Mr. Bruce Moland
Wells Fargo & Company
N9305-170 MAC
Norwest Center
Sixth Street & Marquette Avenue
Minneapolis, MN 55479

Dear Mr. Moland:

This is in response to the request by Wells Fargo Bank South Dakota, N.A., Sioux Falls, South Dakota ("Bank"), for an exemption from section 23A of the Federal Reserve Act (12 U.S.C. § 371c) in order that Wells Fargo & Company, San Francisco, California ("Wells Fargo"), may contribute all the shares of a nonbank subsidiary, Servus Financial Corporation, Herndon, Virginia ("Servus"), to Bank, a national bank subsidiary of Wells Fargo. Servus engages in student loan servicing and lending activities, and Bank's request is part of a corporate restructuring of these activities of Wells Fargo.

Section 23A limits the amount of "covered transactions" between a bank and any single affiliate to 10 percent of the bank's capital stock and surplus, and limits the aggregate amount of covered transactions between a bank and all its affiliates to 20 percent of the bank's capital stock and surplus. Covered transactions include a bank's loans to an affiliate, investments in the securities of an affiliate, purchases of assets from an affiliate, and certain other transactions. Wells Fargo's contribution of Servus's shares to Bank is a covered transaction under section 23A.¹

Section 23A specifically authorizes the Board to exempt "at its discretion . . . transactions or relationships from the requirements of this section if it finds such exemptions to be in the public interest and consistent with the purposes of this section."² The Board has approved exemptions in similar cases for one-time transfers that are part of a corporate reorganization and that are structured to ensure the quality of the transferred assets.³

As in previous cases reviewed by the Board, the proposed transaction is a by-product of a one-time corporate reorganization. Wells Fargo is restructuring its student loan operations as a result of its March 17, 2000, acquisition of Servus. This reorganization is intended to permit Servus, as a wholly owned subsidiary of Bank, to operate at a lower cost of funds and to allow Wells Fargo to centralize the management of its student lending and student loan servicing activities in Bank. Wells Fargo has represented that the customers of Servus would benefit from increased efficiencies produced by the reorganization and from Bank's expertise in student loans.

Bank has committed that it will not purchase any low-quality assets, as defined in section 23A, in connection with the transaction, and that the transfer will be approved by a majority of the directors of Bank who are not affiliated with Wells Fargo. Moreover, Wells Fargo has committed that, for two years following the transfer, it will make quarterly cash contributions to Bank equal to the book value plus any write-downs taken by Bank of any transferred assets that have become low-quality assets, as defined in section 23A, during the quarter. Neither the Office of the Comptroller of the Currency, Bank's primary supervisor, nor the Federal Deposit Insurance Corporation have objected to the proposal.

On this basis, and the basis of the facts you have presented, the proposed transaction appears to be consistent with safe and sound banking practices and on terms that would ensure the quality of the assets transferred. Accordingly, the transaction appears to be consistent with the purposes of section 23A, and the Director of the Division of Banking Supervision and Regulation, pursuant to authority delegated by the Board, and with the concurrence of the General Counsel, hereby grants the requested exemption.

This determination is specifically conditioned on compliance by Wells Fargo and Bank with all the commitments and representations made by them in connection with the exemption request. These commitments and representations are deemed to be conditions imposed in writing by the Board in connection with granting the request and, as such, may be enforced in proceedings under applicable law. This determination is based on the specific circumstances surrounding the proposed transaction, and may be revoked in the event of any material change in those circumstances or any failure by Wells Fargo or Bank to continue to observe any of its commitments or representations. The grant of this exemption does not represent a determination concerning the permissibility of any other transactions that are subject to section 23A or concerning any other affiliates of Wells Fargo.

Very truly yours,

(Signed) Robert deV. Frierson

cc: Federal Reserve Bank of San Francisco
     Federal Reserve Bank of Minneapolis

1. Under Board precedent, the contribution is treated as a purchase of assets by Bank to the extent that Servus has liabilities to an affiliate of Bank. Return to text

2. 12 U.S.C. § 371c(f)(2) (emphasis added). Return to text

3. See Travelers Group Inc. and Citicorp, 84 Federal Reserve Bulletin 985, 1013-14 (1998)); Letter dated November 14, 1996, from William W. Wiles to John Byam; Letter dated April 19, 1988, from James McAfee to Timothy C. Roach; Letter dated August 6, 1987, from William W.Wiles to Timothy McGinnis. Return to text