[Federal Register Volume 62, Number 108 (Thursday, June 5, 1997)]
[Proposed Rules]
[Pages 30778-30784]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-14616]
=======================================================================
-----------------------------------------------------------------------
DEPARTMENT OF THE TREASURY
Office of Thrift Supervision
12 CFR Part 575
[97-51]
RIN 1550-AB00
Mutual Holding Companies
AGENCY: Office of Thrift Supervision, Treasury.
ACTION: Notice of proposed rulemaking.
-----------------------------------------------------------------------
SUMMARY: The Office of Thrift Supervision (OTS) is proposing to amend
its mutual holding company regulations to permit mutual holding
companies (MHCs) to establish a subsidiary stock holding company that
would hold all of the stock of a savings association subsidiary. This
Notice of Proposed Rulemaking (NPR) follows a review of the comments
received in response to an advance notice of proposed rulemaking. The
OTS proposes to permit the establishment of intermediate stock holding
companies (SHCs) that will be subject to restrictions that are
substantially similar to those currently applicable to MHCs.
DATES: Comments must be received on or before August 4, 1997.
ADDRESSES: Send comments to Manager, Dissemination Branch, Records
Management and Information Policy, Office of Thrift Supervision, 1700 G
Street, NW., Washington, DC 20552, Attention Docket No. 97-51. These
submissions may be hand-delivered to 1700 G Street, NW., from 9:00 a.m.
to 5:00 p.m. on business days; they may be sent by facsimile
transmission to FAX Number (202) 906-7755 or by e-mail: public
[email protected]. Those commenting by e-mail should include their
name and phone number. Comments will be available for inspection at
1700 G Street, NW., from 9:00 a.m. until 4:00 p.m. on business days.
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.
[[Page 30779]]
SUPPLEMENTARY INFORMATION:
Table of Contents
I. Background of the Proposal
II. Notice of Proposed Rulemaking:
A. Summary and Purpose
B. Stock Holding Company Powers
C. Regulatory Restrictions on Stock Pledges, Dividend Waivers,
Indemnification and Employment Contracts
D. SHC Charter and Bylaw Requirements
E. SHC Stock Issuances, Stock Repurchases, and Conversion of the
MHC
F. Miscellaneous
III. Request for Comments
IV. Paperwork Reduction Act of 1995
V. Executive Order 12866
VI. Regulatory Flexibility Act Analysis
VII. Unfunded Mandates Act of 1995
I. Background of the Proposal
In response to inquiries from MHCs and mutual savings associations
concerning the formation of a second-tier stock holding company to hold
the stock of a MHC's savings association subsidiary, the OTS issued an
Advance Notice of Proposed Rulemaking (ANPR)1 soliciting
comment on issues raised by the existence of SHCs. Under current 12 CFR
part 575, a mutual savings association may reorganize into a MHC
structure in which 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. Under this structure, the balance of the shares (up to 49.9%) of
the stock savings association subsidiary may be sold to the public in
one or more offerings when the MHC is formed or later.
---------------------------------------------------------------------------
\1\ 61 FR 58144 (November 13, 1996).
---------------------------------------------------------------------------
The proposed holding company structure would permit the MHC to form
a SHC to hold the shares of the stock savings association subsidiary.
The SHC, like the stock savings association subsidiary in the
traditional model, would be required to issue at least a majority of
its shares to the MHC and could issue up to 49.9% of its shares to the
public. The SHC will be required to hold 100% of the shares of the
savings association subsidiary.
The ANPR solicited comments on seven specific issues involving the
formation of SHCs. The OTS received fifteen comments on the proposal
from three MHCs, four savings associations, three trade associations,
two law firms, two investment banking firms and an individual investor.
All but one of the commenters generally supported the concept of SHCs.
Most of the commenters also indicated their support for the SHC to have
the full powers of a unitary savings and loan holding company. The
comments are discussed in further detail in the description of the
proposed revisions to 12 CFR Part 575 set forth below.
