Ms. Caroline W. Lewis, Esquire
Bradley Arant Rose & White
420 North 20th Street, Suite 2000
Birmingham, Alabama 35203-3208

Dear Ms. Lewis:

This is in response to your letter dated March 6, 1997, in which SouthTrust Corporation ("SouthTrust") and its section 20 subsidiary, SouthTrust Securities, Inc., propose a limited expansion of the products offered through a dual employee arrangement between SouthTrust and a third party insurance agent ("Agent"). You have asked whether staff would object to this proposal.

SouthTrust currently has a dual employee arrangement and lease agreement with Agent to sell fixed and variable annuities to customers on the premises of SouthTrust's subsidiary banks ("Banks").¹ SouthTrust proposes to expand this arrangement to allow the dual employees to sell insurance products on behalf of Agent. You indicate that these products would be single premium variable life, term life, whole life, variable life, and variable universal life insurance.

The sale of these five new products would be conducted in the same manner as sales of annuities under SouthTrust's current dual employee arrangement. The dual employees would be licensed in the appropriate states as insurance agents of Agent, and would sell annuities and insurance products only on behalf of Agent. The lease between SouthTrust 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.

Agent would be responsible for assuring that the dual employees are properly licensed to engage in insurance sales activities. Agent would also provide initial and ongoing training and supervision to the dual employees in connection with these insurance 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 insurance products, and Agent would pay compensation for the sales of insurance products directly to the dual employees. SouthTrust and its affiliates would be held harmless for the activities of the dual employees when they are under the control and supervision of Agent.

The dual employees would sell insurance on the premises of Banks in areas separate and distinct from the areas of the Banks where insured deposits are accepted, and would follow the guidelines set forth in the Interagency Statement on Retail Sales of Non-deposit 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 or insurance products. These disclosures include the fact that the insurance products are not products of SouthTrust and that Agent selling the insurance products is a separate and distinct corporate entity and that the insurance products are not insured by the FDIC, and are not deposits of or other obligations of Banks or guaranteed by Banks.

Under the framework established by the SouthTrust Letter, and based on all the facts of record, staff will not recommend that the Board take action if SouthTrust 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 SouthTrust would conduct the sales of the insurance products in accordance with representations outlined in the SouthTrust Letter. In that regard, SouthTrust will take steps to reinforce the employee relationship with Agent and to address the potential for customer confusion about SouthTrust's role. Any change in circumstances or any evidence that the sales of annuities or insurance products are in fact being conducted by SouthTrust or a nonbank subsidiary may result in a different opinion. If in the future, the terms of the lease between SouthTrust and Agent indicate that SouthTrust is engaged in the sale of annuities or insurance products for purposes of the Bank Holding Company Act, the Federal Reserve System may require termination of the proposed arrangement to ensure compliance with, and to prevent evasion of, the provisions of the Act. Accordingly, you should notify staff promptly if any facts presented by you should change. Except as modified by this letter, all other aspects of the SouthTrust Letter shall remain in effect.

Sincerely,

(signed) J. Virgil Mattingly

J. Virgil Mattingly

cc: Federal Reserve Bank of Atlanta

1. See Letter dated December 6, 1995, from J. Virgil Mattingly, Jr., to Russell J. Bruemmer, Esq. ("SouthTrust Letter"). Return to text