By the Division of Banks


Lehman Brothers Bank, FSB, Wilmington, Delaware ("Lehman Brothers" or the "Petitioner") has applied to the Division of Banks (the "Division") for permission to merge with Capital Crossing Bank ("Capital Crossing"), Boston, Massachusetts pursuant to the provisions of Massachusetts General Laws chapter 167, section 39B and chapter 172, section 36 under the terms of an Agreement and Plan of Reorganization (the "Agreement") dated as of September 19, 2006. The Agreement provides for the merger of Capital Crossing with and into Lehman Brothers under the charter, by-laws and name of Lehman Brothers Bank, FSB. The main office of Lehman Brothers would remain the main office of the continuing institution and the sole banking office of Capital Crossing will become a branch office of the continuing bank. This transaction is also part of a multi-step transaction which included an application before the Board of Bank Incorporation in which the Petitioner and related parties will acquire Capital Crossing. Also, as part of this transaction is the merger of Capital Crossing with Bantam Acquisition Bank, FSB, Boston, Massachusetts, an interim federal savings association which will be formed as an operating subsidiary of Lehman Brothers.

Notice of the application has been posted and published. The time period for interested persons to submit documents has passed. Accordingly, all documents and materials related to this multi-step transaction have been reviewed. The record has been considered with regard to the financial and managerial resources of each bank, the competitive effects of the proposed transaction, the convenience and needs of the communities to be serviced by the continuing institution, the record of performance under the Community Reinvestment Act ("CRA") of the banks involved in the transaction and other applicable criteria.

As an interstate transaction, the reciprocity of the laws of Lehman Brothers home state must be reviewed. Under Massachusetts law, the determination of reciprocity of the laws of another state rests solely with the Commissioner of Banks. I have found that Delaware law is reciprocal and does expressly authorize a similar transaction by a Massachusetts bank holding company under conditions no more restrictive than those imposed by Chapter 167A. Additionally, all aspects of this multi-step transaction including the subsequent merger of Capital Crossing with and into an out-of-state federal bank, Lehman Brothers, and that out-of-state bank's retention of a branch office were also found to be reciprocal. Accordingly, the proposed transaction is permissible under the Commonwealth's Interstate Banking Act.

Lehman Brothers is a federally-chartered savings bank subject to supervision by the Office of Thrift Supervision ("OTS"). Lehman Brothers has its main office in Wilmington, Delaware and a branch office in Jersey City, New Jersey. It also has an Executive Office located in New York, New York. It had total assets on a consolidated basis of approximately $21 billion at September 30, 2006. Lehman Brothers offers general deposit services and some credit products which are comprised of both the origination and purchase of first and second residential mortgage loans, commercial loans and student loans. However, it purchases more loans than it originates. Lehman Brothers also, as a part of its banking business, acquires discounted commercial loans. Other financial services include debit and credit as well as ATM cards and money transfer services. Its deposits are mostly brokered deposits. Deposits in Lehman Brothers are insured by the Federal Deposit Insurance Corporation ("FDIC"). Lehman Brothers Bank is a direct subsidiary of Lehman Brothers Bancorp and an indirect subsidiary of Lehman Brothers Holdings, Inc.

Capital Crossing Bank is a state-chartered trust company with its main office in Boston. It has no branch offices. Capital Crossing had assets of approximately $1.1 billion as of June 30, 2006. Similarly to Lehman Brothers, its operations are limited. Capital Crossing specializes in the acquisition of loans secured by commercial real estate, multi-family and one-to-four family residential real estate, other business assets, and originating and purchasing leases that finance the business activities of small companies. Capital Crossing does not make consumer or commercial loans. Also like Lehman Brothers, the vast majority of its deposits are brokered deposits which are also insured by the FDIC. Capital Crossing's sole banking office will be retained as a branch office of Lehman Brothers.

The Division has reviewed the transaction to determine that competition among banks will not be unreasonably affected by the proposed acquisition. It is the position of the Division to consider a transaction in light of its impact on the citizens, communities and banking structure in the Commonwealth on a community by community basis. As set out in the application, there is no overlap in the banking offices of Lehman Brothers and Capital Crossing since they conduct business in different states. The Division has reviewed other aspects of the banking business of each institution but does not find that the transaction will unreasonably affect competition. The Division has also considered the record of this application to determine whether public convenience and advantage will be promoted by this transaction. In the filed application, public testimony and supplemental filings, the Petitioner details how it believes the public will benefit by the proposed transaction. As described previously, both Capital Crossing and Lehman Brothers have a unique business plan. Capital Crossing specializes in the acquisition and servicing of small balanced discounted commercial mortgage loans. As stated in the application, the proposed transaction will enable Capital Crossing, as a branch office of Lehman Brothers, to become a larger and more competitive player in the discounted commercial loan market. Moreover, loans previously held in portfolio by Capital Crossing will be included in a securitization development strategy of Lehman Brothers. As set out in the application, the business strategy of Capital Crossing will be significantly enhanced through its acquisition by Lehman Brothers.

