| For immediate release |
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The Federal Reserve Board today announced its approval of the notice filed by Swiss Bank Corporation, Basel, Switzerland, to acquire Dillon, Read Holding, Inc., New York, New York, and thereby engage in a variety of nonbanking activities, including engaging to a limited extent in underwriting and dealing in all types of debt and equity securities. Attached is the Board's Order relating to this action. |
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Swiss Bank Corporation |
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Swiss Bank Corporation, Basel, Switzerland ("Swiss Bank"), a foreign bank 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 Dillon, Read Holding, Inc., New York, New York ("Dillon"). Dillon engages in the following nonbanking activities: (1) Providing various types of investment and financial advice, as described in section 225.28(b)(6) of Regulation Y (12 C.F.R. 225.28(b)(6)); After Swiss Bank's acquisition of Dillon, Dillon, Read & Co., New York, New York ("Dillon & Co."), an indirect subsidiary of Dillon, would merge with or purchase the assets of SBC Warburg Inc., New York, New York ("SBC Warburg"), a subsidiary of Swiss Bank that engages in a wide range of securities-related activities, including engaging to a limited extent in underwriting and dealing in all types of debt and equity securities (other than the securities of open-end investment companies).2 Dillon & Co., as the survivor, would change its name to SBC Warburg Dillon Read Inc. ("SBCWDR"). SBCWDR would continue to engage in all the current activities of SBC Warburg and the permissible activities of Dillon & Co. Notice of the proposal, affording interested persons an opportunity to submit comments, has been published (62 Federal Register 32,117 (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. Swiss Bank, with total consolidated assets of approximately $250 billion, is the second largest banking organization in Switzerland and the 30th largest banking organization in the world.3 In the United States, Swiss Bank operates branches in New York, New York; Chicago, Illinois; and San Francisco, California; and an agency in Miami, Florida.4 Swiss Bank also engages through subsidiaries in a broad range of nonbanking activities in the United States. SBC Warburg is, and, after consummation of the proposal, SBCWDR will continue to be, registered with the Securities and Exchange Commission ("SEC") as a broker-dealer under the Securities Exchange Act of 1934 (15 U.S.C. � 78a et seq.) ("1934 Act") and as an investment adviser under the Investment Advisers Act of 1940 (15 U.S.C. � 80b-1 et seq.) ("Advisers Act"), and a member of the National Association of Securities Dealers, Inc. ("NASD"). Accordingly, Swiss Bank is subject to the recordkeeping and reporting obligations, fiduciary standards, and other requirements of the 1934 Act, the Advisers Act, the SEC, and the NASD. Swiss Bank seeks approval for Dillon, through its direct and indirect subsidiaries, to continue to conduct the activities listed above throughout the United States.5 The Board previously has determined by regulation or order that all these activities are closely related to banking and permissible for bank holding companies under section 4(c)(8) of the BHC Act, and the Board previously has authorized Swiss Bank to engage in each of these activities.6 Swiss Bank would continue to conduct its activities in accordance with the conditions and limitations imposed by the Board in the Swiss Bank Orders, including the limitations established in Regulation Y and all the commitments furnished by Swiss Bank and relied on by the Board in the Swiss Bank Orders.7 SBC Warburg is currently engaged in limited underwriting and dealing activities that the Board previously has determined are permissible under section 20 of the Glass-Steagall Act (12 U.S.C. � 377).8 In particular, the Board has determined that the conduct of these securities underwriting and dealing activities is consistent with section 20, provided that the company engaged in the underwriting and dealing activities derives no more than 25 percent of its total gross revenues over any two-year period from underwriting and dealing in securities that a state member bank may not underwrite or deal in directly ("bank-ineligible securities").9 Swiss Bank has committed that SBCWDR will conduct its underwriting and dealing activities with respect to bank-ineligible securities subject to this 25 percent revenue test. 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 proposed transaction "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."10 As part of its 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.11 Swiss Bank'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 Swiss Bank and SBCWDR in accordance with the standards set forth in the Section 20 Orders and finds the capitalization of each to be consistent with approval. This determination regarding the capitalization of SBCWDR is based on all the facts of record, including projections of the volume of SBCWDR's underwriting and dealing activities in bank-ineligible securities. The Board also has reviewed other aspects of the financial condition and resources of Swiss Bank, Dillon, and their respective subsidiaries, including the effect of the proposal on the financial condition and resources of these entities. On the basis of its supervisory experience with Swiss Bank and SBCWDR, the commitments provided in this case, and the management of SBCWDR, the Board also has determined that Swiss Bank and SBCWDR 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 the proposal, including the expected effect of the 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 the proposal.12 The Board also has carefully considered the competitive effects of the proposal. Dillon operates nonbanking subsidiaries that compete with certain nonbanking subsidiaries of Swiss Bank. In each case, however, the market for these nonbanking services is unconcentrated, and there are numerous providers of these services. As a result, consummation of the 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, consummation of the proposal is not likely to result in any significantly adverse effects, such as undue concentration of resources, decreased or unfair competition, conflicts of interests, or unsound banking practices that outweigh the public benefits of the proposal. The Board expects that the proposal would enable Swiss Bank to compete more effectively, particularly in underwriting activities and in providing merger and acquisition advice and financing, by increasing its customer base and equity research capabilities. As a result, Swiss Bank should be able to offer a broader range of products and services to its customers. 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. Based on the foregoing and all other facts of record, the Board has determined that the notice should be, and hereby is, approved. This determination is subject to all the terms and conditions discussed in this order and in the Swiss Bank Orders, and extends only to activities conducted within the limitations of those orders and this order, including the Board's reservation of authority to establish additional limitations to ensure that SBCWDR's activities are consistent with safety and soundness, conflicts of interests, and other relevant considerations under the BHC Act. The Board's determination also is 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 Board's decision is specifically conditioned on compliance with all the commitments made in connection with the notice, the conditions established in this order, and the commitments and conditions set forth or referred to in the Swiss Bank Orders and the Board regulations and other orders noted above. 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. 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 New York, acting pursuant to delegated authority. |
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By order of the Board of Governors,13 effective July 28, 1997.
