Commonwealth Numbered Regulations - Explanatory Statements

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BANKS (SHAREHOLDINGS) REGULATIONS (AMENDMENT) 1998 NO. 213

STATUTORY RULES 1999 NO. 213

Issued by the Authority of the Treasurer

Banks (Shareholdings) Act 1972

Banks (Shareholdings) Regulations (Amendment)

Section 10 of the Banks (Shareholdings) Act 1972 (the Act) generally limits the nominal amount of the voting shares of a bank in which a person (including a corporation) may have an interest to 10 per cent, or 15 per cent with the approval of the Treasurer, of the total nominal amount of the voting shares of the bank. Under subsection 10(4) of the Act, the Governor-General may, after application made to the Treasurer by a person, if the Governor-General is satisfied that to do so is in the national interest, fix a higher percentage for that person by instrument published in the Gazette. Subsection 10(5A) provides that the Governor-General may, on the publication under subsection 10(4) of an instrument fixing a percentage applicable to a corporation in respect of a bank, after application made to the Treasurer by the corporation. by instrument in writing published in the Gazette, declare that the percentage so fixed is also applicable to the persons who are from time to time relevant officers of the corporation in respect of the bank.

Section 17 of the Act provides that the Governor-General may make regulations for the purposes of the Act.

Citibank Limited (Citibank) is wholly owned by Nessus Investment Corporation (Nessus). Nessus is in rum wholly owned by Citibank Overseas Investment Corporation (COIC). COIC is wholly owned by Citibank, N.A. (NA), and NA is wholly owned by Citicorp. (Therefore, the ultimate parent company of Citibank is Citicorp.) Nessus, COIC, NA and Citicorp are all incorporated in the United States of America and they all received instruments under 10(4) for a percentage of 100 per cent in 1985 on the establishment of Citibank. They also received a class instrument fixing a percentage of 100 per cent in respect of their officers, pursuant to subsection 10(5A) of the Act.

Citicorp and Travelers Group Inc. (Travelers) recently announced that their proposed merger is expected to take place by 20 July 1998 or soon thereafter. Travelers is incorporated in the USA. In order to facilitate the merger Travelers will form a wholly owned subsidiary called Citi Merger Sub Inc. (Sub). Citicorp will merge into Sub, and only Sub will survive the merger. Sub will then change its name to Citicorp, and Travelers will change its name to Citigroup Inc. (Citigroup). Therefore, as a result of the merger Citibank and the merged Citicorp will become 100 per cent owned subsidiaries of Citigroup.

An instrument under subsection 10(4) of the Act has been issued, fixing a percentage of 100 for Travelers; and Sub in relation to their interests in Citibank.

Under section 9 of the Act the associates (including officers, partners, subsidiaries and related companies) of Citigroup would also be deemed to have the same interest in Citibank as that corporation. In the case of relevant officers of Travelers and Sub, an instrument pursuant to subsection 10(5A) of the Act was issued which fixes a percentage of 100 in relation to their interests in Citibank.

Associates of Citigroup, other than its relevant officers, generally represent a large and everchanging group of persons and corporations. Rather than make an instrument pursuant to subsection 10(4) for every person within the meaning of section 9, it is convenient to provide for these interests to be disregarded for the purposes of section 10 of the Act through section 17 and paragraph 8(9)(d) of the Act. Paragraph 8(9)(d) of the Act provides that a prescribed interest in a share that is an interest of such a person or class of persons as is prescribed shall be disregarded

The Banks (Shareholdings) Regulations (the Regulations) currently prescribe a class of persons in relation to their interests in the banks listed in the Schedule to the Regulations, where those interests are deemed to be held by virtue of an associate relationship. On the establishment of Citibank, the interests of Nessus, COIC, NA, and Citicorp were all disregarded as above. It has since been found that this approach may not prevent shareholders in the ultimate holding company holding a shareholding of more than, 15 per cent, and hence they avoid the purpose of section 10 of the Act. The insertion of Regulation 14 will correct this oversight, it provides that the interests in Citibank shares that are deemed to arise under section 8 or 9 of the Act are disregarded, except for those interests held by shareholders in the relevant holding companies of Citibank for the purposes of section 10 of the Act.

The regulations also remove the references to Citibank, and the now defunct Citibank Savings Bank Limited, and their holding companies (Nessus, COIC, NA, and Citicorp) from the Schedule to the Regulations. The previous regulations were superseded by Regulation 14 and were removed from the Schedule.

It is in the national interest for Citigroup and Sub to own 100 percent of the shares in Citibank. The regulations and instruments will allow Citibank to continue its operations in Australia.

The regulations commenced on gazettal.