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Marie F. Hogan

Marie F. Hogan is Of Counsel in the firm’s San Francisco office. She has practiced law in California for more than thirty years with a core emphasis on representing commercial banks, other depository institutions and financial service companies in connection with mortgage lending, bank operations, loan workouts, consumer law and compliance, credit and debit cards, bankruptcy and insolvency and similar matters.

Ms. Hogan has been active in the State Bar of California for many years, having served as chair of the Executive Committee of the Business Law Section in 1998 and as a member or advisor to the Executive Committee from 1994 to the present. Marie Hogan is currently also a member of the Consumer Financial Services Committee of the State Bar’s Business Law Section. Ms. Hogan was previously a member of the Uniform Commercial Code Committee where she contributed her extensive skills related to, among other areas, deposits, letters of credit and personal property leasing.

Prior to joining Joseph Law, she has held senior legal positions in some of the largest banking organizations in California including Bank of America NT & SA, The Bank of California NA, World Savings Bank and Charles Schwab Bank.
Ms. Hogan has been a member of the Board of Directors of American Bach Soloists since 2000. She also served two terms as President of the organization. American Bach Soloists perform music of the Baroque era and are known around the world for the quality of their performances and interpretation

Ms. Hogan was awarded her Juris Doctor degree from Hastings College of the Law in San Francisco. Ms. Hogan received her undergraduate degree from the School of Foreign Service at Georgetown University in Washington D.C.
Ms. Hogan is a member of the State Bar of California.

Joseph Law Corporation Becomes Joseph & Cohen

SAN FRANCISCO, CA – January 27, 2011. Joseph Law Corporation announced today that Jonathan M. Cohen has become a shareholder and director of the firm and the name of the firm has changed to Joseph & Cohen, Professional Corporation.  Mr. Cohen was previously affiliated with the firm as Of Counsel.  Jonathan Joseph, the firm’s founder, was named Chairman and Chief Executive Officer and Mr. Cohen was named President.

The firm will continue to emphasize banking, corporate, regulatory, securities, employment and transactional matters as well as commercial and executive employment litigation services for financial institutions, entrepreneurs, businesses, investors and venture capital firms.   The firm also specializes in the representation of officers and directors of failed banks.

“I am extremely pleased that Jonathan Cohen has become a partner in the firm which is why I am proud to rename the firm Joseph & Cohen. With his state and federal court litigation skills as well as experience providing advice in the areas of complex commercial transactions, executive compensation and employment law and insurance coverage matters we offer complete legal solutions to executives, investors, public companies and private businesses,” said Jonathan Joseph, the firm’s Chairman.

Jonathan Cohen stated “When I teamed up with Jon Joseph last year it quickly became clear that his superb business, banking, transactional and securities law expertise synergized incredibly well with my clients and core practice areas.  I am thrilled to be a partner and practicing law with Joseph & Cohen.”

Prior to joining the firm in 2010, Mr. Cohen was a partner in the San Francisco office of Winston & Strawn LLP.  Jon Joseph and Jonathan Cohen initially met nine years ago when they were partners in the San Francisco office of K & L Gates (previously known as Kirkpatrick & Lockhart Nicholson Graham LLP).

Joseph & Cohen, Professional Corporation, is an AV® rated firm based in California that emphasizes complex banking, corporate, regulatory, securities, employment and transactional matters and commercial and executive employment litigation services.  Joseph & Cohen is known for sophisticated expertise, extraordinary commitment to clients, relationship-based services, and a range of specialized capabilities typically found only in the largest American law firms.   For additional information, please visit the firm’s website at www.josephandcohen.com.

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Joseph Law Expands its Banking Industry Expertise with Addition of Marie Hogan

SAN FRANCISCO, CA – September 30, 2010. Joseph Law Corporation announced today that it has expanded its banking law expertise through the addition of Marie F. Hogan as Of Counsel to the firm.   Ms. Hogan brings more than thirty years of high level banking experience to the  firm with a core emphasis on representing commercial banks and financial service companies in connection with mortgage lending, bank operations, loan workouts, consumer law and compliance, credit and debit cards as well as bankruptcy and insolvency matters.

