Chapter 7Acquisition of Control

Section § 1250

Explanation

This California law section defines key terms related to banking and financial institutions. It specifies what a 'bank' means under state law and explains 'control' as the ability to influence or direct the management and policies of a person or entity by voting power or other means. It introduces the concept of a 'controlling person' who directly or indirectly controls a bank. The term 'person' is broadly defined to include individuals and various types of organizations, while 'shareholder' applies to holders of ownership interests in different types of entities.

Unless the context otherwise requires, in this chapter:
(a)CA Financial Code § 1250(a) “Bank” means a bank organized under the laws of this state.
(b)CA Financial Code § 1250(b) “Control” means possession, direct or indirect, of the power:
(1)CA Financial Code § 1250(b)(1) To vote 25 percent or more of any class of the voting securities issued by a person; or
(2)CA Financial Code § 1250(b)(2) To direct or cause the direction of the management and policies of a person, whether through the ownership of voting securities, by contract (other than a commercial contract for goods or nonmanagement services), or otherwise; provided, however, that no individual shall be deemed to control a person solely on account of being a director, officer, or employee of such person.
For purposes of paragraph (2) of this subdivision, a person who, directly or indirectly, owns, controls, holds with the power to vote, or holds proxies representing, 10 percent or more of the then outstanding voting securities issued by another person is presumed to control such other person.
For purposes of this chapter, the commissioner may determine whether a person in fact controls another person.
(c)CA Financial Code § 1250(c) “Controlling person” means a person who, directly or indirectly, controls a bank.
(d)CA Financial Code § 1250(d) “Person” means an individual, a corporation, an association, a syndicate, a partnership, a limited liability company, a business trust, an estate, a trust, or an organization of any kind, or any combination of any of the foregoing acting in concert.
(e)CA Financial Code § 1250(e) “Shareholder” means:
(1)CA Financial Code § 1250(e)(1) In the case of a corporation, a holder of a share of any class or series.
(2)CA Financial Code § 1250(e)(2) In the case of a nonprofit or charitable corporation, an unincorporated association, or a syndicate, a member.
(3)CA Financial Code § 1250(e)(3) In the case of a partnership, a partner.
(4)CA Financial Code § 1250(e)(4) In the case of a business trust, an estate, or a trust, a holder of a beneficial interest.
(5)CA Financial Code § 1250(e)(5) In the case of an organization of any other kind, a holder of an ownership interest.
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(Added by Stats. 2011, Ch. 243, Sec. 3. (SB 664) Effective January 1, 2012.)

Section § 1251

Explanation

This law prevents anyone from taking control of a bank or someone who controls a bank without approval from the commissioner. Essentially, you can't try to buy or swap securities to gain control of a bank, seek shareholder consent for bank mergers or deals, or acquire control of a bank without commissioner approval. However, you are allowed to discuss the possibility of obtaining control, just not actually doing it.

No person shall, directly or indirectly, unless the commissioner has approved such acquisition of control, do any of the following:
(a)CA Financial Code § 1251(a) Make a tender offer for, a request or invitation for tenders of, or an offer to exchange securities for, any voting security or any security convertible into a voting security of a bank or a controlling person if the person making such tender offer, request or invitation for tenders, or offer to exchange securities would, by consummation thereof, directly or indirectly, acquire control of such bank or such controlling person.
(b)CA Financial Code § 1251(b) Solicit approval of any shareholder of a controlling person for a merger, consolidation, sale of assets, or other transaction by which any person other than such controlling person would acquire control of the bank controlled by such controlling person.
(c)CA Financial Code § 1251(c) Acquire control of a bank or a controlling person; provided, however, that nothing in this subdivision shall be deemed to prohibit any person from negotiating to acquire (but not acquiring) control of a bank or a controlling person.
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(Added by Stats. 2011, Ch. 243, Sec. 3. (SB 664) Effective January 1, 2012.)

Section § 1252

Explanation

This law restricts who can control an industrial bank in California. If you're looking to take over an industrial bank, you must either already be approved, have been in control since September 1, 2002, or be engaging only in activities allowed for financial holding companies. If you're a credit union, you could acquire control if the bank is a credit union service organization. Even if you meet these conditions, you still need to follow specific requirements outlined in Sections 1250 to 1263. The term 'control' here has a specific legal meaning from another law.

