Accrual Accounting and using the eroded financial reporting model to pirate the time value of money

Accrual Accounting and using the eroded financial reporting model to pirate the time value of money

Posted by Andrea Psoras on September 26, 2010 at 3:09am in Credit
http://www.bankinnovation.net/forum/topics/accrual-accounting-and-using?xg_source=activity

This past week while reading through Woelfel's 1993, "Handbook of Bank Accounting" to improve my understanding of Statement of Cash flows for financial institutions, I stumbled on his comments about accrual accounting's need for "Cash flows"...which "are important indicators of a bank's profitability and viability. To be profitable and viable, a bank must have sufficient cash flows to make loans and investments, meet withdrawals, satisfy loan commitments,and meet other cash requirements. Cash basis information provides critical support to accrual basis accounting (but does not replace the need for accrual basis accounting)".

What would he say in a new edition about current erosion of Financial Reporting that has bigFinancials funding using 1980's brain-dead thrifts' 2.0 version using Asset backed securities, repos and whatever commercial paper and Fed sponsored liquidity mechanisms the Fed has surfaced from its bowels which Woelfel also lists on pg 32 and 33 as "Specific and detailed supervisory powers of the Fed through its Board include prescribing rules and regulations governing:" which includes a number of mechanisms that Chairman Bernanke this past week at Princeton attempted to characterize as new, playing on our ignorance about what the Fed has done or what it has among its supervisory powers.

Although this doesn't directly relate to my concerns about the continued erosion from accrual accounting we're experiencing with the abuse of fair value accounting corrupting the income statement, what the Fed does and its credibility or lack thereof is key. Perhaps the frequency of these Fed 'irregularities' is extremely limited that the Fed has engaged in buying anything other than Treasuries, and having the Treasury Department serve as the effectuator of Open Bank Assistance also is rare rather than have the Fed engage in discretionary efforts however the financial sector crafted their own enronesque collapse with the Fed as its servant.

Back to the reporting abuses, US GAAP's Conceptual Framework is not missing in action nor escoteric in this who-done-it. GAAP's Concept 6 definition of revenue recognition violates accrual accounting's need to report the recognition of the financial effects of transactions, events and circumstances having cash consequences to the period in which they occur rather than when cash receipt or payment occurs (Woelfel p,20).

Keep in mind that given all the Fair Value which in effect is, Concept 6 Definition of revenue recognition, management can take the value of an asset or liability at the end of a period and run the unrealized non cash gains through the income statement as if it were a real revenue that realizes to cash when it doesn't. This Concept statement also existed even before harmonization with US GAAP and IFRS or even before the push for the US to adopt IFRS, although FV seems it was a more European way to claim a gain, or 'revenue' to run through the income statement. Given the nature of their bigFinancials with their governments, the degree of symbiosis in those societies there get that sort of shady accounting while our reporting model and for many years our corporates had to have more credibility. We need to repair to higher ground, away from this disgrace in our commerce, reporting of it and our society.

Back to the problems with FV, it occurred to me that although Concept Statement 5 for Revenue Recognition which says that revenues have to be substantially earned and realize to cash in the reporting period, versus this Concept Statement 6 and FV accounting - these later allow management to pirate the time value of money without the need for either a transaction or a contract such as one that generates a rent on real property, an interest on a loan or bond, or dividend which is income on an equity.

These all at the very least in their contractual form have their associated incomes and/or in the case of a transaction of these balance sheet items also have associated consequences such as a capital gain or loss or the true sale with the transfer of rights and/or responsibilities, privileges of ownership.

But absolutely the most craven, subtle, self dealing here has been Agency's pirating the time value of money. We all can only have access to the unlocked time value of money and associated impact on a balance sheet item when we transact -buy or sell it. Agency at the bigfinancials however have now found how to cripple the system and abuse this flaw in the system to the degree where they can print money through their income statements merely by even the Fed and their agency inflating their balance sheets meanwhile with the appearance of having done their jobs.

And worse too with their ability to contract the OTC derivatives, as I'd observed they can use their income statements to 'print' money with their derivatives which are fungible via their traders books through their income statements, thus serving as their currency while every one else has to meet accountability tests that agency at the bigfinancials and the Global corporates seem to have been permitted to avoid.

Traded derivatives contracts/contractual obligations by ISDA banks' of their respective resources plumed after Phil Gramm added the loophole for these in the Commodity Futures Modernization Act 2000. This plume related to and contributed to the collapsing of the US economy for it to comply with the G20 agreements' constraints for the US economy. These contracts also contributed to inflating the balance sheets which also occured after and also is related to and legitimized with Gramm Leach Bliley in 1999 and the SEC program for the largest US investment banks to suspend keeping their leverage ratio constraints.

The nos/vos 'netted' position of the OTC derivatives however still gives us a $25T moving target hole. One fixed income analyst at one of the world's largest banks said we have to look at a little tiny window of that and address this in small increments rather than deal with a hole that could swallow 2 years of US GDP. Given the $25T otc derivatives hole, agency at the ISDA players have vastly over obligated the resources of their enterprises.

Altogether this gives serious agency self dealing and abuse with their OTC derivatives contracting and 'hedging' all of which have enabled bank management to run the Fair Value unrealized non cash gains through their income statements, while producing insufficient cash flow other than from repo and other short term funding that would shut down and become unavailable except for the Fed if the markets become nervous.

In addition banks' interest income is fouled with the hedging which perhaps may have associated cash-flows but perhaps not, with non cash items both packed into the interest revenues as well as the loan accounts on the balance sheet and are subject to fair value accounting, which again has the unrealized non cash gains recognized in the income statement as if these were real revenue that would realize to cash. Moreover, insufficient quality lending without hedging on the loans and asset items has diminished cash in the operating section of the cash-flow statement. Consider too the impact of backing out interest revenues when management has to put loans on non-accrual, while having to make provision for deteriorating asset quality -although provisions goose operating cashflows rather than penalizing management for poor asset quality.

Meanwhile all of this contracting which agency can fair value and enjoy bogus revenues for those, has hidden poor management decisions and in general poor managing at our bigFinancials. It also is agency engaging in their inside and self dealing with virtually no push-back or punishment by the regulators which now will 'supervise' via some committee of oversight that is stacked all with regulators and insiders that wallstreet and bigFinancials will be able to choose those at the table and via campaign contributions pay for legislation about how that oversight body will be structured, with little to no sunshine.

But again the worst of all of this is that it's taken between $10T to $16T of voter money to flush the markets so that the bigFinancials can have stable and upward moving markets to revalue their balance sheets so that on the Fair Value mark to market, it appears as if the values are greater one period over the next. Then when the unrealized non cash gains from the mark to market are 'recognized' as revenues, the abuses of this reporting appear to be profitable and managements are then enjoying some smoke and mirrors to legitimize paying themselves higher comp.

Between our Congress's problems and our domestic economic problems, as well as the self interest of the Europeans financials and their governments, our regulators haven't punished nor cease and desisted this sort of agency plunder now seriously into the public weal. That bigFinancial feif will devour all of our society, except we who understand the problem and in turn condemn it, all of it, and every conflicted participant in all of this. Agency, Congress and our regulators are to draw back in horror at the systematic looting by agency of the bigfinancials aided and abetted by the Fed and Treasury's regulators with the FDIC also at that table as a the good cop in the good cop/bad cop routine.

We're also having dotcom-esque problems with bigfinancials' barter with their trading; we thought we'd shed that inferior economic model with slavery, or in having left Europe behind, also had enjoyed liberty from their feudalism, but we're there with this kleptocracy and their hijacking of the reporting model devolving from accrual accounting, while lining managements' pockets with the regulators and congress looking to likewise feed from that trough.

This quickly will cease; God's hand is not too short for there to be a swing in the pendulum in this world against people who think they can cripple the system and shave value outside the rules or hijack the rules while the balance of society again has to survive accountability tests.

http://www.linkedin.com/in/andreapsoras

Protest to Regulators, Judge Hellerstein against application for Santander to buy 19.9% of Sovereign Bancorp

May 2006
Protest regarding Santander disinterest to serve as source-of-strength to Sovereign
also incorporating protest to Judge Hellerstein in US Federal Court in New York 2nd District

Via email: comments.application@
Attn: Ms Gail Santora-Ferrer
Financial Specialist
Bank Applications Department
Federal Reserve Bank of New York (“FRBNY”)
33 Liberty Street
New York, NY 10045

cc Attn: Jay Bernstein
Staff Director
Domestic Banking Applications Department
Federal Reserve Bank of New York
33 Maiden Lane
New York, NY 10045

Mr. Scott Alverez, Esq
General Counsel
Board of Governors of the Federal Reserve System (“BOG” or “Fed”)
Washington, DC 20551

Mr. Richard Spillenkothen
Director
Division of Banking Supervision & Regulation
Board of Governors of the Federal Reserve System (“BOG” of “Fed”)
Washington, DC 20551

Talking Points
Page 1: Introduction Discourse- Updated Opposition and Request for Santander Application Rejection
Page 3: Analysis of Bracewell&Guiliani - Failure to address GLB prohibition of FHC to keep SHLC charter
Page 12: Source of Strength-Fed Research
Page 15: With Analysis, Control and Related Language Found in Santander-Sovereign Investment Agreement
Page 26: Proposal serves as a failure in FAIRNESS to the shareholders of SOV


Dear Ms. Ferrer, Mr. Bernstein, Mr. .Alverez, and Mr. Spillenkothen:

Updated Opposition and Request for Santander Application Rejection
Thank you notwithstanding, for the brief discourse with Mr. Jay Bernstein following my call to the Legal Department at the Federal Reserve Bank of New York about the Fed’s general thoughts on “Source-of-Strength” (“SOS”) and the associated FDIC doctrine of “cross-guarantees” codified in Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (“FIRREA”). In mentioning the Santander application, FRBNY staff flagged my call and referred it to Mr. Bernstein. Please find this following my phone conversation in late February with Mr. Bernstein when I asked about the protocol for having a public hearing regarding the interest for Santander, Sovereign, and Independence to effectuate their change in control and the associated application Santander filed with the FRBNY. Mr. Bernstein reminded me that I needed to include such a request in my comment to the Public Comment, with the period for that ending January 9.

I indicated my ignorance that I needed to include that in my comment, where Mr. Bernstein then responded that I should put my request in writing and that the Staff would consider if they would consider my request made after the Public Comment period expired.

Although aware that I submitted comments for review after the close of the Public Comment period, I appreciate that these comments may be considered at the discretion of the Board of Governors and all those reviewing these applications. In my call, although I happened to have mentioned the Santander application for Sovereign, my questions generally were to focus on current Fed thinking about Source-of-Strength. In addition, Santander's interest to claim 'minority' investor status versus actual de facto controlling interest so as to avoid Source of Strength, one could judge as an expedient and disingenuous claim to suit the Buyer's self-interest and power games with a new regulatory counter-part.

The Fed should consider itself demeaned with Santander's conceit, insolence, and contempt at presuming to have access to banking in the US domestic market while avoiding a key responsibility as a large and potentially abusive player in domestic and international finance.

I also have concerns where US regulator rhetoric may separate from political reality influenced by political interests of the Bush Administration. The BOG and the FRBNY generally have represented themselves as remaining independent of, and presumably above political influences yet remaining respectful of the laws. I have had hopes that our Central bank and its keystone district bank are not insolent and contemptuous in the face of our laws. And with the Fed's often ‘apolitical’ rhetoric, I also remain hopeful the deliberation process on applications keeps our laws and the rules that supervise and provide recognized-transparent oversight of our financial system and all those which participate in it or wish to do so and above reproach, as it were. Former Fed insiders blanche at such a plebeian notion, let alone if there really were fire to any smoke that the Fed’s self- interest subtly reflect interests and policies of the bankers of US and world’s largest banks, which in turn have some power (over) our public servants in Congress and the Executive Branch.

Speaking to my point about political “pressure”, I have watched the Bush Administration’s expedience to keep ‘allies’ such as Spain, with Santander serving as a proxy, politically and economically supportive of its “Global-War-On-Terror” (“GWOT”) and the many bastard siblings and offspring of this particularly contorted policy of the Bush Administration.

I just so happen to be registered Republican originally from Rep Nadler’s district - also where the WTC was - now living in Congressman Charlie Rangel’s district, where Democrats perhaps outnumber Republicans by 50 to 1. Given that I was one of Senator McCain’s delegates in the 2000 Presidential campaign, I fall in the region but not in the ‘tent’ of the faction of Republican Party currently occupying the White House and other senior Administration staff. By no means, however, am I or do I look for this Complaint to serve as a political soapbox. Notwithstanding, my comments herein related to political influence and against a few of the policies of the Bush Administration existing in the public domain and include my observations about such policies among them, the GWOT.

Perhaps the more extreme but potential Machiavellian scenario could occur where Santander has some sort of political dirt on the Bush Administration, and threatens to use it if the Fed and the others reject its application. Regardless, I have concerns about where the political undertow and intelligence apparatus may interfere directly or indirectly with deliberation prior to and with this application, which the Fed and all the other regulatory bodies should outright, completely reject for not a few compelling reasons, especially where the application violates the Gramm, Leach, Bliley Act of 1999 as well as FIRREA.

A reasonable conjecture needs no nefarious, subtle international intrigue: March 16, 2006 hearing about how in Congress had to vote to increase the federal debt limit and that foreign parties and sovereigns own a material amount of our debt. Perhaps Santander as a proxy in some way serves as one to favor. Regardless, I condemn this sort of political undertow to which the Fed secretly would bow or even just in its own conceit and self interest for international power, it would produce this sort of deplorable, back room conduct while secretly contributing to unfair dealings to Sovereign's shareholders by this rail-road/piracy/commandeering job.

Playing a quid-quo-pro with Santander serves as proxy to keep Spain engaged on many fronts. And with that interest to serve many agendas, including floating the huge budget deficit run by a Republican Congress and Republican Administration, one increasingly globally minded largely to suit the interest of multinational corporate (and bank) management, courting and using Santander in a less than fair-dealing, less than responsible fiduciary ‘strategy’ disserving Sovereign’s shareholders serves as a proxy to satisfy those aforementioned intended and unintended agendas.

