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Minutes for October 13, 1964.
To:
Members of the Board
From:
Office of the Secretary
Attached is a copy of the minutes of the
Board of Governors of the Federal Reserve System on
the above date.
It is not proposed to include a statement
with respect to any of the entries in this set of
minutes in the record of policy actions required to
be maintained pursuant to section 10 of the Federal
Reserve Act.
Should you have any question with regard to
the minutes, it will be appreciated if you will advise
the Secretary's Office. Otherwise, please initial
below. If you were present at the meeting, your
initials will indicate approval of the minutes. If
you were not present, your initials will indicate
only that you have seen the minutes.
Chm. Martin
Gov. Mills
Gov. Robertson
Gov. Balderston
Gov. Shepardson
Gov. Mitchell
Gov. Daane
S3
Minutes of the Board of Governors of the Federal Reserve System
on Tuesday, October 13, 1964. The Board met in the Board Room at 10:00 a.m.
PRESENT:
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Martin, Chairman
Balderston, Vice Chairman
Mills
Robertson
Shepardson
Mitchell
Daane
Sherman, Secretary
Broida, Assistant Secretary
Bakke, Assistant Secretary
Young, Adviser to the Board and Director,
Division of International Finance
Mr. Noyes, Adviser to the Board
Mr. Molony, Assistant to the Board
Mr. Fauver, Assistant to the Board
Mr. Hackley, General Counsel
Mr. Solomon, Director, Division of Examinations
Mr. Kakalec, Controller
Mr. O'Connell, Assistant General Counsel
Mr. Furth, Adviser, Division of International
Finance
Mr. Leavitt, Assistant Director, Division of
Examinations
Mr. Thompson, Assistant Director, Division of
Examinations
Mr. Egertson, Supervisory Review Examiner,
Division of Examinations
Mr. Lyon, Review Examiner, Division of
Examinations
Mr. Guth, Review Examiner, Division of Examinations
Mr.
Mr.
Mr.
Mr.
Report on competitive factors (New Haven-Guilford, Connecticut).
There had been distributed a draft of report to the Comptroller of the
Currency on the competitive factors involved in the proposed merger of
The Guilford Trust Company, Guilford, Connecticut, into The Second National
134.11k of New Haven, New Haven, Connecticut.
Governor Mills observed that the proposed conclusion properly
"Thasized the increase in concentration of banking resources that was
-2-
10/13/64
taking place in Connecticut, but added that another consideration meriting
attention was the gradual extinction of small independent banks resulting
from the continuing trend of mergers in that State.
Governor Mitchell
noted that an offsetting aspect of the merger trend in Connecticut was
the gradual breakdown of monopolistic control of banking within particular
geographic areas of the State, because under State law banks may establish
new offices in towns where branches of other banks are located, whereas the
head office of a bank is protected from such competition in the town which
it serves.
The report was approved unanimously for transmittal to the Comptroller of the Currency.
The conclusion read as follows:
There is virtually no existing competition between
The Second National Bank of New Haven and The Guilford
Trust Company; however, there is potential for competition between the two banks if Second National establishes
a branch in Branford, Connecticut.
While the proposed merger would eliminate the only
commercial bank headquartered in Guilford and further
increase the concentration of banking resources in the
New Haven area, it would remove the "home office protection" from the community of Guilford, thereby permitting the
entry of offices of other banks.
Mr. Egertson then withdrew from the meeting.
Application of Clayton Bancshares Corporation (Items 1-3).
Pursuant to the decision reached at the Board meeting on August 20, 1964,
there had been distributed a proposed order and statement reflecting
denial of the application of Clayton Bancshares Corporation, Clayton,
Missouri, to become a bank holding company through the acquisition of
10/13/64
-3-
shares of Bank of Crestwood, Crestwood, Missouri, and of Hampton Bank
Of St. Louis, St. Louis, Missouri.
Also distributed was a dissenting
statement by Governor Mitchell.
Issuance of the order, statement, and dissenting statement
'gas authorized, subject to certain editorial changes in the statement
suggested by Governor Balderston.
Copies of the order, statement, and
dissenting statement, as issued, are attached as Items 1, 2, and 3,
re
spectively.
Messrs. Thompson, Lyon, and Guth then withdrew from the meeting.
