[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] ======================================================================= ----------------------------------------------------------------------- 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