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BOARD OF GOVERNORS FEDERAL RESERVE O f f i c e C o r r e s p o n d e n c e Chairman E c c l e s Frnm Mr SYSTEM Date March 6 , 1 9 4 3 Subject: - Morrill There i s a t t a c h e d a c o n f i d e n t i a l d r a f t o f a r e p o r t o f t h e i n f o r m a l c o n f e r e n c e w i t h M r . A. P. G i a n n i n i on F e b r u a r y 18, 1943* As now drawn u p , M r . McKee i s s a t i s f i e d w i t h i t as a r e c o r d o f t h e c o n f e r e n c e . He has asked me t o c l e a r i t w i t h you and each o f t h e o t h e r Board Members. I t w i l l be a p p r e c i a t e d i f you w i l l l e t me know whether i t i s s a t i s f a c t o r y t o you, o r i f n o t , what changes you d e s i r e made i n i t . Chester ^^^y^Ueecretary 3 CONFIDENTIAL // /u-jt, // • D r a f t of Report of I n f o r m a l Conference with A. P. G i a n n i n i on February 18, 1943* I n accordance ?/ith a request which had been made i n a l e t t e r from M r . A. P. G i a n n i n i t o Chairman E c c l e s , t h e r e was an i n f o r m a l conference of t h e members of. the Board end Mr. G i a n n i n i on Thursday, February 18, 1943, beginning a t 1 0 : 3 0 a.m. and l a s t i n g u n t i l 3 lunch. except f o r a recess f o r I n a d d i t i o n * t o Mr. G i a n n i n i , those present were Messrs. E c c l e s , Ransom, Szvmczak, Evans and McKee, except t h a t . M r . Szymczak, by reason of a previous engagement, was not a p a r t i c i p a n t i n t h e luncheon. Aside from having i n d i c a t e d i n a g e n e r a l way t h a t lie wanted i n f o r m a t i o n about the Board 1 s p o l i c y i n r e l a t i o n t o the expansion of Transamerica*s banking i n t e r e s t s , M r . u i a n n i n i had not s t a t e d s p e c i f i c a l l y or i n detail « what p a r t i c u l a r phases of the g e n e r a l question he wished t o discuss and i t was understood t h a t t h e conference was t o be on a p u r e l y i n f o r m a l b a s i s . In h i s opening statement, he took the p o s i t i o n t h a t he could not understand why t h e F e d e r a l s u p e r v i s o r y agencies had made decisions against expansion o f Transamerica 1 s banking i n t e r e s t s and he showed t h a t he was e n t i r e l y o u t sympathy w i t h t h e i r p o i n t o f v i e w . felt of His discussion had t h e tone of one who t h a t he was "boxed" a t every t u r n of t h e road. It seemed t o h i m t h a t the s u p e r v i s o r y a u t h o r i t i e s must have l i t t l e or no confidence i n t h e management o f t h e Bank of America or Transamerica. In typical n A. P . " f a s h i o n he wanted t o know why, under such circumstances, we d i d n ' t t a k e over the banks and run the o u t f i t . He accepted, a p p a r e n t l y without r e s e r v a t i o n , the i d e a t h a t he was t h e dominant or c o n t r o l l i n g f i g u r e i n t h e Transamerica group and i t s banking i n t e r e s t s , r e g a r d l e s s o f any t e c h n i c a l or l e g a l question of c o n t r o l , end t h a t when he spoke, he representea any or a l l of them t o which he might be r e f e r r i n g . He had l o s t none of his d e s i r e f o r freedom t o expand i n the banking or any other f i e l d wherever he thought i t would be b e n e f i c i a l t o do so. He contended t h a t he had been d i s c r i m i n a t e d a g a i n s t , but main- t a i n e d t h a t he was w i l l i n g t o operate under any laws or r e g u l a t i o n s were a p p l i e d t o a l l bankholcdng companies a l i k e . that He had nothing t o say, how- *• i e v e r , by way of e x p l a n a t i o n when f i g u r e s as t o branch bank exoansion i n t h e t e r r i t o r y of the Transamerica group f o r the oeriod from 1933 t o 194^ were called to his attention, fie r e f e r r e d a number of times t o what he regarded as t h e c r i t i c a l c h a r a c t e r of l e t t e r s emanating from t h e o f f i c e of the Comptroller of t h e Currency, t h e F . D. I . C . , ana t h e Board as a p p l i e d t o t h e