Annual Report of Merchant Banking Investments Held for an Extended Period

Board of Governors of the Federal Reserve System

Instructions for Preparation of

Annual Report of Merchant Banking Investments Held
for an Extended Period
Reporting Form FR Y-12A
Issued December 2006

For purposes of this report, savings and loan holding companies are subject to the same reporting requirements
as bank holding companies, unless otherwise noted in these instructions. All references to ‘‘bank holding
company(s)’’ are inclusive of ‘‘savings and loan holding company(s)’’ unless otherwise noted.1

GENERAL
(FR Y-12A)

INSTRUCTIONS

Introduction
Section 4(k)(4)(H) of the Bank Holding
Company Act (BHC Act) (12 U.S.C.
§1843(k)(4)(H) and subpart J of the Board’s
Regulation Y (12 CFR 225.170 et seq.)
permit bank holding companies and foreign
banks that have made an effective election
to become a financial holding company
(FHC) to acquire shares, assets, and other
ownership interests of companies engaged in
nonfinancial activities not otherwise
permissible for an FHC. Shares, assets, or
other ownership interests held under section
4(k)(4)(H) of the BHC Act and Subpart J of
the Board’s Regulation Y (collectively, the
Merchant Banking Authority) are referred to
herein as merchant banking investments.
Merchant banking investments include
investments made or acquired under any
legal authority, and that are held under the
Merchant Banking Authority as of the
reporting date.

FHCs that are approaching or have exceeded
the end of the relevant 10- or 15-year
holding period. These investments may be
illiquid or have other characteristics that
make their disposition problematic, thereby
posing potentially increased risk to the FHC
and its depository institution affiliates.
Who Must Report
An FHC must file an FR Y-12A report for a
merchant banking investment if, as of
December 31st of the relevant calendar year,
the FHC has owned, controlled or held such
investment under the Merchant Banking
Authority for a period that exceeds the
“applicable reporting period” for the
investment, as defined below. Merchant
banking investments that have been held
beyond the applicable reporting period, and
that must be reported on an FR Y-12A
report, are referred to herein as “covered
investments.”

An FHC includes any domestic bank
holding company or foreign bank that has
made an effective election to become a
financial holding company under Subpart I
An FHC may own or control a merchant
of the Board’s Regulation Y (12 CFR
banking investment only for the period of
225.81 et seq.). A domestic bank holding
time necessary to allow the FHC to sell or
company is a bank holding company
dispose of the investment on a reasonable
incorporated in one of the 50 States of the
basis consistent with the financial viability
United States, the District of Columbia,
of the FHC’s merchant banking investment
Puerto Rico, or any U.S. territory or
activities. Regulation Y implements this
possession.
Footnote 1. Savings and loan holding companies (SLHCs)
do not
holding period restriction by generally
include any trust (other than a pension, profit-sharing, stockholders’
permitting an FHC to own or control a
voting, or business trust) which controls a savings association
if suchReporting Period
Applicable
merchant
banking investment for up to 10
trust by its terms must terminate within 25 years or not later than 21
years.
banking
made
yearsMerchant
and 10 months
after investments
the death of individuals
living
on the
The
applicable reporting period for a
in, effective
or held through,
a
private
equity
fund
as
date of the trust, and (a) was in existence
and merchant
in control of
a
banking
investment is as follows:
defined
below,
however,
may26,
be1967,
held or,
for(b)
theis a testamentary trust.
savings
association
on June
duration
of the238.2
fund,of up
a maximum
ofRegulation LL, dated
See Section
the to
interim
final rule of
1. For a merchant banking investment
15 years.
An
FHC
must
obtain
the
Board’s
September 13, 2011, for more information.
that is made in, or held through, a
prior approval to own or control a merchant
private equity fund (see below) –
banking investment beyond these time
13 years.
periods.
(See 12 CFR 225.172(b)(4);
2. For all other merchant banking
225.173(c)).
investments – 8 years.
The information collected on the FR Y-12A
allows the Federal Reserve to monitor
merchant banking investments made by

Note: The applicable reporting period for a
merchant banking investment is less than the
permissible holding period for the

investment. This is to allow the Federal
Reserve to monitor investments that are
approaching the end of the holding period
generally permitted under Regulation Y.
Private Equity Fund
A private equity fund may be a corporation,
partnership, limited liability company, or
other type of company that issues ownership
interests in any form.
For purpose of this form, a “private equity
fund” means any company that meets all of
the following criteria:
1. The company is formed for the
purpose of, and is engaged
exclusively in, the business of
investing in shares, assets, and
ownership interest of companies for
resale or other disposition;
2. The company is not an operating
company;
3. No more than 25 percent of the total
equity of the company is held,
owned or controlled, directly or
indirectly, by the FHC and its
directors, officers, employees and
principal shareholders;
4. The company has a maximum term
or life of not more than 15 years;
and
5. The company was not formed, and
is not operated for, the purpose of
making investments inconsistent
with the authority granted in section
4(k)(4)(H) of the BHC Act or
evading the limitations governing
merchant
banking
investments
contained in Subpart J of the
Board’s Regulation Y.