Notwithstanding any other provision of this chapter, except for those persons approved by the commissioner prior to September 1, 2002, and for those persons who control industrial banks as of September 1, 2002, no person may directly or indirectly, including through any merger, consolidation, or any other type of business combination, acquire control of an industrial bank, as defined in Section 111, unless the person is engaged only in the activities permitted for financial holding companies, as provided in Section 103 of the federal Gramm-Leach-Bliley Act (12 U.S.C. Sec. 1843(k)(1)), or is a credit union, as defined in Section 165, when the industrial bank is a credit union service organization, as defined in Section 14651. Nothing in this section shall be construed to exempt a person seeking to acquire control of a bank that otherwise qualifies to do so pursuant to this section, from the requirements of Sections 1250 to 1263, inclusive. For the purposes of this section, the term “control” has the same meaning as in subdivision (b) of Section 1250.
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(Added by Stats. 2011, Ch. 243, Sec. 3. (SB 664) Effective January 1, 2012.)

Section § 1253

Explanation

If you want to gain control of a bank or a controlling person, you must apply using a specific form and provide information as required by the commissioner. You also need to pay a fee with your application.

If you have been a director or officer of the bank for at least two years, the fee is $500. If you haven't been in that position for two years or more, the fee is $1,500.

An application for approval to acquire control of a bank or a controlling person shall be in such form and contain such information as the commissioner may require by regulation or order and shall be accompanied by the following fee:
(a)CA Financial Code § 1253(a) In case the applicant has been a director or officer of the bank for not less than two years (or, if the bank has been in business for less than two years, for such lesser period), a fee of five hundred dollars ($500); and
(b)CA Financial Code § 1253(b) In any other case, a fee of one thousand five hundred dollars ($1,500).
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(Added by Stats. 2011, Ch. 243, Sec. 3. (SB 664) Effective January 1, 2012.)

Section § 1254

Explanation

This law says if someone wants to take control of a bank, the commissioner must check several factors before approving it. The commissioner will deny the application if any negative factors are found, such as creating a monopoly, reducing competition, risking the bank's finances, proposing unfair changes to the bank, lacking competence or integrity, being unfair to stakeholders, or not providing necessary information. If none of these issues are present, the acquisition will be approved.

If the commissioner finds, with respect to the proposed acquisition of control of a bank or a controlling person, that any of the factors set forth in subdivisions (a) to (g), inclusive, is true, he or she shall deny the application. If the commissioner finds that none of such factors is true, he or she shall approve the application.
(a)CA Financial Code § 1254(a) That the proposed acquisition of control would result in a monopoly or would be in furtherance of any combination or conspiracy to monopolize or to attempt to monopolize the business of banking in any part of this state;
(b)CA Financial Code § 1254(b) That the effect of the proposed acquisition of control in any section of the state may be substantially to lessen competition or to tend to create a monopoly or that the proposed acquisition of control would in any other manner be in restraint of trade, and that the anticompetitive effects of the proposed acquisition of control are not clearly outweighed in the public interest by the probable effect of the transaction in meeting the convenience and needs of the community to be served;
(c)CA Financial Code § 1254(c) That the financial condition of any acquiring person is such as might jeopardize the financial stability of the bank or the controlling person, or prejudice the interests of the depositors, creditors, or shareholders of the bank or the controlling person;
(d)CA Financial Code § 1254(d) That plans or proposals to liquidate the bank or the controlling person, to sell the assets of the bank or the controlling person, to merge or consolidate the bank or the controlling person, or to make any other major change in the business, corporation structure or management of the bank or the controlling person are not fair and reasonable to the depositors, creditors, and shareholders of the bank or the controlling person;
(e)CA Financial Code § 1254(e) That the competence, experience, or integrity of any acquiring person indicates that it would not be in the interest of the depositors, creditors, or shareholders of the bank or the controlling person or in the interest of the public to permit such person to control the bank or the controlling person;
(f)CA Financial Code § 1254(f) That the proposed acquisition is unfair, unjust, or inequitable to the bank or the controlling person or to the depositors, creditors, or shareholders of the bank or the controlling person; or
(g)CA Financial Code § 1254(g) That the applicant neglects, fails, or refuses to furnish to the commissioner all the information required by the commissioner.
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(Added by Stats. 2011, Ch. 243, Sec. 3. (SB 664) Effective January 1, 2012.)

