Full text of Working Papers (Federal Reserve Bank of Chicago) : Competition in Financial Services : The Impact of Nonbank Entry, Staff Study 83-1

View original document

The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.

UJ OR-K!
Federal iesarve Bank
F e d .F o o .

CA,

Philadelphia

H B

L I B R A R Y

.SlXO
J9^3 - /

L___ 1__,r~

Competition in Financial Services:
The Impact of Nonbank Entry

Harvey Rosenblum and Diane Siegel

FEDERAL RESERVE BANK OF CH ICAGO

Staff Study 83-1

Com petition in Financial Services: The
Impact of Nonbank Entry
Harvey Rosenblum and Diane Siegel

Staff Study 83-1

'■n

T A B LE O F C O N T E N T S
page
EXECU TIVE SU M M A R Y

IN T R O D U C T IO N

BACKGROUND
Citicorp Study-1974
Recent Studies
C O M P ET IT IO N IN FIN A N CIA L SERVICES: 1981-82
O verview
Consum er Credit
Credit Cards
Business Loans
Deposits

3
3
7
10
11
16
23
26
30

P O LIC Y IM P LIC A TIO N S

SU M M A R Y A N D C O N C LU S IO N S

F O O T N O T ES

REFERENCES

APPENDIX A
Accounting Data for Selected Com panies
Insurance Activities of Noninsurance-Based Com panies
APPENDIX B: C O M P A N Y SU M M ARIES
Industrial-, Com m unication-, and Transportation-Based Com panies
Diversified Financial Com panies
Insurance-Based Com panies
O il and Retail-Based Com panies
Bank Holding Com panies
Potential Entrants
APPENDIX C : THREE C H R O N O L O G IE S O N INTERINDUSTRY
A N D INTERSTATE DEVELOPM EN TS A N D THE DEVELOPM EN T
O F CASH M A N A G EM EN T P R O D U C T S : 1980-82
Introduction and O verview
Interindustry Activities
Interstate Activities
M oney M arket and Cash M anagement-Type Accounts

A1-1
A2-1

B1-1
B2-1
B3-1
B4-1
B5-1
B6-1

C1-1
C1-2
C2-1
C3-1

LIST O F TABLES AN D CH ARTS

page
Estimated Financial Service Earnings of
Nonfinanced-Based Companies

Earnings from Financial Activities, 1981

Percent of Financing in Conjunction with Sales
of Parent's Products

Total Domestic Finance Receivables of 27 Selected Companies

Top 15 Consumer Lenders

Top 15 Retail M ortgage Lenders

Top 15 Consumer Installment and Revolving Credit Lenders

Domestic A utom obile Loans Outstanding

Sources of New Consumer Installment C redit to Households

A utom obile C redit by H older

Consumer Credit Card Programs of M ajo r Card Issuers

Business Lending By Selected Nonbanking-Based Firms
and Bank H olding Companies

Top 10 Com m ercial Lenders

Top 10 Com m ercial and Industrial Lenders

Top 10 Com m ercial M ortgage Lenders

Top 15 Lessors

M o n e y M ark et Fund Assets of Selected Nonbank Institutions

Depository Institution-Broker Relationships in the Distribution
of Insured Retail Deposits

Geographic Locations of M ajo r Financial Firms
that Provide C redit: 1981

Consumer Installment Credit Held By Selected Large Bank
H olding Companies, Retailers and Consumer Durable Goods M anufacturers
at Year-End

Share of Domestic A uto Loans Outstanding and Share of New
A uto Loans Issued

Com petition in Financial Services: The
Impact of Nonbank Entry
Harvey Rosenblum and Diane Siegel

