| For immediate release |
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The Federal Reserve Board today announced its approval of the notices of Barnett Banks, Inc., Jacksonville, Florida; BB&T Corporation, Winston-Salem, North Carolina; Central Fidelity Banks, Inc., Richmond, Virginia; Crestar Financial Corporation, Richmond, Virginia; First Citizens Bancshares, Raleigh, North Carolina; First American Corporation, Nashville, Tennessee; First Union Corporation, Charlotte, North Carolina; First Virginia Banks, Inc., Falls Church, Virginia; Jefferson Bancshares, Charlottesville, Virginia; NationsBank Corporation, Charlotte, North Carolina; Riggs National Corporation, Washington, D.C.; Signet Banking Corporation, Richmond, Virginia; SunTrust Banks, Inc., Atlanta, Georgia; Synovus Financial Corp., Columbus, Georgia; and Wachovia Corporation, Winston-Salem, North Carolina, to acquire indirectly Monetary Transfer System, L.L.C., St. Louis, Missouri, through Honor Technologies, Inc., Maitland, Florida, and thereby engage in providing certain data processing services pursuant to Regulation Y. Attached is the Board's Order relating to this action.
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Barnett Banks, Inc. |
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Barnett Banks, Inc., Jacksonville, Florida; BB&T Corporation, Winston-Salem, North Carolina; Central Fidelity Banks, Inc., Richmond, Virginia; Crestar Financial Corporation, Richmond, Virginia; First Citizens Bancshares, Raleigh, North Carolina; First American Corporation, Nashville, Tennessee; First Union Corporation, Charlotte, North Carolina; First Virginia Banks, Inc., Falls Church, Virginia; Jefferson Bancshares, Charlottesville, Virginia; NationsBank Corporation, Charlotte, North Carolina; Riggs National Corporation, Washington, D.C.; Signet Banking Corporation, Richmond, Virginia; SunTrust Banks, Inc., Atlanta, Georgia; Synovus Financial Corp., Columbus, Georgia; and Wachovia Corporation, Winston-Salem, North Carolina (collectively, "Notificants"), bank holding companies within the meaning of the Bank Holding Company Act ("BHC Act"), have requested the Board's approval under section 4(c)(8) of the BHC Act (12 U.S.C. § 1843(c)(8)) and section 225.24 of the Board's Regulation Y (12 C.F.R. 225.24) to acquire indirectly Monetary Transfer System, L.L.C., St. Louis, Missouri ("MTS"), through Honor Technologies, Inc., Maitland, Florida ("HTI"), and thereby engage in providing data processing services pursuant to section 225.28(b)(14) of Regulation Y (12 C.F.R. 225.28(b)(14)). Notificants are bank holding companies that would control more than 5 percent of any class of voting shares of HTI following consummation of the proposed transaction.1 Currently, HTI operates an electronic funds transfer ("EFT") network under the tradenames HONOR and MOST, and MTS operates an EFT network under the tradename BANKMATE. These EFT networks provide data processing and data transmission services to banks and retail merchants who are members of their branded automated teller machine ("ATM") and point of sale ("POS") networks.2 HTI would engage through MTS in certain nonbanking activities related to the operation of ATM and POS networks, including various data processing services, pursuant to section 225.28(b)(14) of Regulation Y (12 C.F.R. 225.28(b)(14)). Notice of the proposal, affording interested persons an opportunity to submit comments, has been published (62 Federal Register 44,130 (1997)). The time for filing comments has expired, and the Board has considered the notice and all comments received in light of the factors set forth in section 4(c)(8) of the BHC Act. As in other cases, the Board also sought comments from the Department of Justice on the competitive effects of this proposal. The Department of Justice indicated that it had no objection to consummation of the proposed transaction. Notificants are large commercial banking organizations with headquarters in Georgia, Florida, North Carolina, Tennessee, Virginia, and Washington, D.C. Notificants each engage directly and through subsidiaries in a broad range of banking and permissible nonbanking activities in the United States.3 Section 4(c)(8) of the BHC Act provides that a bank holding company may, with Board approval, engage in any activity that the Board determines to be "so closely related to banking or managing and controlling banks as to be a proper incident thereto." The Board previously has determined that all the activities proposed in these notices are closely related to banking within the meaning of section 4(c)(8) of the BHC Act.4 Notificants would conduct the proposed activities in accordance with Regulation Y and previous Board decisions.5 The Board also must consider whether the performance of the proposed activities by Notificants through MTS "can reasonably be expected to produce benefits to the public . . . that outweigh possible adverse effects, such as undue concentration of resources, decreased or unfair competition, conflicts of interests, or unsound banking practices."6 As part of this review under section 4(c)(8) of the BHC Act, the Board considers the financial and managerial resources of Notificants and their subsidiaries, and any company to be acquired, and the effect of the proposal on those resources.7 Based on all the facts of record, including reports of examination and other supervisory information, the Board concludes that financial and managerial considerations are consistent with approval of the proposal. In addition, there is no evidence in the record that the proposal would result in conflicts of interests or unsound banking practices.
