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Release Date: June 16, 1997

For immediate release

The Federal Reserve Board today announced its approval of the notice of Commerzbank AG, Frankfurt, Federal Republic of Germany, to acquire substantially all the assets of Montgomery Asset Management, L.P., San Francisco, California, and thereby engage in providing financial and investment advisory, open-end investment company administrative, securities brokerage, and private placement services.

Attached is the Board's Order relating to this action.

Commerzbank AG
Frankfurt am Main, Federal Republic of Germany

Order Approving Notice to Engage in Nonbanking Activities

Commerzbank AG, Frankfurt, Federal Republic of Germany ("Commerzbank"), a foreign banking organization subject to the provisions of the Bank Holding Company Act ("BHC Act"),1 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(a) of the Board's Regulation Y (12 C.F.R. 225.24(a)) to acquire through its wholly owned subsidiary, CAM Acquisition, LLC, Wilmington, Delaware ("Company"), substantially all the assets of Montgomery Asset Management, L.P. ("Partnership"), including a membership interest in Montgomery Services, LLC ("Services LLC"), both in San Francisco, California.2 Commerzbank would thereby engage in the following activities:

(1) Providing financial and investment advisory services, pursuant to section 225.28(b)(6) of Regulation Y (12 C.F.R. 225.28(b)(6));

(2) Providing securities brokerage and private placement services, pursuant to section 225.28(b)(7)(i) and (iii) of Regulation Y (12 C.F.R. 225.28(b)(7)(i) and (iii)); and

(3) Providing administrative services for open-end investment companies or mutual funds.

Notice of the proposal, affording interested persons an opportunity to submit comments, has been published (62 Federal Register 23,244 (1997)). The time for filing comments has expired, and the Board has considered the notice and all comments received in light of the factors set forth in section 4(c)(8) of the BHC Act.

Commerzbank, with total consolidated assets of approximately $289 billion, is the fourth largest banking organization in the Federal Republic of Germany, and the 24th largest banking organization in the world.3 In the United States, Commerzbank operates branches in New York, New York; Chicago, Illinois; and Los Angeles, California; and an agency in Atlanta, Georgia. Commerzbank also engages in a number of nonbanking activities in the United States.4 Company would be an investment advisor registered with the Securities and Exchange Commission ("SEC") under the Investment Advisers Act of 1940 (15 U.S.C. § 80b-1 et seq.) ("Advisers Act"), subject to the recordkeeping and reporting obligations, fiduciary standards, and other requirements of the Advisers Act and the SEC. In addition, Services LLC would be a broker-dealer registered with the SEC under the Securities Exchange Act of 1934 (15 U.S.C. § 78a et seq.), and would be subject to the recordkeeping and reporting obligations, fiduciary standards, and other requirements of the Securities Exchange Act of 1934 and the SEC.5

The Board previously has determined by regulation that the investment advisory, securities brokerage, and private placement services that Commerzbank proposes to conduct through Company are closely related to banking and permissible for bank holding companies under section 4(c)(8) of the BHC Act. Except as discussed below, the Board also previously has determined that the administrative services Commerzbank proposes to provide through Company are closely related to banking within the meaning of section 4(c)(8) of the BHC Act, and Commerzbank has committed that it will conduct the proposed activities subject to the prudential and other limitations established by the Board in Mellon.6

Glass-Steagall Act
Under the Glass-Steagall Act, a company that owns a member bank may not control "through stock ownership or in any other manner" a company that engages principally in distributing, underwriting or issuing securities.7 The Board has found that this provision prohibits affiliates of banks from sponsoring, organizing, or controlling a mutual fund. The Board previously has determined, however, that the Glass-Steagall Act does not prohibit a bank holding company from providing advisory and administrative services to a mutual fund.8

Commerzbank proposes to provide marketing support to the Funds by directly contacting broker-dealers, 401(k) plan providers, financial planners, insurance companies, and other financial intermediaries to recommend the Funds and to be primarily responsible for the development of marketing plans and the preparation of advertising and sales literature materials for the Funds.9 Although the Board has authorized bank holding companies to provide many different types of services to mutual funds including assisting the distributor of mutual funds in preparing advertising and marketing materials, the Board has not considered whether a bank holding company may provide the degree of promotional or marketing services proposed by Commerzbank.

The Board does not believe that these promotional and marketing activities would cause Commerzbank to control the Funds or be involved in underwriting or distribution of the Funds' securities to the public. The proposed promotional activities involve contact only with financial intermediaries and are similar to activities that previously have been approved by the Board.10

Distribution and sales activities of the Funds would be the responsibility of an independent distributor. Commerzbank has committed that no U.S. affiliate of Commerzbank, including Company, will be obligated by any agreement to engage in any sales activities with regard to shares of the Funds or will enter into any distribution agreement with the Funds without the prior approval of the Board. An independent distributor would enter into an agreement with the Funds under which the distributor would serve as "principal underwriter" of the Funds.11 The independent distributor also would enter into the sales agreements with financial intermediaries to sell shares of the Funds on behalf of the Funds.12 Accordingly, actual sales activities would be conducted solely by the distributor or an independent broker-dealer for the Funds.

