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ORDERS ISSUED UNDER BANK HOLDING COMPANY ACT.

Orders Issued Under Section 3 of the Bank Holding Company Act

Ideal Bancshares, Inc. West Fargo, North Dakota

Order Approving Formation of a Bank Holding Company

Ideal Bancshares, Inc. ("Applicant") has requested the Board's approval under section 3(a)(1) of the Bank Holding Company Act ("BHC Act") (12 U.S.C. [sections] 1842(a)(1)) to become a bank holding company by acquiring all the voting shares of First State Bank of Goodrich, Goodrich, North Dakota ("Bank").

Notice of the proposal, affording interested persons an opportunity to submit comments, has been published (64 Federal Register 13,799 (1999)). The time for fling comments has expired, and the Board has considered the proposal and all comments received in light of the factors set forth in section 3 of the BHC Act.

Applicant is a newly organized corporation formed for the purpose of acquiring control of Bank. Bank currently has its main office in Goodrich, North Dakota, and maintains a paying and receiving facility in Hurdsfield, North Dakota.(1) Bank is the 94th largest depository institution in North Dakota and controls deposits of $15.6 million, representing less than 1 percent of total deposits in depository institutions in the state.(2)

As noted above, Applicant is a de novo corporation and does not control another depository institution. Accordingly, based on all the facts of record, the Board concludes that consummation of the proposal would not have a significantly adverse effect on competition or on the concentration of banking resources in any relevant banking market, and that competitive considerations are consistent with approval.

Financial, Managerial, and Supervisory Considerations

The BHC Act requires the Board to consider the financial and managerial resources and future prospects of the companies and banks involved in the proposal and certain supervisory factors. The Board has reviewed these factors in light of all the facts of record, including supervisory reports of examination and other confidential supervisory information assessing the financial and managerial resources of Bank. Based on all the facts of record, the Board concludes that the financial and managerial resources and future prospects of Applicant and Bank are consistent with approval, as are the other supervisory factors the Board must consider under section 3 of the BHC Act.

Convenience and Needs Considerations

The Board also has carefully considered the effect of the proposal on the convenience and needs of the communities to be served in light of all the facts of record, including comments received from several individuals ("Commenters") concerning the potential effect of this transaction on the availability of banking services in Hurdsfield, North Dakota. As part of this review, the Board has carefully considered Bank's record of performance under the Community Reinvestment Act (12 U.S.C. [sections] 2901 et seq.) ("CRA").

An institution's most recent CRA performance evaluation is a particularly important consideration in the applications process because it represents a detailed on-site evaluation of the institution's overall record of performance under the CRA by its appropriate federal supervisor.(3) Bank received a "satisfactory" rating from its appropriate federal supervisor, the Federal Deposit Insurance Corporation, at Bank's most recent examination for CRA performance, as of April 1999 ("1999 Examination").

Examiners at the 1999 Examination found that Bank's lending record evidenced a strong commitment to lending in Bank's community assessment area. Examiners noted that Bank's assessment area, which includes Hurdsfield, consisted entirely of moderate-income geographies and was heavily dependent on agriculture. Examiners reviewed 31 agricultural loans, totaling approximately $1.4 million that were made by Bank in 1998 and 1999, and noted that 80 percent of these loans were extended to farm operations with annual gross revenues of less than $250,000. Examiners further concluded that the geographic distribution of Bank's loans in its assessment area was reasonable, and did not find any substantive violations of fair lending laws and regulations.

Commenters expressed concern that Applicant might close Bank's paying and receiving facility in Hurdsfield and that such closure would negatively affect the local community. Applicant has stated that it presently intends to retain the Hurdsfield facility following consummation of the proposal.(4)

Based on all the facts of record, including the 1999 Examination, the public comments received, and the information provided by Applicant to address these comments, the Board concludes that convenience and needs considerations, including the CRA performance record of Bank, are consistent with approval of the proposal.

Conclusion

Based on the foregoing, and in light of all the facts of record, the Board has determined that the application should be, and hereby is, approved. The Board's approval is specifically conditioned on compliance by Applicant with all the commitments made in connection with the application. For the purpose of this action, the commitments relied on by the Board in reaching its decision are deemed to be conditions imposed in writing by the Board in connection with its findings and decision and, as such, may be enforced in proceedings under applicable law.

The acquisition of Bank shall not be consummated before the fifteenth calendar day after the effective date of this order, or later than three months after the effective date of this order, unless such period is extended to good cause by the Board or by the Federal Reserve Bank of Minneapolis, acting pursuant to delegated authority.

By order of the Board of Governors, effective June 14, 1999.

Voting for this action: Vice Chair Rivlin and Governors Kelley, Ferguson, and Gramlich. Absent and not voting: Chairman Greenspan and Governor Meyer.

ROBERT DEV. FRIERSON Associate Secretary of the Board

(1.) Applicant has applied to the North Dakota Department of Banking and Financial Institutions ("Banking Department") to acquire control of Bank. Bank also has applied to the Federal Deposit Insurance Corporation ("FDIC"), under section 18(d) of the Federal Deposit Insurance Act (12 U.S.C. [sections] 1828(d)), and to the Banking Department to relocate the head office of Bank from Goodrich to West Fargo, North Dakota, and to convert Bank's current head office in Goodrich to a branch. The Banking Department and FDIC recently approved the applications filed by Applicant and Bank.

(2.) In this context, depository institutions include commercial banks, savings banks, and savings associations. Asset and ranking data are as of June 30, 1998.

(3.) The Interagency Questions and Answers Regarding Community Reinvestment provide that a CRA examination is an important and often controlling factor in the consideration of an institution's CRA record and that reports of these examinations will be given great weight in the applications process. See 64 Federal Register 23,618, 23,641 (1999).

