Federal Reserve Release, Press Release; image with eagle logo links to home page
Release Date: August 24, 1998


For immediate release

The Federal Reserve Board today announced its approval of the notice of the BankBoston Corporation, Boston, Massachusetts, to acquire the operating business of the Robertson Stephens Division of BancAmerica Robertson Stephens, San Francisco, California, and thereby engage in underwriting and dealing in, to a limited extent, all types of debt and equity securities and in certain other nonbanking activities.

Attached is the Board's Order relating to this action.


BankBoston Corporation
Boston, Massachusetts

Order Approving Notice to Engage in Nonbanking Activities

BankBoston Corporation ("BankBoston"), 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 the operating business of the Robertson Stephens Division ("Robertson Stephens Division") of BancAmerica Robertson Stephens, San Francisco, California, and thereby engage in the following activities:

  1. Underwriting and dealing in, to a limited extent, all types of debt and equity securities, other than ownership interests in open-end investment companies ("bank-ineligible securities");

  2. Extending credit and servicing loans, in accordance with section 225.28(b)(1) of Regulation Y (12 C.F.R. 225.28(b)(1));

  3. Arranging commercial real estate equity financing, in accordance with section 225.28(b)(2)(i) of Regulation Y (12 C.F.R. 225.28(b)(2)(i));

  4. Providing financial and investment advisory services, in accordance with section 225.28(b)(6) of Regulation Y (12 C.F.R. 225.28(b)(6));

  5. Providing securities brokerage, private placement, and riskless principal services, in accordance with section 225.28(b)(7)(i), (ii), and (iii) of Regulation Y (12 C.F.R. 225.28(b)(7)(i), (ii), and (iii)); and

  6. Underwriting and dealing in government obligations and money market instruments in which state member banks may underwrite and deal under 12 U.S.C. §§ 335 and 24(7) ("bank-eligible securities"), in accordance with section 225.28(b)(8)(i) of Regulation Y (12 C.F.R. 225.28(b)(8)(i)).

In connection with this acquisition, BankBoston also would acquire BA Robertson Stephens International Limited, London, England ("BARSIL"). BankBoston has requested approval to engage in equity underwriting and dealing through BARSIL in accordance with section 4(c)(13) of the BHC Act (12 U.S.C. § 1843(c)(13)) and section 211.5(d)(14) of the Board's Regulation K (12 C.F.R. 211.5(d)(14)).

Notice of the proposal, affording interested persons an opportunity to submit comments, has been published (63 Federal Register 35,932 (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.

BankBoston, with total consolidated assets of approximately $71.4 billion, is the 16th largest banking organization in the United States.1 BankBoston operates subsidiary banks in Massachusetts, Connecticut, Florida, New Hampshire, and Rhode Island, and engages through its subsidiaries in a broad range of permissible nonbanking activities.

BankBoston proposes to merge Robertson Stephens Division with and into BankBoston's wholly owned subsidiary, BancBoston Securities, Inc., Boston, Massachusetts ("BSI").2 After consummation of the proposal, BSI would be renamed BancBoston Robertson Stephens, Inc. ("BRS"). BSI currently is, and after consummation of the proposal BRS will be, a broker-dealer registered with the Securities and Exchange Commission ("SEC") and a member of the National Association of Securities Dealers, Inc. ("NASD"). Accordingly, BSI is, and BRS will be, subject to the recordkeeping and reporting obligations, fiduciary standards, and other requirements of the Securities Exchange Act of 1934 (15 U.S.C. § 78a et seq.), the SEC, and the NASD.

Underwriting and Dealing Activities
The Board has determined, subject to the framework of prudential limitations to address the potential for conflicts of interests, unsound banking practices, or other adverse effects, that underwriting and dealing in bank-ineligible securities is so closely related to banking as to be a proper incident thereto within the meaning of section 4(c)(8) of the BHC Act.3 The Board also has determined that underwriting and dealing in bank-ineligible securities is consistent with section 20 of the Glass-Steagall Act (12 U.S.C. § 377), provided that the company engaged in underwriting and dealing activities derives no more than 25 percent of its gross revenues from underwriting and dealing in bank-ineligible securities over a two-year period.

BankBoston has committed that BRS will conduct its bank-ineligible securities underwriting and dealing activities using the methods and procedures and subject to the prudential limitations established by the Board in the Section 20 Orders. BankBoston also has committed that BRS will conduct its bank-ineligible securities underwriting and dealing activities subject to the Board's 25-percent revenue limitation.4 As a condition of this order, BankBoston is required to conduct its bank-ineligible securities activities subject to the revenue restrictions and Operating Standards established for section 20 subsidiaries ("Operating Standards").5

Other Activities Approved by Regulation or Order
The Board previously has determined by regulation that extending credit and servicing loans; arranging commercial real estate equity financing; providing financial and investment advisory services; providing securities brokerage, private placement, and riskless principal services; and underwriting and dealing in government obligations and money market instruments are closely related to banking within the meaning of section 4(c)(8) of the BHC Act.6 BankBoston has committed that BRS will conduct each of these activities in accordance with the BHC Act, Regulation Y, and relevant Board interpretations and orders.

Proper Incident to Banking Standard
In order to approve the proposal, the Board also must determine that the proposed activities are a proper incident to banking, that is, that the proposed transaction "can reasonably be expected to produce benefits to the public . . . that outweigh possible adverse effects, such as undue concentration of resources, decreased or unfair competition, conflicts of interests, or unsound banking practices."7 As part of its evaluation of these factors, the Board considers the financial condition and managerial resources of the notificant and its subsidiaries and the effect the transaction would have on such resources.8

In considering the financial resources of the notificant, the Board has reviewed the capitalization of BankBoston and BRS in accordance with the standards set forth in the Section 20 Orders. The Board finds the capitalization of each to be consistent with approval of the proposal. The Board's determination is based on all the facts of record, including BankBoston's projections of the volume of BRS's underwriting and dealing activities in bank-ineligible securities.

