UNIONBANCAL CORPORATION
June 29, 1999
Mr. Jonathan G. Katz,
The Regulation of Securities Offerings -- File No. S7-30-98
Dear Mr. Katz:
UnionBanCal Corporation supports the Securities and Exchange Commission's ("
SEC") goals of protecting investors and ensuring that the securities markets
are fair and honest while sustaining the largest most efficient capital market
in the world. We agree that only by promoting adequate and effective
disclosure of information to the investing public can all of these goals be
met. We applaud the SEC's initiative to modernize and clarify our current
regulatory structure and the herculean effort of its staff in this
undertaking. However, we do have some practical concerns with some of the
proposals, as outlined below.
We fully support initiatives to increase meaningful disclosure to our investors
and require board members to monitor the financial statements and other
securities documents of their corporations. However, we are concerned that the
substantially increased administrative and procedural burden imposed by the
proposed initiatives, taken with increased legal liability, may make it
difficult, if not impossible, to recruit and retain qualified directors. In
addition, many aspects of the proposal will overload the Board and drown audit
committee members and other board members in procedural tasks, decreasing their
ability to perform their fiduciary duty of oversight of the companies
activities, including compliance with many other federal, state and local laws.
We believe, therefore, that additional increases in board member liability, as
proposed, will likely thwart the board's main objective of maximizing
shareholder value in the long term.
Changes to Periodic Reporting under the Securities Exchange Act of 1934
We support the SEC's initiatives such as providing timely information to
investors on Form 8-K, periodic risk factor disclosures and your shift in focus
to 1934 Act filings. However, a number of proposals, such as treating quarterly
information as filed under Section 18 of the 1934 Act, signature requirements
for Form 10-Qs, the filing of audit committee reports and modifications to the
SEC comment process will not produce the desired results.
First, we are concerned with the SEC's proposal to treat quarterly reports as
filed for purposes of Section 18 of the 1934 Act. Given the increasing
prevalence of frivolous shareholder litigation, as demonstrated by the record
number of such suits filed in 1998, particularly in the 9th Circuit, this
proposal will not enhance quarterly disclosure. Treating quarterly reports as
filed would create an atmosphere of extreme conservatism in quarterly financial
reporting. The impact would be the elimination of all projections, plans and
strategies from quarterly disclosures due to the threat of frivolous
shareholder litigation and an increase in legal disclaimer language. Further,
the elimination of these types of disclosure from quarterly filings would push
them even further into the realm of oral communications.
In addition, we also feel that the proposal to require all members of a company'
s board of directors to sign all quarterly filings would not provide
shareholders with any more protection or information than is currently provided
while greatly increasing the administrative overload on directors.
We are also concerned by your proposal to require the filing of audit committee
reports. Often topics discussed in these reports are covered by
attorney-client privilege, are proprietary in nature or are extraordinarily
complex, particularly for financial services firms such as ours. The public
disclosure of this information could lead to the release of highly sensitive
competitive information and would likely create confusion for individual
investors and shareholders. As a practical matter, filed audit committee
reports would be reduced to meaningless summaries due to legal liability
concerns and would potentially inhibit audit committees from participating in
frank discussion and the free-flow of ideas necessary to perform their
fiduciary responsibilities. Additionally, the cost of reviewing the audit
report for public disclosure and the filing of such information would far
outweigh the relative benefits to our shareholders.
The shift in focus to 1934 Act reports, while difficult in transition, will
greatly increase the quality of all financial disclosure going forward. We
support the extension of plain English requirements to 1934 Act filings and in
fact have already taken large steps to conform our 1934 Act reports to plain
English. We do not, however, believe that the SEC can play the role of
language police. In this regard, we are concerned with the SEC Division of
Corporate Finance's proposed ability to hold up offerings because of
potentially non-material outstanding comments, such as plain English. We
suggest having a multi-tiered comment rating system whereby Division of
Corporation Finance staff could issue 1) non-material comments, such as plain
English comments, to be corrected in a future filing, or 2) material comments
that would have to be corrected prior to effectiveness of a registration
statement.
