Decision relative to the petition of Citizens Financial Group, Inc., Providence, Rhode Island to acquire UST Corp., Boston, Massachusetts
By the Division of Banks
Citizens Financial Group, Inc. ("Citizens Financial" or the "Petitioner"), Providence, Rhode Island and related entities as described herein have petitioned the Board of Bank Incorporation (the "Board") pursuant to Massachusetts General Laws chapter 167A, sections 2 and 4 to acquire UST Corp., Boston, Massachusetts which is the bank holding company for USTrust and United States Trust Company, both are also located in Boston. The application before the Board is part of a multi-step transaction. The other parts are the subject of applications before the Division of Banks (the "Division"). One is an application to merge USTrust with and into Citizens Bank of Massachusetts, ("Citizens Bank"), Boston, a subsidiary of Citizens Financial. Additionally, if the holding company acquisition and bank merger transactions are approved, the continuing bank, Citizens Bank, has applied to the Division to close thirty-seven branch offices. The applications reflect that Citizens Financial would maintain United States Trust Company as a separate bank subsidiary.
Notice of these applications was published as directed by the Board thereby affording opportunity for interested parties to submit comments. Other standard procedures informing the public of the matters before the Board were implemented. A public hearing relative to these matters was held by the Board on October 20, 1999 and the period for filing comments after the hearing ended on November 1, 1999.
The Board has reviewed the application as well as the oral and written testimony received at the public hearing and during the open comment period which were applicable to matters within the Board's jurisdiction. Comments were received from public officials, community organizations and individuals. Some of the comments received at the public hearing pertained to matters subject to the applications pending directly before the Division of Banks. The Petitioner, as requested by the Board at the public hearing, submitted supplemental documents at the end of the comment period on issues raised during that proceeding. Additional clarification on certain matters was subsequently requested which the Petitioner addressed in its filing dated November 17, 1999. The Board's review focused on the statutory and administrative criteria which includes, among other things, whether competition among banking institutions will be unreasonably affected; whether public convenience and advantage would be promoted; and the record of performance under the Community Reinvestment Act ("CRA") by the involved banks. The additional statutory requirements set out in sections 2 and 4 of said chapter 167A were also significant factors in the Board's deliberations on the matters before it.
One such statutory provisions requires the Board to have received notice from the Massachusetts Housing Partnership Fund (the "MHPF") that satisfactory arrangements have been made by the Petitioner consistent with statute and the MHPF's various affordable housing loan programs. In the application documents and at the public hearing the Petitioner informed the Board of its discussions and filings with the MHPF in order to meet this requirement. The Board received notice from the MHPF that arrangements satisfactory to it had been made for this transaction in a letter dated December 8, 1999.
As an interstate transaction, the reciprocity of the laws of Citizens Financial's home state must be reviewed. Citizens Financial's home state for determination of applicable law is Rhode Island. Under Massachusetts' law, the determination of the reciprocity of the laws of another state rests solely with the Commissioner of Banks. The Commissioner has previously ruled in transactions involving Citizens Financial that Rhode Island law is reciprocal and does expressly authorize a similar transaction by a Massachusetts holding company under conditions no more restrictive than those imposed by chapter 167A. Accordingly, the proposed transaction is permissible under the Commonwealth's Interstate Banking Act and, therefore, the Board will proceed to consider whether other statutory requirements are met by this application.
Presently, Citizens Financial's indirect parent is The Royal Bank of Scotland plc (the "Royal Bank"). The Royal Bank is a UK commercial and retail clearing bank with antecedents dating back to 1727 and has over 650 branches in the UK. The Royal Bank is, in turn, the principal subsidiary of The Royal Bank of Scotland Group plc (the "Group") which is the 84 th largest banking organization in the world. At March 31, 1999, it had total consolidated assets of $132.4 billion. On November 23, 1999, the Board approved the application to insert RSBG International Holdings as the direct holding company of Citizens Financial. Citizens Financial is one of the 45 largest bank holding companies in the United States and one of the four largest headquartered in the New England region. It was incorporated under the laws of Delaware in 1984. It had consolidated assets of $18.9 billion at March 31, 1999. It operates four banks all in New England including Citizens Bank of Massachusetts ("Citizens Bank"), Boston.
Citizens Bank had total assets of $6.0 billion at March 31, 1999. It operates approximately 100 branch offices. Effective September 30, 1999 at 5:01 p.m. Citizens Bank, by operation of law, Chapter 64 of the Acts of 1999, and with the approval of the Commissioner of Banks, had its charter transferred from a savings bank to a trust company. As a trust company, its deposits in excess of FDIC coverage will no longer be insured by the Deposit Insurance Fund. Under said Chapter 64, excess deposits in Citizens Bank on September 30 th will remain fully insured for one year while each term deposit remains fully insured until maturity.
UST Corp. had total consolidated assets of $5.9 billion at March 31, 1999. In addition to USTrust and United States Trust Company, it has several nonbank subsidiaries. USTrust operates as a full service commercial bank. Its total assets were $5.9 billion at March 31, 1999. USTrust operates eighty-seven branch offices. United States Trust Company focuses its activities on providing trust and money management services. It maintains no branch offices.
