97-3

April 2, 1997

Re: Request for Opinion – Section 10.19072(d) of Title 10
of the California Code of Regulations

Dear M ________:

This responds to your letter of February 6, 1997, and confirms our prior conversations regarding the referenced subject matter. I regret the delay in the processing of your request.

As we discussed, Section 10.19072 of Title 10 of the California Code of Regulations provides that a state licensed bank may invest in the equity securities of a corporation provided that the criteria set forth in that section are met. Among those provisions is a particular set of rules regarding investments in other banks, bank holding companies, savings and loan associations, or savings and loan holding companies. In pertinent part, Subdivision (d) of Section 10.19072 provides that if the investment is in one of the four named institutions:

“. . . unless the Superintendent provides otherwise in a particular case, at the time of the investment . . . and at all times thereafter so long as the institution owns the securities, the subject institution shall not be a five percent (including associates) equity security owner of the corporation.”

As we discussed, and as is reflected in your letter, it is the position of the State Banking Department that the five percent limitation found in Subdivision (d) is applied to the total amount of equity securities of the corporation in which the bank invests. Accordingly, to determine whether the investing bank has reached the five percent limitation with regard to its investment in the corporation, the investing bank must aggregate all of the corporation’s outstanding equity securities, including common and preferred stock, that it owns, and compare that amount to the total amount of outstanding equity securities of the corporation. As noted above, the bank’s investment may not exceed five percent of the total amount of equity securities of the issuer unless the Superintendent provides otherwise.

If you have any questions regarding this matter, please feel free to contact me.

Very truly yours,

CONRAD W. HEWITT
Superintendent of Banks

By

KENNETH SAYRE-PETERSON
Senior Counsel

cc: J. E. Brodie, Deputy Superintendent of Banks

February 6, 1997

Mr. William G. Thompson
State Banking Department
111 Pine Street, Suite 1100
San Francisco, CA 94111-5613

Re: State Banking Regulation Section 10.19072(d)

Dear Mr. Thompson:

We understand that pursuant to State Banking Regulation Section 10.19072(d) a state bank (“Bank A”) may invest in the equity securities of another bank (“Bank B”) if at all times thereafter Bank A is not a “five percent (including associates) equity security owner” of Bank B. We have discussed the interpretation of a “five percent (including associates) equity security owner” with Mr. Kenneth Sayre-Peterson and Mr. James E. Brodie of the State Banking Department. Based on our conversations with Messrs. Sayre-Peterson and Brodie we understand that the Superintendent interprets this provision to mean five percent or more of all classes of the equity securities of Bank B. Therefore, if Bank B has both common and preferred stock outstanding, the five percent limitation would be applied to the total amount of equity securities, which would include both the common stock and the preferred stock.

We would greatly appreciate your written confirmation that this interpretation is consistent with the position of the Superintendent of State Banks. If you have any questions concerning this matter, please feel free to contact me.

Very truly yours,