Competitive Considerations The area of effective competition has been defined by reference to the line of commerce, or product market, and a geographic market. The Board has carefully considered the relevant product and geographic markets in which to analyze the competitive effects of this proposal in light of all the facts of record, including information provided by Notificants, the geographic scope of and services provided by existing ATM networks, and other providers of EFT services. The Board previously has identified three distinct products that may be offered by ATM networks:
HONOR provides all three services to its network members. BANKMATE provides only network access directly; network services and ATM processing are provided to members of BANKMATE through the current owner of MTS, MasterCard International.10 HTI is not acquiring from the network services or processing services that support the BANKMATE network. Accordingly, the relevant product market in which to examine the competitive effects of this proposal is the network access market.11 The Board previously has determined that the geographic market for network access is an area significantly larger than local banking markets and has considered the market area of an ATM network to consist of regions comprising several states.12 The HONOR network operates primarily in Florida, Virginia, and Maryland, with operations in 30 other states. The BANKMATE network operates primarily in the Midwest Region, and is the predominate regional EFT network in Kansas and Missouri. HONOR and BANKMATE ATM service areas overlap in Arkansas, Illinois, Kentucky, Missouri, and Tennessee. There are a number of considerations, however, that mitigate any decrease in existing or potential competition resulting from this proposal. Changes in market concentration, for example, would not be significant. Specifically, in those states where HONOR and BANKMATE overlap, either one or both of the networks has only limited operations in terms of the number of ATMs and financial institution members participating in the network. In addition, in Missouri, where BANKMATE is the leading network and where HONOR has limited operations, a number of other networks are represented and offer alternatives to BANKMATE, including several large regional networks.13 Similarly, in Tennessee, where HONOR is a leading network and where BANKMATE has a presence, several other regional networks are represented.14 In addition, several other large regional networks operate in areas adjacent to BANKMATE's network. The Board believes that these regional networks would provide competitive constraints on the BANKMATE network, and that their existence may become increasingly significant as multistate banking organizations continue to expand geographically.15 Moreover, smaller networks and third-party processors will continue to operate EFT networks within the Midwest Region, and to provide both direct and potential competition for the BANKMATE network. Finally, national networks offer an alternative to regional networks for some financial institutions in the Midwest Region, and national networks appear to be increasing their competitive pressure on regional networks.16 In addition, the Board has considered HONOR's operating rules, as well as the plans of Notificants to implement these rules for the member institutions in the BANKMATE network. HONOR's operating rules permit all depository institutions to participate in the HONOR network on a nondiscriminatory basis, to join other regional networks and to co-brand their cards and ATM terminals.17 The Board also notes that national network transactions initiated at a terminal in the HONOR network are not required to be routed through HTI's switch. HONOR's rules, moreover, permit the use of third-party processors and unbranded subswitching of transactions subject only to a royalty fee established to compensate HONOR for the use of its brand.18 The proposal, therefore, would provide services to depository affiliates of the Notificants and of other shareholders of HTI, as well as to unaffiliated financial institutions, under operating rules that promote open access to the network.19 Smaller financial institutions would have the opportunity to provide their customers with greater access to their deposit accounts and thereby could compete with larger, multistate organizations for retail deposit funds without substantial investments in their own proprietary ATM networks. In addition, the HONOR operating rules would promote competition between the HTI networks and alternative providers of EFT-related services, including national ATM and POS networks, other regional networks, and third-party providers of EFT switching and processing services, thereby encouraging price and other competition for the services provided by HTI. Moreover, there is no evidence in the record that this proposal would reduce competition among Notificants, the other shareholders of HTI, and other banking organizations as providers of banking products and services. In particular, HTI's operating rules do not set prices that a member institution must charge its retail customers for ATM or POS transactions.20 In this light, and based on all the facts of record, the Board concludes that the proposal would not result in adverse effects such as undue concentration of resources or unfair competition. For those reasons, and based on all the facts of record, the Board concludes that consummation of the proposal would not have a significantly adverse effect on competition in any relevant market.
