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  1. Speaker Firms: Presented By: KPMG LLP Carl Carande Principal, Advisory and Banking and Finance KPMG LLP Tim Phelps Managing Director Skadden, Arps, Slate, Meagher & Flom LLP Jamie L. Boucher Partner, Financial Institutions Regulatory Group Pepper Hamilton LLP Timothy R. McTaggart Partner Thank you for logging into today’s event. Please note we are in standby mode. All Microphones will be muted until the event starts. We will be back with speaker instructions @ 11:55 AM. Any Questions? Please email: Info@knowledgecongress.org Group Registration Policy Please note ALL participants must be registered or they will not be able to access the event. If you have more than one person from your company attending, you must fill out the group registration form. We reserve the right to disconnect any unauthorized users from this event and to deny violators admission to future events. To obtain a group registration please send a note to info@knowledgecongress.org or call 646.202.9344. December 8, 2009

  2. If you experience any technical difficulties during today’s WebEx session, please contact our Technical Support @ 866-779-3239. • You may ask a question at anytime throughout the presentation today via the chat window on the lower right hand side of your • screen. Questions will be aggregated and addressed during the Q&A segment. • Please note, this call is being recorded for playback purposes. • If anyone was unable to log in to the online webcast and needs to download a copy of the PowerPoint presentation for today’s • event, please send an email to: info@knowledgecongress.org. If you’re already logged in to the online webcast, we will post a link • to download the files shortly. • “If you are listening on a laptop, you may need to use headphones as some laptops speakers are not sufficiently amplified enough to • hear the presentations. If you do not have headphones and cannot hear the webcast send an email to info@knowledgcongress.org • and we will send you the dial in phone number.“ December 8, 2009

  3. About an hour or so after the event, you'll be sent a survey via email asking you for your feedback on your experience with this event • today - it's designed to take less than two minutes to complete, and it helps us to understand how to wisely invest your time in future • events. Your feedback is greatly appreciated. If you are applying for continuing education credit, completions of the surveys are • mandatory as per your state boards and bars. 6 secret words (3 for each credit hour) will be given throughout the presentation. We • will ask you to fill these words into the survey as proof of your attendance. Please stay tuned for the secret word. • Speakers, I will be giving out the secret words at randomly selected times. I may have to break into your presentation briefly to read • the secret word. Pardon the interruption. December 8, 2009

  4. Unlimited Plan Features: • Unlimited access to all live webcasts for your employees. • You and your employees will be able to attend all of our webcasts on the schedule for the quarter. • There is no limit on how many webcasts you can attend and how many people from your firm join the webcasts. • Unlimited access to all of our recorded webcasts and archived material with a license to use for internal training and/or case preparation. • Your employees will have access to a wealth of archived material. • All material includes the recorded webcasts as well as the course material. • Access to all Opt-in attendee registration lists. • You will have access to the list of attendees who agree to receive information from event partners. (50% of the list.) • Why not turn the webcast into a business opportunity? This feature will connect you with a substantial portion of the audience. • Guaranteed admittance: • Your attorneys/employees will be guaranteed admittance to all webcasts. • Including those that are sold out and/or closed for registration. December 8, 2009

  5. Unlimited Plan Features: • Priority customer service line: • You will receive a priority customer service account manager. • You will bypass the main customer service department. • Priority CLE/CPE processing. • Attendees from your firm will receive expedited processing of Certificate of Attendance Forms. • Please note, your State Bar or Accounting Board will make the final determination with respect to continuing education credit. If you are applying for CLE credit in Texas you must register 20 days before the event date.) • Discounted Guest passes: • You can Purchase guest passes for your clients and guests at a discounted rate of $99 each. • Invite anyone you wish: colleagues, clients, potential clients. • Download the Brochure & Our Forward Schedule: • http://www.mediafire.com/file/gzjmjgengmt/Unlimited_Attendee_Plan_21709r.pdf December 8, 2009

  6. Brief Speaker Bios: Carl Carande Carl Carande is the KPMG Industry Lead for Banking and Finance in the United States. Carl has 25 years of Commercial and Retail Banking experience with major U.S. global and regional banks in the areas of Merger Integration, Commercial Product Pricing and Analysis, Productivity Modeling, Process Reengineering and Internal Control Best Practices. Tim Phelps Tim Phelps is a Managing Director in KPMG LLP’s Southeast Advisory Services practice based in Charlotte, NC. Tim has 15 years Financial Services experience, specializing in merger integrations both while in industry with a Top 10 Global Bank and with KPMG over the past 10 years. December 8, 2009