And so perhaps the Administration would apply any sort of political pressure to the Fed to accept Banco Santander’s flawed application that violates federal law and regulation, so as to serve some or a number of quid-pro-quo, notwithstanding the New York Fed’s possible self-interests to imagine itself the ‘Crown’ position of the world’s most powerful Central Bank and keeper of the ‘Keys’, as is known to be the way the global money changers have fancied themselves, all cynicism aside.

I very much appreciate the opportunity to give Staff considering the applications, my thoughts on Source of Strength matters, along with concerns related to undisclosed, off-the-record, ad hoc, largess, federal banking law circumventing talks and deals between Applicant and Santander about strategies for it to file its New York Federal Reserve Bank Application, coincidentally with comments and rebuttal to the “Report of Bracewell & Giuliani LLP, (March 2, 2006) .

Banco Santander/Bracewell & Giuliani* ‘Report’ ("BG Report", or "Report"):
Comments on the ‘report’ and discussion of key revelation(s) withheld from public discourse and due process

I will address this revelation of a secret agreement, however, BG report slightly meanders and generally dissembles in a shrewd way without mentioning or referencing superseding Gramm, Leach, Bliley legislation, while the Report dances around and over specific sections of banking legislation such as the Bank Holding Company Act as if this perfectly applies to Santander. So Santander expects us to accept this and give a pass to overlooking the truth of the situation, that although it largely provides banking services abroad, in Spain it recently divested of a utility. It has or has had ownership of and in other commercial enterprises, violating our banking laws prohibiting mixing commerce and banking.

The lobbying firm Mr. Giuliani shares hired Richard Clark, former Comptroller of the Currency to lobby on behalf of the Application. I have some opinion that given the OCC is under the Executive Branch, this regulator as well as the OTS, tacitly serve the interests of which ever administration is in the Executive branch and serving as damage control or banking policy arm for ‘White House’ interests. With that said, after reviewing the comments in the Santander financed “Report of Bracewell & Giuliani LLP” (“BG”) subtitled disingenuously as “An Independent Review of Banco Santander Central Hispano, S.A.’s Compliance with the Rules and Regulations of the New York Stock Exchange, The Board of Governors of the Federal Reserve System, The Office of Thrift Supervision, and the New York State Department of Banking and Certain Provisions of Federal and State Law Proposed Investment in Sovereign Bancorp, Inc. And Sovereign’s Proposed Acquisition of Independence Community Bank Corp ”, March 2, 2006, I found amiable and calculated to reposition the regulators, as would any lobbying document.

Although wanting the public to infer that “independence” means ‘arm’s length’, the word Independence in the B&G Report’s title appears misrepresentative of the true situation, as Sullivan & Cromwell counsel and Relational’s Ralph Whitworth have observed: that Santander paid for this political lobbying ploy while the lobbyists Bracewell & Giuliani avoided including Relational’s positions and shareholder status in this entire matter for which Santander hired its lobbyists. Given my knowledge of the Santander application and the surrounding body of federal law, regulation, and the parties involved, consider my observations above, the Bracewell & Giuliani ‘report’ I exhort viewing with seriously skepticism.

I found the 'filler' in this report crafted to impress and distract the reader with banking legislation that applied to this proposed change-in-control, but the Report failed to include other banking legislation which amended the Banking Holding Company Act. The Gramm, Leach, Bliley Act of 1999 ("GLB"). GLB defines "financial holding company" ("FHC"), although the amended Bank Holding Company Act (of 1956) legislation mentions FHCs. The BG Report however virtually completely avoids the GLB discourse on FHCs and the bright red - line prohibiting their mix with commerce and banking which had been permitted and grand-fathered as of May 1999.

In Nonbanking Activities and Application requirements found in B&G p47 fail to accurately characterize control or ownership of a ‘savings association’ “when a financial holding company acquires control of more than 5% of the shares, it must receive the prior approval of the Federal Reserve in accordance with the BHC Act.” referencing 12 USC sec 1843(j). Again, with or without “Reg Y” and the Bank Holding Company Act amended, although the Fed must approve, the Savings association must change its charter to an OCC bank so as to block further violation of Unitary Thrift banking grandfathering ceased as of May 1999.

B&G report mentioned the Application’s and Independence’s operating subsidiaries, on Our Review of the Fed Application pg 55, last paragraph “The Fed Application and subsequent submissions by Santander also disclosed information with respect to the acquisition of the non-savings bank subsidiaries of Sovereign and Independence that are conducting activities which are financial in nature pursuant to the BHC Act and noted that Santander will submit and after the fact notice relating to the subs as it is permitted to do under the provisions of Section 4(k) of the BHCA and Regulation Y. And I love this one; they hang themselves with this in its absurdity and inadvertent or back handed self-incrimination: “While it appears that most of the activities conducted by Sov and ICB fall within the scope of permissible activities under either Section 4(c)(8) or Section 4(k) of the BHCA, other activities may not. Each direct or indirect subsidiary of SOV and ICB must be evaluated for compliance with the provision of the BHCA prior to consummation of the Proposed Transactions and the direct and indirect activities of SOVs and ICB will need to be conformed to those permissible under the BHC Act. The Federal Reserve generally allows a periods of two years in which any nonconforming activities must be discontinued by the acquired savings association or its subsidiaries”.

WHAT A WAY TO DISSEMBLE AND BACK HAND THE ACKNOWLEDGMENT OF WHAT I HAVE DECRIED: THAT THIS APPLICATION NOT ONLY HAS INCRIMINATED THE APPLICATIONS AND ITS COUNSEL IN WHAT IT HAS CONFIDENTIALLY FILED THAT SHOULD HAVE BEEN REQUIRED OR FORCED ON THE PUBLIC PART IN ITS APPLICATION. THE LANGUAGE OF THIS PAST SECTION SO ATTEMPTS TO SIDESTEP THAT SANTANDER FAILED TO PUBLICLY DESCRIBE THE SUBSIDIARIES, AND ESPECIALLY THOSE THAT THE TARGETS ENJOY GRANDFATHERED UNITARY THRIFT BANKING, WHILE SANTANDER MAY NOT!

MOREOVER, THE SOVEREIGN OTS APPLICATION GAVE THE PLEASURE OF THOSE WHO REVIEWED THE FOLLOWING WHICH I QUESTIONED AND ABOUT WHICH I COMPLAINED IN MY JAN 9, 2006 COMPLAINT TO THE NEW YORK FED. I asked to “Explain the flurry of operating subsidiaries to operate in New York Sov files with the OTS the day before its 12/23/05 the day before it files the OTS application. This List follows with no description or explanation: Independence Community Investment Corp., Independence Community Realty Corp., Renaissance Asset Corporation, Staten Island Funding Corporation, Wiljo Development Corp., Broad National Realty Corp., Broad Horizons, Inc., BNB Investments Corp., Bronatorco, Inc., ICM Capital LLC., Independence Community Commercial Reinvestment Corp., ICB Leasing Corp., and SIB Mortgage Corp.” AND SANTANDER WANTS TO ENJOY FHC STATUS AS IF IT COULD GRANDFATHER UNDER THE OLD UNITARY THRIFT BANKING LEGISLATION THAT PERMITTED COMMERCE AND BANKING MIX, WITHOUT FILING AS AN SLHC?

So Bracewell & Giuliani inadvertently admits that Santander defiled its application with by advantage of confidential material that in explaining here about what it presumes of the non-financial, prohibited subs for Santander under GLB new unitary thrift banking rules, it will divest, while admitting that it stumbled through its due diligence or pretended so as to obfuscate in its due diligence of the potentially acquired subs but that it is hoping it can get away with conflicts. WE see carelessly described in the Report, this childish demand for its toy following behavior often deserving of discipline, but now when ‘granted’ its wish, the ‘promise’ of responsible behavior at some future point.

The General Statement even fails to responsibly address these requested operating (and financial related) subs that Sovereign applied and is looking for approval in effect for their acceptance for their establishment. First, no disclosure described their future activities, while Santander was told it had a pass to apply for Sovereign as a ‘bank’. Meanwhile these new subs may be engaged in commerce permissible to Sovereign under its charter and unitary thrift banking, however where Santander’s acquisition Gramm, Leach Bliley prohibits the acquisition or change in control unless the savings & loan, in this case changes its charter and there is divestiture of subsidiaries engaging in commercial activity. AND SANTANDER WANTS TO ENJOY FHC STATUS AS IF IT COULD GRANDFATHER UNDER THE OLD UNITARY THRIFT BANKING LEGISLATION THAT PERMITTED COMMERCE AND BANKING MIX, WITHOUT FILING AS AN SLHC with the OTS, as required by federal legislation in the event a depository enterprise wants to acquire an SLHC so as to preserve the separation of commerce and banking?

I don’t always like the laws, but there were reasons Congress grandfathered that legislation. Our society has problems with increasing concentrations of power and its abuse of the rights of and overall breadth and depth of prosperity to all aspects of American Society. We were not formed in statism and we err to erode or deteriorate to that. What Sovereign is doing is attempting to use its charter while given the transaction it wants, it may not longer enjoy and technically should or must charter change.

All this supports my original assessment of Santander and its conceit, as well as its contempt for our society, our legal structure, our regulatory framework, our regulators, and this application process. I had observed in my Complaint to the New York Fed filed January 9, 2006 in the last paragraph of Section VI “Comments and concerns on increasing concentrations in banking and the vulnerability to US community banking for large foreign bank target with Basel II. Page 20” (depending on software) “With less due process and public friction, in Spain the Botin’s bank can hire a former (government) bureaucrat as an “independent” director who serves on its Audit and Compliance, and Appointments and Remuneration Committees, who coincidentally is an economist, lend him millions, while he perhaps runs pass interference on behalf of the bank when it decides it wants to do things and conduct itself in its own way.“

Sullivan & Cromwell’s March 16 letter to Jay Bernstein (of the New York Fed) pg1. mentions Santander’s Puerto Rican subsidiary’s operating and control failures, while Santander is claiming it’s ready and able to handle control and active operation in a US based depository institution the size of Sovereign. Also on p4 “#3. Abuse of the Application Process (et al) preceded by “#2. Second, the Report of Bracewell & Giuliani LLP (commissioned by Santander) indicates that Santander held prior discussions with the Federal Reserve regard the Application before it was filed” with the 5th footnote citing pps. 54-55 in the Report sourcing what I found and condemned that Santander and the New York Fed had committed.

As it were, all the aforementioned speaks to Santander’s interest and ability to operate above and around the law where has its establishment, its arrogance, its disingenuous representations and practices, as Sullivan & Cromwell and I have stated, where it committed abuse of the application process and I say abuse in general, while somewhat double-speaking in its excuse for itself, its filing(s), and purposed administrative failures as “inadvertence” Sullivan & Cromwell has exposed in referencing the Santander (Davis, Polk, Wardell?) March 13 Letter at 4 (on behalf of its client, Santander). Until this time, and again, excluding its history as a passive investor in First Fidelity, its has yet to establish a retail relationship outside of areas where it can control its supervisors and the playing field. In the US we and our regulators attempt to avoid this, while in knowing the US regulatory framework requires compliance, Santander avoids the US banking market where it is disinterested to fully comply.

Notwithstanding Santander’s expedient, opportunistic interest to access the coveted metro New York retail banking market in the least expensive, albeit most contrary and obtuse way, and failing the process Santander knowing its application given its legal flaws, demonstrating its predilection for political expedience and fancy for political advantage, true-to-form it engaged 911 “hall-of-famer”, considered ‘everybody’s mayor’ after the way his manner was portrayed with the events in New York on 9/11/01, former New York Mayor Rudy Giuilani to politically lobby on its behalf, as well as throwing money at former regulator Richard Clarke to give a pass at the federal law and regulation violating application and hoping to play our Banking regulators for fools.

In the Report p.52, “Standard for Review”, Statutory Factors - the Public Benefits Test the Report further attempts to represent and mock up Santander’s “expected benefits to the public...”, while it made VERY LITTLE of this in its General Statement submitted 12/8/05 to the New York Fed. Perhaps it was Relational Investor’s counsel who also observed that Santander has failed to make compelling arguments that the New York metro area needs a ‘foreign’ bank to provide what more than 30 banks (and thrifts) providing full (retail) service to this deposit area.

Other constituencies such as the Pennsylvania Banking Department and the New York Attorney General’s office, or perhaps should have been engaged to comment to the Federal Reserve Bank of New York, which should have had access to opine on this application had little or no power to have any say on their own respective turf, ie, have some power to rule against/oppose the intrusion of a large, aggressive and contemptuous foreign bank operating in their respective states. The press has reported lay-offs connected with Santander in the UK at its recent acquisition there.

Moreover, I have been seeing and strongly have been opposing further erosion of US banking assets into the hands of foreign interests, with THAT disserving the American banking and financial markets. Where we want to avoid this and build wealth here not under control by foreign agents, we need to reflect on the deplorable trend resulting of sale into foreign hands for any reason, from our economy appearing more profitable, to satisfying quid-pro-quo arrangements subsidized on the backs of the voters that has resulted in a pillaging/looting of our domestic economy by corporate management and the current Administration occupying the White House and bullying Congress to sign off on obscene budget deficits and off-budget “war” funding, while Congress sees its advantage to keep ‘confidence’ for the Administration by leveraging pork for home constituencies and large campaign contributors.

Although I had mentioned this at a prior time, in the last paragraph of section “Satisfactory Factors - The Public Benefits Test, Santander’s representation of its true financial position we absolutely should question its credibility on its claims repeated in the Report about asset quality, capital position and earnings prospects, as well as impact of proper funding of the transaction. Be not played for fools - anyone knowledgeable of banks and thrifts knows that management, with Santander included, has the liberty to chose how and when it classifies its poor credits, manipulate its Marketable Securities, Available for Sale and Held to Maturity Securities portfolios, along with its provisions and charge-offs against reserves, or within its local or the international regulatory framework - that/those charges which is/are required against earnings.

