|For immediate release|
The Federal Reserve Board today announced its approval of the notice of U.S. Bancorp to acquire all the voting shares of Piper Jaffray Companies, Inc., both in Minneapolis, Minnesota, and thereby engage in various nonbanking activities, including underwriting and dealing in, to a limited extent, all types of debt and equity securities, other than interests in open-end investment companies.
Attached is the Board's Order relating to this action.
U.S. Bancorp, Minneapolis, Minnesota ("USB"), a bank holding company within the meaning of the Bank Holding Company Act ("BHC Act"), has requested the Board's approval under section 4(c)(8) of the BHC Act (12 U.S.C. § 1843(c)(8)) and section 225.24 of the Board's Regulation Y (12 C.F.R. 225.24) to acquire all the voting securities of Piper Jaffray Companies, Inc. ("Piper Jaffray"), and thereby acquire control of its subsidiaries, including Piper Jaffray, Inc. ("Company"), all in Minneapolis, Minnesota. USB would thereby engage in the following nonbanking activities:
Notice of the proposal, affording interested persons an opportunity to submit comments, has been published (63 Federal Register 11,682 (1998)). The time for filing comments has expired, and the Board has considered the notice and all comments received in light of the factors set forth in section 4(c)(8) of the BHC Act.
USB, with total consolidated assets of approximately $71.3 billion, is the 15th largest banking organization in the United States.3 USB operates subsidiary banks in 17 states, and engages through other subsidiaries in a broad range of permissible nonbanking activities. Company is, and following consummation of the proposal will continue to be, registered as a broker-dealer with the Securities and Exchange Commission ("SEC") under the Securities Exchange Act of 1934 (15 U.S.C. § 78a et seq.), a member of the National Association of Securities Dealers, Inc. ("NASD"), and registered as a futures commission merchant with the Commodity Futures Trading Commission ("CFTC") under the Commodity Exchange Act (7 U.S.C. § 2 et seq.). Accordingly, Company is, and will continue to be, subject to the record-keeping and reporting obligations, fiduciary standards, and other requirements of the Securities Exchange Act of 1934, the Commodity Exchange Act, the SEC, CFTC, and NASD.
USB recently received Board approval to establish U.S. Bancorp Investments, Minneapolis, Minnesota ("USB-Investments"), and thereby engage in underwriting and dealing, to a limited extent, in certain types of bank-ineligible securities and other permissible nonbanking activities.4 USB intends to merge USB-Investments into Company by March 31, 1999, with Company surviving the merger.
Underwriting and Dealing in Bank-Ineligible Securities
USB has committed that Company will conduct its underwriting and dealing activities using the methods and procedures and subject to the prudential limitations established by the Board in the Section 20 Orders. USB also has committed that Company will conduct its bank-ineligible securities underwriting and dealing activities subject to the Board's revenue restriction.7 As a condition of this order, USB is required to conduct its bank-ineligible securities activities subject to the revenue restrictions and Operating Standards established for section 20 subsidiaries ("Operating Standards").8
Other Activities Approved by Regulation or Order
In considering the financial resources of the notificant, the Board has reviewed the capitalization of USB and Company in accordance with the standards set forth in the Section 20 Orders and finds the capitalization of each to be consistent with approval. This determination is based on all the facts of record, including USB's projections of the volume of Company's underwriting and dealing activities in bank-ineligible securities.
The Board also has reviewed the managerial resources of each of the entities involved in this proposal in light of examination reports and other supervisory information. In connection with the proposal, the Federal Reserve Bank of Minneapolis ("Reserve Bank") has reviewed the policies and procedures of Company to ensure compliance with this order and the Section 20 Orders, including Company's operational and managerial infrastructure, computer, audit, and accounting systems and internal risk management procedures and controls. On the basis of the Reserve Bank's review and all other facts of record, including the commitments provided in this case and the proposed managerial and risk management systems of Company, the Board has concluded that financial and managerial considerations are consistent with approval of the notice.
