(a) What type of investments are permitted by this subpart? Section
4(k)(4)(H) of the Bank Holding Company Act (12 USC 1843(k)(4)(H))
and this subpart authorize a financial holding company, directly or indirectly
and as principal or on behalf of one or more persons, to acquire or
control any amount of shares, assets, or ownership interests of the
company or other entity that is engaged in any activity not otherwise
authorized for the financial holding company under section 4 of the
Bank Holding Company Act. For purposes of this subpart, shares, assets,
or ownership interests acquired or controlled under section 4(k)(4)(H)
and this subpart are referred to as “merchant banking investments.”
A financial holding company may not directly or indirectly acquire
or control any merchant banking investment except in compliance with
the requirements of this subpart.
(b) Must the investment be a bona fide merchant
banking investment? The acquisition or control of shares, assets,
or ownership interests under this subpart is not permitted unless
it is part of a bona fide underwriting or merchant or investment banking
activity.
(c) What types
of ownership interests may be acquired? Shares, assets, or ownership
interests of a company or other entity include any debt or equity
security, warrant, option, partnership interest, trust certificate,
or other instrument representing an ownership interest in the company
or entity, whether voting or nonvoting.
4-058.1
(d) Where in a financial holding company may merchant
banking investments be made? A financial holding company and
any subsidiary (other than a depository institution or subsidiary
of a depository institution) may acquire or control merchant banking
investments. A financial holding company and its subsidiaries may
not acquire or control merchant banking investments on behalf of a
depository institution or subsidiary of a depository institution.
(e) May assets other than
shares be held directly? A financial holding company may not
under this subpart acquire or control assets, other than debt or equity
securities or other ownership interests in a company, unless—
(1) the assets are held by or promptly
transferred to a portfolio company;
(2) the portfolio company maintains policies,
books and records, accounts, and other indicia of corporate, partnership,
or limited-liability organization and operation that are separate
from the financial holding company and limit the legal liability of
the financial holding company for obligations of the portfolio company;
and
(3) the portfolio
company has management that is separate from the financial holding
company to the extent required by section 225.171.
4-058.11
(f) What type of affiliate is required
for a financial holding company to make merchant banking investments? A financial holding company may not acquire or control merchant
banking investments under this subpart unless the financial holding
company qualifies under at least one of the following paragraphs:
(1) Securities affiliate. The financial holding company is or has
an affiliate that is registered under the Securities Exchange Act
of 1934 (15 USC 78c, 78o, 78o-4) as—
(i) a broker
or dealer; or
(ii)
a municipal securities dealer, including a separately identifiable
department or division of a bank that is registered as a municipal
securities dealer.
(2) Insurance
affiliate with an investment adviser affiliate. The financial
holding company controls—
(i) an insurance company that is predominantly
engaged in underwriting life, accident and health, or property and
casualty insurance (other than credit-related insurance), or providing
and issuing annuities; and
(ii) a company that—
(A) is registered
with the Securities and Exchange Commission as an investment adviser
under the Investment Advisers Act of 1940 (15 USC 80b-1 et seq.);
and
(B) provides investment
advice to an insurance company.