(4.) The Board notes, moreover, that federal banking law provides a specific mechanism for addressing branch closings. Federal law requires an insured depository institution to provide notice to the public and to the appropriate federal regulatory agency before closing a branch. See 12 U.S.C. [sections] 1831r-1, as implemented by the Joint Policy Statement Regarding Branch Closings, 58 Federal Register 49,083 (1993) ("Policy Statement"). Since Bank's Hurdsfield paying and receiving facility receives deposits, the facility is considered a "branch" for purposes of the Policy Statement. Section 1831r-1 does not authorize federal supervisors to prevent the closing of a branch.

Otto Bremer Foundation St. Paul, Minnesota

Bremer Financial Corporation St. Paul, Minnesota

Order Approving the Acquisition of a Bank Holding Company

Otto Bremer Foundation ("Foundation") and its wholly owned subsidiary, Bremer Financial Corporation ("BFC"), bank holding companies within the meaning of the Bank Holding Company Act ("BHC Act"), have requested the Board's approval under section 3 of the BHC Act (12 U.S.C. [sections] 1842) to acquire all the outstanding voting stock of Dean Financial Services, Inc., St. Paul, Minnesota ("Dean"), and thereby to acquire its subsidiary banks, First National Bank of Aitkin, Aitkin; State Bank of Edgerton, Edgerton; First State Bank of Eden Prairie, Eden Prairie; and Princeton Bank, St. Paul, all in Minnesota.

Notice of the proposal, affording interested persons an opportunity to submit comments, has been published (64 Federal Register 4873 (1999)). The time for filing comments has expired, and the Board has considered the application and all comments received in light of the factors set forth in section 3 of the BHC Act.

BFC is the fifth largest depository institution in Minnesota, controlling deposits of approximately $1.5 billion, representing 2.5 percent of total deposits in depository institutions in the state ("state deposits").(1) Dean controls total deposits of $264.6 million, representing less than 1 percent of state deposits. On consummation of the proposal, BFC would remain the fifth largest depository institution in Minnesota, controlling deposits of $1.8 billion, representing approximately 2.9 percent of state deposits.

Competitive Considerations

The BHC Act prohibits the Board from approving an application under section 3 the BHC Act if the proposal would result in a monopoly or would be in furtherance of any attempt to monopolize the business of banking. The BHC Act also prohibits the Board from approving a proposed combination that would substantially lessen competition or tend to create a monopoly in any relevant banking market, unless the Board finds that the anticompetitive effects of the proposal are clearly outweighed in the public interest by the probable effect of the proposal in meeting the convenience and needs of the community to be served.(2)

BFC and Dean compete in the Minneapolis-St. Paul, Minnesota, banking market ("Minneapolis banking market").(3) BFC is the 14th largest depository institution in the Minneapolis banking market, controlling $268 million in deposits, representing less than 1 percent of market deposits.(4) Dean is the 32nd largest depository institution in the market, controlling $104 million in deposits, representing less than 1 percent of market deposits. On consummation of the proposal, BFC would become the 12th largest depository institution in the market, controlling deposits of $372 million, representing approximately 1 percent of market deposits. The change in market concentration, as measured by the Herfindahl-Hirschman Index ("HHI"), would not exceed the threshold level set in the Department of Justice Merger Guidelines ("DOJ Guidelines").(5)

Based on all the facts of record, and for the reasons discussed above, the Board concludes that consummation of the proposal is not likely to result in any significantly adverse effects on competition or on the concentration of banking resources in the Minneapolis banking market or any other relevant banking market, and that competitive factors are consistent with approval of the proposal.

Other Considerations

The BHC Act also requires the Board, in acting on an application, to consider the financial and managerial resources and future prospects of the companies and banks involved, the convenience and needs of the communities to be served, and certain other supervisory factors. The Board has reviewed these factors in light of all the facts of record, including supervisory reports of examination assessing the financial and managerial resources of the organizations.

Based on all the facts of record, the Board concludes that the financial and managerial resources and future prospects of Foundation, BFC, Dean, and their subsidiary banks are consistent with approval, as are the other supervisory factors the Board must consider under section 3 of the BHC Act. Considerations related to the convenience and needs of communities to be served, including the records of performance of the institutions involved under the Community Reinvestment Act (12 U.S.C. [sections] 2901 et seq.), also are consistent with approval of the proposal.

Conclusion

Based on the foregoing, and in light of all the facts of record, the Board has determined that the application should be, and hereby is, approved. Approval of the application is specifically conditioned on compliance by Foundation and BFC with all the commitments made in connection with the application. For the purposes of this order, the commitments and conditions relied on by the Board in reaching its decision are deemed to be conditions imposed in writing by the Board in connection with its findings and decision and, as such, may be enforced in proceedings under applicable law.

The transaction shall not be consummated before the fifteenth calendar day after the effective date of this order, or later than three months after the effective date of this order, unless such period is extended for good cause by the Board or by the Federal Reserve Bank of Minneapolis, acting pursuant to delegated authority.

By order of the Board of Governors, effective June 16, 1999.

Voting for this action: Chairman Greenspan, Vice Chair Rivlin, and Governors Ferguson and Gramlich. Absent and not voting: Governors Kelley and Meyer.

ROBERT DEV. FRIERSON Associate Secretary of the Board

(1.) Deposit data are as of June 30, 1998. In this context, depository institutions include commercial banks, savings banks, and savings associations.

(2.) 12 U.S.C. [sections] 1842(c)(1).

(3.) The Minneapolis banking market is approximated by Anoka, Hennepin, Ramsey, Washington, Carver, Scott, and Dakota Counties in Minnesota; Lent, Chisago Lake, Shafer, Wyoming and Franconia Townships in Chisago County, Minnesota; Blue Hill, Baldwin, Orrock, Livonia, and Big Lake Townships and the City of Elk River in Sherburne County, Minnesota; Monticello, Otsego, Buffalo, Frankfort, Rockford, and Franklin Townships in Wright County, Minnesota; Lanesburgh Township in Le Sueur County, Minnesota; and the Town of Hudson in St. Croix County, Wisconsin.

