[Federal Register Volume 63, Number 45 (Monday, March 9, 1998)]
[Rules and Regulations]
[Pages 11361-11367]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-5896]
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DEPARTMENT OF THE TREASURY
Office of Thrift Supervision
12 CFR Part 575
[98-23]
RIN 1550-AB04
Mutual Holding Companies
AGENCY: Office of Thrift Supervision, Treasury.
ACTION: Final rule.
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SUMMARY: The Office of Thrift Supervision (OTS) is amending its mutual
holding company regulations to permit a mutual holding company (MHC) to
establish a subsidiary stock holding company that would hold all of the
stock of a savings association subsidiary. The final rule permits the
establishment of intermediate stock holding companies (SHCs) that will
be subject to restrictions that are substantially similar to those
currently applicable to MHCs.
EFFECTIVE DATE: April 1, 1998.
FOR FURTHER INFORMATION CONTACT: James H. Underwood, Special Counsel
(202/906-7354), Dwight C. Smith, Deputy Chief Counsel (202/906-6990),
Business Transactions Division, Chief Counsel's Office; Gary Masters,
Financial Analyst (202/906-6729) Corporate Activities Division; Office
of Thrift Supervision, 1700 G Street, NW., Washington, D.C. 20552.
SUPPLEMENTARY INFORMATION:
Table of Contents
I. Background of the Proposal
II. General Discussion of the Comments
III. Analysis of Final Rule
IV. Paperwork Reduction Act of 1995
V. Executive Order 12866
VI. Regulatory Flexibility Act Analysis
VII. Unfunded Mandates Act of 1995
VIII. Effective Date
I. Background of the Proposal
Responding to inquiries from MHCs and mutual savings associations
concerning the formation of second-tier stock holding companies, OTS
issued an Advance Notice of Proposed Rulemaking (ANPR) soliciting
comment on issues raised by the existence of SHCs.1 On June
5, 1997, OTS published a notice of proposed rulemaking (NPR) proposing
to amend its regulations to permit the establishment and operation of
federally chartered mid-tier holding companies.2 The purpose
of the proposed amendment was to enhance the organizational flexibility
of the MHC structure and to enable MHCs to compete more effectively in
the marketplace. Additionally, permitting the formation of SHCs will
allow MHCs, through the SHCs, greater flexibility in structuring stock
repurchase programs.
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\1\ 61 FR 58144 (November 13, 1996).
\2\ 62 FR 30778 (June 5, 1997).
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Under current 12 CFR part 575, a mutual savings association may
reorganize into a MHC structure where the MHC owns at least a majority
of the stock of a subsidiary savings association. Depositors of the
mutual savings association continue to maintain a depositor-creditor
relationship with the stock savings association subsidiary, while
retaining their other indicia of ownership, e.g., voting and
liquidation rights, with the MHC. This structure permits the balance of
the shares (up to 49.9%) of the stock savings association subsidiary to
be sold to the public in one or more offerings when the MHC is formed,
or later.
The final rule will permit the MHC to form an SHC to hold all of
the shares of the stock savings association subsidiary. The SHC, like
the stock savings association subsidiary under the current rule, will
be required to issue at least a majority of its shares to the MHC and
may issue up to 49.9% of its shares to the public. Under the final
rule, the SHC will be required to hold 100% of the shares of the
savings association subsidiary. The final rule, like the NPR, provides
that the SHC structure may not be used to evade or frustrate the
purposes of 12 CFR part 575 or related provisions of 12 CFR part 563b
that govern mutual-to-stock conversions by savings associations. OTS'
guiding principle with respect to MHC conversion rules is that the
substantive and procedural limitations applicable to such transactions
should mirror those for a mutual-to-stock conversion of a savings
association. This is so insiders or minority shareholders do not get a
windfall by achieving something (e.g., a greater ownership interest)
through an MHC reorganization and subsequent conversion to stock form
that they cannot accomplish through a direct mutual-to-stock conversion
of the savings association.
II. General Discussion of the Comments
Eleven commenters responded to the NPR proposal: one savings bank;
one mutual holding company; two individuals; three trade groups; and
four law firms. All but one of the commenters generally supported the
concept of SHCs. The one commenter who did not support the formation of
SHCs was opposed to any changes to OTS' rules governing mutual holding
companies. Most of the commenters argued for greater flexibility and
fewer restrictions on SHCs than set forth in the proposed rule. Two of
the trade groups that commented, however, were generally supportive of
the rule as proposed.
The final rule is substantially similar to the proposed rule.
Specific comments addressing various sections are discussed in the
description of the revisions to 12 CFR part 575 set forth below.
III. Analysis of Final Rule
A. Federal Charter and Bylaws for SHCs
OTS proposed that SHCs must be federally chartered. The final rule
continues this requirement and defines a SHC as a mutual holding
company for purposes of section 10(o) of the Home Owners' Loan Act
(HOLA). As a MHC, the SHC is subject to the exclusive jurisdiction of
OTS. OTS consistently has interpreted section 10(o) and its legislative
history as demonstrating Congress' intent that section 10(o) expressly
preempts state law with regard to the creation and regulation of
MHCs.3
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\3\ See 58 FR 44105, 44106-44107 (August 13, 1993) (discussion
of OTS' exclusive authority to charter and regulate MHCs).