We support the proposal to file Regulation S-K, Item 301 information on Form
8-K concurrently with our quarterly financial press release. This proposal is
far superior, less costly to us and more informative to investors than the
proposal to accelerate filing dates for 10-Ks and 10-Qs, particularly if
quarterly reports are treated as filed. Accelerated filing dates would cause
undo costs because of increased fees to outside accountants for expedited
review as well as additional time and fees paid to outside accountants for
additional assurance in connection with quarterly filings if they are treated
as filed. The 8-K proposal on the other hand, would lead to timely,
standardized, and comparable financial disclosures by all public companies
while adding little expense to our already extensive regulatory burden.
We also support the proposal to add risk factor disclosure to 1934 Act filings,
particularly if new Forms A, B and C are adopted. We believe risk factor
disclosure will provide our investors with a more complete picture of the risk
environment in which we operate.
Proposed Changes to Offering Communications and Forms
We are concerned about the proposed rule changes effecting offering
communications, such as free writing, inclusive prospectus and certification
requirements. The practical application of these rule changes will lead to
less robust public disclosure, which is the antithesis of the SEC's goals.
Specifically, the proposed filing requirements and inclusive prospectus concept
may expose us to Section 11 liability for our underwriter's conduct, which is
often outside of our direct control. Additionally, the filing of road show
materials will have the opposite effect from its intended purpose because of
the forward looking nature of road show material and the failure of the Private
Securities Litigation Reform Act of 1995 to protect such statements from
frivolous shareholder class action litigation. If the proposal is adopted,
companies will become increasingly conservative in written materials, reducing
the information made widely available and restricting certain information to
oral communications or qualify filed materials with endless disclaimers the
result of which will be opaque disclosure unusable by the average investor.
Thus, filing requirements for inclusive prospectus and free writing materials
will certainly slow down our capital raising efforts and expose us to
unnecessary market risks. Finally, the proposed certification to the
registration statements would add undue burden to companies, delay the offering
process and have little benefit for investors. It is already a significant
endeavor to recruit financially astute board members. Increasing the already
significant liabilities faced by board members will go along way toward making
the recruiting of qualified board members impossible. We do not believe this
is in the best interest of our shareholders.
Until additional protection is provided to us from the ever rising mountain of
frivolous shareholder litigation cases being filed, any increased liability will
have the exact opposite impact from the goals of the SEC. Namely, issuers will
cease to provide meaningful disclosure (limiting information to the investing
public) and frivolous litigation will continue to rise (reducing the efficiency
of our capital markets), both of which will harm US public capital markets
competitive position thus driving issuers into alternative markets.
Elimination of the Shelf Registration System
We are concerned about the elimination of the shelf registration process. The
current shelf registration process has provided our company and many others
with efficient and effective access to the capital markets. The proposed
changes to prospectus delivery and filing prior to first sale will introduce
undue delay, will add significant expense to our cost of capital and will not
provide any benefit to the investing public. The practical issues of preparing
and filing a registration statement would be time-consuming and will cause
significant market timing issues for us, if adopted as proposed. We believe
that preserving the current shelf registration is the best alternative at this
time.
Thank you for your time and consideration of these important issues. If you
have any questions or would like to discuss any of the items addressed in this
letter in further detail, please contact me at (415) 765-2945 or Russell Keefe
at (415) 765-2575.
Very truly yours,
x John H. McGuckin, Jr.
John H. McGuckin, Jr.
17766
cc: UnionBanCal Corporation Audit Committee
(415) 765-2945
Secretary,
Securities and Exchange Commission,
450 Fifth Street, N.W., Stop 6-9,
Washington, D.C. 20549
Executive Vice President
and General Counsel
The Honorable Arthur Levitt, Chairman
The Honorable Norman S. Johnson, Commissioner
The Honorable Isaac C. Hunt, Jr., Commissioner
The Honorable Paul R. Carey, Commissioner
The Honorable Laura S. Unger, Commissioner
Harvey J. Goldschmid, General Counsel, Office of General Counsel
Brian J. Lane, Director, Division of Corporation Finance
Anita T. Klein, Senior Special Counsel, Division of Corporation Finance
Zane Blackburn, Office of the Controller of the Currency
Gerald Edwards, Federal Reserve Board