EXECUTIVE SU M M A RY

This study provides an information base that permits the measurement of
the extent of competition between the financial activities of nonbanking-based
firms and commercial banks. The study surveys the available data as of
year-end 1981 and contrasts the present-day competitive environment in finan
cial services with that of a decade ago.
The underlying purpose of the
analysis is to provide appropriate public policy recommendations.
In a study published by Citicorp a decade ago, Cleveland Christophe
outlined
the
competitive
impact
of
Sears,
General
Motors
Acceptance
Corporation, Ford Motor Credit, General Electric Credit, and seven other firms
whose traditional product lines were not financial services.
In 1972 these
nonbank companies provided significant competition to commercial banks in the
extension of consumer credit. For example, three large manufacturers provided
more consumer installment credit to households than did three large retailers
which in turn provided more consumer installment credit than the nation1s three
largest bank holding companies.
Furthermore, Sears earned more profit on its
financial activities than did any bank holding company.
This study details the financial activities of 34 major companies that
compete with commercial banks.
Included in the sample are manufacturers,
insurers, retailers, and diversified financial companies.
Their financial
activities are compared with those of the 15 largest bank holding companies and
the commercial banking system.
Among the more important findings are the following:

*Nonfinancial-based companies have continued to enter the product
lines of commercial banks.
*The pace of this entry has accelerated in both lending and
deposit-taking activities.
^Market shares in consumer installment lending have been very fluid.
In auto loans, for example, the captive finance companies of the
auto manufacturers have gained market share largely at the expense
of commercial banks.
*Banks have been very successful in the credit card business with
both Visa and MasterCard having passed Sears (which was the number
one credit card in 1972) by most conventionally used measures.

*Banks remain dominant in short-term commercial and industrial loans
but their dominance may be on the wane.
*In longer term lending to businesses, commercial banks are not
the leading institutional lenders. Commercial mortgage lending is
dominated by insurance companies, and leasing is dominated by
manufacturers and leasing companies.
*The money market funds sponsored by several of the companies in
this study have made significant inroads into the deposit base of
the nation's commercial banks.
Two policy conclusions follow from analysis of the data:
*The markets for most credit services are rapidly becoming national
in scope; the geographic market for retail deposits has recently
become national. The market for wholesale deposits had, of course,
been national for about two decades and international for about one
decade.
^Commercial banking is no longer a distinct line of commerce. That
is, in spite of the position held by the courts in the two decades
since the U.S. Supreme Court ruled on Philadelphia National Bank,
commercial banks do face significant competition from finance com
panies, manufacturers, retailers, S&Ls, mutual savings banks, and
other depository institutions.
Competition in financial services continues to increase, and there is a
changing mix of players in this game.
Further legislative changes are re
quired if all the players are to compete according to the same set of rules.

Com petition in Financial Services: The
Impact of Nonbank Entry
Harvey Rosenblum and Diane Siegel*

IN T R O D U C T IO N

Commercial banks

compete with many other

financial

institutions.

For

sources of funds, they compete with S&Ls, mutual savings banks, credit unions,
and money market funds as well as capital market instruments such as Treasury
securities, corporate securities, and other investment vehicles.

Banks also

face numerous competitors in the uses of funds, or on the asset side of their
balance sheets.

For example, they compete with S&Ls and government agencies

in home mortgage lending; with credit unions,

finance companies,

S&Ls,

and

many other lenders in consumer credit; and with commercial finance companies,
insurance

companies,

trade

creditors,

and

commercial

paper

lending

businesses.
Yet, commercial banks are the number one institutional lender to house
holds and businesses.

For many years, banks have had the largest share of the

auto loan market as well as many other types of consumer loans.
standing hegemony

of banks

in commercial

lending

to be

The long

expected

since

commercial banks were chartered originally to meet the needs of business.

*The views expressed are those of the authors and do not necessarily
represent the views of the Federal Reserve Bank of Chicago or the Federal
Reserve System.
Harvey Rosenblum is Vice President and Economic Advisor at
the Federal Reserve Bank of Chicago. Diane Siegel was a Summer Intern in the
Chicago Fedfs Research Department during Summer 1982 when most of this
research was undertaken.
She is currently completing her MBA studies at the
University of Chicago. Helpful research and editorial assistance was provided
by Christine Wabich.
The authors would like to thank Shirley Harris for her
excellent typing and for her patience as the manuscript went through several
transformations, and they would also like to thank George G. Kaufman (Loyola
University), Paul Schweitzer (Federal Reserve Board), William F. Ford (Federal
Reserve Bank of Atlanta), and Silas Keehn (Federal Reserve Bank of Chicago)
for comments on an earlier draft.