  7. Brief Speaker Bios: Jamie L. Boucher Jamie L. Boucher is a partner in Skadden’s Financial Institutions Regulatory Group with a principal focus on financial institution mergers and acquisitions, regulatory and enforcement matters. Ms. Boucher’s clients include U.S. and non-U.S. banks, thrifts, mortgage lenders, insurance, securities, money service businesses and investment companies. She is part of the Skadden team advising clients on various aspects of the Troubled Assets Relief Program (TARP) including the contractual, corporate, regulatory and other aspects of issuing preferred stock to the U.S. Treasury Department under the Capital Purchase Program, and the sale of assets to Treasury under the Troubled Assets Relief Program. Timothy R. McTaggart Timothy R. McTaggart is a partner in the Washington office of Pepper Hamilton LLP. He focuses his practice on bank and financial services regulatory matters. He also assists financial services clients on transactional and enforcement issues. Earlier in his career, Mr. McTaggart served as the Delaware State Bank Commissioner (1994-1999) and as counsel to the U.S. Senate Banking Committee (1991-1994). Mr. McTaggart has represented clients before the federal bank regulatory agencies, including the Office of the Comptroller of the Currency, Federal Deposit Insurance Corporation, Office of Thrift Supervision and the Board of Governors of the Federal Reserve System, as well as various state banking departments across the country. ► For more information about the speakers, you can visit: http://knowledgecongress.org/event_2009_Bank_Mergers.html December 8, 2009

  8. Mergers have become an important self-preservation tool for banks and financial institutions in the wake of the global financial crisis. These firms, however, face considerable challenges with respect to M&A activity and its potential negative impact on their customer bases. In the customer’s mind, it’s all about trust and confidence, but people lose faith when they see mergers as a result of financial duress. Thus, it is necessary to lay out plans that can prevent consumer attrition and reassert confidence during the interim period. How do mergers affect consumers of the banks involved? What factors erode consumer confidence in the institutions and what can be done? The Knowledge Group is assembling a panel of distinguished professionals to help banks, financial institutions, and industry watchers understand the impact of bank mergers and to teach them how to retain consumers in these turbulent times. December 8, 2009

  9. Featured Speakers: SEGMENT 1: Tim Phelps Managing Director KPMG LLP Carl Carande Principal, Advisory and Banking and Finance KPMG LLP SEGMENT 2: SEGMENT 3: Jamie L. Boucher Partner, Financial Institutions Regulatory Group Skadden, Arps, Slate, Meagher & Flom LLP Timothy R. McTaggart Partner Pepper Hamilton LLP December 8, 2009

  10. SEGMENT 1: Tim Phelps Managing Director KPMG LLP Carl Carande Principal, Advisory and Banking and Finance KPMG LLP Introduction Carl Carande is the KPMG Industry Lead for Banking and Finance in the United States. Carl has 25 years of Commercial and Retail Banking experience with major U.S. global and regional banks in the areas of Merger Integration, Commercial Product Pricing and Analysis, Productivity Modeling, Process Reengineering and Internal Control Best Practices. Carl has led teams that have supported all components of post-deal integration execution for numerous top 25 banks. Mr. Carande has worked with several top tier banks in re-designing front and back office processes to take advantage of the latest technology and industry practices to establish leading customer experience practices that have generated incremental revenue while driving efficiencies in the operational delivery of the products and services. Tim Phelps is a Managing Director in KPMG LLP’s Southeast Advisory Services practice based in Charlotte, NC. Tim has 15 years Financial Services experience, specializing in merger integrations both while in industry with a Top 10 Global Bank and with KPMG over the past 10 years. Tim served as the engagement manager on numerous large scale bank mergers where we provided an objective assessment on the integration tools, processes, reporting, peer benchmarking, customer/associate readiness assessments, while identifying key issues and risks so executive management could make real time course corrections where necessary. He managed a Customer Experience effort during a large scale integration to design, implement and execute the process. Mr. Phelps also designed, built and supported the Merger Program Office for a regional bank integration. December 8, 2009

