[Federal Register Volume 72, Number 123 (Wednesday, June 27, 2007)]
[Proposed Rules]
[Pages 35205-35207]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E7-12172]


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DEPARTMENT OF THE TREASURY

Office of Thrift Supervision

12 CFR Part 575

[No. OTS-2007-0012]
RIN 1550-AC15


Optional Charter Provisions in Mutual Holding Company Structures

AGENCY: Office of Thrift Supervision, Treasury.

ACTION: Proposed rule.

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SUMMARY: The Office of Thrift Supervision (OTS) is proposing to amend 
its mutual holding company (MHC) regulations to permit certain MHC 
subsidiaries to adopt an optional charter provision that would prohibit 
any person from acquiring, or offering to acquire, beneficial ownership 
of more than ten percent of the MHC subsidiary's minority stock (stock 
held by persons other than the subsidiary's MHC).

DATES: Comments must be received on or before August 27, 2007.

ADDRESSES: You may submit comments, identified by OTS-2007-0012, by any 
of the following methods:
     Federal eRulemaking Portal: Go to http://www.regulations.gov, select ``Office of Thrift Supervision'' from the 
agency drop-down menu, then click submit. Select Docket ID ``OTS-2007-
0012'' to submit or view public comments and to view supporting and 
related materials for this notice of proposed rulemaking. The ``User 
Tips'' link at the top of the page provides information on using 
Regulations.gov, including instructions for submitting or viewing 
public comments, viewing other supporting and related materials, and 
viewing the docket after the close of the comment period.
     Mail: Regulation Comments, Chief Counsel's Office, Office 
of Thrift Supervision, 1700 G Street, NW., Washington, DC 20552, 
Attention: OTS-2007-0012.
     Hand Delivery/Courier: Guard's Desk, East Lobby Entrance, 
1700 G Street, NW., from 9 a.m. to 4 p.m. on business days, Attention: 
Regulation Comments, Chief Counsel's Office, Attention: OTS-2007-0012.
    Instructions: All submissions received must include the agency name 
and docket number for this rulemaking. All comments received will be 
entered into the docket and posted on Regulations.gov without change, 
including any personal information provided. Comments, including 
attachments and other supporting

[[Page 35206]]

materials received are part of the public record and subject to public 
disclosure. Do not enclose any information in your comment or 
supporting materials that you consider confidential or inappropriate 
for public disclosure.
    Viewing Comments Electronically: Go to http://www.regulations.gov, 
select ``Office of Thrift Supervision'' from the agency drop-down menu, 
then click ``Submit.'' Select Docket ID ``OTS-2007-0012'' to view 
public comments for this notice of proposed rulemaking.
    Viewing Comments On-Site: You may inspect comments at the Public 
Reading Room, 1700 G Street, NW., by appointment. To make an 
appointment for access, call (202) 906-5922, send an e-mail to 
public.info@ots.treas.gov">public.info@ots.treas.gov, or send a facsimile transmission to (202) 
906-6518. (Prior notice identifying the materials you will be 
requesting will assist us in serving you.) We schedule appointments on 
business days between 10 a.m. and 4 p.m. In most cases, appointments 
will be available the next business day following the date we receive a 
request.

FOR FURTHER INFORMATION CONTACT: Donald W. Dwyer, (202) 906-6414, 
Director, Applications, Examinations and Supervision--Operations; or 
David A. Permut, (202) 906-7505, Senior Attorney, Business Transactions 
Division, Office of Chief Counsel, Office of Thrift Supervision, 1700 G 
Street, NW., Washington, DC 20552.

SUPPLEMENTARY INFORMATION:

I. Background

    Under the MHC Regulations, a subsidiary MHC, or, where there is no 
subsidiary MHC, the former mutual savings association that reorganized 
into an MHC structure (collectively, Subsidiary Company), may sell less 
than 50 percent of its voting stock to parties other than the top-tier 
MHC.\1\
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    \1\ See, 12 CFR 575.7 and 575.14(b) (2006). See also 12 U.S.C. 
1467a(o)(8)(B).
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    Under OTS's current regulations, a Subsidiary Company may adopt a 
charter provision that prohibits any person from acquiring, or offering 
to acquire, beneficial ownership of more than 10 percent of the 
Subsidiary Company's stock during the five years after a minority stock 
issuance.\2\ The purpose of this provision, as is the case with fully 
converted associations, is to lessen the vulnerability of the entity to 
attempts to take unfair advantage of the results of the offering, to 
protect the integrity of the offering, and to ensure that the offering 
is completed in a manner that strengthens the issuer.\3\
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    \2\ See 12 CFR 552.4(b)(8) and 575.14(c)(2) (2006).
    \3\ See, e.g., Federal Home Loan Bank Board Order No. 84-90 
(Feb. 23, 1984).
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    OTS has recently become aware of several situations in which 
minority stockholders have acquired positions in the minority stock of 
Subsidiary Companies, and have taken actions that appear intended to 
influence management to engage in stock repurchases or in a sale of the 
institution. Because a top-tier MHC is required to retain more than 50 
percent of the stock of any Subsidiary Company, holders of minority 
stock (minority stockholders) cannot control the outcome of most issues 
presented to the stockholders of the Subsidiary Company. However, there 
are circumstances where OTS's regulations provide that a majority of 
the minority stock must approve a proposal.\4\
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    \4\ See 12 CFR 563b.500(a)(7), 563b.555, 575.11(i) and 
575.12(a)(3) (2006).
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    Minority stockholders may acquire a significant percentage of the 
minority stock without involving either the OTS Acquisition of Control 
Regulations or the charter provision discussed above, both of which are 
triggered by an acquisition of more than ten percent of the outstanding 
stock. For example, if a Subsidiary Company issues thirty percent of 
its stock in a public offering, a minority stockholder could acquire a 
third of those shares without implicating either the Control 
Regulations or the charter provision. In such a case, the minority 
stockholder may obtain a significant amount of influence, based on its 
ability to vote on the issues that must be presented separately to 
minority stockholders.
    OTS believes that such a result would be contrary to the purposes 
of the restrictions addressing post-offering acquisitions of stock in 
the context of conversions and minority stock offerings, that is, 
lessening the vulnerability of the entity to attempts to take unfair 
advantage of the results of the offering, to protect the integrity of 
the offering, and to ensure that the offering is completed in a manner 
that strengthens the issuer. Therefore, OTS is proposing to add a 
provision to the MHC Regulations, which could be adopted only by 
companies in the MHC structure, that would provide that no entity, or 
person or group acting in concert could acquire more than ten percent 
of the outstanding minority stock of a Subsidiary Company during the 
five years after a Minority Stock Issuance. If a stockholder violated 
this charter provision, the stockholder would not be permitted to vote 
any stock the stockholder acquired in excess of the limit.
    OTS proposes that the charter provision would not limit the 
stockholdings of the parent MHC, because the parent MHC, under the Home 
Owners' Loan Act, must own more than fifty percent of the Subsidiary 
Company. In addition, OTS proposes that the charter provision except 
stock held by the Subsidiary Company's Employee Stock Ownership Plan 
(ESOP) from this limitation, because ESOP acquisitions do not present 
the concerns that have resulted in OTS limiting post-conversion 
acquisitions of stock.\5\
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    \5\ See 12 CFR 563b.525(c)(4)(2006), and the optional charter 
provision at section 552.4, both of which except ESOPs from the 
post-conversion acquisition restrictions of section 563b.525.
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II. Solicitation of Comments

A. Solicitation of Comments on the Proposed Amendments

    OTS is requesting comment on all aspects of the proposed 
regulation. Specifically OTS seeks comment on:
    (1) Does the proposed regulation accomplish its stated purposes?
    (2) Does the proposed regulation create any ambiguities that were 
not present in the current regulation?
    (3) Does the proposed regulation impose unnecessary regulatory 
burdens?

B. Solicitation of Comments Regarding the Use of Plain Language

    Section 722 of GLBA requires federal banking agencies to use 
``plain language'' in all proposed and final rules published after 
January 1, 2000. OTS invites comments on how to make this proposed rule 
easier to understand. For example:
    (1) Have we organized the material to suit your needs? If not, how 
could we better organize it?
    (2) Do we clearly state the requirements in the rule? If not, how 
could we state the rule more clearly?
    (3) Does the rule contain technical language or jargon that is not 
clear? If so, what language requires clarification?
    (4) Would a different format (grouping and order of sections, use 
of headings, paragraphing) make the rule easier to understand? If so, 
what changes to the format would make the rule easier to understand?

III. Regulatory Findings

A. Paperwork Reduction Act

    OTS has determined that this proposed rule does not involve a 
change to collections of information previously approved under the 
Paperwork Reduction Act (44 U.S.C. 3501 et seq.).

[[Page 35207]]

B. Executive Order 12866

    The Director of OTS has determined that this proposed rule does not 
constitute a ``significant regulatory action'' for purposes of 
Executive Order 12866.

