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4000 - Advisory Opinions


Change in Bank Control Notice for Employee Incentive Stock Ownership Plan

FDIC-81-17

July 10, 1981

Katharine H. Haygood, Attorney

Your letter of May 21, 1981 has been forwarded to me for consideration. The information in your letter and in our telephone conversations has been that *** has established an Employee Incentive Stock Ownership Plan (EISOP) which now owns more than ten percent of the bank's common stock. This interpretation will be based upon the assumption that the amendments to the plan are valid, that the trust division of *** is the trustee of the plan, and that the trustee will vote the shares, if at all, as directed by the individual employee-members of the plan.

For purposes of analysis, we will consider that this transaction is not subject to section 3 nor within section 2(a)(5) of the Bank Holding Company Act and, consequently, is not exempted from the Change in Bank Control Act of 1978. Accordingly, the transaction may be subject to the Change in Bank Control Act.

You have suggested that, because the funds are held by the bank as a fiduciary, the transaction is exempt from the notification provisions of the Change in Bank Control Act under § 303.15(c)(5) of the FDIC regulations which exempts fiduciary transactions described in section 2(a)(5) of the Bank Holding Company Act. It should be emphasized that the Federal Reserve Board must determine Bank Holding Company Act jurisdiction. The following discussion is provided, however, for purposes of determining Change in Bank Control Act jurisdiction. Because the stock is held for the benefit of employees, it appears to fall within section 2(g)(2)(C) which attributes control of such stock to the employees' company. section 2(g)(2) transactions are not within the section 2(a)(5) exemption. Thus, since no section 2(a)(5) exemption exists, the question of whether section 3 is involved arises. As you and I have discussed previously, although there is potential jurisdiction under section 3 of the Bank Holding Company Act, it is my understanding that the Federal Reserve Board has declined to consider, as subject to section 3, transactions involving amounts of stock such as are involved here. It is further my understanding that where the bank serves as trustee for its own shares, the Federal Reserve Board has not exerted Bank Holding Company Act jurisdiction. For the foregoing reasons, I do not regard the transaction as being exempt from the Change in Bank Control Act notification provisions by reason of the exemptions provided in section 7(j)(16) of the Act or § 303.15(c)(5) of FDIC's regulations (12 CFR § 303.15(c)(5)) since neither section 3 nor section 2(a)(5) of the Bank Holding Company Act is involved. There is thus at least potential jurisdiction under the Change in Bank Control Act.

By virtue of the fact that *** has issued a class of securities subject to the registration requirements of section 12 of the Securities Exchange Act of 1934 and the fact that the plan has acquired ten percent of *** stock, the plan is presumed to control *** under the regulatory presumption established pursuant to the Change in Bank Control Act at section 303.15(a) of the FDIC rules and regulations. The issue presented is, in very simple terms, whether the fact that a trust member may direct the trustee how to vote the shares attributable to that member and, without that direction, the trustee will not vote the attributable shares, signifies that the trust and the trustee are not subject to the Change in Bank Control Act. It is our opinion that under these facts, no Change in Bank Control Act notice would be required by the plan or its trustee. It is of course possible that some of the plan's members either acting singly or in concert with others may be subject to Change in Bank Control Act jurisdiction. No opinion can be given at this point on the latter situation since pertinent facts are lacking.

Prior to mid-May 1981, the trustee was *** which had sole discretionary authority to vote the bank stock and more than ten percent of the bank's stock was involved; there may therefore have been jurisdiction under section 3 of the Bank Holding Company Act or section 2(a)(5) may have applied. Again, the Federal Reserve Board would have to make those determinations. If neither of these sections applies, there appears to have been at least a technical violation of the Change in Bank Control Act. The Philadelphia Regional Office will contact you if they need further information concerning the period prior to *** trust department becoming trustee of the EISOP.

If you have further questions, please feel free to contact me.


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