  11. The total number of bank and thrift failures since January 1, 2008 is 140. So far in 2009, 115 banks and thrifts have failed. At this pace, the U.S. can expect the total number of closures in 2009 to top 139. • Due to some of the failures being large institutions, the asset size is much larger than the failures of the late 1980’s. Large asset size typically means a large customer base. As additional banks fail and are acquired, more customers will be impacted by the current financial crises. An institution with a planned customer impact mitigation strategy going into a FDIC-assisted transaction will have a competitive advantage in the marketplace. 11

  12. In the past 10 years bank merger integrations have evolved from a focus on speed to a focus on the customer. Over the past 18 months, with the increase in failed banks, the time window to appropriately plan and mitigate against negative customer impacts has significantly decreased. Large Regional / Large Regional 1996 Large Regional / Large Regional 1998 Large Regional / Large Regional 1998 Top 10 / Large Regional 2001 Top 10 / Large Regional 2004 Large Regional / Large Regional 2004 Large Regional / Large Regional 2006 Large Regional / Large Regional 2007 Top 10 / Large Regional 2007 Top 10 / Top 10 2008

  13. It is a well known that customer attrition surges following a bank merger and remains elevated for months--even years--afterward. • Normal attrition averages approximately 15% annually, however, attrition following a merger can rise to 20-25% annually and remain there for a prolonged period before gradually returning to its pre-merger level.1 • Customer impacts and attrition for six bank conversions were benchmarked for comparison. Banks are trending toward completing integrations with a dual focus on speed and minimizing customer impact. Worst Speed Customer & Speed Customer & Speed Customer Customer Customer Best

  14. In order to mitigate attrition, it is important to understand what drives customer satisfaction and causes customers to attrite. In an ABA study, 77% of customers noticed a turnover or a change of employees, and 66% percent noticed a changes in the employees’ attitudes. These changes were viewed as negative by a 4-to-1 ratio and a 3.4-to-1 ratio respectively during studies conducted over a 15-year period. 1 1ABA Marketing, 11/1/2008

  15. As you would expect, customers want to understand how they will be impacted by the merger. It is important to understand what customers perceive as “negative” and which impacts are more likely to cause customers to attrite. • Not surprisingly, impacts related to fees tend to drive the most negative satisfaction amongst customers. This is followed closely by actions required on the customers part (e.g. online banking activation, re-entering payees, etc.). H Changes to Fees New Checks Issued Changes to Automatic Deposits New Debit Cards Issued Branch Closes Earlier Changes to Online Bill Payment New Credit Card Issued Changes to Account Statements Likelihood of Impact Changes to Products Changes to Online Services Branch Closed Due to Merger Changes to Automatic Debit Services L Impact to Customer Satisfaction H – (Negative)

  16. In order to address customer impacts associated with a merger integration, it is becoming more common for banks to establish a dedicated Customer Experience team. Customer Experience Team Objective: A Customer Experience team should serve as the voice of the customer during the integration and be an advocate as decisions are made regarding operations, products and communications. The group should function as the central point of contact for analysis and communication of customer impacts to key integration stakeholders, including line of business management, integration l leadership, product and project managers. High Level Activities: • Identification and documentation of customer impacts • Creation and coordination of mitigation and retention plans • Monitoring of execution plans in order to minimize customer attrition Effective Associate and Customer Communication Customer Advocacy Customer Experience Proactive and Reactive Mitigation Plans Accelerated Execution It is very common for Customer Experience and Associate Experience to be tightly linked and coordinated. Many of the leading practices outlined on these slides also apply to Associate Experience.

  17. A Customer Experience approach may be broken out into four phases. The high level objectives of each phase are outlined below. Initiate Execute Control Plan Phase Monitor mitigation strategies and key metrics until stabilization. Establish the team structure, roles and responsibilities, and baseline key metrics. Define the top tier customers and identify/aggregate customer impacts. Determine mitigation strategies and identify metrics for Customer Experience dashboard. Execute developed mitigation strategies and establish dashboard reporting. Objective Customer Experience Team should coordinate and monitor progress

