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4000 - Advisory Opinions
Applicability of section (c)(1) of the Bank Merger Act to a
proposed acquisition involving the purchase of uninsured subsidiaries
FDIC--96--5
February 20, 1996
Douglas H. Jones, Deputy General Counsel
This letter responds to your letter of January 31, 1996, concerning
the indirect acquisition by "Holding Company" of the municipal
and corporate bond services business ("Business") of certain
limited-purpose trust company subsidiaries of "Company", which
subsidiaries ("Sellers") are not insured by the FDIC. Your letter
requests a legal opinion concerning the applicability of section (c)(1)
of the Bank Merger Act, 12 U.S.C. § 1828(c)(1), to the proposed
acquisition.
Based on the assertions made in your letter, it is my opinion that
the proposed acquisition of the Business by "Bank A", would not
require FDIC approval under 12 U.S.C.
§ 1828(c)(1).
As described in your letter, it does not appear that acquisition of
the Business by "Bank A", would constitute a merger or
consolidation under 12 U.S.C. 1828(c)(1)(A). This conclusion is based
on your assertion that, after the acquisition, each Seller "will
continue to operate its (very substantial in some cases) personal,
institutional (employee benefit and custodial) and traditional banking
businesses". It is also based on data you provided to us by letter
dated February 9, 1996, which further indicates that Sellers will be
retaining a large portion of their respective trust businesses.
In addition, it does not appear that the transaction as you describe
it would include an assumption of liability by "Bank A", to pay
any deposits made in (or similar liabilities of) the Sellers, under 12
U.S.C. 1828(c)(1)(B). It is my understanding from your letter that, at
the time of the acquisition, all uninvested
cash 1
held by each Seller as fiduciary with respect to the Business will be
situated as follows: (1) it will already be on deposit at "Bank
B" on behalf of the Sellers as fiduciary in accounts previously
established there by the Sellers, and "Bank B", will already have
liability to pay such deposits; (2) it will continue to be held by the
Sellers on deposit with themselves or with "Bank B", on behalf of
the Sellers as agent for "Bank A", as the new owner of the
Business, and the liability to pay the deposits (or similar
liabilities) will remain with the Sellers or with "Bank B"; or
(3) it will be withdrawn from accounts at the Sellers and deposited
directly with "Bank B", on behalf of "Bank A", as successor
fiduciary, without "Bank A", having had liability to pay the
deposits.
Similarly, it does not appear that the transaction as you describe
it would trigger either component of 12 U.S.C. 1828(c)(1)(C) in that it
does not involve a transfer of assets to an uninsured institution in
consideration of the assumption of liabilities for deposits made in an
insured institution. Instead, it appears that the assets being
transferred are moving from uninsured to insured institutions, and that
there would be no assumption of deposit liabilities in either
direction.
Your letter indicates that, while it is expected that the
Business will be administered primarily by "Bank A", as successor
fiduciary, there is a possibility that the Business would instead be
conducted by "Bank B". Please note that should the Business (or
any portion thereof) be acquired by "Bank B", rather than being
acquired in its entirety by "Bank A", this circumstance might
change the opinions and conclusions I have expressed
above
{{10-31-96 p.4974}}regarding the inapplicability of 12
U.S.C. 1828(c)(1). The potential applicability of § 1828(c)(1) in
that situation would arise from the role you describe for "Bank
B", in terms of the deposit of funds therein for which "Bank
B", would have deposit liability.
For example, your letter indicates that, after "Bank A",
becomes qualified to act as trustee and the systems conversion is
complete, trust cash in respect of existing relationships will be
withdrawn from accounts of each of the Sellers and deposited with
"Bank B", "for the account of" "Bank A" as successor
fiduciary. If, however, it is "Bank B", rather than "Bank
A", that is to be the successor fiduciary, and if contemporaneously
with the acquisition, trust cash in respect of existing relationships
is withdrawn from accounts at the Sellers and deposited with "Bank
B", then I cannot at this point opine that 12 U.S.C. § 1828(c)(1)
is inapplicable, since such a withdrawal of uninvested trust funds from
the Seller and redeposit with the acquiror could under some
circumstances be viewed as an assumption of deposit liability.
I trust you will find this opinion responsive to your
request.
1I assume that your letter uses the term "cash" as
inclusive of all uninvested trust funds, including checks awaiting
deposit (for example, a check received by a Seller in connection with
the Business, where the check is very briefly being held by the Seller
in anticipation of deposit in a Business-related account at "Bank
B"). Go Back to Text
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