Orders Issued Under Bank Holding Company Act

Federal Reserve Bulletin, April, 2001

Orders Issued Under Section 3 of the Bank Holding Company Act

The Charles Schwab Corporation San Francisco, California

U.S. Trust Corporation New York, New York

Order Approving Acquisition and Merger of Bank Holding Companies

The Charles Schwab Corporation ("Schwab") and its wholly owned subsidiary, U.S. Trust Corporation ("U.S. Trust"), each a bank holding company within the meaning of the Bank Holding Company Act ("BHC Act") (together "Applicants"), have requested the Board's approval under section 3 of the BHC Act (12 U.S.C. 1842) to acquire Resource Companies, Inc. ("Resource"), and thereby acquire Resource's subsidiary bank, Resource Trust Company, both in Minneapolis, Minnesota.(1)

Notice of the proposal, affording interested persons an opportunity to submit comments, has been published (66 Federal Register 798 (2001)). The time for filing comments has expired, and the Board has considered the proposal in light of the factors set forth in section 3 of the BHC Act.

Schwab, with total consolidated assets of $35.5 billion, is the 43rd largest commercial banking organization in the United States, controlling less than 1 percent of the total assets of insured commercial banks in the United States.(2) Schwab, through U.S. Trust, operates depository institutions in California, Connecticut, the District of Columbia, Florida, New Jersey, New York, Oregon, Pennsylvania, and Texas.

Resource operates only in Minnesota. It controls the 82nd largest depository institution in the state, with $100.3 million in deposits, representing less than 1 percent of total deposits in depository institutions in Minnesota.(3) After consummation of the proposal, Schwab would remain the 43rd largest commercial banking organization in the United States, with total consolidated assets of $35.6 billion.

Interstate Analysis

Section 3(d) of the BHC Act allows the Board to approve an application by a bank holding company to acquire control of a bank located in a state other than the home state of such bank holding company if certain conditions are met.(4) For purposes of the BHC Act, the home state of Applicants is New York, and Schwab proposes to acquire Resource Trust Company, which is located in Minnesota. All the conditions for an interstate acquisition enumerated in section 3(d) are met in this case.(5) In light of all the facts of record, the Board is permitted to approve the proposal under section 3(d) of the BHC Act.

Competitive Considerations

Section 3 of the BHC Act prohibits the Board from approving a proposal that would result in a monopoly or be in furtherance of a monopoly. The BHC Act also prohibits the Board from approving a proposal that would substantially lessen competition in any relevant banking market unless the anticompetitive effects of the proposal in that banking market 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.(6)

The proposal involves the acquisition of a bank in Minnesota, a state in which Applicants do not have banking operations. Based on this and all the facts of record, the Board concludes that consummation of the proposal would not result in any significantly adverse effects on competition or on the concentration of banking resources in any relevant banking market.

Financial and Managerial 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 other supervisory factors. The Board has reviewed these factors in light of all the facts of record, including supervisory reports of examination, other confidential supervisory information assessing the financial and managerial resources of the organizations, and financial information provided by Applicants. The Board notes that Applicants and Resource and their subsidiary banks currently are well capitalized and are expected to remain so on consummation of the proposal. Based on all the facts of record, the Board concludes that the financial and managerial resources and the future prospects of Applicants, Resource, and their respective subsidiary banks, are consistent with approval, as are the other supervisory factors the Board must consider under section 3 of the BHC Act.

Convenience and Needs Factor

In acting on a proposal under section 3 of the BHC Act, the Board is required to consider the effect of the proposal on the convenience and needs of the communities to be served. The Board has long held that consideration of the convenience and needs factor includes a review of the records of the relevant depository institutions under the Community Reinvestment Act (12 U.S.C. [sections] 2901 et seq.) ("CRA"). Accordingly, the Board has carefully considered the effect of the proposed merger on the convenience and needs of the communities to be served and the CRA records of performance of the institutions involved in light of all the facts of record.

As provided in the CRA, the Board has evaluated the convenience and needs factor in light of examinations of the CRA performance records of the relevant depository institutions by their appropriate Federal banking agencies.(7) United States Trust Company of New York, New York, New York ("UST-New York"), the lead depository institution of Applicants, received an "outstanding" rating at its most recent CRA performance examination by the Federal Reserve Bank of New York, as of April 3, 2000. UST-Connecticut received a "satisfactory" rating from the FDIC, as of February 23, 1998.(8) Resource Trust Company received an "outstanding" rating at its most recent CRA performance examination by the FDIC, as of July 15, 1998.