Yet another credibility matter to question I have observed previously. Observing in the Report p53 the 2nd paragraph where the authors say “the federal reserve is aided in I its determination by the fact that Santander is already a financial holding company and is supervised as such by the Federal Reserve; therefore the Federal Reserve has a great deal of knowledge about Santander’s management, performance and condition. The Federal Reserve is also aided by the fact that it has previous approved (1992) an application submitted by Santander relating to a similar minority investment in First Fidelity Bancorporation”, footnote referencing the notice in the Federal Reserve bulletin.

If the Report or Santander in its Application are inferring Santander’s control of its Puerto Rican Sub, for the record I call that an absurd demonstration and inference that its credibility should be determined by its alleged success and quality with its sub it operates OUTSIDE the US 50 states retail market. And given Santander’s attempts to elude or escape “Source of Strength” here we see language by one of its marketing/propaganda agents inferring operating and managerial conduct that conveys its incumbency to shoulder Source of Strength with regard to Sovereign. And see here we see its representation somewhat more genuine than its boast in its Application that it was fully capable to responsibly control a subsidiary in the US retail market with that capability stemming from what is purported to be extensive and inferred ‘hands-on’ experience in the US banking market rather than serving as a passive investor in a US regional bank, when substantial, operating experience in the US retail deposit market misrepresents its true history and ability.

Given Santander’s conduct and history, I strongly urge REJECTING THE APPLICATION, OR FORCING SOVEREIGN AND SANTANDER TO RE-FILE THEIR APPLICATIONS, although Sovereign’s re-filing for an OCC national bank charter will or should get a shareholder vote.

Off the Record, Back-room, “secret-handshake”, nonpublic deals between Santander and the Fed: Fixed hand in secret, meanwhile the Shareholders are wasting money litigating?

It is insolent for Davis Polk Wardell counsel for the Santander, and/or the B&G report to condemn Sullivan & Cromwell for demanding disclosure of the material Santander expected confidentiality. Speaking to that last comment which Sullivan & Cromwell similarly have been addressing on behalf its client, Relational Investors, the largest shareholder of Sovereign Bancorp, as well as following comments I had made in my original Complaint provided within the public comment period January 9, 2006, I had mentioned my concern regarding Santander’s mania about confidentiality, even where NO information be available for Freedom of Information Act Request, for access by legal proceedings (including the Supreme Court?), hearings at any level including Congress, or for transparency in some way required for accountability for its representations and actions. Davis Polk Wardell had requested confidentiality so complete than not even subpoena would have access to the information.

From my Complaint Item II "Reasons the Deal Falls Apart", pg 6, 7: "Likewise, in Santander counsel Davis Polk Wardell Arthur S. Long’s 12/8/05 letter to Jay Bernstein requested confidential treatment pursuant to FIOA 5USC552 and BOG regs 12 CFR261 for Santander exhibits under Sec 4c8 and 4j under BHC Act 1956 to not be available for inspection or copy, alleging that would cause significant harm to Santander within the meaning in 12CFR 261.14a4, 12CFR 261.14. Management often alleges excuses about harm from competitors to one’s business, when probably because if disclosure occurred, people would smell some buried body.

It also requested to be notified in advance if the Fed was not going to grant privilege to Santander’s request. Santander also asked that such information not be available to any government committee, agency, or Congressional office or committee or court or grand jury and it asked the Fed that none of the aforementioned should have access to this ‘confidential’ information. Is this standard language from an applicant’s counsel to the Fed and compliance with the Fed’s application process?

Was there part of the application with materials to which Santander requested confidentiality to which the Fed did not permit to access? On what had Santander desired to avoid disclosing that may have given us a better, more true picture of this enterprise that its management and the regulators blocking from which our knowledge with this sort of collusion for Santander’s secrecy, if you will, between the Fed and this applicant. What under its app to NY Fed 4(c)(8) and 4(j) of Bank Holding Company Act of 1956 as 12/19/05 was Santander disinclined to disclosed or ask for secrecy?

With the language of the report (see pg 49, “Eligibility Requirements”, 1st paragraph and 3. The bank company has filed with the Federal Reserve, (i) A declaration that the company elects to e a financial holding company to engaged in activities or acquire and retain shares of a company that were not permissible for a bank holding company to engage in or acquire before the enactment of the GLBA; and (ii) A certification that the company meets the requirements of subparagraphs (1) and (2) above; and “Under the provisions of Regulation Y, a foreign banking organization as defined in Regulation K is deemed to be “well capitalized” ...) adroitly avoiding focusing on the "bright line" fact that FHCs are prohibited from owning a SLHC after May 1999 and Sovereign having failed to file an application with the OCC and include the matter in its application to the OTS, Santander likewise failed to address the matter in its own application, after it was told early on evidently prior to December 8, 2005 when it submitted its application to the Fed, it may consider Sovereign a ‘bank’ rather than a savings association (mentioned in the Bramwell & Giuliani Report, p54, 3rd paragraph.

Are we seeing a white collar, mob-like, 'deliverance country' side of international banking? We see a back-room, closed-door agreement between the Fed and Santander. What possibly can condemn how and in what way such a back-room agreement blocked from public disclosure or public discourse or access to due process as it violates federal legislation and typically is required to have access to due process or legislative review and perhaps repeal, however using their means and with their investment as owners on-the-line, the shareholder-owners of SOV have litigated a situation and actors in this without knowledge of this prior secret law -violating agreement. The insolence of regulator contempt for the laws and for the owners in a non-regulatory assisted transaction where perhaps the Fed could argue its discretion, but here in the way in which it the Fed and Santander interacted outside of the law, above the law, and hidden from public view, but for what reason?

After finding the single, casual sentence in the Bramwell & Giuiliani Report on pg 54 in the "Notice Application filed by Santander" where there was any sort of clue publicly disclosed where - as is indicated in the language on that page 54 in paragraph 3: "The Fed Application submitted by Santander was modified to satisfy the same information requirements of the Federal Reserve as if Santander were acquiring an interest in a "bank" as opposed to a ‘savings association. A hawk is not a robin. Sovereign is NOT a BANK; even in its own application to the OTS, as well as the opening paragraph in the Introduction of the General Statement, where Sovereign Bancorp is identified as a Savings & Loan Holding Company ("SLHC"), in the Bracewell & Giuliani report on page 47, authors define Sovereign as a “registered savings and loan holding company under the provisions of Section 10 of HOLA.” (B&G p.47 Section “The Regulatory Status of the Parties to the Proposed Transactions, 1st paragraph).

Santander committed a material omission from its application when it avoided mentioning the Fed was permitting it to file its application for SOV as if SOV were a bank, and consider, not even a thrift that was based in the Federal Reserve Bank of New York District. The OTS charters Sovereign as a FSB and an SLHC that would have to change its charter to an OCC regulated national bank in order to be acquired by a financial holding company - the designation Santander chose. Material omission when the omission of key information of breaking or violating rules that typically are kept by US banks and applicant rises to the level of Fraud? Disclosure failures? Selective disclosure as prohibited in SEC Regulation Fair Disclosure?

What other information has been kept confidential from the public, from the Shareholders and their counsel, but that management would make public, or where some sort of disinformation Santander and Sovereign managements would use to serve self interests that run contrary to what they had represented to the regulators, however the outsiders have little to no leverage to confirm credibility, discipline, or require the regulators to hold Santander and Sovereign accountable for the credibility failure, among other things.

There is precedent here where bank and thrift shareholders face capricious, ad hoc regulator risk even now in this case, ABSENT CRISIS. One could argue if Sov were in regulatory distress with a margin of capital that the shareholders should have sold their exposure, but in this case the Fed made a cozy agreement while the target institution, 1. isn't even a member bank, 2. is a live, somewhat healthy thrift.

The case making, operative question, however every bank and thrift shareholder faces whether the regulators respect the investors in their respective supervised institutions. In this case with the New York Fed and Santander, we are seeing something contrary to respect for other peoples money and a general failure to act fairly and as intermediaries and fiduciaries. Meanwhile Sovereign shareholders have been litigating the unfair deal from not only resulting from the corporate governance failures at Sovereign, and paying for the cost of that in the lower stock price as well as the litigation when a very possible, very deplorable scenario could happen where the Fed has it set up for Santander, and the application process served only for 'face', purposes that going through the motions covers. At that point the shareholders of Sovereign would have the right to litigate the Fed for aiding and abetting this fraud and selective disclosure, while on a bank application, it has framed the context in which the Fed would give undue favor to the Santander's application while Sovereign Bancorp shareholder assets/ownership is on the line in an unfair situation.

ANOTHER OPERATIVE QUESTION: WHY DID THE FEDERAL RESERVE BANK OF NEW YORK SECRETLY GIVE DEFERENCE TO SANTANDER OVER THE BANKING LAWS THE FED IS EXPECTED TO OBSERVE, AND CONTRARY TO WHAT WAS FAIR TO THE OWNERS OF SOVEREIGN. Are we talking ordinary Fed contempt for federal law and accountability to the People? Accountability to no one? NO accountability to work within the laws, especially when we are dealing with a situation that is not a regulatory-assisted transaction.

In many cases, past serves as prologue; I consider this no exception and strongly condemn the secret agreement the Fed had with Santander prior to all of this on which Santander decided to file and presume victory, which little about Santander and its tactics have deviated my observations on its contempt for our system, and its conceit where any means it uses to achieve its interests, even hiring New York’s former mayor made popular from a crisis where he happened to have been painted better than former FEMA head Michael Brown during and after Hurricane Katrina.

Most importantly, I cared to know what BG “report” said in the “Compliance with the Rules of the Board of Governors of the Federal Reserve System” and subsection, “Notice Application filed by Santander”, The section of the report on page 54 in BG states that “The Fed application submitted by Santander was modified to satisfy to same information requirements of the Federal Reserve as if Santader were acquiring an interest in a “bank” as opposed to a savings association”. Santander had omitted in the public part of its application where the Fed said it may consider SOV a bank rather than OTS thrift/Savings & Loan Holding Company (“SLHC”).

Given what appears to be the undisclosed, irregular agreement between the Fed and Santander, I began to sift for clues in the language in General Statement serving as where Fed said to BC that SOV is a 'bank' for App purposes and Santander coyly fanned it in everybody’s faces.

Where in the Application had I overlooked or failed to discern counsel’s language that inferred filing for Sovereign deceitfully as a bank, while making representations about what it is in reality, known legally as an FSB at the thrift level and a savings & loan holding company registered in the Commonwealth of Pennsylvania, regulated by the OTS. Where had I failed to construe, failed to attack or abuse the looseness of the way in which the lawyers and Santander again characterized Sovereign in the General Statement or anywhere else in the public part of the Application.

I could have missed other places, however, I am not certain the way DPW and Santander responded above would be the way that they subtly and disingenuously applied for Sov as a 'bank', although where it defines Sov as a "savings-and-loan holding company" in the 2nd paragraph in the Introduction of the General Statement "Santander is seeking the prior approval of the Board of Governors of the Federal Reserve System (the "Federal Reserve Board" ) under Sections 4(c)(8) and 4(j) of the BHC Act to acquire up to 24.99% of the common stock of Sovereign Bancorp, Inc. ("Sovereign"), a savings-and-loan holding company, located in Wyomissing, Pennsylvania. Sovereign's principal subsidiary is Sovereign Bank, a federally chartered, FDIC insured savings bank (note -that and perhaps the exact definition of the 'savings association' in the BHC act section to which DPW-Santander is referring on page 13; and only OTS thrifts are federally chartered and these were not Federal Reserve system members, were FSLIC/SAIF insured before Bank Insurance Fund and Savings Association Insurance Fund 'merged'.)

Perhaps the magical change of Sovereign from a SLHC to a national bank one finds in the missing from the Application on view that I reviewed at the New York Fed as of January 2, 2006. The B&G report on page 47 references a footnote 280 that Sovereign filed on December 22, 2005 an “Interagency Bank merger Act Application with the OTS). The Fed withheld this from the public part of the Application and likewise the OTS, which perhaps would have disclosed the back room, irregular, regulation- circumventing, secret agreement between Santander and the Fed.

Santander's public ads (9 Dec 2005) identify Sovereign as a 'thrift holding company' so as far as I am concerned, and based even on Santander's flawed public representations to the public and in the public portion of the Application about Sovereign, we are dealing with fraud in its inconsistent representations about the charter of Sovereign, and these being to suit Santander's self interests and self dealings, and misrepresentation AIDED AND ABETTED ON THE FRONT END BY THE FED....

2 places in the General Statement using loose language on where coy disclosure here obfuscated as an FHC it was filing for Sovereign
1. On page 12, "Sovereign Bancorp" (second paragraph): "At that date, Sovereign Bank was a 'well capitalized' insured depository institution within the meaning of Regulation Y under the BHC Act ("Regulation Y").

In a search through Regulation Y (“Reg Y”, “Fed-speak”, ie, its loose, undefined characterization of its way of handling federal legislation fails to distinguish between FDIC insured, state chartered Savings banks, perhaps also called ‘savings associations’, and those chartered under the OTS although Reg Y mentions coordinating with the OTS, however, again there are no definitions for Savings Associations.

THERE WERE NO REFERENCE TO SAVINGS & LOAN HOLDING COMPANIES, WHICH ALTHOUGH BANK HOLDING COMPANIES ARE PERMITTED TO ACQUIRE WITHOUT A CHANGE IN CHARTER, FINANCIAL HOLDING COMPANIES UNDER WHICH SANTANDER HAS FILED AND DESIRES TO BE CONSIDERED ARE NOT PERMITTED TO ACQUIRE SAVINGS & LOAN HOLDING COMPANIES WITHOUT A CHANGE IN CHARTER TO AN OFFICE OF THE COMPTROLLER OF THE CURRENCY (“OCC”) NATIONAL BANK.

The Fed is NOT permitted by law to give a pass to this without either public due process of a regulatory change which in any event would violate Gramm, Leach, Bliley where a SLHC must now change its charter if acquired by a financial holding company (“FHC”) so as avoid the prohibited situation where there would be mix between commerce and banking (FHC violating Unitary Thrift Banking embodied in the SLHC structure), given the liberty in the FHC designation. If there is any sort of tacit agreement to end-run the law, this Sovereign owners and other aggrieved participants have grounds to litigate.

