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Minutes for
To:
January 26, 1961
Members of the Board
From: Office of the Secretary
of the
Attached is a copy of the minutes
System on
Board of Governors of the Federal Reserve
the above date.
statement
It is not proposed to include a
of
With respect to any of the entries in this set
to
red
requi
minutes in the record of policy actions
al
Feder
be maintained pursuant to section 10 of the
Reserve Act.
regard to
Should you have any question with
advise
will
you
the minutes, it will be appreciated if
al below.
initi
e
the Secretary's Office. Otherwise, pleas
will
als
initi
If you were present at the meeting, your
present,
not
were
you
Indicate approval of the minutes. If
the
seen
have
you
Your initials will indicate only that
minutes.
Chin. Martin
Gov. Szymczak
Gov. Mills
Gov. Robertson
Gov. Balderston
Gov. Shepardson
Gov. King
ve System on
Minutes of the Board of Governors of the Federal Reser
Thursday, January 26, 1961.
PRESENT:
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
The Board met in the Board Room at 10:00 a.m.
Martin Chairman
Balderston, Vice Chairman
Szymczak
Mills
Robertson
Shepardson
Sherman, Secretary
Kenyon, Assistant Secretary
Fauver, Assistant to the Board
Hackley, General Counsel
Johnson, Director, Division of Personnel
Administration
ion of
Mr. Masters, Associate Director, Divis
Examinations
el
Mr. Hexter, Assistant General Couns
el
Couns
al
Gener
Mr. O'Connell, Assistant
ion
Divis
Legal
Mr. Rudy, Special Assistant,
of
ion
Divis
tor,
Direc
Mr. Nelson, Assistant
Examinations
tary
Mr. Landry, Assistant to the Secre
ner,
Exami
w
Revie
Mr. Leavitt, Supervisory
ns
Division of Examinatio
ner,
Mr. Thompson, Supervisory Review Exami
Division of Examinations
Mr. Smith, Legal Assistant
Mr.
Mr.
Mr.
Mr.
Mr.
Items circulated to the Board.
The following items, which had
which are attached to these
been circulated to the Board and copies of
ated, were approved
Illinutes under the respective item numbers indic
44animous1y:
Item No.
utter to Wachovia Bank and Trust Company,
"alston-Salem, North Carolina, approving the
establishment of a branch in Greensboro.
1
Letter to the Federal Reserve Bank of Atlanta
IleCarding a possible violation of section 3
the Bank Holding Company Act by Hamilton
onal Associates, Inc., Chattanooga,
elanessee.
2
it?,1
1/26/61
-2Item No.
Letter to the Federal Reserve Bank of Richmond
approving the appointment of J. Franklin Wilson
aS Alternate Assistant Federal Reserve Agent.
3
Letter to the Federal Reserve Bank of Minneapolis
aPproving a program of expanded hospital-surgical
coverage for officers and employees of the Helena
Branch and the absorption by the Branch of twothirds of the premium cost in connection therewith.
4
Report on competitive factors
(Albany, Georgia).
Copies had
Deposit Insurance
been distributed of a draft of report to the Federal
d
of
Corporation on the competitive factors involved in a propose merger
&
The First State Bank of Albany, Albany, Georgia, with Albany Trust
Banking Company, Albany, Georgia.
which contained the
Unanimous approval was given to the report,
following conclusion:
two banks
From all indications competition between the
d merger
propose
the
and
involved is not particularly keen,
situation
tive
competi
the
will have no significant effect on
the conenable
should
in Albany. Combining these two banks
s largest
Albany'
with
vely
tinuing bank to compete more effecti
system.
banking
chain
bank which is affiliated with a large
Report on competitive factors
(Portland and Coquille, Oregon).
1)istribution had been made of a draft of report to the Comptroller of the
d in the proposed purchase
ellrrency on the competitive factors involve
°f assets and assumption of liabilities of Coquille Valley Bank, Coquille,
of Portland, Portland, Oregon.
°1'egon, by The United States National Bank
the record to show that
Governor Mills stated that he would like
had taken no part in the consideration of this matter.
1/26/61
-3The report was then approved, Governor Mills abstaining.
The
conclusion read as follows:
Competition between Coquille Valley Bank and U. S. National
Bank is almost nonexistent. Following the proposed purchase of
assets and assumption of liabilities there would be no material
change in the competitive situation in either the Portland area
or in the State of Oregon. The resulting bank would intensify
competition in the Coquille area without adverse effect on the
present banking situation.
Statement to accompany Board's Order re Firstamerica Corporation
(Item No. 5).
On January 19, 1961, the Board issued an Order approving
, of
acquison by Firstamerica Corporation, Los Angeles, California
shares of the proposed new First Western Bank and Trust Company, Los
Angeles.
Pursuant to the understanding at that meeting, the press release
announcing this action noted that a Statement to accompany the Order would
be issued shortly.
Accordingly, there had been distributed under date of
January 251 1961, a memorandum from the Legal Division submitting a draft
of such Statement.
During a discussion of the proposed statement, certain questions
'with regard to the wording of portions of the document were raised by
Governors Mills and Balderston.
