State Street Boston Corp. has asked regulators to prohibit Bank of New York Co. from doubling its holdings of State Street stock.
In the face of what some observers have seen as the makings of an unwelcome takeover bid, State Street has sent letters asking the Federal Reserve Bank of New York and Massachusetts Board of Bank Incorporation to decline Bank of New York's request to buy an additional 4.9% stake.
Bank of New York, which already owns 4.9% of State Street's shares, filed the application to boost its interest in January.
State Street told the New York Fed, in a formal comment filed Feb. 27, that it believes Bank of New York is intent on a takeover. The latter was responsible for the first of the industry's big hostile takeovers-of Irving Bank Corp. in 1989.
Officials at the New York Fed and in Massachusetts said they expected to rule on the Bank of New York application in the next few weeks, but ultimate approval could take a couple of months because the Federal Reserve Board in Washington will likely have the final say.
A ruling against Bank of New York would be unprecedented, said market watchers. But some said they believe the Massachusetts regulators are inclined to favor $29.5 billion-asset State Street.
"It's grown into a political football," said Thomas D. McCandless, an analyst at Natwest Securities.
Indeed, $29.5 billion-asset State Street has gone on a public relations offensive in its home state, saying jobs and community investment projects could be jeopardized if Bank of New York ever gained control.
In recent filings and at hearings held by the Massachusetts banking agency, State Street said Bank of New York's application has led to lost business and client confusion.
State Street alleged one of its clients was told by a Bank of New York senior vice president-it did not name the person-that his company was seriously considering buying the Boston bank. Other Bank of New York executives made similar statements to securities analysts, according to State Street's comment letter.
"Since Bank of New York filed its application, State Street has received numerous inquiries from current customers expressing great concern ... and State Street also understands that it has been excluded from consideration by potential new customers," the comment said.
The $53.4 billion-asset Bank of New York needs regulatory approval to make its additional $640 million investment in State Street, based on a price of $80 per share.
In testimony last month before Massachusetts regulators and in repeated public statements, the New York bank has denied that its potential holding of just under 10% represents a threat.
"This should not be construed as an attempt to acquire control," said an attorney representing Bank of New York.
Diane B. Glossman, an analyst at Salomon Brothers, said she wasn't convinced Bank of New York was using its stock purchases as a launching pad for an outright purchase. "There are other ways to do a hostile takeover," she said.
But Mr. McCandless, in common with other analysts, said Bank of New York "is very serious about acquiring State Street."
