Mr. Thomas E. Lowther
The Stolar Partnership
The Lammett Building
911 Washington Avenue
St. Louis, Missouri 63101-1290

Dear Mr. Lowther:

This is in response to your letter regarding the ability of Stupp Brothers, Inc., Clayton, Missouri, to retain its exemption under section 4(c)(ii) of the Bank Holding Company Act ("BHC Act"), if Stupp Brothers establishes a subsidiary bank holding company to hold directly the shares of Stupp Brothers' subsidiary bank, Lemay Bank & Trust Company, Lemay, Missouri ("Bank").

Section 4(c)(ii) of the BHC Act provides that "a company covered in 1970 more than 85 per centum of the voting stock of which was collectively owned on June 30, 1968, and continuously thereafter, directly or indirectly by or for members of the same family, or their spouses, who are lineal descendants of common ancestors" shall not be subject to the BHC Act's prohibitions regarding nonbanking activities. While a qualifying company may engage in various nonbanking activities impermissible for other bank holding companies, the Board has interpreted section 4(c)(ii) to prohibit a company with section 4(c)(ii) rights from acquiring shares or control of an additional bank.

Stupp Brothers owned a majority of the shares of Bank prior to June 30, 1968, and because over 85 percent of the shares of Stupp Brothers were owned and are currently owned by members of the same family, Stupp Brothers qualifies for the exemption found in section 4(c)(ii) of the BHC Act. Pursuant to its section 4(c)(ii) exemption, Stupp Brothers engages in iron and steel fabrication and other activities that are generally impermissible for bank holding companies.

Stupp Brothers currently owns 51.7 percent of Bank. Stupp Brothers proposes to form an intermediate subsidiary bank holding company ("New BHC") to hold all of the shares of Bank. New BHC proposes to exchange one share of its stock for each share of Bank, such that all shareholders of Bank, including Stupp Brothers, would become stockholders of New BHC in the same proportion as their current ownership in Bank. Stupp Brothers proposes to form New BHC for estate planning purposes and to permit the organization to expand the services that it can provide its customers by engaging through New BHC and future subsidiaries in activities permissible to bank holding companies under section 4(c)(8) of the BHC Act.

The Board previously has allowed a section 4(c)(ii) company, such as Stupp Brothers, to reorganize and to form a new bank holding company and retain its section 4(c)(ii) rights, so long as the family retains control of the section 4(c)(ii) company and the new bank holding company itself does not engage in activities that are impermissible for bank holding companies under section 4 of the BHC Act. See The Lawton Company, 69 Federal Reserve Bulletin 864 (1983). The new bank holding company does not, of course, qualify for the exemption afforded under section 4(c)(ii) because the new company is not a bank holding company organized prior to June 30, 1968. Moreover, the new bank holding company cannot acquire an additional bank because such an acquisition would be an indirect acquisition by the section 4(c)(ii) company, which is not permitted to acquire shares or control of an additional bank.¹ Based on the information you provided, I believe that Stupp Brothers may form an intermediate bank holding company to own shares of Bank, subject to all regulatory approvals, without losing its section 4(c)(ii) exemption. This opinion is based on the facts and representations you have presented and is subject to the limitations imposed by the Board in similar cases as discussed in this letter. Any change in the facts or circumstances may result in reconsideration of this determination and should be immediately discussed with the Federal Reserve Bank of St. Louis. If you have further questions, please contact Pamela G. Nardolilli of my staff at (202) 452-3289.

Sincerely yours,

(Signed) Scott G. Alvarez

Scott G. Alvarez

cc: FRB St. Louis
     Lisa Keithley

1. Bank is not prohibited, however, from expanding by mergers that are permissible under the Bank Merger Act. 12 U.S.C. § 1828(c). Letter from J. Virgil Mattingly to Michael A. Greenspan (February 18, 1993). Return to text