The general position of Governor Balderston, which related to
was in terms that in
the suggestions he made regarding the Statement,
his view the original proposal (involving a proposed merger of California
Company, San Francisco)
13a4k, Los Angeles, and First Western Bank and Trust
Perhaps would have afforded stronger competition to Bank of America
1/26/61
,
National Trust and Savings Association than the present proposal under
which there would eventually be two smaller State-wide banking institutions
in competition with Bank of America.
Therefore, he doubted that the
Board should go on record in terms of seeming to be more enthusiastic
about the outoome of the present proposal than the original one, which
Would have been carried out following Board approval of the acquisition
by Firstamerica of shares of California Bank except for the intervention
of the Department of Justice.
At the moment, he was not sure whether the
two banks that would be created would be able to compete with Bank of
merger of the
America as successfully as a single bank resulting from the
California Bank and First Western, San Francisco, might have done.
members of
Governor Mills recalled that he had been one of the
the Board who stood strongly in favor of the original proposal. However,
the Department of Justice then intervened, and as a result the present
1)r0posal was now before the Board.
The fact that the second proposal
Might not rank as high in his esteem as the original proposal did not
as being
Ileoessarily mean, however, that it should be turned down
Unsatisfactory.
to take the
If one cannot have the best, it may be well
second best, and to him this proposal was the second best.
following
Certain changes in the draft were then agreed upon,
.4hich unanimous approval was given to the issuance of a Statement in the
it would be
t(Irm attached as Item No. 5, with the understanding that
l'sleased in the usual manner.
1/26/61
-5Messrs. Hexter, Nelson, and Leavitt then withdrew from the
meeting.
C. B. Investment Corporation (Item No. 6).
Under date of
January 17, 1961, there had been distributed copies of a memorandum from
the Legal Division submitting a draft of letter to the Federal Reserve
Bank of Dallas concerning apparent violations of the Bank Holding Company
Act of 1956 by C. B. Investment Corporation, Houston, Texas.
(1) whether
The principal questions presented in this case were:
section 3(a)(2) of the
C. B. Investment Corporation was in violation of
Bank Holding Company Act in its acquisition of shares of stock of South
La Porte, Texas,
Main State Bank, Houston, Texas, First National Bank of
and First National Bank of Port Arthur, Texas, without prior approval of
the Board; (2) whether loans made by the company to individuals between
the effective date of the Act and April 30, 1960, were of such a character
aild of sufficient dollar amount and number as to constitute engagement
14 a business other than that permitted by section 4(a)(2) of the Act;
report, or had inaccurately
41111 (3) whether the company had failed to
reported in its registration statement or annual reports, ownership or
control of certain bank shares.
The proposed letter to the Federal
be advised that within
Reserve Bank of Dallas requested that the company
it must divest
six months of the date of receipt of the Board's views
itself of any presently held portion of the shares acquired by it of the
.410 banks in La Porte and Port Arthur. (The holdings of South Main stock
-b
49,17"
*
4
1/26/61
-6-
had been disposed of by the company.) With respect to the section 4(a)(2)
question, the letter requested that the company be notified that the outstanding loans were to be realized upon by the company as they fell due,
arL(1 that no further advances of this character and in the volume presently
shown should hereafter be made.
With respect to the question of erroneous
reporting, or failure to report, ownership or control of shares of certain
banks by the holding company, the letter would specify certain procedures
that the company should be directed to follow.
Following comments by Mr. O'Connell on the principal issues
iavolved in this case, unanimous approval was given to the proposed letter
to the Federal Reserve Bank of Dallas, with the understanding that the
staff was authorized to make minor editorial chances before the letter
was mailed.
A copy of the letter, as sent, is attached as Item No.
Paramount Life Insurance Company.
6.
In response to a question
raised by Mr. O'Connell, it was indicated that the Board would have no
Objection to transmitting informally to the attorney for the Department
01' Justice working on the pending litigation involving the capital
acieqUacy of The Continental Bank and Trust Company, Salt Lake City, Utah,
Francisco that
a coPY of the letter to the Federal Reserve Bank of San
the Board had approved on January 231 1961, relating to the interest of
Continental in stock of the Paramount Life Insurance Company.
The purpose
of transmitting this document was to allow the attorney to be aware of the
Paramount matter in the event it should be referred to by Continental in
the course of the pending litigation.
1/26/61
-7All of the members of the staff except Messrs. Sherman, Kenyon,
and Johnson then withdrew from the meeting.
Reports on various matters.
With reference to a matter mentioned
at the Board meeting on January 16, 1961, Governor Balderston stated that
the Director of the Division of Research and Statistics had been in touch
with the incoming President of the Federal Reserve Bank of Boston, Mr.
Ellis, regarding the matter of selecting an officer to assume charge of
and it had been
the research function at that Bank, to succeed Mr. Ellis,
agreed that steps toward filling the position would be deferred pending
Erickson when they were
informal discussion with Mr. Ellis and President
in Washington on February 7, 1961, to attend a meeting of the Federal
Open Market Committee.
ated to
Governor Balderston also reported that he had communic
Cleveland the view
Chairman Van Buskirk of the Federal Reserve Bank of
service of
stated by the Board at yesterday's meeting concerning the
Pittsburgh Branch,
John T. Ryan, Jr., as Chairman of the Board of the
and that Mr. Van Buskirk was in agreement with that view.