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Two commenters questioned whether OTS has the statutory authority
to charter SHCs. OTS believes that it has authority under section 10(o)
to charter SHCs. Section 10(o)(10)(A) of HOLA defines a mutual holding
company as ``a corporation organized as a holding company under
[section 10(o) of HOLA].'' Given this broad definition, coupled with
the explicit statutory revisions and legislative history expressing
Congress' intent that OTS have exclusive authority to charter and
regulate MHCs, OTS believes there is a clear statutory basis for OTS to
charter a SHC as a mutual holding company.
As indicated in the preamble to the final rule adopting 12 CFR Part
575 in 1993, the mutual holding company provisions were amended by the
Financial Institutions Reform, Recovery, And Enforcement Act of 1989,
Public L. 101-73, 103 Stat. 183 (1989), to expressly provide that
mutual holding companies would be chartered and subject to regulations
prescribed by the
[[Page 11362]]
Director of OTS.4 The explanatory statement offered at the
mark-up of the legislation stated that the amendments ``would provide a
clear regulatory framework for MHCs, and unquestionable regulatory
authority to the [OTS] by providing that MHCs will be chartered by the
[Director of OTS] and subject to OTS regulation.'' 5 OTS
believes that Congress has set forth a detailed statutory scheme that
addresses virtually all of the material aspects of the establishment
and corporate governance of a mutual holding company. Thus, it follows
that Congress intended for OTS to occupy the field of mutual holding
company regulation for savings associations and that requiring SHCs to
be federally chartered is consistent with both the statute and
Congressional intent.
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\4\ Id. Under the original MHC provisions adopted as part of the
Competitive Equality Banking Act of 1987, it was unclear whether
MHCs would be federally chartered or state-chartered entities.
\5\ Id. at 44106.
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Moreover, MHC structures are fundamentally different from
traditional savings and loan and bank holding companies. Because of
their unique hybrid structure--part mutual, part stock--OTS has
attempted to ensure that the interests of the mutual members are not
diminished or exploited in connection with the formation and operation
of the MHC. OTS has been mindful that many MHCs do eventually convert
to full stock form under OTS' mutual to stock conversion regulations.
Thus, unlike a traditional state-chartered savings and loan holding
company, a MHC is the corporate repository of the mutual members'
economic and legal interests. OTS' policy has always been that a MHC
and its subsidiaries may not take any action that would violate the
substantive provisions and policies of the mutual to stock conversion
regulations. Treating a SHC as a traditional state-chartered savings
and loan holding company would substantially reduce OTS' ability to
effectively protect the rights of the mutual members and ensure
consistent treatment under the mutual to stock conversion regulations
for members of MHCs and members of mutual savings associations that do
not form MHCs.
The MHC statute clearly contemplates that the reorganizing savings
association will be a directly owned subsidiary of a federally
chartered mutual holding company. To permit a state-chartered
corporation to control the reorganizing savings association is
inconsistent with OTS' occupation of the field of MHC regulation, would
diminish OTS' ability to regulate the corporate governance provisions
of the intermediate holding company, and create potential conflicts
between federal and state regulation. One commenter suggested that OTS
could deal with any issues concerning corporate governance provisions
by imposing conditions in connection with the approval of the
application. OTS questions whether this proposed solution is viable.
OTS believes that requiring a federal charter for a SHC is the best
means of ensuring consistent and non-conflicting corporate governance
provisions for the MHC, the SHC and their savings association
subsidiary. This, in turn, would ensure that OTS has adequate authority
to protect and balance the interests of all the parties involved in a
MHC reorganization.
Requiring SHCs to be federally chartered is also consistent with
the statutory requirement under section 10(o)(9) that authorizes the
appointment of a trustee as receiver for a MHC that is in default or
that has a savings association subsidiary that is in default. Under
section 10(o)(9), a trustee has the authority to liquidate the assets
of the MHC (and satisfy any liabilities) and distribute the net
proceeds to the owners of the MHC or the Federal Deposit Insurance
Corporation (``FDIC'') to the extent that the FDIC has suffered any
loss as insurer of the savings association subsidiary. By requiring
that the SHC be treated as a MHC and be federally chartered, OTS will
have clear authority to seek the appointment of a trustee as receiver
of a SHC whenever the parent MHC or its SHC or savings association
subsidiary is in default. This will ensure that the receiver of the MHC
has the maximum flexibility to liquidate the assets of the SHC to
ensure that any losses to the FDIC as insurer are minimized.
One commenter argued that section 10(o)(4)(A) of HOLA is
inconsistent with the idea that the SHC could be defined as a MHC under
the statute. Section 10(o)(4)(A) provides that ``[p]ersons having
ownership rights in the mutual association * * * shall have the same
ownership rights with respect to the mutual holding company.'' OTS does
not agree that this section is inconsistent with the proposal to
authorize a federal charter for SHCs. Under the final rule, a SHC must
always be controlled by a parent MHC. The members' interest referenced
by section 10(o)(4)(A) will reside directly with the parent MHC. As the
parent MHC is required to maintain a majority ownership interest in the
SHC, the members will also indirectly maintain the same ownership
rights in the SHC that they had in the mutual association. OTS believes
that having the SHC directly controlled by the parent MHC is consistent
with the language and intent of section 10(o)(4)(A) when viewed in the
context of the entire statute. OTS also believes the addition of
another holding company in the structure does not diminish the interest
of the mutual associations' members.