As noted above, an FHC may not hold a
merchant banking investment beyond the
holding period specified in Regulation Y for
the investment without obtaining the
Board’s prior approval under 12 CFR
225.172(b)(4) or 225.173(c)(2). Filing an
FR Y-12A for a merchant banking
investment does not relieve an FHC of its
obligation to seek the Board's prior approval
to hold the investment beyond the 10- or 15year holding period for the investment. A
separate request to hold the investment
beyond the relevant holding period must be
filed by the FHC as provided in
225.172(b)(4) and 225.173(c)(2).
How to Prepare the Report
FHCs that meet the reporting criteria
described above should complete a separate
FR Y-12A for each covered investment that
it owns, controls, or holds as of December
31st of the relevant calendar year. An FHC,
however, may complete one FR Y-12A
cover page when reporting multiple covered
investments. In a multi-tiered organization
with one or more FHCs, only the top-tier
FHC should complete the FR Y-12A, which
would be prepared on a consolidated basis.
Where and When to File this Report
The report must be submitted by February
15th of the following calendar year. For
example, if, as of December 31, 2006, an
FHC owns a covered investment, the FHC
must submit an FR Y-12A for the
investment by February 15, 2007. Reporting
FHCs should submit an original and one
copy of the report to the appropriate Federal
Reserve Bank.
Alternative Report Form

See 12 CFR 225.173(a) and (b).
An FHC Must Request an Extension to
Hold its Merchant Banking Investment
Beyond the 10- or 15-Year Holding
Period.

In lieu of using the printed FR Y-12A report
form, an FHC may report the required data
on computer print-outs that are in the
identical format and size as the printed form,
including line items and columns in the
order in which they appear on the printed
form. The cover page must be signed by an

executive officer of the reporting institution.
Executive officer is defined in 12 CFR
215.2(e)(1).
Reporting in Dollars
All amounts should be converted to U.S.
dollars using the Spot Exchange Rate on the
report date, regardless of the currencies in
which the transactions reported are
denominated. The translations should be
made on the same basis as used by the FHC
to prepare its Consolidated Financial
Statements for Bank Holding Companies
(FR Y-9C) or Annual Report of Foreign
Banking Organizations (FR Y-7) report.
Rounding
Report all dollar amounts rounded to the
nearest million.
Report all percentage
amounts rounded down to the nearest whole
percentage. For example, a percentage of
61.75 should be reported as 61. Note:
There are two exceptions to this rounding
rule: when the percentage is greater than 50
but less than 51, report the percentage as 51
or if the percentage is greater than 0 but less
than 1, report the percentage as 1.
Confidentiality
The Board generally considers that the
information obtained through this report is
confidential on the basis that disclosure of
specific commercial or financial information
relating to investments held for extended
periods of time could result in substantial
harm to the competitive position of the FHC.
If, for any reason, the Board believes that
particular information cannot be withheld
from disclosure, the Board will inform the
reporter of its views and give the reporter an
opportunity to object, as required under
section 261.15 of the Board’s Rules
Regarding Availability of Information,
12 CFR 261.15.
Tacking Rules

An FHC must follow the “tacking” rules set
forth in sections 225.172(b)(2) and (3) of
Regulation Y in determining the period of
time that the FHC has held an investment
under the Merchant Banking Authority.
These rules are designed to prevent evasion
of the holding period limitations on
Merchant Banking Investments.
Under
these rules:
1. The period of time that an FHC is
deemed to have held an investment
under the Merchant Banking
Authority includes any period of
time that the FHC or any subsidiary
of the FHC (including a depository
institution subsidiary) previously
held the investment under any other
provision of the Federal banking
laws that imposes a limited holding
period on the investment.
Example: A bank subsidiary of
FHC acquired 100 shares of ABC
Manufacturing on October 1,
2000, in satisfaction of a debt
previously contracted (“DPC”).
In 2002, the FHC decides to retain
these shares and transfers them to
a nonbank subsidiary of the FHC
in reliance on the Merchant
Banking Authority.
Under
section 225.172(b)(3), the FHC is
deemed to have held the shares
under the Merchant Banking
Authority since October 1, 2000.
This is because Federal law
restricts the time period that a
bank may hold assets acquired
DPC.
Accordingly, the FHC
would have to file an FR Y-12A
for the investment if it continued
to hold the investment under the
Merchant Banking Authority as
of December 31, 2008.
2. A merchant banking investment
acquired by an FHC from a
company (the “selling company”) in
which the FHC holds an interest
under the Merchant Banking
Authority is deemed to have been

