[Federal Register Volume 60, Number 167 (Tuesday, August 29, 1995)]
[Notices]
[Pages 44891-44892]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-21348]
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FEDERAL RESERVE SYSTEM
Norwest Corporation; Notice to Engage in Certain Nonbanking
Activities
Norwest Corporation, Minneapolis, Minnesota (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 section 225.23 of the Board's
Regulation Y (12 CFR 225.23), to acquire The Foothill Group, Inc., Los
Angeles, California (Company), and thereby engage in asset based
commercial lending and managing certain assets through Company as the
corporate general partner in two limited partnerships (Partnerships).
The proposed activities involve acquiring debt at a discount from its
stated principal amount, including both secured and unsecured debt in
the form of bank loans, privately placed as well as publicly-traded
debt instruments, including bonds, notes and debentures, and discounted
receivables. Applicant maintains that such discounted debt is acquired
with the purpose of restructuring the debt to achieve a higher yield
and greater collateral protection. Alternatively, the debt investments
may include those of companies that may be contemplating, involved in,
or recently have completed, a negotiated restructuring of their
outstanding debt or a reorganization under Chapter 11 of the Federal
Bankruptcy Code. Applicant indicates that asset based commercial
lending involves making revolving credit and term loans, secured by
accounts receivable, inventory, machinery, equipment, and other assets,
to companies which are generally unable to secure financing from
traditional lending sources. In connection with these activities,
Applicant also seeks authority to engage in serving as an investment
advisor pursuant to Sec. 225.25(b)(4) of the Board's Regulation Y. The
proposed activities will be conducted throughout the United States.
Closely Related to Banking Standard
Section 4(c)(8) of the BHC Act provides that a bank holding company
may, with Board approval, engage in any activity ``which 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.'' In determining
whether a proposed activity is closely related to banking for purposes
of the BHC Act, the Board considers, inter alia, the matters set forth
in National Courier Association v. Board of Governors of the Federal
Reserve System, 516 F.2d 1229 (D.C. Cir. 1975). These considerations
are (1) whether banks generally have in fact provided the proposed
services, (2) whether banks generally provide services that are
operationally or functionally so similar to the proposed services as to
equip them particularly well to provide the proposed services, and (3)
whether banks generally provide services that are so integrally related
to
[[Page 44892]]
the proposed services as to require their provision in a specialized
form. 516 F.2d at 1237. 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 Federal Register 806 (1984).
Applicant maintains that the proposed asset based commercial
lending and management of assets activities are closely related to
banking. In particular, Applicant argues that the proposed activities
are consistent with making and servicing loans and operating a
collection agency pursuant to Secs. 225.25(b)(1) and (b)(23) of the
Board's Regulation Y. See 12 CFR 225.25(b)(1) and (b)(23). In addition,
the Board previously has determined by regulation that investment
advisory activities, when conducted within the limitations established
by the Board in its regulations and in related interpretations and
orders, are closely related to banking for purposes of section 4(c)(8)
of the BHC Act. See 12 CFR 225.25(b)(4).
The Partnerships are engaged primarily in the making, servicing and
investing in discounted bank loans and other debt securities. Applicant
maintains that Partnerships acquire debt that has been or which is in
the process of being restructured and which is secured by collateral
that is sufficient to pay off all indebtedness in the event of
foreclosure or liquidation. Applicant states that the Partnerships are
exempt from registration as investment companies under the Investment
Company Act of 1940 (15 U.S.C. 80a-1 et seq.), both partnerships have
been fully subscribed, and no additional limited partners may be
admitted, although additional partnerships may be formed in the future.
Applicant's proposed activities with respect to Partnerships are
similar to activities previously approved by Board order, and Applicant
proposes to make commitments similar to those made to the Board in
previous cases. See Meridian Bancorp, Inc., 80 Federal Reserve Bulletin
736 (1994). Applicant represents that the securities owned by the
Partnerships, together with all other securities directly or indirectly
owned or controlled by Applicant, would not include more than 5 percent
of the voting shares of an issuer and not more that 25 percent of the
total equity of an issuer, and such equity investment will be held in
accord with section 4(c)(8) of the BHC Act and Sec. 225.22(c)(5) of
Regulation Y. Applicant has stated that the Partnerships will not
knowingly acquire debt securities that are in default at the time of
acquisition if the Partnerships have the immediate right at the time of
such acquisition to foreclose on and acquire collateral which the
Partnerships are not authorized to hold or control or which are
impermissible for bank holding companies and their affiliates. If debt
in default is acquired by Partnerships, Applicant has represented that
Partnerships either will dispose of any interest in the collateral
which secures such debt, or will restructure the indebtedness to cure
any default, within the time period provided in the BHC Act for the
disposition of securities or assets acquired by foreclosure or
otherwise in the ordinary course of collecting a debt previously
contracted in good faith.
Applicant is not seeking authority to place limited partnership
interests or other securities of any subsequently formed limited
partnerships for which Company acts as a general partner.
Proper Incident to Banking Standard
In order to approve the proposal, the Board must determine that the
proposed activities ``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.'' 12 U.S.C.
1843(c)(8).
Applicant believes that the proposed activities would produce
public benefits that outweigh any potential adverse effects. These
public benefits include increased economies of scale and greater
efficiencies for Applicant's lending operations, which Applicant
believes will benefit the public by promoting competition and lowering
costs. In addition, Applicant indicates that the proposed activities
would not result in adverse effects such as an undue concentration of
resources, decreased or unfair competition, conflicts of interests, or
unsound banking practices.
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 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, D.C. 20551, not later than
September 20, 1995. 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.
The notice may be inspected at the offices of the Board of
Governors or the Federal Reserve Bank of Minneapolis.
Board of Governors of the Federal Reserve System, August 23,
1995.
Jennifer J. Johnson,
Deputy Secretary of the Board.
[FR Doc. 95-21348 Filed 8-28-95; 8:45 am]
BILLING CODE 6210-01-F