One commenter stated that requiring SHCs to be federally chartered
would create problems because of the lack of any developed body of
corporate law for SHCs. As indicated in the proposal, OTS will follow
the charter, bylaw, and corporate governance provisions that are
currently applicable to federal stock savings associations. The
corporate governance structure for federal savings associations has
been in place over twenty years and the industry and industry counsel
are familiar with this system. OTS believes that utilizing the existing
corporate governance structure for federal savings associations as a
model for SHCs will minimize the burden on SHCs because the existing
structure is familiar.
B. Stock Holding Company Powers
Several commenters were in favor of granting unitary savings and
loan holding company status to SHCs. They stated that they did not
perceive any policy reasons, such as safety and soundness concerns,
that support a different treatment for SHCs simply because they are
controlled by a MHC. As indicated in the NPR, OTS believes that it is
not appropriate to treat SHCs as unitary savings and loan holding
companies under the mutual holding company statute. Congress chose to
limit the activities of MHCs to those permitted for multiple savings
and loan holding companies and bank holding companies when it
authorized MHCs as part of the Competitive Equality Banking Act of 1987
(CEBA). Although the legislative history of CEBA does not indicate why,
it is reasonable to assume that Congress was aware of the unique nature
of mutual institutions and their relationship with these newly
authorized holding companies and wished to limit the activities of MHCs
to those more closely related to banking.
OTS believes that limiting the activities of a SHC to those
permitted to the parent MHC is consistent with the statute. Therefore,
the final rule does not authorize SHCs to engage in activities beyond
those specified in section 10(o)(5) of the statute. OTS notes, however,
that a SHC may utilize its authority under section 10(o)(5) and 12 CFR
575.10(a)(6) to acquire subsidiaries engaged in (i) any activity
authorized under 12 CFR Part 559 or (ii)
[[Page 11363]]
activities approved for service corporations of state-chartered savings
associations in the state where the SHC's savings association
subsidiary has its home office.
C. Regulatory Restrictions on Stock Pledges, Dividend Waivers,
Indemnification and Employment Contracts
The final rule adopts the provisions set forth in the NPR governing
stock pledges, dividend waivers, indemnification, and employment
contracts without any changes. Similar to the response to the ANPR,
several commenters argued that it was unnecessary and inappropriate to
impose the same restrictions on SHCs that currently apply to MHCs and
their savings association subsidiaries. Several commenters, however,
supported the rule as proposed. OTS, for the reasons stated in the NPR
and discussed below, does not find the arguments of the commenters
opposed to the proposed rule persuasive. As noted in the preamble to
the NPR, OTS' intent is to increase the flexibility of the MHC
structure without diminishing the safeguards Congress imposed in
adopting the statute.
With respect to stock pledges, section 10(o)(8) requires that the
pledging of a savings association's stock by its parent MHC increase
the capital of the savings association. OTS believes this restriction
should apply equally to both an MHC and an SHC. Applying this
restriction to the SHC is consistent with the statute and will ensure
that any borrowing using the savings association subsidiary's stock or
the SHC's stock as collateral will directly benefit the FDIC-insured
savings association.
Regarding dividend waivers, one commenter stated that no
restrictions should apply to the SHC since it has no mutual members,
and its board of directors has no fiduciary duties to such mutual
members. OTS does not agree with this assertion. The same concerns that
are present when dividends are paid by a savings association subsidiary
to its minority stockholders but waived by the MHC are present when
dividends are paid to minority stockholders of an SHC and waived by the
parent MHC. In both cases, the board of directors of the MHC must
approve a waiver of the dividend payments, and their fiduciary
obligation is the same in each instance. It is important in either
instance that the value of the waived dividends be retained for the
benefit of the members of the MHC to prevent potential windfalls to the
minority shareholders in a subsequent conversion of the MHC.
One commenter suggested that the SHC be permitted to issue two
classes of voting stock with identical features except that one class
would not have the right to receive any dividend payments. Under this
scheme, the MHC would receive the class of shares without dividend
rights while minority shareholders would receive the dividend-paying
class. This proposal would have precisely the same impact as removing
the dividend waiver restrictions that protect the interests of the MHC
mutual members, a result that OTS rejects. If dividends could be paid
only to the minority shareholders this would divert the earnings of the
savings association to the minority shareholders at the expense of the
MHC. For example, if a savings association subsidiary had 40% of its
voting shares held by minority shareholders and earned a million
dollars, it would be able to pay out $1,000,000 to its minority
shareholders instead of the $400,000 permitted under the existing
rules. In effect, the $600,000 that would normally be attributable to
the parent MHC would be diverted to the minority stockholders.
The use of dual classes of stock is problematic for several
additional reasons. First, it would purport to relieve the MHC's board
of directors from its fiduciary obligation to determine that the
proposed dual stock structure of the SHC is consistent with the
interests of the mutual members of the MHC. Under current rules, the
board of directors of the MHC must make an express determination that a
waiver of dividends from the savings association subsidiary is
consistent with the board's fiduciary duties to the members of the MHC.