C. Regulatory Flexibility Act

    Pursuant to section 605(b) of the Regulatory Flexibility Act (RFA) 
(5 U.S.C. 601), the Director certifies that this proposed rule will not 
have a significant economic impact on a substantial number of small 
entities. The proposed rule would permit Subsidiary Companies to adopt 
an optional charter provision. Accordingly, OTS has determined that a 
Regulatory Flexibility Analysis is not required.

D. Unfunded Mandates Reform Act of 1995

    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 and that a budgetary impact statement is 
not required under Section 202 of the Unfunded Mandates Reform Act of 
1995, Publication Law 104-4 (Unfunded Mandates Act). The proposed rule 
would permit Subsidiary Companies to adopt an optional charter 
provision. The proposed rule changes should not have a significant 
impact on small institutions. Accordingly, a budgetary impact statement 
is not required under 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.

Authority and Issuance

    For the reasons set forth in the preamble, the Office of Thrift 
Supervision proposes to amend Chapter V of title 12 of the Code of 
Federal Regulations, as set forth below:

PART 575--MUTUAL HOLDING COMPANIES

    1. The authority citation for 12 CFR part 575 continues to read as 
follows:

    Authority: 12 U.S.C. 1462, 1462a, 1463, 1464, 1467a, 1828, 2901.

    2. Amend Sec.  575.9 by redesignating paragraph (c) as paragraph 
(d), and adding a new paragraph (c) to read as follows:


Sec.  575.9  Charters and bylaws for mutual holding companies and their 
savings association subsidiaries.

* * * * *
    (c) Optional charter provision following minority stock issuance. A 
federal resulting association or federal acquiree association may, 
during the five years immediately following a minority stock issuance 
that such association conducts in accordance with the purchase 
priorities set forth in 12 CFR part 563b, include in its charter the 
following provision (for purposes of this charter provision, the 
definitions set forth at Sec.  552.4(b)(8) of this chapter apply):

    Beneficial Ownership Limitation. No person may directly or 
indirectly offer to acquire or acquire the beneficial ownership of 
more than 10 percent of the outstanding stock of any class of voting 
stock of the association held by persons other than the 
association's mutual holding company. This limitation does not apply 
to a transaction in which an underwriter purchases stock in 
connection with a public offering, or the purchase of stock by an 
employee stock ownership plan or other tax-qualified employee stock 
benefit plan that is exempt from the approval requirements under 
Sec.  574.3(c)(1)(iv) of the Office's regulations.
    In the event a person acquires stock in violation of this 
section, all stock beneficially owned by such person in excess of 10 
percent of the stock held by stockholders other than the mutual 
holding company shall be considered ``excess shares'' and shall not 
be counted as stock entitled to vote and shall not be voted by any 
person or counted as voting stock in connection with any matters 
submitted to the stockholders for a vote.
* * * * *
    3. In Sec.  575.14, redesignate paragraphs (c)(3) and (c)(4) as 
paragraphs (c)(4) and (c)(5), respectively, and add a new paragraph 
(c)(3) to read as follows:


Sec.  575.14  Subsidiary holding companies.

* * * * *
    (c) * * *
    (3) Optional charter provision following minority stock issuance. A 
subsidiary holding company may, during the five years immediately 
following a minority stock issuance that such subsidiary holding 
company conducts in accordance with the purchase priorities set forth 
in 12 CFR part 563b, include in its charter the provision set forth 
below (for purposes of this charter provision, the definitions set 
forth at Sec.  552.4(b)(8) of this chapter apply):

    Beneficial Ownership Limitation. No person may directly or 
indirectly offer to acquire or acquire the beneficial ownership of 
more than 10 percent of the outstanding stock of any class of voting 
stock of the association held by persons other than the subsidiary 
holding company's mutual holding company parent. This limitation 
does not apply to a transaction in which an underwriter purchases 
stock in connection with a public offering, or the purchase of stock 
by an employee stock ownership plan or other tax-qualified employee 
stock benefit plan which is exempt from the approval requirements 
under Sec.  574.3(c)(1)(iv) of the Office's regulations.
    In the event a person acquires stock in violation of this 
section, all stock beneficially owned in excess of 10 percent shall 
be considered ``excess stock'' and shall not be counted as stock 
entitled to vote and shall not be voted by any person or counted as 
voting stock in connection with any matters submitted to the 
stockholders for a vote.
* * * * *

    Dated: May 25, 2007.

    By the Office of Thrift Supervision.
John M. Reich,
Director.
 [FR Doc. E7-12172 Filed 6-26-07; 8:45 am]
BILLING CODE 6720-01-P