2. On page 13, "The Santander/Sovereign Partnership, (2nd paragraph): "Under Section 4(j) of the BHC Act and Section 225.26 of Regulation Y, the Federal Reserve Board is to consider "whether [Santander's] performance of the activities (i.e. acquiring up to 24.99% of a savings association holding company (my italics; I believe this is referring to FDIC savings banks where only 13 states had these, and where these were/are state chartered members of the Federal Reserve system, and were always FDIC insured, not FSLIC insured. Savings Association holding company perhaps would not be referring to those (thrifts) that had been FSLIC now OTS chartered) can reasonably be expected to produce benefits to the public (such as greater convenience, increased competition and gains in efficiency) that outweigh possible adverse effects (such as undue concentration of resources, decreased or unfair competition, conflicts of interest, and unsound banking practices)." (12 CFR sect 225.26(a).

Again, an operative Question is why was Santander given this sort of 'deference' and largess to have something outside of our laws, and why did the Fed do this, and without disclosing to the public, now where so much time has been spent and cost of litigation, and those opposing this transaction and application are vulnerable to regulator risk/capriciousness.

I expressed my concerns about this not only in my 1/9/06 Complaint

Supposedly the Fed is to answer to Congress although GLB made the Fed the final arbiter on the financial system and removed Congress from this position (for this reason, I have wanted to have GLB repealed),
however, in GLB one finds much of the description for FHCs. With that of the Bank Holding Company, BG gives little about the creation and latitude that FHCs are permitted in their creating legislation, GLB.

Before my strong opposition had matured against concentrations of power, I had been at one point a proponent of mixing commerce and banking. In correspondence to Senator Alfonse D’Amato, (RNY), chairman of the Senate Banking Committee until 1998, I was defining where and how the new legislation should address community reinvestment. Rather than death by a 1000 housing activists’ cuts happen to the repeal of Glass Steagall, for which I was also a proponent based on Emory University Professor Benson’s work and research, I suggested that upholding the original 1977 legislation should serve sufficiently to improve access to fair credit for all people. Unfortunately, although Senator D’Amato was defeated, thankfully, Senator Schumer (DNY) took up the CRA cause, where Senator Gramm and the community banks and thrifts agreed to the $300mm of assets point where institutions would have to comply and be examined for CRA compliance .

Speaking to regulator circumvention, however, we see the Fed and the OCC booting up the institution compliance ceiling from $300mm of assets where perhaps up to 30% of Americans may face unfair credit or discriminatory access to credit, but the regulators did an end-run, ie, circumvented the GLB legislation increasing the ceiling limit to $1B. Perhaps we have at most 350 depository institutions from among 7000 or 8000 that have the size of greater than $1b of assets, although those institutions arguably bank about 60% of US assets by volume but not by number or geographic spread of depositors, many of whom live in rural areas or even urban areas banked by the large financial 'plantations'.

Describing other reasons for opposing increasing concentrations of power and avoiding the mix of commerce and banking, I had the opportunity to meet and briefly talk with Rep Leach while at the 2000 Republican National Convention where I was a delegate from Rep Nadler's Congressional District in New York. I asked him why they prohibited mixing commerce and banking in GLB. He said that a few large European industrial companies would have had immediate acquisition offers for some of our largest financial enterprises. A number of the legislators had strong interest to avoid this, and I likewise shared that interest to avoid not only more US assets passing into foreign hands, but over time I began appreciating limiting concentrations of power. Admittedly, at one point having had a career in business combinations, I find it difficult to oppose many mergers. Notwithstanding, so as to serve as some expert who is interested to see the bar raised and to draw some line on increasing deleterious concentrations of power, I have been taking activist roles to analyze business combinations for negative/inferior impact on what serves domestic American interests in the long run.

If there was NO public disclosure other than what was disclosed casually in the Bramwell & Giuliani report, perhaps there is leverage to attack the Applicant and shame, excoriate, and publicly humiliate the Fed for its capricious, closed-door, self-interest, contempt for the law, and rail-road job of Sovereign's shareholders.

Observations about B/G and where it shucks & dodges around the Bright lines, Applications' flaws. Even though no one at Bracewell/Giuliani confirmed, footnotes in the document provided the material, about Independence Community Bank, unfortunately which is NOT wrong.

ICB has a SHLC with the OTS as a regulator. This had been unknown to me. In the Annual Report 2003 and also in ICB A/R 2002, 2001 it stated that it had decided against a holding company under the Federal Reserve, which it could have chose this structure and regulator when it went 'public' after having been a mutual savings association. It elected to establish a DE based holding company, with the former New York State chartered formerly mutual savings bank as the only investment of the parent.

I phoned the NYSBD and spoke with Deputy Superintendent Thomas Weisfeld (212 709 1501) who said that they have no real interaction with the OTS with regard to ICB. He was mystified about ICB being a HOLA SLHC. It seems though that it is an SLHC and I will disabuse him of his ignorance.

I conjecture that no activity happens out of the HC other than the community bank sub, so the commercial part of Unitary Thrift banking doesn't really happen and the OTS is sidelined. The SEC site says that, however, Independence Community Bank is NOT federally chartered, where although that may be referring to the bank which is a NY state chartered savings bank, the SEC would be issuing the stock of the 'Holding Company'. There seems to be something here that is erroneous presumably inadvertently. One sees below copied from the SEC web site. So the Holding Company remains vestigial. Its holding company serves as purely form, while its day to day banking activities deviate in no way from the time prior to it forming a holding company electing the SLHC structure.

With that, presumably New York State Department of banking and the OTS agreed where the NYSBD would continue as the main regulator while the OTS, never before having a relationship, left Independence in the NYSBD's hands. The OTS desires to remain in existence, a regulator and encourages its charter to the listing of savings associations. This results in a permissive regulator regardless of its rhetoric. Most likely, the OTS is a non player with Independence, but a factor where it is a very permissive regulator, and capable of regulator risk; they rule capriciously and in politically self-interested ways out of fear for their own turf and careers. They cannot always be counted on to rule to the law, or rule to the regulation that had been 'promulgated' in any sort of due process. They cannot be counted on up-front negotiation being the way the final decision is determined. And the OCC and OTS are under the Executive Branch which people want to discount but never should forget where and how the political influence can occur. Any one fairly knowledgeable of the influence of soft money and the domestic and international ways of Washington should understand this.

INDEPENDENCE COMMUNITY BANK CORP (0000945734)*
SIC: 6036 - Savings Institutions, Not Federally Chartered
State location: NY State of Inc.: DE Fiscal Year End: 1231
Business Address
195 MONTAGUE ST
BROOKLYN NY 11201
7187225300
Mailing Address
195 MONTAGUE ST
BROOKLYN NY 11201
* From the SEC Website.

While condemning Relational's criticism of Sovereign's capital position in the event it acquires Independence, Bracewell & Giuliani began to ramp up praise about Santander's size, and "extremely strong capital position" (B&G Financial Resources, p. 61, 2nd paragraph), where of all ironies, their report adds, "but it is capable of being a significant source of financial strength for Sovereign if such support is ever needed."

The fact is that Santander resisted, avoided serving, and committing to serve as a source of strength for Sovereign Bancorp. Adding further 'filler' or fodder, depending on how one views the Bracewell & Giuliani Report's purpose for the regulators, B&G adds,
"The Federal Reserve requires bank holding companies (keep in mind Santander is desirous to be accepted in its Application as a Financial Holding Company) serve as a source of financial and managerial strength for the subsidiaries they control, and prohibits a bank holding company from operating in an unsafe and unsound manner".

Blather, blather, blather.

I like this touch:

"The Federal Reserve has also indicated that in general foreign banks seeking to establish banks or other banking operations in the United States should meet the same general standards of strength, experience, and reputation as required for domestic organizers of banks and bank holding companies. The board also believes that foreign banks should meet on a continuing basis these standards of safety and soundness if they are to be a source of strength to their US banking operations." (B&G Financial Resources" p.61, 3rd paragraph).

To my knowledge Santander has resisted committing to serve as a Source-of-Strength for Sovereign Bancorp - Analysis of Investment Agreement Between Santander and Sovereign Control that gets in rejection for avoiding responsibility for Source-of-Strength.

Please excuse my omission of this criticism of Santander's attempt to avoid 'Source of Strength, however my strong concerns with language in the application which although I noted, I largely had addressed matters other than Santander’s self-interest to avoid serving as “Source-of-Strength” in my Complaint. Reminded again recently that Santander is claiming “Minority Interest” status in its ambition to enter New York on the ‘cheap’, and so to acquire first 19.8% then immediately up to 24.9% of Sovereign, Santander has refused to acknowledge its responsibility to serve as a “Source-of-Strength” for SOV in the event of acceptance.

Interested to establish with Federal Reserve Bank of New York and our other regulators, my strong opposition to the self-interest that Banco Santander has exhibited and presumed to avoid serving as a Source of Strength for Sovereign directly and Independence Community Bank indirectly, please find my concerns and opposition to Banco Santander having access to the Bank Insurance Fund while avoiding Source-of-Strength responsibilities for a depository institution in which it will have a great deal of control as directly and obliquely implied in its Investment Agreement dated as of October 24, 2005 and amended as of November 22, 2005.

The Fed counts on its regulated Holding Companies to support subsidiaries in times of trouble serving as Source-of-Strength with stabilizing funds into its subs and affiliates if these encounter difficulty or if the parent or lead depository institution bleeds the others in any way. Where the counsel at Sullivan & Cromwell exposed again and that reminding me Banco Santander’s application in the public as well as probably in the Confidential Section states its interest to avoid Source of Strength, this motivated me to respond in kind with my observations and analysis on Banco Santander’s failure to respect American banking frameworks and operating ‘doctrines’ maintained by the US banking regulators. With material failures within the Santander application giving rise to considering it DEAD and where the Federal Reserve Bank of New York and the other regulators and supervisors should reject this proposed transaction in rejecting this application, please and thank you however for taking under further consideration my thoughts on yet more weaknesses desired by Santander that the application attempts to sidestep: at the onset Santander contrives a form using the term “minority investor”, which misrepresents the substance of the degree of its interest to control of SOV.

Returning again more specifically about the application, I had given only slight thought on Santander’s language that it is attempting to avoid acting as a "Source-of-Strength" for Sovereign. In the United States - even with Basle Accord(s), the Fed considers Source-of-Strength an important component of regulatory oversight and hopefully remains disinclined to permit Santander's interest to dysfunction with this matter and off-the-radar screen.

My professional experience in Counter-party Credit Risk began, and with views with which I strongly agreed with high regard for the parent or controlling interest backing the activities in which counter parties engage. In the event that my principal had a counter party where the parent failed to act as a source of strength, my principal’s credit management considered this in low regard and if it had any sort of counter party relationship with the unprotected sub, it was plain vanilla, ie, securities clearing or something entailing VERY low risk. Actually, I do not recall any of my names not having US source of strength or where any of my Global banks failed to serve as the party of final risk for its foreign situated subs, I would find it surprising if any large financial enterprise would engage in counter-party credit activity of high risk with Sovereign at a reasonable fee without the backing of a stronger counter-party such as a parent or controlling interest, in a position to 'upstream' from the sub, but disinclined to cover for it.

Perhaps Santander observed what the Pritzker's and the Pritzker thrift's (in Chicago) management did to that thrift and with what they got away in that failure under the OTS, which has tough rhetoric but operates otherwise. For this reason and the failure for the Santander application to comply with Gramm, Leach, Bliley, I started the dialog with Senate Banking, also in relation to where the Pennsylvania legislature had produced some fiat/ad hoc 'legislation' violating its own protocols for this sort of thing, this including a federally chartered thrift under the 'oversight' of the Banking committees of Senate and the House. And considering Santander with its application violated Gramm, Leach, Bliley, and Santander’s interest to operate in the US quite the grand way it operates elsewhere and avoiding complying with certain 'sacred' tenets of US banking practice, I had observed this contempt in my Public Comment. Time and again, this bank continues to prove me correct in how I assessed it. Now to be certain the regulators fail this application and keep the federal legislation they have the responsibility to keep, rather than end run it like they did with the Community Reinvestment Act requirement of GLB, and pre-emption with consumer protection laws in New York and elsewhere and that the regulators fail and reject this application.

I see Santander’s failure to serve as Source of Strength rejects the US financial/banking regulatory framework. The opaque language adroitly and slickly omits Santander’s actual demand for Seniority Interest in Sovereign, and with the nature of that relationship or any parent-sub or affiliate situation, understanding why our system generally virtually never makes exception for source-of-strength -with THAT (opaque) application language violating US regulatory requisite.

One must also find concern where if in the confidential part of the application, Santander makes ANY sort of constraining language on what are perceived to be ordinary responsible operating strategies of Sovereign or even where Santander demands to constrain Sovereign’s deplorable operating behaviors indicating Santander’s controlling position. Perhaps the reviewers should analyze Santander/Sov assumptions about means-funds allocation or loan growth in these targets, which would suggest more than a minority investor.

SANTANDER HAS THE POTENTIAL TO PUMP A GREAT DEAL DOWN INTO SOVEREIGN THROUGH ITS LENDING NETWORK, PROBABLY MORE PROFITABLE PER VOLUME THAN MUCH OF SANTANDER’S BUSINESS ELSEWHERE. PENNSYLVANIA ALONE REPRESENTS A FAR MORE WEALTHY AREA THAT VIRTUALLY ALL GEOGRAPHIC REGIONS WHERE SANTANDER OPERATES.

Given this and other concerns about this proposed transaction and the Santander application, please consider my concerns that what the application(s) make(s) for representations Santander makes or does not make in the public part about any sort of CONSTRAINT on SOV and indirectly in Independence with regard to its claim as a minority investor that I perceive it to be using as a reason to avoid SOURCE OF STRENGTH responsibilities with the regulators. If it avoids making ordinary claims of constraints on the institutions in the public part, which isn’t the case here as it is making claims in this regard, although not the classic ones that ordinarily one might construe to be being considered control.