“We are extremely pleased that Marie Hogan is teaming up with Joseph Law. Her depth of industry knowledge as well as her hands-on experience in consumer compliance, loan workouts, regulatory and mortgage lending will benefit our clients in this post Dodd-Frank era.  Marie really rounds out our ability to offer complete legal solutions to financial institutions,” said Jonathan Joseph, the firm’s chief executive officer.

Marie Hogan brings to Joseph Law Corporation many years of working hand in hand with the business people who develop necessary and useful financial products for their customers.  In a regulated industry, Marie Hogan has the skills to navigate the many new regulations that will be  enacted pursuant to the Dodd-Frank Act.  The firm will now offer Ms. Hogan’s services to our banking clients  to enable them to bring cutting edge products to the market and to help them comply with numerous new consumer, lending and other regulatory requirements.

Marie Hogan’s experience has included senior positions at Bank of America, World Savings and Schwab Bank. Ms. Hogan also served as chair of the Executive Committee of the Business Law Section of the California State Bar in 1998 and as a member or advisor to the Executive Committee from 1994 to the present.  Marie Hogan is currently also a member of the Consumer Financial Services Committee of the State Bar’s Business Law Section.

Joseph Law Corporation is an AV® rated firm based in California that emphasizes complex banking, corporate, regulatory, securities and transactional matters for financial institutions, entrepreneurs, businesses, investors and venture capital firms.  Joseph Law is known for sophisticated expertise, extraordinary commitment to clients, relationship-based services, and a range of specialized capabilities typically found only in the largest American law firms.

For additional information, please visit the firm’s website at www.josephlawcorp.com or call Jon Joseph at 415.817.9200.

This press release is provided as a general informational service to clients and friends of Joseph Law Corporation. It should not be construed as, and does not constitute, legal advice on any specific matter, nor does this message create an attorney-client relationship. These materials may be considered Attorney Advertising in some states. Please note that prior results discussed in the material do not guarantee similar outcomes.

Jonathan Joseph to Present “Dodd-Frank Executive Compensation and Corporate Governance” Webinar for CalBar

SAN FRANCISCO, CA – August 12, 2010. Joseph Law Corporation announced today that its Managing Partner, Jonathan D. Joseph, will present “Dodd-Frank’s Corporate Governance and Executive Compensation Requirements For Public Companies:  Why Planning Now For 2011 is Essential”  via a live 60 minute webinar on August 18, 2010.  The Calbar’s description of Mr. Joseph’s webinar presentation states:

“The Dodd-Frank Wall Street Reform and Consumer Protection Act or “Dodd-Frank” was enacted on July 21, 2010.  Commencing in 2011, a non-binding shareholder “Say on Pay” vote to approve executive compensation may be the most profound executive pay provision in Dodd-Frank. Each public company must also ask its shareholders whether future Say on Pay votes should take place every one, two or three years (Say When on Pay).  When mergers or other acquisitions are submitted to shareholders, public companies will also be required to submit golden parachutes to shareholders for approval (Say on Golden Parachutes). Other notable provisions require enhanced independence for board compensation committees and their advisers and claw backs of erroneously awarded executive compensation as well as new descriptions of pay versus performance and internal pay equity metrics.  Dodd-Frank also explicitly authorized the SEC to adopt “proxy access,” a procedure where shareholder submitted board nominees will be included in the company’s proxy solicitation materials.   Say on Pay, Say When on Pay and Say on Golden Parachutes are far from meaningless.  These new corporate governance requirements will impact as many as 10,000 companies. Learn What is Required, What Isn’t Clear and Pragmatic Steps to Consider Now from a corporate securities practitioner with more than three decades of experience. This webinar is appropriate for inside and outside corporate legal advisers, board members, Board and Compensation Committee Chairman, CEOs, CFOs and investor relations personnel.”

The 60 minute webinar will be presented by Jonathan Joseph live online at 1:00 pm on August 18, 2010 via the CalBar’s website and will be retained in the Calbar’s CLE online archives ensuring that the program  will be available in the future to interested persons including California lawyers seeking participatory continuing legal education credit.  The archived webinar will be available after August 18 at www.calbar.org/online-cle and then clicking on “Tele-Seminars and Webinars”.

