Religious Shareholders See Big Boost for Derivatives Disclosure in Proxy Resolution Vote at Citigroup,
but Criticize U.S. for Failing to Fully Vote its Shares in Support
Much Higher Than Expected 30 Percent Support Achieved for Faith-Based Investors Resolution Urging Greater Derivatives Disclosure; “Mixed Message to Wall Street and Congress” Seen in U.S. Decision Not to Vote All of Its 27% of Shares for Resolution.
NEW YORK CITY///April 20, 2010///In the first of four major shareholder votes at leading U.S. financial institutions, faith-based institutional investors belonging to the 300-member Interfaith Center on Corporate Responsibility (ICCR) are elated today to see a better-than-expected 30 percent of shares cast for their proxy resolution urging more disclosure of derivatives practices at Citigroup.
The higher-than-expected vote (which is yet to be officially confirmed) resulted even though the United States government, which controls 27 percent of Citigroup as a result of the bank bailouts, failed to fully support the resolution. On Friday, ICCR members urged the U.S. Treasury to send a “consistent message” to Wall Street and Congress by voting its 27 percent of shares for more derivatives disclosure at Citigroup.
Going into today’s Citigroup meeting, a vote in the low double digits in favor of the new shareholder resolutions would have been considered a major victory by shareholder advocates, who frequently only achieve single-digit support for new resolutions submitted at financial institutions. (With only 3 percent of the vote, shareholder resolutions may be resubmitted in a subsequent year.) Instead, the strong level of support at Citigroup is a clear sign of growing shareholder support for the notion of improved disclosure about derivatives.
Subsequent shareholder votes on the derivatives disclosure resolution will take place at Bank of America (April 28), Goldman Sachs (May 7), and JP Morgan Chase (May 18). Taken together, the resolution targets are four of the five U.S. financial institutions accounting for a reported 96 percent of all derivatives trading in the U.S. The resolutions mark the first time that the banks will face a vote by shareholders on a call to explain their policy on how collateral is secured for the derivatives they use and what their policy is about using their customers’ funds for other speculative activities. (JP Morgan Chase faced a derivatives-related measure with a different focus in 2004.)
Sr. Barbara Aires, coordinator, Corporate Responsibility, Sisters of Charity of St. Elizabeth, NJ, said: “We consider this double-digit vote in favor of the resolution to be a moral victory that sends a strong message to Wall Street that the ‘old ways’ on derivatives and all of the attendant market-crashing risk they involve is no longer acceptable. The one big disappointment that we have today is that the Obama Administration did not see fit be fully consistent in its message to Congress and Wall Street on derivatives.
ICCR Board Member Rev. Seamus Finn, director, Justice, Peace & Integrity of Creation, Missionary Oblates of Mary Immaculate. “If taxpayers are going to own major shares of banks in exchange for bailouts then they should be just as active as other shareholders in providing guidance to management. The U.S. government controls over a quarter of outstanding Citigroup shares. It had an extraordinary opportunity here to vote all of its shares in telling Wall Street that more derivatives disclosure is vital.”
ICCR Board Member Catherine Rowan, coordinator, Corporate Responsibility, Maryknoll Sisters: “For many years, the proponents of this resolution have been concerned about the long-term consequences of irresponsible risk in investment products and have expressed these concerns to the company. We applaud the steps that have been implemented to establish a clearinghouse for over the counter derivatives. But there is more to do. We believe that the report requested in this proposal will offer information needed to adequately assess our company’s sustainability and overall risk, in order to avoid future financial crises.”
ICCR Executive Director Laura Berry said: “We are delighted with the clear support for the principles reflected in the apparent high level of shareholder support for this resolution. Given the history of ICCR attempts to bring these issues to the attention of our fellow shareholders, long before the crisis and bailouts began, the administration’s decision to vote with management is mystifying and inconsistent. The SEC’s recent ruling, allowing these resolutions to move forward, and the administration’s oft-stated commitment to financial reform and transparency led us to imagine the full support of our government in their stewardship of the shares they hold on behalf of U.S. taxpayers.”