management of t h e G i a n n i n i i n t e r e s t s , which he s a i a had been harmful t o his i n t e r e s t s . However, when h i s a t t e n t i o n was d i r e c t e d t o the f a c t s of t h e Board's p a r t i c i p a t i o n i n t h e n e g o t i a t i o n s l e a d i n g up t o t h e 1939-1940 a g r e e ment and t o t h e promises of the G i a n n i n i i n t e r e s t s i n t h a t connection he had l i t t l e t o say. I t was maae p l a i n t o him t h a t t h e members of the Board were unanimous i n t h e p o s i t i o n which had been taken i n each case where t h e Board had been c a l l e d upon t o a c t w i t h r e l a t i o n t o Transamerica and t h a t t h e r e was f u l l accord among t h e t h r e e supervisory agencies on the p o s i t i o n t h e y had taken w i t h r e s p e c t t o expansion of t h e Transamerica group i n the banking field. I t was a l s o made c l e a r t h a t t h e Board would f a v o r legislation f r e e z i n g t h e s i t u a t i o n of bankholding companies, w i t h the exception of i n s t a n c e s where t h e y might be requested by t h e a n p r o p r i a t e supervisory a u t h o r i t i e s save or p r o t e c t p a r t i c u l a r s i t u a t i o n s . to I n t h a t connection Mr. Ransom s a i d t h a t he had been i n f a v o r of something along t h e l i n e s of the "death sentence" l e g i s l a t i o n proposed i n 1938. Mr. G i a n n i n i said t h a t he haa been i n f a v o r of t h a t p a r t i c u l a r proposal, and i n f a c t t h a t i t s i n t r o d u c t i o n was a t h i s suggestion through the i n f l u e n c e of ex-Senator McAdoo w i t h Senator Glass. He d i d not argue f o r t h e c o n t i n u a t i o n of bankholding companies but would l i k e t o see branch b a n k i n g ' p e r m i t t e d throughout a F e d e r a l Reserve district. I n any e v e n t , he would l i k e t o be f r e e t o have a branch banking system i n each state' i n which Transamerica now has* banks. He-would be ready t o l i q u i d a t e t h e bankholdings of Transamerica, saying t h a t i t could be done through t h e d i s t r i b u t i o n of i t s stockholdings among i t s stockholders, he would l i k e t o see t h i s done, and t h a t , given a reasonable p e r i o d , that say f i v e y e a r s , t h e l i q u i d a t i o n could be completed and Transamerica e l i m i n a t e d as a bankholding comoany. I t was i n d i c a t e d , however, t h a t a h o l d i n g company which was not i n v o l v e d i n o t h e r businesses or ventures and was merely f o r the purpose of h o l d i n g a group of banks t o g e t h e r would not n e c e s s a r i l y be o b j e c t i o n a b l e t o t h e Boara, but t h a t t h e r e was o p p o s i t i o n t o t h e continued a c q u i s i t i o n of v a r i e d i n t e r e s t s by Transamerica, t h a t t h e complicated corporate r e l a t i o n s were a m a t t e r of r e a l concern t o t h e Board, and t h a t t h e use of t h e h o l d i n g company a f f i l i a t i o n s as an i n d i r e c t means of t h e s u p e r v i s o r y p o l i c i e s of t h e F e d e r a l agencies was h i g h l y circumventing objectionable. Whatever p l a n might be adopted, he would l i k e t o be p e r m i t t e d t o c a r r y out commitments i n two s i t u a t i o n s which had not been Drought t o t h e a t t e n t i o n o f t h e Board, one a p p a r e n t l y i n w r i t t e n form i n v o l v i n g an exchange o f N a t i o n a l C i t y stock now h e l d b y Transamerica and another not i n w r i t i n g , where, he f e l t , n e v e r t h e l e s s , a moral o b l i g a t i o n which he thought was f u l l y as b i n d i n g as a w r i t t e n commitment. I f he could have ^11 the banking u n i t s i n C a l i f o r n i a which are a f f i l i a t e d w i t h Transamerica converted t o branches of t h e Bank of America and could f o l l o w a s i m i l a r course i n other states where he had banks, i n c l u d i n g t h e two s i t u a t i o n s where he f e l t he had o u t standing commitments, he would be 100 per cent