Availability of Federal Reserve records for historical research.
There had been distributed a joint memorandum, dated October 6, 1964, from
Messrs. Young (Adviser to the Board and Director, Division of International
Pinance) and Sherman, supplementing a memorandum of February 28, 1964, dealWith the availability of Federal Reserve records for historical research.
The October 6 memorandum reported that several conversations had
been held with the executive officers of the Social Science Research Council
/14th a view to obtaining the cooperation of that body in encouraging
scholarly use of the materials in question.
In this connection, the
sUggestion had been made, and favorably received by the Council's Executive
C°111mittee, that a conference of scholars be held under sponsorship of the
eQUncil to discuss appropriate uses of the System's historical records,
the expense of such conference to be borne by the Board.
The memorandum went on to state that the tentative assumptions
lsgarding such a conference were that it would be held in the fall of
'
-4-
10/13/64
1964 or early in 1965; that it would involve a maximum of 15 university
scholars; and that a one-day session in the Board's building would
suffice.
The expense that would be incurred by the Board for this
meeting was estimated to be not in excess of $3,500, attributable
Primarily to travel expenses of the participants.
Selection of scholars to attend the conference would be the
Council's responsibility, although special consideration would be
accorded to nominees suggested by the Board.
In commenting upon the memorandum, Messrs. Young and Sherman
expressed the view that a conference of this nature would be valuable
both from the Board's standpoint in establishing cooperative working
relationships with recognized scholars in the field of economics and
economic history, and from the point of view of staff development of
ideas for utilizing the full scope and potential of available System
materials.
There followed an extended discussion of the proposed conference,
addressed primarily to the merits thereof and to considerations of approach
and procedure, with particular attention to the question of appropriate
agenda topics.
Some suggestions also were made as to scholars who might
be asked to attend.
It was the consensus that a conference of the nature described
I./0111d be a valuable undertaking; accordingly, it was understood that
Messrs. Young and Sherman would explore the matter further and present
0
10/13/64
to the Board at a later date specific proposals for implementation of
such a meeting, based upon the comments and suggestions arising out of
the foregoing discussion.
Appeal of Board's order in the matter of Society Corporation.
Mr. O'Connell reported concerning certain developments in connection with
an appeal filed in the United States Court of Appeals for the Sixth Circuit,
seeking reversal of the Board's order of July 27,
1964,
approving the
aPPlication of Society Corporation, Cleveland, Ohio, to become a bank
holding company through the acquisition of stock of The Fremont Savings
88.nk Company, Fremont, Ohio.
On September
25, 1964,
appellant had filed a motion to stay
the Board's order and to have the Board's record in the case opened for
inspection.
The Department of Justice had thereupon filed a motion in
°P1Dosition, and Society Corporation had collaterally sought leave to
intervene in the proceeding for the purpose of filing a motion to dismiss
the appeal.
MI"'
These motions were to be argued before the Court today, and
O'Connell stated that he would inform the Board of the outcome as
8°011
as a decision was rendered.
Secretary's Note: On October 16, 1964, the Court
rendered a decision granting the Department of
Justice's motion in opposition to appellant's
motion to stay, and granted Society Corporation's
motion for leave to intervene in the proceeding.
The Court did not pass upon appellant's request
for access to the Board's record in the case, nor
did it consider Society Corporation's motion to
dismiss the appeal; these matters were set over
for disposition in connection with argument on
the merits of the appeal.
10/13/64
-6Also on October 16, 1964, Society Corporation
requested the Board for an extension of time within
which to comply with the provision of the Board's
order of July 27, 1964, regarding the date by which
the proposed acquisition was required to be consummated. By order dated October 23, 1964, the
Board extended the time in question to January 25,
1965.
The meeting then adjourned.
Secretary's Note: Pursuant to the recommendation contained in a memorandum from the
Division of Research and Statistics, Governor
Shepardson today approved on behalf of the
Board the transfer of Gloria U. Harper from
the position of Secretary in the Legal Division to the position of Secretary in the
Division of Research and Statistics, with an
increase in basic annual salary from $5,330
to $5,690, effective October 25, 1964.
3499
Item No. 1
10/13/64
SYSTEM
RESERVE
FEDERAL
BEFORE THE BOARD OF GOVERNORS OF THE
UNITED STATES OF AMERICA
WASHINGTON, D. C.
