|July 22, 1996|
Jonathan M. Weld, Esq.
Dear Mr. Weld:
This is in reference to your letters of February 28, March 29, and July 11, 1996 (the "Letters"), regarding the proposed investment by The Bank of Nova Scotia ("Bank") in Grupo Financiero Inverlat, S.A. de C.V. ("Inverlat"), pursuant to an agreement between Bank and the government of the United Mexican States, the current owner of the majority of shares of Inverlat. Bank's current indirect interest in the U.S. securities operations of Inverlat is held pursuant to an exemption granted by Order of the Board, dated March 16, 1994, under section 4(c)(9) of the Bank Holding Company Act (the "BHC Act").
You had raised a question regarding whether Bank would be deemed to control Inverlat after the proposed investment in light of the significant interest in Inverlat that would continue to be held by the Mexican Government. This will confirm the information previously provided to you that, in light of Bank's right to elect a majority of the board of directors of Inverlat, its option to purchase up to 51 percent of the shares of Bank, and the management agreement under which Bank will have day-to-day control of the operations of Inverlat, Bank would be deemed to control Inverlat upon consummation of the transaction. Consequently, Bank would be required to join in any application filed by Inverlat to expand or retain activities in the United States. This would include any proposed application under section 4(c)(8) of the BHC Act to conform Inverlat's U.S. securities activities to the requirements of the BHC Act prior to the end of the five year period for conformance provided under the North American Free Trade Agreement. It is our understanding that Inverlat conducts no U.S. activities other than through Banco Inverlat S.A.'s New York agency and Inverlat International Co. ("Inverlat International") and its direct parent, Inverlat Holding Inc., both of New York, New York.
With respect to whether the existing exemption would need to be modified in light of the transaction contemplated in the Letters, Board staff are of the view that such a modification would not be necessary. The commitments given by Bank and relied on by the Board in granting the exemption would continue in effect. In staff's view, these commitments would not prevent the conduct of due diligence by Bank in connection with determining whether to conform Inverlat International's U.S. activities by filing an application under section 4(c)(8) or by some other means.
Lastly, as discussed with you in April, Inverlat must be in compliance with the BHC Act by the end of the five year period for conformance expiring in February 1997, at which time the exemption under section 4(c)(9) for Bank's interest in Inverlat would no longer be necessary. Consequently, it was agreed that any consideration of an extension of the exemption period under section 4(c)(9) would be unnecessary at this time.
If you have any questions concerning this matter, please feel free to call me at 202/452-3786 or Ann Misback at 202/452-3788.
Very truly yours,
(signed) Kathleen M. O'Day
Kathleen M. O'Day
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