James P. Ryan, Esq.
Dear Mr. Ryan:
This is in response to your request for a determination that The Capital Group Companies, Inc., Los Angeles, California ("CGC"), and its subsidiaries collectively may acquire up to 15 percent of any class of voting securities of a bank holding company or bank without being deemed to have acquired control of that institution under the Bank Holding Company Act ("BHC Act") or the Change in Bank Control Act ("CIBC Act") when the acquisition complies with certain conditions described in this letter and related correspondence.
CGC, through its subsidiary investment management companies ("CGC Management Companies"), holds bank holding company and bank shares in a variety of customer accounts (the "Accounts") and investment funds (the "Funds") that are managed by CGC and its affiliates. The Funds include mutual funds registered under the Investment Company Act of 1940.
For purposes of the BHC Act, a company controls a bank holding company or bank if the first company (i) directly or indirectly or acting through one or more other persons owns, controls, or has power to vote more than 25 percent of any class of voting securities of the bank holding company or bank; (ii) controls in any manner the election of a majority of the directors of the bank holding company or bank; or (iii) directly or indirectly exercises a controlling influence over the policies or management of the bank holding company or bank.1 Regulation Y also sets forth a set of rebuttable presumptions of control.2 Under the proposal, CGC and its affiliates would not own, control, or hold with power to vote more than 25 percent of a class of voting securities of, or control the election of a majority of the directors of, a bank holding company or bank. In addition, CGC and its affiliates would not trigger any of the rebuttable presumptions of control under Regulation Y with respect to any bank holding company or bank. CGC would only be deemed to control a bank holding company or bank under the BHC Act if the Board were to find that CGC and its affiliates exercise a controlling influence over the policies or management of the bank holding company or bank.
For purposes of the CIBC Act, CGC is presumed by the Board's regulations to control a bank holding company or state member bank if "immediately after the transaction . . . [it] will own, control, or hold with power to vote 10 percent or more of any class of voting securities of the institution" and the institution has registered securities or no other person owns or controls a greater percentage of the same class of voting securities.3 As noted above, CGC proposes at times to acquire in excess of 10 percent of the shares of a bank holding company or state member bank through the Funds and the Accounts, without regard to whether any such institution has registered securities or whether CGC and its affiliates are the largest shareholder in the institution.
CGC seeks to establish that CGC and its subsidiaries do not exercise a controlling influence over a bank holding company or bank for purposes of the BHC Act and to rebut the regulatory presumption of control for purposes of the CIBC Act in specific circumstances. In particular, CGC, its subsidiaries, the Funds, and the Accounts collectively would not in the aggregate own or control more than 15 percent of any class of voting securities of a bank holding company or bank; and none of CGC, any subsidiary of CGC, any Fund, or any Account would separately own or control more than 10 percent of any class of voting securities of a bank holding company or bank. In addition, CGC has committed that it will use its best efforts to enter into arrangements with bank holding companies and banks to vote CGC-related shareholdings4 in excess of 10 percent ("excess shares") in the same proportion as all other shares are voted that are not excess shares. In the event that CGC is unable to enter into such arrangements, CGC will not vote any excess shares. Moreover, CGC has committed that, whenever the Funds and the Accounts own or control, in the aggregate, more than 10 percent of any class of voting securities of a bank holding company or bank, the Funds, the Accounts, CGC, and any subsidiary of CGC will not, individually or collectively:
1) take any action to control the bank holding company or bank within the meaning of the BHC Act;
2) have any director, officer, or employee interlocks with the bank holding company or bank;
3) except in the context of a tender offer or in certain other transactions, dispose of voting shares of the bank holding company or bank (i) to any person seeking control over the institution or (ii) in block transactions exceeding 5 percent of any class of voting shares of the institution; or
4) threaten to dispose of voting shares in any manner as a condition of specific action or non-action by the bank holding company or bank.5
In addition to considering these commitments, Board staff has considered the nature of CGC and its proposed investments. CGC and its subsidiaries operate and provide investment advice to a variety of investment funds and fiduciary accounts, and the proposed acquisitions would not be proprietary investments by CGC and its subsidiaries.6 Rather, they would be investments made by the Funds and on behalf of the beneficial owners of the Accounts. The Funds and the Accounts are not operating companies, and CGC and its affiliates do not lend to the Funds or Accounts that they advise or to the portfolio companies of the mutual funds.7 Moreover, CGC and its affiliates are not in the business of operating or controlling banks, bank holding companies, or other companies, and the proposed acquisitions will be made for investment purposes with the expectation of resale and not for the purpose of exercising a controlling influence over the management or policies of a bank holding company or bank.