acquired by the FHC under the
Merchant Banking Authority on the
date the investment was initially
acquired by the selling company.
Example: On June 30, 2001, FHC
acquired a 10 percent voting
interest in Venture Capital Fund
under the Merchant Banking
Authority. On January 1, 2003,
the fund acquires 100 shares of
XYZ Manufacturing Company.
On January 1, 2005, the FHC
acquires the 100 shares of XYZ
Manufacturing Company from
Venture Capital Fund.
For
purposes of the FR Y-12A, the
FHC is deemed to have acquired
those 100 shares under the
Merchant Banking Authority on
the date that Venture Capital
Fund initially acquired those
shares (i. e. January 1, 2003). See
12 CFR 225.172(b)(2)(i).
3. An FHC may not extend the
reporting or holding period for a
Merchant Banking Investment by
selling the investment to another
company in which the FHC holds an
interest under the Merchant Banking
Authority.
Example: On October 1, 2001,
FHC acquired 49 percent of the
stock of Widget Company under
the Merchant Banking Authority.
FHC also owns 30 percent of XYZ
Investment Fund under the
Merchant Banking Authority. On
January 1, 2008, FHC sells its
entire
interest
in
Widget
Company to XYZ Investment
Fund. FHC continues to retain an
indirect interest in Widget
Company (through its holdings of
XYZ Investment Fund) under the
Merchant Banking Authority and
the FHC is considered to have
held its interest in Widget
Company under the Merchant

Banking Authority since October
1, 2001 (i.e. the date the FHC
initially acquired its interest in
Widget Company). See 12 CFR
225.172(b)(2)(ii).
Accordingly,
FHC must file an FR Y-12A for
its
investment
in
Widget
Company if it continues to hold an
interest in the company under the
Merchant Banking Authority as
of December 31, 2009.

Instructions for the Cover Page
(FR Y-12A)
Report Date
Provide the report date on which the FR Y12A is required. Information must be
submitted by February 15th of the following
calendar year.
Reporter’s Name, Street, and Mailing
Addresses
Legal Name:
legal name.

Provide the reporter’s full

Street Address, City, County, State/Province,
Country, and Zip/Postal Code: Provide the
street address of the reporter's main office.
Do not use a post office box number as the
street address. Provide the nine-digit zip
code, if available.
Reporter’s Mailing Address (if different
from street address): Provide the address to
which mailings for the reporter should be
sent. A street address or post office box is
acceptable. Provide the nine-digit zip code,
if available.

E-mail Address: Provide the electronic
mailing address of the contact person.
Contact’s Mailing Address (if different from
above): Provide the address to which
mailing for the reporter’s contact person
should be sent. The street address or post
office box is acceptable. Provide the ninedigit zip code, if available.
Executive Officer
Printed Name & Title: Print the name and
title of the Executive Officer who has
authority to execute the report on behalf of
the FHC.
Signature of Executive Officer, Date of
Signature: An Executive Officer of the
reporter must sign and date the cover page
of the FR Y-12A report to indicate that the
report has been reviewed for accuracy. Each
report submitted should be signed and
certified by an executive officer of the FHC.
“Executive Officer” is defined in 12 CFR
215.2(e)(1). The signer may or may not be
the same person as the contact person for the
report.

Contact’s Name and Mailing Address for
this Report
Name and Title: Print the name and title of
the person at the FHC that may be contacted
concerning the reporter’s submission. The
contact person should be an individual that
had responsibility for preparing or
submitting the report on the reporter’s
behalf.
Phone Number: Provide the telephone
number (including area code and if
applicable, the extension) of the contact
person.
Fax Number: Provide the fax number
(including the area code) of the contact
person.

