On February 18, 2014, the Board of Governors of the Federal Reserve System (the “FRB”) approved a final rule (the “Final Rule”) implementing certain of the “enhanced prudential standards” mandated by Section 165 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act” or “Dodd-Frank”). The Final Rule applies the enhanced prudential standards to (i) U.S. bank holding companies (“U.S. BHCs”) with $50 billion (and in some cases, $10 billion) or more in total consolidated assets and (ii) foreign banking organizations (“FBOs”) with (x) a U.S. banking presence, through branches, agencies or depository institution subsidiaries, and (y) depending on the standard, certain designated amounts of assets worldwide, in the United States or in U.S. non-branch assets. The Final Rule’s provisions are the most significant, detailed and prescriptive for the largest U.S. BHCs and the FBOs with the largest U.S. presence—those with $50 billion or more in total consolidated assets and, in the case of FBOs, particularly (and with increasing stringency) for FBOs with combined U.S. assets of $50 billion or more or U.S. non-branch assets of $50 billion or more.
Posts Tagged ‘Sullivan & Cromwell’
Earlier this evening [January 14, 2014], the Board of Governors of the Federal Reserve System, Office of the Comptroller of the Currency (the “OCC”), Federal Deposit Insurance Corporation (such three agencies together, the “Banking Agencies”), Securities and Exchange Commission, and Commodity Futures Trading Commission (the “CFTC” and, collectively, the “Agencies”) issued an interim final rule (the “Interim Final Rule”) regarding the treatment of certain collateralized debt obligations backed by trust preferred securities (“TruPS-backed CDOs”) under the final rule (the “Final Rule”) implementing Section 619 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), commonly known as the “Volcker Rule.” The Volcker Rule imposes broad restrictions on proprietary trading and investing in and sponsoring private equity and hedge funds (“covered funds”) by banking organizations and their affiliates.
Sullivan & Cromwell LLP filed an amicus brief on January 6, 2014 with the U.S. Supreme Court in the case of Halliburton Co. v. Erica P. John Fund, Inc., No. 13-317. This brief is submitted on behalf of former members of Congress, SEC officials and congressional counsel involved in the drafting of the Private Securities Litigation Reform Act (PSLRA) of 1995. In Amgen, Justice Ginsburg, for the majority, characterized the PSLRA’s silence on the Basic fraud-on-the-market presumption as a “reject[ion]” of “calls to undo” Basic. 133 S. Ct. at 1200 (Amgen, p. 20, available here). In opposing cert in Halliburton (see brief in opposition of certiorari, pages 32-33, available here), plaintiffs referenced Congress’s silence in the PSLRA as acquiescence in Basic‘s presumption. This congressional acquiescence argument could be critical to the decision in Halliburton, which could be one of the most important securities cases in years.
On December 10, 2013, the Federal Deposit Insurance Corporation (the “FDIC”) proposed for public comment a notice (the “Notice”) describing its “Single Point of Entry” (“SPOE”) strategy for resolving systemically important financial institutions (“SIFIs”) in default or in danger of default under the orderly liquidation authority granted by Title II of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”).  The Notice follows the FDIC’s endorsement of the SPOE model in its joint paper issued with the Bank of England last year.
We have reviewed the 365 merger agreements that were announced during the two years after the “Say-on-Golden-Parachute” vote rule went into effect on April 25, 2011 and that were subject to the rule.  We found that 39 companies (11% of the total) substantively enhanced executive compensation arrangements in connection with the transactions.
Some of the more common executive compensation enhancements, which generally did not result in negative vote recommendations from Institutional Shareholder Services (“ISS”), were: granting deal closing bonuses (in 17 deals), granting retention bonuses (in 16 deals) and granting additional equity awards that vest on or post-closing (in 13 deals). However, the following executive compensation enhancements generally did result in negative vote recommendations from ISS: granting new excise tax gross-ups (three out of four deals received negative ISS recommendations), cashing-out severance or converting severance into a retention bonus without an actual termination of employment (five out of eight deals received negative ISS recommendations) and accelerating the vesting of equity awards when the stated performance hurdles were not achieved or were artificially low (five out of six deals received negative ISS recommendations).