The preeminent market position of banks, however, is somewhat surprising
when one recognizes

the constraints under which they operate,

particularly

because many of their competitors, allegedly, are less constrained in a number
of ways.

Nonbank competitors, such as captive finance companies, are free to

enter or exit virtually any geographic location.

Further, many competitors

can offer both financial and nonfinancial services and products that banks are
prohibited from offering.

For example,

a business such as Sears can offer

life insurance, money market funds, shirts,

and hardware as well as retail

credit

throughout

any

its

851

retail

locations

the United

States.^-

Apparently the ability to offer life insurance and money market funds in a
department

store

setting,

least

until

1982,

did

not

confer

great

competitive advantage upon a business enterprise; if it had, Sears would not
have been alone among retailers in offering both products.
In spite of the geographic lines,

product lines,

and other regulatory

disadvantages that banks face relative to their competitors,
the largest category of financial institutions.
that banks would

extend

their preeminent

they are still

There are many who believe

position

to one

dominance

provided

regulatory restrictions on them were relaxed.
paper

This
depository

examines

institutions

in detail
(with

the

special

extent

emphasis

competition

commercial

banks)

nonfinancial institutions, or at least those whose primary line of business
activity

is primarily

nonfinancial.

In doing

so,

this

paper updates

and

amplifies a 1974 Citicorp study by Cleveland Christophe [1] which examined the
competitive incursions of unregulated nonfinancial firms into the financial
services business.

The next section reviews the literature on this subject;

section III presents and analyzes the accounting data available on the extent
of competition provided by 34 companies, most of whose main interest is not

(or has not been) financial.
(and a few others)
companies.

The financial activities of these 34 companies

are compared with the nation’s 15 largest bank holding

Important balance sheet and income data are given in Appendix A.

A brief description and history of the financial activities of the companies
that are studied are presented in Appendix B.
implications

the

findings.

Finally,

Section IV discusses the policy

section

gives

the

summary

and

conclusions.
In short,

the authors

find that the sheer size and number of nonbank

firms with substantial nationwide financial activities are impressive.
of

the

industrial

and

retailing

giants

identified

Christophe

Most

nearly

decade ago have continued to expand their role in financial activities.
addition,

these

companies

have

been

joined

by many

others.

a
In

Nonetheless,

commercial banks have managed to hold onto their market share in the provision
of

most

financial

retrenching
uniqueness

services,

others.

having

final

of demand deposits

gained

conclusion

together with

some

product

that

the

lines

erosion

increased entry

while
of

the

into many

types of lending activities by nonbank firms has made obsolete the notion that
commercial banking is a distinct line of commerce.

Further, there appears to

be considerable circumstantial evidence that the geographic market for many
financial services is now national in scope or will soon become so.

BACKGROUND

Citicorp Study-1974

It has been almost

a decade since Citicorp released its study of the

competitive inroads of unregulated firms in the financial services business.
This monograph,
view

the

authored by Cleveland Christophe

relative

importance

banks

and

[1], provided an in-depth
nonfinancial

firms

the

extension of consumer credit.

Christophe’s findings were startling to many

bankers, as few had recognized the importance of the competition represented
by firms

such as Sears and General Electric whose primary activities were

nonfinancial.

Most bankers were aware of competition from consumer finance

companies and depository institutions, but the fact that Sears had more active
charge

accounts

BankAmericard

(as

(the

1972)

predecessors

than
of

either

Master

MasterCard

disquieting to many in the banking industry.

and

Charge

National

Visa) , was

somewhat

Furthermore, Christophe revealed

that Sears had credit card volume and receivables to match its greater number
of accounts.

Moreover,

Sears earned more money after taxes in 1972 on its

financial service business than did any bank or bank holding company in the
country.
That

Sears had

such a large volume

of consumer receivables— its

$4.3

billion of credit card receivables at year-end 1972 were roughly 80 percent of
the $5.3 billion of installment credit on all bank credit cards— should not
have been
support

surprising.

its

retail

Sears

began

operations.

to provide

Most

consumer

commercial

banks

credit

1910 to

concentrated

their

lending efforts on commercial customers until the post World War II-period.
It is sometimes easy to forget that commercial banks are a ”Johnny-comelately"

the

consumer

lending

scene.