i n f a v o r of a plan which would not >ermit any f u r t h e r expansion except when requested by t h e authorities. supervisory He would have t o " c l e a r i t w i t h my boys f i r s t " , "put he was so e n t h u s i a s t i c about i t t h a t he wanted t o f o l l o w UD t h i s l i n e of thought imm e d i a t e l y w i t h the o t h e r supervisory a u t h o r i t i e s i n Washington. At t h e same time he said t h a t he p e r s o n a l l y c o u l d n ' t approach Morgenthau or Crowley i n view of h i s l e t t e r of February 1 , 1943* t o M r . Crowley, a copy of which i s i n our f i l e s . At one moment he thought that h i s son "L. M . n might come on and work out such an arrangement and a t another time he wanted the Board or a Board committee t o undertake t h e t a s k . At t h e conclusion o f the conference i t was understood t h a t he expected t o discuss t h e p o s s i b i l i t i e s of the s i t u a t i o n w i t h h i s son and others to whom he r e f e r r e d as " h i s boys". It was a l s o understood t h a t t h e Board or some of i t s members would advise u r . Crowley and M r . Delano r e g a r d i n g t h e discussions a t t h i s meeting, and t h a t i f these agencies c o u l d agree upon a p l a n t h a t would be f e a s i b l e , , t h e board would be g l a d t o a c t as t h e medium through which M r . Giajfinini would be i n formed. It appeared t o t h e Board members who had known M r . G i a n n i n i in t h e past t h a t he r e t a i n e d much of h i s o l d v i g o r and aggressiveness, but on - 5 - t h e other hand, t h a t t h e r e was something of a tendency towards r e l a x a t i o n and a d e s i r e t o be c o n c i l i a t o r y , f u r t h e r expansion. even at t h e s a c r i f i c e of h i s ideas of He-was concerned about t h e burden t h a t "L. M." was c a r r y i n g and would l i k e t o f i n d some r e l i e f f o r him. The f o l l o w i n g seemed t o t h e members of t h e Board t o be substant i a l l y t h e conclusions t h a t coula be drawn from the discussions during t h e conference: ( 1 ) That Mr. "Giannini 1 s u n d e r l y i n g d e s i r e was f o r untrammeled # 4 freedom of expansion; ( 2 ) That i t was made c l e a r t o M r . G i a n n i n i t h a t t h e F e d e r a l superv i s o r y a u t h o r i t i e s were i n accord a g a i n s t expansion 01 Transamerica i n t e r e s t s i n t h e banking f i e l d ; ( 3 ) That i t had become apoarent t o him t h a t he ana "his boys11 had no p l a c e e l s e t o go; (4) - h a t , confronted w i t h t h e p o s s i b i l i t y of "freezing 1 1 or a "death sentence" f o r bankholding companies, he was w i l l i n g t o accept some s o r t of arrangement which would r e s t r i c t f u r t h e r expansion of t h e Transamerica group unless requested by t h e F e d e r a l supervisory a u t h o r i t i e s , pro- vided a l l t h e banks which they now have could be r e t a i n e d , t o g e t h e r w i t h t h e two r e g a r d i n g which M r . G i a n n i n i s a i d he had outstanding commitments; ( 5 ) That such an arrangement was contingent i n h i s mind upon a l l o t h e r bankholaing companies being s u b j e c t t o corresponding r e s t r i c t i o n s . The conference ended w i t h o u t any d i r e c t i v e s , as M r . G i a n n i n i s t a t e d t h a t he wanted t o r e p o r t t h e conversations t o h i s associates ana i t - 6 - was understood t h a t t h e Board or a committee of Board members would l i k e wise r e p o r t t h e discussions t o t h e other F e d e r a l supervisory agencies. A s i d e from r e o o r t i n g t o t h e other F e d e r a l a g e n c i e s the substance of these c o n v e r s a t i o n s , the Board f e l t t h a t t h e m a t t e r should r e s t , unless t h e r e i s a f u r t h e r i n d i c a t i o n from Mr. G i a n n i n i t h a t he would be w i l l i n g t o c a r r y out a p l a n by which Transamerica would d i v e s t i t s e l f of i t s nonbanking i n t e r e s t s and be n o t h i n g more than a bankholding company.
@FedFRASER