure compliance with all fair lending and other consumer
protection laws and regulations, employed compliance officers and staff charged
with monitoring compliance, and conducted corporate and branch audits of
compliance. Citigroup’s housing-related lending subsidiaries have established
detailed fair lending procedures in addition to Citigroup’s corporate policies and
procedures, including extensive fair lending training programs for employees and
fair lending self-assessments using matched-pair testing and statistical analyses.
CitiMortgage and CitiFinancial also have implemented a “mystery shopping”
program administered by a third party to help verify that compliance procedures
are followed.
In addition, the Board has considered the HMDA data in light of
Citigroup’s overall lending and community development activities discussed above
and in the Citigroup/EAB Order, which show that Citigroup’s subsidiary banks
significantly assist in helping to meet the credit needs of their entire communities,
including LMI areas.57 The Board believes that, viewed in light of the entire
initiated corrective actions to address the examiner criticisms and implemented
additional measures to strengthen policies, procedures, training programs, and
internal assessment efforts to prevent illegal discriminatory credit practices.
57 Commenters alleged that some of Citigroup’s lending subsidiaries have violated
HMDA reporting requirements. The Board considered the same comments when it
evaluated Citigroup’s proposal to acquire EAB. As noted in the Citigroup/EAB
Order, the Board has forwarded these allegations to HUD. Some commenters also
noted that the New York State Banking Department (“NYSBD”) and Citigroup
entered into a letter agreement executed on June 25, 2001 (“June 2001
Agreement”), that stated two affiliates of Associates submitted erroneous 1999 and
2000 HMDA data. In the June 2001 Agreement, Citigroup committed to submit to
HUD a corrected data report or a plan satisfactory to HUD for addressing the
identified errors, within six months of the agreement.


29
record, the HMDA data indicate that Citigroup’s record of performance in helping
to serve the needs of its communities is consistent with approval of the proposal.
G. Conclusion on Convenience and Needs Consideration
In reviewing the effect of the proposal on the convenience and needs
of the communities to be served, the Board has carefully considered the entire
record, including all the information provided by commenters, Citigroup, and
CCB; evaluations of the performance of Citigroup’s insured depository institution
subsidiaries and CCB under the CRA; and confidential supervisory information.
Based on all the facts of record and for the reasons discussed above
and in the Citigroup/EAB Order, the Board concludes that considerations relating
to the convenience and needs factor, including the CRA performance records of the
relevant depository institutions, are consistent with approval of the proposal.
Financial and Managerial Considerations
Section 3 of the BHC Act requires the Board to consider the financial
and managerial resources and future prospects of the companies and banks
involved in the proposal and certain other supervisory factors. The Board has
carefully considered these factors in light of all the facts of record, including public
comments, supervisory reports of examination, other confidential supervisory
information assessing the financial and managerial resources of the organizations,
and other information provided by Citigroup.
In evaluating financial factors in expansion proposals by banking
organizations, the Board consistently has considered capital adequacy to be
especially important. The proposed acquisition is structured as an exchange of
cash and Citigroup shares, and Citigroup proposes to incur debt to finance the cash
portion of the proposal. As a result of this acquisition, the Board notes that
Citigroup’s risk-based regulatory capital ratios would decline by approximately
90 basis points. Citigroup’s ratios on a consolidated basis would remain above the

30
well-capitalized thresholds applicable to banking organizations; however, bank
regulatory capital ratios do not address insurance underwriting risks, nor do they
take explicit account of diversification considerations, credit risk concentrations, or
credit risk differentials within the loan portfolio. The Board believes that all
banking organizations, particularly those undertaking significant expansion, should
have robust risk management and economic capital assessment processes and need
to ensure on an ongoing basis that their capital positions are adequate in relation to
the full array of risks to which the organizations are exposed. As part of the
ongoing supervisory process, the Board will continue to assess Citigroup’s
consolidated capital adequacy on this basis and in light of its future acquisition
plans.
The Board also has considered the managerial resources of Citigroup
and CCB, the examination reports of the federal financial supervisory agencies that
supervise these organizations, including Citigroup’s subsidiary depository
institutions, and other confidential supervisory information. In addition, the Board
has consulted with these federal financial supervisory agencies.
The Board received several comments on the proposal criticizing the
managerial resources of Citigroup and its subsidiaries.58 Several commenters
asserted that Citigroup’s management has failed to implement effective policies
and programs to address alleged abusive lending and sales practices of Citigroup’s
subsidiaries, including those engaged in subprime lending and insurance
58 One commenter alleged that Citigroup’s management lacks ethnic diversity and
raised questions regarding Citigroup’s failure to use more minority vendors.
Although the Board fully supports programs designed to promote equal
opportunity and economic opportunities for all members of society, these issues
are beyond the factors the Board is authorized to consider under the BHC Act.
See e.g., Deutsche Bank AG, 86 Federal Reserve Bulletin 509, 513 (1999).