Use of the dual stock structure, in which the MHC would receive no
dividends, would allow the MHC board effectively to approve a blanket
dividend waiver without knowing the amounts that would be relinquished
by the MHC or what consequences might flow from the MHC's inability to
receive dividends in the future.
Dual classes of stock would also create an obvious conflict for the
MHC board members who were also minority shareholders of the SHC. These
board members would have substantial, personal economic incentives to
maximize the payment of dividends, notwithstanding the loss in value to
the majority stockholder, the MHC and the mutual members--to whom these
directors owe a fiduciary duty. The dual stock structure would also
permit the minority shareholders to argue that there should be no
dilution of their ownership interests in the event of a conversion of
the MHC since no dividend waivers would have occurred. OTS believes
that this would completely elevate form over economic substance and
grant an inappropriate windfall to the SHC's minority shareholders. For
these reasons, no change was made to final rule regarding the treatment
of waived dividends.
Another commenter argued that it was particularly inappropriate to
impose any restrictions relating to indemnification or employment
contracts on SHCs that are more stringent than those imposed on other
savings and loan holding companies. Since OTS believes SHCs should be
treated as MHCs for the reasons stated above, OTS has determined to
impose the same indemnification and employment contract restrictions on
SHCs that are currently imposed on MHCs. Thus, the final rule is
adopted without any changes to the indemnification or employment
contract provisions.
D. SHC Stock Issuances, Stock Repurchases, and Conversion of the MHC
Commenters generally supported the proposed rule on the issue of
stock repurchases. Several commenters objected to OTS' interpretation
that restricts SHCs (or savings association subsidiaries under the
current rule) from issuing stock to complete a merger transaction
without first offering the stock to mutual members on a priority basis.
A commenter argued that it was inappropriate to continue to grant
mutual members priority subscription rights where the shares were being
issued in a stock-for-stock merger transaction. Commenters suggested
that OTS should consider other factors, including management obtaining
a fairness opinion, the value of the company being acquired, and
whether the shares of the SHC are actively traded on NASDAQ or a stock
exchange in determining whether to permit stock-for-stock mergers
without priority subscription rights.
While OTS recognizes that there are reasonable arguments in favor
of changing the current policy, OTS still believes that, on balance,
mutual members should be granted a first priority subscription right
for stock issued by a savings association subsidiary or an SHC. As
stated in the NPR, OTS is aware that this may result in MHCs having
less flexibility than a traditional savings and loan holding company.
This is consistent with the fact that the MHC structure is a unique
hybrid corporate structure, part mutual and part stock, that has both
advantages and disadvantages. OTS also notes that this issue is not
unique to SHCs. OTS'
[[Page 11364]]
interpretation of 12 CFR 575.7 on stock issuances also applies to
issuances of stock by savings association subsidiaries that are not
owned by an SHC.
For this reason and the other reasons cited above, OTS generally
will continue to require that mutual members be granted a first
priority subscription interest for stock issued by savings associations
and SHCs. OTS notes, however, that Section 575.7(d)(6) currently
provides that OTS may permit a non-conforming stock issuance where the
applicant demonstrates that it would be more beneficial to the issuing
savings association. Under this provision, the OTS believes that
properly structured merger transactions that do not grant priority
subscription rights may qualify for approval and OTS is willing to
consider and approve such transactions on a case-by-case basis.
Most commenters generally supported permitting SHCs to engage in
stock repurchases on the same basis as a savings association subsidiary
of a MHC. The final rule provides that SHCs may not engage in stock
repurchases during the three year period following issuance of the
stock without the prior approval of OTS. This will permit OTS to
evaluate the purpose and reasons for the stock repurchases on a case-
by-case basis. OTS does not anticipate that it will permit repurchases
in amounts greater than those that have generally been permitted under
the mutual to stock conversion regulations.6
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\6\ See 12 CFR 563b.3(g) (1997).
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One commenter requested that OTS clarify that it would not impose
stricter standards in reviewing stock repurchases by SHCs and savings
association subsidiaries of MHCs than those imposed on savings
associations converted under 12 CFR Part 563b. Another commenter
requested that OTS revise 12 CFR 575.11(c) to add the additional safe-
harbor purchases allowed under the mutual to stock conversion
regulations.7 OTS does not believe that it is necessary or
appropriate to include these safe-harbor provisions for SHCs for the
reasons discussed below. OTS also does not believe that it should
impose a rigid or inflexible standard on stock repurchases by
subsidiaries of MHCs.
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\7\ See 12 CFR 563b.3(g) (1997).
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MHCs, unlike a savings association undertaking a traditional mutual
to stock conversion, have control over the amount of capital raised in
a stock offering. Thus, MHCs should not be subject to the same
pressures of finding appropriate investments for the new capital as
fully converted savings associations. Since management has more control
over the amount of capital raised by a MHC, OTS will consider this fact
when reviewing requests for stock repurchases that occur during the
three years following the issuance of the stock. Each request, however,
will be reviewed on a case-by-case basis and a decision to grant or
deny the request will be based upon all of the relevant facts presented
in the request. OTS also notes that after the initial three-year period
following issuance of the stock by a SHC, a SHC may engage in stock
repurchases subject only to the restrictions that are applicable to
savings associations generally.8
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\8\ See 12 CFR 563.134 (1997).