Jonathan Joseph is the Managing Partner of Joseph Law Corporation. His practice is devoted largely to complex banking, corporate, mergers and acquisitions, venture capital and bank regulatory matters. Mr. Joseph is a current member of the Financial Institutions Committee of the State Bar of California’s Business Law Section. He has been a frequent lecturer and writer on subjects relating to banking, financial institutions, corporate and securities law, mergers and acquisitions and venture capital.  Mr. Joseph is also a member of the New York and DC Bar.

For more information contact Jonathan  Joseph at jon@josephlawcorp.com or 415 817 9200.

This press release is provided as a general informational service to clients and friends of Joseph Law Corporation. It should not be construed as, and does not constitute, legal advice on any specific matter, nor does this message create an attorney-client relationship. These materials may be considered Attorney Advertising in some states. Please note that prior results discussed in the material do not guarantee similar outcomes.

SF Bank Attorneys Association Invites Jonathan Joseph to Speak about Dodd-Frank Wall Street Reform Act

SAN FRANCISCO, CA – July 21, 2010. The San Francisco Bank Attorneys Association (SFBAA) has invited Jonathan Joseph to be its keynote speaker regarding the newly enacted Dodd Frank Wall Street Reform Act at its monthly luncheon to be held at the Merchants Exchange in San Francisco on August 2, 2010.   Mr. Joseph’s speech to SFBAA’s membership entitled “Dodd-Frank Act – Selected Provisions Impacting the Financial Services Industry” will focus on how and why the final financial reform legislation took shape and its implications for banking organizations.

Mr. Joseph, who has over three decades of legal experience in the financial services industry, observed that “The genesis of this far reaching Wall Street Reform and Consumer Protection Act began in 1999 shortly after repeal of the Glass-Steagall Act of 1933, which had mandated a clear demarcation between commercial banking and investment banking for more than six decades. Significant new measures in the Dodd-Frank Act will change the shape of Wall Street and the financial services industry for years to come by filling legal and regulatory gaps and reregulating what had largely been an unfettered environment in which the major financial related companies had become too intertwined to fail.”

The SFBAA is a time honored institution dating back to 1939. Over many years its members have been among the leaders of the legal and business community in San Francisco. Today, its membership includes in-house attorneys from major California banks, outside lawyers in law firms that practice banking law, venture capital attorneys, lobbyists and federal banking and California Department of Financial Institution regulators. Additional information about joining the SF Bank Attorneys Association and attending the monthly luncheon program can be found at the SFBAA website at http://www.sfbankattorneys.com.

Jonathan Joseph has over thirty years of experience representing banking organizations and public companies. He is the founder of Joseph Law Corporation located in San Francisco. His practice is devoted largely to complex banking, corporate finance and board matters, mergers and acquisitions, venture capital and bank regulatory issues. Mr. Joseph is a member of the Financial Institutions Committee of the State Bar of California’s Business Law Section. He has also  been a frequent lecturer and writer on subjects relating to banking, financial institutions, corporate and securities law, mergers and acquisitions and venture capital. For additional information, please visit Joseph Law’s website at www.josephlawcorp.com or contact Jonathan Joseph at 415 817 9200, ext 9.

This press release is provided as a general informational service to clients and friends of Joseph Law Corporation. It should not be construed as, and does not constitute, legal advice on any specific matter, nor does this message create an attorney-client relationship. These materials may be considered Attorney Advertising in some states. Please note that prior results discussed in the material do not guarantee similar outcomes.

JOSEPH LAW NEWSBRIEF — “Say On Pay”: Lessons From Keycorp’s 2010 “No On Pay” Vote

By Jonathan D. Joseph*

President Obama is expected to sign the Dodd-Frank Bill in July.  Upon signing, a   mandatory shareholder vote requirement related to executive compensation known as “Say on Pay” will become applicable to about 10,000 public companies. During the 2010 proxy season, just over 600 public companies included “say on pay” votes in their proxy statements, but only three failed to obtain “say on pay” approval from their shareholders.