Commerzbank does not propose to solicit retail customers to purchase shares in particular Funds, or accept orders for the purchase of shares, or to engage in any retail sales activities. In addition, neither the Company nor any employee of Company would receive transaction-based income or commissions in connection with Company's promotional or marketing activities.

Furthermore, while Company would have primary responsibility for preparing the advertising and marketing materials, the independent distributor would be responsible for placing all advertisements. The independent distributor also would have legal responsibility under the rules of the National Association of Securities Dealers, Inc. ("NASD") for the form and use of all advertising and sales literature prepared by Company, and would be responsible for filing these materials with the NASD or the Securities and Exchange Commission.13

For these reasons, the Board believes that the promotional and marketing activities proposed by Commerzbank would not involve Commerzbank in the underwriting or distribution of shares of the Funds for purposes of the Glass-Steagall Act.

Commerzbank also proposes that the chief executive officer of company serve as chairman of the four-member board of trustees for the Funds and that no more than three officers or employees of Company serve as junior-level officers of the funds.14 The Board previously has authorized a bank holding company to have director and officer interlocks with mutual funds that the bank holding company advises and administers.15 In this case, the Board does not believe that the proposed interlocks between Company and the Funds would compromise the independence of the boards of trustees of the Funds, or the independent distribution of the Funds, or result in control of the Funds by Commerzbank.16

Based on the foregoing, the Board concludes that control of the Funds would rest with the independent members of the boards of trustees of the Funds, and that the proposed interlocks between Company and the Funds would not compromise the independence of the boards of the Funds or permit Commerzbank to control the Funds. Thus, the Board concludes that this proposal is consistent with the Glass-Steagall Act.

Proper Incident to Banking Test
In order to approve this proposal, the Board also must find that the performance of the proposed activities by Commerzbank "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." 12 U.S.C. § 1843(c)(8).

The Board expects that the activities in which Commerzbank proposes to engage through Company would provide added convenience to Commerzbank's customers by offering an expanded range of products and investment management expertise. The proposed acquisition also would provide Commerzbank with further access to U.S. markets for its advisory services and products. In addition, the Board previously has determined that the provision of advisory and administrative services to mutual funds within certain parameters is not likely to result in the types of subtle hazards at which the Glass-Steagall Act is aimed or in any other adverse effects. For example, as required by the Board's regulations, Company would provide to customers disclosures designed to alert its customers to the relationships between Company and the Funds. These disclosures include those required by the Board's interpretive rule on investment advisory activities to address conflicts of interests that may be raised by the relationship between Company and the Funds.17 There is no evidence in the record, moreover, that consummation of this proposal, subject to the limitations noted above, would result in any significantly adverse effects, such as undue concentration of resources, decreased or unfair competition, conflicts of interests, or unsound banking practices that are not outweighed by the benefits of this proposal.

On the basis of the foregoing and all the other facts of record, including the commitments made by Commerzbank, the Board has determined that the performance of the proposed activities by Company reasonably can 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.

In every case involving a proposal by a bank holding company to engage in nonbanking activities under section 4 of the BHC Act, the Board also must consider the financial and managerial resources of the notificant and its subsidiaries and the effect of the transaction on those resources.18 The Board notes that Commerzbank meets the relevant risk-based capital standards established under the Basle Accord and has capital equivalent to that which would be required of a U.S. banking organization. Based on these and other facts of record, the Board has determined that financial and managerial considerations are consistent with approval of this proposal.

Based on all the facts of record, including all the commitments and representations made by Commerzbank, and subject to all of the terms and conditions set forth in this order, 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 225.23(g), 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 decision is specifically conditioned on compliance with all the commitments and representations made in the notice, including the commitments and conditions discussed in this order. 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 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 the Federal Reserve Bank of New York, acting pursuant to delegated authority.

By order of the Board of Governors,19 effective June 16, 1997.

(signed) Jennifer J. Johnson

Jennifer J. Johnson

Deputy Secretary of the Board

Appendix List of Administrative Services

1. Maintaining and preserving the records of the Funds, including financial and corporate records.

2. Computing net asset value, dividends, performance data and financial information regarding the Funds.

3. Furnishing statistical and research data.

4. Preparing and filing with the SEC and state securities regulators registration statements, notices, reports, and other materials required to be filed under applicable laws.

5. Preparing reports and other informational materials regarding the Funds, including proxies and other shareholder communications, and reviewing prospectuses.

6. Providing legal and other regulatory advice to the Funds in connection with their other administrative functions.

7. Providing office facilities and clerical support for the Funds.

8. Developing and implementing procedures for monitoring compliance with regulatory requirements and compliance with the Funds' investment objectives, policies and restrictions as established by the trustees of the Funds.

9. Providing routine fund accounting services and liaison with outside auditors.

10. Preparing and filing tax returns.

11. Reviewing and arranging for payment of expenses of the Funds.

12. Providing communication and coordination services with regard to the Funds' transfer agent, custodian, distributor and other service organizations that render recordkeeping or shareholder communication services.

