Donald J. Toumey, Esquire
Sullivan & Cromwell
125 Broad Street
New York, New York 10004-2498

Dear Mr. Toumey:

You have advised Board staff that NatCity Investments, Inc. ("NatCity"), a section 20 subsidiary of National City Corporation ("National City"), proposes to enter into a joint employee arrangement to permit the sale of annuities from its premises, and have asked whether the staff would object to this proposal.

NatCity, which has authority to engage in a variety of permissible securities activities, including securities brokerage activities and underwriting certain bank-ineligible securities, operates in office space leased from unaffiliated third parties.¹ NatCity proposes to enter into a lease arrangement with a third party insurance agent ("Agent") to sell fixed and variable annuities to customers on the premises of NatCity. Agent would hire certain individuals who also are employees of NatCity to sell the annuities. The dual employees would be licensed in the appropriate states as insurance agents of Agent, and would sell annuities only on behalf of Agent. The dual employees also would be registered with the SEC and the NASD as registered representatives of NatCity and Agent. The lease between NatCity and Agent would be entered into on an arm's length basis on terms at least as favorable as those prevailing for comparable transactions with or involving other nonaffiliated companies. A subsidiary of National City's bank subsidiary, National City Bank, currently has a dual employee arrangement with a third party insurance agent for the sale of annuities on the premises of the bank. National City intends to continue this arrangement as well, at least in the short term.

Agent, and not NatCity, would be responsible for the licensing of the dual employees in connection with annuity sales activities. Agent would also provide initial and ongoing training and supervision to the dual employees in connection with these annuity sales activities. Agent would enter into separate agreements directly with the dual employees that would cover the employees' obligations to Agent and the compensation to be paid to the employees for sales of annuities, and Agent would pay compensation for the sales of annuities directly to the dual employees. NatCity and its affiliates would be held harmless for the activities of the employees when they are under the control and supervision of Agent.

The dual employees would comply with the Interagency Statement on Retail Sales of Nondeposit Investment Products. The employees would use disclosures, business cards, marketing information, and application and acknowledgment forms to distinguish sales of securities from sales of annuities. These disclosures would include the fact that the annuities are not products of NatCity and that the Agent selling the annuities is a separate and distinct corporate entity and that the annuities are not insured by the FDIC, are not deposits of or other obligations of affiliated banks or guaranteed by affiliated banks, and are subject to investment risk, including possible loss of principal.

You have represented that neither NatCity nor any nonbank affiliate will engage in the sale of annuities. Based on all of the facts of record, staff will not recommend that the Board take action if National City proceeds with this proposal. This decision is limited to the specific facts as you have presented them to Board staff, in particular the fact that the proposal involves financial activities, and that NatCity has taken steps to reinforce the employee relationship with Agent and to address the potential for customer confusion about NatCity's role. Moreover, this opinion is made in reliance on the facts you have presented to date, and any change in circumstances or any evidence that the sale of annuities is in fact being conducted by NatCity or a nonbank affiliate may result in a different opinion. If in the future, the terms of the lease between NatCity and Agent indicate that NatCity is engaged in the sale of annuities for purposes of the Bank Holding Company Act, the Federal Reserve System may require termination of this proposed arrangement to ensure compliance with, and to prevent evasion of, the provisions of the Act. Accordingly, you should notify Board staff promptly if any facts presented by you should change.

Sincerely yours,

(signed) J. Virgil Mattingly

J. Virgil Mattingly

Footnotes 1. NatCity does sublease office space at one location from an affiliated bank, but this office space is not located in the bank branch. Some of NatCity's offices are located in buildings that contain branches of affiliated banks, but are not located in the branches themselves. Return to text