Working In These Times
Bailed-Out Capital One Marshals Democratic Allies to Push Merger Deal
WASHINGTON, D.C.—After protests from labor and community activists, the Federal Reserve announced in late August that it would extend the public comment period by 51 days on the proposed merger between Capital One and the online bank ING Direct, which would create the fifth largest bank in America. The Fed also announced that it would hold three public hearings on the deal around the country; activists hope to use these hearings to show that Capital One is a bad bank that should not be allowed to get bigger.
“Capital One’s model of business is to basically turn people upside and shake them,” says John Taylor, president & CEO of the National Community and Reinvestment Coalition and Reinvestment Coalition, who is helping lead a coalition of more than 200 community, faith and labor groups opposed to the merger. “We shouldn’t reward them by letting them expand more to become a megabank that we will be forced to bailout once again.”
Capital One received $3.5 billion in bailout funds, yet it has refused to lend to qualified low-income borrowers, requiring them to show credit scores that are higher than the minimum qualifying scores mandated by the Federal Housing Administration. Taylor says the bank has systematically refused to lend to people of color and that it encourages small business to use high interest credit cards instead of giving such small businesses loans.
Public backlash voiced at the hearings could cause the proposed merger to fall apart, as Capital One is already on shaky financial footing. Moody has placed Capital One on warning for a credit downgrade earlier this year. To make the merger happen, the company is now promising it will create jobs—and marshaling its Democratic allies.
“In marked contrast to most bank mergers and current trends in our industry, Capital One plans to increase employment this year,” John Finneran, Capital One’s general counsel, said at a Federal Reserve hearing on Tuesday. The statement contrasts with Capital One’s own habit of laying people off after acquiring other banks. According to The New York Times, after Capital One acquired Chevy Chase Bank and North Fork Bank’s mortgage business in California, the bank laid off hundreds of workers. Companies often merge in part to gain savings caused by eliminating duplicated jobs.
This month, Democratic allies of the bank such as former Democratic National Committee Chairman and Virginia Governor Tim Kaine began advocating for the bank merger.
"Capital One continues to be a bright spot for job creation in the banking industry," former Virginia Governor Tim Kaine wrote in a Sept. 15 letter calling for the Federal Reserve to approve Capital One’s purchase of ING Direct USA. "It is growing its business and hiring.” (It should be noted that the executives of Virginia-based Capital One donated $19,750 to Kaine's gubernatorial campaign.)
After a recent field hearing in Chicago started to generate negative publicity and casted doubt on community benefits of the bank merger, Capital One found another Democratic politician, Delaware Governor Jack Markell (D-Dela.), to help bolster Capital One’s claims about the merger's benefits.
On Monday, Markell announced that the state's government has agreed to a package of up to $6.9 million in taxpayer-funded job and capital improvements credits with Capital One in exchange for creating 500 jobs in Delaware. The job deal is contigent on Capital One’s merger with ING Direct being approved. It also should be noted that the State of Delaware would be paying nearly $14,000 per banking job created by Capital One – a community benefit that seems to be paid for less by the bank merger than by the taxpayers of Delaware.
Dangling the prospect of jobs before the public to make mergers happen seems to be a new corporate trend. Last month, Working In These Times contributor Akito Yoshikane described how, when the proposed AT&T/T–Mobile merger deal—which 76 House Democrats supported—appeared as it if would not be approved, AT&T promised to return 5,000 jobs to the United States if it was. This, and promises of a card check neutrality organizing agreement for the newly added AT&T workers, led groups like the Communication Workers of America to support the proposed merger.
“Most analysts estimate that the AT&T deal will result in as many as 20,000 layoffs at T-Mobile—as the merged entity streamlines the network, closes competing storefronts and de-commissions cell towers nationwide,” says Free Press Campaign Director Tim Karr, a critic of the AT&T/T–Mobile merger, which was not ultimately approved by the FCC. “This is consistent with the history of mass layoffs following the many telecommunications mergers that have gone before it. AT&T alone has let go more than 100,000 employees over the last decade, a period of time that coincides with its mergers with SBC, BellSouth, Cingular and others.”
Capital One did not respond to requests for comment about its proposed merger. Taylor, of the National Community and Reinvestment Coalition and Reinvestment Coalition, finds claims to job creation dubious at best.
“Apparently [Delaware's state] government needs to pay Capital One to create jobs, raising the question: does Capital One benefits the public, or does the public benefit Capital One?” asks Taylor. “Remember, this is a company that took public tax dollars during the bank crisis and bought Chevy Chase Bank, instead of loaning money to small businesses. Capital One should be judged by its track record, not by what it promises under pressure.”