  18. Initiate Execute Control Plan Phase Monitor mitigation strategies and key metrics until stabilization. Establish the team structure, roles and responsibilities, and baseline key metrics. Define the top tier customers and identify/aggregate customer impacts. Determine mitigation strategies and identify metrics for Customer Experience dashboard. Execute developed mitigation strategies and establish dashboard reporting. Board of Directors Objective Executive Steering Committee Program Management Office Customer Experience Initiate – Leading Practices • Assign Executive Level Sponsor who is empowered to be assertive in this role • Establish dedicated Customer Experience team • Document clear roles and responsibilities • Cross functional team • Key customer metrics baselined and tracking is initiated Integration Management Team Credit Operations Small Business Retail Trust Finance Commercial Banking Risk Management / Audit Technology Support Units Communications Facilities HR Legal Marketing Training Customer Experience Team should coordinate and monitor progress

  19. Initiate Execute Control Plan Phase Monitor mitigation strategies and key metrics until stabilization. Establish the team structure, roles and responsibilities, and baseline key metrics. Define the top tier customers and identify/aggregate customer impacts. Determine mitigation strategies and identify metrics for Customer Experience dashboard. Execute developed mitigation strategies and establish dashboard reporting. Objective Plan – Leading Practices • Customer impacts are aggregated and prioritized based on severity (e.g. # of customers impacted) • Incorporate customer impacts into enterprise repository tool and facilitate stakeholder reviews • Identify Top Tier clients that may require additional “extra care/attention” • Mitigation plans developed for higher severity impacts. Attempt to “touch” customers as minimally as possible by grouping impacts by customer. • Develop appropriate training and collateral for client facing employees to be adequately prepared to field questions/concerns. • Identify dashboard customer metrics that can be used as “warning signs or trends” of customer issues Customer Experience Team should coordinate and monitor progress

  20. Initiate Execute Control Plan Phase Monitor mitigation strategies and key metrics until stabilization. Establish the team structure, roles and responsibilities, and baseline key metrics. Define the top tier customers and identify/aggregate customer impacts. Determine mitigation strategies and identify metrics for Customer Experience dashboard. Execute developed mitigation strategies and establish dashboard reporting. Objective Execute – Leading Practices • Mitigation strategies are coordinated and tracked centrally and incorporated into status reporting • Training is monitored closely to ensure completion and proficiency percentages are adequate • Assessments or surveys conducted to evaluate customer facing employee readiness for event • Customer Experience dashboard produced monthly and negative trends identified with resolution/action plans developed • Formalized atonement process developed to support unplanned customer impacts Customer Experience Team should coordinate and monitor progress

  21. Initiate Execute Control Plan Phase Monitor mitigation strategies and key metrics until stabilization. Establish the team structure, roles and responsibilities, and baseline key metrics. Define the top tier customers and identify/aggregate customer impacts. Determine mitigation strategies and identify metrics for Customer Experience dashboard. Execute developed mitigation strategies and establish dashboard reporting. Objective Control – Leading Practices • Customer impacts are captured as part of issue tracking during the event • Customer Experience team stays intact for some “stabilization” period post event • Customer Experience Dashboard reporting continues to be published and reviewed by management • Lessons learned captured Customer Experience Team should coordinate and monitor progress

  22. At a high level, some of the more common mitigation strategies utilized by banks are outlined below, along with the corresponding pros and cons typically encountered. – + • Ability to communicate to large volume of customers • Few customers actually read them • Customers may ignore multiple mailings • They may not perform the instructions as outlined in the mailings, resulting in last minute calls and questions Utilized for regulatory required communications and communicating issues that affect a significant number of customers Customer Mailings – + • Developed to minimize customer “touch points” • May include a “SWAT” team effort designed to address complex issues for a small customer base Customer Calling Programs • Allows you to segment customers and specialize your messaging • Able to cut across business lines • Customers may ignore calls from “the bank “ rather then their local office representative • Customers become irritated with multiple calls on various impacts

  23. At a high level, some of the more common mitigation strategies utilized by banks are outlined below, along with the corresponding pros and cons typically encountered. – + • Employees are knowledgeable and able to address customer questions • If distributed or deployed too far in advance of event, knowledge retention may become an issue • Utilized for enterprise issues that will likely cause increased branch traffic or call center volume • Includes training and Quick Reference Guides for associates Specialized Preparation for Employees – + • Marketing campaigns which focus on the local community • Communicate the positives and reinforce how the clients will benefit from merger Local Advertising • Customers appreciate the “local bank” feel • Messaging can vary by market • N/A