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Upon further consideration of stock repurchase issues, OTS is
revising 12 CFR 575.11(c) as proposed to restrict the ability of SHCs
to engage in open-market repurchases during the three-year period
following the issuance of the stock to fund employee stock benefit
plans without obtaining the prior approval of OTS. Because of the
potential amounts that may be involved in funding employee stock
benefit plans (10% for stock option plans, 4% for management
recognition plans, 8% for employee stock option plans, plus any amounts
for other tax-qualified or non-tax-qualified plans), and OTS' desire to
more closely monitor repurchases by a SHC that occur shortly after a
stock issuance, the final rule eliminates this safe-harbor provision.
This will also ensure that the stock repurchase provisions affecting
employee stock benefit plans for SHCs are consistent with the
provisions for converted savings associations under 12 CFR part 563b.
In the NPR, OTS stated its intention to permit SHCs that are formed
subsequent to the initial MHC reorganization and stock issuance to
``tack on'' or include the period that the shares issued by the savings
association were outstanding in calculating the three-year period that
stock repurchases are restricted. All of the comments on this issue
were favorable. One commenter requested that OTS make the ``tacking''
period an explicit part of section 575.11(c). OTS reiterates its
intention to permit SHCs that are formed after an initial MHC
reorganization to include the period that any minority shares of the
savings association were outstanding in determining the applicability
of the three-year repurchase restriction under 12 CFR 575.11(c) and the
final rule has been revised to reflect this policy.
IV. Paperwork Reduction Act of 1995
The reporting and recordkeeping requirements contained in this
final rule have been submitted to and approved by the Office of
Management and Budget in accordance with the Paperwork Reduction Act of
1995 (44 U.S.C. 3507(d)) under OMB Control No. 1550-0072. Comments on
all aspects of this information collection should be sent to the Office
of Management and Budget, Paperwork Reduction Project (1550),
Washington, D.C. 20503 with copies to OTS, 1700 G Street, NW.,
Washington, DC 20552.
The reporting/recordkeeping requirements contained in this final
rule are found at 12 CFR part 575. The information is needed by OTS in
order to supervise savings associations and mutual holding companies
and develop regulatory policy. The likely respondents/recordkeepers are
OTS-regulated savings associations and mutual holding companies.
Records are to be maintained in accordance with normal and
customary business practices as recommended by private counsel,
accountants, etc., but no less than three years.
Respondents/recordkeepers are not required to respond to this
collection of information unless the collection displays a currently
valid OMB control number. The valid control number assigned to the
collection of information in this final rule is displayed at 12 CFR
506.1(b).
V. Executive Order 12866
The Director of OTS has determined that this final rule does not
constitute a ``significant regulatory action'' for the purposes of
Executive Order 12866.
VI. Regulatory Flexibility Act Analysis
Pursuant to section 605(b) of the Regulatory Flexibility Act, OTS
certifies that this final rule will not have a significant impact on a
substantial number of small entities. The final rule will create
additional organizational flexibility for all savings associations that
create mutual holding company structures.
VII. Unfunded Mandates Act of 1995
Section 202 of the Unfunded Mandates Reform Act of 1995, Pub. L.
104-4 (Unfunded Mandates Act), requires that an agency prepare a
budgetary impact statement before promulgating a rule that includes a
federal mandate that may result in expenditure by state, local, and
tribal governments, in the aggregate, or by the private sector, of $100
million or more in any one year. If a budgetary impact statement is
required, section 205 of the
[[Page 11365]]
Unfunded Mandates Act also requires an agency to identify and consider
a reasonable number of regulatory alternatives before promulgating a
rule. OTS has determined that the final rule will not result in
expenditures by state, local, or tribal governments or by the private
sector of $100 million or more. Accordingly, this rulemaking is not
subject to section 202 of the Unfunded Mandates Act.
VIII. Effective Date
Section 553(d) of the Administrative Procedure Act generally
requires an agency to publish a substantive rule at least 30 days
before its effective date. Section 553(d) of the APA permits waiver of
the 30-day delayed effective date requirement for, inter alia, good
cause or where a rule relieves a restriction. Under the current rule,
MHCs are not permitted to form SHCs. Waiver of the 30-day delayed
effective date would relieve this restriction and permit MHCs to
utilize this structure immediately upon the effective date. For this
reason, OTS finds that the 30-day delayed effective date may be waived.
List of Subjects in 12 CFR Part 575
Administrative practice and procedure, Capital, Holding companies,
Reporting and recordkeeping requirements, Savings associations,
Securities.
Accordingly, the Office of Thrift Supervision hereby amends chapter
V, title 12, Code of Federal Regulations, as follows:
PART 575--MUTUAL HOLDING COMPANIES
1. The authority citation for part 575 continues to read as
follows:
Authority: 12 U.S.C. 1462, 1462a, 1463, 1464, 1467a, 1828, 2901.
2. Section 575.2 is amended by revising paragraphs (h) and (o) and
adding paragraph (q) to read as follows:
Sec. 575.2 Definitions.
