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November 21, 2000

Thomas J. Pax, Esq.
Shaw Pittman
2300 N Street, N.W.
Washington, D.C. 20037-1128

Dear Mr. Pax:

This is in response to the request by HSBC Bank USA, Buffalo, New York ("HSBC Bank"), for an exemption from section 23A of the Federal Reserve Act in order that HSBC Bank may acquire the assets of the New York branch of Credit Commercial de France ("CCF"), a commercial bank headquartered in France that HSBC Holdings Plc, ("HSBC") acquired on July 28, 2000. HSBC Bank and CCF are subsidiaries of HSBC, and thus CCF is an affiliate of HSBC Bank for purposes of section 23A of the Federal Reserve Act.1 HSBC Bank has requested an exemption in order that it can acquire the assets of CCF's New York branch as part of a corporate reorganization.

Section 23A limits the amount of ‘covered transactions," which include loans and purchases of assets, between a bank (and its subsidiaries) and any single affiliate to 10 percent of the bank's capital stock and surplus and limits the aggregate of all covered transactions between a bank (and its subsidiaries) and all of its affiliates to 20 percent of the bank's capital stock and surplus. HSBC Bank's acquisition of the CCF assets is covered by section 23A.2 HSBC Bank's capital stock and surplus totaled approximately $9.1 billion at September 30, 2000.

Section 23A specifically authorizes the Board to exempt purchases of real or personal property and to exempt "at its discretion [other]. . . transactions or relationships from the requirements of this section if it finds such exemptions to be in the public interest and consistent with the purposes of this section."3 The Board has approved exemptions in similar cases for one-time transfers that are part of a corporate reorganization and that are structured to ensure the quality of the transferred assets.4 As in previous cases reviewed by the Board, the proposed transaction in this case is a by-product of a one-time corporate reorganization. HSBC is consolidating its U.S. banking business as a result of its acquisition of CCF. In order to improve efficiency in its U.S. operations, HSBC has decided to close the New York branch of CCF, including the related Cayman Islands branch of CCF and the International Banking Facility. According to HSBC Bank, the proposed acquisition would improve its loan portfolio, improve and increase its customer base, and complement its existing business.

HSBC Bank also has made the following commitments that the Board has accepted in similar exemption requests:

  1. None of the assets of the New York branch of CCF to be purchased by HSBC Bank will be "low-quality" within the meaning of subsection (b)(10) of section 23A.
  2. Before the acquisition of the assets of the CCF New York branch, HSBC Bank will review the assets to ensure that the transaction is consistent with safe and sound banking practices.
  3. HSBC USA Inc., will purchase from HSBC Bank any assets that HSBC Bank purchases from CCF that become low-quality assets, as defined by section 23A, within two years of the date of transfer at the original purchase price, adjusted to reflect any principal payments received on loan assets.
  4. Before the purchase of the assets, the majority of the members of HSBC Bank's board of directors who are not affiliated with CCF, except by virtue of their membership on the board of directors of HSBC and HSBC USA Inc. (the board of HSBC Bank and HSBC USA Inc. have identical membership), will review and approve the purchase of assets.
HSBC Bank also has committed that after giving effect to the proposed acquisition, HSBC Bank will exceed all capital guidelines to which it is subject and will meet the requirements for designation as "well capitalized" under the prompt corrective action standards of the Federal Deposit Insurance Act.5

In light of these considerations and all the facts you have presented, the transaction appears to be consistent with safe and sound banking practices and on terms that would ensure the quality of the assets transferred. Accordingly, the transaction appears to be consistent with the purposes of section 23A, and the Director of the Division of Banking Supervision and Regulation, pursuant to authority delegated by the Board, and with the concurrence of the General Counsel, hereby grants the requested exemption.

This determination is specifically conditioned on compliance by HSBC and HSBC Bank with all the commitments and representations made by it in connection with the exemption request. These commitments and representations are deemed to be conditions imposed in writing by the Board in connection with granting this request and, as such, may be enforced in proceedings under applicable law. This determination is based on the specific circumstances surrounding this transaction, and may be revoked in the event of any material change in those circumstances or any failure by HSBC or its subsidiaries to continue to observe any of their commitments. This grant of exemption does not represent a determination concerning the permissibility of any other transactions that are subject to section 23A or concerning any other affiliates of HSBC.

Very truly yours,

(Signed) Robert deV. Frierson

Associate Secretary of the Board


cc: Federal Reserve Bank of New York


Footnotes

1. 12 USC § 371c(b)(1). Return to text

2. Section 23A defines the purchase of assets as a covered transaction. 12 U.S.C. § 371c (b)(7)(C) Return to text

3. 12 U.S.C. §§ 371c (b)(7)(C) and 371c(e)(2) (emphasis added). Return to text

4. See Travelers Group Inc. and Citicorp, 84 Federal Reserve Bulletin 985, 1013-14 (1998); Letter dated November 14, 1996, from William W. Wiles to John Byam; Letter dated April 19, 1988, from James McAfee to Timothy C. Roach, Esq.; Letter dated August 6, 1987, from William W. Wiles to Timothy McGinnis. Return to text

5. 12 U.S.C. § 1831o. Return to text

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