•10
In the Matter of the Application of
CLAYTON BANCSHARES CORPORATION
fer approval of action to become a bank
holding company through the acquisition of
v°ting shares of Bank of Crestwood, Crestwood,'
issouri, and Hampton Bank of St c Louis,
St. Louis, Missouri.
•••
ORDER DENYING APPLICATION UNDER
BANK HOLDING COMPANY ACT
There has come before the Board of Governors, pursuant
to section 3(a)(1) of the Bank Holding Company Act of 1956
(12 U.S.C. 1842(a)(1)) and section 222.4(a)(1) of Federal Reserve
Regulation Y (12 CFR 222.4(a)(1)), an application by Clayton Bancshares
C°T.Poration, Clayton, Missouri, for the Board's prior approval of
action whereby Applicant would become a bank holding company through
he acquisition of 58.24 per cent of the voting shares of Bank of
Crestwood, Crestwood, Missouri, and 55.98 per cent of the voting shares
(11 Hampton Bank of St. Louis, St. Louis, Missouri.
As required by section 3(b) of the Act, the Board notified
the Commissioner of Finance for the State of Missouri of the receipt
"the application and requested his views and recommendation.
The
350()
-2-
Commissioner replied but declined to express any views or to make a
recommendation respecting the application.
Notice of Receipt of Application was published in the
Pederal Register on April 7, 1964 (29 F.R. 4897), which provided an
°PPortunity for the filing of comments and views regarding the proPosed acquisition, and the time for filing such comments and views
has expired and all comments and views filed with the Board have been
considered
by it.
IT IS HEREBY ORDERED, for the reasons set forth in the Board's
Statement
of this date, that the said application be and hereby is
denied.
Dated at Ilashington, D. C., this 13th day of October, 1)64.
By order of the Board of Governors.
Voting for this action: Chairman Martin, and
Governors Balderston, Mills, and Robertson.
Voting against this action:
Absent and not voting:
Governor Mitchell.
Governors Shepardson and Daane.
(Signed) Merritt Sherman
Merritt Sherman,
Secretary.
(SEAL)
35U1_
BOARD OF GOVERNORS
Item No. 2
10/13/64
OF TUE
FEDERAL RESERVE SYSTEM
APPLICATION OF CLAYTON BANCSHARES CORPORATION, CLAYTON, MISSOURI,
FOR PRIOR APPROVAL OF ACTION TO BECOME A BANK HOLDING COMPANY
STATEMENT
Clayton Bancshares Corporation, Clayton, Missouri ("Clayton
Ba
ncshares" or "Applicant"), has filed an application pursuant to
section 3(a)(1) of the Bank Holding Company Act of 1956 ("the Act")
1.4111esting approval by the Board of Governors of a proposal whereby
Clayton Bancshares would become a bank holding company within the
Inearling of the act through the acquisition of 58 per cent of the
v°tiag shares of Bank of Crestwood, Crestwood, Missouri ("Crestwood
Batik"), and
56 per cent of the voting shares of Hampton Bank of St.
141-lis, St. Louis, Missouri ("Hampton Bank"). Applicant already owns
89
Per cent of the voting shares of Clayton Bank, Clayton, Missouri
("C
layton Bank").
The shares of Crestwood Bank and Hampton Bank
Ithich Applicant would acquire are owned, respectively, by Crestwood
/lank Shares Corporation ("Crestwood Bank Shares") and Hampton
IlsnkShares
Corporation ("Hampton Bankshares").
The three holding companies (not bank holding companies
4s defined in the Act, since each owns but one bank) are affiliated
to
'"e extent that one individual, who serves as president of each
°f the
holding companies, owns directly or indirectly 34 per cent of
the voting stock of Applicant, and a majority of the voting stock
el the other two holding companies.
As part of the proposal
-2-
APPlicant, Crestwood Bank Shares, and Hampton Bankshares
have entered into an Agreement and Plan of Merger whereby Applicant,
as the surviving corporation, would issue shares of its stock in
exchange for the outstanding shares of Crestwood Bank Shares and
Hampton Bankshares.
