|For immediate release|
The Federal Reserve Board today announced its approval of the notices by Mellon Bank Corporation, Pittsburgh, Pennsylvania, to acquire all of the voting shares of Buck Consultants, Inc., New York, New York, and thereby engage in employee benefits consulting activities.
Attached is the Board's Order relating to this action.
Mellon Bank Corporation
Mellon Bank Corporation, Pittsburgh, Pennsylvania ("Mellon"), a bank holding company within the meaning of the Bank Holding Company Act ("BHC Act"), has requested the Board's approval under section 4(c)(8) of the BHC Act (12 U.S.C. § 1843(c)(8)) to acquire all of the voting shares of Buck Consultants, Inc., New York, New York ("Buck"), and thereby engage in certain employee benefits consulting activities pursuant to section 225.28(b)(9)(ii) of the Board's Regulation Y (12 C.F.R. 225.28(b)(9)(ii)).1
Notice of the proposal, affording interested persons an opportunity to submit comments, has been published (62 Federal Register 26,315 (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 section 4(c)(8) of the BHC Act.
Mellon, with total consolidated assets of $42.7 billion, is the 22nd largest bank holding company in the United States and engages in a wide range of permissible banking and nonbanking activities.2 Buck provides employee benefits consulting services worldwide.3
The Board previously has determined by order that bank holding companies may provide employee benefits consulting services under section 4 of the BHC Act,4 and this activity is now included in the list of permissible nonbanking activities set forth in Regulation Y.5 Mellon has committed to provide these services in accordance with the Board's rules.6
In connection with providing and designing Benefit Plans, Buck may provide insurance-related services because a client may choose to include a life, medical, dental, or other insurance plan as an element of its employee benefit program. In these circumstances, in addition to assisting in the analysis, recommendation, and selection of Benefit Plans, Buck may contact the selected insurer, negotiate with the insurer on behalf of the client, and otherwise communicate with the insurer concerning the client's employee benefit needs.
In these types of projects, Buck may receive a commission from the insurance company. In these cases, however, Buck reduces the consulting fee charged to the client by the amount of any commission that Buck receives from the insurance company. Buck is, nevertheless, required to be licensed as an insurance broker under certain state insurance laws because it receives commissions from insurance companies. These commissions represent a small part of the total revenues Buck derives from its employee benefits consulting activities. Mellon proposes to continue these insurance-related activities after it acquires Buck.
Section 4(c)(8) of the BHC Act, as amended by the Garn-St Germain Act of 1982 ("Garn-St Germain Act"), expressly provides that providing insurance as a principal, agent, or broker is not closely related to banking. Mellon argues that Buck's insurance-related activities, while not closely related or grandfathered in this case, are a necessary incident to its permissible employee benefits consulting services. The Board and the courts have held that bank holding companies and their subsidiaries may engage in activities that may not be closely related to banking where those activities are incidental to other activities that are closely related to banking.7 In determining whether an activity is an incidental activity, the Board generally has considered whether the activity is reasonably necessary to the conduct of a permissible activity and whether the activity constitutes a relatively minor part of the overall business of the company conducting the activities.8
In this case, the insurance-related activities are a minor part of Buck's overall business, and are necessary to the conduct of Buck's employee benefits consulting services. Buck's core activity is the provision of employee benefits consulting services, which involves providing advice about the design, analysis, selection, valuation, and implementation of all types of Benefit Plans, including retirement, profit-sharing, human resource management, and health and medical plans, some of which may involve an insurance component. Buck also provides certain recordkeeping and other administrative services with respect to Benefit Plans. Buck generally becomes involved in insurance-related services only when the client selects an insurance plan and requests that Buck negotiate with the insurer on its behalf. Buck performs all of its consulting work on a fee-for-service basis, and offsets any insurance commission against that fee. Payment of the fee is never contingent on the receipt of an insurance commission or on the purchase of an insurance policy. Furthermore, as noted previously, insurance commissions represent only a small part of Buck's total revenues, and only a small fraction of Buck's consulting assignments involve the receipt of commissions.9
Mellon also maintains that the provision of insurance-related services is necessary because Buck would operate at a competitive disadvantage if it could not accept insurance commissions and satisfy the state licensing requirements that permit it to accept such commissions. As noted previously, Buck offsets any commissions it receives against the consulting fees to be paid by its clients. Mellon has indicated that the inability to accept commissions and pass them on to clients in the form of an offset would place Buck at a competitive disadvantage in pricing its consulting services against those of another firm that could accept commissions, and thereby reduce consulting fees, because it was not affiliated with a bank holding company.10
The Board believes the record here indicates that the proposed insurance-related activities are incidental activities. They are necessary elements of another permissible activity and represent a small fraction of the consulting work performed. Accordingly, the Board has concluded, under the unique circumstances of this case, that approval of this proposal is not prohibited by the Garn-St Germain Act, and that Buck may continue to perform these activities upon acquisition by Mellon.
