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L. OIAJtWIWI THREE HUNDRED MONTGOMERY STREET SAN FRAlt CISCO - h June 28, 19U7 Honorable Chas. W. Tobey United ^tates oenator Senate Office Building Washington, D. C» Dear Senator ^obey: I n w r i t i n g to you on June 18 * thought I was placing bef o r e you a l l the facts necessary to obviate any possible misunderstanding of the issues I had raised i n ray previous telegrams to the committee. However, i t seems that i t i s d i f f i c u l t a t t h i s distance to keep abreast of the communications o f the proponents of 829 and I d i d not then have before me, as I do now, a copy of the l e t t e r dated June 13, 19h7 addressed to you by Chairman Eccles. That l e t t e r , a f t e r presuming t o state my a t t i t u d e and t h a t of Mr. A. P. Giannini towards 8. 829 and kindred subjects, i s devoted to the issues raised i n my f i r s t telegram to you, which you reoeived on June 11* I assumed, of course, that Mr. Socles 1 f u l l response was contained i n the t r a n s c r i p t of the June 11 hearing, which was received by me on the 17th. Evidently he r e a l i s e d the inaccuracy of his pre s a l t a t i o n to the oonmittee and attempted to correct i t by his long l e t t e r , I am sorry that Mr. Eccles has construed my stataaaenta to you as a personal attack on him. There was no suoh i n t e n t i o n on my part. Since not only my a t t i t u d e w i t h respect to the b i l l but the f a e t s knoan t o Mr. Eccles concerning Tranaamerica Corporation*a operations had been misrepresented, 1 thought i t e n t i r e l y proper to advise you of the f a c t s mentioned i n my telegrams and t o suggest t h a t ^ r . ^ccles could supply accurate information about a company w i t h which he was thoroughly f a m i l i a r and r e l a t i n g to the general subject before your committee. I quite agree with Mr. Eccles that i n the holding company f i e l d , a t l e a s t , he i s an expert} and now t h a t he has a t l a s t spoken a u t h o r i t a t i v e l y , though r e l u c t a n t l y , there are tome actual f a c t s before the aommittee t h a t none can d i s pute. * e w i l l note these preaently, but f i r a t X ahould l i k e to make some obaervatiana concerning my a t t i t u d e and that of Tr an earner ioa aa I underatand i t . Mr. A* P. Giannini can apeak f o r himself I f he i s so disposed whan he returns from ^outh America. Mr. Ecoles says t h a t publie regulation of Transamerica has bean fought o f f for many year a. This i a an astounding atatement considering the aource from which* i t oomes. Transamerica*s shares are June 26, 19 Itf Honorable ^harles W. Tobey -2- l i s t e d on t h r e e stock exchanges and the corporation i s t h e r e f o r e r e gulated by the S e c u r i t i e s and Exchange Commission as provided in the S e c u r i t i e s Exchange Act of 195U, and by the r u l e s and regulations o f the exchanges as w e l l . The corporation l i k e w i s e holds a voting permit to vote the stock i t owns i n t h r e e major n a t i o n a l banks, two of whloh are c o n t r o l l e d by i t * (Bank of America not being controlled by Transamerica, the s t a t i s t i c s on concentration givsn t o the committee are f a l s e . ) I t i s t h e r e f o r e subject to examination by the Board of Governors and t o a l l provisions of law and r e g u l a t i o n s applying t o such holding companies. Mr. ^coles' own statement before a committee o f the Congress of the United ^tates made in A p r i l of &9U3» that up t o t h a t time he had made no recomsndation f o r any l e g i s l a t i o n suoh as t h a t now before your o o w i i t t e e . That was not many years" ago. I n a d d i t i o n to t h a t , K r . Socles knows as w e l l as any man i n public l i f e in Washington of t h e extreme measures saployed over the past nine years to disrupt the e f f o r t s o f Transamerica Corporation i n the b u i l d ing of sound f i n a n c i a l i n s t i t u t i o n s t o serve t h e needs of the masse* of people i n t h e r a p i d l y growing and