Views and recommendation of State supervisau authority. The banks involved in this proceeding are Missouri corporations and,
Pursuant to section 3(b) of the Act, the Board requested the views
and recommendation of the Commissioner of Finance for the State of
Missouri.
The Commissioner acknowledged receipt of the Board's
tequest but declined to express any views or make any recommendation
respecting the application.
Statutory factors. - Section 3(c) of the Act requires the
Board, in determining whether to approve a proposal, to consider the
following factors: (1) the financial history and condition of the
Proposed holding company and the banks concerned; (2) their prospects;
(3) the character of their management; (4) the convenience, needs,
and welfare of the communities and the area concerned; and (5) whether
the effect of the proposal would be to expand the size or extent of
the bank
holding company system involved beyond limits consistent with
dequate and sound banking, the public interest, and the preservation of competition in the field of banking.
Financial history and condition of Applicant and the
bank_
4
- The corporate affiliations previously noted necessitate
brief statement of not only Clayton Bancshares' financial history
-3-
and condition, but also those of Crestwood Bank Shares and Hampton
Bankshares.
Clayton Bancshares, the Applicant here, was organized in
December 1958 to acquire a majority of the common stock of Clayton
Bank.
Applicant's principal sources of income have been fees charged
to Clayton, Crestwood, and Hampton Banks for auditing and messenger
services, and for installment loan supervision; rental on real estate
Owned $ a substantial portion of which rental has been paid by
Clayton Bank; dividends received on the stock of Clayton Bank; and
commissions on iusurance transactions.
Crestwood Bank Shares was organized in 1957 for the purpose
of acquiring ownership of the Crestwood Bank.
As in the case of the
Applicant, Crestwood Bank Shares' income has been derived principally
from charges assessed against the three affiliated banks for advertising services; commissions on insurance policies written in connection with banking transactions involving Crestwood Bank customers;
and dividends on stock of the Crestwood Bank.
In most cases, the
banks have participated in joint advertisements for the stated
reason that preferred rates are obtained in view of the large
volume of advertising flowing from joint promotions.
Hampton Bankshares was organized in 1957 for the purpose of
establishing and controlling Hampton Bank, Hampton Bankshares'
PrinciPal sources of income have been dividends on stock of Hampton
Bank; service charges earned on central supply transactions involving
Purchasing, storing, and disbursement of all major items of supplies
3504
-4and equipment to each of the three banks involved; commissions on
insurance transactions; and rental on real estate owned.
Applicant has submitted a pro forma balance sheet as at
December 31, 1963, which combines the balance sheets of the three holding companies. Analysis of the assets and liabilities and net worth
P°8iti0ns of the three companies, and a study of their respective
oPerating histories, reflect a reasonably satisfactory financial
history and condition as to each.
Hampton Bank, having commenced business in November 1955,
is the oldest and largest of the three banks involved in this appli1/
cation and, at December 20, 1963,
held total deposits of $26 million.
Clayton Bank, established in June 1959, has total deposits of $17 million. Crestwood Bank, opened for business in April 1958, has total
dePosits of $12 million. Despite the relatively recent organization of
each of these banks, their respective rate of deposit growth has been
substantial. Such growth in deposits, attended by other satisfactory
°Perating conditions and features, would ordinarily constitute an
indicia of sound and satisfactory financial history and condition.
11°14evar, with respect to each of the three banks here involved, while two
Of them have effected additions of capital through the sale of additional
t°°k, in none of the banks has the increase in capital been commensurate
Ilith growth in deposits and, at present, it appears that the financial
P°8ition of each bank would be strengthened by additional capital.
1/
Unless otherwise indicated, all banking data noted are as of this date.
d;rm
fr‘
k
-5-
The existing need for additional capital in these banks is the
apparent result of a reluctance on the part of the holding companies,
and to a certain extent on the part of the banks, to sell additional
stock, and the use of operating income of the banks for the payment
Of dividends and certain operating expenses, when such income might
Otherwise have been retained to augment the capital of the banks.
The sums paid by the three banks for advertising, auditing,
messenger
services, installment loan supervision, and supplies appear
to the
Board to be excessive in relation to the cost encountered in
suPPlying these services.
Advertising for all three banks is handled
by Crestwood Bank Shares.