The Board has carefully considered the competitive effects of the proposal. USB represents that USB-Investments and Company offer largely complementary services with few significant overlaps. USB has indicated that USB-Investments has focused on bank-eligible securities underwriting, private placement, and fixed-income debt trading activities, and has not developed the type of merger and acquisition advisory and equity underwriting, dealing, research, and distribution services offered by Company. To the extent that USB-Investments and Company offer different types of products and services, the proposed acquisition would result in no loss of competition. In those markets where the product offerings of USB's nonbanking subsidiaries and Piper Jaffray overlap, such as securities brokerage, investment advisory, trust and insurance agency activities, there are numerous existing and potential competitors. Consummation of the proposal, therefore, would have a de minimis effect on competition in the market for these services, and the Board has concluded that the proposal would not have any significantly adverse competitive effects in any relevant market.
In order to approve the proposal, the Board also must find that the performance of the proposed activities by Applicant can reasonably be expected to produce benefits that would outweigh possible adverse effects under the proper incident to banking standard of section 4(c)(8) of the BHC Act. Under the framework established in this and prior decisions, consummation of the proposal is not likely to result in any significantly adverse effects, such as undue concentration of resources, decreased or unfair competition, conflicts of interests, or unsound banking practices.
The Board expects that consummation of the proposal would provide added convenience to the customers of USB and Piper Jaffray. USB has indicated that consummation of the proposal would expand the range of products and services available to its customers and those of Piper Jaffray. USB also has stated that the acquisition would permit it to further diversify its nonbanking operations, thereby making it less vulnerable to economic fluctuations in individual business lines.
Based on all the facts of record, the Board has determined that performance of the proposed activities by USB can reasonably be expected to produce public benefits that outweigh any adverse effects of the proposal. Accordingly, the Board has determined that the performance of the proposed activities by USB is a proper incident to banking for purposes of section 4(c)(8) of the BHC Act.
The Board's determination is subject to all the terms and conditions set forth in Regulation Y, including those in sections 225.7 and 225.25(c) (12 C.F.R. 225.7 and 225.25(c)), and to the Board's authority to require modification or termination of the activities of a bank holding company or any of its subsidiaries as the Board finds necessary to ensure compliance with, or to prevent evasion of, the provisions and purposes of the BHC Act and the Board's regulations and orders issued thereunder. The Board's decision is specifically conditioned on compliance with all the commitments made in connection with this notice, including the commitments discussed in this order and the conditions set forth in this order and the Board regulations and orders noted above. The commitments and conditions are deemed to be conditions imposed in writing by the Board in connection with its findings and decision, and, as such, may be enforced in proceedings under applicable law.
This proposal shall not be consummated later than three months after the effective date of this order, unless such period is extended for good cause by the Board or the Reserve Bank, acting pursuant to delegated authority.
By order of the Board of Governors,14 effective April 20, 1998.
(signed) Jennifer J. Johnson
Jennifer J. Johnson
List of Administrative Services
1 USB is authorized to engage in insurance agency activities pursuant to section 4(c)(8)(G) of the BHC Act, which authorizes those bank holding companies that engaged in insurance agency activities prior to 1971 with Board approval to engage in insurance agency activities.
2 A list of the administrative services that USB would provide is included in the Appendix.
3 Asset and ranking data are as of December 31, 1997.
4 See U.S. Bancorp, 84 Federal Reserve Bulletin 62 (1998).
5 See J.P. Morgan & Co. Inc., et. al., 75 Federal Reserve Bulletin 192 (1989), aff'd sub nom. Securities Industry Ass'n v. Board of Governors of the Federal Reserve System, 900 F.2d 360 (D.C. Cir. 1990); Citicorp, 73 Federal Reserve Bulletin 473 (1987), aff'd sub nom. Securities Industry Ass'n v. Board of Governors of the Federal Reserve System, 839 F.2d 47 (2d Cir.), cert. denied, 486 U.S. 1059 (1988), as modified by Review of Restrictions on Director, Officer and Employee Interlocks, Cross-Marketing Activities, and the Purchase and Sale of Financial Assets Between a Section 20 Subsidiary and an Affiliated Bank or Thrift, 61 Federal Register 57,679 (1996), Amendments to Restrictions in the Board's Section 20 Orders, 62 Federal Register 45,295 (1997); and Clarification to the Board's Section 20 Orders, 63 Federal Register 14,803 (1998) (collectively, "Section 20 Orders").