Chairman Van Buskirk
Governor Balderston stated that when he informed
that the Board had approved the reappointment of Messrs. Fulton and Thompson
as President and First Vice President of the Cleveland Bank for five-year
terms beginning March 1, 1961, Mr. Van Buskirk stated that Messrs. Fulton
s
arQ Thompson previously had informed the Board of Director that they
Plaaned to retire upon reaching age 65, which would occur within the fiveperiod, and that this would be reflected in the minutes of the Bank.
;
1-
-8-
1/26/61
In reply to a question, Chairman Martin stated that, according
to his information, the reappointment of Mr. Koppang as First Vice
President of the Federal Reserve Bank of Kansas City for a five-year term
ding with
beginning March 1, 1961, was not made subject to any understan
regard to resignation upon attaining age 65, which age Mr. Koppang would
attain within the five-year period.
The meeting then adjourned.
L,
Sec4e
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON 25. D. C.
Item No. 1
1/26/61
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
January 26, 1961
Board of Directors,
Wachovia Bank and Trust Company,
Winston-Salem, North Carolina.
Gentlemen:
Pursuant to your request submitted through the
Federal Reserve Bank of Richmond, the Board of Governors
of the Federal Reserve System approves the establishment
by Wachovia Bank and Trust Company, Winston-Salem, North
Carolina, of a branch in the Golden Gate Shopping Center
at the intersection of Cornwallis Drive and Church Street
in Greensboro, North Carolina, provided the branch is
established within six months from the date of this letter.
Very truly yours,
(signed) Elizabeth L. Carmichael
Elizabeth L. Carmichael,
Assistant Secretary.
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON 25, D. C.
Item No. 2
1/26/61
ADDRESS orriciAL CORRESPONDENCE
TO THE BOARD
January 26, 1961
Mr. J. E. Denmark, Vice President,
Federal Reserve Bank of Atlanta,
Atlanta 3, Georgia.
Dear Mr. Denmark:
This refers to the question raised in correspondence
Previously exchanged in connection with a possible violation of
section 3 of the Bank Holding Company Act of 1956 by Hamilton
National Associates, Inc., Chattanooga, Tennessee (hereafter
"Associates"), in reference to its August 171 1959, acquisition
Of additional shares of stock in The First National Bank of Loudon,
Loudon, Tennessee (hereafter "Loudon Bank"), without prior approval
of the Board of Governors.
A study has been made of your letters of September 28 and
October 5, 1960, and the letter of October 4, 1960, addressed to you
by D. H. Holloway, Secretary-Treasurer of Associates, together with
Associates! Registration Statement of November 1956 and its Annual
Reports for the years 1956 through 1959. From these materials, it
ePpears that on November 13, 1956, the date of Associates' execution
Of its Registration Statement, Associates owned or controlled
453 shares of the 500 outstanding shares of Loudon Bank. This included the 243 shares shown by Associates to be directly owned by
lt, plus 10 shares then held by la^. D. S. Zachry, Secretary Treasurer and Director of Associates. It appears further that the
10 shares, held by Er. Zachry at the date of Associates' execution
of its Registration Statement, were held by him in order to qualify
him as a director of the Loudon Bank. The information furnished
suggests that these 10 shares were later re7istered in the name of
I/1r. H. M. Nacey in order to qualify him as a director of the Loudon
Bank, apparently succeeding iJr. Zachry in that office. According
Your letter of September 28, 1960, the circumstances attending
Zachry's holding of these shares wore made known to you during
the course of a discussion with la,. Zachry conducted at the time
Associates' application for a voting permit was beinr, processed by
'i°ur
s
Bank. According to your recellecton,-Nr. Zachry stated that
BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
1Ir, J. E. Denmark
-2-
the 10 shares held in his name "'belonged to the Associates and that
they were in his [Zachry] name only to enable him to qualify as a
director" of the Loudon Bank. Er. Zachry stated further that upon
hls retirement, these shares would be returned to Associates.
On the basis of these facts, it appears that at all times
Subsequent to November 13, 1956, Associates owned or controlled more
than 50 per cent of the outstanding shares of Loudon Bank. At the
latter date, Associates held 253 (rather than 243) of the 500 shares
outstanding. This percentage of ounership obtained until sometime
cluring 1959 when, as reported at year-end, Associates increased its
otTnership to 771 (rather than 751) of the 1,500 outstanding shares of
Laudon Bank, reflecting receipt of an additional 243 shares as a re• 1t of a stock dividend during 1959 and purchase of an additional
265 Shares durin,, 1959. It would appear that Associates should have
reported ownership or control of 771 of 1,500 outstanding shares which
llould have included the 10 shares originally held by 1.1r. Zachry and
110 additional shares issued with respect thereto, in connection with
h• e aforementioned 100 per cent stock dividend issued in 1959.
According to Er. Holloway's letter of October 4, Associates
has authorized an amendment to its Annual Reports for the years 1956
_
through 1958 to reflect its control of the 10 shares in question, as
?la as its control of shares similarly held in the Hamilton National
Norristown, Tennessee. These Reports will be amended accordingly.
'n• e same amendment will be made in Associates' Registration Statement.