Public Benefits Consumers would benefit from the added account availability and convenience resulting from consummation of this proposal. In particular, an ATM network with a larger number of financial institution members and available ATMs has greater value to network cardholders, because they would have broader and more convenient access to their deposit accounts. In this case, the geographic markets served by HONOR would expand to include the Midwest Region, and, accordingly, the benefits to consumers in these areas would be enhanced, particularly as consumers travel increasingly and business activity continues to grow.21 In addition, HTI would offer services through MTS to all financial institutions, and smaller financial institutions would have the opportunity to provide their customers with greater access to their deposit accounts. Membership in the BANKMATE network would thereby enable smaller financial institutions to compete with larger, multistate organizations to retain deposit funds without the necessity of making substantial investments in branch systems or their own proprietary ATM networks. Consummation of this proposal would also result in other public benefits. The proposal is expected to produce economies of scale, for example, and to reduce average costs for the combined networks.22 In addition, the Board expects that a portion of these cost savings would be passed on to member financial institutions, and to consumers, in the form of lower fees.23 The record also indicates that BANKMATE members would benefit from the expanded research and development programs of the HONOR network, and resulting new products. In addition, BANKMATE members would have access to a broader array of products and services that are currently being offered by HONOR, or that will be in the future, including mini-statement and prepaid phone card dispensing services and home banking services. Additionally, there are public benefits to be derived from permitting capital markets to operate so that bank holding companies can make potentially profitable investments in nonbanking companies when those investments are consistent, as in this case, with the relevant considerations under the BHC Act, and from permitting banking organizations to allocate their resources in the manner they believe is most efficient. For the foregoing reasons, and after careful consideration of all the facts of record, the Board has determined that consummation of this proposal can reasonably be expected to produce public benefits that would outweigh any possible adverse effects under the proper incident to banking standard of section 4(c)(8) of the BHC Act.
Conclusion The Board's determination also is subject to all the terms and conditions set forth in Regulation Y, including those in sections 225.7 and 225.25(g) (12 C.F.R. 225.7 and 225.25(g)), and to the Board's authority to require modification or termination of the activities of a bank holding company or any of its subsidiaries the Board finds necessary to assure compliance with, or to prevent evasion of, the provisions and purposes of the BHC Act and the Board's regulations and orders issued thereunder. For purposes of this action, the commitments and conditions shall be deemed to be conditions imposed in writing by the Board in connection with its findings and decision, and, as such, may be enforced in proceedings under applicable law. This proposal shall not be consummated later than three months after the effective date of this order, unless such period is extended for good cause by the Board or the Federal Reserve Bank of Atlanta or the Federal Reserve Bank of Richmond, acting pursuant to delegated authority. |
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By order of the Board of Governors,24 effective Octover 6, 1997.