The Petitioner has submitted extensive materials to address the issue that competition among banks will not be unreasonably affected by the proposed transaction. Much of that analysis is detailed according to various tests used by federal agencies. That analysis demonstrates that consummation of the transaction will not result in undue concentration of banking resources in the specified banking markets in Massachusetts. Traditionally, however, this Board has not limited its review to those previously cited federal standards in its consideration of whether competition will be unreasonably affected. Rather it its the position of this Board 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 instead of by variously grouped markets. Upon review, the Board does not believe the transaction will unreasonably affect competition since a number of diverse bank and financial institutions will continue to provide competitive deposit and credit services in the affected areas.
The Petitioner stated at the public hearing that one of the major reasons for the transaction was to react to a recent transaction involving larger competitors. Petitioner views this transaction as a necessary response in order to compete effectively with such competition. Petitioner believes that, in light of the other transaction, competition will in fact be enhanced by having a larger and more competitive institution that will still remain community focused.
The Board's review of the impact of the competitive effects of the multi-step transaction also took into consideration the Petitioner's plans for disposition of the thirty-seven branch offices proposed to be closed. In previous decisions the Board has expressed its support and encouragement in such situations for turnkey operations whereby other financial institutions would be able to operate the site as a branch office. At the Board's request the Petitioner clarified its position on this issue in its filing of November 17, 1999. The Petitioner committed to entertain all offers for the thirty-seven sites "including, without limitation," competing financial institutions, interested in either purchasing or subletting or both all such sites. These commitments as well as the analysis of the competitive effects of the transaction weigh in support of its approval.
The Division has also considered whether public convenience and advantage will be promoted by this proposed transaction. The immediate transaction together with the ultimate merger of USTrust with and into Citizens Bank will, according to the application, enhance the ability of Citizens Bank to better serve customers and continue to attract employees. Specifically, customers of USTrust will benefit from a significantly greater access to Citizens Bank's branches as well as additional ATM access. Similarly, customers of Citizens Bank will benefit from the additional branch offices of USTrust. Even with the proposed branch closings, a customer of Citizens Bank would have approximately 50 additional branch offices available to them while customers of USTrust would have even more branches available upon the proposed merger. Further, Citizens Bank will offer a wide array of products and services to USTrust customers such as to use the Internet for certain services, supermarket branches as well as a 24 hour a day telephone service. These factors weigh in favor of approval.
At the public hearing the Board raised the issue of ATM surcharges in light of the fact that Citizens Bank assessed such a fee while USTrust was the largest member of the surcharge free network, SUM. The Petitioner's oral testimony was that it would honor the terms and conditions of USTrust's contract with SUM. Moreover, the Petitioner stated it was in the process of reviewing its strategic position on ATM surcharges. The supplemental filing by the Petitioner confirmed the oral testimony. The Board has noted that Citizens Financial announced on November 22, 1999 that Citizens Bank will also now participate in the surcharge free SUM network. This action will currently add approximately 255 new ATM locations to the network and will benefit customers of Citizens and USTrust as well as all customers of banks participating in the SUM network.
The Board has considered the Petitioner's analysis of the "net new benefits" that would result from the proposed acquisition of UST Corp as required under section 4 of chapter 167A of the General Laws. The Petitioner's application, oral testimony and supplemental filings address this issue in detail on matters of initial capital investments, job creation plans, consumer and business services and commitments to maintain and open branch offices. The proposed closing of thirty-seven branch offices was discussed at the public hearing. Individuals and public officials commented in opposition to the loss of specific banking locations. The Board is aware of the Petitioner's analysis that the restructuring of the branch network is to address overlapping coverage within the same general service area and that the continuing bank will continue to expand its branch office network. The Board recognizes, as noted above, that the proposed closings are by separate statute subject to action by the Division of Banks alone.
Related to the issue of public convenience and advantage is the record of performance under the Community Reinvestment Act ("CRA") by the banks which are the parties to this multi-step transaction. Such review for a state-chartered bank includes examination by personnel of the Board as well as analysis of concerns received by the bank's community and its response to those concerns fairly raised. For other institutions, the Board looks to a publicly available descriptive rating and evaluation by a federal or state bank regulatory agency. The matter was specifically addressed at the public hearing by the Board. The Board has noted that both Citizens Bank and USTrust received an "Outstanding" rating in their most recent examinations of performance under CRA. The Board's review of factors related to public convenience and advantage are consistent with approval.
The financial structure of the transaction was reviewed and addressed. The resulting capital ratios and projections for the Petitioner are satisfactory. Management factors reviewed in consideration of the proposed transaction before the Board are also supportive of its approval. Additionally, all other requirements of statute relating to a bank holding company acquisition have been met.
Conclusion
Based on the record of this matter including testimony received at the public hearing, subsequent information provided as a result of the Board's request at the hearing, as well as additional requested information considered in light of all relevant statutory and administrative requirements, the Board finds that competition among banking institutions will not be unreasonably affected, that public convenience and advantage will be promoted by consummation of the proposed transaction, and that the records of performance under CRA by the banks involved in this transaction are consistent with its approval. Therefore, in accordance with these findings and pursuant to the statutory authority cited herein the Board approves the application and authorizes Citizens Financial and related entities to acquire 100% of the stock of UST Corp.
The approvals granted herein are subject to the condition that all related transactions are completed within one year of the date of this Decision.
| Thomas J. Curry Commissioner of Banks | |
| Frederick A. Laskey Commissioner of Revenue | Board |
| Shannon P. O'Brien Treasurer and Receiver-General | |
| January 6, 2000 Date |