Orders issued under International Banking Act - Legal Developments

Federal Reserve Bulletin, Sept, 2002 by Robert deV. Frierson

Nordea Bank Finland Plc Helsinki, Finland

Order Approving Establishment of a Branch and Acquisition of a Commercial Lending Company

Nordea Bank Finland Plc ("Bank"), Helsinki, Finland, a foreign bank within the meaning of the International Banking Act ("IBA"), has applied under section 7(d) of the IBA (12 U.S.C. [section] 3105(d)) to establish a branch in New York, New York, and to acquire ownership of American Scandinavian Banking Corp. ("ASBC"), New York, New York, a commercial lending company. The Foreign Bank Supervision Enhancement Act of 1991, which amended the IBA, provides that a foreign bank must obtain the Board's approval to establish a branch in the United States and to acquire ownership of a commercial lending company subsidiary. Bank previously received approval to file an application for approval of these transactions on an after-the-fact basis.

Notice of the application, affording interested persons an opportunity to comment, has been published in a newspaper of general circulation in New York, New York (New York Daily News, February 18, 2002). The time for filing comments has expired, and all comments have been considered.

Bank, with assets of $204 billion, is a wholly owned subsidiary of Nordea AB ("Nordea"), Stockholm, Sweden, (1) and is one of the largest financial services companies in the Nordic region. Most of Nordea's operations involve banking activities, and more than 75 percent of those activities are retail oriented. Almost all of Nordea's banking activity is conducted through Bank and its three primary bank subsidiaries. Bank operates branches in New York, London, Singapore, Grand Cayman, and all of the Baltic states. Bank's only U.S. subsidiaries, other than ASBC, are several small nonbanking companies. Nordea's nonbanking subsidiaries consist of insurance companies, investment-related firms, and various financial services companies, primarily in the Nordic countries. The Swedish government owns 18.3 percent of Nordea. No other shareholder owns 10 percent or more of the holding company's stock. Nordea is a qualifying foreign banking organization within the meaning of Regulation K (12 C.F.R. 211.23(b)).

As part of a reorganization of its operations, Nordea transferred ownership of most of its banking subsidiaries to Bank, a newly formed bank. Previously, Nordea's primary banking subsidiary was Merita Bank ("Merita"), Helsinki, Finland. Merita Bank had three sister banks, located in Denmark, Norway, and Sweden. In the reorganization, Merita ultimately was merged into Bank, and the banks in Denmark, Norway, and Sweden became subsidiaries of Bank. (2) In the United States, Bank, as successor to Merita, acquired Merita's New York branch and its commercial lending company subsidiary, ASBC, a company chartered under Article XII of the banking laws of the State of New York.

The proposed branch would continue the operations and activities of the former Merita branch, including providing loans, foreign exchange, and letters of credit to U.S.-based subsidiaries of companies in the Nordic region. In addition, certain activities, including commodity derivatives and loan syndication activities, which previously were conducted at the New York branch of Nordea Bank Norge ASA, would be conducted at Bank's New York branch.

In order to approve an application by a foreign bank to establish a branch in the United States or acquire ownership of a commercial lending company, the IBA and Regulation K require the Board to determine that the foreign bank applicant engages directly in the business of banking outside of the United States and has furnished to the Board the information it needs to assess the application adequately, The Board also shall take into account whether the foreign bank and any foreign bank parent is subject to comprehensive supervision or regulation on a consolidated basis by their home country supervisor (12 U.S.C. [section] 3105(d)(2); 12 C.F.R. 211.24). (3) The Board may also take into account additional standards as set forth in the IBA and Regulation K (12 U.S.C. [section] 3105(d)(3)-(4); 12 C.F.R. 211.24(c)(2)-(3)).

As noted above, Bank engages directly in the business of banking outside the United States. Bank also has provided the Board with information necessary to assess the application through submissions that address the relevant issues. With respect to supervision by home country authorities, the Board has considered the following information.

The Finnish Financial Supervision Authority ("Finnish FSA") has supervisory responsibility for Bank, which, after the reorganization, would control almost all the banking assets of the Nordea organization. The Finnish FSA evaluates the operations and financial condition of Bank through on-site examinations and off-site reviews of Bank and its domestic and foreign offices and nonbank subsidiaries. On-site examinations of Bank are conducted annually, and periodic meetings with Bank management are held when necessary. Examinations focus on credit, market, liquidity, information technology, and operations risks, and include reviews of Bank's risk management systems and internal controls. The Finnish FSA periodically examines foreign branches of Bank, with a goal of conducting examinations of each foreign branch approximately every two years. Foreign branches are required to forward examination reports prepared by local bank supervisors to the Finnish FSA. Off-site supervision consists primarily of the review of various required reports submitted by Bank, including monthly reports on nonperforming loans in foreign and domestic branches; quarterly balance sheets, income statements, and reports on Bank's capital position, asset quality, liquidity, new activities, and currency and country risks; semiannual reports on large exposures; and annual reports on ownership changes and risk management. The Finnish FSA requires banks' annual financial statements to be externally audited and published on a consolidated basis.