With certain minor exceptions, supplies are
Purchased for all three banks by Hampton Bankshares.
messenger
Auditing and
services, and installment loan supervision, for all three
banks are provided by Clayton Bancshares.
While it is conceivable
that these services provided by an unaffiliated supplier or suppliers
14°n1d have resulted in an equal or greater profit than that realized by
he affiliated corporations here involved, the Board is of the opinion
that profit
flowing from the transactions with the banks here involved
has been excessive in view of the fact that each of the paying banks is
maj"ity owned by one of the holding company suppliers, and that, in
turn, the three holding company suppliers are affiliated through
effective common control.
spects of Applicant and
banks. - As earlier stated,
APPlieant proposes, pursuant to an agreement of plan and merger, to
35106
-6-
consolidate the three existing holding companies, with Applicant as
the surviving corporation.
The pro forma balance sheet submitted by
of the three
APPlicant, reflecting a combination of the balance sheets
s, reexisting companies before merger except for certain adjustment
that Applicant, as the resulting holding company, would have
current assets totaling $205,000 and current liabilities of $527,000
(including a demand note payable in the amount of $500,000).
the three
In view of the aforementioned capital position of
Pr°Posed subsidiary banks, the fact that Applicant would commence
°Perations with its current liabilities exceeding its current assets
by $322,000 does not, in the Board's view, augur well for the prospects
Of the Applicant.
Nor does it enhance the prospects of the proposed
subsidiary banks for the reason that, although requested to do so,
APPlicant has failed to identify specifically the means by which the
capital needs of the three proposed subsidiary banks would be met.
The Board's concern regarding the financial impact of the proposal
uPen the three banks is not based solely upon the pro forma data
submitted by Applicant and discussed above.
It is premised in part
(3r1 hPplicant's stated intention to increase by several thousand
dollars existing service charges assessed against the banks, even
though the Applicant concedes that there will be no significant increase
in the cost to the Applicant for furnishing these services.
As earlier
11°Ced, it is the Board's view that such fees in the past have been
larce in relation to costs attributable thereto.
Obviously, the payment
-7..
3507
by each of the banks of the proposed service fees to the parent holding
company will result in a reduction in their respective retained earnings, thus precluding use of these earnings by the banks for the
augmentation of their capital structures.
Nor, contrary to the assertion of Applicant, does it appear
that necessary funds for capital augmentation will be readily available
from the Applicant itself.
Applicant has submitted a pro forma income
statement for the first full year of its operation as a bank holding
company, showing prospective retained earnings of either $13,000 or
$26,000 depending on the cash dividends that are paid by Applicant on
its common stock.
Assuming retention by Applicant of as much as
$26,000 in the way of retained earnings, the Board concludes that
APPlicant's prospective retained earnings will not constitute an assured
source of capital funds for its subsidiary banks.
Should the need for capital in the subsidiary banks be met
by Applicant through the issuance of notes or other long-term
b°rrowing, there would result, in the Board's judgment, a ratio of
debt to net worth that would render Applicant's prospective financial
condition less than satisfactory.
While the resulting ratio of
debt to net worth can be determined only with knowledge of the actual
dollar amount of capital that Applicant would supply, the Board
concludes that the raising of any substantial amount of capital by
APPlicant through the issuance of notes or through other long-term
b°rrowing would result in an unsatisfactory debt-to-net-worth ratio.
3508
Despite the indications of continued healthy growth in
the deposit structure of each of the three banks, for the following
reasons
the Board finds the prospects of both Applicant and the banks
to be less than satisfactory: (1) Applicant's current asset position
is less than favorable; (2) Applicant has failed to establish to the
Board's satisfaction that its present financial position will be
substantially improved in the foreseeable future; (3) Applicant has
failed to give satisfactory assurances regarding any plan to augment
the capital structures of the proposed subsidiary banks; and (4) Applicant proposes to continue to assess against the proposed subsidiary
banlzs service charges that, in the Board's judgment, are disproportionate to related costs.
Viewed in the foregoing context, considera-
tions relating to the prospects of the Applicant and the banks
concerned are, in the opinion of the Board, substantially adverse.
Management of Applicant and the banks. - If the Board's
judgment of the management factor in this case were premised solely
On the rate of deposit growth in each of the banks involved, a finding
that management is satisfactory would be warranted.