In order to approve the proposal, the Board also must determine that the proposed activities are a proper incident to banking, that is, that the proposal "can reasonably be expected to produce benefits to the public, such as greater convenience, increased competition, or gains in efficiency, that outweigh possible adverse effects, such as undue concentration of resources, decreased or unfair competition, conflicts of interests, or unsound banking practices."11
As part of its review of these factors, the Board has considered the financial and managerial resources of Mellon, its subsidiaries, and Buck, and the effect the proposal would have on such resources.12 Based on all the facts of record, the Board has concluded that financial and managerial considerations are consistent with approval of the proposal.
The Board expects that the proposed activities would result in benefits to the public. In particular, Mellon would be able to offer a broader array of products and services to its customers. Because of the range of products and services that Mellon provides, customers of Buck also would derive increased convenience from being able to purchase a wider range of services from a single organization. Customers of Buck also would benefit from the operational efficiencies of consolidating their trust and participant service needs within one organization. Consummation of the transaction also may enhance Buck's ability to compete with other firms that provide both trust services and employee benefit consulting services. In addition, there is no evidence in the record that consummation of the proposal would produce any significant adverse effects, such as undue concentration of resources, decreased or unfair competition, conflicts of interests, or unsound banking practices.
Based on all the facts of record, the Board has determined that the balance of the public interest factors it is required to 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.
Based on the foregoing and all the facts of record, the Board has determined that the proposal should be, and hereby is, approved. Approval of the proposal is specifically conditioned on compliance by Mellon with all the commitments made in connection with the proposal and with the conditions referred to in this order. The Board's determination also is subject to all the 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. For purposes of this action, these commitments and conditions 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 transaction 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 Cleveland, acting pursuant to delegated authority.
By order of the Board of Governors,13 effective June 16, 1997.
(signed) Jennifer J. Johnson
Jennifer J. Johnson
1 Mellon also would acquire the foreign subsidiaries of Buck under the general consent provisions of the Board's Regulation K (12 C.F.R. 211.5(c)).
2 Asset data are as of December 31, 1996.
3 Buck was established in 1916 and currently has 30 offices throughout the United States and provides services in 16 other countries. Buck currently serves approximately 5,000 clients, including large multinational corporations, other businesses, educational institutions, health care providers, state and local government retirement systems, and quasi-governmental organizations.
4 Norstar Bancorp, 71 Federal Reserve Bulletin 656 (1985); Bank Vermont Corporation, 72 Federal Reserve Bulletin 337 (1986); Norstar Bancorp, 72 Federal Reserve Bulletin 729 (1986).
5 12 C.F.R. 225.28(b)(9)(ii).
6 Buck's services consist of providing plan actuarial consulting, employee benefit consulting, and plan administration and outsourcing services with respect to a broad range of employee benefit plans, including pension and other retirement plans, life insurance plans, medical and dental plans, disability plans, and compensation and human resource management plans (collectively, "Benefit Plans"). Plan actuarial consulting includes the design of Benefit Plans, valuation of plan assets and liabilities, allocation of plan costs, and cost projections associated with plan implementation or modification. Employee benefit consulting services involve the design, implementation, and analysis of Benefit Plans. Buck's plan administration and outsourcing services include recordkeeping and administrative services for Benefit Plans, as well as the performance of plan feasibility studies and plan participant education.
7 See National Courier Association, 516 F.2d 1229, 1239-41 (1975) ("National Courier"). See also 12 C.F.R. 225.21(a)(2).
8 See Letter to Patrick J. Mulhern, Esq., from Jennifer J. Johnson (June 19, 1989) (relating to Citicorp's acquisition of Quotron Systems, Inc.).
9 In addition, due to Buck's practice of offsetting any commissions received against its consulting fee, Buck's insurance-related services do not provide it with any direct economic reward. Buck also has indicated that, in lieu of receiving commissions, it generally attempts to negotiate an elimination or reduction of commissions, and thereby to reduce the premiums paid by its clients, where such arrangements are permitted by law.
10 Mellon also notes that, although commissions are paid only in a minority of projects, neither Buck nor its client would know at the commencement of a consulting assignment whether the client will elect insurance coverage involving a commission. Therefore, the competitive disadvantage will be present in every case in which the receipt of commissions is a possibility, even if the client eventually selects some other form of Benefit Plan.
11 12 U.S.C. § 1843(c)(8).
12 See 12 C.F.R. 225.26(b).
13 Voting for this action: Chairman Greenspan, Vice Chair Rivlin, and Governors Phillips and Meyer. Absent and not voting: Governor Kelley.
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1997 Orders on banking applications