(signed) Barbara R. Lowrey
Barbara R. Lowrey
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Appendix Asset and Deposit Data as of June 30, 1997. Barnett Banks, Inc., with approximately $44.7 billion in total consolidated assets, is the 23rd largest commercial banking organization in the United States, controlling $33.8 billion in deposits. Barnett Banks operates subsidiary banks in Florida and Georgia. BB&T Corporation, with approximately $23.0 billion in total consolidated assets, is the 35th largest commercial banking organization in the United States, controlling $15.4 billion in deposits. BB&T Corporation operates subsidiary banks in North Carolina, South Carolina, and Virginia. Central Fidelity Banks, Inc., with approximately $10.7 billion in total consolidated assets, is the 59th largest commercial banking organization in the United States, controlling $8.1 billion in deposits. Central Fidelity Banks operates subsidiary banks in Virginia. Crestar Financial Corporation, with approximately $22.9 billion in total consolidated assets, is the 36th largest commercial banking organization in the United States, controlling $15.9 billion in deposits. Crestar Financial Corporation operates subsidiary banks in Virginia. First American Corporation, with approximately $10.4 billion in total consolidated assets, is the 60th largest commercial banking organization in the United States, controlling $7.4 billion in deposits. First American Corporation operates subsidiary banks in Tennessee and Kentucky. First Citizens BancShares, Inc., with approximately $8.4 billion in total consolidated assets, is the 65th largest commercial banking organization in the United States, controlling $7.1 billion in deposits. First Citizens BancShares operates subsidiary banks in North Carolina, West Virginia, and Virginia. First Union Corporation, with approximately $142.9 billion in total consolidated assets, is the sixth largest commercial banking organization in the United States, controlling $91.7 billion in deposits. First Union operates subsidiary banks in North Carolina, Florida, Georgia, South Carolina, Tennessee, Virginia, Maryland, Delaware, Pennsylvania, New Jersey, New York, Connecticut, and Washington, D.C. First Virginia Banks, Inc., with approximately $9.1 billion in total consolidated assets, is the 64th largest commercial banking organization in the United States, controlling $7.7 billion in deposits. First Virginia Bank operates subsidiary banks in Virginia, Maryland, and Tennessee. Jefferson Bankshares, Inc., with approximately $2.2 billion in total consolidated assets, is the 145th largest commercial banking organization in the United States, controlling $1.9 billion in deposits. Jefferson Bankshares operates subsidiary banks in Virginia. NationsBank Corporation, with approximately $240.4 billion in total consolidated assets, is the fifth largest commercial banking organization in the United States, controlling $126.3 billion in deposits. NationsBank Corporation operates subsidiary banks in North Carolina, Texas, Tennessee, Oklahoma, New Mexico, Arkansas, Missouri, Iowa, Kentucky, and Delaware. Riggs National Corporation, with approximately $5.4 billion in total consolidated assets, is the 90th largest commercial banking organization in the United States, controlling $3.6 billion in deposits. Riggs National Corporation operates subsidiary banks in Virginia and Washington, D.C. Signet Banking Corporation, with approximately $11.9 billion in total consolidated assets, is the 56th largest commercial banking organization in the United States, controlling $8.2 billion in deposits. Signet Banking Corporation operates subsidiary banks in Maryland, Virginia, and Washington, D.C. SunTrust Banks, Inc., with approximately $55.4 billion in total consolidated assets, is the 18th largest commercial banking organization in the United States, controlling $34.6 billion in deposits. SunTrust Banks operates subsidiary banks in Georgia, Florida, Tennessee, and Alabama. Synovus Financial Corporation, with approximately $9.2 billion in total consolidated assets, is the 62nd largest commercial banking organization in the United States, controlling $7.5 billion in deposits. Synovus Financial Corporation operates subsidiary banks in Georgia, South Carolina, Alabama, and Florida. Wachovia Corporation, with approximately $48.5 billion in total consolidated assets, is the 21st largest commercial banking organization in the United States, controlling $27.8 billion in deposits. Wachovia Corporation operates subsidiary banks in North Carolina and Delaware. |