* * * * *
(h) The term mutual holding company means a mutual holding company
organized under this part, and unless otherwise indicated, a subsidiary
holding company controlled by a mutual holding company, organized under
this part.
* * * * *
(o) The term Stock Issuance Plan means a plan, submitted pursuant
to Sec. 575.7 and containing the information required by Sec. 575.8,
providing for the issuance of stock by:
(1) A savings association subsidiary of a mutual holding company;
or
(2) A subsidiary holding company.
* * * * *
(q) The term subsidiary holding company means a federally chartered
stock holding company, controlled by a mutual holding company, that
owns the stock of a savings association whose depositors have
membership rights in the parent mutual holding company.
3. Section 575.6 is amended by redesignating paragraphs (c) through
(i) as paragraphs (d) through (j) and adding a new paragraph (c) to
read as follows:
Sec. 575.6 Contents of Reorganization Plans.
* * * * *
(c) If the reorganizing association proposes to form a subsidiary
holding company, provide for the organization of a subsidiary holding
company and attach and incorporate the proposed charter and bylaws of
such subsidiary holding company.
* * * * *
4. Section 575.10 is amended by:
a. Removing, in the introductory text of paragraph (a)(2), the
phrase ``the holding company'', and by adding in lieu thereof the
phrase ``the parent mutual holding company';
b. Revising the first sentence of paragraph (a)(3);
c. Revising the first sentence of paragraph (a)(4);
d. Revising paragraph (a)(6)(i)(B); and
e. Revising the first sentence of paragraph (b)(1).
The revisions read as follows:
Sec. 575.10 Acquisition and disposition of savings associations,
savings and loan holding companies, and other corporations by mutual
holding companies.
(a) * * *
(3) Mutual holding companies. A mutual holding company that is not
a subsidiary holding company may acquire control of another mutual
holding company, including a subsidiary holding company, by merging
with or into such company, provided the necessary approvals are
obtained from the OTS, including (without limitation) approval pursuant
to part 574 of this chapter. * * *
(4) Stock holding companies. A mutual holding company may acquire
control of a savings and loan holding company in the stock form that is
not a subsidiary holding company, provided the necessary approvals are
obtained from the OTS, including (without limitation) approval pursuant
to part 574 of this chapter. * * *
* * * * *
(6) * * *
(i) * * *
(B) It is lawful for the stock of such corporation to be purchased
by a federal savings association under part 559 of this chapter or by a
state savings association under the law of any state where any
subsidiary savings association of the mutual holding company has its
home office; and
* * * * *
(b) Dispositions--(1) A mutual holding company shall provide
written notice to the OTS at least 30 days prior to the effective date
of any direct or indirect transfer of any of the stock that it holds in
a subsidiary holding company, a resulting association, an acquiree
association, or any subsidiary savings association that was in the
mutual form when acquired by the mutual holding company, including
stock transferred in connection with a pledge pursuant to
Sec. 575.11(b) or any transfer of all or a substantial portion of the
assets or liabilities of any such subsidiary holding company or
association. * * *
* * * * *
5. Section 575.11 is amended by:
a. Revising paragraph (b)(1) introductory text, redesignating
existing paragraph (b)(1)(ii) as paragraph (b)(1)(iii), and adding a
new paragraph (b)(1)(ii);
b. Revising paragraph (b)(2);
c. Revising the introductory text of paragraph (c) and paragraphs
(c)(1) and (c)(3); and
d. Revising paragraph (e).
The revisions and addition read as follows:
Sec. 575.11 Operating restrictions.
* * * * *
(b) Pledging stock--(1) No mutual holding company may pledge the
stock of its resulting association, an acquiree association, or any
subsidiary savings association that was in the mutual form when
acquired by the mutual holding company (or its parent mutual holding
company), unless the proceeds of the loan secured by the pledge are
infused into the association whose stock is pledged. No mutual holding
company may pledge the stock of its subsidiary holding company unless
the proceeds of the loan secured by the pledge are infused into any
savings association subsidiary of the subsidiary holding company that
is a resulting association, an acquiree association, or a subsidiary
savings association that was in the mutual form when acquired by the
subsidiary holding company (or its parent mutual holding company). In
the event the subsidiary holding company has more than one savings
association subsidiary, the loan proceeds shall, unless otherwise
approved by the OTS, be infused in equal amounts to each
[[Page 11366]]
savings association subsidiary. Any amount of the stock of such
association or subsidiary holding company may be pledged for these
purposes. Nothing in this paragraph (b)(1) shall be deemed to prohibit:
* * * * *
(ii) The payment of dividends from a subsidiary holding company to
its mutual holding company parent to the extent otherwise permissible;
or
* * * * *
(2) Within ten days after its pledge of stock pursuant to paragraph
(b)(1) of this section, a mutual holding company shall provide written
notice to the OTS regarding the terms of the transaction (including the
amount of principal and interest, repayment terms, maturity date, the
nature and amount of collateral, and the terms governing seizure of the
collateral) and shall include in such notice a certification that the
proceeds of the loan have been transferred to the subsidiary savings
association whose stock (or the stock of its parent subsidiary holding
company) has been pledged.
