[Federal Register Volume 59, Number 50 (Tuesday, March 15, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-5944]
[[Page Unknown]]
[Federal Register: March 15, 1994]
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FEDERAL RESERVE SYSTEM
Meridian Bancorp, Inc., Reading, PA; Application To Engage in
Nonbanking Activities
Meridian Bancorp, Inc., Reading, Pennsylvania (Applicant), has
applied pursuant to section 4(c)(8) of the Bank Holding Company Act (12
U.S.C. 1843(c)(8)) (BHC Act) and Sec. 225.23(a)(3) of the Board's
Regulation Y (12 CFR 225.23(a)(3)) to engage de novo through a wholly
owned subsidiary, McGlinn Capital Management, Inc., Wyomissing,
Pennsylvania (Company), in the following securities-related activities:
(1) Providing portfolio investment advice to the general public,
including the exercise of investment discretion on behalf of
institutional customers and a limited number of individuals related to
Company's management; (2) serving as general partner of, maintaining a
financial interest in, and, in its capacity as general partner,
providing portfolio investment advice, including the exercise of
investment discretion, to a series of limited partnerships now existing
or to be established in the future (Partnerships); (3) engaging in the
private placement of limited partnership interests in the Partnerships
to institutional customers and certain additional employee benefit
plans; and (4) performing certain administrative and recordkeeping
functions for the Partnerships in its capacity as general partner. The
scope of the proposed activity is nationwide.
Section 4(c)(8) of the BHC Act provides that a bank holding company
may, with Board approval, engage in any activity that the Board, after
due notice and opportunity for hearing, has determined (by order or
regulation) to be so closely related to banking or managing or
controlling banks as to be a proper incident thereto. This statutory
test requires that two separate tests be met for an activity to be
permissible for a bank holding company. First, the Board must determine
that the activity is, as a general matter, closely related to banking.
Second, the Board must find in a particular case that the performance
of the activity by the applicant bank holding company may reasonably be
expected to produce public benefits that outweigh possible adverse
effects.
A particular activity may be found to meet the ``closely related to
banking'' test if it is demonstrated that banks have generally provided
the proposed activity; that banks generally provide services that are
operationally or functionally similar to the proposed activity so as to
equip them particularly well to provide the proposed activity; or that
banks generally provide services that are so integrally related to the
proposed activity as to require their provision in a specialized form.
National Courier Ass'n v. Board of Governors, 516 F.2d 1229, 1237 (D.C.
Cir. 1975). In addition, the Board may consider any other basis that
may demonstrate that the activity has a reasonable or close
relationship to banking or managing or controlling banks. Board
Statement Regarding Regulation Y (49 FR 806 (1984)).
Applicant believes that the provision of portfolio investment
advice to any person, including the exercise of limited investment
discretion for institutional customers, is authorized by regulation.
See 12 CFR 225.25(b)(4)(iii). Applicant has stated that it will conduct
its proposed investment advisory activities subject to the requirements
and limitations of the Board's Regulation Y and the conditions and
limitations of the Board's previous orders, with one exception.
Applicant proposes to exercise limited investment discretion on behalf
of a small number of relatives of Company's proposed chief executive
officer, but only for so long as this individual serves in this
position. This individual has provided this service to these
individuals for several years. Applicant believes that these
individuals are suitable persons for whom Company may exercise
investment discretion in view of their small number, their unique
family relationship to Company's proposed chief executive officer, and
the longstanding practice of Company's proposed chief executive officer
to exercise investment discretion on their behalves.
Applicant believes that Company, in its capacity as general
partner, also may provide portfolio investment advice, including the
exercise of investment discretion, to the Partnerships. Applicant notes
that the Partnerships are excluded from the definition of an investment
company under the Investment Company Act of 1940 (15 U.S.C. 80a-1 et
seq.) (1940 Act), and believes, for this and other reasons, that the
provisions of section 225.125 of Regulation Y (12 CFR 225.125),
including the prohibition therein against an investment adviser
purchasing for its own account any shares of an investment company for
which it serves as an investment adviser, are not applicable to
Company's investment in the Partnerships or its activities as general
partner of the Partnerships.
Each of the Partnerships is engaged solely in the business of
investing in debt and equity securities, including indirect interests
in real property that would qualify as securities. Applicant represents
that the securities owned by the Partnerships, together with all other
securities directly or indirectly owned or controlled by Applicant, do
not include more than 5 percent of the voting shares of any company
(except for certain securities held by the Partnerships that Applicant
will cause the Partnerships to divest within a period of time
acceptable to the Board). Applicant also represents that it will not
directly or indirectly exercise a controlling influence over the
management or policies of any company, or otherwise engage in the
conduct of the activities of any company, the securities of which are
owned by any of the Partnerships. On this basis, Applicant believes
that Company may acquire an interest in each of the Partnerships
without the filing of an application for prior Board approval under the
BHC Act.
