July 21--Federal regulators approved a New York lender's controversial $3.4-billion takeover of Pasadena's OneWest Bank, a deal that would create a hybrid company with a national commercial lending business and about 70 retail branches in Southern California.
The decision, announced Tuesday, overcame objections that the deal with large commercial lender CIT Group would create another too-big-to-fail bank and that the combined operation wouldn't serve the needs of its poorer and minority neighbors.
It also marks a triumph for an investor group that includes billionaire computer maker Michael Dell and hedge fund operators George Soros and John Paulson, overcoming objections that the deal would create another too-big-to-fail bank.
Outbidding several other prominent suitors, the investors created OneWest in the depths of the Great Recession from the remains of IndyMac Bancorp, a savings and loan that regulators seized in 2008 and auctioned off.
IndyMac, a specialist in mortgages made without verifying borrower incomes, had become an international emblem for the loose lending that triggered the global crisis in real estate and mortgage securities.
The proposed merger, announced a year ago, is one of a series of blockbuster deals involving Southern California banking firms. Most notably, longtime Los Angeles stalwart City National Corp. is awaiting approval of its $5.4-billion acquisition by the Royal Bank of Canada.
The OneWest-CIT deal touched off intense debate over its public benefits, and regulators took public testimony in Los Angeles in February from supporters and opponents. John Thain and Joseph Otting, the chief executives of CIT and OneWest, respectively, defended the deal.
The witnesses clashed over whether the merged bank, big enough to be deemed systemically important to the financial system, would fulfill its legal obligation to serve the poor in Southern California.
One advocacy group, the California Reinvestment Coalition, was especially vocal in criticizing what it called inadequate and vague promises by OneWest and CIT to commit $5 billion in loans and other support for lower-income areas over a four-year period.
The coalition's executive director, Paulina Gonzalez, complained Tuesday that the approvals by the Federal Reserve and the Office of the Comptroller of the Currency did not spell out how the comptroller would judge the bank's commitment to satisfying the Community Reinvestment Act, which requires banks to support all segments of their communities.
In approving the deal, regulators required the merged bank to submit a business plan in 120 days and a detailed CRA plan in 90 days.
Gonzalez said that although the comptroller took a good step in making the plans public, the regulator "has not made public any standards by which it is going to evaluate the bank's CRA plan or its comprehensive business plan."
"It's not transparent," she said. "It's like a bank approving a loan with very little underwriting," the basic evaluation of the risks.
The combined company would be based in New York, with its banking subsidiary operated from Pasadena. CIT's banking subsidiary, an Internet bank based in Utah, would be combined with OneWest's franchise. The combined bank would operate as CIT Bank, with Otting continuing as chief executive.
OneWest's parent company, IMB Holdco, has $21.8 billion in assets and $14.1 billion in deposits, the Federal Reserve said. CIT Group has $47.9 billion in assets and $15.9 billion in deposits.
The combined company would be the 41st largest bank in the country with federally insured deposits, the Fed said.
A spokesman for OneWest declined to comment, and CIT could not be reached for comment.