Section § 1255

Explanation

This law lets the commissioner decide if someone should be allowed to control a bank or impact its management. If a person or their top staff has been convicted of fraud or dishonesty, they may be considered unfit to control the bank. This judgment can also apply to management changes, particularly when someone with a criminal background in fraud or dishonesty is involved. The law also states these aren't the only reasons to deny control. The commissioner has broader discretion to decide if controlling a bank would harm depositors, creditors, or the public.

(a)CA Financial Code § 1255(a) For purposes of Section 1254, the commissioner may find:
(1)CA Financial Code § 1255(a)(1) That the integrity of an acquiring person indicates that it would not be in the interest of the depositors, creditors, or shareholders of a bank or controlling person or in the interest of the public to permit the acquiring person to control the bank or controlling person if the acquiring person or any director or officer of the acquiring person has been convicted of, or has pleaded nolo contendere to, any crime involving fraud or dishonesty.
(2)CA Financial Code § 1255(a)(2) That a plan to make a major change in the management of a bank or controlling person is not fair and reasonable to the depositors, creditors, or shareholders of the bank or controlling person if the plan provides for a person who has been convicted of, or has pleaded nolo contendere to, any crime involving fraud or dishonesty to become a director or officer of the bank or controlling person.
(b)CA Financial Code § 1255(b) Subdivision (a) shall not be deemed to be the only grounds upon which the commissioner may find, for purposes of Section 1254, that the integrity of an acquiring person indicates that it would not be in the interest of the depositors, creditors, or shareholders of a bank or controlling person or in the interest of the public to permit the acquiring person to control the bank or controlling person or that a plan to make a major change in the management of a bank or controlling person is not fair and reasonable to the depositors, creditors, or shareholders of the bank or controlling person.
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(Amended by Stats. 2013, Ch. 334, Sec. 35. (SB 537) Effective January 1, 2014.)

Section § 1256

Explanation

The law allows the commissioner to set any conditions they find reasonable or necessary when someone wants to take control of a bank or its controlling person. These conditions are meant to protect the public interest.

The commissioner may, in approving a proposal to acquire control of a bank or a controlling person pursuant to Section 1254, impose such conditions as the commissioner deems reasonable or necessary or advisable in the public interest.
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(Added by Stats. 2011, Ch. 243, Sec. 3. (SB 664) Effective January 1, 2012.)

Section § 1257

Explanation

This law allows the commissioner to change, pause, or take back their approval for someone to take control of a bank if there’s a good reason. This power is related to approvals given under Section 1254.

The commissioner may, for good cause, amend, alter, suspend, or revoke any approval of a proposal to acquire control of a bank or a controlling person issued pursuant to Section 1254.
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(Added by Stats. 2011, Ch. 243, Sec. 3. (SB 664) Effective January 1, 2012.)

Section § 1258

Explanation

If you apply to take control of a bank, the commissioner has 60 days to approve or deny your application. If they don't respond within this time, or an agreed extended period, it is automatically approved. The application is considered officially submitted when the commissioner receives a complete application with all required information.

Notwithstanding any other provision of this chapter, any application for approval to acquire control of a bank or a controlling person which is not denied or approved by the commissioner within a period of 60 days after such application is filed with the commissioner or, if the applicant consents to an extension of the period within which the commissioner may act, within such extended period, shall be deemed to be approved by the commissioner as of the first day after such period of 60 days or such extended period, as the case may be.
For purposes of this section, an application for approval to acquire control of a bank or a controlling person is deemed to be filed with the commissioner at the time when the complete application, including any amendments or supplements, containing all the information in the form required by the commissioner, is received by him or her.
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(Added by Stats. 2011, Ch. 243, Sec. 3. (SB 664) Effective January 1, 2012.)

Section § 1259

Explanation

This law explains that the commissioner can decide if one person controls another or if someone can take control of a bank. Before making this decision, the commissioner may hold a hearing. After making a decision, if someone affected by it requests a hearing, the commissioner must hold one within 30 days, unless an extension is agreed upon. During the hearing, the initial decision can be confirmed, changed, or reversed.

