[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]


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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