(4.) Market share data are those compiled as of June 30, 1998. Market share data are based on calculations that include the deposits of thrift institutions at 50 percent. The Board previously has indicated that thrift institutions have become, or have the potential to become, significant competitors of commercial banks. See e.g., Midwest Financial Group, 75 Federal Reserve Bulletin 386 (1989); National City Corporation, 70 Federal Reserve Bulletin 743 (1984). Thus, the Board has regularly included thrift deposits in the calculation of market share on a 50-percent weighted basis. See, e.g., First Hawaiian, Inc., 77 Federal Reserve Bulletin 52 (1991).

(5.) After consummation of the proposal, the HHI for the Minneapolis banking market would remain unchanged at 1888. Under the revised DOJ Guidelines, 49 Federal Register 26,823 (June 29, 1984), a market in which the post-merger HHI exceeds 1800 is considered highly concentrated. The Department of Justice has informed the Board that a bank merger or acquisition generally will not be challenged (in the absence of other factors indicating anticompetitive effects) unless the post-merger HHI is at least 1800 and the merger increases the HHI by more than 200 points. The Department of Justice has stated that the higher than normal HHI thresholds for screening bank mergers for anticompetitive effects implicitly recognize the competitive effect of limited-purpose lenders and other nondepository financial entities.

Piraeus Bank S.A. Athens, Greece

Order Approving the Acquisition of a Bank Holding Company

Piraeus Bank S.A. ("Piraeus"), a foreign bank, has applied under section 3 of the Bank Holding Company Act (the "BHC Act") (12 U.S.C. [sections] 1842) to become a bank holding company within the meaning of the BHC Act by acquiring 56 percent of the voting shares in Marathon Banking Corporation ("MBC"), and thereby acquiring Marathon National Bank of New York ("Bank"), both in Astoria, New York.

Notice of the proposal, affording interested persons an opportunity to submit comments, has been published (63 Federal Register 37,116 (1998)). The time for filing comments has expired, and the Board has considered the application and all comments received in light of the factors set forth in section 3 of the BHC Act.

Piraeus, with consolidated assets equivalent to approximately $4.6 billion, is a commercial bank organized under the laws of Greece.(1) Piraeus engages in the business of banking in Greece through branches and subsidiary banks.(2) Piraeus also engages through subsidiaries in several nonbanking activities in Greece. Piraeus does not currently have any banking or nonbanking operations in the United States. Bank is the 100th largest commercial banking organization in New York, controlling deposits of $89 million, representing less than 1 percent of all deposits in commercial banking organizations in the state.(3)

Comprehensive Consolidated Supervision and Access to Information

In order to approve an application by a foreign bank to acquire a U.S. bank or bank holding company, the BHC Act and Regulation Y require the Board to determine that the foreign bank is subject to comprehensive supervision or regulation on a consolidated basis by its home country supervisors.(4) The Board also must determine that the foreign bank has provided adequate assurances that it will make available to the Board such information on its operations and activities and those of its affiliates that the Board deems appropriate to determine and enforce compliance with applicable law.(5)

The Board considers a foreign bank to be subject to comprehensive supervision or regulation on a consolidated basis if the Board determines that its home country supervisor receives sufficient information on the foreign bank's worldwide operations, including the bank's relationship to any affiliate, to assess the bank's overall financial condition and compliance with law and regulation.(6)

Supervision of Greek credit institutions, such as Piraeus, is the responsibility of the Supervision Department of the Bank of Greece. The Bank of Greece conducts general on-site examinations of Piraeus that cover areas such as asset quality, compliance, and internal controls. During these examinations, the examiners commonly review the bank's internal audit reports. In addition, the Bank of Greece conducts more frequent targeted examinations that focus on specific areas, such as foreign exchange, reconciliation of accounts, and anti-money laundering procedures.

Piraeus also is required to have an audit conducted annually by qualified external auditors. The external auditors focus on Piraeus's internal controls, and their comments and findings are provided to the Bank of Greece as part of the bank's required assessment of its internal controls. Piraeus is required to submit a number of financial reports to the Bank of Greece, including semiannual reports concerning, among other things, profit and loss, capital adequacy, liquidity, asset quality, large exposures, currency positions, loans and guarantees to affiliates and insiders, investments in other financial and nonfinancial institutions, and 10-percent shareholders. Piraeus also must submit semiannual bank-only and consolidated financial statements. In addition, Piraeus is required to publish annual audited financial statements, including balance sheets and income statements. Piraeus also must submit daily reports on its foreign exchange transactions and foreign currency positions.

The Bank of Greece also has promulgated regulations for credit institutions on loans to one borrower, a limit on aggregate "large exposures" (amounts equal to 10 percent of regulatory capital), and reserves. In addition, the Bank of Greece has imposed capital-based limits on the amounts that a credit institution may invest in nonfinancial companies.(7)

With respect to affiliate transactions, the Bank of Greece requires credit institutions, such as Piraeus, to report the value of each credit exposure to a subsidiary or affiliate that exceeds 10 percent of the credit institution's regulatory capital. The Bank of Greece also requires a credit institution to report on a semiannual basis loans and guarantees by the credit institution to its affiliates or between the credit institution's affiliates. In addition, a credit institution's exposure to a subsidiary or affiliate may not exceed 30 percent of the credit institution's regulatory capital. It is anticipated that the exposure limit will be reduced to 20 percent in 1999.

The Bank of Greece has statutory authority to terminate the operating license of a credit institution for, among other things, maintaining insufficient capital, impeding supervision by any means, or violating legal provisions, decisions, or regulations set out by the banking supervisory authorities. In addition, the Bank of Greece also may restrict the business activities of a credit institution for violations of law and for liquidity or solvency problems. The Bank of Greece also may impose fines and other sanctions on credit institutions and their legal representatives and managers for violations of banking statutes and regulations.

