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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


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 cash1 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liability to pay the deposits (or similar liabilities) will remain with the Sellers or with "Bank B"; or (3) it will be withdrawn from accounts at the Sellers and deposited directly with "Bank B", on behalf of "Bank A", as successor fiduciary, without "Bank A", having had liability to pay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 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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