  24. Outlined below are some of the tools that may be utilized by the Customer Experience team to support their mitigation strategies and monitor success. Customer Impact Tracking Branch / Associate Readiness • Independent review of the associate readiness focusing specifically on training and communications • Conducted in advance of event to allow for course corrections. • Complete inventory of negative customer impacts with the appropriate details (e.g. quantification, owner, # of customers impacted, etc.) Customer Calling Programs Customer Experience Dashboard • Report used to facilitate and track communications with a smaller group of customers • Often the responsibility of a “SWAT” team or individual branches • Key customer metrics that allows the bank to identify trends and take corrective actions. 24

  25. SEGMENT 2: Jamie L. Boucher Partner, Financial Institutions Regulatory Group Skadden, Arps, Slate, Meagher & Flom LLP Introduction Jamie L. Boucher is a partner in Skadden’s Financial Institutions Regulatory Group with a principal focus on financial institution mergers and acquisitions, regulatory and enforcement matters. She is part of the Skadden team advising clients on various aspects of the Troubled Assets Relief Program (TARP) including the contractual, corporate, regulatory and other aspects of issuing preferred stock to the U.S. Treasury Department under the Capital Purchase Program, and the sale of assets to Treasury under the Troubled Assets Relief Program. Before joining the firm, Ms. Boucher worked for 12 years in government and the private sector on matters involving international trade and investment regulation. She served as the legislative adviser for international trade and foreign policy to former U.S. Sen. Frank H. Murkowski; as an adviser to the American League for Exports and Security Assistance on trade and national security issues; and as a committee staff member on the U.S. Trade Representative-Department of Defense trade policy advisory committee, the Defense Policy Advisory Committee on Trade. Ms. Boucher currently serves as the chair of the American Bar Association Banking Law Committee, Subcommittee on Mergers and Acquisitions. December 8, 2009

  26. SEGMENT 2: Jamie L. Boucher Partner, Financial Institutions Regulatory Group Skadden, Arps, Slate, Meagher & Flom LLP Financial Services ReformRegulatory Restructuring December 8, 2009

  27. Current Financial Institution Regulatory Structure • Federal Reserve Board (“Fed”) • Regulation of Bank Holding Companies, certain State banks and U.S branches of foreign banks, and foreign branches of U.S. banks. • Federal Deposit Insurance Corporation (“FDIC”) • Regulation of federally insured depository institutions, including State banks that are not members of the Federal Reserve System. • Comptroller of the Currency (“OCC”) • Regulation of National banks and United States federal branches of foreign banks. • Office of Thrift Supervision (“OTS”) • Regulation of federally chartered thrift institutions and savings and loan holding companies. • Securities and Exchange Commission (“SEC”) • Regulation of securities exchanges, brokers, dealers, mutual funds, and investment advisers. • Commodity Futures Trading Commission (“CFTC”) • Regulation of futures exchanges, brokers, pool operators and advisers. • National Credit Union Administration (NCUA”) • Regulation of federally chartered and federally insured credit unions. December 8, 2009

  28. Proposed New Federal Agencies and Offices • Financial Services Oversight Council (“FSOC”) • Established to identify emerging systemic risks and to identify financial companies and activities that should be subject to “stricter prudential standards.” • FSOC is included in the Administration’s, and the House regulatory reform proposals. • Financial Stability Agency (“FSA”) • Established to identify and monitor systemic risk and to identify companies that should be subject to “heightened prudential standards.” • FSA is included in the Senate regulatory reform proposal. • National Bank Supervisor (“NBS”) • Established as an office within the Department of Treasury to supervise all federally chartered banks and thrifts. • The NBS would assume the duties of the OCC and OTS and those offices would be abolished. • NBS is included in the Administration’s regulatory reform proposal. • Financial Institutions Regulatory Authority (“FIRA”) • Established as an independent federal entity to oversee all banking institutions. • FIRA would assume all the prudential supervisory functions of the Fed, FDIC, OCC and OTS. • FIRA is included in the Senate regulatory reform proposal. December 8, 2009