Management
evaluation in this case, however, must be made against a broader frame
Of reference than mere increases in the banks' accounts or in their
deposits growth.
Both as to Applicant and the proposed subsidiary
banks, management appraisal requires consideration of certain existing
3509
intereorporate relationships and dealings, both past and proposed,
among the existing holding companies, the banks, and the proposed
bank holding company.
The individual who would be President of Applicant
serves as President of each of the holding companies involved,
President of Crestwood Bank, and Chairman of the Board of both
Clayton Bank and Hampton Bank.
In addition, he owns or controls,
directly or indirectly, 34 per cent of the voting stock of Clayton
Bancshares, 55 per cent of the voting stock of Crestwood Bank
Shares, and 53 per cent of the voting stock of Hampton Bankshares.
UPon consummation of Applicant's proposal, this individual would
or control 43 per cent of Applicant's voting stock.
In turn,
APPlicant would own, respectively, 89, 58, and 56 per cent of the
voting shares of Clayton Bank, Crestwood Bank, and Hampton Bank.
In addition to the aforestated interests, Applicant's proposed
president wholly owns three companies which are engaged, respectively,
in the business of writing property and casualty insurance for customers
Of the proposed subsidiary banks, writing credit life insurance on
c
ustomers of these banks, and leasing automobiles and equipment to
the banks and their holding companies.
There presently exists, and would continue following
"nsummation of Applicant's proposal, a substantial minority shareh°1der8 l interest in both Crestwood Bank and Hampton Bank.
In the
-10-
Board's opinion, these minority interests have been disadvantaged
and would continue to be disadvantaged because of the corporate
and individual relationships hereinbefore described which have
enabled the holding companies, and ultimately those who control them,
to realize financial gain that might otherwise have been realized
by the banks.
Exemplifying the practices as to which the Board is
seriously concerned is the afore-described scheme of service fees
that the banks have paid to the respective holding companies, and
to the retention by the related insurance companies, wholly owned
by Applicant's proposed President, of no less than 50 per cent of
the premiums on all insurance written on or for the banks' customers.
tlhile it is noted that under Applicant's proposal it is intended that
all insurance commissions earned would accrue for the accounts of the
subsidiary banks - a proposal far more equitable to minority stockholders than the present arrangement - the ultimate benefit to be
realized by this proposal remains in question, in view of Applicant's
further proposal that a service charge for insurance services rendered
by
Applicant will be levied against each o2 the subsidiary banks.
In sum, the Board's evaluation of the management factor
in this application, affected as it must be by the evidence relating
to the financial history and condition of Applicant and the banks
involved (including particularly the capital position of the banks a
Position attributable to the judgment and decision of management),
-11-
compels the conclusion that, in the aforementioned context, the
management policies of Applicant and the banks have been and will
be contrary to that which would warrant the Board's approval of this
the
application. This conclusion, the Board believes, best serves
interests of the banks, their minority shareholders, and the public.
Convenience, needs, and welfare of the communities and
areas concerned. - Clayton Bank is located in the City of Clayton,
the county seat of St. Louis County, approximately 10 miles west of
downtown St. Louis.
Clayton Bank's primary service area (the
area from which Applicant estimates approximately 67 per cent of
Bank's deposits of individuals, partnerships, and corporations
("IPC deposits") are derived) has an estimated population of 83,000
and is principally commercial in nature.
In addition to the Clayton
Bank, there are 10 banking offices serving the primary service area,
three of which are located therein.
Louis
Crestwood Bank, located in the City of Crestwood, St.
County, is about 14 miles southwest of downtown St. Louis.
The Bank's
Primary service area (from which an estimated 70 per cent of its IPC
an
deposits are derived) is chiefly residential in character, having
estimated population of 52,000. While but one other banking office
is located in the Crestwood Bank's primary service area, eight additional banking offices are competing in the area.
Hampton Bank is situated in the City of St. Louis,
aPProximately eight miles southwest of downtown St. Louis.
Its
-12primary service area (from which approximately 75 per cent of the
Bank's IPC deposits are derived) has a population of about 134,000.
The area is considered predominantly residential, but in the past
10 years has experienced a significant increase in business activity.