II. Notice of Proposed Rulemaking
A. Summary and Purpose
The OTS proposes to amend its MHC regulations to permit the
formation of federally chartered SHCs. By permitting the formation and
operation of SHCs, the MHC structure will be enhanced. For example, a
MHC will be able to form a subsidiary that can engage in a stock
repurchase program without adverse tax consequences. Currently, savings
association subsidiaries of MHCs do not repurchase minority stock due
to adverse tax consequences related to bad debt reserves recapture
provisions. Moreover, SHCs will enhance the organizational flexibility
of the MHC structure and enable MHCs to compete more effectively in the
marketplace.
The proposed rule does not authorize SHCs to act as unitary savings
and loan holding companies. As discussed below, the OTS believes that
the proposed rule should follow the current statutory framework and not
authorize unitary savings and loan holding company powers as part of
the MHC structure. The proposed rule contemplates that the SHC will
``stand in the shoes'' of the parent MHC or, in certain instances, the
subsidiary savings association. Thus, generally, the SHC should be
subject to the same restrictions and limitations that are currently
applicable to a MHC and its savings association subsidiary. The
proposed rule also provides that the SHC structure may not be utilized
as a means to evade or frustrate the purposes of 12 CFR part 575 or
related provisions of 12 CFR part 563b which governs mutual to stock
conversions by savings associations.
B. Stock Holding Company Powers
In the ANPR, the OTS solicited comments on whether the SHC should
be limited to the activities of the parent MHC 2 or be
treated as a unitary savings and loan holding company. Most of the
commenters argued in favor of treating the SHC as a unitary savings and
loan holding company. This would grant the SHC a broader range of
powers and investment authority than are currently available to a MHC.
Several of the commenters 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.
---------------------------------------------------------------------------
\2\ See 12 U.S.C. 1467a(o)(5) and 12 CFR 575.11(a) for a
description of MHC activities restrictions.
---------------------------------------------------------------------------
After careful review of the comments and the statute, the OTS does
not believe that it is appropriate to treat SHCs as unitary savings and
loan holding companies under the mutual holding company statute. When
Congress authorized MHCs as part of the Competitive Equality Banking
Act of 1987 (CEBA), it clearly chose to limit the activities of MHCs to
those permitted for multiple savings and loan holding companies and
bank holding companies. Although the legislative history of CEBA does
not indicate why Congress made this choice, 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 their activities to those more closely related to
banking.3
---------------------------------------------------------------------------
\3\ Under 12 U.S.C. 1467a(o)(6), a MHC may acquire another
holding company but such company must divest any assets and cease
any activities not permissible for a MHC within the two year period
following such acquisition.
---------------------------------------------------------------------------
As noted by one commenter who opposed unitary powers for SHCs,
Congress is currently reviewing the issue of charter powers and
permissible affiliations between insured financial institutions and
commercial firms and several bills are pending before Congress that
address these issues. While some commenters argued that a SHC should be
treated as a unitary savings and loan holding company, the OTS believes
that the proposed rule appropriately tracks the statute on this issue.
Therefore, the proposed rule does not expand the powers of the SHC
beyond those of a MHC.
The OTS notes, however, that a SHC, like the MHC parent, may
utilize its authority under 12 U.S.C. 1467a(o)(5) and 12 CFR
575.10(a)(6) to acquire a controlling or non-controlling interest in
corporations whose stock may be purchased by a federal savings
association under 12 CFR part 559 or by a state savings association
under the law of any state where a savings association subsidiary of
the SHC has its home office. Although the permissible activities of
these types of subsidiaries are more limited than those of a unitary
savings and loan holding company, they are more extensive than those
permitted to the parent MHC.
[[Page 30780]]
C. Regulatory Restrictions on Stock Pledges, Dividend Waivers,
Indemnification and Employment Contracts
Under 12 CFR part 575, a MHC and its savings association subsidiary
are subject to various restrictions on their activities and operations.
In the ANPR, the OTS solicited comment on whether some or all of these
restrictions should be applicable to the SHC. The comments on these
issues are addressed below.
