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Citigroup comes clean on TARP uses
Amid heavy scrutiny from taxpayers and lawmakers, the bank issues a report detailing its use of $45 billion in government bailout funds. By David Ellis, CNNMoney.com staff writer
Last Updated: February 3, 2009: 6:35 PM ET
NEW YORK (CNNMoney.com) -- Citigroup offered its first glimpse Tuesday into how it is spending the $45 billion in government bailout money that the ailing bank has received in recent months.
Faced with intense scrutiny from taxpayers and Capitol Hill about its spending habits in recent weeks, the New York City-based bank issued its first quarterly progress report on its spending of funds from the government's Troubled Asset Relief Program, or TARP. Citigroup (C, Fortune 500) said it had approved $36.5 billion in loans and other commitments backed by TARP during the fourth quarter of 2008, which included making $1 billion in student loans and $2.5 billion in business and personal loans. The bank also said it expanded credit lines and opened new accounts for credit cardholders. The bulk of the TARP funds - $27.5 billion to be exact - was earmarked towards the housing market. Citigroup said it spent $10 billion on mortgage-backed securities guaranteed by Fannie Mae and Freddie Mac, a move aimed at loosening up frozen credit markets, according to the bank. Only $8.2 billion was earmarked for making actual mortgage loans to families and individuals with good credit histories. Citigroup did not indicate how it spent the remaining $8.5 billion of the $45 billion in government funds. "Our responsibility is to put TARP capital to work quickly, prudently, and transparently to support U.S. consumers, businesses and our communities during these challenging times," Citigroup CEO Vikram Pandit said in a statement. But Tuesday's revelations by the company, however, did little to elicit much sympathy from the government. Isaac Baker, a spokesman for the Treasury Department, said the announcement was "a step forward," but added that more needed to be done to remedy the ongoing credit crunch. Treasury officials are expected to provide details about how they plan to spend the second half of the government's $700 billion rescue package early next week, including new transparency and accountability measures. Banks' willingness to lend money has become a focal point in the ongoing crisis after the U.S. government provided nearly $200 billion in government funds to financial firms in an effort to get credit flowing again. A survey of top loan officers across the country published Monday by the Federal Reserve revealed that credit remains tight at the nation's banks, despite government aid. Lawmakers and taxpayers have accused banks of using much of the TARP money to fund acquisitions, pay lavish bonuses or other seemingly frivolous expenses. Fearing further backlash, Citigroup was forced to rethink its planned purchase of a $42 million corporate jet last month following Congressional scrutiny. The bank is also said to be now considering nixing its corporate sponsorship deal with the New York Mets that involves the naming rights for the team's new stadium, according to a report in the Wall Street Journal Tuesday. Citigroup told CNN in a statement though that it has a "legally binding agreement" with the Mets, and that it is "using no TARP capital for Citi Field, or for marketing purposes." Hoping to deflect some of the criticism of their spending, Citigroup and other big banks are also trying to offer a bit more transparency about what they are doing with TARP funds. Rival Bank of America (BAC, Fortune 500), which has received $45 billion in government aid, said last week it would file quarterly reports on its lending activity. And West Coast banking giant Wells Fargo (WFC, Fortune 500) revealed Monday that it paid a $371.5 million quarterly dividend to the U.S. Treasury in exchange for the $25 billion that the Treasury Department invested in the bank last fall. First Published: February 3, 2009: 9:31 AM ET
By JAMES R. HAGERTY Three New York residents filed a federal lawsuit Tuesday against units of J.P. Morgan Chase & Co., alleging that the bank misled them about their chances of getting long-term reductions in mortgage payments. The suit highlights one risk of the Obama administration's effort to save millions of homeowners from foreclosure through loan modifications: The hope of receiving such relief may cause some borrowers to continue making payments, rather than accepting foreclosure and seeking more affordable housing. That could leave them in even worse financial condition after an eventual foreclosure. The suit, filed in U.S. District Court for the eastern district of New York, says the three borrowers "relied on promises by [the bank] that they would be able to modify their loans so that they could avoid foreclosure" and so "invested their limited resources" in making payments. A spokesman for J.P. Morgan said the bank would be "happy to talk with the customers, review their situations and see if we can help." The three borrowers—Shanaz Begum, Tamara Williams and Alex Lam—seek unspecified damages from J.P. Morgan and are represented by lawyers from the Urban Justice Center, a New York nonprofit group. All three sought help from units of J.P. Morgan, and were offered trial loan modifications under the administration's Home Affordable Modification Program, or HAMP, which provides incentives to banks and mortgage investors to reduce payments for some borrowers. Under HAMP, borrowers who make three trial payments and meet other criteria are supposed to receive "permanent" modifications that lower their payments for five years. The suit says Ms. Begum and Mr. Lam, after making trial payments, were told by the bank that they wouldn't get permanent modifications because their incomes were too low. The bank and Ms. Begum ran into repeated snarls over how to document her husband's cash earnings from driving a taxi, the suit says. Ms. Williams hasn't received a permanent modification despite having made trial payments and "complying with all other aspects of HAMP," the suit says. In an effort to reduce failed trials, the U.S. Treasury recently told banks to document borrowers' incomes before starting trials. Mr. Lam had remained current on his payments until early 2009 but stopped making them temporarily after being told by a bank representative that he would be considered for relief only if he fell behind, the suit says. That put a blot on his credit history, the suit adds. It says Mr. Lam had to resubmit documents to the bank several times because the bank lost track of them—a common complaint among people seeking loan modifications. The suit is the latest in a series of such actions in recent months. The National Consumer Law Center, a nonprofit group in Boston, has filed four suits against lenders on behalf of Massachusetts borrowers, seeking class-action status. Those borrowers allege that lenders failed to convert their temporary HAMP loan modifications into permanent modifications even though they met all the requirements. J.P. Morgan and other big banks regularly say they are making extraordinary efforts to help borrowers. But Treasury Secretary Timothy Geithner told a Senate subcommittee last weekthat banks aren't "doing enough to help homeowners—not doing enough to help them navigate the difficult and often frightening process of avoiding foreclosure." He threatened to crack down on banks that don't "hold up their end of the bargain" in providing HAMP modifications to those who are eligible. After a congressional hearing in Washington last month, dozens of activists from Neighborhood Assistance Corp. of America, a nonprofit group that counsels distressed borrowers, swarmed around David Lowman, the head of J.P. Morgan's home mortgage business, to demand help and followed him into the street. Write to James R. Hagerty at [email protected]