On the basis of its supervisory experience with BankBoston and BSI, the commitments provided in this case, and the proposed management of BRS, the Board also has determined that BankBoston and BRS have established the policies and procedures to ensure compliance with this order and the Section 20 Orders, including computer, audit, and accounting systems, internal risk management controls, and the necessary operational and managerial infrastructure. The Board also has reviewed other aspects of the managerial resources of the entities involved in this proposal, including the expected effect of this proposal on such resources. On the basis of the foregoing and all the facts of record, the Board has concluded that financial and managerial considerations are consistent with approval of the notice.

The Board expects that the proposed acquisition would provide added convenience to customers of both BankBoston and Robertson Stephens Division. BankBoston has indicated that the acquisition would expand the range of products and services available to its customers and those of Robertson Stephens Division. BankBoston also has stated that the proposed transaction would result in operational efficiencies that would allow it to become a more effective competitor.

The Board also has carefully considered the competitive effects of the proposed acquisition. BankBoston represents that there are few overlaps in the services provided by BSI and Robertson Stephens Division: BSI specializes in brokering, underwriting, and dealing in debt products, while Robertson Stephens Division has focused primarily on underwriting of equity securities. To the extent that BSI and Robertson Stephens Division offer different types of products, the proposed acquisition would result in no loss of competition. In those markets in which the product offerings of BSI and Robertson Stephens Division do overlap, such as investment advisory 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 result in any significantly adverse competitive effects in any relevant market.

As noted above, BankBoston has committed that, after the proposed acquisition, BRS will conduct its bank-ineligible securities underwriting and dealing activities in accordance with the prudential framework established by the Board's Section 20 Orders. Under the framework and conditions established in this order and the Section 20 Orders, and based on all the facts of record, the Board concludes that BRS's proposed underwriting and dealing activities in bank-ineligible securities are not likely to result in significantly adverse effects that would outweigh the public benefits of the proposal. Similarly, the Board finds no evidence that BRS's proposed riskless principal, private placement, and other nonbanking activities, conducted under the framework and conditions established in this order and Regulation Y, would likely result in any significantly adverse effects that would outweigh the public benefits of the proposal.

Based on all the facts of record, the Board has determined that consummation of the proposed transaction by BankBoston can reasonably be expected to produce public benefits that would outweigh any potential adverse effects. Accordingly, the Board has determined that performance of the proposed activities by BankBoston is a proper incident to banking for purposes of section 4(c)(8) of the BHC Act. The Board also has determined that BankBoston has established appropriate internal policies and procedures and has adequate capital resources consistent with approval of the proposed equity underwriting and dealing activities, under section 4(c)(13) of the BHC Act.

Conclusion
On the basis of all the facts of record, the Board has determined that the notice should be, and hereby is, approved, subject to all the terms and conditions in this order and the Section 20 Orders, as modified by the Modification Orders. The Board's approval of the proposal extends only to activities conducted within the limitations of those orders and this order, including the Board's reservation of authority to establish additional limitations to ensure that BRS's activities are consistent with safety and soundness, avoidance of conflicts of interests, and other relevant considerations under the BHC Act. Underwriting and dealing in any manner other than as approved in this order and the Section 20 Orders (as modified by the Modification Orders) is not within the scope of the Board's approval and is not authorized for BRS.

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) of Regulation Y (12 C.F.R. 225.7 and 225.25(c)), and to the Board's authority to require such 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, and to prevent evasion of, the provisions 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 above-noted Board regulations and orders. These 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.

The 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 by the Federal Reserve Bank of Boston, acting pursuant to delegated authority.

By order of the Board of Governors,9 effective August 24, 1998.

(signed) Robert deV. Frierson

Robert deV. Frierson

Associate Secretary of the Board


Footnotes

1 Asset and ranking data are as of March 31, 1998.

2 BSI currently engages in limited underwriting and dealing in bank-ineligible securities, as permitted under section 20 of the Glass-Steagall Act (12 U.S.C. 377). See Bank of Boston Corporation, 83 Federal Reserve Bulletin 42 (1996). BSI also is authorized to engage in a variety of other nonbanking activities. See id.

3 See J.P. Morgan & Co. Incorporated, et al., 75 Federal Reserve Bulletin 192 (1989), aff'd sub nom. Securities Industries Ass'n v. Board of Governors of the Federal Reserve System, 900 F.2d 360 (D.C. Cir. 1990); Citicorp, et al., 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 Clarifications to the Board's Section 20 Orders, 63 Federal Register 14,803 (1998) (collectively, "Section 20 Orders").

4 BankBoston proposes to merge Robertson Stephens Division with and into BRS immediately on consummation of the proposed transaction. Accordingly, BankBoston must calculate BRS's compliance with the revenue limitation 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").

5 12 C.F.R. 225.200. BRS may provide services that are necessary incidents to the proposed bank-ineligible securities underwriting and dealing activities. Unless BRS receives specific approval under section 4(c)(8) of the BHC Act to conduct the activities independently, BRS must treat any revenues from the incidental activities as ineligible revenues subject to the Board's revenue limitation.

6 See 12 C.F.R. 225.28(b)(1), (2)(ii), (6), (7)(i), (7)(ii), (7)(iii), and (8)(i).

7 See 12 U.S.C. 1843(c)(8).

8 See 12 C.F.R. 225.26.

9 Voting for this action: Chairman Greenspan, Vice Chair Rivlin, and Governors Kelley, Ferguson, and Gramlich. Absent and not voting: Governor Meyer.

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