One of the three companies whose shareholders rejected executive pay practices in 2010 was Keycorp, an Ohio based regional bank holding company. At its recent annual meeting, 55 percent of the Keycorp shareholders voted against the company’s executive pay practices and it became the first (and only) U.S. banking organization to have a majority of shareholders reject its compensation practices.  The other two U.S. issuers that received “no on pay” votes in 2010 were Motorola and Occidental Petroleum.

Why did Keycorp become the only U.S. banking organization to generate majority opposition to its pay practices while its regional bank peer group and all of the largest U.S. banking organizations did not receive such a rebuke? Prudent senior management teams and public company directors should try to understand the answer to this question well in advance of the 2011 proxy season. Independent compensation committees and management teams that reasonably address existing “red flags” this year should have little trouble obtaining majority say on pay approvals in 2011.

Did Major Proxy Advisory Services Rebel Against Keycorp in 2010?

Published reports suggest that the large dissent appears to have been motivated by a disconnect between large CEO pay increases and KeyCorp’s lagging financial performance. In deed, Keycorp posted losses of $1.34 billion and $1.47 billion for 2009 and 2008, respectively.  This suggestion, while undoubtedly accurate, glosses over some critical blunders by Keycorp’s compensation committee related to executive pay disclosures and 2009 compensation decisions.  Numerous other banking organizations posted losses and other regional bank peers increased executive compensation in 2009 (e.g., Fifth Third Bancorp, Regions Financial and PNC Financial), but all received overwhelming “say on pay” approvals.

It is important to note that “say on pay” votes are nonbinding advisory votes and that the boards of public companies are under no fiduciary obligation to follow or consider the votes.  However, shareholder rejection of executive compensation practices sends a strong message to management and directors to revisit and revise problematic pay policies since compensation committee members and other directors that don’t respond adequately may be on the hot seat the following year.  Additionally, unlike prior years, the Dodd-Frank Bill prohibits discretionary broker voting, also known as  broker non-votes, in connection with executive compensation proposals. This will set the bar higher for say on pay votes in future years.

The 2009 base salary of KeyCorp’s CEO rose to $1.6 million from $1 million, according to SEC disclosures, and the compensation committee increased his annual base salary by $2.3 million in September 2009.  Overall, the CEO’s pay package was reported to be worth about $5.1 million in 2009 compared to $4.5 million in 2008.  His restricted stock and option awards were $3.4 million as of the date they were granted, up from $3.3 million in 2008.  The CEO, who has been an employee for 37 years, also had an accumulated supplemental pension benefit totaling more than $21 million.

It isn’t easy to tease out the factors that motivate shareholders to disapprove compensation practices. Increasingly, however, a number of proxy advisory services such as Institutional Shareholder Services (ISS), Glass, Lewis & Co. (Glass Lewis) and Proxy Governance, Inc. (PGI) influence the outcome of many public company proposals – including say on pay.  Thus, boards and executives should be especially mindful of the proxy voting policies of the major shareholder advisory services on management say on pay proposals.  Keycorp’s shares are mostly held by institutional holders – recent figures indicate about 83%.  Since the final no vote tally equaled 55 percent, well over half of Keycorp’s institutional investors must have voted against the proposal.

It is reasonable to conclude that the major reason many of Keycorp’s institutional investors dissented was because one or more of the major proxy advisory services recommended against Keycorp’s say on pay proposal.

Problematic Pay Practices Trigger No on Pay Votes

The likelihood that shareholder advisory services, large institutional shareholders and other sophisticated shareholders will vote against management say on pay proposals is directly related to the level of problematic pay practices that are identified for a company. No single problematic practice or red flag will necessarily cause a significant vote shift, but when the compensation problems accumulate, the likelihood of a shareholder revolt or proxy advisory dissent recommendation increases exponentially.