(1) Pledges of Subsidiary Savings Association Stock
Commenters were divided as to whether the SHC should be subject to
the same restrictions as a MHC on pledges of stock of the savings
association subsidiary. It is clear that 12 U.S.C. 1467a(o)(8), which
authorizes stock pledges by MHCs, requires that the transaction
increase the capital of the savings association subsidiary. Thus, the
implementing regulation, Sec. 575.11(b) requires that the proceeds of
any loan secured by the savings association's stock be infused into the
savings association.
The OTS believes that the reasons supporting the restrictions on a
MHC are also applicable to a SHC. Application of this rule 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 savings association. Some
commenters argued that the SHC should be subject only to restrictions
that are applicable to other savings and loan holding companies. The
OTS does not find this argument persuasive. The intention of this
proposal, as stated above, is to increase the flexibility of the MHC
structure without diminishing the safeguards imposed by Congress in
adopting the MHC statute.
(2) Dividend Waivers
Commenters also were divided as to whether dividend waiver
restrictions should be imposed on the SHC. Commenters supporting the
dividend waiver restriction generally acknowledged that the policy
reasons supporting dividend waiver restrictions should apply to
dividends declared by the SHC. Commenters opposed to the dividend
waiver restrictions argued that the SHC should be treated like any
other stock holding company. The OTS does not believe that there are
sound policy reasons to differentiate between dividends paid to a MHC
parent by a savings association subsidiary and a SHC subsidiary. Thus,
the proposed rule requires that the MHC follow the procedures set forth
at 12 CFR 575.11(d) with respect to waiving any dividends declared by
the SHC. The intent of this section is to ensure that the waiver of
dividends payable to the MHC is subject to regulatory review and is
consistent with the directors' fiduciary duties to its mutual members.
The OTS intends to continue to review dividend waivers in
connection with the mutual to stock conversion of a MHC pursuant to the
``fair and reasonable'' exchange standard set forth at 12 CFR
575.12(a)(2). The formation of a SHC by an existing MHC with minority
stockholders will not generally result in different treatment of the
minority stockholders under Sec. 575.12(a)(2) in the event of a
conversion of the MHC to stock form.
(3) Indemnification and Employment Contracts
Under 12 CFR 575.11(f)-(g), MHCs are subject to the same
restrictions regarding indemnification and employment contracts as
mutual savings associations.4 With one exception, all of the
commenters responding to this issue were opposed to the imposition of
these restrictions on a SHC. The commenters assumed that a SHC, unlike
the MHC, would not be chartered by the OTS and that the OTS should not
preempt state law policies in these areas. The commenters also stated
that state-chartered stock savings and loan holding companies are not
subject to these restrictions and that SHCs should be treated
similarly. As discussed below, the OTS is proposing that the SHC be
federally chartered and thus subject to OTS policies.
---------------------------------------------------------------------------
\4\ See 12 CFR 545.121 and 563.39, respectively.
---------------------------------------------------------------------------
The OTS concludes that there are valid reasons for imposing these
restrictions on the SHC. As noted above, the SHC should not be utilized
to evade requirements imposed on the MHC. The OTS has determined that
because of the unique nature of the MHC structure, i.e., the combining
of mutual and stock interests in one corporate structure, it is
appropriate to impose greater oversight on the MHC than is imposed on
stock holding companies. Since the SHC is, in essence, ``standing in
the shoes'' of the MHC, the proposed rule will require that the SHC be
subject to the same restrictions.
D. SHC Charter and Bylaw Requirements
Most of the commenters opposed any requirement that a SHC's charter
and bylaws (and amendments) be subject to OTS review and approval. The
commenters assumed that the SHC would be a state-chartered corporation
and would be able to utilize the corporate governance procedures that
are available under state law. The OTS has determined to require that
the SHC be federally chartered. This will help ensure consistent
treatment for the various entities in the mutual holding company
structure and eliminate any confusion about the treatment of the SHC
under 12 U.S.C. 1467a(o)(9), which addresses insolvency and liquidation
issues of MHCs, in the event of a default of the SHC. The OTS
anticipates that in the event of the default by the MHC, the SHC or the
savings association subsidiary, the OTS would have the right to file a
petition seeking the appointment of a bankruptcy trustee for the
purpose of liquidating the MHC and the SHC.
