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4000 - Advisory Opinions

Registered Broker-Dealer as Affiliate of Insured Bank


May 31, 1985

Pamela E. F. LeCren, Senior Attorney

In a February 1, 1985 letter responding to your request for an opinion on whether or not *** (a registered broker-dealer, ***) is an "affiliate" of *** for the purposes of section 337.4 of the FDIC's regulations, this office concluded for the reasons more fully set forth in that letter (copy enclosed) that the bank and *** were affiliates. By subsequent letter you indicated that certain events are expected to transpire which will, in your opinion, result in the termination of the affiliation between *** and Bank ***. You have requested that this office concur in your opinion.

According to your letter, *** (chairman of the board of directors and 32% shareholder of the bank) has put his ten percent interest in *** parent, *** up for sale and has resigned from *** board of directors. (*** wholly owns ***). Additionally, your letter indicates that ***, currently president of the bank and *** is willing to relinquish his position as president of *** if that fact, coupled with *** resignation and the sale of his stock, would terminate the affiliation.

We have reviewed our earlier correspondence in connection with your request and have concluded that, if the above events occur, *** and bank *** will no longer be affiliates for the purposes of section 337.4. As we indicated in our February 1 letter, bank *** and *** would be affiliates for the purposes of section 337.4 if both were controlled by the same company, person, or group of persons. Assuming the subject resignations and sale of stock occur, this standard will no longer be met. Although the three directors of the bank that are directors of *** could be said to together control *** inasmuch as they as a group own 36% of the stock of ***, the same three persons would not be said to control the bank as they only hold one percent of the bank's stock and together constitute only three of thirteen directors of the bank. If we were to add in *** stock interest in the bank, this group of four persons would hold two percent of the bank. (The fact that *** is president of the bank does not, under the circumstances, in our opinion, significantly tip the scale in the direction of control.) It would seem clear that *** inclusion in the group is critical to the determination of control and the resulting affiliation. His resignation and the sale of his stock in *** remove him from the equation and will thus terminate the affiliation.

The above opinion is limited to the facts as we understand them to be from your correspondence and reserve the right to alter our opinion if any additional facts come to our attention.

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