Keycorp’s 2010 proxy statement revealed numerous red flags including, among others, the following: (i) Keycorp did not achieve the 2009 overall profitability or credit quality performance measures that had been set by the compensation committee; (ii) in September 2009, the CEO was awarded a $2.3 million annualized  base salary increase, which upped his 2009 base by over $600,000 in the fourth quarter and locked in a significant base compensation increase for the subsequent year; (iii)  the CEO and three other named executive officers received “time-lapse” option grants that were significantly larger than any other option grants in recent company history and which contained no performance vesting criteria; (iv) the comp committee only considered  peer group benchmarks for total pay rather than separately benchmarking each significant compensatory element; (v) the comp committee didn’t freeze the company’s supplemental pension plans until January 2010, allowing the CEOs accumulated retirement benefit to increase during 2009 by almost $3 million to over $21 million; (vi) the compensation committee lowered its executive stock ownership requirements from  2008 levels; and (vii) the compensation discussion and analysis (CD&A) was vague, confusing and failed to adequately offer the “why” as to many of the company’s compensation decisions.

The above described pay practices, while not exhaustive, are indicative of the types of factors that can be catalysts for careful scrutiny and dissent by investors.  Practices that are inconsistent with a performance-based compensation philosophy, poorly designed incentives that promote excessive risk-taking or that don’t encourage long-term value creation and conflicts of interest should be frowned upon as they could contribute to a rejection of a company’s executive compensation by shareholders.  More than ever, compensation committees will need to take a fresh look at executive compensation with the assistance, whenever appropriate, of independent consultants and legal advisers.

Say On Pay Outcomes in 2011 Will Be Determined Based on 2010 Decisions

Compensation disclosures in the 2011 annual meeting proxy statements of all public companies will be based on compensation practices and decisions made in 2010.  To achieve a successful say on pay vote in 2011, it is important for boards and management to understand that the “say on pay” proposal will be based on a resolution that asks shareholders to approve the 2010 compensation of executive officers as set forth in the proxy statement.  This means that potential problematic pay practices and concerns of key shareholders (and proxy advisory services) should be identified as soon as possible so that appropriate mitigation procedures and policies can thoughtfully be implemented in advance of the next annual meeting. Companies should not underestimate the fact that broker non-votes will not be permissible in connection with executive compensation proposals commencing in 2011.

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For more information contact:

Jonathan D. Joseph at 415.817.9200, ext 9 or Jonathan Cohen at 415.817.9200, ext 8.

*Jonathan D. Joseph is the founder and Chief Executive Officer of Joseph Law Corporation,  San Francisco, CA. His practice is devoted largely to complex corporate, banking, securities, venture capital and bank regulatory matters. The firm also has an executive compensation, labor and employment and litigation practice. Mr. Joseph has been a frequent lecturer and writer on subjects relating to banking, financial institutions, corporate and securities law, mergers and acquisitions and venture capital. Mr. Joseph is a member of the California, New York and DC Bar.

This communication is provided as a general informational service to clients and friends of Joseph Law Corporation. It should not be construed as, and does not constitute, legal advice on any specific matter, nor does this message create an attorney-client relationship. These materials may be considered Attorney Advertising in some states. Please note that prior results discussed herein do not guarantee similar outcomes.  © 2010 Joseph Law Corporation.  All Rights Reserved.

Joseph Law Announces Monthly Fixed Fee Model for Employment and Corporate Law Matters as Alternative to Traditional Hourly Billing

SAN FRANCISCO, CAJoseph Law Corporation announced today that it has begun offering a subscription fee model for employment, transactional, corporate and securities law services as an alternative to the traditional hourly billing format utilized by most business oriented law firms.  “Business clients, particularly those with recurring legal costs and matters, are requiring alternative billing models as an option to the hourly rate structure.  The fixed fee subscription provides predictability and drives down legal costs while encouraging clients to seek legal input earlier.  It is a perfect solution for businesses that routinely require employment and HR advice or have recurring transactional, contract, bank regulatory or securities law counseling needs and are tired of ever increasing legal costs,” said Jonathan Joseph, the firm’s chief executive officer.

The fixed fee subscription eliminates hourly billing and provides unlimited legal counseling within all agreed upon core areas.  With a subscription model, the client is empowered to invite its lawyers to participate sooner since the meter doesn’t’ start running every time the client calls. While alternative billing has become more popular in recent years, Joseph Law is one of the first California based law firms to craft a monthly subscription fee model for banks, venture capital firms and public corporations with legal service needs related to transactional work such as venture capital financing, employment and labor law matters including executive compensation, bank regulatory and corporate issues, contract negotiations and securities disclosure matters.