Piraeus also is subject to supervision by other Greek government entities. Piraeus's insurance agent subsidiaries are subject to the supervision of the Ministry of Development, the Greek insurance supervisory authority. In addition, Piraeus and certain of its subsidiaries are monitored by the Capital Markets Commission because their stock is listed on the Athens Stock Exchange. The prior approval of the Monopolies and Mergers Commission also is required for a merger or acquisition involving a Greek bank. There is a high degree of cooperation between the Bank of Greece and the other supervisory authorities.

Based on all the facts of record, the Board concludes that Piraeus is subject to comprehensive supervision on a consolidated basis by its home country supervisor.

The BHC Act also requires the Board to determine that the foreign bank has provided adequate assurances that it will make available to the Board such information on its operations and activities and those of its affiliates that the Board deems appropriate to determine and enforce compliance with the BHC Act and the International Banking Act ("IBA") (12 U.S.C. [sections] 3101 et seq.). The Board has reviewed restrictions on disclosure in jurisdictions where Piraeus has material operations and has communicated with relevant banking authorities concerning access to information. Piraeus has committed that, to the extent not prohibited by law, it will make available to the Board such information on the operations of Piraeus and any of its affiliates that the Board deems necessary to determine and enforce compliance with the BHC Act, the IBA, and other applicable federal law. Piraeus also has committed to cooperate with the Board to obtain any waivers or exemptions that may be necessary to enable Piraeus to make any such information available to the Board. In light of these commitments and other facts of record, the Board has concluded that Piraeus has provided adequate assurances of access to any appropriate information that the Board may request.

For these reasons, and based on all the facts of record, the Board has concluded that the supervisory factors it is required to consider under section 3(c) of the BHC Act are consistent with approval.

Financial, Managerial, Competitive, and Convenience and Needs Considerations

The Board also has carefully considered the financial and managerial resources and future prospects of the banks and companies involved, the convenience and needs of the communities to be served, and certain supervisory factors. Piraeus's capital levels exceed the levels required under Greek capital guidelines and under the Basle Capital Accord, and are considered equivalent to the capital levels that would be required of a U.S. banking organization under similar circumstances. The Board also has reviewed supervisory information concerning Piraeus's condition and the proposal from Piraeus's home country authority, confidential financial information from Piraeus, and supervisory information concerning MBC and Bank assessing the financial and managerial resources of the organizations.

Based on all the facts of record, the Board has concluded that the financial and managerial resources and future prospects of the organizations are consistent with approval, as are the other supervisory factors that the Board must consider under section 3 of the BHC Act. In addition, based on all the facts of record, including the fact that Piraeus does not currently have any banking operations in the United States, the Board has concluded that consummation of the proposal would not have a significantly adverse effect on competition or on the concentration of banking resources in any relevant banking market, and that competitive considerations are consistent with approval. Considerations related to the convenience and needs of the communities to be served, including the performance record of Bank under the Community Reinvestment Act (12 U.S.C. [sections] 2901 et seq.), also are consistent with approval of the proposal.(8)

Conclusion

Based on the foregoing and all other facts of record, the Board has determined that the application should be, and hereby is, approved. Should any restrictions on access to information on the operations or activities of Piraeus and any of its affiliates subsequently interfere with the Board's ability to determine the safety and soundness of Piraeus's U.S. operations or the compliance by Piraeus or its affiliates with applicable federal statutes, the Board may require termination of any of Piraeus's direct or indirect activities in the United States. The Board's approval of the proposal is expressly conditioned on Piraeus's compliance with all the commitments made in connection with the application. The commitments and conditions relied on by the Board in reaching this decision are deemed to be conditions imposed in writing by the Board in connection with its findings and decision and, as such, may be enforced in proceedings under applicable law.

The proposal may not be consummated before the fifteenth calendar day after the effective date of this order, or later than three months after the effective date of this order, unless such period is extended for good cause by the Board or by the Federal Reserve Bank of New York, acting pursuant to delegated authority.

By order of the Board of Governors, effective June 14, 1999.

Voting for this action: Vice Chair Rivlin and Governors Kelley, Ferguson, and Gramlich. Absent and not voting: Chairman Greenspan and Governor Meyer.

ROBERT DEV. FRIERSON Associate Secretary of the Board

(1.) Asset data are as of December 31, 1998.

(2.) Piraeus controls Macedonia Thrace Bank, Thessaloniki, Greece, Piraeus Prime Bank, Piraeus, Greece, and Xios Bank, Athens, Greece. Piraeus also controls Tirana Bank S.A., Tirana, Albania.

(3.) State deposit and ranking data are as of June 30, 1998.

(4.) See 12 U.S.C. [sections] 1842(C)(3)(b); 12 C.F.R. 225.13(b)(5).

(5.) See 12 U.S.C. [sections] 1842(c)(3)(A); 12 C.F.R. 225.13(b)(4).

(6.) In assessing this standard, the Board considers, among other factors, the extent to which the home country supervisor:

(i) Ensures that the foreign bank has adequate procedures for monitoring and controlling its activities worldwide;

(ii) Obtains information on the condition of the foreign bank and its subsidiaries and offices outside the home country through regular reports of examination, audit reports, or otherwise;

(iii) Obtains information on the dealings and relationships between the foreign bank and its affiliates, both foreign and domestic;

(iv) Receives from the foreign bank financial reports that are consolidated on a worldwide basis, or comparable information that permits analysis of the foreign bank's financial condition on a worldwide, consolidated basis;

(v) Evaluates prudential standards, such as capital adequacy and risk asset exposure, on a worldwide basis. These are indicia of comprehensive, consolidated supervision. No single factor is essential, and other elements may inform the Board's determination. 12 C.F.R. 211.24(c)(1).

