Consumer advocates turned in petitions last week signed by 15,559 people who oppose a proposed merger between two banks that were re-animated after tanking in the recession and now want to create one that would qualify as too big to fail, or in government parlance, “a systemically important financial institution.”
The Federal Reserve rarely rejects these kinds of merger proposals, but it also rarely receives 15,000 objections. The CIT Group, an online New Jersey provider of commercial lending and leasing services, wants to absorb Pasadena-based OneWest Bank, creating a bank with $67 billion in assets and $28 billion in deposits.
That’s about $20 billion above the government threshold for too-big-to-fail status. Paul Hogarth at Daily Kos, the political website that collected the petitions for the California Reinvestment Coalition (CRC), noted that both institutions “have troubled histories of foreclosures and squandered public bailouts.”
CRC Associate Director Kevin Stein said:
“This merger is the poster-child for income inequality and bank bailouts gone bad. How can regulators justify to the American Public approving of this merger when there has been so much harm caused to communities, so much public subsidy provided to the two banks, and yet, no clear public benefit from the merger?”
CIT has offered to pay $3.4 billion in cash and stock to the private equity and hedge fund investors, including George Soros, John A. Paulson, Michael Dell and former Goldman Sachs partner Steven N. Mnuchin, who created OneWest from the charred remains of IndyMac Bank after costing the Federal Deposit Insurance Corporation (FDIC) $9.4 billion.
The New York Times says the consortium bought IndyMac in 2009 for $1.55 billion and will more than double their money if the merger goes through.
It was the second-largest savings and loan to flame out at the time, behind Washington Mutual. IndyMac specialized in adjustable-rate mortgages and Alt-A loans, also known as “liar loans” for the ease in which they slid through the process without proper documentation from the buyer.
Today, OneWest has assets of $23 billion, deposits of $15 billion, 73 branches across Southern California and a lot of honked-off present and former customers. Stein said 35,000 Californians have lost their homes due to OneWest foreclosures.
CIT, unlike OneWest, does not have any brick-and-mortar outlets. It is an Internet-based provider of commercial lending and leasing services with about as many deposits as OneWest, according to the San Gabriel Valley Tribune. CIT, which also lived and died on the subprime mortgage market, pissed off a lot of people when it declared bankruptcy, especially after the government gave them $2.3 billion in bailout money that didn’t get paid back.
CIT’s recovery was led by John A. Thain, who was co-CEO of Goldman Sachs in 2004 before taking over leadership at the New York Stock Exchange. He was appointed CEO at Merrill Lynch in 2007, engineered the sale of the cratered company to Bank of America in September 2008 at the height of the global financial crisis and then was forced to resign in 2009 amid revelations of huge executive bonuses and a toxic balance sheet that seemed to surprise BofA and the government.
He took over tiny CIT and built it into a powerhouse on the verge of becoming one of the too-big-to-fail banks revered by the elite. If approved, CIT’s Utah-based banking subsidiary would absorb OneWest and operate under the name CIT. “They are basically going to move into OneWest and just change the name,” Stein said.