Concerning Associates' 1959 Annual Report, Associates has
Ftate,
u that the authorized amendment would not be applicable. Your
le
ter of September 20, 1960, concurs in this conclusion. Although
Associates does
not identify the basis for its conclusion in this rein the absence of evidence that Associates no longer controls
,ue shares held by the Loudon Bank director as qualifying Shares, the
;
equirement to report such shares in Paragraph
IE, Schedule D, Form F.
Y-6, would continue. Nothing in the information available to the
nvd suggests that there has been any change in the manner in which
s ese Shares have been held since November 1956. Accordingly, Associates
ijuld be advised that the amendment authorized appears applicable to
cos 1959 Annual Report and to all Annual Reports filed while Associates'
Iltrol of these shares continues.
Z
In view of Associates' admission as to ownership or control
.
40 maJority
of the shares of Loudon Bank, the Board's approval of its
Ouisition of 265 dhares of Loudon Bank in August 1959 was not reIt will be appreciated if you will transmit to Associates the
"'Lance of any portion of this letter considered necessary.
Very truly yours,
(Signed) Merritt Sherman
Merritt Sherman,
Secretary.
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON 25. ID. C.
Item No. 3
1/26/61
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
January 26, 1961
MI% Alonzo G. Decker, Jr.,
Chairman of the Board and
Federal Reserve Agent,
Pederal Reserve Bank of Richmond,
Richmond 13, Virginia.
13ear Mr. Decker:
of
In accordance with the request contained in your letter
of
ment
appoint
the
s
approve
anuary 12, 1961, the Board of Governors
Mr. T
te Assistant Federal Reserve Agent
„. (J. Franklin Wilson as Alterna
succeed Mr. John E. Mallory, Jr.
.*I'L the Federal Reserve Bank of Richmond to
Mr. Wilson
This approval is given with the understanding that
141.11 be solely responsible to the Federal Reserve Agent and the Board
c) Governors for the proper performance of his duties, except that,
clf
vuring the absence or disability of the Federal Reserve Agent or a
8cancy in that office, his responsibility will be to the Assistant
,
ved era). Reserve Agent and the Board of Governors.
as Alternate
When not engaged in the performance of his duties
l of
approva
the
with
may,
Wilson
s
488i tant Federal Reserve Agent, Mr.
"e Federal Reserve Agent and the President, perform such work for the
13
nt
panic as will not be inconsistent with his duties as Alternate Assista
ederal Reserve Agent.
informed of
It will be appreciated if Mr. Wilson is fully
the
staff of the
the
pm 4mPortance of his responsibilities as a member of
dence
indepen
of
era1 Reserve Agent and the need for maintenance
ibilities.
these
respons
''°n1 the operations of the Bank in the discharge of
of this
It is noted from your letter that, upon approval
the usual
execute
will
?intment by the Board of Governors, Mr. Wilson
ve date'
effecti
the
showing
of of Office which will be forwarded to us
he appointment.
Z
Very truly yours,
(Signed) Merritt -;11.erman
Merritt Sherman,
Secretary.
11227:mommimml
BOARD OF GOVERNORS
OF THE.
FEDERAL RESERVE SYSTEM
Ite
WASHINGTON 25, D. C.
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
January 26, 1961
Mr. M. H. Strothman, Jr.,
Vice President and General Counsel,
Federal Reserve Bank of Minneapolis,
Minneapolis 2, Minnesota.
Dear Mr. Strothman:
12,
Reference is made to your letter of January
for
coverage
al
-surgic
hospital
1961, advising of expanded
underwritten
officers and employees of the Helena Branch
.
by the Montana Physicians Service
of
The Board of Governors approves the program
d in
describe
as
t,
contrac
increased benefits under the new
ds
two-thir
of
Branch
the
your letter) and the absorption by
th.
therewi
of the premium cost in connection
Very truly yours,
(Signed) Merritt Sherman
Merritt Sherman,
Secretary.
Item No.
5
1/26/61
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
IA,
APPLICATION BY FIRSTAMERICA CORPORATION, LOS ANGELES, CALIFORN
FOR PRIOR APPROVAL OF ACQUISITION OF VOTING SHARES OF
FIRST WESTERN BANK AND TRUST COMPANY
STATEMENT
a
Firstamerica Corporation, Los Angeles, California,
bank holding company, has applied, pursuant to section 3(a)(2) of
the Bank Holding Company Act of 1956 (12 U.S.C. 1342(a)(2)), for
the Board's prior approval of the acquisition of shares of voting
stock of First Western Bank and Trust Company, Los Angeles,
California, a proposed new bank (hereinafter called "New Bank").
Views and recommendations of Superintendent of Banks of
2E41'ornia
As required by section 3(b) of the Act, the Board
Cave notice of the application to the Superintendent of Banks for
the State of California, since New Bank will be a State-chartered
bank.
The Superintendent of Banks concluded that the proposed
acquisition would be in the public interest and recommended approval.
Statutory factors.
Section 3(c) of the Act requires the
Board to take into consideration the following five factors: (1) the
financial history and condition of the holding company and banks
concerned; (2) their prospects; (3) the character of their manageMerit, (4) the convenience, needs, and welfare of the communities
-2and area concerned; and (5) whether or not the effect of the
acquisition would be to expand the size or extent of the bank
holding company system involved beyond limits consistent with
adequate and sound banking, the public interest, and the preservation of competition in the field of banking,'
Discussion.