(a)CA Financial Code § 1259(a) The commissioner, before determining whether, for purposes of this chapter, a person controls another person or before denying or approving an application for approval to acquire control of a bank or controlling person, may hold a hearing.
(b)CA Financial Code § 1259(b) After determining whether, for purposes of this chapter, a person controls another person or after denying or approving an application for approval to acquire control of a bank or controlling person, the commissioner, upon the filing of a written request for a hearing by any person prejudiced by the commissioner’s decision, shall hold a hearing and upon such hearing shall affirm, modify, or reverse his or her decision. Any such hearing shall commence within a period of 30 days after the written request for the hearing is filed with the commissioner or, if the person filing the written request for the hearing consents to an extension of the period within which the hearing is to commence, within such extended period.
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(Added by Stats. 2011, Ch. 243, Sec. 3. (SB 664) Effective January 1, 2012.)

Section § 1260

Explanation

This law means that certain financial transactions do not have to follow Section 1251 if the commissioner decides they shouldn't. The commissioner can exempt these transactions if regulating them isn’t needed for public interest or to protect banks, people who control banks, or the financial interests of depositors, creditors, or shareholders.

There shall be exempted from the provisions of Section 1251 any transaction, including, without limitation, any type or class of transactions, which the commissioner by regulation or order exempts as not being comprehended within the purposes of this chapter and the regulation of which the commissioner finds is not necessary or appropriate in the public interest or for the protection of a bank, a controlling person, or the depositors, creditors, or shareholders of a bank or a controlling person.
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(Added by Stats. 2011, Ch. 243, Sec. 3. (SB 664) Effective January 1, 2012.)

Section § 1261

Explanation

If the commissioner believes someone is breaking or about to break the rules of this chapter, they can ask the court to stop them and take any other necessary actions to protect the bank, its stakeholders, or the public.

Whenever it appears to the commissioner that any person has committed or is about to commit a violation of any provision of this chapter or of any regulation or order of the commissioner issued pursuant to this chapter, the commissioner may apply to the superior court for an order enjoining such person from violating or continuing to violate this chapter or any such regulation or order and for other equitable relief as the nature of the case or the interests of the bank, the controlling person, the depositors, creditors, or shareholders of such bank or such controlling person, or the public may require.
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(Added by Stats. 2011, Ch. 243, Sec. 3. (SB 664) Effective January 1, 2012.)

Section § 1262

Explanation

If someone acquires securities (investment shares) in a way that breaks the rules of the chapter or any related orders, they can't vote or give written consent about those securities for three years.

If this happens with securities of a bank or a controlling person, various parties, including the bank or shareholders, can ask the court to stop them from participating in decisions with those securities for three years. The commissioner can also ask the court to cancel any decisions made with those securities since they were improperly acquired.

No person shall be entitled to vote or to give a written consent with respect to any security acquired in contravention of any provision of this chapter or of any regulation or order of the commissioner issued pursuant to this chapter for a period of three years after such acquisition. If a security of a bank or a controlling person is acquired in contravention of this chapter or any such regulation or order, such bank, such controlling person, any shareholder of such bank or such controlling person, or the commissioner may apply to the superior court for equitable relief, including costs and (except with respect to the commissioner) attorney fees, to enjoin prospectively any person from voting or giving any written consent with respect to such security for a period of three years after such acquisition, and the commissioner may apply to the superior court for equitable relief, including costs, to void any voting or any giving of a written consent with respect to such security which has occurred since such acquisition.
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(Added by Stats. 2011, Ch. 243, Sec. 3. (SB 664) Effective January 1, 2012.)

Section § 1263

Explanation

This section says that if any part of this law is found to be invalid or unenforceable, it won't affect the rest of the law. The law is designed so that the other parts can still work without the problematic section. In other words, the law is made in a way that lets the enforceable parts be separated (or 'severable') from any parts that can't be enforced.

If any provision or clause of this chapter or the application thereof to any person or circumstance is held invalid, illegal, or unenforceable, such invalidity, illegality, or unenforceability shall not affect other provisions or applications of this article which can be given effect without the invalid, illegal, or unenforceable provision or application, and to this end, the provisions of this chapter are declared to be severable.
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(Added by Stats. 2011, Ch. 243, Sec. 3. (SB 664) Effective January 1, 2012.)