Please recall that Santander wants 2 director seats and management infusions in virtually every division/unit of the bank, and now access to the Bank Insurance Fund, but without respect for the source-of -strength doctrine we maintain so as to limit loss on assets and cost to the Fund. What representations it makes then in the application’s Confidential part, to which we call attention to the regulators because all US based and foreign doing banking here must make some responsible representations about source-of-strength, and perhaps even cross-guarantees which are explicit or implicit with a bank or financial holding company’s ‘internal capital markets’ effectuated between the holding company and the subs, while Santander wants to bank here on ITS OWN terms while avoiding the responsibility to serve in this capacity.

The Fed since 1989 and the Financial Institution Reform, Recovery and Enforcement Act of 1989 has developed a body of research and analysis on ‘source of strength’ even though it has attempted to use this since and with the Bank Holding Company Act for expecting safety and soundness practices between a bank holding company, its bank subsidiaries and affiliated financial institutions. Only crises in the financial sector, recent lawsuits between the regulators and owners of financial institutions, and federal legislation has there provided some clarity and bright lines so as to improve what would be known as to the results of litigation in the event of an infraction or regulatory discipline of an offending enterprise with regard to underwriting the straits of a sub in the event of some outside or inside crisis that affects the sub’s resources.

The Federal Reserve Bank of New York’s Adam Ashcroft gives us “New Evidence on the Lending Channel” where he discussed “Internal Capital Markets” (Ashcroft, Adam. “New Evidence on the Lending Channel”, 10 Sept 2001, Federal Reserve Bank of NY, Banking Studies). Practices known to analysts and bankers such as double-leverage - financing between the bank or financial holding company and the subsidiaries, also generally described also the up-steaming/down-streaming of funds between ‘parent’ and subsidiary and affiliated banks and thrifts, in effect, he calls attention to how and in what way ‘internal capital markets’, which Santander as the ‘holding company’ will have the power to engage as well as practice those considered ‘moral hazard’ with Sovereign, and Independence while it exists.

Ashcroft mentions that holding companies practice internal capital markets creating value if given control rights over the cash flows and collateral of its subsidiaries, picking winners, adding value by relaxing the financial constraints of the most profitable ‘projects’ as described by Stein’s internal capital markets model (Stein, 1997 referenced in Ashcroft, 2001, p17). Ashcroft states, “Using this mechanism the parent can downstream capital to the sub to replace an outflow of insured deposits on cheaper terms than an unaffiliated bank could replace them. The parent also could purchase existing loans from the sub in order to liberate funds to finance new loans, or for other reasons suited to the parent” (Ashcroft, 2001, p17). Depending on the circumstances, these activities could/would “reflect the moral hazard problems created by debt financing in the presence of limited liability.” (Ashcroft, 2001, p18).

With that, source-of-strength commits bank and financial holding company management to regulatory discipline while permitting management through the holding company to practice the ‘internal capital markets’. Speaking to this practice, Ashcroft observed that subsidiary loan growth is more constrained by the capital position of the holding company, than that or the cash flows generated by the subs.”

So with that internal capital markets result that Santander would most likely demonstrate in its outward credit facilities with its counter-parties, as the Fed and the FDIC are determined to maintain and where often I see their oblique or obvious stated policies, we only find some uncertainty publicly with the lack public information, while salient meaningful materials more than likely exist with the confidential information Santander provided the regulators that a discerning eye could parse for degree and nature of holding company interaction with subs, and where when effectuated, Santander would deliberately allocate capital and other resources of sorts optimally across its SOV, indirectly Independence and other subs (Ashcroft, p18).

Counter-parties take this equally seriously, however, given the nature of banking and its interconnectedness, a counter-party may have a different risk appetite and unless Santander’s representations line up with reality, counter-parties will limit exposure with it and SOV, except for political reasons with the Bank’s Credit Risk Committee still foolish to take more risk with the potential moral hazard with a counter-party that self-interestedly avoided source-of-strength to which the regulators gave a tacit or overt pass. For failures in that regard, UBS had to merge with Swiss bank and other banks over the years have experienced the same fate, if not merging into another player, then something more drastic such as regulatory assisted transaction, P&A or liquidation produced by the extent of moral hazard. And Ashcroft observed in “Are Bank Holding Companies a Source of Strength To Their Banking Subsidiaries?” (Ashcroft, Adam). NYFRB Staff Report No189/June 2004 p3)

WHAT SANTANDER DOES/DOES NOT SAY IN THE PUBLIC PART AND PERHAPS IS SAID IN THE CONFIDENTIAL PORTION: To discern for truth or disingenuousness - we are left only with, but discerningly must examine WHAT SANTANDER SAYS OR DOES NOT SAY IN ITS APPLICATION in the PUBLIC PORTION, AND ITS ACTIONS AND REPRESENTATIONS OUTSIDE THE APPLICATION, BUT NOT THE CONFIDENTIAL PART OF THE APPLICATION, WHICH I PROTEST THAT YOU THE REGULATORS HAVE KEPT CONFIDENTIAL.

IN ADDRESSING SOURCE OF STRENGTH - with supportive or oblique language in the Investment Agreement:
Where in the Investment Agreement dated as of October 24, 2005 (EXECUTION COPY) between Banco Santander Central Hispano, S.A., and Sovereign Bancorp, Inc, as amended by the Amendment to the Investment Agreement made as of November 22, 2005 (EXECUTION COPY) the language actually describes interests for control and relationship where ordinarily Source-Of-Strength would be de rigor, but elsewhere we find opaque language or language that alludes to control interests of Santander warranting SOS to Sovereign, but again avoiding shouldering this.

I reviewed the application for where the language directly described buyer interests for control, as well as discerning through more opaque, perhaps one could argue the Investment Agreement used guarded or even oblique language that alludes to Santander interests to control but avoided directly stating it, notwithstanding where the language states or obliquely and coyly touches on Buyer interests to control all which means control circumstances requiring Source-of-Strength, but shedding the responsibility.

From here forward I will list where in the application I see Santander (“Buyer”) avoided Source- of -Strength for Sovereign (“Company”).

Even where in Article 1-Definitions starting with “Acquisition Proposal”, one sees “Buyer”, i.e., Santander interests to control from 19.9% to 25% of the target (SOV), the Buyer claims power to self-serve as arbiter in terms (Investment Agreement, page 1) of an official, “Bona Fide” offer for SOV by any party(ies) in any way.

Where I see the in language that speaks 'Source of Strength', I realized in this definition, the Buyer, ie, Santander, has the power to interfere with corporate decisions of the "Company" ie, Sovereign as well as agree with Sovereign to practice inconsistent behavior towards its shareholders. Why in the beginning of the proposed transactions will SOV's management and Santander ignore or avoid engaging their shareholders, while later in different phases of the completion of the acquisition, suddenly will Sov and Santander permit shareholder votes?

Buyer and Company agreement on inconsistency towards matters such as, but not exclusive to shareholders describes a symbiotic, influential relationship with underlying control. Oblique or otherwise, I see Source of Strength demands given Buyer influence on the Company and results.

Within Article 1 in the Definitions 1.01 (a) I noticed also in "Acquisition Proposal" that the Buyer here gets a pass, while any other parties interested in buying or making some serious offer all must make a bona fide offer. The favor Santander gets means influence. Influence has cause-and-effect, which also means requirement for Source of Strength.

Note in “Defensive Measure”, where anything that officially delays consummation of the Acquisition Proposal in
(v) see “any Applicable Law, the effect of which is to provide special rights, including economic and voting rights in connection with the consummation of an Acquisition Proposal involving the Company or any of its Subsidiaries, including the Pennsylvania Law and (vi) by the Board, the Company or any of its Subsidiaries that is intended to have or has any of the effects described in clauses (i) through (iv) above.”
Consider where Santander’s self-interest rise to its demands for efforts to dismantle where Pennsylvania legislation may slow its Acquisition plan - oblique language to me demanding control that warrants Source of Strength.

Article 2/Purchase and Sale, in Section 2.01, Purchase and Sale. We see language that the regulators and all experts identify as “Change In Control”, meanwhile disrespecting the SOV shareholders who the NYSE ruled against from requiring management to have a vote on the proposal:
“provided that such purchase and sale shall be effected by (a) the sale to Buyer of newly issued shares equal to the lesser of (i) the maximum number of shares that can be issued to Buyer without requiring that the issuance be approved by the Company’s shareholders under NYSE Rule 312.03 and (ii) to the extent applicable, the maximum number of shares that can be issued without causing the Buyer to have any obligation to the Company’s shareholders under the Pennsylvania Law and (b) the sale to Buyer of the number of shares of Treasury Stock necessary to cause Buyer to won the Initial Buyer Percentage.”

I see adroit self-interests for Control, even down to the legal ‘slights-of-hand’ with the share purchases, and where at this point the management and the ‘Buyer’ abuse the shareholders at this juncture, however, inconsistently for some bizarre reason giving shareholders the right to vote on later stages of the acquisition. Either way, oblique language alluding power and control gives us SOS. Even if Santander wanted to claim Minority Interest given the Treasury Share scheme shakedown, what proceeds in the balance of the Application overall only speaks control. Moreover, where Buyer or Seller dictate terms in Change-in-control WITHOUT shareholder oversight by way of vote, speaks of a sort of moral hazard, where Buyer and/or Seller have the power to determine the playing field with owner means at risk to management moral hazard.

In Section 2.02 Closing and Section 2.03 Additional Purchases by Buyer. Where the Investment Agreement describes where Buyer and affiliates have the power to purchase or to cause the Voting Trustee to purchase common stock, we see the Buyer with the power to materially interfere with the Market Capitalization and ownership base of the Seller. That sort of power with mutual consent says need for Source of Strength.

Mutual consent for these matters means mutual consent in this case and in this "Investment Agreement" describes control that gives material access and involvement to the Buyer. THIS calls for Source of Strength.

Anywhere where I see Buyer favor over Sovereign's current owners/shareholders, with 'gross-up rights', 'Participating Preferred Stock', and other instruments denoting favor or greater control I see nothing that does not warrant requirement for Source of Strength, which Santander has avoided.

I have concerns with other potential misrepresentations in the Investment Agreement where Santander purports in Article 3 "Representations and Warranties of the Company, in Section 3.01 Organizations (c) "There are no Company Subsidiaries other than the Bank, Iceland Acquisition Corp. and those identified in the Company SEC documents."

I am raising a subtle point here. It is probable in the loose language in Sovereign's "Excerpt from Minutes of November 20, 2005 Board Meeting of Sovereign Bancorp where on p 14 (one could argue this language doesn’t infer what I am saying is intent, but the specific language is omitted for other more subtle reasons) Line 19 states:
"Further Resolved, that any of the proper officers of the company is hereby authorized and directed for and on behalf of the company to execute and deliver an/and/on other documents or agreements and to take any additional actions necessary or desirable to effect the foregoing resolutions"
signed by Jay Sidhu and David Singleton, Secretary and SOV General Counsel.

Dates are key. In the November 22, 2005 Amendment to the Investment Agreement, Santander and presumably Sovereign and/or their counsel have made possible material misstatements, because I am figuring based on what I also found in Independence's minutes at its October 23, 2005 Board of Directors meeting in oblique and what most would perceive to be general language such as found in the section with the header "GOVERNMENTAL AND REGULATORY APPROVALS AND FILINGS; PROXY STATEMENT", that board document approved December 22, 2005 by John Schnock, SVP, Secretary and Counsel, for the OTS application with Sovereign Counsel Stevens and Lee letterhead dated December 22, 2005, Sovereign crafted its flurry of Operating subsidiaries whose applications found in the December 23 OTS filing with all the "Notices" dated 12-23005, so as to remain off the radar screen and out of Santander's language, for subtle reasons to avoid regulator attention.

As it were, although the Section 3.01 language may say no subs, actually there was amendment otherwise about subs to the Santander Application to the Fed and this earlier language doesn’t mean ignorance or lack of knowledge of existence, the earlier language AVOIDS THE TRUTH AND THAT WE'D HAVE AN EVIDENT VIOLATION OF COMMERCE AND BANKING, AND A VIOLATION OF QUALIFIED THRIFT LENDER AFTER MAY 1999, AND ALSO AN ARGUMENT IF MIX-OF-COMMERCE-AND-BANKING- THEN AN ARGUMENT FOR SOURCE OF STRENGTH, WHICH IT HAS AVOIDED.

Section 3.04 Non-Contravention gives us more language that although the Buyer and the Company avoid using the word Control, one may find that meaning supported in the text.

Late in 2005 or early in 2006, Sovereign amended its By-laws and/or Articles of Incorporation. Now if it was engaged in something that was contrary to, and operating outside of these, it was guilty of Ultra Vires which is when it operates or engages in activities outside its charter and by-laws. Although I am not certain that in the event we have the case for Ultra Vires with conduct and activities at some point prior to its charter change, and that was the ONLY reason it changed its charter and by-laws, one sees, however, in the Investment Agreement with Santander that if the articles and bylaws aren’t adjusted to suit the agreement struck with counterparties, it perhaps would be committing ULTRA VIRES as well as harming its business activities and contractual obligations.

Section 3.04, 3rd line:
“none of (i) the execution and delivery of this Agreement or the Registration Rights Agreement by the Company, or the completion hereby or thereby, and (ii) compliance by the Company or the Bank with any of the terms or provisions of the articles of incorporation hereof or thereof, will (A) conflict with or resulting a breach of any provisions of the articles of incorporation or by-laws of the Company or the Bank; (B) conflict with or result in a breach of any of the provision of the articles of incorporation or bylaws of any Company Subsidiary (excluding the Bank); (C) violate any statute, code, ordinance, rule, regulation, judgment, order, writ, decree or injunction applicable to the Company or any Company Subsidiary or any of their respective properties or assets;”.

For what fully transparent reason(s) had Sovereign altered its bylaws and articles of incorporation to suit the Buyer? Moreover, Buyer here is framing Control.