Further,

Allstate

Insurance

was

formed in 1931 to sell auto insurance and long before 1972 had begun to offer
a wide range of insurance products.

By 1972, Sears was the largest retailer

in the United States in the Fortune list.

Should Sears’ prominence in these

segments of financial services have been surprising?
Though Sears and its two large national retailing rivals, Montgomery Ward
and J.C. Penney, had combined consumer installment credit ($6.9 billion) that
exceeded the amount outstanding at the nation’s three largest bank holding

companies

(BankAmerica, Citicorp, and Chase Manhattan with $4.3 billion) by

more than 50 percent, the retailers were overshadowed by the financing arms of
three

large

manufacturers.

Through

General

Motors

Acceptance

Corporation

(GMAC), General Motors had $7.8 billion in consumer receivables at year-end
1972,

than

the

combined

total

the

three

largest

retailers.

The

combination of GMAC, Ford Motor Credit Company

(FMCC), and General Electric

Credit

receivables

Corporation

(GECC)

had

consumer

than

the

three

retailers and three largest bank holding companies combined.
Again, the role of the manufacturers in consumer lending should not have
been surprising.

GMAC began making auto loans in 1919; GECC was formed in

1932; and FMCC was founded in 1959
1928).

(though Ford began making auto loans in

GMAC and FMCC were largely captive finance companies in the true sense

of the term; that is, they provided financing primarily to enable customers to
purchase products manufactured by their parent

companies

franchised distributors.

GECC was a different story.

marketing

extension

General

financing

dealer-distributor

Electric’s

inventories

and

Though it began as a

appliance
sales

or sold by their

division,

largely

General

Electric

products to consumers, GECC’s customer orientation and profile began to change
in the early 1960s when it began to extend its commercial lending and leasing
business to finance products other than those made by General Electric.

1965, GECC expanded its position in consumer financing by offering revolving
charge

plans

to many

retail

electrical

consumer-goods

dealers.

That

same

year, GECC began experimenting with direct consumer installment lending; by
May 1972, it had expanded to 129 offices in 33 states.
In 1972, GECC accounted for less than 8 percent of General Electric’s
earnings; GMAC accounted for only 4.5 percent of General Motors’ earnings; and
FMCC, for just over 5 percent of Ford’s net income.

Although they were among

the largest consumer installment lenders in the country, the income derived
from consumer lending was still small relative to their parent manufacturers1
primary businesses•
Five other companies were highlighted
Warner,

Control

companies,

Data,

Gulf

& Western,

in the Christophe

ITT,

and

study:

Westinghouse.

Borg-

For

these

financial earnings were generally a more important percentage of

the company’s total than was true for the previously discussed manufacturers.
Unlike GECC, GMAC, FMCC, Sears, Wards, and J.C. Penney, the financial divi
sions

of Control Data,

consumer

installment

Gulf

lending.

& Western

and

ITT were

less

oriented

toward

Borg-Warner and Westinghouse derived only a

small proportion of their income from financial operations in 1972, roughly
one-tenth and one-eighth,

respectively.

But more

than half of Borg-Warner

Acceptance Corporation’s (BWAC) new business was unrelated to the sale of the
parent company’s products.

Similarly, Westinghouse Credit Corporation (WCC)

had diversified significantly to the point where only about
WCC’s wholesale

finance

business was

15 percent

the

sale

raising

the

question

of Westinghouse

products.
Christophe

concluded

his

study

whether

banking-based firms could remain an important competitive force in light of
the many advantages their nonregulated competitors enjoyed.

Among the advan

tages that nonregulated firms enjoyed were better product line breadth, new
product innovation capability, distribution capability, ease of market entry,
and financing flexibility.
banks

and bank holding

Christophe concluded that regulations applying to

companies were

overly

restrictive

and

reduced

the

ability of banking organizations to efficiently and effectively provide the
public with the financial services desired.