developing area o f i t s operations. Some of these measures proceeded w i t h an u t t e r disregard o f r e a l i t i e s and of consequences and they were vigorously and successfully r e s i s t e d . The c o r p o r a t i o n s p o s i t i o n was completely sustained a f t e r a long siege of malicious persecution. I t h i n k such resistance was h i g h l y c r e d i t able and i f t h a t is what he had i n mind i n speaking of f i g h t i n g o f f public r e g u l a t i o n I consider that he has paid the c o r p o r a t i o n s managemant an unintended compliment. K r . Ecoloa i s v e r y f a m i l i a r , t o o , w i t h a type o f a t t e s t e d un-American " p u b l i c r e g u l a t i o n " w i t h which Transamerica has never been i n fbeoord and has r e s i s t e d on a l l proper occasions. This consists o f attempts t o force regulated companies t o accede t o h i s requests or damands not based on l e g a l a u t h o r i t y , accompanied by the t h r e a t t h a t unless acceded to the Congress o f the United <*tates would be l i k e l y to pass some d r a s t i c a n t i - h o l d i n g company l e g i s l a t i o n . I t has bean ny b e l i e f t h a t a d m i n i s t r a t i v e bodies should confine t h e i r a c t i v i t i e s to t h e i r delegated a u t h o r i t y and t h a t Congress i s competent t o take £ a r e of the l e g i s l a t i v e powers delegated t o i t by the C o n s t i t u t i o n . There i s f r e s h i n Ecoles* nind, no doubt, one o f his attempts to exercise d i c t a t o r i a l and despotic powers w i t h respect to the membership i n t h e f e d e r a l Reserve Systsm of one a a a l l bank i n C a l i f o r n i a , which was r e s i s t e d i n the courts. The language used i n a recent o p i n ion o f t h e Court o f Appeals o f the d i s t r i c t o f Columbia regarding t h i s atterspt i s p e r t i n e n t , I b e l i e v e , and 1 s h a l l quote i t s " A l l the Board's power springs from the s t a t u t e . * * * * i t s r e g u l a t i o n s must f a l l w i t h i n t h e l i m i t s o f ths a u t h o r i s i n g s t a t u t e , and must be suoh as w i l l c a r r y into e f f e c t ths w i l l o f Congress. The broad d i s c r e t i o n confided to t h e Board o f Governors continues only so long as i t a c t s w i t h i n i t s s t a t u t o r y soope. rhen t h e Board reaches t h e border o f t h e Federal Reserve Aet i t must stop, f o r t o go beyond would be t o impinge on Congressional p r e r o g a t i v e s . " I t h i n k t h a t i s sound p o l i c y . Honorable Charlei w . Tobey June 28, 19^7 Transamerica has evidenced a d i s i n c l i n a t i o n to enter into any d i v e r sionary conspiracy to a v e r t the exercise of l e g i s l a t i v e power. If t h i s i s what Mr. Eccles means by r e s i s t i n g " p u b l i c r e g u l a t i o n , " again I t h i n k he has paid the corporation an unintended oompliment. The oharge t h a t Transamerica Corporation i s out to defeat uniform and proper r e g u l a t i o n of bank holding companies i s f a l s e and without any foundation in f a c t . The l a r g e r t r u t h i s a t t e s t e d by a record f o r which no apologies need be o f f e r e d . I t cannot be shown t h a t i t has ever r e s i s t e d any l a w f u l r e g u l a t i o n , but the corporat i o n has been a l e r t to r e s i s t despotic attacks which f i n d no s s n t t ion i n the law of the land. To i t tyranny i s h a t e f u l , evsn when accompanied by the b e g u i l i n g promise of some u l t i m a t e gain. Mr. Socles seems to resent my reference to S* 829 * * being his program and t o prove h i s p o i n t he speaks of an a r r a y of groups r e f l e c t i n g banking opinion which he says I have ignored. I respectf u l l y c a l l your a t t e n t i o n to t h e f a c t t h a t much of t h i s support was obtained through his acceptance and subsequent re coma en dat ions t o the committee of compromising amendments, and some of i t — perhaps most of i t — s t i l l r a i s e s serious question as to those features of the b i l l