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Release Date: July 28, 1997


For immediate release

The Federal Reserve Board today announced its approval of the notice of First Chicago NBD Corporation and its wholly owned subsidiary, First Chicago Capital Markets, Inc., both of Chicago, Illinois, to engage to a limited extent in underwriting and dealing in all types of equity securities except ownership interests in open-end investment companies.

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


FEDERAL RESERVE SYSTEM

First Chicago NBD Corporation
Chicago, Illinois

First Chicago Capital Markets, Inc.
Chicago, Illinois

Order Approving Notice to Engage De Novo in
Underwriting and Dealing in All Types of Equity Securities
on a Limited Basis

First Chicago NBD Corporation, Chicago, Illinois ("First Chicago"), a bank holding company within the meaning of the Bank Holding Company Act ("BHC Act"), and its wholly owned subsidiary, First Chicago Capital Markets, Inc., Chicago, Illinois ("Company"), 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 engage to a limited extent in underwriting and dealing in all types of equity securities except ownership interests in open-end investment companies.

Notice of the proposal, affording interested persons an opportunity to submit comments, has been published (62 Federal Register 32,611 (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.

First Chicago, with total consolidated assets of $109.1 billion, is the eighth largest commercial banking organization in the United States.1 First Chicago operates bank subsidiaries in Illinois, Michigan, Florida, Indiana, and Delaware, and engages through its subsidiaries in a broad range of permissible nonbanking activities in the United States. Company currently engages in limited underwriting and dealing in bank-ineligible securities,2 as permitted under section 20 of the Glass-Steagall Act (12 U.S.C. 377).3 Company is, and will continue to be, a broker-dealer registered with the Securities and Exchange Commission ("SEC") and 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 (15 U.S.C. 78a et seq.), the SEC, and the NASD.

The Board previously has determined that, subject to the prudential framework of limitations established in previous decisions to address the potential for conflicts of interests, unsound banking practices, or other adverse effects ("section 20 firewalls"), the proposed underwriting and dealing activities involving bank-ineligible securities are so closely related to banking as to be proper incidents thereto within the meaning of section 4(c)(8) of the BHC Act.4 First Chicago has committed that Company will conduct the proposed underwriting and dealing activities using the same methods and procedures, and subject to the same prudential limitations, as were established by the Board in the Section 20 Orders and other previous cases.

The Board also has previously determined that conduct of the proposed activities is consistent with section 20 of the Glass-Steagall Act (12 U.S.C. 377), provided that the company engaged in underwriting and dealing activities derives no more than 25 percent of its gross revenues from underwriting and dealing in bank-ineligible securities over a two-year period.5 First Chicago has committed that Company will conduct its underwriting and dealing activities in bank-ineligible securities subject to the Board's revenue limit.6

In order to approve this notice, the Board also must consider whether performance of the proposed activities is a proper incident to banking, that is, whether the activities proposed "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."7 As part of its evaluation of these factors, the Board considers the financial condition and managerial resources of the notificant and its subsidiaries and the effect the transaction would have on such resources.8 The Board has reviewed the capitalization of First Chicago 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 of the proposal. With respect to Company, this determination is based on all the facts of record, including First Chicago's projections of the volume of Company's underwriting and dealing activities. On the basis of all the facts of record, and subject to the completion of a satisfactory infrastructure review, the Board concludes that financial and managerial considerations are consistent with approval of the notice.

As noted above, First Chicago has committed that Company will conduct its bank-ineligible securities underwriting and dealing activities in accordance with the prudential framework established by the Board's Section 20 Orders. Under the framework and conditions established in this order and the Section 20 Orders, the Board concludes that Company's proposed activities are not likely to result in significantly adverse effects, such as undue concentration of resources, decreased or unfair competition, conflicts of interest, or unsound banking practices. The Board expects, additionally, that the de novo entry of Company into the market for the proposed services would provide added convenience to First Chicago's customers, lead to improved methods of meeting customer financing needs, and increase the level of competition among existing providers of these services. Accordingly, the Board has determined that performance of the proposed activities by First Chicago can reasonably be expected to produce public benefits that outweigh possible adverse effects under the proper incident to banking standard of section 4(c)(8) of the BHC Act.

For the reasons set forth in this order and the Section 20 Orders, the Board has concluded that First Chicago's proposal to engage through Company in the proposed activities is consistent with the Glass-Steagall Act, and that the proposed activities are so closely related to banking as to be proper incidents thereto within the meaning of section 4(c)(8) of the BHC Act provided that First Chicago limits Company's activities as specified in this order and the Section 20 Orders, as modified by the Modification Orders.

On the basis of all the facts of record, the Board has determined that the notice should be, and hereby is, approved, subject to all the terms and conditions in this order and the Section 20 Orders, as modified by the Modification Orders. The Board's approval of this proposal 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 Company's activities are consistent with safety and soundness, avoidance of conflicts of interests, and other relevant considerations under the BHC Act. Underwriting and dealing in any manner other than as approved in this order and the Section 20 Orders (as modified by the Modification Orders) is not within the scope of the Board's approval and is not authorized for Company.

The Board's approval of the proposed underwriting and dealing activities is conditioned on a future determination by the Board that First Chicago and Company have established policies and procedures to ensure compliance with the section 20 firewalls and the other requirements of this order and the Section 20 Orders, including computer, audit and accounting systems, internal risk management controls and the necessary operational and managerial infrastructure. After notification by the Board that this condition has been satisfied, Company may commence the proposed underwriting and dealing activities, subject to the other conditions of this order and the Section 20 Orders.

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 this notice, including the commitments discussed in this order, and the conditions set forth in this order and the above-noted Board regulations and orders. These commitments and conditions 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 commenced 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 Chicago, acting pursuant to delegated authority.

By order of the Board of Governors,9 effective July 28, 1997.

(signed) Jennifer J. Johnson

Jennifer J. Johnson

Deputy Secretary of the Board


Footnotes

1 Asset and ranking data are as of March 31, 1997.

2 As used in this order, the term "bank-ineligible securities" refers to securities that a bank may not underwrite or deal in directly under section 16 of the Glass-Steagall Act (12 U.S.C. 24(Seventh)).

3 Company has authority to underwrite and deal in, to a limited extent, all types of debt securities. See First Chicago Corporation, 80 Federal Reserve Bulletin 449 (1994). Company also is authorized to engage in a variety of other nonbanking activities. See id.

4 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. den., 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, 61 Federal Register 57,679 (1996) (collectively, "Section 20 Orders").

5 See Section 20 Orders. Effective March 6, 1997, the Board increased from 10 to 25 percent the amount of total revenue that a section 20 subsidiary may derive from underwriting and dealing in bank-ineligible securities. 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). Compliance with the revenue limitation shall 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 Engage in Underwriting and Dealing in Securities, 61 Federal Register 48,953 (1996) (collectively, "Modification Orders").

6 Company may provide services 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 treated as ineligible revenues subject to the Board's revenue limitation.

7 12 U.S.C. 1843(c)(8).

8 See 12 C.F.R. 225.24.

9 Voting for this action: Chairman Greenspan, Vice Chair Rivlin, and Governors Kelley, Phillips, and Meyer.

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