(7.) The prior approval of the Bank of Greece is required for a credit institution to invest in other companies in amounts that exceed the lower of GRD 700 million or 2 percent of capital.

(8.) Bank was rated "satisfactory" in its most recent CRA performance evaluation conducted by the Office of the Comptroller of the Currency, as of April 27, 1998.

Orders Issued Under Section 4 of the Bank Holding Company Act

BankBoston Corporation Boston, Massachusetts

The Bank of New York Company, Inc. New York, New York

The Chase Manhattan Corporation New York, New York

Citizens Financial Group, Inc. Providence, Rhode Island

Comerica Incorporated Detroit, Michigan

First Union Corporation Charlotte, North Carolina

Fleet Financial Group, Inc. Boston, Massachusetts

HSBC Holdings PLC London, England

HSBC Holdings BV Amsterdam, The Netherlands

HSBC Americas, Inc. Buffalo, New York

The Royal Bank of Scotland Group PLC Edinburgh, Scotland

The Royal Bank of Scotland PLC Edinburgh, Scotland

Summit Bancorp Princeton, New Jersey

Order Approving Notice to Conduct Certain Data Processing Activities and Other Nonbanking Activities

BankBoston Corporation, a bank holding company within the meaning of the Bank Holding Company Act ("BHC Act"), and the other bank holding companies listed in the Appendix to this order (collectively, "Notificants"), have requested the Board's approval under section 4(c)(8) of the BHC Act (12 U.S.C. [sections] 1843(c)(8)) and section 225.24 of the Board's Regulation Y (12 C.F.R. 225.24) to acquire Magic Line, Inc., Dearborn, Michigan ("Magic Line"), through NYCE Corporation, Woodcliff Lake, New Jersey ("NYCE"), and thereby engage in providing data processing services in accordance with section 225.28(b)(14) of Regulation Y (12 C.ER. 225.28(b)(14)).(1) In addition, Notificants, through NYCE, would engage in providing check verification services, in accordance with section 225.28(b)(2) of Regulation Y (12 C.ER. 225.28(b)(2)).

NYCE operates an electronic funds transfer ("EFT") network under the NYCE service name, and Magic Line operates the Magic Line EFT network. Both NYCE and Magic Line provide data processing and transmission services to financial institutions and merchants that are members of their respective branded automated teller machine ("ATM") and point of sale ("POS") networks.(2) NYCE would engage directly and through Magic Line in certain nonbanking activities related to the operation of ATM and POS networks, including various data processing and transmission services.

Notice of the proposal, affording interested persons an opportunity to submit comments, has been published (64 Federal Register 13,799 (1999)). The time for filing comments has expired, and the Board has considered the notice and all comments received in light of the factors set forth in section 4(c)(8) of the BHC Act.

Notificants are commercial banking organizations with headquarters in Massachusetts, Michigan, New Jersey, New York, North Carolina, and Rhode Island, and foreign banking organizations with subsidiary commercial banking organizations in the United States. Each Notificant engages directly and through subsidiaries in a broad range of banking and permissible nonbanking activities in the United States and abroad.(3)

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 determines to be "so closely related to banking or managing or controlling banks as to be a proper incident thereto"(4) The Board previously has determined that providing check verification services and EFT-related data processing and transmission services is closely related to banking within the meaning of section 4(c)(8) of the BHC Act.(5) Notificants would conduct the proposed activities in accordance with Regulation Y and previous Board decisions.(6)

In determining whether activities proposed to be conducted in a specific proposal are a "proper incident" to banking or managing or controlling banks, the Board must determine whether the performance of the proposed activities by Notificants through Magic Line "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 interests, or unsound banking practices."(7) The Board has received comments opposing the proposal from two EFT networks ("Protestants") that generally allege that consummation of the proposal would result in significant anti-competitive effects in the market for EFT services in Michigan, Indiana, and Illinois outside the Chicago Metropolitan Statistical Area ("Upper Midwest"). In particular, Protestants argue that a requirement under the proposal that certain Magic Line shareholders use NYCE as their exclusive regional network in the Upper Midwest for three years after consummation of the proposal is intended primarily to prevent Protestants and other EFT networks from competing with NYCE in this area.

The Board has carefully considered these comments in light of all the facts of record, including written submissions by Notificants and Protestants. As in similar cases, the Board also sought comments from the Department of Justice on the competitive effects of the proposal. The Department of Justice indicated that it had no objection to consummation of the proposal.

Competitive Considerations

In order to determine whether a particular transaction is likely to decrease competition, the Board has considered the area of effective competition between parties. The area of effective competition has been defined by reference to the line of commerce, or product market, and a geographic market. The Board has carefully considered the relevant product and geographic markets in which to analyze the competitive effects of the proposal in light of all the facts of record, including information provided by Notificants and Protestants and the geographic scope of and services provided by existing EFT networks and other providers of EFT services.

The Board previously has identified three distinct products that are typically offered by EFT networks:

Network access (access to an EFT network identified by a common trademark or logo displayed on ATMs, POS terminals, and access cards);

Network services (operation of a "network switch" to receive and route electronic messages between ATMs, POS terminals, and data processing facilities used by depository institutions to authorize EFT transactions and the provision of "gateway" access to other EFT networks); and

ATM/POS processing (data processing and transmission services used to drive ATMs and POS terminals, monitor their activity, authorize EFT transactions, and reconcile accounts).(8)

Both NYCE and Magic Line provide all three services to their network members and these three activities define the areas in which NYCE and Magic Line compete. Accordingly, the relevant product markets in which to examine the competitive effects of the proposal are the markets for network access, network services, and ATM/POS processing.

The Board previously has determined that the geographic market for network access is an area significantly larger than local banking markets and consists of a region comprising several states.(9) Based on all the facts of record, the Board believes that NYCE has a significant competitive presence in the New England and northeastern states (Connecticut, Delaware, Maine, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island, and Vermont). Magic Line's primary service area is in the central United States (Indiana, Illinois, Kentucky, Michigan, and Ohio). Thus, the primary service areas for network access services of NYCE and Magic Line do not overlap.