  29. SEGMENT 2: Jamie L. Boucher Partner, Financial Institutions Regulatory Group Skadden, Arps, Slate, Meagher & Flom LLP Proposed New Federal Agencies and Offices (cont) • Consumer Financial Protection Agency (“CFPA”) • Established as an independent agency to conduct supervision and examination of financial institutions for compliance with federal consumer banking statutes. • CFPA is included in the Administration’s, and the House and Senate regulatory reform proposals. • Office of National Insurance • Established as an office within the Department of Treasury to monitor developments within the insurance industry and to make recommendations to the federal systemic risk regulator regarding any insurance company or affiliate that should be subject to heightened supervision. • The office would also be responsible for advising the Secretary of Treasury on matters involving international agreements on insurance regulation. • The office of National Insurance is included in the Administration’s, and the House and Senate regulatory reform proposals. December 8, 2009

  30. Proposed Changes to Bank Regulatory Structure • Federal Reserve Board • The Administration’s proposal would: • retain the Fed’s prudential supervisory authority and preserve it’s entity to regulate State banks and holding companies. • grant the Fed new powers related to supervision of systemic risk. • Transfer all consumer supervisory and regulatory powers to the new CFPA. • The House proposal would: • retain the Fed’s existing prudential supervisory powers and add to it supervision of thrift holding companies. • grant the Fed significant new systemic risk responsibilities. • transfer most of the Fed’s consumer supervisory and regulatory authority to the new CFPA. The House proposal maintains supervisory oversight of the Community Reinvestment Act within the bank regulatory agencies. • The Senate proposal would: • strip the Fed of its prudential supervisory authority. The Fed would be focused primarily on the conduct of monetary policy. • include the Fed on the board of the new FSA through which it would be involved in the identification of systemic risk. • Include the Fed on the board of the new FIRA. • transfer all consumer supervisory authority to the new CFPA. December 8, 2009

  31. SEGMENT 2: Jamie L. Boucher Partner, Financial Institutions Regulatory Group Skadden, Arps, Slate, Meagher & Flom LLP • The FDIC • The Administration’s proposal would: • retain the insurance and State bank supervisory powers of the FDIC. • transfer all of the FDIC’s consumer supervision and regulatory authority to the new CFPA. • The House proposal would: • retain the FDIC’s insurance and supervisory functions, but transfer its consumer examination and regulatory authority to the new CFPA. • The Senate proposal would: • retain the FDIC’s insurance powers, but transfer the FDIC’s prudential supervisory functions to the new FIRA. All consumer examination and regulation would be transferred to the new CFPA. • Include FDIC on the board of the new FIRA December 8, 2009

  32. SEGMENT 2: Jamie L. Boucher Partner, Financial Institutions Regulatory Group Skadden, Arps, Slate, Meagher & Flom LLP • Comptroller of the Currency • The Administration’s proposal would: • transfer the functions of the OCC to the new NBS • All consumer examination and regulation would be transferred to the new CFPA. • The House proposal would: • retain the OCC as an office within the Department of Treasury. • transfer all consumer examination and regulation to the new CFPA • The Senate proposal would: • abolish the OCC and transfer its functions to the new FIRA. • transfer all consumer examination and regulation to the new CFPA. December 8, 2009

  33. SEGMENT 2: Jamie L. Boucher Partner, Financial Institutions Regulatory Group Skadden, Arps, Slate, Meagher & Flom LLP • Office of Thrift Supervision • The Administration proposal would: • abolish the OTS and transfer its functions to the NBS • transfer all consumer examination and regulation to the new CFPA. • The House proposal would: • abolish the OTS and transfer its functions to the OCC where a new Senior Deputy Comptroller for Thrift Supervision would be established. • transfer all consumer examination and regulation to the new CFPA. • The Senate proposal would: • abolish the OTS and transfer its functions to the new FIRA. • transfer all consumer examination and regulation to the new CFPA. December 8, 2009

  34. SEGMENT 2: Jamie L. Boucher Partner, Financial Institutions Regulatory Group Skadden, Arps, Slate, Meagher & Flom LLP Regulators Unchanged • The Securities and Exchange Commission • The Commodity Futures Trading Commission • The National Credit Union Administration December 8, 2009

  35. SEGMENT 2: Jamie L. Boucher Partner, Financial Institutions Regulatory Group Skadden, Arps, Slate, Meagher & Flom LLP Impact of the Proposed Legislation on Bank M&A • Changes to the role of the Federal Reserve Board • Restrictions on activities of “financial holding companies subject to stricter prudential standards” and “specified” financial holding companies • Increased power to federal regulators to monitor, proscribe and intervene in the operations of financial holding companies. December 8, 2009