Section 3.05 Consents. I noted that although Buyer has Company seeking Regulatory Approvals, the Agreement avoided federal BANKING LAWS. Perhaps some think this semantics, but specific words have meaning and substance in contracts and agreements. So why would Santander want the Banking laws ignored when SOV is a thrift.

Section 3.06 Financial Statements. Guilty of this in the past and I’d noted this in my January 9, 2006 Complaint , had SOV engaged in artful and adroit financial reporting smithing in its year end or most recently reported numbers so as to window dress, attempt to influence public opinion contrary to its true financial status so as to increase its stock price and stay attractive to Santander? And in Section 3.06(c) where naturally if items have the materiality test to warrant reporting. Given not only the demand for confidentiality in this proposal and application, the lack of transparency, shareholder vote, public due process, how can we trust the numbers? And trust ambitious, self-interested management for judging materiality, while the shareholders and the public already have been disserved.

“The NYSE should have considered more carefully the enterprises on which they were asked to ‘rule’ (when presented with a proposal that should have a shareholder vote). One sees top down weaknesses elsewhere around Sovereign affecting its operating competitive quality. Keep in mind, I am working with the Annual Report year ended 2004. Reviewing this Annual Report, Sov’s Cash Flow Statement shows the thrift’s actual operations were producing insufficient cash flow and profit for the CEO to engage in his aggressive, 'moral-hazard' growth scheme management strategies. Likewise also note Non Deposit Borrowings have given Sov liquidity so that the CEO can claim a positive cash flow, however, backing-out the borrowings speaks to a diminished cash-flow from Operations. If management practiced effective Asset/Liability management, deposit maturities would match loan activity. When a bank or thrift’s operations produced cash flows that pale somewhat next to non-deposit liquidity from borrowings, this institution avoided blatant problems only because low interest rates and fiscal stimulus generally have kept the local economy out of a serious recession. Sov will need more than sufficient cash-flow if it acquires into the New York metro area.” (January 9, 2006 Complaint, p.2

“Keystone Kops?
Santander’s asset quality given the bank’s new size improved only with its acquisition or inclusion of Abby National. And note this, Sov can barely add and subtract even its public numbers as demonstrated in its 2004 Annual Report where it fails to properly add by a $-5.9mm its Comprehensive Income for 2004. Here we are given a schedule for its public financial statements that the presenters make to appear to sum, although in this case we find a small, nit-picking inaccuracy. It thinks little of its Annual Report signed by a “Big 4 Auditor”, Ernst & Young, where it would have and could have but did not represent its financial position without error or misrepresentation. Perhaps that seems nonsequitor to my concerns over its operating representations, however I see management's rhetoric and its actions with consequences illustrating something all together different than management would have the public, the analysts, the regulators, and its shareholders to believe. Its shareholders mean virtually nothing to it. “ (January 9, 2006 Complaint, p4

“So, and even if for perhaps normal reasons for reducing the Loan Loss Provision, although he’s (the CEO) reduced by $35mm from 2003 to 2004, while the net income for the same time period was up more than $51mm. Looking carefully through the income statement however, an experienced eye would have the impression of management which knows its franchise well enough and how to manage their income statement and balance sheet so as to represent themselves as successful, grow the place with Securities and/or borrowings and acquisitions, then pay themselves more in salaries and other goodies such as warrants, etc, while the overall quality of the business has eroded. Sadly, the rough calculations and casual analysis I have done on Sov’s 2005 annual report, however, can not contradict what I have state above.” (January 9, 2006, Complaint, p17)

Management has made a number of acquisitions over the last few years for stock while the equity markets generally have been flat since the end of 2003, early 2004. With the thrift's use of stock as its currency to acquire its targets, it has incurred more goodwill, more than 100% alone since 2003. Although some of that goodwill includes core deposit intangibles, the franchise overall has been marginally profitable as compared if it hadn’t acquired what it did, perhaps referencing the FleetBoston branches specifically. Warrants and other Employee stock options issued however from 2003 to 2004 had grown more than 2000%. Aside from being a marginally managed thrift, with Sov’s executive management controlled by 1 senior decision maker who also serves as Chairman of its Board, one could argue operating and strategy decisions largely have been made to self-enrich the insiders, despite any protest to the contrary” (January 9, 2006, Complaint, p17).”

In Section 3.08 (SEC Filings and the Sarbanes-Oxley Act.
"(d) Applicants must file with the regulators financial statements that avoid behavior of any sort and in any way that craftily misrepresent the true status of the enterprise, meanwhile avoiding public vetting? “(e) such disclosure controls and procedures are effective in timely alerting the Company’s principal executive officer and principal financial officer to material information required to be include din the Company’s periodic reports required under the Exchange Act.” What about the Shareholders? (f) “.... The Company has made available to Buyer a summary of any such disclosure made by management to the Company’s auditors and its audit committee.”
The management and the ‘Buyer’ again appear to disrespect the non-management shareholders and give unfair, and inconsistent preference to an outsider, ie, the ‘Buyer’ over current, long-suffering shareholders.

Section 3.09 Absence of Certain Changes. While reading though this section, up to the date of the application, I read that to the Company’s knowledge, it is not guilty of anything that would cause a material, adverse effect even with fairly adroitly ‘managed’ financial statements, however after the point of the Agreement, Santander would have to power to dictate the terms for SOV. All the items in this section speak to maintain Santander’s transaction and using coy, oblique language, de facto implicitly support the Control Argument without explicit, evident language that would trigger forcing Source-of-Strength, cross guarantees, and related policies Santander wishes to avoid.

Section 3.10 Contracts (b) (i) (ii), and (iv) (A)) that no party ... Will have the right to terminate ...any agreement with the Company, in effect, as a result of the Contract. Is this standard language in a change-in-control agreement. The language still has implicit restraints by Santander. And the employment contracts triggered for ‘Change-in-Control’ for whom and will cost how much to the non-management shareholders?

Section 3.13 Legal Proceedings Depending on who breaks the Agreement, that party is responsible for a large $200 million break-up payment however, who pays when the Fed rejects the Application? Santander perhaps as it has/had responsibility for the FRBNY application while Sovereign as an FSB/SLHC regulated by, and so answered to the Office of Thrift Supervision.

Section 3.14 Compliance with Applicable Law. (b) No regulator, etc., has threatened to revoke any license, etc of the Company and each Company Subsidiary. Nothing personal, however, with its bark-is- worse-than-its-bite, lap dog regulator concerned to keep its turf like the OTS, what thrift could have a better chum? Regardless, Santander is hoping for nothing to tarnish the economic payback for its new subsidiary.

Section 3.15 Employee Benefits Plans. So again, which of these and for which employees, and how much will be the cost for when ‘Change-in-Control’ triggers these for the Senior Management and/or Board?

And have we found fraud in (f) and with Section 3.19 Related Party Transactions, where the ‘Agreement’ says in 3.15 (f) “There are no outstanding loans or other extensions of credit made by the Company or any of its Subsidiaries to any executive officer (as defined in Rule 3b-7 under the Exchange Act) or directors of the Company. The Company has not since the enactment of the Sarbanes-Oxley Act (of 2002) (“SOX”) taken any action prohibited by Section 402 of the Sarbanes-Oxley Act.

We may well be looking at some sort of misrepresentation of the sorry truth. Although I am not certain about management indebtedness to Sovereign, as far as I noticed, perhaps several directors definitely are indebted, in one case at least by more than $11mm to Sovereign. And what about paying back these loans? Are these loans paying down? While reviewing the Annual Report, I saw nothing that indicated otherwise that these loans aren’t a chunk of influence by the CEO to his highly overpaid directors and are never really paid down, or that SOV lends the directors the means to ‘pay-down’ the loans. Notwithstanding, we are looking at something although not actively lending to directors, the state of affairs in substance violates the spirit of SOX. But why would SOV or Santander want any attention to these conflicts of interest and misrepresentations under this section of the Agreement? Not to mention 3.19(c) “did not involve more than the normal risk of collectability or present other risks or unfavorable features. No loan or credit accommodation to any Affiliate of the Company is presently in default or, during the three- year period, to the date of this Agreement, has been in default or has been restructured, modified, or extended.

I am not certain what was used to make these representations and I am not certain that if these are misrepresentations and the OTS winked otherwise and gave it a pass, that those records would be used to substantiate 3.19(c) in the event the Company had to do this, although presumably their Public Accountant and forced compliance with SOX, there would have been something to surface if this had been happening off-the-radar screen. SOV, ie, the CEO Jay Sidhu have large loans out to SOV’s Director(s) serving on SOV’s Compensation Committee, and although not material to SOV, the size to the Director one could consider ‘material’, and as a result, influential.

Although I would not target this language for oblique language forcing “Source of Strength”, what is 3.19 serving, given what the real situation may be?

Community Reinvestment Act, Anti-money Laundering and Customer Information Security. Section 3.23, to my knowledge, Inner City Press and its Analyst Matthew Lee, an investigative party on CRA and related matters has raised concerns about the true status of SOV’s and Santander’s representations about CRA and in Santander’s case, also money laundering or violations of the Bank Secrecy Act. Although these relate other than to my concerns over Santander’s possible international financing of flawed Bush Administration policy matters, the Bank Secrecy Act has existed for a number of years. So missteps with complying with that are either indicative of poor internal controls or artful ways of laundering assets. Given Santander's power outside the United States to control its playing field why would we consider it for operating in the US?

Section 3.26 Regulatory Capital. Santander said it met this. Although I didn’t find the errors or misrepresentations in Santander's financial statements that I found in Sovereign's, I also did not look however, the analyses of Sullivan & Cromwell and Relational Investors revealed otherwise. Sullivan & Cromwell for a number of years has been counseling and analyzing these and related matters. If they say there are capital adequacy issues, I am willing to accept their analysis. I would accept their representations and those on behalf of their client, Relational Investors, than those of the Bracewell & Giuliani Report.

Section 3.27 Regulatory Probability
"As of the date hereof, The Company has no Knowledge of any fact or circumstances that would reasonably be expected to result in the denial to the company or Company Subsidiary of any regulator Approval or that any such Regulatory Approval will contain any condition or requirement that would reasonably be expect to have a Material Adverse Effect."

Any expert having reviewed the application cannot say that filing an application that violates Gramm, Leach, Bliley can in all conscience truthfully represent, and actually here this statement is disingenuous even with the secret handshake with the FRBNY that Santander made and SOV knew about for filing as if SOV was a 'bank', however, the Company , is not a 'bank' as an SLHC regulated by the OTS. SO WE ARE LOOKING AT FRAUD HERE. THIS IS A MATERIAL MISREPRESENTATION OF THE TRUTH ABOUT SOVEREIGN'S POSITION, IT'S PART OF THE AGREEMENT, WHICH IT COULD HAVE AMENDED AND BY THE TIME SANTANDER AND THE FRBY HAD THEIR MEETING AND OFF-THE-RECORD AGREEMENT, THIS WAS FRAUD AND BECAUSE IN THE PUBLIC PART INVESTMENT AGREEMENT WAS INCLUDED WITH THE PUBLIC PART OF THE FEDERAL RESERVE'S APPLICATION THAT ALL OPPOSING PARTIES WOULD SEE AND NOT THE INSIDE PARTIES UNFAIRLY ADVANTAGED BY THE 'NOD'. NOTWITHSTANDING, WE ARE SEEING A MATERIAL MISREPRESENTATION OF THE TRUTH.

MISINFORMING THE PUBLIC I WOULD CALL FRAUD, REGARDLESS OF THE REQUESTS AND I MUST ADD, PREDILECTION FOR 'CONFIDENTIALITY, BUT RATHER, EVIDENTLY HERE TO COVER UP THAT IT HAD AN OFF-THE -RECORD AGREEMENT THAT WOULD PERMIT ITS APPLICATION AND THE PROCESS TO OPERATE ABOVE AND BEYOND THE LAW, and of late, Gramm, Leach, Bliley.

3.29 Directors' and Officers' (Liability) Insurance. I see no language here to discuss Change-in-Control matters, and no doubt with foreign parties potentially on the board, this would be an issue that failed to make the Agreement or was purposely omitted, especially since the 'Buyer', ie, Santander would have significant influence at the 'Company' and any D&O Liability Insurance underwriter is going to consider this a factor and up the insurance. Also a surprise given the conflicts of interest between the board and the management, that the D&O Liability Insurance underwriter neglected to review the matters there and increase the cost of the coverage.

SO I ALSO SEE THE LANGUAGE IN THIS SECTION AS RISING TO REQUIRING SOURCE OF STRENGTH.

In Article 4 Representations and Warranties of Buyer, one finds in Section 4.02 Authority. "…and no other corporate proceedings on the part of the Buyer are necessary to complete the transactions contemplated hereby or thereby." One In the opinion of the counter-parties SOV and Santander this may have been the case, however, not to the largest Shareholder, Relational Investors. Meanwhile, the Buyer here seems to think that it can control this proposed transaction fully, even where it says,
"…enforceable against Buyer I accordance with its terms (except as enforceability) may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer and similar laws of general applicability relating to or affecting creditors' rights an general equity principles." If Santander avoided Source of Strength, it has some audacity to concern itself with creditors' rights; these things cut both ways, and likewise with the regulators.

Section 4.03 Non-contravention. I see language that calls for Source-of-Strength:
"(iii) compliance by Buyer with any of the terms or provisions hereof and thereof, will (A) conflict with or result in a breach or any provision of the articles of incorporation or by-laws of Buyer; (B) violate any statute, code, ordinance, rule regulation, judgment, order, writ, decree, or injunction applicable to the Buyer or any of its properties or assets; or (C) violate, conflict with, result in a breach of any provisions of, constitute a default (or an event with notice or lapse time, or both, would constitute a default).

Section 4.05 Purchase for Investment. The implied and explicit interests we know of the Buyer, the "Company" and the nature of the proposed transaction as provided the FRBNY in the "General Statement" refute this as only an investment, rather than as an operating unit where it acts in a de facto 'parent' role with significant role.
"Buyer (either alone or together with its advisors) has sufficient knowledge and experience in financial and business matters so as to be capable of evaluating the merits ad risks of its investment in the shares and is capable of bearing the economic risks of such investment.