which vest undefined d i s c r e t i o n a r y power t h a t can r e a d i l y f u r n i s h a mask to hide d i s c r i m i n a t o r y a c t i o n . I do not profess t o know what would be the calm judgment of raany of the prominent i n d i v i d uals r e f e r r e d to by Kr. Ecoles and included i n his g e n e r a l i s a t i o n o f support oonceming a b i l l which, w i t h much j u s t i f i c a t i o n , i s becoming known as t h e anti-Transamorica b i l l . " I wonder i f a l l of them had observed how some o f i t s provisions are so phrased as to exclude the Socles Investment Company (the company which owns Ld$ o f the v o t i n g •took of t h e F i r s t Security Corporation) frcm the e f f e c t s of one of the s a l i e n t f e a t u r e s o f the b i l l — divoroement of non-banking i n terests* How a word w i t h respect t o t h e * i r s t S e c u r i t y Corporation of Ogdsn, Utah. I t i s obvious t h a t I was correot i n suggesting to the Committee t h a t Mr. Eccles could give f u l l information concerning i t . iie has q u i t e agreed w i t h t h a t statement — saying t h a t he organised t h e oompany — and he professed expert knowledge of i t . I cannot understand why ¥ r . Eccles should construe as a personal matter my reference to t h a t company and r e l a t e d companies i n which persons associated i n i t s control have an i n t e r e s t . I t seemed t o me t h a t i n pursuing any e f f o r t t o bring about a divoroement o f nonbanking from banking i n t e r e s t s of those associated i n t h e c o n t r o l of banks t h e r e would n e c e s s a r i l y be involved a consideration of the mann r i n which bank oontrol through a holding oompany i s exercised. Thus, i f the company i t s e l f i s subject t o oontrol and through i t t h e banks, those having the r e q u i s i t e owiership of v o t i n g shares of the company or t h e r e q u i s i t e c o n t r o l l i n g influence t o a l l i n t e n t s and purposes oontrol t h e subsidiary banks. I knew o f the c l a s s i f i c a t i o n June 28, 19itf Honorable Charles ^ . Tobey -h- of the stock o f the ' i r s t Security and because of t h i s unusual f e a t u r e and the professed objectives of the b i l l I f e l t j u s t i f i e d i n c a l l i n g i t to your a t t e n t i o n . This f a c t i s noir confirmed by Mr, Eccles as he states t h a t the Eccles Investment Company owns a l i t t l e more than U. percent o f the outstanding shares of the F i r s t Security" and t h a t i n t h a t U peroent there i s one-half of 1 peroent o f the non-voting atock and " i ^ percent of the voting shares." He f u r t h e r says: n A s i m i l a r number o f i t s voting ahares are owned by another f a m i l y investment company, the J. J, A K . S. Browning Company." Why should there be any reluotanoe to mention such f a c t s ? I s any company sacroeanot? Judging by the freedom w i t h which Mr. Eccles had apoken of transamerica 1 thought the bars were down f o r open discussion, a t l e a s t to the extent of considering control meahanisms. Let ua not mince worda or become super technical or enmeshed i n p e r s o n a l i t i e s i n whi oh I am not at a l l i n t e r e s t e d . The bald f a c t i s t h a t i f t h e d e f i n i t i o n contained i n the f u b l i o U t i l i t y Holding Company -&ot o f 1955 been employed i n 829 the Eccles""" Investment Company would have been a u t o m a t i c a l l y classed as a bank holding company because on Mr, Eccles* own statement i t owns UL& o*f the ID t i n g shares of a company which i s admittedly a bank holding company. F u r t h e r , Mr, Eccles has l e f t l i t t l e , i f any, room to speoul a t e as to why t h i s d e f i n i t i o n was not used. That reason appears i n h i s l e t t e r h e r e i n he says the Eccles f m n i l y /Which owns the Eooles Investment Gompany i n which Mr. Eccles saya he hns a one-ninth i n t e r e s t / does^not c o n t r o l F i r s t S e c u r i t y , e i t h e r d i r e c t l y , or through any company. So here we have i t on the atrength of Mr. Eocles* expert