* * * * *
(c) Restrictions on stock repurchases. No subsidiary savings
association of a mutual holding company that has any stockholders other
than the association's mutual holding company and no subsidiary holding
company that has any stockholders other than its parent mutual holding
company shall repurchase any share of stock within three years of its
date of issuance (which may include the time period the shares issued
by the savings association were outstanding if the subsidiary holding
company was formed after the initial issuance by the savings
association), unless the repurchase:
(1) Is part of a general repurchase made on a pro rata basis
pursuant to an offer approved by the OTS and made to all stockholders
of the association or subsidiary holding company (except that the
parent mutual holding company may be excluded from the repurchase with
the OTS' approval);
* * * * *
(3) Is purchased in the open market by a tax-qualified or non-tax-
qualified employee stock benefit plan of the savings association (but
not of a subsidiary holding company) in an amount reasonable and
appropriate to fund such plan.
* * * * *
(e) Restrictions on issuance of stock to insiders. A subsidiary of
a mutual holding company that is not a savings association or
subsidiary holding company may issue stock to any insider, associate of
an insider or tax-qualified or non-tax-qualified employee stock benefit
plan of the mutual holding company or any subsidiary of the mutual
holding company, provided that such persons or plans provide written
notice to the OTS at least 30 days prior to the stock issuance.
Subsidiary savings associations and subsidiary holding companies may
issue stock to such persons only in accordance with Sec. 575.7.
* * * * *
6. Section 575.12 is amended by:
a. Revising paragraph (a)(2);
b. Revising paragraphs (b)(1)(ii) and (b)(1)(iii); and
c. Revising paragraph (b)(2).
The revisions read as follows:
Sec. 575.12 Conversion or liquidation of mutual holding companies.
(a) * * *
(2) Exchange of savings association stock. Any stock issued
pursuant to Sec. 575.7 by a subsidiary savings association or
subsidiary holding company of a mutual holding company to persons other
than the parent mutual holding company may be exchanged for the stock
issued by the parent mutual holding company in connection with the
conversion of the parent mutual holding company to stock form. The
parent mutual holding company and the subsidiary holding company or
savings association must demonstrate to the satisfaction of the OTS
that the basis for the exchange is fair and reasonable.
(b) * * * (1) * * *
(ii) The default of the parent mutual holding company or its
subsidiary holding company; or
(iii) Foreclosure on any pledge by the mutual holding company of
subsidiary savings association stock or subsidiary holding company
stock pursuant to Sec. 575.11(b).
(2) Except as provided in paragraph (b)(3) of this section, the net
proceeds of any liquidation of any mutual holding company shall be
transferred to the members of the mutual holding company or the stock
holders of the subsidiary holding company in accordance with the
charter of the mutual holding company or subsidiary holding company.
* * * * *
7. Section 575.14 is added to read as follows:
Sec. 575.14 Subsidiary holding companies.
(a) Subsidiary holding companies. A mutual holding company may
establish a subsidiary holding company as a direct subsidiary to hold
100% of the stock of its savings association subsidiary. The formation
and operation of the subsidiary holding company may not be utilized as
a means to evade or frustrate the purposes of this part 575 or part
563b of this chapter. The subsidiary holding company may be established
either at the time of the initial mutual holding company reorganization
or at a subsequent date, subject to the approval of the OTS.
(b) Stock issuances. For purposes of Secs. 575.7 and 575.8, the
subsidiary holding company shall be treated as a savings association
issuing stock and shall be subject to the requirements of those
sections. In the case of a stock issuance by a subsidiary holding
company, the aggregate amount of outstanding common stock of the
association owned or controlled by persons other than the subsidiary
holding company's mutual holding company parent at the close of the
proposed issuance shall be less than 50% of the subsidiary holding
company's total outstanding common stock.
(c) Charters and bylaws for subsidiary holding companies--(1)
Charters. The charter of a subsidiary holding company shall be in the
form set forth in this paragraph (c)(1) and may include any of the
additional provisions permitted pursuant to paragraph (c)(2) of this
section. The form of the charter is as follows:
Federal MHC Subsidiary Holding Company Charter
Section 1. Corporate title. The full corporate title of the MHC
subsidiary holding company is XXX.
Section 2. Domicile. The domicile of the MHC subsidiary holding
company shall be in the city of ____________________, in the state
of ____________.
Section 3. Duration. The duration of the MHC subsidiary holding
company is perpetual.
Section 4. Purpose and powers. The purpose of the MHC subsidiary
holding company is to pursue any or all of the lawful objectives of
a federal mutual holding company chartered under section 10(o) of
the Home Owners' Loan Act, 12 U.S.C. 1467a(o), and to exercise all
of the express, implied, and incidental powers conferred thereby and
by all acts amendatory thereof and supplemental thereto, subject to
the Constitution and laws of the United States as they are now in
effect, or as they may hereafter be amended, and subject to all
lawful and applicable rules, regulations, and orders of the Office
of Thrift Supervision (``Office'').