Measured by the magnitude of its own
resources and those of its subsidiary banksj Firstamerica is the
largest bank holding company in the United States. It owns a
rnajority of the stock of 24 banks, situated in the 11 western
States. These banks operate through some 430 offices, and their
aggregate deposits at the beginning of 1960 were about $4.6 billion.
In the State of California, Firstamerica now controls
t140 banks--California Bank, with about 70 offices and deposits of
31.2 billion, and First Western Bank and Trust Company, with about
110 offices and deposits of •A.1 billion.* (It should be noted that
First Western Bank and Trust Company, San Francisco, the existing
bank, is not the same institution as the New Bank.) The offices
and operations of California Bank are concentrated in the Los Angeles
area, whereas First Western Bank and Trust Company operates not
°Q.,Y in San Francisco but also in Los Angeles and a number of other
Cities and towns in California.
Prior to April 1, 1959, First Western Bank and Trust
eftioany was Firstamericats only California bank. At that time
Naistamerica acquired 97 per cent of the voting shares of California
These figures, and some others herein, are as of June 1960.
Dank.
This acquisition was carried out pursuant to the prior
approval of the Board of Governors under section 3(a)(2) of the
Bank Holding Company Act.
The Order of the Board in that matter
is published in 45 Federal Reserve Bulletin 134 (February 1959),
and the background and circumstances of that case are discussed
in the Statements that accompanied the Order.
When Firstamerica acquired the stock of California Bank,
it was contemplated that California Bank and First Western Bank
and Trust Company would merge to form a single institution with
resources exceeding $2 billion and more than 160 banking offices
throughout the State of California.
However, consummation of the
Proposed merger at that time was prevented by the fact that the
United States Department of Justice initiated a civil action, under
'che Sherman Antitrust Act and the Clayton Antitrust Act, with
respect to Firstamerica's acquisition of the stock of California
Pank and the proposed merger.
Following discussion of a possible consent settlement of
the pending antitrust litigation, the Department of Justice has
informed Firstamerica that the United States will dismiss its
complaint on the basis of a program under which California Bank and
First Western Bank and Trust Company will merge, and promptly
thereafter New Bank will take over and operate about 65 specified
effices of the merged bank, located in Los Angeles, San Francisco,
and other cities and towns in California.
-4of California Bank
As previously mentioned, the merger
contemplated when
and First Western Bank and Trust Company was
approval of the acquisition
Firstamerica requested the Board's prior
ion of the Board in that
of the stock of California Bank. The decis
would be followed by merger
case assumed that the stock acquisition
that the merger, as well
of the two banks, and the Board concluded
with the public
as the stock acquisition, would be consistent
interest.
approval of Firstamerica's
Since the date of the Board's
ornia Bank, section 18(c) of the
acquisition of the stock of Calif
. 1828(c)) has been amended
Federal Deposit Insurance Act (12 U.S.C
nors prior to any
to require the approval of the Board of Gover
is to be a State member bank of
merger in which the resulting bank
the case upon the merger
the Federal Reserve System, which will be
Bank and Trust Company.
of California Bank and First Western
After
of the proposed merger in the
consideration of the circumstances
on 18(c), as amended, the
light of the factors enumerated in secti
would be in the public interest
Board has concluded that the merger
and has approved its consummation.
capital for New Bank,
Principally in order to provide
antial amount of
Firstamerica proposes to incur a fairly subst
ture.
indebtedness, relative to its capital struc
However, viewed
in the light of the satisfactory financial history of Firstamerica,
it appears that the undertaking of this indebtedness will not
jeopardize that Company's sound financial condition.
It also
RIZ r;
_5_
the prospects
appears that the financial condition of New Rank,
their manageOf New Bank and Firstamerica, and the character of
ments will be satisfactory.
The Board has concluded that the
the condition or
Proposed program will not affect adversely
d bank from which
Prospects of United California Bank, the merge
New Bank is to be formed.
existing banks to form
The program of merger of the two
quent establishment
United California Bank and the immediately subse
ing banking
Of New Bank does not involve the termination of any exist
facilities.
nities prese.ray
The Board is satisfied that the commu
will continue to
served by offices of the two existing banks
lishment of New Bank,
receive, after the merger and the estab
they are now receiving.
virtually the same banking services as
tly affect the convenience,
Consequently, the plan will not significan
rned, except
needs) or welfare of the communities and the area conce
enhance the vigor of banking
insofar as the Proposed arrangement may
ornia.
competition in some cities and towns of Calif
to in preceding
In addition to the factors referred
Company Act requires the
Paragraphs, section 3(c) of the Holding
section 3(a), to take
Board, in passing upon applications under
into consideration "whether or not the effect of such acquisition...
ng company
would be to expand the size or extent of the bank holdi
ate and sound
sYstem involved beyond limits consistent with adequ
on of competition
banking, the public interest, and the preservati
it the field of banking."
-6As previously mentioned, the Board has concluded that
the merger of California Bank and First Western Bank and Trust
Company to form United California Bank would be in the public
and splitinterest, viewed as part of the entire program of Eerger
off presented in this case.
The merger would result, momentarily,
in the existence of a bank with resources in excess of $2.4 billion
and with more than 180 offices in most of the larger cities and
towns of the State.