NYCE and Magic Line compete in providing network access services to a limited extent in several states. There are a number of considerations, however, that mitigate any decrease in existing or potential competition resulting from the proposal. Changes in concentration in the market for network access services in these states would not be significant.(10) Moreover, in each state, a number of other networks, including other large regional networks, and third party processors would continue to operate and to provide both direct and potential competition for NYCE. Smaller networks and third party processors also would continue to operate EFT networks within the central United States and to provide both direct and potential competition for the Magic Line network,(11) Finally, national networks increasingly offer an alternative to regional networks for some financial institutions in the central United States.(12)

The Board considers the appropriate geographic market area for evaluating the provision of network services and ATM/POS processing services to be national in scope. The Board notes that physical proximity to ATMs and POS terminals is not required to provide these services and that these services may be provided on an unbranded or subcontract basis. In addition, large scale economies can be achieved in these product markets, and several firms offer ATM/POS processing services on a national basis. Many smaller firms also offer these services. Based on all the facts of record, the Board finds that the proposal would not have a significantly adverse effect on competition in the provision of these services in the central United States or any other relevant portion of the country.

Protestants claim, however, that a proposed agreement ("Shareholder Agreement") between NYCE and certain Magic Line shareholders would constitute a form of unfair competition or would decrease competition to the extent that the Shareholder Agreement prevents these shareholders from joining Protestants or other regional networks in the Upper Midwest.(13)

Protestants contend that the focus of the Shareholder Agreement on certain geographic areas and certain EFT-related services demonstrates that the purpose of the Shareholder Agreement is to harm Protestants rather than to facilitate the transfer of the Magic Line franchise. Protestants further assert that the terms of the Shareholder Agreement are contrary to the terms of EFT operating rules that the Board has specifically relied on in previous cases to support its determination in those cases that the combination of two EFT networks would not have a significantly adverse effect on competition.(14)

The Board has reviewed the Shareholder Agreement in light of all the facts of record in this case. In the Michigan portion of the Upper Midwest, where Magic Line is a dominant EFT network, the Shareholder Agreement would apply to three Magic Line shareholders.(15) These shareholders operate approximately 17 percent of the estimated total number of ATMs in the state and account for approximately 27 percent of the estimated total number of ATM transactions in the state. Accordingly, approximately three-fourths of all ATM transactions in Michigan would be unencumbered by the Shareholder Agreement and would be immediately available to competing networks.

Two of the three Magic Line shareholders in Michigan that would be subject to the Shareholder Agreement have experienced substantial growth in their EFT transaction volume and data processing fees.(16) This growth, if sustained, would enable these shareholders to shift a substantial portion of their EFT activities to a regional network other than NYCE with limited concern that they would be financially penalized by the minimum annual payment requirement of the Shareholder Agreement for doing so.

Moreover, these provisions of the Shareholder Agreement are limited in duration. The exclusivity provision is applicable to each of these shareholders for three years.(17)

The Board is concerned that exclusivity provisions, such as those in the Shareholder Agreement, are inherently anti-competitive because they restrict the ability of some participating financial institutions to choose ATM network access and ATM service providers that may be less costly and more suitable for customers of these financial institutions. In this case, the Board believes that the potential adverse effects of the Shareholder Agreement are real, but recognizes that the anti-competitive effects of the Shareholder Agreement are limited in geographic area, scope, and duration.

Other Considerations

In considering the proper incident test, the Board also must determine whether the likely public benefits of a proposal could reasonably be expected to outweigh potential adverse effects. Notificants assert that the proposal would result in significant public benefits.

As part of the proposal, NYCE has committed to adopt unified operating rules for NYCE and Magic Line that, in several important respects, would facilitate competition and increase access to the network for all depository institutions. The NYCE unified operating rules would allow all depository institutions in the combined networks to join other regional and national networks. The operating rules also would allow all depository institutions to designate networks other than NYCE as the priority routing for transactions performed by the depository institution's customers (subject to the other networks granting reciprocal rights to their participants to use NYCE). In addition, participants would be able to co-brand access cards and ATMs and to use third party processors and branded sub-switching of transactions.(18) Moreover, depository institutions of all sizes would be able to participate in NYCE on a nondiscriminatory basis. By contrast, the current Magic Line operating rules contain several provisions concerning transaction routing, co-branding of access cards, and ATM processing services that tend to restrict competition with other regional EFT networks and with third party processors.

Consummation of the proposal, therefore, would facilitate competition throughout the Magic Line service area in the provision of network access, network services, and ATM/POS processing. The unified NYCE operating rules would promote competition among NYCE and alternative providers of EFT-related services, including other regional networks, national networks, and third party processors, that is currently limited or foreclosed under the Magic Line operating rules. The proposal also would ensure access to the network by all depository institutions and competition among them in providing network access to their customers.

The combination of NYCE and Magic Line upon consummation of the proposal also would benefit consumers by providing greater account availability and convenience to customers of each network. In particular, an ATM network that has a large number of financial institution members and that provides network access at more locations over a broad geographical area would have greater value to network cardholders and provide broader and more convenient access to customer accounts. Smaller financial institutions that compete with larger, multistate organizations for deposit funds would be able to expand their depositors' access to their accounts without making substantial investments in branch systems or proprietary ATM networks.

Consummation of the proposal also would result in other public benefits. The proposal is expected to produce economies of scale, for example, and to reduce average costs for the combined networks. Members of each network also would benefit from the technical expertise and the expanded research and development programs of the combined network. Notificants anticipate that the increased capital base of NYCE would enable it to develop and market new products and services more rapidly, thereby increasing competition among EFT networks and third party processors.