Section 5. Capital stock. The total number of shares of all
classes of the capital stock that the MHC subsidiary holding company
has the authority to issue is ____________, all of which shall be
common stock of par [or if no par is specified then shares shall
have a stated] value of ____________ per share. The shares may be
issued from time to time as authorized by the board of directors
without the approval of its shareholders, except as
[[Page 11367]]
otherwise provided in this section 5 or to the extent that such
approval is required by governing law, rule, or regulation. The
consideration for the issuance of the shares shall be paid in full
before their issuance and shall not be less than the par [or stated]
value. Neither promissory notes nor future services shall constitute
payment or part payment for the issuance of shares of the MHC
subsidiary holding company. The consideration for the shares shall
be cash, tangible or intangible property (to the extent direct
investment in such property would be permitted to the MHC subsidiary
holding company), labor, or services actually performed for the MHC
subsidiary holding company, or any combination of the foregoing. In
the absence of actual fraud in the transaction, the value of such
property, labor, or services, as determined by the board of
directors of the MHC subsidiary holding company, shall be
conclusive. Upon payment of such consideration, such shares shall be
deemed to be fully paid and nonassessable. In the case of a stock
dividend, that part of the retained earnings of the MHC subsidiary
holding company that is transferred to common stock or paid-in
capital accounts upon the issuance of shares as a stock dividend
shall be deemed to be the consideration for their issuance.
Except for shares issued in the initial organization of the MHC
subsidiary holding company, no shares of capital stock (including
shares issuable upon conversion, exchange, or exercise of other
securities) shall be issued, directly or indirectly, to officers,
directors, or controlling persons (except for shares issued to the
parent mutual holding company) of the MHC subsidiary holding company
other than as part of a general public offering or as qualifying
shares to a director, unless the issuance or the plan under which
they would be issued has been approved by a majority of the total
votes eligible to be cast at a legal meeting.
The holders of the common stock shall exclusively possess all
voting power. Each holder of shares of common stock shall be
entitled to one vote for each share held by such holder, except as
to the cumulation of votes for the election of directors, unless the
charter provides that there shall be no such cumulative voting.
Subject to any provision for a liquidation account, in the event of
any liquidation, dissolution, or winding up of the MHC subsidiary
holding company, the holders of the common stock shall be entitled,
after payment or provision for payment of all debts and liabilities
of the MHC subsidiary holding company, to receive the remaining
assets of the MHC subsidiary holding company available for
distribution, in cash or in kind. Each share of common stock shall
have the same relative rights as and be identical in all respects
with all the other shares of common stock.
Section 6. Preemptive rights. Holders of the capital stock of
the MHC subsidiary holding company shall not be entitled to
preemptive rights with respect to any shares of the MHC subsidiary
holding company which may be issued.
Section 7. Directors. The MHC subsidiary holding company shall
be under the direction of a board of directors. The authorized
number of directors, as stated in the MHC subsidiary holding
company's bylaws, shall not be fewer than five nor more than fifteen
except when a greater or lesser number is approved by the Director
of the Office, or his or her delegate.
Section 8. Amendment of charter. Except as provided in Section
5, no amendment, addition, alteration, change or repeal of this
charter shall be made, unless such is proposed by the board of
directors of the MHC subsidiary holding company, approved by the
shareholders by a majority of the votes eligible to be cast at a
legal meeting, unless a higher vote is otherwise required, and
approved or preapproved by the Office.
Attest:----------------------------------------------------------------
Secretary of the Subsidiary Holding Company
By:--------------------------------------------------------------------
President or Chief Executive Officer of the Subsidiary Holding
Company
Attest:----------------------------------------------------------------
Secretary of the Office of Thrift Supervision
By:--------------------------------------------------------------------
Director of the Office of Thrift Supervision
Effective Date:--------------------------------------------------------
(2) Charter amendments. The rules and regulations set forth in
Sec. 552.4 of this chapter regarding charter amendments and reissuances
of charters (including delegations and filing instructions) shall be
applicable to subsidiary holding companies to the same extent as if the
subsidiary holding companies were Federal stock savings associations,
except that, with respect to the pre-approved charter amendments set
forth in Sec. 552.4 of this chapter, the reference to home office in
Sec. 552.4(b)(2) of this chapter shall be deemed to refer to the
domicile of the subsidiary holding company and the requirements of
Sec. 545.95 of this chapter shall not apply to subsidiary holding
companies.
(3) Bylaws. The rules and regulations set forth in Sec. 552.5 of
this chapter regarding bylaws (including their content, any amendments
thereto, delegations, and filing instructions) shall be applicable to
subsidiary holding companies to the same extent as if subsidiary
holding companies were federal stock savings associations. The model
bylaws for Federal stock savings associations set forth in the OTS
Applications Processing Handbook shall also serve as the model bylaws
for subsidiary holding companies, except that the term ``association''
each time it appears therein shall be replaced with the term
``Subsidiary Holding Company.''
(4) Annual reports and books and records. The rules and regulations
set forth in Secs. 552.10 and 552.11 of this chapter regarding annual
reports to stockholders and maintaining books and records shall be
applicable to subsidiary holding companies to the same extent as if
subsidiary holding companies were federal stock savings associations.
Dated: March 3, 1998.
By the Office of Thrift Supervision.
Ellen Seidman,
Director.
[FR Doc. 98-5896 Filed 3-6-98; 8:45 am]
BILLING CODE 6720-01-P
