H. Rodgin Cohen, Esq.
Sullivan & Cromwell
125 Broad Street
New York, New York 10004-2498

Dear Mr. Cohen:

This responds to your letter of May 15, 1996, in which you request that the Board of Governors of the Federal Reserve System ("Board") consider whether a notice under the Change In Bank Control Act (12 U.S.C. § 1817(j)) ("CIBC Act") is required in connection with modifications made by CB Bancshares, Inc. Employee Stock Ownership Plan and Trust ("CB ESOP") in the manner that the plan votes its shares of CB Bancshares, Inc., Honolulu, Hawaii, a registered bank holding company ("Bancshares"). You have indicated that a vote by Bancshares's shareholders is scheduled for May 23, 1996, and that a response is needed by that date. Your request has been reviewed in light of the following facts.

In 1989, the Federal Reserve Bank of San Francisco approved CB ESOP's notice under the CIBC Act to acquire up to 24.9 percent of the voting stock of Bancshares. CB ESOP in fact acquired approximately 16.6 percent of Bancshares's voting stock, and currently holds approximately 12 percent of Bancshares's total outstanding voting shares. The 1989 notice stated that the shares of Bancshares allocated to the CB ESOP participants ("allocated shares") would not be voted if those participants did not direct the voting of their shares. The notice also indicated that all shares of Bancshares that were not allocated to CB ESOP participants ("unallocated shares") would be voted by a committee ("Committee") comprised of persons appointed by the Board of Directors of CB ESOP.

On April 9, 1996, the Board of Directors amended the CB ESOP to permit the Committee to vote allocated shares that the participants have not directed to be voted. CB ESOP states that this change was made in light of regulatory interpretations from the Department of Labor and the Internal Revenue Service to fiduciaries on voting undirected shares of plan participants.¹

Currently, all of the Bancshares stock owned by CB ESOP is allocated under the plan. According to information provided by CB ESOP, if the Committee had been able to vote these shares in the last two years, it would have voted well under 10 percent of Bancshares's outstanding voting stock. CB ESOP estimates that in order for the Committee to have the discretion to vote more than 10 percent of Bancshares stock held by the plan, more than 84 percent of the plan's participants would have to fail to direct the voting of their shares. CB ESOP notes that only approximately 32 percent of the plan participants failed to direct the voting of their shares in 1994, and approximately 57 percent of participants failed to direct the voting of their shares in 1995.

Based on the facts available at this time, including a review of the notice filed by CB ESOP under the CIBC Act in 1988, it does not appear that CB ESOP would be required to receive additional approval under the CIBC Act to amend the plan. As long as the aggregate of all allocated shares, unallocated shares, and shares controlled by members of the Committee individually represent less than 10 percent of the outstanding voting shares of Bancshares, staff would not recommend that the Board object to Committee voting shares not directed by plan participants without filing a CIBC Act notice.

Sincerely yours,

(signed) Scott G. Alvarez

Scott G. Alvarez

cc: John C. Khil, Esq.

Footnotes 1. See Department of Labor Interpretive Bulletin 94-2; Internal Revenue Service Ruling 95-57. Return to text