Section 4.08 Compliance with Applicable Law. "(a) Buyer and its employees hold all licenses, … and have complied in all respects with applicable laws, statutes, orders, rules, or regulations or any federal, state or local governmental authority relating to them." Even if Santander is attempting to claim itself a minority owner, meanwhile, THIS IS LANGUAGE WHERE SANTANDER MUST COMPLY AND COMMIT IN NO UNCERTAIN TERMS TO SOURCE OF STRENGTH AS WE HAVE IT IN ANY FORM, FEDERAL STATUTE OR FEDERAL REGULATION/OVERSIGHT, NOT TO MENTION THE DE FACTO CONTROL SITUATION THAT SANTANDER IS PROPOSING WITH SOVEREIGN, that outweighs "minority stake" status.

And what were the problems that arose to produce this Language: ”Buyer is in substantial compliance with all of the statutes, regulation or ordinances which each Regulatory Authority applicable to it enforces. Since December 31, 2000, no Regulatory Authority has threatened to revoke any license, franchise, permit, or governmental authorization which is material to Buyer."

Section 4.10 Regulatory Probability. An expert would say this application has failed to match the application with applicable law, when seeing breakdown comparing what one knows about proposed transaction and
"As of the date hereof (and we know they amended the Agreement Nov 22, and could have for subsequent revelation of material differences with this, however, failed to unless it was produced by their counsel), Buyer has no Knowledge of any fact or circumstance that would reasonably be expected to result in the denial to Boyer of any Regulatory Approval or that any such Regulatory Approval will contain any condition or requirement that would reasonably be expected to have a Buyer Material Adverse Effect"

In Article 5, covering Covenants of the Company in Section 5.01 Conduct of the Company gives us language that sounds like explicit Constraint:
"(b) From the date hereof until the Closing Date, the Company shall not, and shall not permit any Company subsidiary to: (i) take or agree or commit to take any action that would make any representation or warranty of the Company hereunder inaccurate in any respect at, or as of any time prior to, the Closing Date; or (ii) omit or agree or commit to omit to take any action necessary to prevent any such representations or warranty from being inaccurate in any respect at any such time.

Section 5.02 Access to Information: Reports gives us language implying ownership, not a minority stake for investment purposes as if it is at "lower of cost or market" as well as access that none of the other large shareholders have been permitted to have, and yet Santander attempting to claim minority stake, but where true representations indicate otherwise, would have been unfair insider status, while having on the front end accessed such a status with the other shareholders having been prohibited from voting down the increasing control proposed by SOV and this foreign bank :
(b) From the Closing Date until the earliest of (x) the date on which Buyer and its Affiliates no longer own 10% or more of the Total Voting Power or (y) of termination of this Agreement pursuant to Section 12.01, the Company agrees to provide the Buyer:
(i)through (vi) access to upon reasonable prior notice to the Company"… the financials and the Auditor … and generally anything about the Company and its staff.

Perhaps it is prohibited elsewhere, however, Section 5.03 Notice of Certain Events, does not seem to address self-dealing, although,
"(d) any inaccuracy or any representation or warranty contained in this Agreement at any time during the term hereof that would reasonably be expected to cause any of the conditions set forth in Section 10.01 or 10.02 or give rise to any right of termination under Article 12 unless the underlying change or event shall independently constitute such a failure or give rise to such a right."

Especially in the language above, meanwhile, when there would be up-streaming from SOV to Santander, while giving Santander access to the US financial system in a different way than what it may have been having with its operations in Puerto Rico. As a passive investor in First Fidelity, I do not believe it fully engaged as an active party with First Fidelity, and so did not have access or use of the Deposit Insurance system, but now access to Deposit Insurance WITHOUT serving as Source-of-Strength, is bogus, versus what it probably has been enjoying for subs in Puerto Rico.

Section 5.05 Takeover Laws. Note the "take all measures" clause where Santander and/or SOV want to opt out of take-over laws gets a huge NO:
"… prior to the Closing Date the Company shall take all action required to be taken by it in order to exempt this Agreement, and all acquisitions of Voting Securities by Buyer contemplated or permitted under Sections 2.01, 2.03, 2.04, 8.05-8.08, 8.10 and any Required Purchases, and any Transfers of Voting of Securities by any Transferee…".

Either way, to what lengths are we talking that PULL OUT ALL STOPS WHERE THE END JUSTIFIES THE MEANS? ANYTHING GOES? WHAT IS THE QUID PRO QUO? And again in (b)
"(b) The Company shall use commercially reasonable efforts to cause the Buyer Acquisition Transactions to be exempt from or not subject to the Pennsylvania Law… "

Note again up to this point the shareholders were blocked from their right to vote, but now are given attention when Management and the potential controlling interest want their way. Without the Shareholder Vote where the company's non management owners would enjoy real accountability, this 'penned' Agreement is commandeering their assets. And where the PA legislature attempted to remove accountability with respect to where financial commitments and the dynamics of that in US system calls for Source of Strength.

And again we've got another "All necessary action clause" in Section 5.06 Other Defensive Measures.
" (b) To the extent not taken prior to the date hereof, prior to the Closing Date, the Company shall take all actions necessary to render the rights issued pursuant to the terms of the Right Agreement inapplicable to this Agreement and the Transactions so long as such transactions are consummated in accordance with the Agreement. (c) Prior to the Closing Date, the Company shall stake all actions necessary so that any other Defensive Measures are rendered inapplicable to, or are otherwise consistent with, and do not prevent Buyer from exercising its rights under, this agreement and the Transactions contemplated hereby, including the Buyer Acquisition Transactions, so long as such transactions are consummated in accordance with this Agreement. ..
and a favorite:
(f) Nothing in this Section 5.06 shall require a shareholder vote of the Company prior to Closing.
Again, as I noted above, this appears to describe the end justifies the means and any underhanded tactic is du rigour. And meanwhile, at any time during the Defensive measures part of the agreement, Santander any time may financially parasite from SOV without Source-of-Strength or seeking another buyer while in this phase of the Agreement. This calls for Source-of-Strength.
Let's examine the height of what one should find absurd and contemptuous because SOV is an SLHC and must change its charter to an OCC national bank according to Gramm, Leach, Bliley, or Santander according to the OTS guidelines would have to file as an SLHC. In addition the Fed if in giving something a pass before hand, would have to justify why it would over-ride federal law and give favor where no public discourse or evident justification exists. In addition, Sovereign's Qualified Thrift Lender Test adversely affects Santander's application in the US for FHC status. Note:
Section 5.07 Regulatory Matters …the Company shall (a) promptly notify the Buyer of any deficiencies at the Company or any depository institution Subsidiary of the Company that could be expected to affect adversely Buyer's status as a US financial holding company ("FHC status"), (b) take all actions that the Buyer may reasonably request and cooperate with the buyer to cause any such deficiencies to be promptly remedied, and (c) not intentionally engage in any transactions that would be expected to affect adversely Buyer's FHC status. The Company shall comply and cause any Subsidiary to comply, with all conditions imposed by any Regulatory Authority (including conditions relating to the divestitures of impermissible investments)
Ÿ And on top of this Santander and Sovereign want to commandeer owner assets without a vote and without Source-of-Strength while Santander disingenuously fears something SOV will DO!!! will violate its filing status as an FHC?
Ÿ What about what Sovereign IS?
Prohibitions between Banking and Commerce prohibit FHCs from owning Unitary Thrift Holding Companies, of which Sovereign is and under the Savings & Loan Holding Company charter.
Although I mentioned this previously, note for the public record the language in Davis, Pok Wardell’s December 8, 2005 correspondence, where it asks for “Confidential Treatment” pursuant to the ‘Freedom of Information Act, 5 USC 552, and Board of Governors of the Federal Reserve 12 CFR part 261, for Santander’s exhibits ie, the “Confidential Exhibits” to Santander’s application under Bank Holding Company Act 4(c)(8) and 4(j), accompanying this letter including not being made available for inspection or copying.
Santander is claiming that disclosure of this information about the proposed transaction that is privileged or confidential within part 261.14(a)(4) or exempt from disclosure under 261.14(a). Considering what was casually revealed in the Bracewell & Giuliani report definitely gave it an advantage with the FED! With the FRBNY.... Or rather, the FRBNY gave Santander the upper-hand it was disinclined to reveal and so perhaps this has veracity, however, I conjecture the following request by counsel for disingenuity:
“Although the transaction itself has been publicly announced, the confidential material includes confidential financial information that, to date, has not been publicly disclosed in Spain or elsewhere. Disclosure of this information would reveal to competitors information about Santander’s financial position and thus place Santander at a disadvantage with respect to its competitors. For these reasons, we believe that the Confidential Material is privileged or confidential and exempt from disclosure within the meaning of Section 261.14(a) of the Board’s regulations.

No disrespect to the FRBNY, although I find what they did conceited and contemptuous of the legal framework and due process, however, wow! Get this, which I know that I had condemned in my Complaint as well as Sullivan & Cromwell also began to hammer - the same Davis Polk Wardell letter also asks if the Board decide against giving it confidential treatment, that it forewarn Santander, which would file its application with necessary information to argue for confidentiality. It also asked for any materials by anyone involved with these materials by subject to prior approval by Santander if anything, anyone including FOIA, subpoena, governmental agency, Congressional office or Committee, court or grand jury, that Santander is asking that the demanding party request from Santander its release. Davis Polk Wardell also asked that it and Santander be furnished with a copy of all written materials requested and if necessary be given sufficient notice to pursue remedies.

Again, given what we know from the Bracewell & Giuliani Report may we assume that the pre-application, ad hoc, back-room, nonpublic/blocked from public due process, without public discourse LEGISLATIVE VIOLATING (PRE-) AGREEMENT is what Santander wants secret from public disclosure, public attention, public debate, and public opposition?

Section 6.04 Tier I Capital: Debt Financing. Given SOV’s appetite for non-deposit debt, one would think the regulators out-of-hand would reject the Santander application with its associated debt service, versus cheaper deposits for which thrifts and community banks in rural, working class, suburban profiles typically can have. So Santander is contracting to pump more DEBT INTO SOVEREIGN? Doesn’t Sovereign have enough and increase the cost of a business that makes money on a ‘pass-through’ basis; loans yields and interest revenues - interest expenses then net the overhead gives profit, of which Sovereign’s has been low and managed. The Interest Revenues have their competition as well as the interest costs, debt of which is higher than deposits. Although I am not addressing overhead per se, Sidhu has managed poorly the franchise, and probably is reflected in the overhead, however I have not analyzed this for this opposition.

And Santander, given Sov’s propensity to let investment bankers sell it debt, wants to avoid Source-of-Strength?
“...Buyer shall purchase, upon the request of the Company, nonvoting preferred shares/Tier 1 qualifying instruments of the Company (the “Capital Instruments”) and will provide debt financing to the Company, in each case, on market terms and pricing in effect at the date of issuance, the proceeds of which will be sufficient to enable the Company to pay such difference; provided that the Buyer shall not be obligated to purchase Capital Instruments for an aggregate purchase price exceeding $600 million and the Buyer shall not be obligated under this Section 6.04 for any amount in excess of $1.2 billion.”

Article 7/Covenants of Buyer and the Company. “Buyer and Company agree that: Section 7.01 Reasonable Best Efforts: Further Assurances. I find again my favorite “best efforts” language on pull out all stops, end-justifies-the-means contractual hoop jumping in order to satisfy their ambitions for their self-interests.
“...Buyer and Company will use their reasonable best efforts to take, or cause to be taken, all actions and “to do, or to cause to be done, all things necessary or desirable under Applicable Laws to consummate the transactions contemplated by this Agreement, including, without limitation, all of the Buyer Acquisition Transactions, including (i) preparing and filing as promptly as a practicable with any Governmental Authority or other third party all documentation to effect all necessary filings, notices, petitions, statements, restrictions, submissions of information, applications and other documents, (ii) obtaining and maintaining all approvals, consents, registrations, permits, authorizations and other confirmations required to be obtained from any Governmental Authority or other third party that are necessary, proper or advisable to consummate the transactions contemplated by this Agreement, without limitation all of the Buyer Acquisition Transactions; and (iii) in the case of the Company, using its best efforts to cause the transactions contemplated by the Independence Agreement to be consummated pursuant to the terms thereof.”

MEANWHILE, WE WHO HAVE BEEN INVOLVED WITH THE OPINION/PUBLIC COMMENT PROCESS FROM THE BEGINNING, SHOULD BY NO MEANS BE REDUCED OR SET ASIDE WITH THE POST DATE SUBMISSION BY SANTANDER’S ‘BRACEWELL/GIULIANI LOBBYING PIECE. WE ALL HAVE BEEN STANDING ON OUR OWN, AND PERHAPS THE PROPENSITY FOR SANTANDER AS A CONCEITED, ARROGANT ENTERPRISE WOULD ATTEMPT TO FIND FOR INFLUENCE SOME ONE PERCEIVED AS BEING AN INSIDE PLAYER AND HAVING CLOUT, AS IF IT’S LAW FIRM WAS INSUFFICIENT GIVEN THE FAILURES OF SANTANDER’S APPLICATION. I VIGOROUSLY OPPOSE THIS AND CONDEMN IT.

Section 7.02 gives us Certain Filings. I perceive as REFERENCING COMPLYING WITH SOURCE OF STRENGTH, ALTHOUGH NOT STATING THAT BUT COULD BE INFERRED GIVEN THE FED’S POLICIES ON MATTERS SUCH AS THE SAFETY NET
"The Company and the Buyer shall cooperate with one another (a) in determining whether any action by or in respect of, or filing with, any Governmental Agency is required, or any actions, consents, approvals or waivers are required to be obtained from parties to any material contracts in connection with the consummation of the transactions contemplated by this Agreement, including, without limitation, the Regulatory Approvals and (b) in taking such actions or making any such filings, furnishing information required in connection therewith and seeking timely to obtain any such actions, consents, approvals or waivers."