The OTS also believes that its authority to regulate the corporate
governance aspects of the subsidiary holding company is clearer if the
subsidiary holding company is federally chartered. The MHC statute
clearly contemplates that the reorganized savings association will be a
directly owned subsidiary of a federally chartered entity. Requiring
that the subsidiary holding company be federally chartered ensures that
the savings association remains a direct subsidiary of a federally
chartered entity. Finally, requiring the subsidiary holding company to
be federally chartered is consistent with the provision of the OTS
regulations that preempts state law with regard to the creation of and
regulation of MHCs.
The federal charter and bylaw requirements for the SHC are modeled
after the charter and bylaw requirements for federal stock savings
associations. The OTS believes that the recent amendments to the OTS
charter and bylaw requirements provide greater corporate flexibility
for federally chartered stock savings associations and will enable
federally chartered SHCs to utilize many of the corporate law
provisions available to state-chartered corporations. The OTS, however,
will reserve the right to object to any provision of the SHC's charter
or bylaws that is contrary to the requirements of 12 CFR part 575.
E. SHC Stock Issuances, Stock Repurchases, and Conversion of the MHC
The proposed rule will apply the current restrictions on the
issuance of securities by a savings association subsidiary set forth at
12 CFR 575.7 and 575.8 to the SHC. Most of the commenters generally
supported this concept. However, several commenters
[[Page 30781]]
suggested that the SHC be permitted to issue stock in some cases
without complying with the requirement that priority subscription
rights be issued to the mutual members. The OTS concludes that 575.7
and 575.8 should apply to securities issuances by the SHC. This is
consistent with the fact that the SHC, and not the savings association
subsidiary, will be issuing stock to minority stockholders. Thus, it
follows that all current stock issuance restrictions should apply to
the SHC.
The OTS does not agree that the SHC should be able to issue shares
to the public without first offering them to the mutual members. Mutual
members have first priority to subscription rights in a conversion. To
permit a stock offering without first offering the shares to the mutual
members would, in essence, permit a partial conversion of the mutual
institution in a manner that conflicts with 12 CFR part 563b. One of
the fundamental principles underlying the mutual holding company
regulations is that the mutual members' rights, including their rights
under part 563b, should not be diminished or eliminated merely because
the mutual institution is reorganized into a MHC. For that reason, the
OTS will not permit a SHC to issue stock to the public, whether by way
of merger or otherwise, without affording the mutual members a priority
subscription right to purchase the stock.
Although this results in the MHC structure having less flexibility
than a stock holding company structure, this is consistent with the
fact that a MHC structure is a hybrid corporate entity that is part
mutual and part stock. This unique structure has both advantages and
disadvantages and can create potential conflicts of interest that
require more restrictions on the operation of MHCs.
The proposed rule will require that all stock 5
issuances by the SHC receive prior approval of the OTS. This
restriction currently applies to a MHC's savings association
subsidiary, and it is consistent to require that any stock issued by
the SHC also be subject to this requirement.
---------------------------------------------------------------------------
\5\ Stock is defined at 12 CFR 575.2 (n) to mean common or
preferred stock, or any other type of equity security, including
securities that are convertible into common or preferred stock.
---------------------------------------------------------------------------
The proposed rule will also require that if a SHC is established by
a MHC, the SHC must hold 100% of the stock of the resulting savings
association subsidiary. This will restrict the savings association
subsidiary from issuing stock to persons other than the SHC. Permitting
minority stockholders at the SHC level and the subsidiary savings
association level will result in potential conflicts of interests and
create difficult valuation problems if the MHC decides to convert to
stock form.