As part of this review under section 4(c)(8) of the BHC Act, the Board also considers the financial and managerial resources of Notificants and their subsidiaries and any company to be acquired, and the effect of the proposal on those resources.(19) Based on all the facts of record, including reports of examination and other supervisory information, the Board concludes that financial and managerial considerations are consistent with approval of the proposal. In addition, there is no evidence in the record that the proposal would result in conflicts of interests or unsound banking practices.

As explained above, aspects of this proposal are likely to result in some decrease in competition while other aspects of the proposal promote competition and have other public benefits. The Board is particularly concerned about the serious potential anti-competitive effects that may arise from the exclusivity provisions of the Shareholder Agreement used by Notificants. As a general matter, the Board believes that the likely effect on competition from exclusivity provisions of the type contained in the Shareholder Agreement would outweigh the typical public benefits associated with the increased convenience and economies of scale associated with a merger of ATM networks. In this case, however, the Board believes that the potential adverse effect on competition is somewhat mitigated by the limited application, duration, and scope of the Shareholder Agreement. Importantly, the Board also believes that significant public benefits in the form of increased and more open competition are likely to result from the commitment by NYCE to change the Magic Line operating rules to allow all depository institutions in the network to join other regional and national networks, to facilitate increased use of third party processors, to route transactions more freely through other networks, and to co-brand access cards and ATMs. Absent the unique facts in this case concerning the actual operation of the Shareholder Agreement, and the commitment of NYCE to adopt unified operating rules as described above, the expected public benefits in this case would likely not be sufficient to outweigh the possible adverse effects. On this basis and after careful consideration of all the facts of record, the Board has determined that consummation of the proposal can reasonably be expected to produce public benefits that would outweigh any possible adverse effects under the proper incident to banking standard of section 4(c)(8) of the BHC Act.

Conclusion

Based on all the facts of record, the Board has determined that the notice should be, and hereby is, approved. The Board's approval is specifically conditioned on Notificants' compliance with the commitments made in connection with this notice and the conditions referred to in this order. The Board's determination also is subject to all the terms and conditions set forth in Regulation Y, including those in sections 225.7 and 225.25(c) (12 C.F.R. 225.7 and 225.25(c)), and to the Board's authority to require modification or termination of the activities of a bank holding company or any of its subsidiaries that the Board finds necessary to ensure compliance with, or to prevent evasion of, the provisions and purposes of the BHC Act and the Board's regulations and orders issued thereunder. For purposes of this action, the commitments and conditions shall be deemed to be conditions imposed in writing by the Board in connection with its findings and decision and, as such, may be enforced in proceedings under applicable law.

This proposal shall not be consummated later than three months after the effective date of this order, unless such period is extended for good cause by the Board, or the Federal Reserve Banks of Boston, Chicago, New York, or Richmond, acting pursuant to delegated authority.

By order of the Board of Governors, effective June 30, 1999.

Voting for this action: Chairman Greenspan, Vice Chair Rivlin, and Governors Kelley, Meyer, Ferguson, and Gramlich.

ROBERT DEV. FRIERSON Associate Secretary of the Board

(1.) Notificants, with the exception of Comerica Incorporated ("Comerica"), are shareholders of NYCE and would each retain 5 percent or more of the voting shares of NYCE. Comerica is a principal shareholder of Magic Line and would acquire more than 5 percent of the voting shares of NYCE as a result of the proposed transaction. This notice also includes Comerica's request for the Board's approval to acquire, through NYCE, an interest in Card Alert Services, Inc., Arlington, Virginia, and thereby engage in providing debit card fraud detection services.

(2.) In general, an ATM network is an arrangement whereby more than one ATM and more than one depository institution (or the depository records of such institutions) are connected by electronic or telecommunications means to one or more computers, processors, or switches for the purpose of providing automated teller services to retail customers of the depository institutions. POS terminals accept ATM or similar cards from retail customers and, using an ATM network or a parallel POS-only network, provide access to a retail customer's account to transfer funds to a merchant's account. POS terminals are generally located in merchant establishments.

(3.) Asset and deposit data for each Notificant are set forth in the Appendix.

(4.) 12 U.S.C. [sections] 1843(c)(8).

(5.) See 12 C.ER. 225.28(b)(2) and (14); Barnett Banks of Florida, Inc., 65 Federal Reserve Bulletin 263 (1979) (check verification services); Compagnie Financiere de Paribas, 82 Federal Reserve Bulletin 348 (1996) (fraud detection services); Bank of New York Company, Inc., 80 Federal Reserve Bulletin 1107 (1994) ("InfiNet Order") (ATM network services); Banc One Corporation, 81 Federal Reserve Bulletin 492 (1995) ("EPS Order") (ATM network services).

(6.) The Board notes that ATM activities must be conducted in accordance with applicable federal and state laws, including applicable branching laws.

(7.) See 12 U.S.C. [sections] 1843(c)(8).

(8.) See EPS Order at 493-94.

(9.) See EPS Order at 494.

(10.) NYCE and Magic Line both operate branded ATMs in 15 states. In 13 of these states, the smaller of the two networks provides branded access to less than 2 percent of the estimated total number of ATMs in the state. In Illinois, where NYCE is the smaller network, it provides branded access to less than 3 percent of the estimated total number of ATMs in the state. In Kentucky, NYCE provides branded access to less than 5 percent of the estimated total number of ATMs, and its brand would appear on approximately 16 percent of such ATMs after consummation of the proposal.

(11.) The Board also notes the rapid growth in recent years in the volume of POS transactions, which serve as an alternative for certain ATM transactions, and the presence of a number of competitors that provide POS network services across regional boundaries.

(12.) See HONOR/Most Order at 133 n.20. For example, in October 1998, Visa began operations of its Visa II card, a debit card for POS transactions.

