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October 31, 19U$ Hoaorablu * e r r i n « r S. Lcoles C h a i m a , 3oard o f aorernors of t h s Federal Keeerre Syston *aahingten, a , C . isy door n r . Chairaant I dooiro t o oot out b r i e f l y tho s t a t u s o f tho Government's i n v e s t i g a t i o n of tho frsnssftsries Corporation, f o r tho porpooo o f a f f o r d i n g background f o r our conference on tho o a t t o r . Tho d a t e o f such conference w i l l bo sot a t a t l a e mutually s a t i s f a c t o r y t o the i n t e r a c t e d government arsncles* Tho Department'e i n v e s t i g a t i o n t o d a t a disoloaos t h a t t h o Tranaemarica Corporation, a holding eonpeny, c o n t r o l s I S banks i n tho S t a t e s o f C a l i f o r n i a , Nevada, Arisona, Oregon and Washington, tho l a r g e s t of which i s tho flenk o f i * * r i c a j t h a t many of theoo 35 beaks have m a r o u a branches) t h a t theoo banks c o n t r o l apparosiaately o f tho banking o f f i c e s and approximately of tho coomercial benkinr deposits i n tho f i v e - a t a t e e r e a j t h a t tho f r i n s s a o r l p f ^ ^ t f * 1 ) 1 fr^nfrif c o n t r o l approximately fee o f decosits i n Urn Ctato o f gevada and 61* o f t h e o o a w o i s l basking o f f i c e s ) i n C a l i f o r n i a , U2]£ o f tho deposits and o f the cowoercial banking o f f i c e s j i n Oregon, 3 9 * of t h e deposits end o f t h o n—eor>1>1 banking o f f i o o s j and i n Vaahington, 5 1 o f tho dapoeits and o f tho » — m i H I banking o i f i c e a . I n many countiee w i t h i n t h i s f i v e - e t a t e area t h e percentage c o n t r o l o f depoaita and coeutereial banking o f f i c e s i s snch r r e a t e r * I n C a l i f o r n i a , f o r a m p l e , there a r e t h i r t e e n coantios i n which tho Tram.snerioa Corporation c o n t r o l s IBQt o f tho o o M s r c i a l banking f n c i l i t i e e . m a expansion program has been e f f e c t e d ovor a period o f appro*! l a t e l y twenty years* In HMqr i n stone ee tl.o holding company financed tho a c q ^ i a l t i a n a by borrosing funds f r o a i t s banking a u b e i d i a r i e e , usin,: the aaaete o f the parahaaod bonk a a o e o u r i t y f o r tho loan* Apparently there has been a desire on the part of Transanerioa Corporation to build good w i l l among the banks i n the f i v e - s t a t e area by o f f e r i n g vary l i b e r a l terms i n i t s purchases, i n many oases the p r i c e paid exceeded the book value of a bank's assets. Frequently the personnel of acquired banks was put on the pay r o l l of Transamerica and the ranking o f f i c i a l s were e i t h e r retained or l i b e r a l l y pensioned* I n a d d i t i o n , the i n v e s t i g a t i o n discloses t h a t the Transamerica Corporation controls tpo investment banking companies, several i n surance companies, several metal f a b r i c a t i o n companies, and a large r e a l estate company of p a r t i c u l a r s i g n i f i c a n c e the State of California* An a n t i t r u s t s u i t might be based upon a charge of conspiracy between t h e holding company and i t s banking subsidiaries t o monopolise a s u b s t a n t i a l part of the c o n e r o i a l banking and c r e d i t f a c i l i t i e s i a the f i v e - s t a t e a r e a . The d i f f i c u l t y w i t h the case a t t h i s time l i e s i n the f a c t t h a t we have not been able to develop substantial evidence e i t h e r t h a t the Transamerica Corporation achieved i t s present dominati n g p o s i t i o n i n the commercial banking f i e l d through i l l e g a l trade practices as those terms are defined i n court decisions i n t e r p r e t i n g the Sherman A c t , or t h a t i t abused i t s dominant position once i t was achieved* I n the abssnos of complete monopoly, evidence of one or both of these types of abuse i s e s s e n t i a l t o make a case under the Sherman Act* We have a few i l l u e t r a t i c n e i n d i c a t i n g the use of ooeroive t a c t i c s by Transsmerica i n t h e a c q u i s i t i o n of independent banks, such as c r e a t i n g a run on a bank through c o l l e c t i o n by agents of Transamerica of passbooks which were presented f o r payment over the counter i n a single day, thus causing l a r g e withdrawals! threats t o e s t a b l i s h a branch i n an area already adequately served by Independent banking i n t e r e s t s , one of which t h e Transamerica Corporation desired t o buy) promotion of i n t e r n a l dissension i n the management of the desired bank, coupled w i t h the purchase of a s u f f i c i e n t amount of stock t o place the purchaser i n a strong bargaining position w i t h the stockholders owning substantial i n t e r e s t s * There are many rumors t h a t such practices were followed r e g u l a r l y i n acquiring independent oanks* I t has been impoesible, however, t o pin down a s u f f i c i e n t number of them t o make a prima f a c i e case on the theory suggested. I t i s possible t h a t such testimony could be secured through grand j u r y proceedings* I n view of the experience of the agents of the Federal Bureau of I n v e s t i gation, however, t h i s appears somewhat doubtful* 2 I f s u f f i c i e n t evidence could be secured t o support e i t h e r souses i n achieving i t s present position or abuse of the position once achieved, there apparently would be no d i f f i c u l t y i n proving r e s t r a i n t s on commercial competition* C e r t a i n l y the commerce of esquired banks and of independent banks which might and probably would have been organised except f o r f e a r of being assimilated by the Transamerica group, would be restrained* I n a d d i t i o n , borrowers conducting i n t e r s t a t e commercial enterprises are deprived of comp e t i t i v e eourcee of banking f a c i l i t i e s * The commerce of enterprises competing with commercial businesses owned by the Transamerica Corporation i n s i t u a t i o n s where the former must secure t h e i r f i n a n c i a l requirements from Transamerica banks, i s r e s t r a i n e d , since such iiidependent enterprises must r e v e a l t h e i r c o n f i d e n t i a l operations i n securing c r e d i t from the Transamerica banks* I f a case of attempt t o monopolise ocmmercial banking f a c i l i t i e s could be developed, i t i s suggested that r e l i e f mi^ht take the form of r e q u i r i n g the holding company t o dispose of a l l i n t e r e s t i n and control over subsidiary banks owned by i t , including the stock of i t s l a r g e s t subsidiary, the Bank of America* Since the Bank of America, through i t s branches, comprises approximately 90$ of the commercial banking i n t e r e s t s of the Transamerica Corporation, i t would appear t h a t e f f e c t i v e competition i n the commercial banking f i e l d i n the f i v e - s t a t e area would require some type of reorganisation of the Bank of America which would provide f o r the creation of several d i s t i n c t and competing units t o be carved out of the e x i s t i n g Bank of America organisation* Whether d i v e s t i t u r e should be sought of some of the non-bsnking enterprises owned by the Bsnk of America, euch as i n surance companies, r e a l estate companies, e t c * , would depend upon the development of the data which i e a t the preeent time inconclusive and fragmentary. I t r u s t t h i s b r i e f description of the status of our i n v e s t i gation w i l l a f f o r d a basis f o r discussion a t the coming conference* Sincerely yours, Attorney General