FR Y-12A Cover

Instructions for Specific Line
Items (FR Y-12A)
Direct Holder Section
Direct Holder’s Name and Location
Provide the legal name, city and county,
state/province, country, and zip/postal code
of the Direct Holder 1 . Report the nine-digit
zip code, if available.
NOTE: Before submitting the FR Y-12A
report, the top tier bank holding company
must verify that an FR Y-10 or FR Y-10F
Nonbanking Schedule has been filed on
behalf of the Direct Holder. Also note that
effective June 2007, the information
collected on the FR Y-10F report will be
incorporated into a new FR Y-10 report.
Covered Investment Section
Line Item 1 – Acquisition Date of
Covered Investment
Provide the date on which the FHC initially
acquired the covered investment under the
Merchant Banking Authority.
In
determining the date, use the tacking rules
described in the General Instructions.
Line Item 2 – Name and Location of
Company Held
Provide the legal name, city and county,
state/province, country, and zip/postal code
of the company in which the covered
investment is made. Report the nine-digit
zip code, if available.
Line Item 3 – Primary Activity of
Company Held
NAICS Activity Code

1

The Direct Holder is the legal entity within the
FHC’s corporate structure that directly holds the
covered investment.

Consult the Report of Changes in
Organizational Structure (FR Y-10) or the
Report of Changes in FBO Organizational
Structure (FR Y-10F), Appendix B “North
American Industry Classification System
(NAICS) Activity Codes” for commonly
reported activities and select the code that
best describes the primary activity
conducted by the company held. If an
appropriate code is not listed in Appendix B,
select a five- or six-digit NAICS code from
the U.S. Census Bureau’s website
http://www.census.gov/epcd/www/naics.html.

If you are unable to identify a five- or sixdigit NAICS code corresponding to the
activity, provide a text description of the
primary activity of the company held.
Line Item 4 – Type of Interest Held by
Financial Holding Company
Check the appropriate box(es) to indicate the
types of interest(s) held by the FHC. If none
of the listed descriptions adequately
describes the type of interest, check the box
next to “Other” and provide a text
description.
Line Item 5 – Percentage of Ownership
Held by Financial Holding Company
Report the percentage interest of voting and
non-voting equity held by the FHC.
In
determining the FHC’s voting and
nonvoting ownership interest, the FHC
should assume that the FHC (and no other
investor) has exercised all rights, warrants,
and options held by the FHC and has
converted all convertible debt held by the
FHC. Report the percentage rounded down
to the nearest whole percentage.
For
example, a percentage of 61.75 should be
reported as 61. Note: There are two
exceptions to this rounding rule: when the
percentage is greater than 50 but less than
51, report the percentage as 51, or if the
percentage is greater than 0 but less than 1,
report the percentage as 1.

Line Item 6 – Acquisition Cost of Covered
Investment
Report the acquisition cost of the covered
investment (in millions of U.S. Dollars). For
purposes of this report, acquisition cost
represents the total amount paid by the FHC
for the covered investment. In instances
where the FHC did not pay consideration for
the investment (e.g., warrants taken in lieu
of cash), report the initial carrying value of
the investment at its initial fair value (e.g.,
warrants carried at $1).
Line Item 7 – Carrying Value of the
Covered Investment
For the covered investment, report the
carrying value of the investment (in millions
of U.S. Dollars) as of the reporting date
(December 31st of the relevant year). For
purposes of this report, carrying value refers
to the amount of the investment as reflected
in the FHC’s consolidated financial
statements prepared in accordance with
applicable accounting standards. If the
covered investment is not reflected in the
FHC’s consolidated financial statements,
provide the carrying value of the investment
as reflected on the books of the direct holder
of the investment. For example, an
available-for-sale equity security generally
is accounted for under FAS 115 at fair value
on the balance sheet. Therefore, under US
GAAP, the fair value of such an investment
would be considered the carrying value of
the security.
Line Item 8 – Plan and Schedule for
Disposition of a Covered Investment
For the covered investment, provide a brief
narrative explanation of how the FHC plans
to sell or otherwise dispose of the
investment and the anticipated time frame
for such sale or disposition. When possible,
the narrative should identify the key aspects
of the FHC’s plan for disposition, and the
timetable for disposing of the investment.
For example, this line item could state:
“IPO expected to occur in next year” or

“Discussing sale to third party and expect to
close on ___.” If circumstances warrant, a
separate page may be attached to the FR
Y-12A elaborating on the details for
disposing of a covered investment.
Other Definitions
For the definition of Appropriate Federal
Reserve Bank, Bank Holding Company,
Company, Control, Depository Institution,
Edge Corporation, and Financial Holding
Company, please refer to the FR Y-10 and
FR Y-10F Glossary.
For the definition of Carrying Value, Direct
Investment, Equity Investment, Indirect
Investment, Nonfinancial Company, and
Subsidiary, please refer to the glossary of
the Consolidated Bank Holding Company
Report
of
Equity
Investments
in
Nonfinancial Companies (FR Y-12).