Scholarly discussion of Christophe’s findings and conclusions was very
limited.
First,

Greer
Greer

and

Rhoades

[7]

challenged

suggested

that

Christophe

Sears

may

look

several
like

points.

a giant

consumer finance when compared to Bank of America or Citibank but not when
compared with the entire commercial banking

industry.

Second,

they argued

that Sears’ credit card receivables had been growing at a snail’s pace when
compared with the rate of growth of bank card receivables.
banks

had

actually

increased

their

total

consumer installment loans between 1960 and 1973.
seemed

nation’s best
Rhoades

successful
business

questioned

attracting

schools.

the

Given

Christophe’s

top

these

assertions

Third, commercial

financial

assets

and

Fourth, the leading banks
M.B.A.

students

counterarguments,
that

banks

from

the

Greer

and

operated

competitive disadvantage and that deregulation was the appropriate solution.
Christophe’s response [2] was that Greer and Rhoades had missed his main point
because they had looked backwards and ignored the sheer size and penetration
of

many

nonfinancial

magnitude

similar

organizations

to top

whose

tier banks.

financial

In addition,

activities

were

Christophe argued

that

Greer and Rhoades failed to appreciate banks’ lack of flexibility to react to
the new competition.
Recent Studies

While Christophe’s findings were interesting and in some ways startling
to many bankers, the study had little immediate impact on future developments
in the financial services industry.

Around the same time that Christophe’s

study was released and shortly thereafter, a number of problems confronting
the banking
losses,

industry began to surface:

serious

difficulties.

questions
Interest

about

capital

expanding

large bank failures,
adequacy,

product

lines

and
and

massive

”affiliated

loan
REIT”

geographic markets

quickly waned, due in part to increased regulatory pressure from the Federal
Reserve

Board’s

"go

slow"

policy.

The

emphasis

banking

returned

managing the fundamentals.
It was not until 1981, following the acquisition of several very large
nonbank financial service companies by other financial and nonfinancial firms,
that studies of the role of nonfinancial firms in the financial sector began
to

reemerge.

The

combinations

that

caught

the

public’s

eye

were

the

acquisition of Bache by Prudential, Shearson by American Express, Dean Witter
Reynolds and Coldwell Banker by Sears, and Salomon Brothers by Phibro.
Citicorp continued to publicize the presence of nonfinancial firms in the
financial sector.

Two of Citicorp’s publications, Hooray for Hollywood [16]

and Old Bank Robbers Guide to Where the New Money Is [3], are slick pamphlets
produced

the

Hooray for Hollywood
Walter

Wriston

given

Citicorp/Citibank
contains
in

the

excerpts
movie

Public
from

capital

Information

speech

in November

Department.

Citicorp
1981.

Chairman

The

speech

outlined the advantages that banks’ less-regulated competitors enjoyed.
The second Citicorp study, Old Bank Robbers Guide to Where the New Money
Is, was a tongue-in-cheek attempt to convince the Willie Suttons, Bonnie and
Clydes, and Ma Barkers of the world that banks were no longer the place from
which to rob money; rather, would-be felons would do better to concentrate on
Sears, GMAC, American Express and Baldwin Piano.

The only evidence for this

assertion was a chart which showed that commercial banks offered a smaller
range of financial services than their nonbank competitors.
financial
processing,

services

were

activities

telecommunications,

and

such
travel

car

Among the list of

rental,

agencies— activities

people would not characterize as being of a financial nature.

general
that

data
most

Based on the

sparse evidence provided by Citicorp, very few people would be dissuaded from
continuing to look upon banks as being "where the money is."
While

addressing

Citicorp studies,
detailed

a narrower

range

companies

a recent article by Carol Loomis

comparison

the

financial

activities

than

the

two

[9] did give a somewhat
of

Citicorp

with

provided by American Express, Merrill Lynch, Prudential, and Sears.
to the criteria used by Loomis, Citicorp

recent

those

According

(consolidated international)

still

held the edge in assets, deposits, commercial loans, and consumer loans but
was second in revenue (behind Sears); last in money market funds (it had none
while the other four companies had a total of $54.7 billion); and engaged in
the

second

fewest

number

financial

activities

(12),

one

than

Prudential but still behind Sears with 19, Merrill Lynch with 16, and American
Express with 15.

