|For immediate release|
The Federal Reserve Board today announced its approval of the applications and notices by Allied Irish Banks, plc, Dublin, Ireland, and First Maryland Bancorp, Baltimore, Maryland, to acquire Dauphin Deposit Corporation, Harrisburg, Pennsylvania, and thereby acquire Dauphin's banking and nonbanking subsidiaries.
Attached is the Board's Order relating to this action.
Allied Irish Banks, plc
Allied Irish Banks, plc, Dublin, Ireland ("Allied Irish"), and its subsidiary, First Maryland Bancorp, Baltimore, Maryland ("First Maryland") (collectively, "Applicants"), bank holding companies within the meaning of the Bank Holding Company Act ("BHC Act"), have requested the Board's approval under section 3 of the BHC Act (12 U.S.C. § 1842) to acquire Dauphin Deposit Corporation ("Dauphin") and thereby indirectly acquire Dauphin's subsidiary bank, Dauphin Bank and Trust Company ("Dauphin Bank"), both of Harrisburg, Pennsylvania.1 Applicants also have 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 nonbanking subsidiaries of Dauphin and thereby engage in the nonbanking activities listed in the Appendix.
Notice of the proposal, affording interested persons an opportunity to submit comments, has been published (62 Federal Register 16,579 (1997)). 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 sections 3 and 4 of the BHC Act.
Allied Irish, with total consolidated assets equivalent to approximately $43.9 billion, is the largest banking organization in Ireland, and it provides a full range of banking, financial, and related services primarily in Ireland, the United Kingdom, and the United States.2 Allied Irish operates a branch in New York; through First Maryland, controls three banking subsidiaries in Delaware, Maryland, and Pennsylvania; and engages through other subsidiaries in various nonbanking activities. First Maryland, with total consolidated assets of $10.8 billion, is the 57th largest commercial banking organization in the United States, controlling $7.5 billion in deposits.
Allied Irish is the 18th largest commercial banking organization in Pennsylvania, controlling $872.6 million in deposits, representing less than 1 percent of all deposits in commercial banking institutions in the state.3 Dauphin is the seventh largest commercial banking organization in Pennsylvania, controlling $3.96 billion in deposits, representing approximately 2.9 percent of all deposits in commercial banking institutions in the state. On consummation of the proposal, Allied Irish would become the sixth largest commercial banking organization in Pennsylvania, controlling deposits of $4.8 billion, representing approximately 3.5 percent of all deposits in commercial banking institutions in the state.
Interstate Banking Analysis
Allied Irish and Dauphin compete directly in the Hagerstown, Maryland; Lancaster, Pennsylvania; and York, Pennsylvania, banking markets.7 On consummation of this proposal, those markets would remain moderately concentrated as measured by the Herfindahl-Hirschman Index ("HHI").8 After considering the number of competitors that would remain in the market, the resulting market concentration as measured by the HHI, and all other facts of record, the Board has concluded that consummation of this proposal would not have a significantly adverse effect on competition or the concentration of banking resources in any relevant banking market.
Certain Supervisory Considerations
The BHC Act also requires the Board to determine that the applicant has provided adequate assurances that it will make available to the Board such information on its operations and activities and those of its affiliates that the Board deems appropriate to determine and enforce compliance with the BHC Act. The Board has reviewed the restrictions on disclosure in jurisdictions where Allied Irish has material operations and has communicated with relevant government authorities concerning access to information. Allied Irish has committed that, to the extent not prohibited by applicable law, it will make available to the Board such information on the operations of Allied Irish and any of its affiliates that the Board deems necessary to determine and enforce compliance with the BHC Act, the International Banking Act (12 U.S.C. § 3101 et seq.), and other applicable federal laws. Allied Irish also has committed to cooperate with the Board to obtain any waivers or exemptions that may be necessary in order to enable Allied Irish to make any such information available to the Board. In light of these commitments and other facts of record, the Board has concluded that Allied Irish has provided adequate assurances of access to any necessary information the Board may request.12 For these reasons, and based on all the facts of record, the Board has concluded that the supervisory factors the Board is required to consider under section 3(c)(3) of the BHC Act are consistent with approval.
