WASHINGTON -- BankAmerica Corp. has won permission from regulators to use its Portland thrift subsidiary as an umbrella for its $400 billion in institutional trust assets.
The Office of Thrift Supervision on Aug. 21 quietly permitted B of A to transfer its trust assets under management to Portland-based Bank of America FSB in five stages over two years. The Portland thrift has $3.8 billion of assets while the bank has $197.5 billion of assets.
The nation's second-largest bank praised the regulator's move. "By simplifying and streamlining the legal structure and organization of the business, it means we operate more efficiently and we have the ability to offer products at lower costs," BankAmerica spokeswoman Sharon Tucker said.
The agency conditioned its approval on several factors, one of which was that the OTS be kept apprised of the status of pending litigation related to the trust business.
Regulators were concerned because the San Francisco-based bank faces a set of lawsuits that could cost it tens of millions of dollars, someone familiar with the reorganization plan said. The suits charge that a New York unit engaged in fraud, and seek punitive damages in addition to coverage of losses.
Those allegations involve BankAmerica's Sequor Securities Lending Group, Ms. Tucker said, adding that now, "the businesses are Clean."
Much of B of A's trust business was acquired when it merged with Security Pacific in 1992. The potentially expensive lawsuits stem from allegations of wrong-doing by SecPac trust employees, the source said.
In the first stage of the institutional trust transfer, Ms. Tucker said, the holding company will move the trust unit at Seattle's Seattle-First National Bank to the Portland thrift.
She later said the bank had not made a final decision on the order in which units would be moved. "We are going to tell clients first." Ms. Tucker refused to say how much in trust assets under management any of the units hold.
"The Seattle portfolio is quite small compared to the Bank of America NT & SA that is the mother ship here in California," Ms. Tucker said.
With each of the five trust transfer stages, the Portland thrift must hold an-additional $10 million of capital above its well-capitalized minimum, OTS documents show. After completing the acquisition, it must hold the additional $50 million of capital for a year, after which the OTS may allow the thrift to sink to its well-capitalized minimum.
The OTS now supervises just $9.3 billion of trust assets. After BankAmerica finishes transferring trust activities to its thrift subsidiary, that amount will balloon to $388 billion - a 40-fold increase. But the OTS said it has already begun to prepare for the new regulatory responsibilities.
"In the past year, the West region has been aggressively training already experienced safety and soundness examiners," said OTS spokesman William Fulwider. Those OTS examiners have already trained with B of A current Federal Reserve and Office of the Comptroller of the Currency examiners, he said.
The OTS also plans to recruit an experienced, senior trust examiner to lead the pack of OTS overseers, Mr. Fulwider said.
In the past, the OCC and Fed examiners criticized BankAmerica's trust operations as badly run and needing centralization.
Documents related to the move disclose that the giant California bank had two years ago explored the idea of the Portland thrift "expanding its interstate consumer lending operations."
The language referred to the possibility that BankAmerica would transfer to the thrift its nonbank consumer finance company, San Diego-based Security Pacific Financial Services Inc., Ms. Tucker said. That idea has been rejected, she said.
The OTS' approval of the consolidation also marks the first time it will supervise offshore bank offices. The agency allowed B of A's London and Sydney offices to be transferred to the Portland thrift.