|For immediate release|
The Federal Reserve Board today announced its approval of the notice of NationsBank Corporation, Charlotte, North Carolina, to acquire Montgomery Securities and The Pyramid Company, both of San Francisco, California, and thereby engage in underwriting and dealing, to a limited extent, in all types of debt and equity securities, and in certain other nonbanking activities.
Attached is the Board's Order relating to this action.
NationsBank Corporation, Charlotte, North Carolina ("NationsBank"), 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)) and section 225.24 of the Board's Regulation Y (12 C.F.R. 225.24) to acquire all the assets and assume all the liabilities of two related companies, Montgomery Securities and The Pyramid Company, both of San Francisco, California (together, "Montgomery").1 NationsBank would thereby engage in the following activities:
NationsBank, with total consolidated assets of $239 billion, is the fourth largest commercial banking organization in the United States.2 NationsBank operates bank subsidiaries in 17 states and the District of Columbia. NationsBank also engages through its subsidiaries in a broad range of permissible nonbanking activities. Montgomery, with total consolidated assets of $2.5 billion, engages in investment advisory, securities brokerage, securities underwriting, and related activities.
NationsBank proposes to merge Montgomery with and into NCMI, a subsidiary of NationsBank that engages in a wide range of securities activities, including engaging to a limited extent in underwriting and dealing in all types of debt and equity securities in which a state member bank may not underwrite or deal ("bank-ineligible securities").3 Following consummation, NCMI would be renamed NationsBanc Montgomery Securities, Inc. ("NMSI"). NCMI is, and NMSI would 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, NCMI is, and NMSI would remain, 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.
Activities Previously Approved by the Board
As noted above, NationsBank engages, through NCMI, in limited underwriting and dealing activities that the Board previously has determined to be permissible under section 20 of the Glass-Steagall Act (12 U.S.C. § 377). Montgomery also is engaged in underwriting and dealing activities. The Board has concluded that conduct of the proposed activities is consistent with section 20,5 provided that NMSI derives no more than 25 percent of its gross revenues from underwriting and dealing in bank-ineligible securities over a two-year period.6 NationsBank has committed that, following the acquisition of Montgomery, NMSI will continue to conduct its bank-ineligible underwriting and dealing activities subject to the 25-percent revenue limitation and the prudential limitations previously established by the Board with respect to bank-ineligible securities underwriting and dealing.7
Financial Factors, Managerial Resources, and Other Considerations
Financial and Managerial Resources
The Board also has reviewed the managerial resources of each of the entities involved in this proposal. As part of that review, the Board has carefully examined comments submitted by Inner City Press/Community on the Move and the New Mexico Alliance ("Protestants"). Protestants raise concerns regarding the managerial resources of NationsBank, Montgomery, and NCMI, and contend that the proposed acquisition would have adverse competitive effects on the markets currently served by Montgomery and NCMI. Protestants further raise concerns regarding certain adverse effects that they allege have arisen from the consummation of NationsBank's acquisition of Boatmen's Bancshares, Inc., St. Louis, Missouri ("Boatmens"), which the Board approved on December 16, 1996.10
Protestants' concerns about the managerial resources of NationsBank and Montgomery include concerns arising out of litigation involving the two parties,11 alleged adverse effects of NationsBank's acquisition of Boatmens,12 and published articles about NationsBank's underwriting and dealing activities. The Board has considered this information in light of examination reports, supervisory information, and its supervisory experience with NationsBank and NCMI. The Board also has considered that NationsBank has established policies and procedures to ensure compliance with this order and the Section 20 Orders, including computer, audit, and account systems, internal risk management controls, and the necessary operational and managerial infrastructure. On the basis of these and all the facts of record -- including the Board's review of the managerial resources of the entities, the commitments provided in this case, and the proposed managerial structure and risk management systems of NMSI -- the Board has concluded that financial and managerial considerations are consistent with approval of the notice.
There are some overlaps in the securities brokerage, underwriting and dealing, and financial advisory products that NationsBank and Montgomery offer. In those markets in which Montgomery's and NationsBank's product offerings do overlap, there are numerous existing and potential competitors. Consummation of the proposal, therefore, would have a de minimis effect on competition in the market for these services, and the Board has concluded that the proposal would not result in any significantly adverse competitive effects in any relevant market.