Financial, Managerial, and Convenience and Needs Considerations
The proposed transaction is not expected to have a significant adverse effect on the financial resources of Allied Irish, First Maryland, or the other institutions involved. Allied Irish and First Maryland, and their subsidiary depository institutions, are well-capitalized and expected to remain so on consummation of this proposal. The Board also has considered the size of this acquisition relative to the assets of Allied Irish and First Maryland, the financing for this proposal, and the effect of this proposal on the liquidity position of these institutions.
The Board also has carefully considered the managerial resources of Allied Irish, First Maryland, and the other institutions involved in this proposal in light of all the facts of record, including assessments of their managerial resources by United States and Irish banking authorities.13
Based on the foregoing and all the facts of record, the Board has concluded that considerations relating to the financial and managerial resources and future prospects of Allied Irish, First Maryland, Dauphin, and their respective subsidiaries are consistent with approval of the proposal, as are the other supervisory factors the Board must consider under section 3 of the BHC Act.
Convenience and needs considerations, including the records of performance of the banking subsidiaries of Allied Irish and Dauphin under the Community Reinvestment Act (12 U.S.C. § 2903 et seq.) ("CRA"), also are consistent with approval.14
B. Underwriting and Dealing in Bank-Ineligible Securities
In addition, the Board has determined that the conduct of these securities underwriting and dealing activities is consistent with section 20 of the Glass-Steagall Act (12 U.S.C. § 377), provided that the company engaged in the underwriting and dealing activities derives no more than 25 percent of its total gross revenues from underwriting and dealing in bank-ineligible securities over any two-year period.18 Allied Irish has committed that Company will conduct its underwriting and dealing activities in bank-ineligible securities subject to the 25-percent revenue test.19
C. Other Nonbanking Considerations
As part of the Board's evaluation of these factors, the Board considers the financial and managerial resources of the notificant, its subsidiaries, and any company to be acquired, and the effect the transaction would have on such resources.21 As noted previously, Allied Irish's capital ratios satisfy applicable risk-based standards under the Basle Accord and are considered equivalent to the capital levels that would be required of a United States banking organization. The Board also has reviewed the capitalization of Allied Irish and Company in accordance with the standards set forth in the Section 20 Orders and finds the capitalization of each to be consistent with approval. The determination on the capitalization of Company is based on all the facts of record, including projections of the volume of Company's underwriting and dealing activities in bank-ineligible securities. The Board also has reviewed other aspects of the financial condition and resources of Allied Irish, Dauphin, and their respective subsidiaries, including the effect of this proposal on the financial condition and resources of these entities.
On the basis of its supervisory experience with Applicants, Dauphin, and Company, the commitments provided in this case, and the proposed management of Company, the Board also has determined that Applicants and Company have established 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 this proposal.
The Board expects that the proposed acquisition would provide added convenience to customers of Dauphin and Allied Irish. Allied Irish also has indicated that the proposed transaction would result in operational efficiencies that would allow it to be a more effective competitor and thereby provide improved services at a lower cost to its customers.
The Board also has carefully considered the competitive effects of the proposed acquisition of Dauphin's nonbanking subsidiaries. Allied Irish operates nonbanking subsidiaries that compete with certain nonbanking subsidiaries of Dauphin. In each case, the markets for these nonbanking services are unconcentrated, and there are numerous providers of these services. As a result, consummation of this proposal would have a de minimis effect on competition for these services, and the Board has concluded that the proposal would not result in a significantly adverse effect on competition in any relevant market.
Under the framework established in this and prior decisions, including the prudential limitations established by the Board in the Section 20 Orders, moreover, consummation of the proposal is not likely to result in any significant adverse effects, such as undue concentration of resources, decreased or unfair competition, conflicts of interests, or unsound banking practices that would outweigh the public benefits of this proposal.