Our fixed fee subscription service is easy to implement.  Each client’s fee is based on that particular client’s needs within defined core areas.  The first month is an initiation month with a flat fee that covers all of our services within the agreed upon core areas. During the month, our lawyers meet with the client’s executives and other key personnel, attend board or planning meetings and otherwise learn the client’s business. At the end of the month, we meet with the client and agree upon a fixed monthly rate going forward.  In practice, the Joseph Law monthly fixed fee model tends to reduce business annual legal costs within defined core areas by as much as 40%.  That fixed rate continues until either party requests an adjustment and is usually reset annually.

The fixed fee or flat fee billing structure is informed by Joseph Law’s senior lawyers’ years as billing partners at large national law firms that emphasized the billable hour model.  Jonathan  Joseph worked as a partner for many years at Pillsbury Winthrop and Kirkpatrick & Lockhart (now known as K & L Gates) while Jonathan Cohen was a litigation partner at Winston & Strawn and Kirkpatrick & Lockhart.

Joseph Law Corporation is an AV® rated firm based in California that emphasizes complex banking, corporate, regulatory, transactional and litigation matters for financial institutions, private businesses, public companies and venture capital firms.  Joseph Law is known for sophisticated expertise, extraordinary commitment to clients, relationship-based services, and a range of specialized capabilities typically found only in the largest American law firms.   For additional information, please visit the firm’s website.

For more information:

Jonathan M. Cohen can be reached at jcohen@josephlawcorp.com or at 415.817.9200, ext 8.

Jonathan D.  Joseph can be reached at jon@josephlawcorp.com or at 415.817.9200, ext 9.

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This communication is provided as a general informational service to clients and friends of Joseph Law Corporation. It should not be construed as, and does not constitute, legal advice on any specific matter, nor does this message create an attorney-client relationship. These materials may be considered Attorney Advertising in some states. Please note that prior results discussed in the material do not guarantee similar outcomes.

JOSEPH LAW NEWSBRIEF – Financial Regulation Update: Community Banks and Main Street Scoring Well Against Wall Street However Unknowns Persist

The U.S. Senate continues to debate the Dodd Bill also known as the Restoring American Financial Stability Act of 2010 (S. 3217).  Since the original procedural logjam was broken in the Senate on May 5, 2010, the Senate has debated twenty amendments and approved eleven changes. A few of the most important substantive votes have been widely reported such as the Shelby-Dodd Amendment, related to the “to big to fail” debate and the Sanders amendment regarding approval of a one-time audit of the Federal Reserve Board.  Few other amendments have received much fanfare, but they provide a glimpse of the final shape of the Senate version of the financial regulation legislation.  It seems apparent at this point in the legislative debate that the emerging legislation favors community banks and main street versus wall street and the money center banks.

Community banks were the recipients of rare bipartisan support that will change the way the FDIC charges banks to keep the deposit insurance fund fully solvent.  The method for calculating each banks deposit insurance premium as originally presented in the Dodd Bill would have favored the largest money center banks that have ready access to the capital markets.  Senator Jon Tester (D. Mt) tendered an amendment that was approved with 98 votes to require the FDIC to amend the definition of the term “assessment base” in a manner that would result in the larger, most leveraged banks paying a larger share of the insurance fund relative to smaller community banks, which tend to get their funding from deposits, not the capital markets.

Another amendment, authored by Senator Hutchison (R. Tex), also demonstrated the Federal Reserve’s muscle on capital hill.  Originally, the Fed would have been stripped of all direct regulatory authority over bank holding companies and state member banks with less than $50 billion in assets.  Hutchison’s amendment, which was approved with 90 aye votes, ensures that the regional Federal Reserve Banks will continue to regulate bank holding companies and member banks located in each of the regional banks’ jurisdictions. Senator Klobuchar, who supported the amendment, noted after passage that “The regional Federal Reserve bank system is a two-way street that both provides the Fed with valuable insight into local economies and serves as a voice for our community banks.”  It should be noted that the initial Dodd Bill eliminates the Office of Thrift Supervision (also known as the OTS).  It is likely that the OTS will cease to exist if the Senate ultimately approves a final financial regulation bill.

