L. Richard Fischer
Morrison & Foerster
2000 Pennsylvania Ave. NW
Washington, DC 20006

Dear Mr. Fischer:

This is in response to your letter dated May 8, 1996 (supplementing a letter from Donald M. Lowry dated March 7, 1996, and amended by our telephone conversation of May 15, 1996) requesting that CNA Financial Corporation ("CNA") be allowed to meet its commitment to liquidate or dispose of California Central Trust Bank Corporation, a state-chartered federally insured bank ("CalTrust"), by taking steps to ensure that CalTrust is a trust company that is excluded from the definition of "bank" under section 2(c)(2)(D) of the Bank Holding Company Act ("BHC Act," 12 U.S.C. 1841(c)(2)(D)).

On May 10, 1995, CNA merged with The Continental Corporation ("Continental"). At the time of the merger, Continental owned, through a wholly-owned subsidiary, 100 percent of the outstanding capital stock of CalTrust. Continental was exempt from the provisions of the BHC Act under the grandfathered "nonbank bank" provisions in section 4(f) of that Act (12 U.S.C. 1843(f)). To prevent CNA from becoming a bank holding company under the BHC Act, Continental placed CalTrust in an irrevocable trust prior to the merger. The trustee was required to use its reasonable best efforts to sell or otherwise dispose of or liquidate CalTrust so that the disposition was completed within one year after the date of the merger.

In reliance on the terms of the trust agreement and other commitments made by CNA and Continental, Board staff, in a letter dated March 22, 1995, informed CNA and Continental that staff would not recommend that the Board require CNA to apply or receive prior approval under the BHC Act or the Federal Deposit Insurance Act to engage in the transaction nor that the Board take action against CNA on the grounds that it became a bank holding company or obtained control of CalTrust under the BHC Act as a result of the transaction.

In a letter dated September 12, 1995, Mr. Lowry stated that the trustee's efforts to sell CalTrust had been unsuccessful and that he did not expect these efforts to be successful in the future. As an alternative means of disposing of CalTrust, Mr. Lowry proposed to convert CalTrust to a state-chartered uninsured trust company, by arranging for the transfer of any accounts other than funds held in a trust or fiduciary capacity to a depository institution of the account-holder's choice, terminating CalTrust's status as a depository institution insured by the Federal Deposit Insurance Corporation ("FDIC"), surrendering the authority to operate as a bank in California, and obtaining permission from the appropriate state authorities to operate as a trust company in California. Mr. Lowry's letter stated that the resulting trust company would meet the requirements of a trust company that is exempt from the definition of "bank" under section 2(c)(2)(D) of the BHC Act.

Again in reliance on commitments made by CNA, Board staff, in a letter dated November 9, 1995, stated that it believed that the conversion would be consistent with the intent of the commitments and trust agreement (that is, disposition of CalTrust for purposes of the BHC Act) and that it would not recommend that the Board take any action against CNA on the grounds that it violated its commitments or the terms of the trust agreement or that it became a bank holding company or obtained control of a bank under the BHC Act as a result of this transaction.

In Mr. Lowry's letter dated March 7, 1996, he stated that, as CalTrust was implementing the conversion, it became apparent that a surrender of CalTrust's state banking authority and termination of its FDIC insurance would place CalTrust at a severe competitive disadvantage. Mr. Lowry stated that CalTrust's inability to offer FDIC-insured accounts would make it extremely difficult for CalTrust to retain its current trust customers and attract new trust customers in competition with other institutions that offer trust accounts.

In your letter of May 8, 1996, as amended by our telephone conversation of May 15, 1996, you proposed that, instead of converting CalTrust to a state uninsured trust company, CalTrust would take certain actions that would qualify it as a trust company that is exempt from the definition of "bank" under section 2(c)(2)(D) of the BHC Act. Specifically, you state that:

1. CalTrust will establish one or more deposit accounts at Wells Fargo Bank, N.A. ("Wells Fargo"), or another unrelated institution, to be used for making payments on behalf of pension plans to third parties, including making investments and distributions directed by pension plan managers. These Wells Fargo accounts will be commingled accounts in the name of CalTrust as trustee for the various pension plans. CalTrust will maintain in these Wells Fargo accounts sufficient trust funds to meet the anticipated third-party payment instructions of the pension plans. Thus, payments to third parties for investments by pension plans and distributions to plan members will be accomplished through checks drawn on these Wells Fargo accounts against funds maintained for that purpose by CalTrust as trustee in these Wells Fargo accounts.

2. When pension plan managers direct that pension plan funds be maintained at CalTrust for any reason, such fiduciary funds will be maintained at Caltrust as time deposits. In addition, substantially all of the deposits maintained at CalTrust (at least 99 percent of all deposits at CalTrust) shall be deposits held in a fiduciary capacity, including the fiduciary time deposits maintained by the pension plans.

3. From time to time, there may be insufficient funds maintained by CalTrust in the commingled Wells Fargo trust accounts to meet a particular investment directive of a pension plan manager. Under such circumstances, CalTrust will transfer funds of that pension plan from a fiduciary account at CalTrust to the appropriate Wells Fargo account in order to carry out this investment directive; provided, however, that any transfer will be subject to a minimum seven-day notice requirement before such funds are transferred from the fiduciary account at CalTrust to the appropriate account at Wells Fargo.

4. CalTrust will not accept demand deposits or transaction accounts, nor will CalTrust make commercial loans.

5. CalTrust will not obtain payment or payment-related services from the Federal Reserve or exercise discount or borrowing privileges with the Federal Reserve.

6. CalTrust will not permit its insured deposits to be offered or to be marketed by or through an affiliate.

Although CNA's planned actions to meet the BHC Act's trust company exemption would be inconsistent with its original commitments and the terms of the trust agreement, staff believes that CNA's actions would be consistent with the intent of the commitments and trust agreement, that is, disposition of the bank for purposes of the BHC Act. Provided that the actions to enable CalTrust to meet the trust company exemption are carried out as described above and completed within 30 days of the date of this letter, Board staff would not recommend that the Board take any action against CNA on the grounds that it violated its commitments or the terms of the trust agreement or that it became a bank holding company or obtained control of a bank under the BHC Act as a result of this transaction. In reaching this conclusion, Board staff understands that CalTrust will comply with all other applicable laws, regulations, and fiduciary duties, including the Board's Regulation D (12 CFR Part 204). For example, we note that, in order for the deposits at CalTrust to be classified as time deposits under the Board's Regulation D (12 CFR 204.2(c)(1)), the seven-day notice referred to in number 3 above must be written.

This letter is limited to the specific transaction and circumstances described above, and any change in the transaction or circumstances could lead to a different conclusion. If you have any questions concerning this letter, you may contact me at (202) 452-3625 or Stephanie Martin at (202) 452-3198.

Very truly yours,

(signed) Oliver I. Ireland

Oliver I. Ireland