Accordingly, based on all the facts of record, the Board has determined that the balance of public benefits that it must consider under the proper incident to banking standard of section 4(c)(8) of the BHC Act is favorable and consistent with approval of the proposal.
The Board's determination on the nonbanking activities is also 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 commitments and conditions relied on by the Board in reaching this decision 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. If any restrictions on access to information on the operations or activities of Allied Irish and its affiliates subsequently interfere with the Board's ability to obtain information to determine the compliance by Allied Irish and its affiliates with applicable federal statutes, the Board may require termination of any of Allied Irish's direct or indirect activities in the United States.
The acquisition of Dauphin shall not be consummated before the fifteenth calendar day following the effective date of this order, and 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 Richmond, acting pursuant to delegated authority.
By order of the Board of Governors,23 effective May 19, 1997.
(signed) Jennifer J. Johnson
Jennifer J. Johnson
Nonbanking Subsidiaries and Activities:
(1) Dauphin Life Insurance Company, Harrisburg, Pennsylvania, which would engage in reinsuring life, health, and accident insurance directly related to extensions of credit made by Dauphin Bank or other subsidiaries of Allied Irish, pursuant to section 225.28(b)(11)(i) of Regulation Y (12 C.F.R. 225.28(b)(11)(i));
(2) Loans USA, Incorporated, Pasadena, Maryland ("Loans USA"),24 which would engage in:
(a) making, acquiring, brokering, or servicing loans or other extensions of credit (including factoring, issuing letters of credit, and accepting drafts) for its own account or for the account of others, pursuant to section 225.28(b)(1) of Regulation Y (12 C.F.R. 225.28(b)(1));
(3) Hopper Soliday & Co., Inc., Lancaster, Pennsylvania, which would engage in:
(a) providing investment and financial advisory services to any person, pursuant to section 225.28(b)(6) of Regulation Y (12 C.F.R. 225.28(b)(6));
Applicants also propose to acquire certain inactive nonbanking subsidiaries of Dauphin.
1 Applicants also have requested the Board's approval to exercise an option to purchase up to 19.9 percent of the voting shares of Dauphin. The option would terminate on consummation of this proposal.
2 Asset and national deposit and ranking data are as of December 31, 1996.
3 State deposit and ranking data are as of June 30, 1996.
4 Pub. L. No. 103-328, 108 Stat. 2338 (1994). A bank holding company's home state is the state in which the operations of the bank holding company's banking subsidiaries were principally conducted on July 1, 1966, or the date on which the company became a bank holding company, whichever is later.
5 See 12 U.S.C. §§ 1842(d)(1)(A) and (B) and 1842(d)(2)(A) and (B). Allied Irish and First Maryland are adequately capitalized and adequately managed. In addition, on consummation of the proposal, Allied Irish and First Maryland would control less than 10 percent of the total amount of deposits of insured depository institutions in the United States and less than 30 percent of the total amount of deposits of insured depository institutions in Pennsylvania. Pennsylvania does not have a minimum age requirement or a statewide concentration limit. All other requirements of section 3(d) of the BHC Act also would be met on consummation of the proposal.
6 In evaluating the competitive effects of this proposal, the Board has carefully considered comments received from an individual ("Protestant") and a petition submitted by a number of individuals contending that the proposal would have adverse competitive effects in the area between Harrisburg, Pennsylvania, and Baltimore, Maryland, identified as the "Interstate 83 corridor," and adverse effects on small Pennsylvania banks. As indicated below, the Board has concluded that the relevant geographic banking markets for analyzing the competitive effects of this proposal are the Hagerstown, Lancaster, and York banking markets. In reaching this decision, the Board has, as in previous cases, considered the location of the relevant banks, worker commuter patterns (as indicated by census data), and other indicia of economic integration and the transmission of competitive forces among large and small depository institutions. See "Third District Banking Markets," Federal Reserve Bank of Philadelphia (August 1995). See also Chemical Banking Corporation, 82 Federal Reserve Bulletin 239, 241 (1996). See United States v. Philadelphia National Bank, 374 U.S. 321, 357 (1963); United States v. Phillipsburg National Bank, 399 U.S. 350 (1969).