An amendment sponsored by Jeff Merkley (D. Or) and Amy Klobuchar (D. Mn), which was adopted with 63 votes, protects consumers from unsavory practices by some mortgage lenders by banning mortgage lenders and loan originators from receiving hidden payments when they steer homeowners into high cost loans.  Home buyers will still be allowed to finance their closing costs as part of their loan.   However, the mortgage industry scored improvements in the bill through the passage of a pair of amendments offered by Senators Landrieu, Isakson and Crapo. The amendments were designed to enhance the commercial mortgage backed securities (CMBS) market and support single family real estate markets by allowing more flexibility in connection with risk retention requirements associated with commercial loans and securitization of well underwritten single family home loans.

Dick Durbin (D. Ill) was able to obtain passage of another little noticed provision, created to rein in the largely unregulated debit card market, in a vote taken last Thursday, May 13, which could prove to be another major win for consumers and smaller debit card issuers. The final vote was supported by many Democrats, but it also picked up enough Republican votes (64 aye votes) to presage the potential final vote in the Senate on the Dodd Bill in the next few weeks.  The amendment would place interchange fees — the money taken by debit card issuers and banks when making a purchase using a debit card — under purview of the Federal Reserve. Specifically, the Fed would be required to set rules ensuring that the fees are reasonable and proportional to the actual processing costs.  The amendment would also allow merchants to offer discounts for customers to use competing card networks and for customers to pay by cash, check or debit card.

Recently, it was reported in the New York Times that interchange fees cost households an average of $427 in 2008. Most American consumers are steadily increasing debit card use. Unlike credit-card transactions, debit transactions involve no risk for card companies since the money is being drawn directly from bank accounts.  With debit card markets dominated by a few big companies, there has been no incentive for the fees to be lowered. This is why the Fed’s authority to make the fees “reasonable” will benefit consumers. Some banking industry observers have voiced a fear that smaller debit card issuers will be adversely impacted although the final Durbin amendment exempted debit cards issued by institutions with under $10 billion in assets.

A final battle is shaping up over the Merkley-Levin amendment introduced by Democratic Senators Merkley and Carl Levin (MI).  It would rein in proprietary trading (i.e. stocks, bonds, options, commodities and derivatives) by banks, bank holding companies and their affiliates and bar them from investing in or sponsoring a hedge fund or private equity fund.  “Systemically important” nonbanks (such as Goldman Sachs and AIG) would be subject to increased capital requirements to decrease the risks posed by speculative trading and the amendment would prevent investment banks from betting against securities they offer to their clients (which is being called the “Goldman rule”).  As of the date of this writing, the final vote on this provision is too close to call.  Public Citizen is tracking the vote at http://www.citizen.org/where-senators-stand.

If Senate Bill 3217 is passed it is likely to dramatically effect the final legislation that would then be crafted in the conference committee session with the House of Representatives based on their version of the bill which was passed in 2009.

For more information please contact Jonathan Joseph at 415.817.9200.

This communication is provided as a general informational service to clients and friends of Joseph Law Corporation.  It should not be construed as, and does not constitute, legal advice on any specific matter, nor does this message create an attorney-client relationship. These materials may be considered Attorney Advertising in some states. Please note that prior results discussed herein do not guarantee similar outcomes.  © 2010 Joseph Law Corporation.  All Rights Reserved.

JOSEPH LAW NEWSBRIEF: FDIC Paves the Way for Private Investors to Recapitalize Troubled Banks and Bid for Failed Banks

The recently announced high profile recapitalization of Pacific Capital Bancorp by investor Gerald Ford and affiliates, coupled with the newest FAQ issued by the FDIC on April 23, 2010, indicates that private equity now has several paths to successfully enter the queue for failed bank acquisitions and troubled bank recapitalizations.  However, it is also clear that the FDIC, as gatekeeper, is primarily opening the door to “patient” money invested by “anchor groups” who are willing to subject themselves to federal bank agency scrutiny.  It remains extremely important for such potential investors to engage qualified bank regulatory attorneys and consult closely and early with the FDIC staff as every prospective transaction will inevitably involve a variety of significant bank regulatory and policy judgments.