Kate Walsh, associate director, Tri-State Coalition for Responsible Investment: “Shareholders need to take their ownership role seriously. The series of proxy votes on derivatives disclosure that started today at Citigroup is a perfect opportunity for the owners of America’s largest financial institutions to speak out and be heard. The alternative – turning a blind eye to problem practices – is something that we now know from painful experience is an entirely unacceptable way to proceed.”
ABOUT THE ICCR RESOLUTION
The ICCR proxy resolution notes that “the recent financial crisis has resulted in the destruction of trillions of dollars of wealth and untold suffering and hardship across the world” and that “taxpayers in the United States have been forced to extend hundreds of billions of dollars in assistance and guarantees to financial institutions and corporations over the past 18 months.”
The resolution also points out that the “very high degrees of leverage in derivatives transactions contributed to the timing and severity of the financial crisis” and that “concerns have arisen about the practice of rehypothecation: the ability of derivatives dealers to redeploy cash collateral that gets posted by one of its trading partners” and that “the financial system was brought to the brink of collapse by the absence of a system and structure to monitor counterparty risk … (while) numerous experts and the U.S. Treasury Department have called for the appropriate capitalization and collateralization of derivative transactions.”
The resolution asks “that the Board of Directors report to shareholders (at reasonable cost and omitting proprietary information) by December 1, 2010, the firm’s policy concerning the use of initial and variance margin (collateral) on all over the counter derivatives trades and its procedures to ensure that the collateral is maintained in segregated accounts and is not rehypothecated.”
Sponsors and co-sponsors of the Citigroup derivatives disclosure resolution are: Missionary Oblates of Mary Immaculate, Rev. Seamus Finn; Sisters of Charity of St. Elizabeth, NJ, Sr. Barbara Aires; Sisters of St. Francis of Philadelphia, Sr. Nora Nash; Congregation of Benedictine Sisters, Boerne TX, Sr. Susan Mika, OSB; Sisters of St. Dominic of Caldwell, NJ, Sr. Patricia Daly, OP; Maryknoll Sisters, Cathy Rowan; Maryknoll Fathers and Brothers, Rev. Joseph P. LaMar, M.M.; Congregation of the Sisters of Charity of the Incarnate Word, San Antonio, Esther Ng; Benedictine Sisters of Mount St. Scholastica, Rose Marie Stallbaumer, OSB; and Sisters of St. Joseph of Carondelet, CA, Sr. Catherine Kreta, CSJ.
U.S. GOVERNMENT STATEMENTS ON DERIVATIVES DISCLOSURE
On Friday, ICCR officials noted that, in recent weeks, top Commodity Futures Trading Commission (CFTC) and U.S. Treasury officials have urged Congress and Wall Street to embrace the financial services reform bill now on Capitol Hill. On March 11, CFTC Chairman Gary Gensler was quoted in the Financial Times: “Who would not want the transparency [for derivatives] that you have in the stock market? … The only parties that benefit from a lack of transparency are Wall Street dealers.”
On April 12th, Deputy Secretary of the Treasury Neal Wolin told the Council of Institutional Investors: “… under the leadership of Chairman Dodd, the Senate Banking Committee has now voted out its own financial reform bill. Senator Dodd’s bill, too, is comprehensive and strong. We expect that bill to go to the Senate floor soon. As the President has made clear, we will fight hard against any efforts to weaken that legislation, and we will work to strengthen it further where we can … We cannot afford to wait to fix our flawed, outdated regulatory system … to [wait to] bring transparency and oversight to derivatives and other key financial markets … That’s what the Senate bill will do.”
For nearly 40 years the Interfaith Center on Corporate Responsibility (ICCR) has been a leader of the corporate social responsibility movement. ICCR’s membership is an association of 300 faith-based institutional investors, including national denominations, religious communities, pension funds, foundations, hospital corporations, economic development funds, asset management companies, colleges, and unions. Each year ICCR-member religious institutional investors sponsor over 200 shareholder resolutions on major social and environmental issues.
Patrick Mitchell, (703) 276-3266 or