activities.59 These commenters asserted that adverse managerial resources are
evidenced by the pending FTC lawsuit against Associates and Citigroup, as
Associate’s successor owner, and by consumer lawsuits and complaints filed
against Associates and other Citigroup affiliates.60
After reviewing all the facts of record, the Board concludes that
Citigroup and its subsidiary insured depository institutions and CCB are well
managed.61 In reaching this conclusion, the Board has considered the supervisory
experience and assessments of management by the various bank supervisory
agencies, Citigroup’s efforts to address supervisory and other concerns about the
operation and management of the organization, the management’s due diligence
efforts and record of integrating other organizations, and the organization’s record
of compliance with applicable banking law. As previously discussed, the Board
59 Commenters also asserted that Citigroup relied on home improvement loans
with low principal amounts, resulting in Citigroup’s alleged failure to meet lending
projections made by Citicorp a July 1998 letter agreement with the NYSBD in
connection with the merger of Travelers and Citicorp. The Board notes that
compliance with projections in an agreement made with the NYSBD is a matter
within the exclusive jurisdiction of the NYSBD. In the June 2001 Agreement, the
NYSBD and Citigroup clarified the projections and extended them for an
additional three years.
60 These comments were substantially similar to those considered by the Board in
connection with its approval of Citicorp’s proposal to acquire EAB.
See Citigroup/EAB Order.
61 Several commenters also raised other matters, including contentions regarding
the terms under which Citigroup originally acquired its existing affiliate bank in
Mexico, environmental claims, claims about lending activities in India, and
concerns about the Board’s ability to obtain information regarding the activities of
offices of Banamex and Citigroup located outside the United States. All these
matters are either outside the jurisdiction of the Board or have been previously
considered by the Board and involve matters regarding which commenters have
presented no new information.

32
has reviewed the compliance policies and procedures of Citigroup and its
subsidiaries, including those engaged in subprime lending, and consulted with the
appropriate federal supervisory agencies and state supervisors.62 Based on these
and all other facts of record, the Board concludes that the financial and managerial
resources and the future prospects of Citigroup and its subsidiary depository
institutions and CCB are consistent with approval, as are the other supervisory
factors the Board must consider under section 3 of the BHC Act.63
62 The Board also received several comments asserting that recent investigations
on money laundering activities by staff of the Subcommittee on Investigations of
the Committee on Governmental Affairs of the United States Senate and the
United States General Accounting Office and several press reports demonstrate
that Citibank NA and other affiliates of Citigroup lack sufficient policies and
procedures and other resources to protect against money laundering.
See Correspondent Banking: A Gateway for Money Laundering, S. Doc.
No. 69-919 (1st Sess. February 5, 2001) (Report of the minority staff of the
Permanent Subcommittee on Investigations of the Committee on Governmental
Affairs of the United States Senate); Suspicious Banking Activities, General
Accounting Office, GAO-01-120 (October 2000). These comments also were
substantially the same as those considered by the Board in connection with its
approval of Citigroup’s proposal to acquire EAB. As noted in the Citigroup/EAB
Order, the Board has carefully reviewed supervisory examinations of Citibank NA
and consulted with the OCC, the appropriate federal financial supervisory agency
of the bank, regarding the policies, procedures, and practices of Citigroup to
comply with the Bank Secrecy Act. In addition, the Board has reviewed recent
enhancements to Citigroup’s policies and procedures to prevent money laundering
that address the issues raised in those investigations. See Citigroup/EAB Order. A
commenter also noted that Banamex was subject to a temporary cease-and-desist
order issued by the Board in 1998 concerning the bank’s compliance with U.S.
anti-money laundering laws. The Board released Banamex from this order in
March 2000 after determining that the bank had sufficiently enhanced its
anti-money laundering compliance policies and procedures.
63 Commenters asserted that senior officials of Citigroup had improper ex parte
communications with various U.S. and Mexican government officials regarding the
proposed acquisition. The Board’s policies regarding ex parte communications do
not apply to contacts between an applicant and officials outside the Federal



33
Investments and Activities Abroad

Citigroup also has requested the Board’s consent under
section 4(c)(13) of the BHC Act and section 211.5(c) of the Board’s Regulation K
12 C.F.R. 211.5(c)) to acquire Banamex and its foreign banking and nonbanking
investments. Under section 4(c)(13) of the BHC Act, the Board may permit a bank
holding company to acquire a company that does no business in the United States
except as incident to its international or foreign business if the Board determines
that the acquisition would not be substantially at variance with the purposes of the
BHC Act and would be in the public interest. Regulation K provides that a bank
holding company may acquire companies engaged in activities usual in connection
with the transaction of banking or other financial operations abroad. Regulation K
further states the Board’s policy that investors shall at all times act in accordance
with high standards of banking or financial prudence, having due regard for
diversification of risks, suitable liquidity, and adequacy of capital.

