Merger Watch: Citigroup Purchases ABN AMRO Mortgage Group
Status:
Citigroup, the world’s second largest bank, recently acquired ABN AMRO Mortgage Group. In a separate deal, Citigroup made an investment in ACC Capital Holdings and, in return, received the right to purchase ACC’s subsidiary, the Argent Mortgage Company, at a later date. The expansion of Citigroup’s market share of the prime mortgage industry and the strengthening of its ties to the subprime mortgage industry raise alarming and pressing questions about Citigroup’s mortgage lending practices and the direction of the financial services industry.
Background:
January, 22 2007: Citigroup acquired ABN AMRO Mortgage Group, one of the nation’s largest originators and servicers of mortgage loans. As a result of the acquisition, CitiMortgage, a subsidiary of Citigroup, will receive approximately 1.5 million new customers and 2500 wholesale mortgage brokers while becoming the nation’s fourth largest mortgage loan servicer. The acquisition will also solidify CitiMortgage’s position as the third largest mortgage originator in the country. Citigroup purchased ABN AMRO Mortgage Group’s approximately $224 billion mortgage servicing business and approximately $9 billion in net assets.
ABN AMRO Mortgage Group was a subsidiary of LaSalle Bank Corporation and ABN AMRO Bank, N.V., also one of the world’s largest banks. (See below on other mergers involving LaSalle Bank and ABN AMRO Bank N.V.) The deal went through with no opportunity for public comment. February 28, 2007: In exchange for providing ACC Capital Holdings with additional working capital, Citigroup received options to purchase ACC’s subsidiary, Argent, a subprime lender that originated $23 billion in loans in 2006 and currently services $65 billion in mortgages. ACC Capital Holdings is also the parent company to Ameriquest. Ameriquest was at one time the largest subprime lender in the world and paid hundreds of millions of dollars to federal and state law-enforcement officials as a result of abusive and fraudulent lending practices. Check out this Alert Map (pdf) to see visualize how these pieces fit together.
Issues of Concern:
Predatory Lending and disparate treatment of customers
Citigroup’s acquisition of ABN AMRO Mortgage extends Citigroup’s leading role in perpetuating a two-tiered credit system with separate and unequal parts. Through its CitiMortgage subsidiary, Citigroup makes affordable “prime” mortgages to a mostly white and middle/upper middle class customer base. ABN AMRO Mortgage clients have a similar profile. Through its other subsidiaries, however, most notably CitiFinancial, Citigroup issues high-priced and often poorly underwritten mortgage products to a mostly non-white, low and moderate income population. If Citigroup exercised its option to purchase Argent, it would further expand its subprime mortgage business as well. In 2002 Citigroup paid hundreds of millions in damages to the Federal Trade Commission as a result of what the FTC referred to as “deceptive and abusive” lending practices for subprime mortgages Citigroup made through its subsidiary, the Associates. Financial Services Consolidation Citibank’s acquisition of ABN AMRO’s continues a disturbing trend of consolidations in the financial services industry. With more than a trillion dollars in assets and 200 million customer accounts, Citigroup presides over vast array of businesses including sub-prime and prime mortgage lending, credit card lending, retail banking, corporate and investment banking, securities brokerage and insurance. With such an expansive financial services domain Citibank is able to wield an inordinate amount of power and avoid accountability among regulatory institutions, legislators, community-based groups and even corporate watchdog groups. Lay-offs Before the acquisition, ABN AMRO’s Mortgage Group’s parent company announced it would eliminate 900 U.S. Jobs, including 200 in New York, as part of “cost-cutting” measures. Citigroup Inc. announced in April that it will lay off 17,000 workers as part of a massive restructuring expected to save the company more than $10 billion over the next three years.
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