New Bank will then be formed by separating
from the merged bank about 65 of these offices.
New Bank will
assume the deposit liabilities associated with those offices, wl-ich
aggregate slightly less than one-half billion dollars.
Its capital
structure initially will aggregate not less than $30 million and
Will be increased to not less than $38 million within 70 days after
New Bank commences operations.
After the establishment of New Bank,
the merged bank (United California Bank) will have deposit liabilities
Of $1.7 billion and a capital structure in excess of $155 million.
At the present time, banking facilities in the State of
California include two banks that operate, substantially, throughout
the State.
One of these is Bank of America National Trust and
Savings Association, with resources approaching $12 billion; the
Other is the present First Western Bank and Trust Company, with
resources of about $1.2 billion.
The merger of California Bank and
Pirst Western Bank and Trust Company, as previously mentioned, would
bring into brief existence a State-wide bank with resources of about
_7_
2.b billion.
The creatlon of New Bank, while reducing United
California's resources to alTroximately $2 billion, will establish
a third State-wide bank with offices in San Francisco,Los Angeles,
and a number of other cities and towns in California and with
assets exceeding $5C0 million.
Initially, Firstamerica will purchase and hold a large
majority of the outstanding capital stock of New Bank and will
continue to own a large majority of the stock of United California
Bank, the merged institution.
However, under the agreement between
ca will be
Firstamerica and the Department of Justice, Firstameri
Obliged, after New Bank has been in operation for two years, to seek
to terminate promptly its ownership of New Bank in a manner
of New Bank
calculated to insure the continued successful operation
after the divestiture.
In any event, Firstamerica must terminate
its ownership of New Bank within six years of the date of the Board's
Order in this matter, by distributing the stock of New Bank to the
e cannot be
stockholders of Firstamerica if satisfactory divestitur
effected in any other manner.
Consequently, the program gives
Promise that there will exist in the State of California, within
relatively few years, three banking institutions that will operate
throughout the State, only one of which will be controlled by
Firstamerica.
In the Board's judgment, this development will be
consistent with adequate and sound banking, and should contribute
tO the public interest and the preservation of competition in the
field of banking.
Conclusion.
A Notice of Receipt of Application in this
matter, which was published in the Federal Register on December 2,
1960 (25 Federal Register 12382) and corrected on December 21,
1960 (25 Federal Register 13147), afforded interested persons an
oPportunity to submit to the Board comments and views regarding
the proposed acquisition.
No comments or views have been receiw1d.
Viewing the relevant facts in the light of the general
Purposes of the Bank Holding Company Act and the factors enumerated
in section 3(c), it is the judgment of the Board that the proposed
acquisition would be consistent with the statutory objectives aud
the public interest and that the application should be approved.
January 27, 1961
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON 25, D. C.
Item NO.
6
1/26/61
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
January 301 1961
lir.Watrous H. Irons, President,
Federal Reserve Bank of Dallas,
Dallas 21 Texas.
Dear Er. Irons:
This refers to previous correspondence regarding possible
violations of the Bank Holding Company Act of 1956 ("the Act") by
C. B. Investment Corporation, Houston, Texas, hereafter referred to
for convenience as "CB". In this connection, consideration has been
given to the analyses of CB's Registration Statement of January 1957
and its Annual Reports for the years 1957 through 19591 and the information contained in the Report of Investigation prepared by Mr.
J. 0. Russell, Chief Examiner of your Bank, following a May 5, 19601
.
Investigation of CB made at the Board's request.
The principal questions presented are: (1) whether CB
Violated section 3(a)(2) of the Act by acquiring shares of stock
Of South Main State Bank, Houston, Texas ("South Main"), First
National Bank of La Porte, Texas ("La Porte"), and First National
Bank of Port Arthur, Texas ("Port Arthur"); (2) whether loans made
bY CB to individuals, between the effective date of the Act and
April 301 1960, were of such a character and of sufficient dollar
amount and number as to establish that OB was engaged in a nonbanking
business in violation of section 4(a)(2) of the Act, and (3) whether
CB has failed to report or has inaccurately reported in its Registration Statement or Annual Reports ownership or control of certain
bank shares.
In view of the extremely involved factual situations surrounding the matters hereafter discussed, and because of the familiarity of your staff with these facts, only those facts essential to a
dIscussion of the respective matters are recited. For a complete
actual presentation, your attention is directed to Ni'. Russell's
'?Port of Investigation and previous correspondence between your
zank and the Board.
5
BOARD
OF GOVERNORS
Watrous H. Irons
OF THE FEDERAL
RESERVE SYSTEM
-2.-
Section 3(a)(2) questions
On December 23, 1958, 676 shares of the stock of South
lain were purchased in the name of CB. While it is understood that
lir. henasco asserts emergency circumstances as justification for such
Purchase (i.e., the sum received by the seller, an officer of South
'lain, Was applied in restitution of a mmn embezzled by him from South
Main), such circumstances did not, in the Board's judgment, relieve
CB of the duty to obtain the Board's prior approval.. However, inasmuch as it appears that CB has now divested itself of the 676 shares,
the public interest would not seem to be served in taking any action
against CB for this violation. In the event ownership or control of
any of the 676 shares is presently retained by CB, the Board's direction as to divestment, hereafter set forth in regard to La Porte and
Port Arthur, should be followed by CB.
