Banking Interpretations

NYSBL 143-b


August 28, 1989

To: Principal Examiner Nodalny, Domestic Commercial Banks Division

From: M. Schussler

Re: [ ] Bank - Capital Increase

The material submitted by [ ] Bank in connection with the proposed issuance of $10 million in perpetual preferred stock is legally sufficient, except for a deficiency in the `unanimous" consent of the shareholders – [ ], identified as a stockholder in the July 14, 1989 letter is not a signatory to the consent.

[ ] will not acquire control of the bank, for the purposes of Banking Law §143-b, by acquiring the preferred stock. The fact that it is non-voting is not dispositive of the question, [ ]'s representation notwithstanding, but other features of the stock also indicate that control is not being obtained. The holders can not compel the conversion of the stock into voting securities; the bank can redeem the stock at any time; the dividend obligation is non-cumulative, thereby limiting the bank's obligation to payments from current earnings. Furthermore, the investors are funding their ]’s investment, they are not unrelated parties who stand to obtain influence by means of the investment.

Confirmation of the treatment of the preferred stock for capital adequacy purposes must come from your Division, but there is no legal impediment to its treatment as capital for all purposes.