Opinion ID: 328133
Heading Depth: 2
Heading Rank: 5

Heading: Increased Ownership of Pima Stock

Text: 42 In a more sweeping argument, the Board's counsel contend that even if Patagonia were entitled through the section 1843(a)(2) grandfather proviso to engage, through Pima, in the savings and loan business, the entitlement would not authorize Patagonia to increase its ownership in Pima beyond the 20.005 percent that it held on June 30, 1968. Counsel assert that the grandfather proviso permits a holding company to retain only those interests that it owned on the crucial date. In our view, this contention is thoroughly contradicted by the language of the statute, the Congressional committee reports, and one of the Board's own recent interpretive rulings. 43 Section 1843(a)(2) clearly contemplates that bank holding companies may expand the activities for which they have grandfather rights. The section specifically prohibits such expansion  . . . through the acquisition . . . of any interest in or the assets of a going concern engaged in such activities. The prohibition would be wholly superfluous if expansion were prohibited altogether. 44 The legislative record specifically states that internal expansion of grandfathered activities is permitted by the statute. In its report on the proposed legislation, the Senate Banking and Currency Committee, wherein the grandfather proviso originated, wrote: 45 The committee believes that it is entirely appropriate for a company to be allowed to . . . expand (its grandfathered activities) so long as such expansion does not produce anticompetitive or other adverse effects. Accordingly, the committee provided that such a company could not acquire, either by stock acquisition or purchase of the assets, a going concern engaged in the grandfathered activities. 46 S.Rep.No.91-1084, 91st Cong., 2d Sess. 5 (1970) (1970 U.S.Code Cong. & Admin.News, 5519, 5524). 12 47 The Board, on a recent occasion, has taken the position that a holding company may internally expand a grandfathered activity without prior Board approval. In a November 15, 1974, letter responding to an inquiry on behalf of the Purolator Corporation, CCH Fed.Banking L.Rep. P 96,392 (1974), the Board concluded that a non-banking, grandfathered subsidiary of the Cameron Financial Corporation could expand its courier business to another state without prior Board approval. In pertinent part, the Board's letter reads: 48 Congress has . . . indicated . . . that expansion of grandfathered activities through internal growth would have a favorable competitive effect and, accordingly, did not place restrictions upon such method of expansion. Cameron proposes to expand its courier activities through internal growth, and the Board believes that Cameron may do this without obtaining prior approval. To conclude otherwise would severely limit the ability of grandfathered subsidiaries of bank holding companies to maintain their competitive positions relative to other companies or their industry. 49 Congress's reason for prohibiting the expansion of a grandfathered activity through the acquisition of an interest in, or the assets of, a going concern engaged in the grandfathered business was  . . . that such acquisition would tend to have an anticompetitive effect in that it would reduce the number of firms competing against each other in a given activity. S.Rep.No.91-1084, supra at 5 (1970 U.S.Code Cong. & Admin.News at p. 5524). If Patagonia already held Pima as a subsidiary on June 30, 1968, Patagonia's acquisition of the remainder of Pima's stock after that date could not reasonably be viewed as a violation of the going concern limitation. For Patagonia to have strengthened its already established power to control Pima would have had no adverse impact on the competition that existed among savings and loan institutions. 50