6 Compliance with the revenue limitation shall be calculated in accordance with the method stated in the Section 20 Orders, as modified by the Order Approving Modifications to the Section 20 Orders, 75 Federal Reserve Bulletin 751 (1989); 10 Percent Revenue Limit on Bank-Ineligible Activities of Subsidiaries of Bank Holding Companies Engaged in Underwriting and Dealing in Securities, 61 Federal Register 48,953 (1996); and Revenue Limit on Bank-Ineligible Activities of Subsidiaries of Bank Holding Companies Engaged in Underwriting and Dealing in Securities, 61 Federal Register 68,750 (1996) (collectively, "Modification Orders"). In light of the fact that USB proposes to acquire a going concern, the Board believes that allowing Company to calculate compliance with the revenue limitation on an annualized basis during the first year after consummation of the acquisition and thereafter on a rolling quarterly average basis would be consistent with the Section 20 Orders. See Dauphin Deposit Corporation, 77 Federal Reserve Bulletin 672 (1991). The Board also believes that, in light of the fact that USB-Investments recently began operations, permitting USB-Investments to calculate compliance with the revenue limitation on an annualized basis during the first year of its operations and thereafter on a rolling quarterly average basis is consistent with the Section 20 Orders.
7 As noted above, USB intends to merge USB-Investments into Company by March 31, 1999. Until such merger occurs, USB will operate Company as a separate corporate entity and both USB-Investments and Company will be independently subject to the 25-percent revenue limitation on underwriting and dealing in bank-ineligible securities. See Citicorp, 73 Federal Reserve Bulletin 473, 486 n. 45 (1987), aff'd sub nom. Securities Industry Ass'n v. Board of Governors of the Federal Reserve System, 839 F.2d 47 (2d Cir.), cert. denied, 486 U.S. 1059 (1988).
8 12 C.F.R. 225.200. Company may provide services that are necessary incidents to the proposed underwriting and dealing activities. Unless Company receives specific approval under section 4(c)(8) of the BHC Act to conduct the activities independently, any revenues from the incidental activities must be treated as ineligible revenues subject to the Board's revenue limitation.
9 See 12 C.F.R. 225.28(b)(1), (2), (3), (5), (6), (7), (8), (9), and (11)(vii).
10 See Mellon Bank Corporation, 79 Federal Reserve Bulletin 626 (1993); Commerzbank AG, 83 Federal Reserve Bulletin 678 (1997) ("Commerzbank"); Bankers Trust New York Corporation, 83 Federal Reserve Bulletin 780 (1997) ("Bankers Trust"); Meridian Bancorp, Inc., 80 Federal Reserve Bulletin 736 (1994). Company also would provide transfer agency services to the funds that are provided advisory or administrative services by Company or an affiliate. See 12 C.F.R. 225.125(i).
11 USB has committed that it will engage in the proposed mutual fund advisory and administrative activities in a manner consistent with previous orders, and has committed that Company will cease its mutual fund distribution activities prior to consummation. See Commerzbank; Bankers Trust. USB does not propose to have any officer or director interlocks with the mutual funds to which Company or its affiliates provide advisory or administrative services. USB also has provided the commitments previously relied on by the Board to address the potential adverse effects that could arise from USB's proposal to serve as general partner of private investment limited partnerships that invest in assets in which a bank holding company may invest, and to assure that such activities are conducted in accordance with applicable law. See Dresdner Bank AG, 84 Federal Reserve Bulletin 361 (1998).
12 12 U.S.C. § 1843(c)(8).
13 See 12 C.F.R. 225.26.
14 Voting for this action: Chairman Greenspan, Vice Chair Rivlin, and Governors Kelley, Phillips, Meyer and Ferguson. Absent and not voting: Governor Gramlich.
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1998 Orders on banking applications