13. Preparing advertising materials, sales literature, and marketing plans for the Funds.

14. Providing information to the distributor's personnel concerning performance and administration of the Funds.

15. Providing marketing support with respect to sales of the Funds through financial intermediaries.

16. Assisting in the development of additional Funds.

17. Providing reports to the trustees of the Funds with regard to the activities of the Funds.

18. Providing telephone shareholder services through a toll-free 800 number.


1 As a foreign banking organization operating branches and an agency in the United States, Commerzbank is subject to certain provisions of the BHC Act by operation of section 8(a) of the International Banking Act of 1978 ("IBA") (12 U.S.C. § 3106(a)).

2 After consummation of the proposal, Commerzbank would hold a majority ownership interest in Company and senior employees of Company would hold a minority interest.

3 Asset data are as of December 31, 1996. Foreign ranking data are as of December 31, 1995.

4 Commerzbank also owns a finance company, Commerzbank U.S. Finance, Inc., Wilmington, Delaware, and, pursuant to the grandfather provisions of section 8(c) of the IBA (12 U.S.C. § 3106(c)), engages in investment banking and securities brokerage activities through Commerzbank Capital Markets Corporation, New York, New York ("CCMC"). Commerzbank has committed that there will be no business transactions or relationships between CCMC and Company or Services LLC.

5 Services LLC also would provide transfer agency services to mutual funds advised by Company (the "Funds").

6 See Mellon Bank Corporation 79 Federal Reserve Bulletin 626 (1993) ("Mellon"), and The Governor and Company of the Bank of Ireland, 82 Federal Reserve Bulletin 1129 (1996) ("BOI"). The administrative services that Company would provide to mutual funds include computing the fund's financial data, maintaining and preserving the records of the fund, accounting and recordkeeping, providing office facilities and clerical support for the fund, and preparing and filing tax returns and regulatory reports for the fund. A complete list of the proposed administrative services is included in the Appendix. Commerzbank also would provide telephone services to shareholders through a toll-free 800 number. Commerzbank has committed that telephone service operators will not solicit callers to purchase shares in particular mutual funds and will refer to the independent distributor orders for the sale of shares.

7 12 U.S.C. §§ 221a and 377.

8 See 12 C.F.R. 225.28(b)(6); 12 C.F.R. 225.125; and Mellon.

9 The Funds would be distributed through an independent distributor, and would not be "proprietary mutual funds" (funds sold primarily to customers of Commerzbank). See Barclays PLC, 82 Federal Reserve Bulletin 158 at n. 7 (1996) ("Barclays").

10 The Board has permitted bank holding companies to present information about the operations of mutual funds advised and administered by the bank holding company at meetings or seminars for brokers of mutual funds. See Mellon at n.15. In addition, the Office of the Comptroller of the Currency has authorized subsidiaries of national banks, in connection with their brokerage and advisory services, to provide marketing and advertising support to mutual funds.

11 As defined under the Investment Company Act of 1940 ("1940 Act"), a principal underwriter is any underwriter who, as principal, purchases from a mutual fund any security for distribution, or who as agent for such fund sells or has the right to sell the fund's securities to a dealer and/or to the public. 15 U.S.C. § 80a-2(a)(29).

12 The Funds also may enter into distribution agreements with intermediaries, but in no event will Company enter into such agreements.

13 See Barclays at n. 8.

14 These employees would serve as assistant secretary, assistant treasurer or assistant vice president of the Funds, and would be supervised by the board of trustees or senior-level officers. These employees would have no policy-making authority at the Funds and would not be responsible for, or involved in, making recommendations regarding policy decisions. No employee or officer of Company would serve as a senior-level officer of the Funds.

Commerzbank also may acquire up to 5 percent of the shares of mutual funds for which it provides administrative or advisory services, but any such ownership may not be used in any way in marketing or selling the shares of the investment company. See Mellon at n. 21.

15 See BOI.

16 Any trustee of the Funds who also serves as an officer or employee of Company would be an "interested person" under the 1940 Act and, therefore, would be required to abstain from voting on the Funds' investment advisory and other major contracts. In addition, Commerzbank has committed that only disinterested persons would vote on the contract for administrative services provided to the Funds under the same requirements established for advisory contracts in the 1940 Act.

17 See 12 C.F.R. 225.125. The interpretive rule requires a bank holding company that recommends to customers shares of a mutual fund that the bank holding company advises to caution customers to read the fund prospectus before investing and to advise customers in writing that the fund's shares are not insured by the Federal Deposit Insurance Corporation, and are not deposits, obligations of, or endorsed or guaranteed in any way, by any bank, unless that happens to be the case. The holding company also must disclose in writing to the customer the role of the company or its affiliate as investment advisor to the fund.

18 12 C.F.R. 225.26; Barclays; The Fuji Bank, Limited, 75 Federal Reserve Bulletin 94 (1989); Bayerishe Vereinbank AG, 73 Federal Reserve Bulletin 155 (1987).

19 Voting for this action: Chairman Greenspan, Vice Chair Rivlin, and Governors Phillips and Meyer. Absent and not voting: Governor Kelley.

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