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Footnotes 1 As a result of recently proposed mergers and acquisitions involving HTI shareholders, the interests of BB&T Corporation; Central Fidelity Banks, Inc.; First American Corporation; First Citizens Bancshares; First Virginia Banks, Inc.; Jefferson Bancshares; Riggs National Corporation; Signet Banking Corporation; SunTrust Banks, Inc.; and Synovus Financial Corp., each will increase to more than 5 percent of HTI's class A voting shares. Accordingly, each of these bank holding companies has requested the Board's approval to acquire more than 5 percent of any class of HTI's voting shares, and thereby engage through HTI in providing certain data processing and management consulting services, pursuant to sections 225.28(b)(14) and 225.28(b)(9) of Regulation Y. The Board previously has determined that the activities conducted by HTI are closely related to banking within the meaning of section 4(c)(8) of the BHC Act. See Barnett Banks, Inc., et al., 83 Federal Reserve Bulletin 131 (1996) ("Honor/Most Order"), 12 C.F.R. 225.28(b)(14), and 12 C.F.R. 225.28(b)(9). These bank holding companies would conduct the proposed activities in accordance with Regulation Y and previous Board decisions. 2 In general, an ATM network is an arrangement whereby more than one ATM and more than one depository institution (or the depository records of such institutions) are connected by electronic or telecommunications means to one or more computers, processors, or switches for the purposes of providing ATM services to retail customers of the institutions. POS terminals are generally located in the establishments of merchants. They accept ATM or similar cards and, using the ATM network or a parallel POS-only network, provide access to the cardholder's account to transfer funds to the merchant's account. 3 Asset and deposit information for each of the Notificants is set forth in the Appendix. 4 See 12 C.F.R. 225.28(b)(14); Bank of New York Company, Inc., et al., 80 Federal Reserve Bulletin 1107 (1994) ("Bank of New York Order"); Banc One Corporation, et al., 81 Federal Reserve Bulletin 492 (1995) ("EPS Order"); and Honor/Most Order. 5 The Board notes that ATM activities must be conducted in accordance with applicable federal and state laws, including applicable branching laws. 6 See 12 U.S.C. § 1843(c)(8). 7 See 12 C.F.R. 225.26. 8 HTI operates the second largest EFT network in the United States, and MTS operates the tenth largest EFT network. 9 See EPS Order. 10 MasterCard International would continue to provide network and processing services to BANKMATE members during a transitional period, not to exceed one year. The record indicates that MasterCard International would continue to provide these services to its affiliates and their members, but does not intend to enter the market to provide these services to nonaffiliated entities. 11 In considering network access for POS transactions, the Board notes that there are a number of competitors in the market, including two large national networks that have grown substantially in recent years nationwide (VisaCheck and MasterMoney). 12 See EPS Order. 13 HONOR has five members in Missouri, and HONOR ATM terminals in Missouri account for less than 1 percent of the total ATMs in the state. 14 BANKMATE has one member in Tennessee, and BANKMATE ATM terminals account for less than 1 percent of the total ATMs in the state. 15 The record indicates that banking organizations tend to transport regional ATM networks as they expand into new geographic areas See Honor/Most Order. 16 See Honor/Most Order at p. 133. 17 The Board previously has determined that ATM network operating rules are an important consideration is assessing the competitive impact of a proposal under the section 4(c)(8) factors. See Bank of New York Order, EPS Order. In addition, HTI's corporate structure ensures that its board of directors will represent a wide range of interest and that HTI policy will not be dominated by the organizations with the largest shareholdings. The members of the Company's board of directors will be appointed by HTI's Class A shareholders, which are all financial institutions. The Class A shareholders consist of both net issuers and net acquirers of network transactions, vary in asset size of the organization, and are geographically diverse. See Honor/Most Order. 18 "Subswitching" refers to the switching of transactions between members of the same regional network without accessing that network, and, therefore, without paying the network's switch fee. Generally, this is accomplished by routing the transaction through a third-party processor that provides ATM processing services for both network members. 19 See Honor/Most Order at pp. 132-133. 20 See Honor/Most Order at p. 132. 21 See Honor/Most Order at p. 134. 22 Notificants expect that any BANKMATE processing that is transferred to HTI facilities would result in economies of scale with respect to computer facilities, operations personnel, programming staff, and other support services, and is likely to reduce costs of operation of the BANKMATE network. 23 See McAndrews, "Retail Pricing of ATM Network Services," Working Paper No. 96-4, April 1996, Federal Reserve Bank of Philadelphia (indicating that network fees and consumer prices are lower in larger EFT networks). 24 Voting for this action: Chairman Greenspan, Vice Chair Rivlin, and Governors Kelley and Phillips. Absent and not voting: Governor Meyer. |
1997 Orders on banking applications
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