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4000 - Advisory Opinions


Applicability of Change in Bank Control Act to Proposed Transfer of Bank Common Stock by an Individual's Living Trust

FDIC--93--11

February 5, 1993

Sandra Comenetz, Senior Attorney

This responds to your January 26, 1993 letter in which you seek confirmation of your contention that the Change in Bank Control Act ("CBCA"), 12 U.S.C. 1817(j), does not apply to the proposed transfer of bank common stock by the [X] Living Trust ("Trust").

As we understand them, the essential facts are as follows. The Trust holds the assets of [X], who is elderly and incapacitated. Among other things, Mr. [X]'s assets include approximately 37% of the common stock of [Trust Co.], and approximately 49% of the common stock of [Bank].

The co-trustees of the Trust are Mr. [X]'s grand niece, and a lawyer, appointed by judicial order, who is not related to the [X] family and was previously unknown to Mr. [X]'s niece. The co-trustees have approved the transfer of some shares of [Trust Co.] and [Bank] in order to reduce the anticipated tax burden on Mr. [X]'s estate. Concerning the proposed transfer of [Bank] stock, the Office of the Comptroller of the Currency has concluded that no change in control notice under the CBCA is required.

Currently, there are issued and outstanding 8,000 shares of [Trust Co.] stock, of which the Trust holds 2,988 shares. No other shares of [Trust Co.] voting securities are currently issued and outstanding. It is proposed that four of Mr. [X]'s grand nieces (one of whom is the previously mentioned co-trustee) and grand nephew, and the lawyer co-trustee, each purchase approximately 5.47% (438) of the [Trust Co.] shares held by the Trust. The balance of the [Trust Co.] shares held by the Trust would remain in the Trust. The four grand nieces and nephews collectively would own roughly 21.88% of the [Trust Co.] stock. If the lawyer co-trustee's proposed purchases are added to that figure, the five persons would own approximately 27.35% of the stock.

In support of your contention that no change in control notice under the CBCA is required you have made the following representations.

1)  The proposed purchases will be made with individual funds. There will be no joint loan agreement; each noteholder will be individually responsible for payment of his or her note.

2)  Each grand niece and nephew is an emancipated adult, who makes his or her own investment decisions.

3)  There will be no express or implied arrangements between the [X] heirs, or between the [X] heirs and the lawyer co-trustee, regarding voting the shares or controlling [Trust Co.].

4)  None of the [X] heirs serves on the [Trust Co.] board or in management positions with the bank. The lawyer co-trustee is a director of [Trust Co.].

5)  After the transfer, no individual among the [X] heirs or the lawyer co-trustee will own 10% or more of the [Trust Co.] stock.

6)  The proposed acquisitions of [Trust Co.] stock by the [X] heirs and the lawyer co-trustee are driven by tax and estate-planning concerns, not by an intention to control [Trust Co.]. There is no voting trust agreement, or other arrangement between these individuals regarding the voting of [Trust Co.] stock or the management or policies of [Trust Co.].

7)  An unaffiliated third party has applied to acquire 26.54% of the [Trust Co.] stock. If approved, the third party will be the single largest [Trust Co.] shareholder.

8)  The Legal Division of the Federal Reserve Board has determined that the proposed acquisitions by the [X] heirs and the lawyer co-trustee do not give rise to an actual or constructive bank holding company.

For the reasons which follow, we concur that the proposed acquisitions by the [X] heirs and the lawyer co-trustee do not require a filing of a change in control notice pursuant to the CBCA.

Acquisition of the power to vote ten percent or more of a class of voting securities of an insured depository institution by a person or persons acting in concert is presumed to be an acquisition by such person, or persons acting in concert, of the power to direct that institution's management or policies if, immediately after the transaction, no other person will own a greater proportion of that class of voting securities. 12 C.F.R. 303.4(a). Based on your representations that the [Trust Co.] heirs and the lawyer co-trustee each will purchase approximately 5.47% of the [Trust Co.] shares in the Trust, and that, after the purchase, none of the individuals will own 10% or more of the [Trust Co.] shares, it appears that none of the purchases singly would raise the presumption that control was acquired.

Whether the [X] heirs together, or with the lawyer co-trustee, are acting in concert to acquire 10% or more of the voting securities is a separate matter. "Acting in concert" is not defined under the CBCA or the FDIC's rules. Accordingly, we look at the facts and circumstances of each transaction. In the instant case your representations support a conclusion that each grand niece and nephew and the lawyer co-trustee are acting independently.

The conclusion expressed herein is based on the representations you have made and is limited strictly to the facts and issues discussed. This conclusion should not be interpreted as an indication of our views on any other issue that may arise from the described transactions.


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