A primary motivation for the establishment of a SHC is that it will
permit the SHC, assuming it has issued stock to the public, to engage
in stock repurchase programs without the adverse tax consequences that
may occur if such repurchases are made directly by the savings
association subsidiary. The proposed rule will permit SHCs to engage in
stock repurchase programs provided that the SHC complies with the
requirements of 12 CFR 575.11(c). One commenter inquired how the three-
year period set forth in Sec. 575.11(c) that limits stock repurchases
would be applied in the case of a SHC formed after minority shares have
been issued by a savings association subsidiary. Absent unusual
circumstances, the OTS generally will permit the SHC to ``tack'' on or
include the period that the shares initially issued by the savings
association were outstanding. Thus, if minority shares have been
outstanding for a period of two years at the time the SHC is formed,
the SHC will be subject to the repurchase restriction for a one-year
period.
In the event the MHC decides to convert to stock form, the proposed
rule contemplates that the minority stockholders of the SHC would be
able to exchange their shares for shares of the converted MHC in the
same manner that minority stockholders of the savings association
subsidiary currently do. The OTS will continue to use the ``fair and
reasonable'' standard set forth at 12 CFR 575.12(a) in evaluating such
exchange offers.
F. Miscellaneous
The proposed rule also makes a number of clarifying changes to 12
CFR Part 575 to ensure that the regulations will be consistent for a
MHC with or without a SHC subsidiary.
III. Request for Comments
OTS invites comment on all aspects of the proposal as well as
specific comments on the proposed changes.
IV. Paperwork Reduction Act of 1995
The OTS invites comments on:
(1) Whether the proposed collection of information contained in
this notice of proposed rulemaking is necessary for the proper
performance of the agency's functions, including whether the
information has practical utility;
(2) The accuracy of the agency's estimate of the burden of the
proposed information collection;
(3) Ways to enhance the quality, utility, and clarity of the
information to be collected; and
(4) Ways to minimize the burden of the information collection
including the use of automated collection techniques or other forms of
information technology.
(5) Estimates of capital and startup costs of operation,
maintenance and purchases of services to provide information.
Respondents/recordkeepers are not required to respond to this
collection of information unless it displays a currently valid OMB
control number.
The reporting and recordkeeping requirements contained in this
notice of proposed rulemaking have been submitted to the Office of
Management and Budget for review in accordance with the Paperwork
Reduction Act of 1995 (44 U.S.C. 3507(d)). Comments on all aspects of
this information collection should be sent to the Office of Management
and Budget, Paperwork Reduction Project (1550), Washington, DC 20503
with copies to the OTS, 1700 G Street, NW., Washington, DC 20552.
The reporting/recordkeeping requirements contained in this notice
of proposed rulemaking are found at 12 CFR part 575. The information is
needed by the 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. The information collection currently approved
under OMB Control No. 1550-0072 will be amended to include the burden
under this regulation.
Estimated number of respondents/recordkeepers: 20.
Estimated average annual burden hours per recordkeeper/respondent:
343.70.
Estimated total annual reporting/recordkeeping burden: 6,874 hours.
Start-up costs to respondents/recordkeepers: None.
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.
V. Executive Order 12866
The Director of OTS has determined that this proposed rule does not
constitute a ``significant regulatory action'' for the purposes of
Executive Order 12866.
[[Page 30782]]
VI. Regulatory Flexibility Act Analysis
Pursuant to section 605(b) of the Regulatory Flexibility Act, OTS
certifies that this proposed rule will not have a significant impact on
a substantial number of small entities. The proposal 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 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
proposed 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.
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 proposes to
amend 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 providing for the
issuance of stock by:
(1) A savings association subsidiary of a mutual holding company;
or
(2) A subsidiary holding company submitted pursuant to Sec. 575.7
and containing the information required by Sec. 575.8.
* * * * *
(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 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
[[Page 30783]]
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 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, 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 association or 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 (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 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
[[Page 30784]]
shareholders, except as 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: May 16, 1997.
By the Office of Thrift Supervision.
Nicolas P. Retsinas,
Director.
[FR Doc. 97-14616 Filed 6-4-97; 8:45 am]
BILLING CODE 6720-01-P