At the end of August 2009, the FDIC promulgated its Policy Statement for Failed Bank Acquisitions (“Policy Statement”).  It provided that covered private equity investors will be required to hold their investments in subject institutions for a three year period and agree to other restrictions not applicable to non-covered organizations that acquire failed banks.  On January 6, 2010, the FDIC issued Questions and Answers (“Initial FAQ”) to interpret portions of the Policy Statement. Both the Policy Statement and the Initial FAQ appeared to signal the FDIC’s discomfort with the supervisory risks associated with private investors participating in failed bank acquisitions.  As a result, the ability and willingness of private equity investors to participate in the huge recapitalization needs of the banking industry were stymied.  By default, existing banks and thrifts and their holding companies were favored in connection with failed bank acquisitions.

On April 23, 2010, the FDIC issued new Questions and Answers (“April FAQ”) to clarify elements of the Policy Statement and the Initial FAQ.  The April FAQ helped to clarify, among other things,  the “one-third test” first discussed in the Policy Statement, the applicability of the Policy Statement to “less than 5% investors” and requirements for offshore investors. Additionally, and perhaps most significantly for existing “troubled banks,” the FDIC provided a reasonably clear test of when recapitalizations of existing banking organizations will be exempt from the Policy Statement. As a result, a road map now exists for private investors to participate in failed bank acquisitions and recapitalizations of existing banks.

Private equity investors that are seeking to participate in so called “inflatable” banks or “platform” banks (i.e., smaller healthy banks that are super capitalized with the intention to acquire assets of failed or troubled banks) may find one element of good news in the April FAQ.  The recapitalization standard mentioned above provides that the Policy Statement will not apply to investors if a recapitalized institution acquires one or more failed bank in an eighteen month period following recapitalization if the acquired assets in the aggregate are less than 100% of the recapitalized organization’s total assets.   In the final analysis, the Initial FAQ and the April FAQ make clear that private investors wishing to flip their investments or make quick profits will face overwhelming obstacles.  On the other hand, private investors with a long term investment horizon may now potentially enter the banking arena.

Private equity contemplating investments in existing banking organizations will need to clearly understand the restrictions and limitations in the Policy Statement if the institution they invest in anticipates exceeding the “100% of total assets” threshold.   While the FDIC has offered more clarity about the one-third test and recapitalizations, ambiguity regarding the rules in this area is  still plentiful.  Our sense is that bank holding companies and banks seeking to rely on the recapitalization exemption, should probably commit to private investors in recapitalizations that future bank acquisitions will be structured so that the Policy Statement will not apply.  At this point in the economic cycle, banking organizations and private equity investors must work closely together in consultation with the banking agencies, qualified bank regulatory and transactional lawyers and investment bankers in order to wisely and pragmatically manage the complex legal, regulatory and business risks that exist in the current banking environment.

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References:

  • FDIC, Final Statement of Policy on Qualifications for Failed Bank Acquisitions, August 26, 2009 (http://edocket.access.gpo.gov/2009/pdf/E9-21146.pdf).
  • FDIC, Questions and Answers Posted January 6, 2010 (http://www.fdic.gov/regulations/laws/faqfbqual.html).
  • FDIC, Additional Questions & Answers Proposed to Address Recent Questions – April 23, 2010 (added to the January 6, 2010 Q&As).

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This communication is provided as a general informational service to clients and friends of Joseph Law Corporation. It should not be construed as, and does not constitute, legal advice on any specific matter, nor does this message create an attorney-client relationship. These materials may be considered Attorney Advertising in some states. Please note that prior results discussed in the material do not guarantee similar outcomes.  © 2010 Joseph Law Corporation.  All Rights Reserved.

Joseph Law Corporation ▪ San Francisco, CA 94110 ▪ Tel: 415.817.9200 ▪ www. josephlawcorp.com