Financial Holding Companies Debut- and They're Not All Giants

By Cocheo, Steve | ABA Banking Journal, June 2000 | Go to article overview
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Financial Holding Companies Debut- and They're Not All Giants


Cocheo, Steve, ABA Banking Journal


Among community banking institutions, $387 million-assets Umpqua Holdings Corp. has long been known as an innovative bank--though it hasn't been fond of the word "bank."

"We view ourselves as a marketing company that just happens to sell financial products and services," says Ray Davis, president and CEO of the Roseburg, Ore., company. Under the leadership of Davis, the bank holding company built a maverick reputation on such practices as calling its branches "stores," featuring computer cafes in the "stores" along with hot coffee blended to its own recipe, and generally trying to be unbankerly in many things. (See accompanying article.) Other institutions have picked up the style since.

The logo for the company's principal subsidiary, South Umpqua Bank, includes the slogan, "Pretty Cool for a Bank." In late 1999, the company acquired a full-service securities brokerage firm.

In March, Umpqua Holdings carried its campaign to be unbankerly one step further. It became one of the early players to be classified as a "financial holding company" (FHC) by the Federal Reserve.

This new status is one of the first pickings from the harvest planted by the Gramm-Leach-Bliley Act last year. In mid-January, the Federal Reserve Board published an interim rule enabling bank holding companies to elect to be treated as financial holding companies. This small difference in wording means a great deal; under the Gramm-Leach-Bliley Act, financial holding companies may engage in activities beyond those permitted to bank holding companies.

The Fed's interim rule became effective March 11. As of mid-May, more than 200 bank holding companies and other financial firms filed their election to be financial holding companies with the Fed. Though some pundits have termed Gramm-Leach-Bliley a law of most interest to large banks, it turns out that a significant number of the new financial holding companies represent community banking.

"We can now create the same structure that Citigroup created, but on a smaller scale," says Davis. "The key to what Citi is doing is capturing relationships, and the currency for all community banks in the future is relationships." Davis says the FHC structure will make it much easier for his organization to enter the insurance business, which will help the company make the most of the customer relationships that it has developed.

Hows and whys of conversion

ABA Banking Journal talked to a half-dozen community bankers whose organizations had filed for FHC status. All agreed that regulators had kept their promise to keep things simple.

The bankers said the conversion was quick and easy -- it involved little more than a letter, written generally with the assistance of counsel, stating the intention to convert and attesting to the company's meeting performance and Community Reinvestment Act requirements. Once a financial holding company is certified, a nonbank affiliate of the company can engage in new activities permitted under Gramm-Leach-Bliley without prior approval by the Fed.

What do the community banking organizations that have converted stand to gain? Here's some of what we heard:

In Texas, Frank Breazeale, president and CEO of First Gilmer Bankshares, Inc.

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