In determining whether or not to approve a transaction under the statutory criteria the Division is also required to determine that the transaction will result in net new benefits. As set out herein that term includes a showing of initial capital investments, job creation plans, consumer and business services as well as commitments to maintain and open branch offices.

In its several filings, the Petitioner addresses each of the provisions under the net new benefits test. The Petitioner's projections for growth in the acquired business of Capital Crossing will result in a capital investment of several million dollars in the infrastructure and technology needed to supplement and update Capital Crossing's current systems. The filings also project significant growth in employment in Massachusetts resulting from its acquisition of Capital Crossing. As stated at the public hearing, there will be no jobs eliminated as a result of the proposed transaction. Although both Lehman Brothers and Capital Crossing provided limited retail banking services, Lehman Brothers offers the most such services and particularly consumer and commercial credit products, all of which will become available to customers of Capital Crossings as a branch office of Lehman Brothers. Moreover, as noted above, the sole office of Capital Crossing will be maintained as a branch office of Lehman Brothers. The Division has considered the unique operations of the Petitioner and Capital Crossing and all documents and testimony related thereto and finds that consideration of public convenience and advantage including net new benefits weigh in favor of approving the proposed transaction.

Related to the issue of public convenience and advantage is the record of performance under CRA by the banks which are parties to this transaction. Such review for a Massachusetts state-chartered bank includes examination by personnel of the Division of Banks as well as analysis of concerns received from the bank's community and its response to those concerns fairly raised. Capital Crossing operates under an approved Strategic Plan for compliance with CRA. For other institutions, the Division looks to a publicly available descriptive rating and evaluation by a federal or state bank regulatory agency. Lehman Brothers is a federally chartered bank examined for compliance with federal CRA provisions by the OTS. The Division has noted that Lehman Brothers received an "Outstanding" rating in its last examination of performance under CRA by the OTS, while Capital Crossing received a "Satisfactory" rating at its most recent examinations conducted by the Commonwealth's Division of Banks as well as the FDIC.

The financial aspects and tax consequences from the structure of the transaction were also considered by the Division. Management factors reviewed were also found supportive of approval.

The complete record of this multi-step transaction reflects letters both in support and opposition to the proposed transaction. One letter in opposition signed by five groups was subsequently withdrawn and supplanted by a letter in support. The Petitioner made three supplemental filings. All documents field were reviewed and analyzed by the Division. Several issues were raised relative to CRA and fair lending. These issues were analyzed by Compliance Examination staff of the Division for consideration of this merger transaction before it as well as for the Board of Bank Incorporation (the "Board") for the holding company acquisition transaction before the Board. The Division incorporates by reference the discussion of comments received and supplemental filings contained in the Decision of the Board of Bank Incorporation of this same date.

Upon review of this application with reference to the relevant statutory and regulatory criteria, the Division has concluded that all such requirements have been met and that consummation of these proposed mergers would be in the public interest. On the basis of these considerations, approval is granted for Bantam Acquisition Bank, FSB, the interim federal savings association to merge with and into Capital Crossing and subsequent to that consolidation for Capital Crossing to merge with and into Lehman Brothers under the charter, by-laws and the name of Lehman Brothers Bank, FSB pursuant to Massachusetts General Laws chapter 167, section 39B and the applicable provisions of chapter 172 of the Massachusetts General Laws. Approval is also granted for Lehman Brothers to maintain the sole banking office of Capital Crossing as a branch office.

The approvals granted herein are subject to the following conditions:

  1. that the merger of Capital Crossing and Lehman Brothers shall not become effective until a certificate signed by the Presidents and Clerks or other duly authorized officers of the banks involved in the merger indicating that each such institution has complied with the provisions of Massachusetts General Laws chapter 167, section 39B, and chapter 172, section 36, have been returned;
  2. that the proposed transaction shall not become effective until Articles of Merger are filed with the Secretary of State;
  3. that, in accordance with said section 39B, the banking office of Capital Crossing to be maintained as a branch office of the continuing bank shall operate the same as a federal branch subject to all laws of the Commonwealth relative to community reinvestment, consumer protection, fair lending, establishment of intra-state branches, and other provisions of law as set forth in said section 39B; and
  4. that all such mergers shall be consummated within one year of the date of this decision.

February 13, 2007

Steven L. Antonakes
Commissioner of Banks