In July 1956 and January 1957 there were purchased in CB's
'lame a total of 1,520 snares of stock of La Porte. By subsequent sales,
GB has reduced its holding of La Porte shares to 875. On the basis of
the evidence presented by Er. Menasce concerning these purchases, the
Board is of the opinion that the purchases constituted "acquisitions!'
of stock by CB within the meaning of the Act, requiring the Board's
Prior approval. Despite the oral agreement alleged to have been entered
Into prior to the date of the Act between Mr. henasco and Ni'. Baugh,
the owner of the shares, concerning a future sale of the shares, in
the Board's judgment no sale of any of the shares was made, nor any
title to the some passed, until July of 1956.
The Shares of Port Arthur purchased by CB in January 1959,
in the name of M. T. Baugh as nominee for CB, were acquired through
the exercise of stock rights on a date subsequent to the Board's ruling
that the exercise of a stock right constitutes an acquisition of shares
within the meaning of the Act, thus requiring the Board's prior approval
(1957 F.R. Bull. 1131). Thus, the Board is of the opinion that CD's
.ociuisitian of shares of Port Arthur was in violation of the Act, despite
4r. Menascols assertion of his understanding at the time of purchase that
8uch an acquisition did not require the Board's prior approval. At most,
111'. Menascols belief or opinion may militate against a conclusion that
the purchase in CB's name constituted a willful violation within the
Purview of section 8 of the Act.
On the basis of the foregoing conclusions, CB should be advised
that, within 6 months from the date of receipt of the Board's views, it
!Ilust dispose of all shares unlawfully acquired by it in La Porte and
.ort Arthur. CB should be advised that these divestments must be made
114 good faith and that none of such shares are to be sold or transferrud
BOARD
OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
Mr. Watrous H. Irons
-3-
ed
directly or indirectly to any presently existing or later organiz
or
nominee
or acquired subsidiary or affiliate of CB, or to any agent
thereof, or to any person acting for or in behalf or subject directly
Or indirectly to the control of CB or of any of its subsidiary or
a-ffiliated banks, or of any agent or nominee thereof. Advice as to
he fact and manner of the divestments in question should be transktted to your Bank.
section
the previsions of secA determination whether, contrary to
°fl 4ka)(2) of the Act, CB has been or is engaged "in any business
o_ther than that of banking or of managing or controlling banks or of
any bank of which
furnishing services to or performing services for
shares" must
voting
the
auns or controls 25 per centum or more of
loan
transactionsinvolved.
Qe based on the circumstances attending the
of the Form F.R. Y-6
date
1,2etereen May 9, 1956, and April 30, 1960, the
,
of CB, the
gation
investi
illalance Sheet compiled following the May 5
s of the
officer
and
nolding company made advances to stockholders
1960,
30,
April
At
"InPany, and others in the amount of274,571.
te,
these
aggrega
14
the
°tes receivable aggregated W1,343. In
CB's
of
cent
per
27
:7'civances represented approximately from 12 to
1,0tal assets, variously calculated.
I./
X
been the subject of
The provisions of section 4(a)(2) have
shed interpretaunpubli
leviaus interpretations by the Board. In an
violate
would
company
s a, the Board has held that a bank holding
ce
insuran
an
with
nt
!ction 4(a)(2) if it entered into an agreeme
y
of
the
ndentl
indepe
led
17• enay whereby the agency, owned and control
in
the
agency
of
e
employe
an
41k holding company, would have located
:
the
purfor
company
holding
i)ach of the subsidiary banks of the bank
the banks. In substance,
1,ae of selling insurance to customers of
)
t(
O Boardts position was that, although the execution of the proposed
be a
ctl• 'eement would constitute but a single act, the result would
"
be
y
would
compan
holding
bank
the
continuing arrangement under which
).
4(a)(2
section
of
tions
prohibi
4 ed in a business within the
a single loan,
In another case the Board held that where
y to one of
compan
holding
bank
a
'iginally
c4,
+I
made by the president of
bank
holding
the
by
over
taken
ter
‘c7ctle companyts officers, was thereaf
of sections
prohibi
the
within
fall
timPa4Y, the transaction did not
isoan
was
loan
the
that
,
others
124 4(a)(2) for the reason, among
which
tions
transac
such
of
number
;,I.Kied transaction and not one of a
it establish a pattern of business activity.
BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
It.Watrous H. Irons
It is the judgment of the Board that the nature and
volume of the advances made by CB have been such as to compel the
conclusion that a pattern of nonbanking business activity has been
established contrary to the provisions of section 4(a)(2) of the
Act. The number and the aggregate amount of such loans, as well as
the percentage of CB's total assets that they represent, warrant the
conclusion that CB is "engaging in the business" of making loans.
Clearly, these loans cannot be said to be a part of "managing or controlling" CB's subsidiary banks or "furnishing services to or performing services for any bank" in CB's system.
Accordingly, CB should be advised that outstanding loans
are to be realized upon by CD as they fall due, and that advances of
the character and in the volume presently shown may not hereafter be
made. As previously indicated, isolated loans by a bank holding
e°mPany, not sufficient to establish a pattern of business activity
as here found, would not appear to be subject to the objections stated.