On November 15, 2013, the U.S. Supreme Court granted certiorari in the case of Halliburton Co. v. Erica P. John Fund, Inc., No. 13-317, raising the prospect that the Court will overrule or significantly limit the legal presumption that each member of a securities fraud class action relied on the statements challenged as fraudulent in the lawsuit. Without this so-called “fraud-on-the-market” presumption, putative class action plaintiffs will be unable to maintain a securities fraud class action unless they can clear the logistically difficult hurdle of proving that each individual shareholder actually relied on the challenged statements when making its purchase or sale of securities. At least four Justices have recently indicated that the Court should reconsider the validity of that doctrine, suggesting that the ultimate opinion in Halliburton could lead to a significant change in securities class action law. Even if the Court ultimately affirms fraud-on-the-market or some variant of the doctrine, the Court may expand defendants’ ability to defeat what in practice has evolved into a virtually irrefutable presumption of reliance. Furthermore, the uncertainty caused by the pendency of the Halliburton appeal may warrant staying securities class actions and may reduce the settlement value of pending cases.
Last Friday, the Federal Reserve issued its summary instructions and guidance (the “CCAR 2014 Instructions”) for the supervisory 2014 Comprehensive Capital Analysis and Review program (“CCAR 2014”) applicable to bank holding companies with $50 billion or more of total consolidated assets (“Covered BHCs”). Eighteen Covered BHCs will be participating in CCAR for the fourth consecutive year in 2014. An additional 12 institutions will be participating in a full CCAR for the first time during this 2013─2014 cycle.
CCAR 2014 is being conducted under the Federal Reserve’s capital plan rule, which requires the submission and supervisory review of a Covered BHC’s capital plan under stressed conditions (the “Capital Plan Rule”). The Federal Reserve recently amended the Capital Plan Rule to clarify how Covered BHCs must incorporate the new Common Equity Tier 1 measure (“CET1”) and methodology for calculating risk-weighted assets from the recently adopted U.S. Basel III-based final capital rules into their capital plan submissions and Dodd-Frank stress tests for the 2013–2014 cycle. Under the Capital Plan Rule and CCAR 2014, a Covered BHC’s capital plan is evaluated by the Federal Reserve on both quantitative (that is, whether the Covered BHC can meet applicable numerical regulatory capital minimums and a Tier 1 common ratio of at least five percent) and qualitative grounds.
On November 5, 2013, the Commodity Futures Trading Commission (the “CFTC” or “Commission”) held a public meeting during which it:
- Voted 3-1, with commissioner O’Malia dissenting, to propose for public comment a new set of rules on position limits (the “Proposed Rules”) applicable to options, futures, and swaps contracts (“derivatives”) related to 28 agricultural, metal, and energy commodities;
- Confirmed that it will voluntarily dismiss its appeal of the September 2012 decision from the United States District Court for the District of Columbia (the “Court”) vacating the Commission’s previous attempt at imposing position limits across derivatives (the “Original Position Limit Rules”); and
- Voted unanimously to propose separately for public comment rules that would expand the availability of aggregation exemptions, as compared to the Original Position Limit Rules, from the CFTC’s aggregation standards applicable to position limits for futures and swaps (the “Proposed Aggregation Rules”).
Institutional Shareholder Services, the influential proxy advisory firm, has published for public comment two proposed changes to its proxy voting guidelines for U.S. companies. The proposals are limited and do not include any change related to the effect of longer board tenure on director independence. ISS had previously surveyed institutional investors and public companies on the topic of director tenure and received strong, but deeply split, responses from both constituencies. The proposed changes are:
The State of Delaware recently enacted several significant changes to the Delaware General Corporation Law (“DGCL”) and the Delaware LLC Act (“LLC Act”).
Section 251(h); Back-end Mergers. The most significant amendment to the DGCL is new Section 251(h) that, subject to certain exceptions, permits parties entering into a merger agreement to “opt in” to eliminate a target stockholder vote on a back-end merger following a tender or exchange offer in which the acquiror accumulates sufficient shares to approve the merger agreement (a majority unless the target has adopted a higher vote requirement) but less than the 90% necessary to effect a short-form merger. DGCL Section 251(h) will eliminate in many cases the time and cost associated with a stockholder vote on a back-end merger; however, where regulatory or other constraints impose significant delays, DGCL Section 251(h) is unlikely to be helpful. DGCL Section 251(h) also facilitates the financing of two-step private equity-sponsored acquisitions because the tender offer and the merger can be closed substantially concurrently (generally, on the same day). It also will eliminate the need in most cases for targets to issue “top-up” options to friendly bidders who, before DGCL Section 251(h), needed to “top-up” the number of shares they were able to purchase in the tender offer to reach the 90% target share ownership needed to effect a short-form merger. DGCL Section 251(h) does not apply to transactions in which a party to the merger agreement is an “interested stockholder” of the target under DGCL Section203(c) at the time the merger agreement is approved by the target board. In addition, there are a number of other possible limitations, outlined below, to the utilization of new DGCL Section 251(h).