Banking Bill’s Winners and Losers Emerge
The bill rewriting Depression-era U.S. bank laws promises broad benefits to the banking, insurance and securities industries. A close examination of the fine print, however, shows some companies did particularly well, while others were disappointed.
On Tuesday, U.S. House and Senate negotiators formally approved details of the bill, clearing the way for final House and Senate action as early as today.
All but two of 20 senators, and 38 of 46 House members on the joint negotiating committee signed the so-called conference report, which translates the Oct. 24 general agreement on the bank bill into specific legislative language.
The bill is expected to lead to a fresh wave of mergers among banks, brokerages and insurance companies. The legislation also includes some rewards, and setbacks, for individual companies.
Jefferson Pilot Insurance Corp., Fannie Mae, American United Life Insurance Co. and rural banks are among the companies that benefit from some of the less-known provisions of the bill.
Losers include Wal-Mart Stores Inc., CMS Energy Corp., and Dillard’s Inc.
A look at the details:
* Citigroup had perhaps the most riding on the outcome, and emerged as the most visible winner.
Citigroup, the largest U.S. banking company, represents the combination of Citicorp and Travelers Insurance. That merger won Federal Reserve approval in September 1998 with one caveat: The Fed ordered Citigroup to sell its insurance underwriting operations within five years--unless Congress changed the law allowing banks to affiliate with insurers.
Citigroup stock, up 31 cents to $53.69 on the New York Stock Exchange on Tuesday, hit a record high of $56 last week, boosted in part by the bank bill.
* Jefferson Pilot of Greensboro, N.C., was granted special language in the bill, allowing the company--one of the few U.S. insurance companies in the broadcast business--to increase its broadcast holdings if it is purchased by a bank.
Without the amendment, Jefferson Pilot’s broadcast business would have been frozen at current levels if a bank bought the insurer.
The company’s stock, up 13 cents to $73.75 on the NYSE on Tuesday, has resurged to just below its record high reached late last year.
* Mutual insurance companies, such as American United Life of Indianapolis, scored a significant victory by winning the right to select a state with favorable insurance regulations in which to incorporate if they convert from a mutual ownership to a hybrid company owned by stockholders and policyholders.
* J.P. Morgan & Co., Bank of America, Chase Manhattan Corp., Citigroup, and First Union Corp., are among large U.S. banks to benefit from language in the bill governing regulation of the huge derivatives securities market.
These companies won a provision saying that bank regulators, not the Securities and Exchange Commission, will oversee all derivative “swaps,” including equity and credit swaps that are booked within a bank. Such swaps are a lucrative business for the banks.
* Mortgage giant Fannie Mae and rural banks came out ahead under a section of the bill concerning the Federal Home Loan Bank System. Rural banks won the right to get advances, a type of low-interest loan, from Federal Home Loan Banks to help them finance agricultural and small-business loans. This sort of financing is important for small banks because their deposit base has been shrinking in recent years.
Fannie Mae successfully lobbied to block a proposal by the home loan banks’ regulator, the Federal Housing Finance Board, to allow the banks to enter a form of direct lending for home loans, according to lobbyists and congressional aides.
* Among companies that were dealt setbacks by the bill, Wal-Mart, CMS Energy and retailer Dillard’s all have pending applications to create new savings and loans known as unitary thrifts.
But the bill prohibits the Office of Thrift Supervision from approving new unitary thrift applications received after May 4, 1999, the day the Senate began debate on the bill. Wal-Mart, CMS and Dillard’s submitted their applications after May 4.
* Bank of America failed to win a change in an existing law that prohibits regulators from approving any combination that gives a bank 10% or more of all federally insured bank or thrift deposits.
Bank of America, formed from a string of acquisitions, is approaching the ceiling with 7.96% of U.S. deposits. The item wasn’t in either the House or Senate bills, so its addition in the conference committee could have raised procedural problems for the entire bill.
