M & A Roundup – Washington Update : Antitrust Agencies Stake Claim to Financial Services

U.S. antitrust enforcers moved to get a piece of the regulatory action on acquisitions done under the new law allowing cross-sector diversification in financial services. The Federal Trade Commission and the Antitrust Division of the Justice Department claimed partial jurisdiction over what they called “certain mixed’ transactions,” presumably those in which a target owns commercial banking and other financial interests. Under a jointly issued “Formal Interpretation,” the agencies said that the bank portion of the deal would continue to be subject to competitive review by bank regulators, such as the Federal Reserve Board, Comptroller of the Currency, and Federal Deposit Insurance Corp. But they said the merging companies must report the non-bank parts of a combination to them for a screening of competition effects under the Hart-Scott-Rodino Act, “regardless of whether the non-bank business is housed in an affiliate of a financial holding company or a financial affiliate of the bank.” Hart-Scott-Rodino requires companies involved in major mergers to submit the deals to the FTC or the Justice Department for antitrust review prior to completing them. The newly enacted Gramm-Leach-Bliley Act allows a single company to own commercial banking, investment banking, and insurance operations – most of which had been off-limits under the Depression-era Glass-Steagall Act that was repealed. In addition, commercial banks for several years have been diversifying into such traditionally permitted territories as mortgage banking, consumer credit, investment management, securities brokerage, and other financial services. The interpretation raises the possibility that the Justice Department or the FTC could hold up a deal cleared by bank regulators if they determine that it lessens competition or creates too much concentration in non-bank sectors. In another development, the FTC and the Justice Department formally adopted previously proposed guidelines for reviewing the competitive aspects of joint ventures and other corporate collaborations. The agencies essentially extended to collaborations the same criteria that they employ in checking out mergers and acquisitions.