  36. SEGMENT 2: Jamie L. Boucher Partner, Financial Institutions Regulatory Group Skadden, Arps, Slate, Meagher & Flom LLP Role of the Federal Reserve Board • Generally, firms that directly or indirectly control a bank must become a bank holding company regulated by the Federal Reserve Board. • Generally, the Federal Reserve’s regulatory jurisdiction extends to every bank holding company and every entity that is controlled by a bank holding company. • Bank holding companies and their subsidiaries may conduct only those activities approved by the Federal Reserve Board and closely related to banking. • Financial holding companies are permitted to engage in certain activities not permissible for a bank holding company subject to approval by the Federal Reserve Board. • The House and Senate proposals would change the current regime, but in very different ways. December 8, 2009

  37. House Proposal • The Federal Reserve Board retains the power to supervise and regulate bank holding companies and financial holding companies and gains the power to regulate thrift holding companies. • Permissible activities are not changed by the legislation per se, but institutions of certain size and complexity as well as institutions that are designated for “stricter prudential standards” are subject to greater regulatory control over their activities and subject to new methods of regulatory intervention. • Companies designated as “financial holding companies subject to stricter prudential standards” would be subject to heightened prudential standards, including: risk-based capital requirements; leverage limits; liquidity requirements; concentration requirements; prompt corrective action requirements; development of a resolution plan; and overall risk management requirements. • The Federal Reserve would be empowered to require a financial holding company subject to stricter prudential standards to sell or otherwise transfer assets or off-balance sheet items to unaffiliated firms; terminate one or more activities; or impose conditions on the manner in which the financial holding company conducts its activities. December 8, 2009

  38. Kanjorski Amendment • The Financial Services Committee adopted an amendment to their financial stability legislation that was sponsored by Representative Kanjorski (D-PA). • The amendment would require the FSOC, for any company it determines after stricter prudential standards are imposed still, because of its size, interconnectedness, or mix of activities, poses a grave threat to financial stability or the U.S. economy must take at least one mitigatory action among the following : • Modify the prudential standards; • Terminat 1 or more activities; • Impose conditions on the manner in which a financial company subject to stricter prudential standards conducts 1 or more activities; • Limit the ability to merge with, acquire, consolidate with, or otherwise become affiliated with another company; • Restrict the ability to offer a financial product or products; and if the Council deems that the previous actions are inadequate to address the risk, then; • Sell, divest, or otherwise transfer business units, branches, assets or off-balance sheet items to unaffiliated companies. December 8, 2009

  39. SEGMENT 2: Jamie L. Boucher Partner, Financial Institutions Regulatory Group Skadden, Arps, Slate, Meagher & Flom LLP Senate Proposal • The financial stability plan proposed by Senate banking committee Chairman Dodd (D-CT) would eliminate the Federal Reserve Board’s authority to supervise bank and bank holding companies. The Fed’s authority to approve acquisitions and activities would be abolished. • Bank and financial holding company acquisitions would be subject to review and approval by FIRA. • FIRA would be directed to take into consideration the extent to which a proposed acquisition, merger or consolidation would result in greater or more concentrated risks to the financial stability of the U.S. banking system • FIRA would be directed to require that a bank holding company’s subsidiaries be well capitalized and that the holding company itself be well capitalized in order for a holding company to qualify as a financial holding company and be permitted to engage in a wider range of activities than a bank holding company. December 8, 2009

  40. SEGMENT 2: Jamie L. Boucher Partner, Financial Institutions Regulatory Group Skadden, Arps, Slate, Meagher & Flom LLP Limitations on Acquisitions and Activities • A bank holding company with assets greater than $10 billion would be subject to heightened standards that would include: risk-based capital requirements; leverage limits and liquidity requirements; and establishment of a risk committee. • The risk committee would be responsible for overseeing risk management practices at the bank holding company • The FSA would be empowered to dismantle “specified financial holding companies” that pose safety and soundness risks. FSA would be authorized to require a specified financial holding company to: sell or transfer assets or off-balance sheet items to unaffiliated entities; terminate one or more activities; or impose conditions on the manner in which the specified financial company conducts one or more activities. December 8, 2009