(signed) Jennifer J. Johnson
Jennifer J. Johnson
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Footnotes 1 As a foreign bank operating branches and an agency in the United States, Swiss Bank is subject to certain provisions of the BHC Act by operation of section 8(a) of the International Banking Act of 1978 (12 U.S.C. � 3106(a)) ("IBA"). 2 See Swiss Bank Corporation, 81 Federal Reserve Bulletin 185 (1995) ("Swiss Bank 1994"); Swiss Bank Corporation, 82 Federal Reserve Bulletin 685 ("Swiss Bank 1996"). 3 Asset and foreign ranking data are as of December 31, 1995, and are based on foreign exchange conversion rates as of that date. 4 Swiss Bank has received approval from the Board to establish a branch in Stamford, Connecticut. See Swiss Bank Corporation, 83 Federal Reserve Bulletin 214 (1997). As part of the Board's approval of this branch, Swiss Bank has changed its home state for purposes of the IBA from California to Connecticut and limited the deposits accepted by its San Francisco branch only to deposits that a corporation organized under section 25A of the Federal Reserve Act (an Edge Act corporation) may accept. 5 SBCWDR would engage in all the activities described above except the futures commission merchant activities and lending for the account of others. Futures commission merchant activities would be engaged in by Dillon, Read Futures Inc., and lending activities would be engaged in by Dillon, Read Interfunding Inc., both of New York, New York, indirect subsidiaries of Dillon. 6 See generally Swiss Bank 1996; Swiss Bank 1994; Swiss Bank Corporation, 77 Federal Reserve Bulletin 759 (1991), and Swiss Bank Corporation, 77 Federal Reserve Bulletin 126 (1991) (together, the "Swiss Bank Orders"). 7 Dillon, through its subsidiaries, also is general partner of certain limited partnerships that hold investments in certain nonbanking companies in excess of the limitations set forth in section 4(c)(7) of the BHC Act (12 U.S.C. � 1843(c)(7)). Swiss Bank has committed that this activity will be brought into conformity with the BHC Act or will be divested within two years after consummation of the proposal and that all future participation by Swiss Bank in such limited partnerships will be in conformity with the BHC Act. 8 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, 900F.2Fd 360 (D.C. Cir. 1990); Citicorp, ed al., 73 Federal Reserve System 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) (collectively, the "Section 20 Orders"). 9 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 the 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, the "Modification Orders"). 10 See 12 U.S.C. � 1843(c)(8). 11 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). 12 The Board received a comment from a customer of Swiss Bank in Switzerland alleging that a Swiss Bank branch in Switzerland has denied a member of his family access to the funds in her account and discriminated against her on the basis of her gender and several factors in her family background. Swiss Bank responded to these allegations and stated that the funds in the account were properly withdrawn several years ago and that Swiss Bank has explained the facts concerning the withdrawal to the commenter several times during the subsequent years. This dispute arises under the laws of a foreign country and is subject to the jurisdiction of foreign courts. The Board has determined that its limited jurisdiction to review notices under the specific factors in the BHC Act does not authorize it to adjudicate disputes between a bank customer and a notificant, particularly disputes arising under the laws of a foreign jurisdiction, that do not arise under the enumerated factors in the BHC Act. 13 Voting for this action: Chairman Greenspan, Vice Chair Rivlin, and Governors Kelley, Phillips, and Meyer. |
1997 Orders on banking applications
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