There is reason to assume
as asserted by Applicant, that within the
Primary service area of each of the three banizs, continued residential
and business expansion and development will occur. In addition to
hamPton Bank's 2 banking offices, there are 13 banking offices
serving the primary service area, 2 of which are located therein.
to
There is no evidence in the record before the Board
suggest that the major banking needs of the respective service areas
involved are not being served by existing banking offices, or
that the anticipated growth and development of these areas will
create demands for services that cannot be met adequately by existing facilities, including the three banks here involved as presently
affiliated.
Applicant proposes no immediate material change in the
nature of the services now offered by any of the three proposed
subsidiary banks, but asserts that the services now offered by
these banks would be expanded and improved in the following three
slajor respects.
First, Applicant asserts that consummation of this
Proposal will facilitate Applicant's ability to attract and keep
luslified employees, meet the personnel needs of the individual banks
-13through ease of personnel transfers, and that over-all personnel
selection, training, and placement will be improved through the
personnel
employment of a single personnel director responsible for
supervision in all the banks.
While it is conceivable that any per-
be
sonnel and management program, no matter how well developed, can
Applicant's
further improved, it has not been made readily apparent how
l selection
Proposal would substantially improve or better the personne
and placement program now in effect or potentially available in respect
to the three banks.
Secondly, Applicant asserts that the management,
result in
personnel, and operational improvements forecast would
more efficient banking services at a reduced cost to customers of
the three banks.
will
For example, Applicant states that the banks
expanded
have available automated accounting facilities, resulting in
services and reduced cost for their customers. As was conceded to
be the case in respect to Applicant's proposals regarding personnel
actions, a change from the existing corporate affiliation to single
corporate ownership of the banks could produce somewhat improved
and more efficient operating methods.
However, in view of the
coordinated scheme of control, management, and operation of the
ion, it is
three banks evidenced under the existing corporate affiliat
corporate
n°t likely that consummation of Applicant's plan for single
service
control will either produce perceptible improvement in the
3514
-14-
rendition of the banks, or reduce the cost to the banks' customers
for services rendered.
Viewing most favorably to the Applicant its
proassertions of benefits to be realized from consummation of this
posal, the Board concludes that such results are more conjectural
than real.
affiliated
Even assuming that Applicant's control of the three
banks would improve the quality and scope of services now offered by
these banks, the ultimate benefit to the customers in the areas concerned is minimized by the fact,
hereafter discussed, that these
customers presently have available numerous convenient
banking facilities.
alternative
Serving the primary service area of each of the
three proposed subsidiary banks are one or more banks considerably
larger than each of the banks proposed to be acquired.
Further, the
much larger, albeit less convenient, downtown St. Louis banks offer
to the communities involved a spectrum of bank services equal to or
greater than that which Applicant could provide through its three banks.
Thirdly, Applicant asserts that following consummation of
its proposal it would expect to be in a substantially better position
than
are the three existing holding companies to obtain equity or
borrowed capital for the purpose of providing additional capital to
the subsidiary banks. As earlier discussed, the Board is of the
°Pinion that Applicant's financial history and condition make illefforts by it to raise capital through further borrowings.
TjhLle
stock
Applicant's stock may have greater marketability than the
-150f the three existing holding companies, there is no basis for
not provide a
assuming that the stock of the existing companies would
source for raising capital.
In addition to the ability of the
their banks, the
respective holding companies to raise capital for
record reflects that as recently as 1960 and 1961, respectively,
of
Hampton Bank and Crestwood Bank raised capital through the sale
additional stock.
Applicant
As to any future program through which the
could or would sell additional stock, as earlier noted Applicant has
the
failed to give satisfactory assurances that it intends to augment
capital structures of the proposed subsidiary banks to a degree
commensurate with the deposit growth of the respective banks.
judgment
On the basis of the foregoing, it is the Board's
that while considerations bearing on the convenience, needs, and
welfare of the communities and areas concerned are consistent with
approval of the application, they lend no significant support for such
approval.
sound
Effect of proposed acquisition on adequate and
bankin
ublic interest
and bankin
corn etition. - The three pro-
Posed subsidiary banks are located in the St. Louis metropolitan
area, one in the City of St. Louis and two in St. Louis County.
Each is separated one from the other by approximately five miles.