7 The Hagerstown, Maryland, banking market is approximated by the Hagerstown Rand McNally Area ("RMA"), which includes portions of Maryland, Pennsylvania, West Virginia, and the portions of Washington County, Maryland, not in the Hagerstown RMA. The Lancaster, Pennsylvania, banking market is approximated by Lancaster County, Pennsylvania. The York, Pennsylvania, banking market is approximated by Adams and York Counties, both in Pennsylvania.
8 Under the revised Department of Justice Merger Guidelines, 49 Federal Register 26,823 (June 29, 1984), a market in which the post-merger HHI is between 1000 and 1800 is considered moderately concentrated. The Justice Department has informed the Board that a bank merger or acquisition generally will not be challenged (in the absence of other factors indicating anticompetitive effects) unless the post-merger HHI is at least 1800 and the merger or acquisition increases the HHI by at least 200 points. The Justice Department has stated that the higher than normal threshold for an increase in the HHI when screening bank mergers and acquisitions for anticompetitive effects implicitly recognizes the competitive effect of limited-purpose lenders and other nondepository financial entities. On consummation of this transaction, the HHI in the relevant banking markets would increase as follows: Hagerstown (12 points to 1375), Lancaster (8 points to 1270), and York (633 points to 1654).
9 Pub. L. No. 102-242, § 201 et seq., 105 Stat. 2286 (1991).
10 12 U.S.C. § 1842(c)(3)(B). As provided in Regulation Y, the Board determines whether a foreign bank is subject to consolidated home country supervision under the standards set forth in Regulation K (International Banking Operations). 12 C.F.R. 225.13(a)(4). Regulation K provides that a foreign bank may be considered subject to consolidated supervision if the Board determines that the bank is supervised or regulated in such a manner that its home country supervisor receives sufficient information on the worldwide operations of the foreign bank, including the relationship of the bank to its affiliates, to assess the foreign bank's overall financial condition and compliance with law and regulation. 12 C.F.R. 211.24(c)(1)(ii).
11 See Bank of Ireland, 81 Federal Reserve Bulletin 511 (1995).
12 In previous cases, the Board has reviewed relevant provisions of confidentiality, secrecy, and other laws in jurisdictions in which Allied Irish has material operations. See Bank of Ireland, 81 Federal Reserve Bulletin 511 (1995); HSBC Holdings plc, 81 Federal Reserve Bulletin 1037 (1995).
13 In considering the financial and managerial factors in this case, the Board has carefully weighed comments by Protestant, including comments that: (1) Dauphin has invested in technology, training programs, and other items to remain an independent financial institution; (2) officials and representatives of Dauphin and Allied Irish have made inconsistent statements about the competitive and other factors in this case; and (3) Protestant's company incurred substantial financial losses because Farmers Bank, FSB, Baltimore, Maryland, a thrift institution sold by Dauphin in 1994, violated state law by failing to record documentation of the thrift's loan to the company. The Board has considered these contentions in light of all the facts of record, including the alleged inconsistent statements themselves and supervisory reports of examination assessing the financial and managerial resources of Allied Irish, Dauphin, and their respective subsidiaries. These examination reports have reviewed, among other matters, the loan documentation policies and procedures of the relevant institutions.