testimony t h a t in one instance w i t h which he i s e n t i r e l y f a m i l i a r the ownership of of t h e v o t i n g shares of one company does not r e s u l t i n i t s c o n t r o l , d i r e c t l y o r i n d i r e c t l y , Nevertheless, when dealing w i t h companies owning or c o n t r o l l i n g v o t i n g shares i n a bank, 1$% of the v o t i n g ahares is taken as the c r i t e r i o n f o r "automati c coverage." Has Mr. Eccles proposed t o exoept from the e f f e c t s of t h i s b i l l a company or companies t h a t c o n t r o l a bank holding company? Let us aee what e l s e he says about t h a t . Mr, Eooles says i n h i s l e t t e r t h a t two companies having r e l a t e d i n t e r e s t s own &Q% o f t h e v o t i n g shares o f a l a r g e bank holding oompany i n equal p a r t e . T h i s , according to S. 829 — and c e r t a i n l y acoording to his own statement — doea not r e s u l t i n d i r e c t or i n d i r e c t c o n t r o l of t h e holding oompany by e i t h e r one. But even i f i t d i d , says Mr. Eooles, "the matter would s t i l l be i r r e l e v s n t beoauae under t h e p l a i n terms of 629 t h a t oompany would then also be a bank holding oompany and as suoh would be aubjeot to a l l t h e i t r e g u l a t o r y provisions of t h e b i l l . " I should l i k e t o ask by what " p l a i n terms 9 ? C e r t a i n l y i f the d r a f t amen had used the complete language of the Publio U t i l i t y Holding Company Act i t would have been a h o l d ing company by the p l a i n terms of t h e b i l l because i t would have been covered by v i r t u e of t h e ownership of 15% or more o f the voting sharc'e Honorable c h a r l e s W. Tobey June 28, 19^7 -5- o f a holding company* But w i t h t h i s language omitted aa i t it w i l l be covered, i f a t a l l , only by a decision of the Board of which Mr. Socles i s Chairman, spokesman snd a member, t o the e f f e c t t h a t i t exercises a c o n t r o l l i n g i n f l u e n c e . I t i s oonoeivable t h a t i f and when t h i s b i l l i s passed i n the form reoousaended by Mr. Eccles the Board w i l l be embarrassed i n deciding t h i s question of c o n t r o l l i n g influence by the now expressed expert opinion of Mr. Ecoles himself t h a t "the Eccles Company has n e i t h e r the power to nor does i t in f a c t control F i r s t Security" although i t alone owns of F i r s t S e c u r i t y ' s voting shares. Mr. Eccles, among those who know him best, whether i n Utah or Washington i s reputed to have a dominating influence on his assoc i a t e s , and i f the words of the Public U t i l i t y Holding Company Act had been incorporated i n t h i s b i l l t h e r e could be l i t t l e J u s t i f i c a t ion f o r e x e r t i n g him personally from the o b l i g a t i o n s and r e s t r i c t i o n s imposed by the b i l l . Mr. Eccles* l e t t e r goes s t i l l f u r t h e r and attempts to exp l a i n the s i l e n c e of 829 on the subject of voting and non-voting •hares of a bank holding company. I t says t h a t n e i t h e r the pressnt b i l l nor any previous d r a f t of new l e g i s l a t i o n (several of which have bean sponsored by him) contains any such provision and t h a t the reason i s found i n the declared purpose of S. 829 "to subject the busi ness and a f f a i r s of bank holding companies t o the same type of examinat i o n and r e g u l a t i o n as the banks which they c o n t r o l " ; a l s o , t h a t i n the l i g h t o f t h i s purpose and i n the absence of any requirement of a l e g i s l a t i v e formula a p p l i c a b l e to t h e stock of n a t i o n a l banks r e s p e c t ing voting power, i t was not f e l t t h a t such a requirement should be provided w i t h regard to bank holding companies. This i s said i n j u s t i f i c a t i o n of a b i l l t h a t w i l l not a f f e c t an arrangement whereby (or 6% i f the r e l a t e d Browning Company i n t e r e a t ia included) of the i n vestment i n a holding company can a b a o l u t e l y dominate i t and the banks i