May 3, 2001
TO: Examiner [ ]
Community Financial Services Division
FROM: Assistant Counsel Kane
RE: [ ] Savings Bank - Investment in Service Corporation
[ ] Savings Bank ("Bank") has notified the Superintendent in writing of its intention to make an investment in [ ], a service corporation which is a wholly owned subsidiary of Bank ("Service Corporation") and is currently inactive. Bank's investment in the Service Corporation will consist of [ ] shares which Bank currently owns of [ ], an investment advisory firm which provides investment advice and asset management to individual and institutional clients ("Investment Advisory Firm"). The [ ] shares represent a [ ] percent ownership interest in Investment Advisory Firm.
Section 235(31) of the New York Banking Law ("Banking Law") contains the provisions under which a savings bank may make leeway investments, provided that the aggregate amount invested in the securities of any one issuer does not exceed 1 percent of assets. The investment in [ ] shares of Investment Advisory Firm shares, which Bank purchased in July 1999 for $[ ] million, is permissible since Bank reported total assets of $[ ] billion as of December 31, 2000.
It is thus not necessary to research the legality of Bank making this investment through its Service Corporation pursuant to Section 235-d of the Banking Law and Part 85 of the General Regulations which governs investments in service corporations by savings banks. Section 235-d(2) appears to restrict the performance of activities by a savings bank service corporation, directly or through "one or more wholly owned subsidiaries" (emphasis added). Bank seemingly fails to meet this statutory threshold by virtue of the fact that its ownership interest in Investment Advisory Firm is only [ ] percent.
The Legal Division concludes that Bank's investment in Investment Advisory Firm shares is permissible under the leeway authority contained in Section 235(31) of the Banking Law.