  41. SEGMENT 2: Jamie L. Boucher Partner, Financial Institutions Regulatory Group Skadden, Arps, Slate, Meagher & Flom LLP Outlook • The financial stability proposals pending in the House and Senate are works in progress • The House of Representatives has scheduled the “Wall Street Reform and Consumer Protection Act for consideration this week. • The Senate Banking, Housing and Urban Affairs Committee is in the process of digesting and developing counterproposals to the “Discussion Draft” circulated by Chairman Dodd November 10. • It is likely that these proposals will continue to evolve and change over the next few months as the Congress and the Administration work toward adoption of a single approach to addressing systemic risk, resolving large complex and interconnected firms, and constructing a new regime for regulation of bank and financial companies. December 8, 2009

  42. SEGMENT 3: Timothy R. McTaggart Partner Pepper Hamilton LLP Introduction Timothy R. McTaggart is a partner in the Washington office of Pepper Hamilton LLP. He focuses his practice on bank and financial services regulatory matters. He also assists financial services clients on transactional and enforcement issues. Earlier in his career, Mr. McTaggart served as the Delaware State Bank Commissioner (1994-1999) and as counsel to the U.S. Senate Banking Committee (1991-1994). Mr. McTaggart has represented clients before the federal bank regulatory agencies, including the Office of the Comptroller of the Currency, Federal Deposit Insurance Corporation, Office of Thrift Supervision and the Board of Governors of the Federal Reserve System, as well as various state banking departments across the country. December 8, 2009

  43. SEGMENT 3: Timothy R. McTaggart Partner Pepper Hamilton LLP Former Regulator Perspective • Federal Reserve • Notice of proposal in a local publication with a request for comments. • Will Fed order a hearing? Agency discretion. Fed must receive a timely written request for a hearing. • Hearing Procedure? (12 C.F.R. 262.3). • Generally, the Fed will hold hearings when written comments are not able to create a complete factual record. December 8, 2009

  44. SEGMENT 3: Timothy R. McTaggart Partner Pepper Hamilton LLP Former Regulator Perspective Contd… • Will the hearing be held at the Fed in D.C.? • Or held in the field/regional Federal Reserve Bank? • Will public officials participate in the proposed Fed hearing? Will public officials do their own fact finding? • Review Community Reinvestment Act performance. Is a hearing necessary? December 8, 2009

  45. SEGMENT 3: Timothy R. McTaggart Partner Pepper Hamilton LLP Former Regulator Perspective Contd… • Will bank persuade its supporters to testify in favor of merger? • Will local groups testify against the merger? • Fed wants to develop a record concerning “the convenience and needs of the communities to be served.” (No legal criteria for Fed analysis of convenience and needs.) December 8, 2009

  46. SEGMENT 3: Timothy R. McTaggart Partner Pepper Hamilton LLP Former Regulator Perspective Contd… • Effect on: • Community Reputation. • Regulatory Relationship. • Information on the Public Record/ • in the Public Domain. • Consumer Complaints. • Investment Community. December 8, 2009

  47. SEGMENT 3: Timothy R. McTaggart Partner Pepper Hamilton LLP State of Delaware • Hearing required? 5 Del. Code § 844. • Applies to acquisitions by out-of-state bank holding companies of national banks, as well as state-chartered banks. • Bank commissioner discretion. • exercised? Other acquisitions/change in control-- state chartered. • Interpretation Challenge vs. Enforcement Issues, Rulemaking vs. Adjudication. December 8, 2009

  48. SEGMENT 3: Timothy R. McTaggart Partner Pepper Hamilton LLP Industry Perspective • Is this a crisis/distress scenario? • Is there a press/pr strategy in addition to a business and legal strategy? • Do local, county, state and federal elected officials need to be briefed? December 8, 2009

  49. SEGMENT 3: Timothy R. McTaggart Partner Pepper Hamilton LLP Industry Perspective Contd… • What mechanisms will be used to obtain information from consumers including what worked and what did not work as part of the merger process? December 8, 2009

  50. SEGMENT 3: Timothy R. McTaggart Partner Pepper Hamilton LLP Other Critical Issues • How to protect acquiring bank’s reputation. • How to reassure clients at acquired bank of continuity and service by management team remaining, or from management being brought in by the acquiring bank. December 8, 2009