14 In considering the convenience and needs factor in this case, the Board has carefully weighed comments by Protestant that Dauphin Bank's customer service would become less personal after the acquisition. The Board has reviewed this contention in light of all the facts of record, including CRA performance examinations of the relevant institutions. The Board notes that Allied Irish's lead subsidiary bank, First National Bank of Maryland, Baltimore, Maryland, received an "outstanding" rating in its most recent examination for CRA performance from its primary federal supervisor, the Office of the Comptroller of the Currency, as of October 7, 1996. The Board also notes that Allied Irish has not proposed to change the management of Dauphin and intends to retain certain senior officers and directors. Allied Irish has indicated that the proposed transaction would improve the ability of the combined organization to meet the business credit needs of the communities it serves through higher aggregate credit limits and improved underwriting and asset syndication capabilities, among other things.
15 See 12 C.F.R. 225.28(b)(1), (6), (7), (8), (11), and (14).
16 See Dauphin Deposit Corporation, 77 Federal Reserve Bulletin 672 (1991). Company is registered as a broker-dealer with the Securities and Exchange Commission ("SEC") under the Securities Exchange Act of 1934 (15 U.S.C. § 78a et seq.) and is a member of the National Association of Securities Dealers, Inc. ("NASD"). Accordingly, Company is subject to the recordkeeping and reporting obligations, fiduciary standards, and other requirements of the Securities Exchange Act of 1934, the SEC, and the NASD.
17 See Canadian Imperial Bank of Commerce, et al., 76 Federal Reserve Bulletin 158 (1990); 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. 1988), 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, 82 Federal Reserve Bulletin 113 (1996) (collectively, "Section 20 Orders").
18 See 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). See also Section 20 Orders. Compliance with the 25-percent revenue limitation will be calculated 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); and 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) (collectively, "Modification Orders"). The Board notes that Company has not adopted the Board's alternative indexed-revenue test to measure compliance with the revenue limitation on bank-ineligible securities activities, and, absent such election, will continue to employ the Board's standard 25-percent revenue test.
19 Company also may engage in activities that are necessary incidents to the proposed underwriting and dealing activities. Unless Company receives specific approval under section 4(c)(8) of the BHC Act to conduct the activities independently, any revenues from the incidental activities must be counted as ineligible revenues subject to the Board's revenue limitation.
20 See 12 U.S.C. § 1843(c)(8).
21 See 12 C.F.R. 225.26; see also The Fuji Bank, Limited, 75 Federal Reserve Bulletin 94 (1989); Bayerische Vereinsbank AG, 73 Federal Reserve Bulletin 155 (1987).
22 Protestant has requested that the Board hold a public hearing or meeting on all aspects of this proposal, particularly the effect of the transaction on small banks in Pennsylvania. A number of other individuals have signed a petition to join this request. Section 3(b) of the BHC Act does not require the Board to hold a public hearing on an application unless the appropriate supervisory authority for the bank to be acquired makes a timely written recommendation of denial of the application. In this case, the Board has not received such a recommendation from any state or federal supervisory authority.
Under its rules, the Board also may, in its discretion, hold a public hearing or meeting on an application or notice to clarify factual issues related to the proposal and to provide an opportunity for testimony. See 12 C.F.R. 225.25(a)(2), 262.3(e), and 262.25(d). The Board has carefully considered Protestant's request for a hearing or meeting in light of all the facts of record. In the Board's view, Protestant has had ample opportunity to submit views, and has, in fact, provided written submissions that have been considered by the Board in acting on this proposal. Protestant's request fails to demonstrate why the written submissions do not adequately present his allegations. After a careful review of all the facts of record, the Board has concluded that Protestant's request fails to identify any genuine dispute about facts that are material to the Board's decision or any other basis on which a hearing or meeting would be warranted. Based on all the facts of record, the Board has determined that a public hearing or meeting is not necessary to clarify the factual record in the proposal and is not otherwise warranted in this case. Accordingly, the request for a public hearing or meeting on the proposal is hereby denied.
23 Voting for this action: Chairman Greenspan, Vice Chair Rivlin, and Governors Kelley, Phillips, and Meyer.
24 This entity is a joint venture in which Dauphin holds a 33.33 percent equity interest.
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1997 Orders on banking applications