In view of the commitments made by CGC and the facts described in this letter, Board staff would not recommend that the Board find that acquisitions made within the parameters set forth in this letter would cause CGC or the CGC Management Companies to control a bank holding company or bank for purposes of the BHC Act. Similarly, staff would not recommend that the Board find that the acquisitions described in this letter would cause CGC or the CGC Management Companies to control a bank holding company or state member bank for purposes of the CIBC Act.8
The preceding opinions are based expressly on the facts and circumstances of this case as they have been described to Board staff, and any change in these facts or circumstances may result in a different opinion. In addition, this letter expresses no opinion as to whether a CIBC Act notice would be required for transactions involving direct investments in national banks or state non-member banks.
(signed) J. Virgil Mattingly, Jr.
cc: Federal Reserve Bank of San Francisco
Commitments of CGC to the Board
Investments by the CGC Funds9 and Managed Accounts10 in 10 percent or more of any class of voting securities of U.S. bank holding companies and banks (each, a "Bank") will be conducted in accordance with the commitments and restrictions listed below.
(a) will not acquire more than fifteen percent of any class or series of voting securities of any Bank; and
(b) will use best efforts to provide that shares in excess of 10 percent of any class or series of voting securities of a Bank ("excess shares") will be voted in proportion to the vote taken on all shares that are not excess shares or, in the event that such efforts to provide for mirror voting are not successful, will not vote any excess shares.
(a) take any action to cause a Bank or any of its subsidiaries to become a subsidiary of a CGC Fund or CGC for purposes of the BHC Act;
(b) unless agreed to by the Federal Reserve Board or its staff, and permitted by applicable law, seek or accept representation on the board of directors of any Bank or its subsidiaries;
(c) have or seek to have any representative of CGC, its subsidiaries, or the CGC Funds serve as an officer, agent or employee of any Bank or its subsidiaries; or
(d) propose a director or a slate of directors in opposition to any nominee or slate of nominees proposed by the management or board of directors of any Bank.
(a) to any person if CGC or any of its subsidiaries knows that such person seeks to change the control of the Bank in any manner; or
(b) to any person whom CGC or its subsidiary knows (i) has made a filing with the SEC or other federal agency with respect to the ownership of more than five percent of the Bank's voting securities or (ii) would be required to do so as a result of the purchase from CGC, its subsidiary, a CGC Fund, or a Managed Account; or
(c) in an amount of more than 5 percent of the Bank's voting securities in any single transaction;
provided that notwithstanding paragraphs (a) through (c) above, the CGC Funds and Managed Accounts may dispose of their stock in a Bank in the following circumstances:
(i) in a cross trade between two or more CGC Funds or Managed Accounts in compliance with the rules governing such cross trades under the 1940 Act;
(ii) in the case of paragraph (c) above, in a bunched trade effected for two or more CGC Funds or Managed Accounts in compliance with the rules governing bunched trades under the 1940 Act;
(iii) in a sale by a CGC Fund or Managed Account to the Bank or one of its subsidiaries;
(iv) in a tender or exchange offer for voting stock of the Bank; or
(v) in one or more open market transactions effected on a stock exchange or in the over-the-counter market (which may include a sale to one or more broker-dealers acting as market makers or otherwise intending to resell the shares sold to it or them in accordance with its or their normal business practices).
6. In addition, CGC's subsidiary savings association, Capital Bank and Trust Company ("CB&T"), acts as the directed trustee for retirement plan accounts invested in mutual funds managed by one of the CGC Management Companies and other unaffiliated assets. Return to text
7. In some instances, however, the Funds or Accounts participate in syndicated loans to companies. CGC has represented that none of the Funds or Accounts participate in any syndicated loans to banks or bank holding companies. Return to text
8. Staff understands that CB&T holds certain bank or bank holding company shares in a fiduciary capacity and does not have sole discretionary authority to vote such shares. Under section 2(a)(5) of the BHC Act and sections 225.12(a) and 225.42(a)(4) of Regulation Y, these shares held as a fiduciary are not included in calculating CGC's aggregate holdings of bank or bank holding company shares for purposes of determining whether notice to the Board is required under the BHC Act or the CIBC Act. See 12 U.S.C. § 1841(a)(5); 12 C.F.R. §§ 225.12(a) and 225.42(a)(4). Return to text
10. "Managed Accounts" means various trust accounts maintained by Capital Bank & Trust, or any other customer account or investment fund if CBC or any of its subsidiaries exercises sole discretionary voting power over securities in the account or fund. Return to text
Home | Banking information and regulation | Legal interpretations | 2002 BHC/Change in control
Accessibility | Contact Us
Last update: October 17, 2005