Alert August 05, 2008

OTS Amends Mutual Holding Company Regulations Applicable to Minority Stock Ownership Limitations of MHC Subsidiaries

The OTS published a final rule amending its mutual holding company regulations to permit certain mutual holding company (“MHC”) subsidiaries to adopt an optional charter provision that would prohibit any person from acquiring, or offering to acquire, beneficial ownership of more than ten percent of the outstanding stock of any class of voting stock of the institution during the five years following a sale by the subsidiary of less than 50 percent of its voting stock to parties other than the top-tier MHC (a “minority stock issuance”).  The optional charter provision may be adopted only by (a) a MHC subsidiary or (b) where there is no MHC subsidiary, by a former mutual savings association that reorganized into an MHC structure.

The regulations, which amend 12 C.F.R. §§ 575.9 and 575.14, are designed to prevent minority stockholders of a MHC subsidiary from exerting too much influence over the institution in the first years after a minority stock issuance.  In particular, the OTS expressed concern about several situations in which minority stockholders have taken actions that apparently were intended to force management to engage in stock repurchases or in a sale of the institution, based on their ability to vote on issues that must be presented separately to minority stockholders.  Accordingly, the implementing release states that the new regulations will allow institutions to adopt the optional charter provision in order to lessen their vulnerability to attempts by minority stockholders to take unfair advantage of the results of a minority stock issuance, and thereby ensure that such offerings are completed in a manner that strengthens the issuer.  The final rule is effective on October 1, 2008.