Mutual Savings and Loan Holding Companies

SUMMARY: The Office of Thrift Supervision (OTS), is issuing this

advance notice of proposed rulemaking to solicit comments on amending

the regulations regarding Mutual Savings and Loan Holding Companies to

permit the establishment of a mutual holding company (``MHC'')

structure that includes an intermediate stock holding company. The OTS

will consider the comments received in determining whether to proceed

with the development of a proposed rule to permit the formation of

intermediate stock holding companies by MHCS. The OTS solicits comments

on the specific questions set forth below and on all aspects of

permitting MHCs to form intermediate holding companies.

DATES: Comments must be received on or before December 13, 1996.

ADDRESSES: Send comments to Manager, Dissemination Branch, Records

Management and Information Policy, Office of Thrift Supervision, 1700 G

Street, NW., Washington, D.C. 20552, Attention Docket No. 96-105. These

submissions may be hand-delivered to 1700 G Street, NW., from 9:00 A.M.

to 5:00 P.M. on business days; they may be sent by facsimile

transmission to FAX Number (202) 906-7755. Comments will be available

for inspection at 1700 G Street, NW., from 9:00 A.M. until 4:00 P.M. on

business days.

FOR FURTHER INFORMATION CONTACT: James H. Underwood, Special Counsel

(202/906-7354), Dwight C. Smith, Deputy Chief Counsel (202/906-6990),

Business Transactions Division, Chief Counsel's Office; Gary Masters,

Financial Analyst (202/906-6729), Corporate Activities Division, Office

of Thrift Supervision, 1700 G Street, NW., Washington, D.C. 20552.

SUPPLEMENTARY INFORMATION: The OTS has received several inquiries from

MHCs and mutual savings associations contemplating conversion to stock

and reorganization into MHC form concerning whether an MHC can form an

intermediate state-chartered stock holding company to hold the stock of

its insured savings association subsidiary. The MHC would hold at least

a majority of the stock of the intermediate holding company. The

intermediate holding company could issue a minority of its shares of

stock to the public and would hold 100% of the stock of the insured

savings association subsidiary. The intermediate holding company would

be a state-chartered corporation, unlike the MHC, which has a federal

charter.

Under current mutual holding company regulations (12 CFR part 575),

a mutual savings association may reorganize into a MHC by forming a

stock savings association which assumes the liabilities and assets of

the mutual savings association and issues at least a majority of its

stock to the MHC. Depositors of the mutual association continue to

maintain a deposit-creditor relationship with the stock savings

association subsidiary while retaining their other indicia of

ownership, eq., voting rights, liquidation rights, with the MHC. The

stock savings association subsidiary may issue up to 49 percent of its

shares to the public.

In a previous legal opinion, the OTS' staff declined to concur with

a request to permit the formation of a multi-tier mutual holding

company structure. Upon further consideration of this issue, the OTS

has determined to solicit comments from the public on whether Section

10(o) of the Home Owners Loan Act and the regulations promulgated

thereunder should be read to permit the formation of a multi-tier

mutual holding company structure, and if so, what restrictions should

apply to such a structure.

Entities interested in forming multi-tier MHCs have indicated that

the primary purpose is to permit the intermediate stock holding

company, which would issue shares to minority stock holders, to engage

in a stock repurchase program without the potential negative tax

consequences that would ensue if such a program were engaged in by the

insured savings association subsidiary. Under the current MHC

regulations, 12 CFR 575.11(c), a savings association subsidiary is

permitted to engage in a stock repurchase program subject to certain

restrictions. It is the OTS' current view that the current repurchase

restrictions at Sec. 575.11(c) would apply to the intermediate holding

company.

Entities seeking to form a multi-tier mutual holding company

structure also have suggested other reasons for its creation: the

presence of an intermediate stock holding company would facilitate

acquisitions; and the intermediate holding company may have greater

powers than the MHC.

Questions on Which Comment is Sought

The OTS is hereby requesting comment during a 30-day comment period

on the following questions and issues:

(1) Assuming the mutual holding company statute and the OTS'

implementing regulations can be read to permit the formation of an

intermediate stock holding company, should that holding company be

subject to the same activities limitations as a MHC or may it be

treated as a unitary savings and loan holding company?

(2) The MHC regulations impose various restrictions and limitations

on the MHC and the savings association subsidiary of the MHC. These

limitations include restrictions on pledges of the subsidiary savings

association's stock by a MHC, waiver of dividends, and limitations on

indemnification and employment contracts. It is not clear that these

restrictions would be directly applicable to the intermediate stock

holding company. Should these restrictions be applicable to an

intermediate stock holding company in the same manner in which they are

applicable to the MHC? Commenters should discuss any reasons for not

applying the restrictions and the consequences of such.

(3) Should the intermediate stock holding company be required to

obtain the approval of the OTS prior to issuing any debt or equity

security to any person other than its parent MHC? Should a subsidiary

stock thrift be able to issue minority voting stock or other

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classes of securities? If so, under what circumstances? How should any

such stock be treated in a conversion of the MHC to stock form?

(4) The OTS is the sole chartering authority for MHCs that are

subject to part 575. Since both the parent MHC and the savings

association subsidiary of an intermediate holding company are chartered

by the OTS as special limited purpose corporations, to what extent

should the charter and bylaws (and any amendments) of the intermediate

holding company be subject to review and approval by the OTS? Should

the OTS require that provisions of the intermediate company's charter

be consistent with the Federal MHC charter?

(5) The savings association subsidiary of a MHC is subject to

various restrictions on stock issuances, including a requirement that

all stock issuances generally be structured in a manner that is similar

to a stock conversion offering under 12 CFR part 563b. Should these

restrictions also be applicable to the intermediate holding company? If

not, why not? Should all other provisions of 12 CFR part 575 governing

minority stock issuances be applicable to minority stock issuances by

intermediate holding companies? If not, why not?

(6) What are the consequences to the MHC of permitting the

intermediate holding company to retain capital generated by the savings

association subsidiary?

(7) Other than permitting stock repurchases and, perhaps,

facilitating acquisitions and expanding the powers in the MHC

structure, are there other reasons for creating a multi-tier structure?

Commenters should identify any additional potential benefits of a

multi-tier holding company structure and address any necessary

regulatory changes that would facilitate the use of the multi-tier

structure consistent with the MHC statute.

Dated: November 1, 1996.

By the Office of Thrift Supervision.

Nicolas P. Retsinas,

Director.

[FR Doc. 96-28989 Filed 11-12-96; 8:45 am]

BILLING CODE 6720-01-P