The Federal Reserve has issued an interim final rule that requires savings and loan holding companies in the mutual form of organization (“MHCs”) to make certain required disclosures before waiving dividends declared by subsidiary stock holding companies or subsidiary banks. The August 12 interim final rule applies to MHCs that have made minority stock offerings through a subsidiary holding company or bank. The OTS had long permitted MHCs to decline to receive dividends paid by their subsidiaries and instead to allow those dividends to be paid to minority stockholders. The Federal Reserve interim final rule establishes a new Regulation MM, which implements the Dodd-Frank Act framework for dividend waivers. Regulation MM requires that the vote of an MHC’s board of directors authorizing a dividend waiver contain certain elements designed to disclose and mitigate the conflict of interest the Federal Reserve sees in the waiver of dividends. First, the board resolution must describe the conflict of interest that may exist because of an MHC director’s ownership of stock in the subsidiary declaring the dividends and any actions the MHC and board of directors have taken to eliminate the conflict of interest, such as the directors waiving their right to receive dividends. Second, the resolution must contain an affirmation that a majority of the members of the MHC eligible to vote have, within the 12 months prior to the declaration date of the dividend, voted to approve the waiver of dividends. Any proxy statement used in connection with the member vote must include disclosure of any MHC director’s ownership of stock in the subsidiary stock holding company or subsidiary bank. Public comments on the interim final rule are due by October 27.
Nutter Notes: Section 625 of the Dodd-Frank Act amended HOLA to provide conditions under which an MHC may waive its right to receive dividends declared by a subsidiary of the MHC. Under the amendments, dividend waivers are permissible if no insider of the MHC, associate of an insider, or tax-qualified or non-taxqualified employee stock benefit plan of the MHC holds any share of the stock in the class of stock to which the waiver would apply, or the MHC gives written notice to the Federal Reserve of its intent to waive its right to receive dividends at least 30 days before the date of the proposed date of payment of the dividend and the Federal Reserve does not object. If the Federal Reserve objects to the waiver, the MHC may not waive the dividend. The amendments distinguish between those MHCs that waived dividends prior to December 1, 2009 (“Grandfathered MHCs”) and those that did not (“Non-Grandfathered MHCs”). For Grandfathered MHCs, the amendments provide that the Federal Reserve may not object to a waiver of dividends if the waiver would not be detrimental to the safe and sound operation of the subsidiary savings association, and the MHC’s board of directors expressly determines that a waiver of dividends by the MHC is consistent with the fiduciary duties of the board to the MHC’s members. The amendments also require Grandfathered MHCs to provide a dividend waiver notice to the Federal Reserve and include a copy of the resolution of the MHC’s board of directors, in such form as the Federal Reserve determines