Banking Interpretations

NYSBL 143-b


To: Economist Kupfer

From: Barbara Kent, Esq.

Date: March 21, 1995

Subject: [ ] Bank--BL $ 143-b

Your memorandum dated March 8, 1995 has been referred to me for reply. In this memorandum, you seek a preliminary opinion as to whether the impending merger of the [ ] Union, the owner of [ ] (the "Bank"), and the [ ] Union would constitute a change of control of the Bank pursuant to section 143-b of the Banking Law". The Federal Reserve Board has not yet decided as to whether a holding company application will be required, but early indications are that such an application will not be required. A draft opinion from counsel on behalf of the unions has been received by the Banking Department. In this letter, counsel requests that the Superintendent exercise his discretion under section 143-b and determine that the consolidation of [ ]U and [ ] U would not result in a change in control of the Bank that would require an application to the Banking Board.

In determining whether to grant this request, it must be ascertained whether [ ] U is a different "company" from [ ] U for purposes of section 143-b. After reviewing the documents submitted, I have tentatively concluded that the impending merger does not constitute a change of control which would require a section 143-b application.

As you know, section 143-b provides that it is unlawful for a company, including an unincorporated association, to acquire direct or indirect control of a banking institution without the approval of three-fifths of the banking board. "Control" can take many forms, but is presumed when the company, directly or indirectly, owns, controls or holds with power to vote, ten percent or more of the stock of a banking institution or the stock of a company which owns, controls or holds with power to vote ten percent or more of the stock of the banking institution.

At present [ ] U controls all of the Bank's stock under a special exemption to the Bank Holding Company Act. As part of the proposed merger, the Board of Directors of the Bank will be expanded to number 30 and include seven new members who are now affiliated with [ ] U. These new members will thus constitute less than 25% of the Board of Directors. Over a three year period following the merger, the representation from [ ] U will expand to 50% of the Bank's Board of Directors. The Executive Committee of the Bank's Board of Directors will be expanded from five members to eight by the addition of three members who are now affiliated with [ ] U. Consequently, the current officials of [ ]U will continue to have the greater role in the management of [ ] U and on the Board of Directors of the Bank.

Upon the effective date of the merger, the general funds of [ ]U and [ ]U shall be merged and shall become the general funds of [ ] U. The stock of the Bank held by [ ] U shall be transferred to [ ] U. Thirteen million dollars of the general funds of [ ] U, drawn from the assets transferred from [ ]U, will be used to purchase newly issued shares of the Bank, thereby increasing the capital of the Bank. Following the merger and the issuance of the new Bank stock, [ ] U will control approximately 51.5% of the voting shares of the Bank. The remaining voting shares will be owned principally by local unions, joint boards and individuals who are now identified with [ ]U. There will be no material change in the operations of the Bank.

Counsel for the unions contends that although the combination of [ ]U and [ ]U will result in an organization with a new name, that organization will be virtually identical to one that would result if [ ]U had merely expanded by taking in a significant number of new members, installed a new president and named a number of new "directors". While such a statement is an over- simplification, it is true that under proposed merger agreement, [ ] U will remain in control of the executive committee and will at all times have at least 50% representation on the Bank's Board of Directors.

The merger of a control party, in this instance [ ] U, with another entity always requires special scrutiny of all the facts and circumstances. In the instant matter, the merger is of two labor unions, both of which are unincorporated associations. As is generally recognized, unincorporated associations do not have nearly the same degree of organization and formality as do corporations. Such associations do not have shareholders and their members, who are organized at the local level, do not have the same type of direct ownership interest in the organization as would the shareholders of a corporation.

Rather, [ ] U is itself a confederation of various organizations and units, including regional joint boards and local unions, all of which are also unincorporated associations and all of which have chosen to operate under the auspices of [ ] U. Each unit, without participation by [ ] U, selects its own officers and executive board, derives its own sources of revenue, manages its own financial operation, selects its own counsel and makes its own decisions. While it is true that [ ] U is governed by a General Executive Board, this Board has no authority to depose the President, the Executive Vice President of the Secretary-Treasurer of [ ] U who are elected by the general membership.

As a result of this type of structure, there can be no dominant shareholder and a change of management can occur by action of the general membership without the need for any regulatory approval. Consequently, the merger of two unions, absent special circumstances, will result in little, if any, qualitative difference. If anything, given the history and membership of both [ ] U and [ ] U, there is reason to believe that the character of [ ] U will not differ at all from that of [ ] U.

Accordingly, it can be tentatively concluded that for purposes of section 143-b [ ], the union which will control the Bank after the proposed merger, is the same entity that presently controls the Bank, [ ] U. Thus no application for a change of control is required pursuant to section 143-b of the Banking Law.

Should you wish to discuss this further, please contact me.