Lt_egistration Statement and Annual Reports 7 question of erroneous
t llalEL
12ELt.E.-LIELLia
The final question to be considered relates to CB's erroneous
Porting or failure to report in its Registration Statement or Annual
Ports, or both, ownership or control of shares of certain banks.
he specific circumstances in this regard with which the Board is contronted in CB's case appear to iold.uw a general pattern, to wit: shares
°f bank stock awned by CB are transferred to an individual (for
ecaaiple,"John Doe"), usually an officer or director of the bank in/1°Ived, and are thereafter registered either in nis name "as nominee"
.
1 CB, or in his name alone, it being understood that he holds such
'
shares as nominee for CB. According to the information furnished the
4 ard, it further appears that such shares usually have been given to
John Doe" to qualify him as a director of the bank, and that no
.7itten agreement exists covering the nominee relationship, that there
1.8 an oral agreement in each case between CB and the designated nominee
4,
4, to cpts ownership of the shares; and that the alleged purpose of
!
'le registration in the name of "John Doe" is to evidence to local
1e0P1e ownership by him of the shares of the bank. According to the
)
,ePort of Investigation, Mr. Menasco states, and the corporation's
uoco.
4s reflect, that all dividends on such shares are paid to CB.
T
1
Despite the obvious fact of ownership of these shares, eviced as above, CB has failed to report these shares as being awned
11 controlled by it.
'
BOARD
OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
Mr. Watrous H. Irons
-5-
A variation on the failure of CB to properly register and
report shares owned or controlled by it appears in at least two in?tances where stocks, originally owned by CB, have been registered
at the name of "John Doe, as nominee for CB", and the stocks sub8equently reported by CB in its Annual Reports to the Board as being
held as collateral to loans. Such loans are recognized as fictitious
bY the parties thereto; the loans are not considered by the makers of
the notes as their obligations.
On the basis of the circumstances set out in the Report of
Investigation, and substantially confirmed by the admissions of Mr.
Menasco, it is the Board's opinion that the names in which the shares
ill question are registered should be disregarded in determining comPliance with the registration and reporting requirements under the
&alk Holding Company Act. Schedules A and D of the Board's Form F.R.
4-6 require that CB report therein banks in which Shares are owned or
controlled, directly or indirectly. It is the Boardts judgment that
!aoh- of the shares registered in the name of "John Doc, as nominee"
18 actually owned by CB. This conclusion, supported by Mr. Menascols
admissions as to GB's ownership of certain of such shares, is also
suPPorted by the legal significance given the term "nominee" by many
courts. See Ott v. Home Savings and Loan Association, 265 F. 2d 643
cA 9, 19S8); Cisco v. Van Lew, 60 Cal. App. 2d 575, 583-584, 141
1. .,2d 433, 438 MED; Schuh Trading Co. V. Commissioner, 95 F. 2d 404,
:
p
4.1-1
(CCA 7, 1938)
As to GB's Registration Statement filed with the Board in
3 57, as well as its Annual Reports previously filed with the Board,
2
,7c1 future Annual Reports, CB Should be directed to effect such amendTents and entries as are necessary to properly reflect ownership or
.,orltrol of the shares now reported in the names of the several "John
e8" or as collateral for notes receivable. On the basis of the intc)rmation before the Board, at least the following shares have been
1,;InProperly reported or not reported at all: 100 shares of South
n.in State Bank, Houston, held in the name of David Mahood prior to
w 55; 50 shares of Lake Jackson State Bank, Lake Jackson, held by
:
h J. Keitt as of 1952; 100 shares of Crosby State Bank, Crosby, now
1,1°.14 in the name of E. F. 1/illiams; 10 shares of dallace State Bank,
G44ace, now held in the name of aeldon Humble; and the shares in
P-fgate State Bank, Houston, and Citizens State Bank, Sealy, presently
ted in CB's Annual Reports as collateral to notes receivable si3ned
41i. C. Menasco (in the case of Gulfgate) and by U. J. Keitt (in the
of Citizens). In the same connection and responsive to the in"Iry addressed to Mr. Russell of your Bank by Nr. Menasco in a letter
t
r
BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
Mr• Watrous H. Irons
-6-
a,
of May 30, 1960, the 696 shares of San Jacinto State Bank, Pasaden
Keitt,
J.
W.
of
le
now reported by CB as security for notes receivab
should be furShould be reported as owned or controlled by CB. CB
ther advised that future acceptance by it of dividends or other
d as either owned
benefits from stock not hereafter properly reporte
or controlled, may be viewed by the Board as evidence of either a
wIliful violation of the Act or noncompliance with an order of the
the
Board giving rise to the Board's referral of the matter to
ate
action.
Department of Justice for its determination of appropri
the substance
It will be appreciated if you will transmit
ate
of this letter to the C. B. Investment Corporation with appropri
Pondrom
nt
Preside
requests and instructions. In the event that Vice
or other members of your staff believe it advisable first to discuss any
ThorrEpson of the
of the above matters, they may wish to contact Andrew N.
the Board's
of
ll
O'Conne
Board's Division of Examinations and Thomas J.
Legai Division.
Very truly yours,
(Signed) Merritt Sherman
Merritt Sherman,
Secretary.
@FedFRASER