| November 4, 1996 |
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Ronald C. Mayer, Esq. Dear Mr. Mayer: This is in response to your letter of October 17, 1996, in which you request confirmation of the permissibility of membership of a wholly-owned operating subsidiary of the Chase Manhattan Bank ("Chase") in a limited liability company ("LLC") that will perform certain electronic data interchange services. As detailed in your letter, the proposed LLC will have two members, the Chase operating subsidiary and BVR LLC ("BVR"). The proposed LLC will adapt an existing BVR software product for use by customers in the United States. The existing software permits corporate customers to place purchase orders with vendors they have selected and to make payments for such orders. In addition to adapting the software for U.S. customers, the LLC will develop an interface between the software and the payment processing systems of Chase and its affiliates. Chase ultimately expects to have a fifty percent interest in the LLC, at which point the Chase subsidiary would be appointed as co-managing member. We understand that the activities in which the proposed LLC will engage are permissible for a New York State-chartered bank such as Chase and for a national bank. Your letter also indicates that the operating agreement for the proposed LLC limits the LLC to activities that are permissible for the bank, and that the business purpose of the LLC may not be changed without Chase's consent. Based on your letter and discussions with staff, we understand that Chase's potential exposure to loss will be limited by the structure of the proposed investment. As a legal matter, the liability of Chase and its subsidiary for the liabilities of the proposed LLC will be limited by the LLC structure. Chase also will not be exposed to the liabilities of the LLC as an accounting matter, as Chase does not expect to obtain a controlling interest in the LLC and therefore will not consolidate the LLC on its books. We also understand that, should Chase obtain an interest of greater than fifty percent at some time in the future, Chase also would obtain control of the management of the LLC and therefore would not be exposed to liability for the acts of the other member of the LLC. Based on the above factors, staff would not recommend that the Board find the proposed investment is barred for a state member bank by section 16 of the Glass-Steagall Act. Additionally, the activities of the proposed LLC appear to be data processing activities that are permissible for bank holding companies under the Bank Holding Company Act. This letter is limited to the facts as we understand them and differing facts could lead to a differing result.
Sincerely,
(signed) J. Virgil Mattingly
J. Virgil Mattingly
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