(a) Certain acquisitions by a member bank of securities issued by an
affiliate are treated as a purchase of assets from an affiliate. A member bank’s acquisition of a security issued by a company that
was an affiliate of the member bank before the acquisition is treated
as a purchase of assets from an affiliate, if—
(1) as a result of the transaction, the
company becomes an operating subsidiary of the member bank; and
(2) the company has liabilities,
or the member bank gives cash or any other consideration in exchange
for the security.
(b) Valuation.
(1) Initial valuation. A transaction described in paragraph (a) of this section must
be valued initially at the greater of—
(i) the sum of—
(A) the total amount of consideration given by the member bank in
exchange for the security; and
(B) the total liabilities of the company whose
security has been acquired by the member bank, as of the time of the
acquisition; or
(ii) the total value of all covered
transactions (as computed under this part) acquired by the member
bank as a result of the security acquisition.
(2) Ongoing valuation. The value of a transaction described in paragraph
(a) of this section may be reduced after the initial transfer to reflect—
(i) amortization or depreciation of the assets of the transferred
company, to the extent that such reductions are consistent with GAAP;
and
(ii) sales of
the assets of the transferred company.
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(c) Valuation example. The
parent holding company of a member bank contributes between 25 and
100 percent of the voting shares of a mortgage company to the member
bank. The parent holding company retains no shares of the mortgage
company. The member bank gives no consideration in exchange for the
transferred shares. The mortgage company has total assets of $300,000
and total liabilities of $100,000. The mortgage company’s assets do
not include any loans to an affiliate of the member bank or any other
asset that would represent a separate covered transaction for the
member bank upon consummation of the share transfer. As a result of
the transaction, the mortgage company becomes an operating subsidiary
of the member bank. The transaction is treated as a purchase of the
assets of the mortgage company by the member bank from an affiliate
under paragraph (a) of this section. The member bank initially must
value the transaction at $100,000, the total amount of the liabilities
of the mortgage company. Going forward, if the member bank pays off
the liabilities, the member bank must continue to value the covered
transaction at $100,000. If the member bank, however, sells $15,000
of the transferred assets of the mortgage company or if $15,000 of
the transferred assets amortize, the member bank may value the covered
transaction at $85,000.
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(d) Exemption for step transactions. A transaction
described in paragraph (a) of this section is exempt from the requirements
of this regulation (other than the safety-and-soundness requirement
of section 223.13 and the market-terms requirement of section 223.51)
if—
(1) the member bank acquires
the securities issued by the transferred company within one business
day (or such longer period, up to three months, as may be permitted
by the member bank’s appropriate federal banking agency) after the
company becomes an affiliate of the member bank;
(2) the member bank acquires all the securities
of the transferred company that were transferred in connection with
the transaction that made the company an affiliate of the member bank;
(3) the business and financial
condition (including the asset quality and liabilities) of the transferred
company does not materially change from the time the company becomes
an affiliate of the member bank and the time the member bank acquires
the securities issued by the company; and
(4) at or before the time that the transferred
company becomes an affiliate of the member bank, the member bank notifies
its appropriate federal banking agency and the Board of the member
bank’s intent to acquire the company.
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(e) Example of step transaction. A
bank holding company acquires 100 percent of the shares of an unaffiliated
leasing company. At that time, the subsidiary member bank of the holding
company notifies its appropriate federal banking agency and the Board
of its intent to acquire the leasing company from its holding company.
On the day after consummation of the acquisition, the holding company
transfers all of the shares of the leasing company to the member bank.
No material change in the business or financial condition of the leasing
company occurs between the time of the holding company’s acquisition
and the member bank’s acquisition. The leasing company has liabilities.
The leasing company becomes an operating subsidiary of the member
bank at the time of the transfer. This transfer by the holding company
to the member bank, although deemed an asset purchase by the member
bank from an affiliate under paragraph (a) of this section, would
qualify for the exemption in paragraph (d) of this section.
