Nevada hearing doubtful on Citigroup takeover

Monday, Nov. 6, 2000 | 11:20 a.m.

There probably won't be any hearings in Nevada on Citigroup Inc.'s proposed $31.1 billion purchase of Associates First Capital Corp.

The two state officials who oversee banking and insurance administration in the state say the acquisition won't lessen competition or jeopardize consumers or shareholders and they don't have oversight on lending policies that critics are most concerned about.

L. Scott Walshaw, commissioner of the Nevada Financial Institutions Division, said there are no antitrust or anticompetitive issues associated with the deal in Nevada and his office already has given approvals for the transfer if it happens.

The only other state office that could conduct a hearing is the Nevada Division of Insurance, and its commissioner, Alice Molasky-Arman, will decide this week whether there is a compelling reason to set one on Citigroup's proposed acquisition of an Associates affiliate, the Associates Financial Life Insurance Co. of Nevada (AFLICON).

In an order signed by Molasky-Arman two weeks ago, she said there probably wouldn't be a hearing because the deal would have no direct effect on Nevada consumers since AFLICON operates in the state as a reinsurer and has only one policyholder -- an Associates affiliate company based in Tennessee.

"AFLICON does not market or underwrite any primary insurance to the general public in Nevada or elsewhere," Molasky-Arman's order says. "AFLICON acts only as a reinsurer and is licensed in Nevada only as a life and health reinsurer. While AFLICON has officers and directors, it has no employees."

A representative of the company could not be reached for comment on why the one-customer affiliate was established in Nevada.

Citigroup Inc. already controls 26 insurance companies licensed in Nevada and Molasky-Armand said all of them are in good standing.

On the banking side, Walshaw said the Citigroup-Associates deal is without controversy in Nevada and was treated like a routine license transfer because the deal wouldn't affect market share. Associates has no depository institute in the state and in Nevada operates a consumer loan operation with many competitors.

Because both the Associates and Citigroup already operate in the state, Walshaw said there was no need for additional scrutiny.

"It was basically a non-event here," he said.

Associates operates in Las Vegas as Associates Home Equity Services Inc., Associates Housing Finance LLC, Associates Mortgage Corp., and Associates Financial Services Co. The company has four Las Vegas-area offices.

It's essentially the direct opposite of other recent banking mergers in which, for example, Wells Fargo had to divest properties in Nevada to conform to federal antitrust rules.

Another agency representative said Citigroup expects to keep the same personnel in place in the Associates' mortgage companies and installment loan operations. Since there is no banking presence, there was no investigation on lending practices, which are handled at the federal level.

Licenses would be transferred for the Associates' mortgage companies but new licenses would be issued on the installment loan operations because there is no state provision allowing transfers.

An activist who has tried to convince Nevada officials to conduct a hearing is Matthew Lee, executive director of the Inner City Press/Community on the Move and Inner City Public Interest Law Center in Bronx, N.Y.

Lee requested a hearing through Walshaw, then through Molasky-Arman's office. Lee says the company AFLICON insures, Associates Financial Life Insurance Co., has a record of discriminatory insurance practices.

In an Oct. 23 letter, Lee asked Molasky-Arman to release a copy of Citigroup's application and supporting documents, information about complaints the division has received on Associates and a hearing on the request.

He supplemented the request with a second letter faxed to Molasky-Arman last week detailing why he thinks a hearing should be conducted. In it, Lee included portions of a transcript from a similar hearing conducted by insurance regulators in Missouri in which Lee said Associates representatives failed to answer questions about alleged discriminatory practices.

Lee also criticized Citigroup for not doing a better job of learning about Associates' practices before agreeing to the acquisition.

"This transcript ... shows the lack of due diligence that Citigroup performed on all of Associates' insurance companies, Citigroup's cavalier attitude toward the current activities of, including litigation against, Associates' insurance companies, and other adverse factors under the financial, reputational, experience and integrity factors that your department must consider," Lee said in his letter to Molasky-Armand.

But the insurance commissioner isn't likely to set a hearing because Citigroup already satisfies all the conditions required of a company to conduct business and the deal wouldn't change the competitive arena of the state.

The deal also wouldn't have an impact on policyholders, shareholders or lessen competition in the state.

Molasky-Arman's order says the agency will take action and issue an order Tuesday unless it receives new information by today from the reinsurer, the applicant, the policyholder, shareholders or "persons who have a direct and immediate pecuniary interest that may be significantly affected" by the deal.

Lee believes his organization qualifies as a representative of eligible persons affected by the deal.