Section 7/05 Exchange of Management. again we see CONTROL language however avoiding source of Strength. Even though Santander's shares in the beginning fall under 51%, when the Buyer and Sovereign agree "it will appoint at least on of the other party's employees to at least one position with direct reporting to the department head within each of its financial control departments, internal audit department and risk management department"

In Article 8 in INVESTOR RELATED COVENANTS, Section 8.01 Standstill. in the Body of 8.01, a chunky part along with (c - Investment Agreement p. 52)) which still gives us CONTROL LANGUAGE where Sovereign is expected to accept terms of the agreement which will have a finite life, even if detrimental to its long term health.

Later Standstill provisions 8.06 and 8.07 similarly use control language and I find it abuses the current shareholders, who mean very little to Santander and the management, only in as much as they have property claims that the law respects.

And worse, note the language in 8:06 Second Standstill Period, where one could gather Santander realizes that its control relationship with Sovereign has diminished the value of the Company it does not want to realize and that diminution it is attempting to seek remedy prior to any actualization of the potential diminution while the shareholders experience with that encountered in Santander’s control relationship.

CONTROL LANGUAGE GETS SOURCE OF STRENGTH. Elsewhere in Standstill, the Buyer attempts to limit action of the Company, and screams CONTROL! and thus SOURCE OF STRENGTH.

(iv) (C) the failure to obtain any required consent or regulatory approval for the purchase of all of the Offered Securities by the Company within 150 days of full acceptance of the Offer, Buyer shall have a 60-day period during which to effect a Transfer or any or all of the Offered Securities..." and also "Buyer may Transfer Offered Securities in accordance to this Section 8.02(b) for consideration other than cash only if Buyer has first obtained and delivered to the Company a representation in writing that the fair market value of the non cash consideration that Buyer proposes to accept as consideration for such offered securities..."

Where is there language that when the Regulators REJECT this transaction, that Santander goes away? What then are the protocols, terms and costs? Regulator REJECTION of this transaction ceases this agreement. Ceasing this agreement means insufficient means for Independence and for Sovereign's capital meanwhile, should Santander comply with our laws, as it is required to do even in the application process, SOV must file a charter change and change its charter, that requiring a shareholder vote.

And meanwhile, what happened to FAIR handedness to the Shareholders when suddenly the Buyer needs a representation in writing if the non-cash consideration is at Fair Market Value?

Following onto that point, although the FRBNY may give deference to "Safety and Soundness", the Fed somewhat overlooks owner/shareholder interests, although the Fed has been the main regulator for the Bank Holding Company stock enterprise/corporation, which legislation established for banks to grow, consolidate and engage in banking and related matters (as well as have an organization through which the Fed can work its economic and monetary policies).

Given the Fed's interest, and prior to 1956 when Congress passed the Bank Holding Company, banks had had the power to incorporate under charters in the state or commonwealth in which the bank was domiciled. The Fed generally could or would not override the shareholders of the incorporated depository institution, unless for compelling reasons. And only until recently in the 'Source of Strength' policy where the Fed could force parent or main bank's support for and among a group of associated or subsidiary banking units, the Fed typically had encountered litigation when it interfered with the owner's interests of banks it disciplined along with having the FDIC seize. It generally prefers to avoid tangling with shareholders.

So where the states' powers to charter corporations including banks, the form which most banks use commonly known as 'corporation', has

"the traditional objective ... has been to enhance corporate profits and shareholder gain. ... the managers (generally) must seek the accomplishment of the profit objective to the exclusion of all inconsistent goals.... Nevertheless, some courts have permitted corporations to take socially responsible actions that are beyond the profit maximization requirement. In addition, every state recognizes corporate powers that are not economically inspired, such as contributions to fund drives, regardless of the economic benefit to the corporations. And every state expressly recognizes the right of shareholders to choose freely to the extent to which profit maximization captures all their interests and all their sense of responsibility." (CASE SUPPORT: Mallor, James. and A James Barnes, Thomas Bowers, Michael J Phillips, Arlen W. Langvardt. Business Law and the Regulatory Environment- Cases and Concepts, 11th Ed. Chapter 42 - Management of Corporations, pages as cited (McGraw Hill Irwin, 2001, p 899).

When one reads the facts in the Revlon v. MacAndrews & Forbes Holdings ("MFH") case, one realizes that Santander and Sovereign are attempting to fail to maximize share value to the shareholder similar to the aforementioned case. Granted, Delaware Chancellory Court had jurisdiction, however, DE Superior Ct ruled against the cozy agreement Forstmann Little ("FL&C") attempted to strike along with Revlon.

"In this particular case here, the court ruled that the board of directors acted improperly by failing to maximize shareholder profit: Revlon Inc. v. MacAndrews & Forbes Holdings, Inc. 506 A.2nd 173 (DE sup. Ct. 1986) Pantry Pride made a hostile bid for Revlon. Revlon enters into a 'lock-up' agreement with Forstmann Little & Co, promising 2 divisions below market value if Pantry Pride was successful in taking over Revlon. Pantry Pride sued Revlon to invalidate the Lock-up option as beyond the objectives of the corporation. The trial court enjoined Revlon's directors from making concessions to Forstmann. Revlon appealed to DE Superior Court. Revlon Directors with the Lock-up had memorialized break up of the enterprise where as in the past it had not. Therefore selective dealing to fend off a hostile bidder was no longer a proper objective. Instead, obtaining the highest price for the benefit of the shareholder should have been the central theme guiding director action. " (Mallor, p899).

The Lock up agreement SOV management (and board) and Santander have run contrary to interests of SOV shareholders. We find too low a price that Santander is willing to pay for SOV for access to Metro New York Market. Although Sovereign's franchise sans the Metro New York market may have produced the marginal price offered, however Santander had avoided the Metro New York retail banking market for lack of the appropriate, and in my professional opinion, expediently, opportunistically cheap target into the Metro NY market. To secure management and current board, SOV went with Santander into a similar agreement resembling the Revlon/Forstmann "lock-up" to fend of long-suffering/abused SOV shareholders.

Shareholders also believed with materiality the offer made by Santander for shares could be argued as 'selective dealing' to fend off the offended shareholders whose assets are being commandeered, while management is looking to entrench itself, notwithstanding the low price offered by Santander, rather than SOV management obtaining highest price for benefit of all shareholders should have been this central theme guiding director Action. SOV's directors failed in this responsibility.

And meanwhile, considering Santander is not a shareholder of SOV as of this time, "any concern for non-shareholder interests is inappropriate when, and/or if there is an auction for the shares". SOV's management actually failed to responsibly stage an auction for the 25% of the company, while the senior management was interested to move into an area, the demographics which it typically avoided and would have, except for ambitious and expansionist branch acquisitions. Shareholders were deprived access to an auction.

Moreover, in the case of Revlon with Forstmann, "in granting an asset lock to Forstmann, the directors allowed considerations other than the maximization of shareholder profit to affect their judgment to the ultimate detriment of the shareholders. No such defensive measure can be sustained. " (Mallor p 900).

This compares virtually exactly with SOV's board, senior management, and the self-dealing arrangement with Santander. Subsequent to the decision in 'Revlon', most states enacted "corporate constituency statues', which broaden the legal objectives of the corporation. The statutes direct the board to act in the best interests of the corporation, not just the interests of the shareholders, and to maximize profits over the long term. The new laws promote the view that a corporation is a collection of interests working together for the purpose of producing goods and services at a profit, and that the goal of corporate profit maximization over the long term is not necessarily the same as the goal of stock price maximization over the short term. The laws somewhat promote SOV management with/Independence it overpaid, while it under priced itself with Santander, however, SOV's management failed to respect the economic value of the interest of the franchise and the ownership stake of the public shareholders who actually 'pay' his salary, as they are his employer.

One could conclude and please consider this as conclusion and summation: dictating future terms time and again one sees this - Control Language - and Section 8:11 Board Representation language here supports my strong concerns and reasons for rejecting this application for many reasons including Santander’s failure to serve as Source-of-Strength. Supposedly this is a ‘minority investor’, while throughout this entire agreement, the direct and oblique language as well as what is NOT stated indicate control, Control is EXACTLY WHAT WE ARE SEEING.

Thank you for permitting me to comment and file a complaint again with my opposition to Banco Santander's Application before the FRBNY and the Board of Governors, the OTS, the New York State Department of Banking, and the Securities and Exchange Commission.

Yours respectfully,
Andrea Psoras
Senior Analyst
QED International
708 Third Avenue, 23rd Fl
New York, NY 10017
(212) 953-4058/fax 5145
apsoras@qedinternational.com


Postscript:
In my original complaint provided for the Public Comment deadline 1/9/06 of the Federal Reserve Bank of New York, based on my conversations with the OTS and that application's lack of pro-forma information for analytical purposes, so as to 'foot' what SOV says to the OTS to get acceptance versus what it says to the public to get 'acceptance' and whether these representations match for credibility and validity purposes.

I observed the same things about what representations Santander and Sovereign have made to the regulators so as to get approval of their applications, while making public representations so as to manipulate public interest in their favor for their low-ball, opportunistic deal.

In an email to Arthur Long of Davis Polk Wardell:

Case in point one sees when reviewing the Santander application to the NY Fed where Santander says that it's capability and experience in US domestic banking has substance, while it had been only an equity investor in First Fidelity. In its public comment as to why it hired Giuliani's lobbying firm, meanwhile, and not AS IF YOUR FIRM HASN'T DONE ENOUGH FOR IT, HOWEVER, SANTANDER HIRED POLITICAL LOBBYISTS, and made public representation that it needed to hire Giuliani because it was making it's first 'foray into the continental US' (according to the Daily Deal article 3/3/06. While this in part is true, although actually has something disingenuous about it, then its boastful representations it made in its public part of its application absolutely one and the regulators must question for credibility.

As I said, my original questions which Relational Investors had expressed for their and public purposes to understand what representations Santander made to the regulators where it demanded confidentiality and perhaps the Fed was remiss to provide - I have concerns anyway that Santander thinks it can hire political lobbyist Giuliani and play the regulators for fools - and where those representations deviate from what Santander and Sovereign have said to the public and the analyst communities for propaganda purposes.

In the same vein, I found Sovereign's conduct especially deplorable when evidently it made misrepresentations that if Relational Investors won their legal proceeding against Sovereign, that there would be layoffs in Pennsylvania. With this I am assuming that the legislators there needed something of a sort of written material first which I do not recall any material in the OTS application about layoffs of Sovereign in Pennsylvania, however I also do not recall that anything that Relational Investors stated publicly would or could one construe that would produce layoffs in Pennsylvania.

Given the latter while the former, ie, the conduct and 'representations' of any sort that Jay Sidhu made, which I am assuming had to have some sort of motivating credibility to 'fly' past the Pennsylvania Commonwealth's Senate, that would paint Relational Investors in some distorted why, while enabling the legislators to have something of some sort of seeming credibility that gives rise to my question about what exactly what had Santander and Sovereign demanded confidentiality, and what representations have both made publicly that deviate from the material for which they demanded confidentiality.

I also should speak to the Regulation Fair Disclosure matter where Jay Sidhu made selective public representations about matters that manipulated the PA legislature, as well as the public or attempted to achieve this for self-interested reasons. For what had Sovereign received confidentiality that Jay Sidhu may have used in the public domain opening up himself to discipline and/or litigation.

*Royce, Knut. “FBI Tracked Alleged Russian Mob Ties of Giuliani Campaign Supporter”, The Center for Public Integrity, December 14, 1999, http://www.publicintegrity.org/report/aspx?aid=323 The author has connected ties with one of the former Mayor’s fund raisers/campaign contributors, Semyon Kislin, with reputed Interpol identified Russian mobsters by the names of Lev and Mikhail Chernoy, whose company engaged in fraud, embezzlement, gun running, and other crimes. Kislin’s Commodities trading firm is also alleged to have connections to the Father of the Russian mob, Vyacheslav Ivankov as well as sponsoring a visa for a Russian crime boss and contract killer, left unnamed, as well as close friend and late arms smuggler Babecek Saroush. Although Kislin admits no knowledge of Ivankov, he confirmed he used to do business with Babecek Seroush. According to the author, Kislin had been one of Giuiliani’s “top campaign” supporters contributing at least $14,250 between the years 1994-1997 Despite charges against his Commodities trading firm of money laundering what is said to have been up to hundreds of millions of dollars and even from the Russian Central Bank via an elaborate ruse of shell companies, his firm was never charged. Who and where is this given a pass? Where and how is influence bought and welded?

Mr. Arthur S. Long Counsel, Davis P ok & Wardell, 450 Lexington Ave, NYC 10017 arthur.long@dpw.com

Board of Governors of the Federal Reserve System, Attn: Clearing Unit, Division of Banking Supervision and Regulation, Mail Stop 712 Washington DC 20551 FX 202 872-7562, bob.frierson@frb.gov

Richard Gebert, US Department of Justice (Attorney General c/o Antitrust Division, Litigation II Section/Banking Unit, City Center Building Suite 3000, 1401 H Street NW, Washington DC 20530. Richard.gerbert@usdoj.gov

Mr. Michael Lesser, Deputy Superintendent of Banks, New York State Banking Department One State Street, NYC 10004. Michael.lesser@banking.state.ny.us

Mr. Robert C. Albanese, Regional Director, Office of Thrift Supervision Harborside Financial Center Plaza Five, Jersey City, NJ 07311

Securities and Exchange Commission. Marketreg@sec.gov , corporate finance/mergers, acquisitions cfletters@sec.gov
NYSE

Bill Schenck Pennsylvania Secretary of Banking
Pennsylvania Department of Banking
333 Market Street, 16th Floor
Harrisburg, Pennsylvania 17101-2290
Toll free: (800) PA BANKS
Office: (717) 214-8343
Fax: (717) 787-8773
ra-pabanking@state.pa.us, jmoretz@state.pa.us
www.banking.state.pa.us

Timothy J. Blase Director of Supervision & Enforcement

Issues concerning Savings Institutions contact James Acri
Office of Chief Counsel
Request interpretations of the law, pertinent to the state-chartered financial services industry.
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Matthew Lee
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