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4000 - Advisory Opinions


Prior Notification Requirement When Presumption of Control is Rebutted

FDIC-87-30

November 2, 1987

Douglas H. Jones, Deputy General Counsel

We have received your letter of October 14, 1987, to ***, FDIC Regional Director for the *** Region, and have reviewed the facts concerning your proposed acquisition of 20 percent of the outstanding common stock of ***, an entity which is registered on the New York Stock Exchange. *** owns 89 percent of the outstanding common stock of ***; both companies are subject to the registration requirements of the Securities Act of 1934, as amended. *** in turn owns 50 percent of the outstanding capital stock of ***, an FDIC-insured state nonmember bank.

The Change in Bank Control Act of 1978, as amended (the "Control Act"), provides that no person, acting directly or indirectly, may acquire control of any insured bank unless the appropriate Federal Banking agency has been given prior notice of and an appropriate opportunity to review the proposed transaction. Control is defined as the power, directly or indirectly, to direct the management or policies of the insured bank or to vote 25 percent or more of any class of voting securities of the insured bank.

The regulations of the FDIC establish certain presumptions of control in those instances where the proposed ownership equals or exceeds 10 percent of any class of voting securities of the insured bank but does not equal or exceed the statutorily-mandated level of control of 25 percent of such class. Control is presumed where the proposed transaction will result in the acquiring party's becoming the largest holder of a class of voting securities or where the institution has any class of securities subject to the registration requirements of section 12 of the Securities Exchange Act of 1934, as amended. Unless the applicable presumption is rebutted, such a transaction will be presumed to give the acquiring party power to direct the management or policies of the institution.

The Control Act covers both direct and indirect acquisitions of control over the insured bank. The regulatory presumptions are equally applicable where the acquisition is of shares of voting stock of a company which itself owns shares in an insured bank or which owns shares in one or several intermediate entities which own shares in an insured bank. Thus, because *** (as well as ***) has a class of securities subject to registration under section 12 of the Securities Act of 1934, your proposed transaction will fall within the area of which control over management or policies of *** will be presumed.

The Bank Holding Company Act of 1956, as amended (the "BHCA"), provides that any company which has direct or indirect control over a bank is deemed to be a bank holding company. Control exists whenever the company has the power to vote 25 percent or more of any class of voting securities, controls in any manner the election of a majority of directors, or the Federal Reserve Board determines after notice and opportunity for hearing that the company directly or indirectly exercises a controlling influence over the management or policies of the bank.

Transactions that are subject to section 3 of the BHCA are not subject to the Control Act, and jurisdiction over such transactions rests with the Federal Reserve Board under the provisions of the BHCA. Because of the overlapping jurisdiction of the Federal Reserve Board and the FDIC with respect to your proposal, we have worked with the Federal Reserve Board in resolving the issues presented. The General Counsel of the Federal Reserve Board has advised us that, if you were to acquire control of ***, he believes the proposed transaction would be subject to the BHCA. He has also advised us, however, that he believes that the presumption of control has been rebutted based on the representations outlined in your letter of October 29, 1987, to Michael B. Bradfield, General Counsel, Board of Governors of the Federal Reserve System. Accordingly, you were not required to make application to and receive approval from the Federal Reserve Board and conform to the requirements of the BHCA.

We have likewise reviewed our proposal and based upon your representations to Mr. Bradfield, the conditions contained in his October 29, 1987, letter, and the unique nature of the circumstances, including the ownership structure in this instance, we also have determined that the proposal as structured will not result in your having control over the management or policies of the bank. In reaching this conclusion we have relied, with your permission, upon the representations contained in your letter to Mr. Bradfield, and are treating these representations as having been made to the FDIC. Consequently, we have determined that you have rebutted the presumption of control found in section 303.4(a) of the FDIC rules and regulations and that you will not be required to file a notice of acquisition under the Control Act.


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