The Board has reviewed information with respect to Banamex and its
existing operations and has determined that Banamex may be considered well
capitalized and well managed within the meaning of Regulation Y (12 C.F.R.
225.90). Banamex currently operates agencies in New York, New York, and
Houston, Texas. Citigroup has committed that each of these agencies will engage
only in activities permitted to an Edge corporation under Regulation K (12 C.F.R.
211.4(e)). Based on the facts of record, the Board has determined that all factors
required to be considered under the BHC Act and Regulation K are consistent with
approval. To the extent that any activities or investments of Banamex do not
currently comply with the provisions of Regulation K, Citigroup has committed to
Reserve System, and do not govern communications with an applicant concerning
issues that are not raised by a timely comment or communications when no
application or other request for approval of the proposed acquisition is pending.


34
conform these activities or investments within six months of the acquisition of
Banamex.64
Conclusion
Based on the foregoing and in light of all the facts of record, the
Board has determined that the application and notice should be, and hereby are
approved.65 In reaching its conclusion, the Board has considered all the facts of

------------------------------------
64 The Board also has received a comment questioning Citigroup’s authority to
own an interest in a telecommunications company whose shares are currently
owned by Banacci. Citigroup will acquire and temporarily hold this interest
pursuant to section 4(c)(13) of the BHC Act while Banamex divests control of the
company, in accordance with the requirements of Mexican law, after Citigroup
consummates its proposed acquisition of Banacci and Banamex. Citigroup must
fully conform any remaining investment in the Company to the merchant banking
provisions of section 4(k) of the BHC Act (12 U.S.C. § 1843(k)) and the Board’s
Regulation Y (12 CFR Subpart J), within six months of consummation.
65 Several commenters requested that the Board hold a public meeting or hearing
on the proposal. Section 3 of the BHC Act does not require the Board to hold a
public hearing on an application unless the appropriate supervisory authority for
the bank to be acquired makes a timely written recommendation of denial of the
application. The Board has not received such a recommendation from the
appropriate supervisory authority. Under its rules, the Board also may, in its
discretion, hold a public meeting or hearing on an application to acquire a bank if a
meeting or hearing is necessary or appropriate to clarify factual issues related to
the application and to provide an opportunity for testimony. 12 C.F.R. 225.16(e).
The Board has considered carefully these commenters’ requests in light of all the
facts of record. In the Board’s view, the public has had ample opportunity to
submit comments on the proposal and, in fact, the commenters have submitted
extensive written comments that the Board has considered carefully in acting on
the proposal. Many of the commenters’ requests were based on issues that the
Board carefully considered in connection with its action on Citigroup’s proposal to
acquire EAB. In addition, many requests were based on activities of Banacci or
Citigroup in Mexico that are subject to the supervision and legal requirements of
Mexican law and Mexican governmental authorities. The commenters’ requests
fail to demonstrate why their written comments do not present their views
adequately or why a meeting or hearing otherwise would be necessary or

35
record in light of the factors that it is required to consider under the BHC Act and
other applicable statutes.66 The Board’s approval is specifically conditioned on
compliance by Citigroup with all the representations and commitments made in
connection with the application and notice, the conditions described or referenced
in this order, and on the receipt by Citigroup of all necessary regulatory approvals.
These representations, commitments, and conditions are deemed to be conditions
imposed in writing by the Board in connection with its findings and decision and,
as such, may be enforced in proceedings under applicable law.
appropriate. For these reasons, and based on all the facts of record, the Board has
determined that a public meeting or hearing is not required or warranted in this
case. Accordingly, the requests for a public meeting or hearing on the proposal are
denied.

-----------------------------------
66 A number of commenters requested that the Board delay action or extend the
comment period on the proposal. The Board has accumulated a significant record
in this case, including reports of examination, confidential supervisory
information, public reports and information, and considerable public comment. In
the Board’s view, for the reasons discussed above, commenters have had ample
opportunity to submit their views and, in fact, have provided substantial written
submissions that the Board has considered carefully in acting on the proposal.
Moreover, the BHC Act and Regulation Y require the Board to act on proposals
submitted under those provisions within certain time periods. Based on a review
of all the facts of record, the Board has concluded that the record in this case is
sufficient to warrant action at this time, and that a further delay in considering the
proposal, an extension of the comment period, or a denial of the proposal on the
grounds discussed above or on the basis of informational insufficiency is not
warranted.


36
The acquisition of Banacci, Banamex, and CCB may not be
consummated before the fifteenth calendar day after the effective date of this order,
and the proposal may not be consummated later than three months after the
effective date of this order, unless such period is extended for good cause by the
Board or by the Federal Reserve Bank of New York, acting pursuant to delegated
authority.
By order of the Board of Governors,67 effective July 16, 2001.
(signed)
______________________________________
Jennifer J. Johnson
Secretary of the Board


http://www.federalreserve.gov/boarddocs/press/bhc/2001/20010716/attachment.pdf