Orders Issued Under Bank Holding Company Act - Brookline Bancorp, MHC and Brookline Bancorp Inc. receive approval for investment in Medford Bancorp Inc

Federal Reserve Bulletin, Jan, 2000

Orders Issued Under Section 3 of the Bank Holding Company Act

Brookline Bancorp, MHC Brookline, Massachusetts

Brookline Bancorp, Inc. Brookline, Massachusetts

Order Approving Acquisition of Shares of a Bank Holding Company

Brookline Bancorp, MHC and its subsidiary, Brookline Bancorp, Inc., both of Brookline, Massachusetts (collectively "Brookline"), 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 up to 9.9 percent of the voting shares of Medford Bancorp, Inc. ("Medford") and thereby acquire an interest in Medford's wholly owned subsidiary bank, Medford Savings Bank, both of Medford, Massachusetts.(1)

Notice of this proposal, affording interested persons an opportunity to submit comments, has been published (64 Federal Register 55,290 (1999)). The time for filing comments has expired, and the Board has considered this proposal and all comments received in light of the factors set forth in section 3 of the BHC Act. Brookline is the 33rd largest depository institution in Massachusetts, controlling total deposits of $509.3 million, representing less than 1 percent of total deposits in depository institutions in the state.(2) Medford is the 15th largest depository institution in Massachusetts, controlling $902.6 million in deposits, representing less than 1 percent of total deposits in depository institutions in the state. Brookline has stated that it proposes to acquire the shares of Medford as a passive investment and that Brookline would not control Medford after this investment.

In connection with this proposal, the Board received comments from Medford objecting to the proposal on the grounds that the investment would have an adverse effect on the managerial resources and financial condition of Brookline and Medford, and would harm the communities that Medford serves. The Board has considered carefully Medford's comments in light of the factors that the Board must consider under section 3(c) of the BHC Act.(3)

The Board previously has stated that the acquisition of less than a controlling interest in a bank or bank holding company is not a normal acquisition for a bank holding company.(4) However, the requirement in section 3(a)(3) of the BHC Act for Board approval before a bank holding company acquires more than 5 percent of the voting shares of a bank suggests that Congress contemplated the acquisition by bank holding companies of between 5 and 25 percent of the voting shares of banks.(5) On this basis, the Board previously has approved the acquisition by a bank holding company of less than a controlling interest in a bank or bank holding company where the proposal meets the factors set forth in the BHC Act.(6)

Medford contends that the proposed investment would constitute a controlling investment in Medford, and would enable Brookline to exercise a coercive influence on Medford's corporate affairs. Brookline has agreed to abide by certain commitments that the Board has relied on in other cases to determine that an investing bank holding company would not be able to exercise a controlling influence over another bank holding company or bank for purposes of the BHC Act.(7) For example, Brookline has committed not to exercise or attempt to exercise a controlling influence over the management or policies of Medford or any of its subsidiaries; not to seek or accept representation on the board of directors of Medford or any of its subsidiaries; and not to have any director, officer, employee, or agent interlocks with Medford. Brookline also has committed not to attempt to influence the dividend policies, loan decisions, or operations of Medford or any of its subsidiaries. Moreover, Brookline, which proposes to acquire less than 10 percent of the voting shares of Medford, may not acquire any additional shares of Medford without prior Board approval under the BHC Act.

Medford contends that these commitments by Brookline are insufficient to prevent Brookline from exercising a controlling influence on Medford. The Board notes, however, that it has adequate supervisory authority to monitor Brookline's compliance with its commitments, and expressly retains authority to initiate a control proceeding against Brookline if facts presented later indicate that Brookline or any of its subsidiaries or affiliates, in fact, controls Medford for purposes of the BHC Act. Based on these commitments and all other facts of record, it is the Board's judgment that Brookline would not acquire control of Medford for purposes of the BHC Act through consummation of this proposal.

Competitive Considerations

In considering an application under section 3 of the BHC Act, the Board is required to evaluate a number of factors, including the competitive effects of the proposal. The Board previously has noted that one company need not acquire control of another company in order to substantially lessen competition between them.(8) The Board has found that noncontrolling interests in directly competing depository institutions may raise serious questions under the BHC Act, and has concluded that the specific facts of each case will determine whether the minority investment in a company would be anticompetitive.(9)