Their primary service areas do not overlap and the business that
each of the banks draws from the service areas of the others is
and the
insignificant. Considering the distances separating the banks,
3516
-16fact that each is separated from the other by a number of competing
banks, some of which are considerably larger than any of the three
banks involved, even if the banks were unaffiliated there is little
likelihood that more intense competition between and among them would
exist in the foreseeable future.
The existing ownership and management
relationship among the three banks, of course, makes even less likely
any significant future competition.
on other
As to the probable effect of Applicant's proposal
banks competing in the areas involved, the Board concludes that consummation of the proposal would have no significant adverse effect
Upon them.
s or
No substantial change would occur in the structure
°Perational methods of the three banks as a result of Applicant's
c
ontrol.
that
No aspect of Applicant's proposal evidences changes
of
/4°11.1d significantly alter the present competitive abilities
Other banks serving the areas concerned.
At the present time the
three banks, combined, operate four banking offices and have total
deposits of $56 million. The areas served by these banks are also
served by 25 other banking offices holding total deposits of
$591 million.
y
With respect to each of the three proposed subsidiar
banks, of the banks stated by Applicant to be most directly in competition, a majority are larger.
Of the 29 banking offices serving the
Primary service areas of Clayton Bank, Crestwood Bank, and Hampton Bank
(with aggregate total deposits of $647 million), Applicant's three
banks, combined, have 14 per cent of the offices and 9 per cent of the
total deposits.
,
351
-17banks
In St. Louis City and County, Applicant's proposed
hold but 2 per cent of the deposits of all banks located therein.
d by the
Combining deposits of Applicant's banks and those controlle
°n1Y other registered bank holding company operating in the City and
County of St. Louis, 15 per cent of the banking offices and 9 per cent
°f the total deposits of all banks in that area are held by bank holding company subsidiaries.
Combining the offices operated and total
deposits held by Lipplicant's three proposed subsidiaries, and the
holding companies
banking subsidiaries of the other two registered bank
in the State, such banks hold but 2 per cent of the offices and
5 Per cent of the deposits of all banks in the State.
Approval of
APPlicant's proposal clearly would not result in an undue concentrabank holdti°n of the area's banking resources under the control of
ing companies.
The Board concludes that approval of Applicant's
Proposal would not adversely affect the preservation of banking competition in the areas concerned.
Conclusion. - Although considerations relating to the
fourth and fifth statutory factors offer no bar to approval of the
aPPlication, the several adverse considerations relating to the
banking factors, as earlier discussed, particularly the financial
ally
'°sPects and management policies of the Applicant, substanti
Pl
(41tweigh the slightly favorable aspects of the proposal.
On the basis
before the Board
°f all the relevant facts as contained in the record
the Act,
411'1 in the light of the factors set forth in section 3(c) of
3518
-18it is the Board's judgment that the transaction here proposed would
not be consistent with the public interest and that the application
should therefore be denied.
October 13, 1964.
351_9
DISSENTING STATEMENT OF GOVERNOR MITCHELL
Item No.
3
10/13/64
and
This is a case where the Board majority denies the owners
of
management of three small banks the right to adopt a simplified form
corporate
organization.
The public considerations in the fourth and
fifth factors are admittedly not a bar to approval.
Denial rests on
findings bearing on shortcomings of financial policy with respect to
caPital funds and of managerial policy with respect to the payment for
advertising, auditing, messenger, installment loan supervision, and other
contracted services.
Denial of this application will not improve the capital position
of the banks.
The desired improvement might have been effectuated had
the Board's denial order offered the possibility of future favorable
banks'
action should Applicant take appropriate steps to improve the
eaPital positions. In my opinion, there is some reason to believe that
capital additions would be facilitated by the proposed new corporate form.
The interests involved here are very closely held and although
the majority's reasoning seems to me to carry an implicit conclusion regarding the contracted services that is in the area of a conflict of
in
terest, I have found nothing in the record that supports that inference.
In summary, the denial does not rest on a finding of adverse
effects
It
will
on competition or on the convenience and needs of the community,
not change the effective control, the capital policies, or manage-
Illent of the three banks. It will only frustrate a legitimate corporate
stm 1,
for
Plxfication and intrude into matters that do not clearly call
t.egulatory intervention.
°ctober 13, 1964.
@FedFRASER