Based on all the facts of record, the Board has determined that performance of the proposed activities by NationsBank can reasonably be expected to produce public benefits. As noted above, NationsBank has committed that NMSI 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, and based on all the facts of record, including Protestants' comments, the Board concludes that NMSI's proposed underwriting and dealing activities in bank-ineligible securities are not likely to result in significantly adverse effects that would outweigh the public benefits. Similarly, the Board finds no evidence that NMSI's proposed riskless principal, private placement, and other nonbanking activities -- conducted under the framework and conditions established in this order and Regulation Y -- would likely result in any significantly 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 the proposal. Accordingly, the Board has determined that performance of the proposed activities by NationsBank is a proper incident to banking for purposes of section 4(c)(8) of the BHC Act.
The Board's determination 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 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,14 effective September 10, 1997.
(signed) Jennifer J. Johnson
Jennifer J. Johnson
1 The acquisition would be structured as a simultaneous merger of Montgomery Securities and The Pyramid Company into Acquisition Co., a newly created, wholly owned subsidiary of NationsBank. Immediately following the acquisition, Acquisition Co. would be merged with and into NationsBanc Capital Markets, Inc., Charlotte, North Carolina ("NCMI").
2 Asset and ranking data are as of March 31, 1997.
3 See NationsBank Corporation, 79 Federal Reserve Bulletin 892 (1993) ("NationsBank Order").
4 See NationsBank Order
5 See 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), and Amendments to the Restrictions in the Board's Section 20 Orders, 62 Federal Register 45,295 (1997) (collectively, "Section 20 Orders").
6 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").
7 Effective October 27, 1997, the Board substantially revised the prudential limitations with respect to bank-ineligible securities underwriting and dealing. See Amendments to Restrictions in the Board's Section 20 Orders, 62 Federal Register 45,295 (1997). NationsBank has committed that NMSI will conduct its bank-ineligible underwriting and dealing activities subject to the Board's new operating standards on the effective date.
NMSI may provide services that are necessary incidents to the proposed underwriting and dealing activities. Unless NMSI 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.
8 12 U.S.C. § 1843(c)(8).
9 See 12 C.F.R. 225.26.
10 See NationsBank Corporation, 83 Federal Reserve Bulletin 148 (1997).
11 Protestants cite: (a) an administrative complaint filed by the Department of Labor ("DOL") alleging that NationsBank engaged in discriminatory hiring practices in Charlotte, North Carolina, in 1993; (b) two settled class-action lawsuits against NationsBank in which allegations of improper sales practices of nondeposit investment products were raised; and (c) a class-action lawsuit settled by Montgomery involving allegations of price fixing and other impermissible market-making activities. The Board has carefully reviewed Protestants' comments in light of all the facts of record, including confidential information received from the DOL. The Board notes that none of the actions cited by Protestants has resulted in adjudications of wrongdoing on the part of NationsBank or Montgomery. The DOL administrative case is at a preliminary stage, and NationsBank has not yet responded to the allegations, and each of the class actions cited by Protestants were settled without determinations of wrongdoing.
12 Protestants raise concerns about various alleged adverse effects of NationsBank's acquisition of Boatmens and NationsBank's fair lending record. Protestants allege that the effects of NationsBank's acquisition of Boatmens differ from the expected effects that NationsBank's management presented to the Board when it sought approval for the acquisition. There is no evidence that NationsBank's management misrepresented the probable effects of the Boatmens transaction or that the Boatmens transaction will not result in the public benefits that the Board reasonably expected when it approved the transaction. In raising these concerns, Protestants have largely reiterated allegations that the Board carefully considered when it approved the acquisition of Boatmens by NationsBank. See NationsBank Corporation, 83 Federal Reserve Bulletin 148 (1997). Under the Board's Rules of Procedure, Protestants may not now seek a reconsideration of the Board's determination in that case. See 12 C.F.R. 262.3(k).
Protestants have requested a hearing or a public meeting on the proposal. Section 4 of the BHC Act and the Board's rules thereunder provide for a hearing on an application to acquire a savings association if there are disputed issues of material fact that cannot be resolved in some other manner. See 12 U.S.C. § 1843(c)(8). This case does not involve the acquisition of a savings association.
14 Voting for this action: Chairman Greenspan, and Governors Kelley, Phillips, and Meyer. Absent and not voting: Vice Chair Rivlin.
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1997 Orders on banking applications