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Release Date: October 28, 1998


For immediate release

The Federal Reserve Board today announced its approval of the notice and application of Charter One Financial, Inc., and its wholly owned subsidiary, Charter-Michigan Bancorp, Inc., both of Cleveland, Ohio (collectively "Charter One"), to become bank holding companies by acquiring ALBANK Financial Corporation ("ALBANK") and its subsidiary bank, ALBANK Commercial, both of Albany, New York, to acquire the nonbanking subsidiaries of ALBANK, and to retain some of Charter One's nonbanking subsidiaries.

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

Charter One Financial, Inc.
Cleveland, Ohio

Order Approving the Formation of Bank Holding Companies

Charter One Financial, Inc., and its wholly owned subsidiary, Charter-Michigan Bancorp, Inc. ("CMB") (collectively "Charter One"), savings and loan holding companies within the meaning of the Home Owners Loan Act (12 U.S.C. § 1461 et seq.),1 have requested the Board's approval under section 3 of the Bank Holding Company Act (12 U.S.C. § 1842) ("BHC Act") to become bank holding companies by acquiring ALBANK Financial Corporation ("ALBANK") and its subsidiary bank, ALBANK Commercial, both of Albany, New York.2 Charter One also 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 the nonbanking subsidiaries of ALBANK, including ALBANK's subsidiary savings association, ALBANK, F.S.B., Albany, New York ("ALBANK Savings"), to retain some of Charter One's nonbanking subsidiaries, and thereby to engage in the following nonbanking activities:

  1. Extending credit and servicing loans in accordance with section 225.28(b)(1) of Regulation Y (12 C.F.R. 225.28(b)(1);

  2. Providing real estate appraisal services in accordance with section 225.28(b)(2)(i) of Regulation Y (12 C.F.R. 225.28(b)(2)(i));

  3. Providing asset management services in accordance with section 225.28(b)(2)(vi) of Regulation Y (12 C.F.R. 225.28(b)(2)(vi));

  4. Engaging in leasing personal or real property in accordance with section 225.28(b)(3) of Regulation Y (12 C.F.R. 225.28(b)(3));

  5. Operating a savings association in accordance with section 225.28(b)(4)(ii) of Regulation Y (12 C.F.R. 225.28(b)(4)(ii));

  6. Providing securities brokerage services in accordance with section 225.28(b)(7)(i) of Regulation Y (12 C.F.R. 225.28(b)(7)(i));

  7. Engaging in credit insurance activities in accordance with section 225.28(b)(11)(i) of Regulation Y (12 C.F.R. 225.28(b)(11)(i));

  8. Engaging in community development activities in accordance with section 225.28(b)(12) of Regulation Y (12 C.F.R. 225.28(b)(12)); and

  9. Providing data processing services in accordance with section 225.28(b)(14) of Regulation Y (12 C.F.R. 225.28(b)(14)).

In connection with this application, Charter One also has requested the Board's approval to retain ownership of 9.95 percent of the voting shares of Gateway American Bank of Florida, Fort Lauderdale, Florida ("Gateway"), that Charter One currently owns. Charter One stated that it does not intend to control Gateway and has made a number of commitments designed to ensure that Charter One will not exercise a controlling influence over Gateway.3

Notice of the proposal, affording interested persons an opportunity to submit comments, has been published (63 Federal Register 47,499 (1998)). 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 sections 3 and 4 of the BHC Act.

Charter One, with total consolidated assets of approximately $20.2 billion, is the seventh largest depository organization in Ohio, controlling approximately 3.1 percent of the total deposits of insured depository institutions in the state ("total deposits").4 Charter One Savings currently operates branches in Michigan, New York, and Ohio and Charter One engages in a number of nonbanking activities. Charter One is the 22nd largest depository organization in New York, controlling less than 1 percent of the total deposits.

ALBANK, with total consolidated assets of approximately $4.1 billion, is the 21st largest commercial banking organization in New York, controlling less than 1 percent of total banking deposits in the state ("total banking deposits"). After consummation of the proposal, Charter One would become the 14th largest commercial banking organization in New York, controlling approximately 1.4 percent of total banking deposits.

Competitive, Financial, and Managerial Factors
Section 3 of the BHC Act prohibits the Board from approving an application if the proposal would result in a monopoly or would substantially lessen competition in any relevant banking market unless, in the latter case, the Board finds that the anticompetitive effects of the proposal are clearly outweighed in the public interest by the probable effect of the proposal in meeting the convenience and needs of the community to be served.5 Charter One, ALBANK and Gateway do not compete directly in any relevant banking market. Based on all the facts of record, the Board concludes that consummation of the proposal would not result in a monopoly or in any significantly adverse effects on competition or on the concentration of banking resources in any relevant banking market.

