WASHINGTON - Handing banks a solid victory in their push for broader powers, the Supreme Court ruled Wednesday that banks can sell annuities.
The justices, in a unanimous opinion, upheld a decision by the Comptroller of the Currency that selling annuities was "incidental" to banking, a requirement of the National Bank Act.
The ruling, experts say, is sure to boost banks' already brisk sales of annuities. Moreover, it could set the stage for the Comptroller to approve banks' expansion into other nontraditional lines of business.
"It's a huge, huge, huge victory," said Michael Crotty, deputy general counsel of the American Bankers Association. "This is a very broad and expansive reading of the incidental-powers clause."
The insurance industry, which views annuities strictly as insurance products, immediately slammed the decision and vowed to take the issue to Congress.
"The court has created a colossal mess with this ruling," said Phil Anderson, senior Washington representative for the Independent Insurance Agents of America.
The ruling comes amid a surge of consumer interest in annuities. These long-term investments, whose earnings are shielded from taxes until the money is withdrawn, have become a popular vehicle for retirement savings.
Some annuities feature fixed payments over specified terms, much like a bank certificate of deposit. Others offer a variable return that depends on the performance of an underlying mutual fund.
Banks are starting to take a big bite from the market. In 1993, banks sold $13.5 billion of annuities, accounting for 25% of all fixed annuity sales and 11.5% of the variable market, according to Kenneth Kehrer Associates, a Princeton, N.J., consulting firm. The firm estimates that bank sales in 1994 totaled $18.7 billion.
The Supreme Court's ruling gives "a green light" for the industry to expand still further, said Thomas Howe, executive vice president of Fleet Investment Services.
"I would expect there will be a significant expansion of bank annuity activity," added David Roderer, a partner at Winston & Strawn who represented several trade associations in a friend of the court brief. "I think it has immediate consequences."
The high court's decision came in a case that pitted NationsBank Corp. against Variable Annuity Life Insurance Co., or Valic. The case began when the Comptroller gave NationsBank of North Carolina permission in 1990 to sell annuities. The Houston-based Valic challenged the decision, winning before a federal appeals court in August 1993.
The Supreme Court, in a 14-page decision, said annuities serve the same need as traditional savings accounts. So bankers should be allowed to sell them under the incidental-powers clause, the court said.
And the court stated explicitly, for the first time, that the Comptroller has the authority to grant banks powers not expressly included in the National Bank Act.
Richard Whiting, general counsel to the Bankers Roundtable, said the court, by deferring to the Comptroller's expertise in the area, freed the regulator to tackle other controversial bank powers issues, such as securities underwriting and data processing.
The decision also establishes a framework for the Comptroller to extend additional powers to banks, said Julie Williams, chief counsel at the Office of the Comptroller of the Currency.
Under the court's formula, the agency must show the regulation is "reasonable." Ms. Williams said that means the agency must show how a new power resembles an existing one.
Nationsbank and other banks uniformly cheered the decision.
"We're elated," said Robert M. Kurucza, a law partner with Morrison & Foerster who represented NationsBank in the case.
"It ensures banks' ability to offer products that their customers want and that meet their customer's financial needs," added John Shivers, president of the Independent Bankers Association of America.
But Karen Addis, a spokeswoman for the American Council of Life Insurers, said the court erred in listening to the Comptroller's arguments. "The decision defers to a regulatory agency that in our opinion seriously mischaracterizes the nature of annuities," she said.
Valic's attorney, David O. Stewart, said the case was not a total loss for the insurance industry.
"The court makes it clear that annuities are still properly viewed as insurance in some contexts," Mr. Stewart said. That may allow states to regulate annuities under the theory that the products are insurance for supervisory purposes.
William Plasencia in New York contributed to this article.