t controls w i t h o u t d i s t u r b i n g other extenaive i n t e r e s t 8 , according t o Mr. Ecolea, of auoh c o n t r o l l i n g company or companiea which he admits his investment company has. This exeuse i s i n c r e d i b l y f l i m s y . I t furnishes no reason a t a l l and i t seams to me i t might better have been l e f t unsaid* How t h e f a c t s are t h a t i n t h e National Bank Act t h e r e have alwaya been proviaions whereby the shareholders could vote upon a l l matters committed to them (suoh as e l e o t i o n of d i r e c t o r s , increase or decrease o f c a p i t a l stock, amendments to the a r t i c l e s of a s s o c i a t i o n , e t c . ) i n proportion fto t h e i r ownership of the c a p i t a l stock. This time-honored formula has never been deviated from. I n recent years when Congress authorised n a t i o n a l banks to issue p r e f e r r e d stock voting r i g h t s were extended t o such stock w i t h the approva l of the Comptroller of the Currency and t h e shareholders. The N a t i o n a l Bank Act i s d i s t i n c t l y not a precedent f o r the f a i l u r e t o provide i n suoh a b i l l as S. 829 f o r e q u i t a b l e d i s t r i b u t i o n of v o t i n g power. But even t h i s does not t e l l t h e whole s t o r y o f omissions by experts. Had the draftsman bean a s t u t e to f o l l o w t h e precedent so t o by the proponents of s . 829, they would have found o f t e n adverted Honorable ^harles W. Tobey June 26, 19 Itf -6- i n Section 11 of the Public U t i l i t y Holding Company Act express provisions r e l a t i n g to the subject of d i s t r i b u t i o n of v o t i n g power. There i t i s made the duty of the regulatory body to examine the corporate structure o f every r e g i s t e r e d holding company w i t h a view to e l i m i n a t i n g complexities and seeing to i t t h a t "voting power / i s / f a i r l y and e q u i t a b l y d i s t r i b u t e d among the holders of s e c u r i t i e s t h e r e o f , " I t would seem t o me t h a t concentration of 68% o f the v o t i n g power i n 8$ of the investment i n a holding company t h a t i n t u r n controls many banks would have a rather d i r e c t bearing upon "concentration of economic power" which t h i s b i l l i s ostensibly d e signed t o r e g u l a t e . Just when i s economic power unduly concentrated? When i t i s placed in 8% of the investment or when i t i s d i s t r i b u t e d p r o p o r t i o n a t e l y among 150,000 shareholders as i n the case o f Transamerica? Perhaps i t i s unfortunate t h a t In d i r e c t i n g a t t e n t i o n to the f a c t of the exclueion of the Eccles Investment Company from the provisions of the proposed a c t , as now disclosed by Eccles h i m s e l f , a construction should have been placed upon ray e f f o r t s to the e f f e c t t h a t I was "casting innuendos" or impugning motives. But i t i s a t l e a s t equally unfortunate t h a t a c i t i z e n o f the United States, w i t h knowledge of f a o t s bearing upon a l e g i s l a t i v e proposal, cannot c a l l t o the a t t e n t i o n of a member or members of the committee having the r e s p o n s i b i l i t y of considering l e g i s l a t i o n faots bearing d i r e c t l y upon i t s subject matter without loosing a barrage from the sponsor* As I have already said, I am not i n t e r e s t e d i n innuendos or motives. How t h a t t h e f a o t s t o whieh 1 have alluded a r e o u t , I t r u s t t h a t a l l can lay p e r s o n a l i t i e s aside and l e t the f a c t s speak. Tou have been most considerate and indulgent i n e n t e r t a i n ing my former oosmuni cations and I appreciate your patienoe and courtesy very much. However, inasmuch as the hearing reoord i s f i n a l l y closed I s h a l l not f u r t h e r impose upon you but take the l i b e r t y of sending a copy of t h i s l e t t e r to each member of the o o m i t t e e . Again w i t h kindest regards, I am Sincerely yours, (Signed) L . M. Giannini L . M. Giannini
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