[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