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4000 - Advisory Opinions
Depository Institution Management Interlocks Act--Representative
or Nominee
FDIC--95--3
February 7, 1995
Mark A. Mellon, Senior Attorney
Your letter of January 23, 1995 to Vice Chairman Hove was referred
to the Legal Division for response.
You state in your letter that you represent an insured state savings
bank ("Savings Bank") which is wholly owned by a holding company
("Savings HC"). A mutual savings bank ("Mutual") is located
in the same city as Savings Bank. The president of Mutual owns 9.9
percent of the stock of Savings HC. Two other individuals, one a
director of Mutual, the other a director of Savings HC, own 19.2
percent and 8.6 percent respectively of Savings HC's stock. These three
individuals have represented themselves as the three largest
stockholders of Savings HC and the representatives of a majority of
Savings HC's stockholders. You state that this group has demanded that
the board of directors of Savings HC remove the current president of
Savings Bank.
{{4-28-95 p.4916}}
You state that Saving HC's board has refused to comply with this
demand and that the president of Mutual has threatened to stage a
"proxy battle" at the annual meeting of Savings HC's shareholders
to elect new directors to the board of Savings HC who would then remove
the president of Savings Bank. You ask whether such action would
violate the Depository Institution Management Interlocks Act (the
"Interlocks Act").
Section 203 of the Interlocks Act
(12 U.S.C. § 3202) states
that a management official of a depository institution or a depository
holding company may not serve as a management official of any other
depository institution or depository holding company not affiliated
therewith if an office of one of the institutions or any depository
institution that is an affiliate of such institutions is located within
the same city as that in which an office of the other institution or
any depository institution that is an affiliate of such other
institution is located, or in any city contiguous or adjacent thereto.
"Management official" is defined by the Interlocks Act to mean,
among other things, a director or any person who has a representative
or nominee serving in any such capacity. Section 202(4) of the
Interlocks Act (12 U.S.C.
§ 3201(4)).
The FDIC regulation which implements the requirements of the
Interlocks Act for insured nonmember banks is
12 C.F.R. Part 348,
Management Official Interlocks.
Section 348.2(k) defines a
"representative or nominee" to mean a person who serves as a
management official and has an express or implied obligation to act on
behalf of another person with respect to management responsibilities.
Whether a person is a representative or nominee depends upon the facts
in individual cases. The appropriate federal supervisory agency or
agencies will determine whether a person is a representative or nominee
after giving the affected persons the opportunity to respond. Certain
relationships (including family, employment, and agency relationships),
or the ability and exercise of ability by a shareholder of a depository
organization to elect a director, may be evidence of such an express or
implied obligation. The FDIC has determined in the past that there is a
representative relationship between a shareholder and a director when
the shareholder has the ability, through ownership of a significantly
high percentage of stock, to elect a director to serve his or her
interests. This is especially true when the shareholder is an active
officer or director of another bank.
By himself, the president of Mutual only owns 9.9 percent of the
stock of Savings HC. In combination with the other two members of his
group, however, they control more than a third of Savings HC's shares
between them, 37.7 percent. A majority of the group's members are
management officials at another institution, that is, the president of
Mutual and the group member with the largest amount of stock who is a
director of Mutual. The group has contended in the letter to Savings
HC's shareholders which you enclosed with your letter, that they
represent a majority (over 50 percent) of the outstanding stock of
Savings HC. This suggests that the management officials of another
depository institution may be able to direct sufficient votes to obtain
a majority at the next shareholders' meeting. The Interlocks Act
presumes an anti-competitive effect in situations where a person or
persons who are active management officials of one financial
institution are represented at another competing financial institution
by a person with influence over the management decisions of the latter
institution.
Although we are unable to make a determination on this issue based
upon the facts which have been provided, the facts which are available
suggest that a representative or nominee situation may possibly be
involved if the three individuals together with the remaining
shareholder or shareholders who comprise the plus 50 percent block
place one or more directors in office. We would require additional
information, however, in order to make the preliminary determination
under section 348.2(k) which provides that affected persons shall be
given the opportunity to respond to allegations that a person is their
representative or nominee. For example, the identity of the remaining
shareholder(s) in the block as well as their relationship, if any, to
Messrs. "X" and "Y" and Ms. "Z" would be helpful. We
are enclosing copies of several prior agency opinions in this area
which should prove illustrative of the type of information which would
be helpful to the agency.
{{6-30-95 p.4917}}
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