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January 27, 19li9. Governor S«yraezak Messrs, : l l l a r d and Sloan ApDlication of Bank o f Aaerica NT&SA, San Francisco, C a l i f r n i a , f o r permission t o e s t a b l i s h branches a t Bangkok, 3iaa,. and Hamburg, Bremen and F r a n k f u r t , Germany. The attached memorandum o f Examiner Wilkes, dated January 26, 19h9, presenting again f o r the consideration o f the Board the a p p l i c a t i o n o f the Bank of America f o r permission t o e s t a b l i s h a branch a t Bangkok, Siam, recommends approval provided such a c t i o n would not hinder the supervisory e f f o r t s o f the Comptroller o f the Currency i f he contemplates demanding a s u b s t a n t i a l increase i n c a p i t a l or changes i n d i v i d e n d o r l o a n p o l i c i e s . The memorandum also recommends favorable a c t i o n , subject t o the foregoing p r o v i s o , on the pending a p p l i c a t i o n s of Bank o f America f o r permission t o e s t a b l i s h branches a t Hamburg, Bremen and F r a n k f u r t , Germany, as presented t o the Board i n a memorandum p r e pared by Examiner Wilkes dated J u l y 23, 19ii3 and Mr. R. F. Leonard 1 s memorandum dated August 11, 191*8, Y*e do not concur i n the recommendations. Ye recommend t h a t the a p p l i c a t i o n s f o r branches i n Siam and Germany be disapproved because : (1) The Bank o f America i s r e l a t i v e l y i n a badly Tverextended c o n d i t i o n , and (2) the a b i l i t y of the bank t o operate s u c c e s s f u l l y i n the f o r e i g n banking f i e l d had not been demons t r a t e d s u f f i c i e n t l y t o j u s t i f y f u r t h e r expansion at t h i s time. Over-extended c o n d i t i o n The r e l a t i v e l y low r a t i o o f c a p i t a l t o r i s k assets as shown on appendix numbered IY attached t o Examiner W i l k e s ' memorandum i s the more important o f the above s t a t e d reasons. Despite the i n j e c t i o n of $30,000,000 and $1*1,000,000 i n fcapital funds i n the years 19UC and 19lih, r e s p e c t i v e l y , the r i s k asset r a t i o o f the Bank o f America has declined from 16% t o 9*2% frtxa December 31, 193$ t o June 30, 19U3J a net d e t e r i o r a t i o n o f 1 * 2 D u r i n g the p e r i o d the d e t e r i o r a t i o n i n d i c a t e d by a l l banks i n the T w e l f t h Federal Reserve D i s t r i c t was 2 Q M l the T w e l f t h D i s t r i c t banks other than Bank o f Aaerica and a l l member banks i n the U. 3. 23.6$• FILE COPY To: Governor S»ymc«ak •2- I t i s f e l t the foregoing i s a l l the more s i g n i f i c a n t because of the r e l a t i v e size of the Bank o f America and i t s p o s i t i o n i n American banking. A l s o , appendix numbered I I , attached t o Examiner T i l k e s 1 memorandum shows t h a t Bank of America's r i s k asset p o s i t i o n does not compare f a v o r a b l y w i t h other U, S. banks now engaged t o a considerable e x t e n t i n the operation o f f o r e i g n branches. Our reference i s t o the extended c o n d i t i o n of the bank and not c a p i t a l funds as r e l a t e d t o the question of e s t a b l i s h i n g the f o r e i g n branches now under c o n s i d e r a t i o n . I t i s f e l t t h a t expansion o f t h i s k i n d should not be undertaken by the bank unless and u n t i l i t s o v e r a l l f i n a n c i a l c o n d i t i o n i s improved e i t h e r through an adjustment of c r e d i t p o l i c y or a m a t e r i a l increase i n c a p i t a l funds. Reference t o c a p i t a l , as such, or use of the term " u n d e r c a p i t a l i z e d " has been avoided p u r p o s e f u l l y because: (1) The a c t u a l c a p i t a l needed f o r the operation of the branches i n question would be r e l a t i v e l y very s m a l l . Experience i n d i c a t e s t h a t such an operation i n v o l v e s l i t t l e r i s k i f the conservative p o l i c i e s c u s t o m a r i l y a p p l i e d by American banks now e s t a b l i s h e d i n the f o r e i g n f i e l d are f o i l o r e d . (2) The amount of a d d i t i o n a l c a p i t a l t h a t would be r e quired t o place the r i s k asset r a t i o of Bank o f America on a f a v o r a b l y comparable basis would f a r exceed the probable t o t a l assets o f the proposed branches. A b i l i t y t o operate s u c c e s s f u l l y i n the f i e l d P r i o r t o 19li7 the Bank o f America operated o~ly one f o r e i g n branch which was e s t a b l i s h e d i n London i n 1931, The operations o f t h i s branch have been r e l a t i v e l y small and the t o t a l assets o f the branch were $13,635,000 on October 30, 1918, Branches were e s t a b l i s h e d i n Manila, £ . ? . and Tokyo, Japan i n 19li7, and, i n 191*8, branches were opened i n Yokohama and Kobe, Japan. V.hen the bank was exaained June 30, 1918, f o r e i g n branch assets amounted t o $1*9,1*71,000. The branches e s t a b l i s h e d i n 19l7 and 1913 have not been examined by the Comptroller o f the Currency. The bank's do«e~tic c r e d i t p o l i c i e s are not such as t o i n s p i r e confidence t h a t f o r e i g n operations w i l l be c o n s e r v a t i v e . T h e r e f o r e , i t i s f e l t t h a t approval o f f u r t h e r expansion i n the — F i r EXO'P Y
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