Applicant has stated that the Partnerships will not, after the
Partnerships are initially subscribed, admit new limited partners, or
permit limited partners after their initial investment either to make
additional contributions or to withdraw capital, more frequently than
once per quarter. Applicant proposes to engage, as general partner, in
the private placement of limited partnership interests in the
Partnerships in this context. Applicant is seeking authority to engage
in private placement activity only in this context, and is not seeking
private placement authority in general. Applicant also will comply with
all conditions and limitations contained in the Board's previous orders
approving private placement activities generally and the requirements
of the Securities and Exchange Commission's Regulation D (17 CFR
230.501 et seq.) (Regulation D) and the Securities Act of 1933 (15
U.S.C. 77a et seq.). See J.P. Morgan & Company Incorporated, 76 Federal
Reserve Bulletin 26 (1990); Bankers Trust New York Corporation, 75
Federal Reserve Bulletin 829 (1989); The Chase Manhattan Corporation,
74 Federal Reserve Bulletin 704 (1988); Manufacturers Hanover
Corporation, 73 Federal Reserve Bulletin 930 (1987). Applicant believes
that engaging in the issuance and private placement of limited
partnership interests not more frequently than once per quarter is
sufficiently infrequent that in doing so, while also observing
Regulation D and the conditions and limitations described above,
neither Company nor the Partnerships would be principally engaged in
the issue, flotation, underwriting, public sale, or distribution of
securities for purposes of section 20 of the Glass-Steagall Act.
The Board's previous orders do not authorize the private placement
of securities with qualified employee benefit plans with assets less
than $1,000,000. Applicant believes, however, that qualified employee
benefit plans with assets of not less than $500,000 typically have the
sophistication to evaluate an investment in the Partnerships. Applicant
proposes on this basis that the private placement of limited
partnership interests in the Partnerships with such smaller qualified
employee benefit plans, and in conformity with all other conditions and
limitations of the Board's previous orders and Regulation D, would be
consistent with the Board's previous determinations that private
placements are not the public sale or distribution of securities for
purposes of section 20 of the Glass-Steagall Act.
Applicant also proposes that Company will maintain such records and
provide such services as are necessary and incidental to its exercising
investment discretion on behalf of its institutional customers and
other approved individual customers and acting as general partner of
and exercising investment discretion on behalf of the Partnerships. In
the case of Company's institutional customers and other approved
individual customers, this would include records of customers'
identities, securities holdings, securities transactions and
settlements, account balances, and other records customarily retained
by investment advisers or that investment advisers are required by law
to retain. In the case of the Partnerships, this would include the
foregoing and records relating to limited partners' identities and
their ownership interests and account balances in the Partnerships, the
payment of Partnership bills, the retention of legal, accounting, and
financial professionals, and other activities incidental to acting as
general partner of a limited partnership. Applicant believes that these
activities are closely related to banking because they are incidental
to investment advisory activities approved by the Board, and are
permissible.
In order to satisfy the proper incident to banking test, section
4(c)(8) of the BHC Act requires the Board to find that the performance
of the activities by Company can reasonably be expected to produce
benefits to the public, such as greater convenience, increased
competition, or gains in efficiency that outweigh possible adverse
effects, such as undue concentration of resources, decreased or unfair
competition, conflicts of interest, or unsound banking practices.
Applicant believes that the proposed activities will benefit the public
by promoting competition in the delivery of high quality investment
management services. Applicant also believes that approval of this
application will allow Company to provide a wider range of services and
serve a wider clientele. Applicant believes that the proposed
activities will not result in any unsound banking practices or other
adverse effects.
In publishing the proposal for comment, the Board does not take a
position on issues raised by the proposal. Notice of the proposal is
published solely in order to seek the views of interested persons on
the issues presented by the application and does not represent a
determination by the Board that the proposal meets, or is likely to
meet, the standards of the BHC Act.
Any comments or requests for hearing should be submitted in writing
and received by William W. Wiles, Secretary, Board of Governors of the
Federal Reserve System, Washington, DC 20551, not later than April 6,
1994. Any request for a hearing on this application must, as required
by Sec. 262.3(e) of the Board's Rules of Procedure (12 CFR 262.3(e)),
be accompanied by a statement of the reasons why a written presentation
would not suffice in lieu of a hearing, identifying specifically any
questions of fact that are in dispute, summarizing the evidence that
would be presented at a hearing, and indicating how the party
commenting would be aggrieved by approval of the proposal.
This application may be inspected at the offices of the Board of
Governors or the Federal Reserve Bank of Philadelphia.
Board of Governors of the Federal Reserve System, March 9, 1994.
Jennifer J. Johnson,
Associate Secretary of the Board.
[FR Doc. 94-5944 Filed 3-14-94; 8:45 am]
BILLING CODE 6210-01-P