The BHC Act also requires the Board to consider the financial and managerial resources and future prospects of the companies and banks involved in the proposal, the convenience and needs of the communities to be served, and certain other supervisory factors. The Board has carefully considered the financial and managerial resources and future prospects of Charter One, ALBANK, and their respective insured depository institutions and other supervisory factors in light of all the facts of record, including supervisory reports of examination assessing the financial and managerial resources of the organizations and confidential financial information provided by Charter One. Based on these and all the other facts of record, the Board concludes that the financial and managerial resources and future prospects of Charter One, ALBANK, and their subsidiary insured depository institutions are consistent with approval, as are the other supervisory factors that the Board must consider under section 3 of the BHC Act.

Convenience and Needs Factor
The Board also has considered carefully the effect of the proposed acquisition on the convenience and needs of the community to be served, in light of all the facts of record. Charter One Savings, which is the insured depository institution controlled by the applicant in this case, received a "satisfactory" rating in its most recent evaluation by the Office of Thrift Supervision ("OTS") pursuant to the Community Reinvestment Act ("CRA") (12 U.S.C. § 2901 et seq.). ALBANK Savings F.S.B. ("ALBANK Savings"), a wholly owned savings association subsidiary of the company proposed to be acquired in this case, received a "needs to improve" rating in its most recent CRA evaluation by the OTS.6 The Board also notes that ALBANK and ALBANK Savings have entered into a consent decree with the Department of Justice regarding compliance with the Fair Housing Act and the Equal Credit Opportunity Act ("fair lending laws").

The Board has consulted with the OTS and the Department of Justice on the steps initiated by ALBANK to address these matters. The Board also has reviewed relevant supervisory information indicating that ALBANK's initiatives have generated successful results. In addition, the Board notes that Charter One intends to merge ALBANK Savings with and into Charter One Savings, with the community reinvestment activities of the resulting institution under the direction of current Charter One management. Charter One also has committed that it will ensure full compliance with the consent decree after consummation of the proposed transaction.

Based on all the facts of record, including in particular the performance record of Charter One and the measures taken by ALBANK to ensure compliance with fair lending laws, the Board concludes that convenience and needs considerations, including the CRA performance records of the subsidiary depository institutions of Charter One and ALBANK, are consistent with approval of the proposal.

Nonbanking Activities
The Board previously has determined by regulation that the operation of a savings association by a bank holding company is closely related to banking for purposes of the BHC Act.7 In making this determination the Board requires that savings associations acquired by bank holding companies conform their direct and indirect activities to those permissible for bank holding companies under section 4 of the BHC Act and Regulation Y. Charter One has committed to conform all of the activities of Charter One Savings to those permissible under section 4(c)(8) of the BHC Act.8

Charter One also has filed a notice under section 4(c)(8) of the BHC Act to acquire the nonbanking subsidiaries of ALBANK, including ALBANK Savings, to retain some of Charter One's nonbanking subsidiaries, and thereby engage in extending credit and servicing loans, providing asset management and real estate appraisal services, engaging in leasing personal or real property, operating a savings association, providing securities brokerage and data processing services, and engaging in credit insurance and community development activities. The Board has determined by regulation that these activities are closely related to banking for purposes of the BHC Act.9 Charter One has committed to conduct these nonbanking activities in accordance with the limitations set forth in Regulation Y and all relevant Board orders and interpretations.

In order to approve a notice under section 4(c)(8) of the BHC Act, 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 . . . 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 condition and managerial resources of the notificant and its subsidiaries, including the companies to be acquired, and the effect of the proposed transaction on those resources. For the reasons discussed above, and based on all the facts of record, the Board has concluded that financial and managerial considerations are consistent with approval of the notice.

The Board also has carefully considered the competitive effects of the proposed acquisition of nonbanking activities. Charter One represents that there are few overlaps in the services provided by Charter One and ALBANK.11 To the extent that Charter One and ALBANK offer different types of products, the proposed acquisition would result in no loss of competition. In those markets in which the product offerings of Charter One and ALBANK overlap, such as brokerage services and the sale of insurance and annuities products, there are numerous existing and potential competitors. Consummation of the proposal, therefore, would have a de minimis effect on competition in the markets for these services, and the Board has concluded that the proposal would not result in any significantly adverse competitive effects in any relevant market.

Charter One has indicated that, after consummation of the merger proposal, it may provide more products and services than those currently offered by ALBANK. In addition, as the Board has previously noted, there are public benefits to be derived from permitting capital markets to operate so that bank holding companies can make potentially profitable investments in nonbanking companies and from permitting banking organizations to allocate their resources in the manner they consider to be most efficient when such investments and actions are consistent, as in this case, with the relevant considerations under the BHC Act.12

The Board also concludes that the conduct of the proposed nonbanking activities within the framework established under Regulation Y is not likely to result in 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, such as increased customer convenience and gains in efficiency. Accordingly, based on all the facts of record, the Board has determined that the balance of public benefits that the Board 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 Charter One's notice.