(13.) Under the Shareholder Agreement, any Magic Line shareholder that receives cash or EFT transaction processing credits as any portion of the consideration for its Magic Line shares must use NYCE as its exclusive regional EFT network in the Upper Midwest for three years after consummation of the proposal, and must make specific minimum annual payments to NYCE for data processing and related services during these three years based on a percentage of the shareholder's ATM transaction volume prior to the proposal. In addition, a party to the Shareholder Agreement must purchase from NYCE for the term of the agreement any data processing services that are of the kind it obtained from Magic Line at the time that NYCE and Magic Line agreed to merge. A Magic Line shareholder may elect at any time during the term of the Shareholder Agreement to terminate its exclusive network routing requirement, but as a consequence the term of the agreement for purchasing data processing services would be extended to five years and the shareholder's minimum annual payment obligation would be increased.

(14.) See BankAmerica Corporation, 85 Federal Reserve Bulletin 271 (1999); HONOR/Most Order at 133; EPS Order at 496; InfiNet Order at 1109.

(15.) In the other two states in the Upper Midwest, Illinois and Indiana, Magic Line shareholders are estimated to operate only 5 percent and 2 percent, respectively, of the total number of ATMs in the state. Accordingly, the Shareholder Agreement would not appear to have a significant effect on competition among EFT networks and third party processors in these areas.

(16.) These two shareholders control more than 90 percent of all the ATMs controlled by the three shareholders in the aggregate in Michigan.

(17.) The Board also has considered the Shareholder Agreement in comparison to covenants not to compete. The Board and the courts have previously determined that such covenants are permissible when they are reasonable in duration, scope, and geographic area. See Orbanco, Inc., 59 Federal Reserve Bulletin 367 (1973); United Jersey Banks, 69 Federal Reserve Bulletin 565, 567 n. 12 (1983); Business Records Corporation v. Lueth, 981 F.2d 957 (9th Cir. 1992) ("Lueth"). Such covenants have been upheld by the courts when they are made in connection with the sale of a business because such covenants facilitate the transferability of property, in the form of the goodwill of a business. See Lueth at 960; Ticor Title Insurance Company v. Cohen, 173 F.2d 63 (2d Cir. 1999). Accordingly, in sale of business cases, the duration of a covenant not to compete has been upheld when it is reasonably related to the time required to vest the goodwill of a business in its new owner. See Lueth at 961; Restatement (Second) of Contracts [sections] 188, comments (d) and (f) (American Law Institute 1981). This period of time must be determined in light of all the relevant circumstances. See Laidlaw, Inc. v. Student Transportation of America, Inc., 20 F. Supp.2d 727 (D.N.J. 1998). The Board believes that the exclusivity provisions of the Shareholder Agreement are consistent with the court decisions regarding covenants not to compete.

(18.) "Subswitching" refers to the routing of transactions between members of the same regional network without accessing that network, and, therefore, without paying the network's switch fee. Typically, this is accomplished by routing the transaction through a third party processor that provided ATM processing services for both network members.

(19.) See 12 C.F.R. 225.26.

APPENDIX

Asset and Deposit Data for Notificants(1)

BankBoston Corporation, with approximately $52.6 billion in total consolidated assets, is the 15th largest commercial banking organization in the United States, controlling $35 billion in deposits. BankBoston Corporation operates subsidiary banks in six states.

The Bank of New York Company, Inc., with approximately $46.7 billion in total consolidated assets, is the 17th largest commercial banking organization in the United States, controlling $27.5 billion in deposits. The Bank of New York Company, Inc., operates subsidiary banks in six states.

The Chase Manhattan Corporation, with approximately $246.9 billion in total consolidated assets, is the second largest commercial banking organization in the United States, controlling $133.5 billion in deposits. The Chase Manhattan Corporation operates subsidiary banks in seven states, the Commonwealth of Puerto Rico, and the U.S. Virgin Islands.

HSBC Holdings PLC and HSBC Holdings BV, with approximately $471 billion in total consolidated assets, are the fifth largest commercial banking organization in the world, controlling $333 billion in deposits. Through their subsidiary, HSBC Americas, Inc., with approximately $31.8 billion in total consolidated assets, they are the 28th largest commercial banking organization in the United States, controlling $21.6 billion in deposits. HSBC Americas, Inc., operates a subsidiary bank in one state.

Comerica Incorporated, with approximately $36.6 billion in total consolidated assets, is the 23d largest commercial banking organization in the United States, controlling $23.3 billion in deposits. Comerica Incorporated operates subsidiary banks in four states.

First Union Corporation, with approximately $212.1 billion in total consolidated assets, is the fourth largest commercial banking organization in the United States, controlling $138.2 billion in deposits. First Union Corporation operates subsidiary banks in 12 states and the District of Columbia.

Fleet Financial Group, Inc., with approximately $114.8 billion in total consolidated assets, is the seventh largest commercial banking organization in the United States, controlling $69.3 billion in deposits. Fleet Financial Group, Inc., operates subsidiary banks in eight states.

Royal Bank of Scotland Group PLC and Royal Bank of Scotland, with approximately $117 billion in total consolidated assets, are the 67th largest commercial banking organization in the world, controlling $85 billion in deposits. Through their subsidiary, Citizens Financial Group, Inc., with approximately $6 billion in total consolidated assets, they are the 81st largest commercial banking organization in the United States, controlling $4.9 billion in deposits. Citizens Financial Group, Inc., operates subsidiary banks in two states.

Summit Bancorp, with approximately $32.4 billion in total consolidated assets, is the 27th largest commercial banking organization in the United States, controlling $22.7 billion in deposits. Summit Bancorp operates a subsidiary bank in two states.

(1.) U.S. asset data are as of December 31, 1998, and U.S. deposit data are as of June 30, 1998. Worldwide asset and deposit data are as of December 31, 1997.
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Publication:Federal Reserve Bulletin
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Geographic Code:1USA
Date:Aug 1, 1999
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