|For immediate release|
The Federal Reserve Board today announced its approval of the notice of Bank One Corporation, Chicago, Illinois, to acquire 50 percent of the voting interest in EquiServe Limited Partnership, a Delaware limited partnership, and thereby perform functions or activities that may be performed by a trust company.
Attached is the Board's Order relating to this action.
Bank One Corporation
Bank One Corporation ("Bank One"), 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 50 percent of the voting interests in EquiServe Limited Partnership ("EquiServe"), a Delaware limited partnership,1 and thereby perform functions or activities that may be performed by a trust company.2
Notice of the proposal, affording interested persons an opportunity to submit comments, has been published (63 Federal Register 23,044 (1998)). The time for filing comments has expired, and the Board has considered the proposal and all comments received in light of the factors set forth in section 4 of the BHC Act.
Bank One, with total consolidated assets of approximately $231.7 billion, is the fifth largest commercial banking organization in the United States. Bank One controls subsidiary banks that operate in 14 states, and engages in a broad range of nonbanking activities. After consummation of this proposal, EquiServe would offer shareholder services nationwide. These shareholder services would include maintenance of records of shareholders in publicly traded companies and related services, such as acting as dividend disbursement and reinvestment agent, registrar, transfer agent, redemption agent, rights agent, exchange agent, tender agent, and reorganization agent; proxy mailing and tabulation; and annual and interim report distribution.
The Board previously has determined by regulation that the performance of functions or activities, such as shareholder servicing, that may be performed by a trust company is closely related to banking and permissible for bank holding companies under section 4(c)(8) of the BHC Act.3 Bank One has committed to conduct these activities subject to the limitations set forth in Regulation Y. In order to approve the proposal, the Board also must find that the performance of the proposed activities by Bank One "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."4
As a 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.5 On the basis of all the facts of record, including relevant reports of examination and consultation with other relevant federal and state supervisory agencies, the Board has concluded that financial and managerial considerations are consistent with approval of the notice.
The Board also has carefully considered the competitive effects of the proposed joint venture. Both FCTC and Boston EquiServe currently engage in the activities to be conducted by the joint venture, EquiServe. On consummation of this proposal, EquiServe would become the largest shareholder servicing operation in the United States, serving approximately 1400 companies.
The Board notes that the market for shareholder services is a national market, which is currently moderately concentrated.6 FCTC is the second largest shareholder servicing operation in the United States, managing approximately 12.1 million shareholder accounts, representing approximately 17.2 percent of total accounts in the United States. Boston EquiServe is the third largest shareholder servicing operation in the United States, managing approximately 11.5 million shareholder accounts, representing approximately 16.3 percent of total accounts in the United States. On consummation of this proposal, EquiServe would become the largest shareholder servicing operation in the United States, managing approximately 23.6 million accounts, representing approximately 33.5 percent of total accounts in the United States.
The structure of the market for shareholder services mitigates the adverse effects of this proposal. Many companies choose to be self-providers of shareholder services.7 Thus, the market indexes tend to overstate the relative market share controlled by specialized providers, such as Boston EquiServe and FCTC. Moreover, the decision by several large companies that currently are self-providers to outsource the function could significantly change the market share of a successful bidder for that business.8 In addition, there are numerous potential entrants into this market. Currently, more than 200 firms specialize in providing shareholder services to groups of affiliated investment companies. Although only a few firms provide shareholder services to industrial or financial companies and to investment company groups, many of the activities and organizational features of the types of firms that provide shareholder services to investment company groups are similar to those activities of firms providing these services to industrial or financial companies. The investment company shareholder servicers appear to be fully capable of entering the commercial services industry with little difficulty. Many investment company shareholder servicers possess the technology, workforce, and experience that would enable them to manage the volume of transactions currently processed by commercial providers. Based on these and other facts of record, the Board concludes that consummation of the proposed transaction would not have a significantly adverse effect on competition in any relevant market.
The Board concludes that the proposed transaction would increase the ability of EquiServe to serve the needs of its customers and would allow the joint venture to provide existing and new customers with a broader range of products and services at lower costs. The Board also expects that combining the expertise and technology of FCTC and Boston EquiServe would enable EquiServe to become a more effective competitor in the market.
Based on the foregoing and all the other facts of record, including the commitments and representations made by Bank One, the Board has determined that the performance of the proposed activity by the joint venture can reasonably be expected to produce benefits to the public that would outweigh any possible adverse effects under the proper incident to banking standard of section 4(c)(8) of the BHC Act.
On the basis of all the facts of record, the Board has determined that the notice should be, and hereby is, approved. This determination is subject to all the conditions set forth in the Board's 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 assure 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 approval of the proposal is specifically conditioned on compliance with all the commitments made in connection with this notice. The commitments, representations and conditions relied on in reaching this decision shall be 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 transaction 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 Chicago, acting pursuant to delegated authority.
By order of the Board of Governors,9 effective November 16, 1998.
(signed) Robert deV. Frierson
Robert deV. Frierson
1 Bank One would acquire an interest in EquiServe in exchange for contributing to the joint venture substantially all the assets of the shareholder services business conducted by its wholly owned subsidiary, First Chicago Trust Company of New York ("FCTC").
2 The remaining voting interests in EquiServe are held by Boston EquiServe Limited Partnership, Canton, Massachusetts ("Boston EquiServe"), a joint venture between BankBoston, N.A. and Boston Financial Data Services, Inc. ("BFDS"). BFDS is owned by State Street Corporation and DST Systems, Inc. ("DST").
3 See 12 C.F.R. 225.28(b)(5).
4 See 12 U.S.C. § 1843(c)(8).
5 See 12 C.F.R. 225.26.
6 Approximately 115 firms in the United States provide shareholder services commercially to companies issuing equity. These commercial shareholder services providers compete throughout the United States, and the Board previously has determined that the geographic market for this industry is national in scope. See Chemical Banking Corporation, 82 Federal Reserve Bulletin 239, 270 (1996).
7 The Board's analysis omits self-providers from the competitive analysis.
8 As of December 31, 1997, an estimated 425 firms were providing their own shareholder servicing. These firms included some of the largest companies in the United States. The ability and willingness of many firms to provide their own shareholder servicing has contributed to strong price competition in the industry.
9 Voting for this action: Chairman Greenspan, Vice Chair Rivlin, and Governors Kelley, Meyer, Ferguson, and Gramlich.
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1998 Orders on banking applications