Conclusion
Based on the foregoing, and in light of all the facts of record, the Board has determined that the application and notices should be, and hereby are, approved. Approval of the application and notice is specifically conditioned on compliance by Charter One with all the commitments made in connection with the proposal and with the conditions stated or referred to in this order. The Board's determination on the nonbanking activities also is subject to all the terms and conditions set forth in Regulation Y, including those in sections 225.7 and 225.25(c) (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 thereunder. For purposes of this transaction, the commitments and conditions referred to above 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.

The acquisition of ALBANK Commercial shall not be consummated before the fifteenth calendar day after the effective date of this order, and 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 Cleveland, acting pursuant to delegated authority.

By order of the Board of Governors,13 effective October 28, 1998.

(signed) Robert deV. Frierson

Robert deV. Frierson

Associate Secretary of the Board

Appendix
Commitments For Retaining Shares of Gateway

Charter One Financial, Inc. ("COFI") and CMB have committed, jointly and severally, that they will not, directly or indirectly:

  1. Take any action to cause Gateway or any of its subsidiaries to become a subsidiary of COFI or CMB;

  2. Acquire or retain shares of Gateway that would cause the combined interests of COFI, CMB, their affiliates, officers, and directors to equal or exceed 10 percent of the outstanding voting shares of Gateway;

  3. Exercise or attempt to exercise a controlling influence over the management or policies of Gateway or any of its subsidiaries.

  4. Seek or accept representation by more than one director on the board of directors of Gateway or any of its subsidiaries;

  5. Serve, or have or seek to have any representative of COFI or CMB serve, as an officer, agent, or employee of Gateway or any of its subsidiaries;

  6. Propose more than one director in opposition to any nominee or slate of nominees proposed by management or the board of directors of Gateway;

  7. Solicit or participate in soliciting proxies with respect to any matter presented to the shareholders of Gateway;

  8. Attempt to influence Gateway's or any of its subsidiaries': dividend policies; loan, credit, or investment decisions; pricing of services; personnel decisions; operations activities, including the location of any offices or branches or their hours of operation, etc.; or any similar activities or decisions of Gateway or any of its subsidiaries;

  9. Enter into any other banking or nonbanking transactions with Gateway, except that COFI or CMB may establish and maintain deposit accounts with Gateway, provided that the aggregate balance of all such deposit accounts does not exceed $500,000, and provided that the accounts are maintained on substantially the same terms as those prevailing for comparable accounts of persons unaffiliated with COFI or CMB; and

  10. Dispose or threaten to dispose of shares of Gateway in any manner as a condition of specific action or nonaction by Gateway or any of its subsidiaries.

Footnotes

1 CMB controls Charter One Bank, F.S.B. ("Charter One Savings"), Cleveland, Ohio.

2 Pursuant to the merger agreement between Charter One and ALBANK, ALBANK would be merged with and into CMB. ALBANK also has granted Charter One an option to acquire up to 9.9 percent of ALBANK's outstanding common stock. The option would expire on consummation of the merger.

3 The Board has relied on similar commitments in other cases to determine that an investing bank holding company would not be able to exercise a controlling influence over another bank holding company or bank for purposes of the BHC Act. A complete list of these commitments is set forth in the Appendix.

4 Asset, deposit, and ranking data are as of June 30, 1997.

5 12 U.S.C. § 1842(c)(1).

6 ALBANK Commercial received its charter from the State of New York on October 8, 1997, and has not yet been examined for CRA performance.

7 12 C.F.R. 225.28(b)(4)(ii).

8 Charter One has committed that it will conform all the insurance, annuities, real estate, and other nonconforming activities conducted by Charter One and its subsidiaries to the requirements of section 4 of the BHC Act within two years after consummation of the proposal. Charter One must also conform the savings bank life insurance activities conducted by ALBANK to the requirements of section 4 of the BHC Act within two years after consummation of the proposal. ALBANK already is required to conform its other activities to the requirements of section 4 of the BHC Act within two years of the date on which ALBANK became a bank holding company, and Charter One must conform these activities of ALBANK to the requirements of the BHC Act within that same period.

9 See 12 C.F.R. 225.28(b)(1), (b)(2)(i), (b)(2)(vi), (3), (4)(ii), (7)(i), (11)(i), (12) and (14).

10 12 U.S.C. § 1843(c)(8).

11 Charter One Savings and ALBANK Savings do not compete in any relevant geographic market in providing savings association services.

12 See, e.g., Banc One Corporation, 84 Federal Reserve Bulletin 553 (1998); First Union Corporation, 84 Federal Reserve Bulletin 489 (1998).

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

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