Among the financial activities were several that Citicorp is

prohibited from entering:

real estate development, commercial and residential

real estate brokerage, executive relocation services, mortgage insurance, life
insurance,

and

casualty

insurance.

Since

the

Loomis

article

appeared,

Citicorp has been granted permission to acquire an S&L.
More

recently,

William F.

Ford

[6]

has

questioned whether

banks need to fear competition from their nonbank rivals.
retailers

Sears,

brokerage

firms

Merrill

commercial

He has argued that

Lynch,

and

insurance

companies like Prudential are diversifying into new financial services because
they have been doing poorly in many of their traditional product lines.

also argues that retailers, like most medium and small banks, need not fear
Citicorp— probably

the nation’s most

diversified banking

organization with

respect to product lines and geographic markets— as Citicorp’s recent profit
ability has not matched that of a composite regional bank.

C O M P ET IT IO N IN FIN A N CIA L SERVICES: 1981-82

To explore the prevailing degree of competition between banks and nonbank
companies, the financial activities of more than 40 major U.S.-based companies
were analyzed and compared with the 15 largest bank holding companies as of
year-end 1981 by utilizing company Annual Reports and 10-K statements filed
with the Securities and Exchange Commission.

To the extent feasible, relevant

items

statements

from

the

balance

sheet

and

income

these

firms

presented for 34 of these companies in a uniform format in Appendix A.

are
The

companies are organized into their major industry categories.
A description and history of the financial activities

(updated through

year-end 1982) of these 34 nonbank companies, as well as several others, are
given in Appendix B.

The information in the latter Appendix was taken from

company Annual Reports for various years, Christophe [1], and recent articles
that

have

Fortune,

appeared

in American Banker, Wall Street Journal, Business Week,

Moody*s Bank and Finance Manual, and other

publications believed to be reliable sources'.

current periodicals

and

Also included in Appendix B is

a description of the activities of three of the more aggressive bank holding
companies.

The geographic and product line overlaps between the bank holding

companies and many of the nonfinancial-based companies are striking.
Companies were chosen on the basis of their being the most
listed nonbanking-based competitors of commercial banks.
financial service companies are also listed.

frequently

Several diversified

Many other financial companies

(in particular, many large insurance companies) have been excluded because, as
of year-end 1981, they had demonstrated no inclination to invade the turf of
commercial

banks.

commercial

banking

maintained

Some
have

a low profile

nonfinancial
likely

been

and were

companies
omitted

therefore not

that

have

simply

begun

because

readily

to
they

identified.

invade
have
Also

discussed in Appendix B are a few companies that could easily become bank-like
entities if they were so inclined.

That they have not done so to date does

not mean that banks and other lenders are unaware of their potential to become
a major force in commercial or consumer lending or both.
No attempt was made in this paper to delineate precisely the geographic
areas served by nonbanking firms.

It should be kept in mind in interpreting

the financial statistics provided in this paper that the competitive influence
or impact of the various nonbank companies is diluted somewhat by the fact
that they compete in many different geographic and product markets.
O verview

Christophe identified ten companies whose earnings in 1972 from financial
lines

of business were impressive.

During

1972

their

net

profits

These companies are shown in Table 1.

from

financial

activities

million, six times greater than a decade earlier.

totaled

$662.2

Indeed in 1962, three of

the companies had virtually no earnings from financial activities, and four of
the

companies

had

financial

earnings

that

averaged

a mere

$0.75 million.

Within this group of ten, only General Motors and Sears would be considered
significant financiers in 1962.
By

year-end

1981,

these

ten

companies

had

profits

from

financial

activities totaling $1.73 billion, more than 2.5 times the total of a decade
earlier and considerably more than could be accounted for by inflation.

Eight

of the ten companies showed an increase in the percentage of total earnings
attributable

their

financial

Western showed a decline.

activities;

only Control Data

and

Gulf

Interestingly, the five largest New York City bank

holding companies— Citicorp, Chase Manhattan, Manufacturers Hanover, Chemical,

Table 1
Estimated Financial Service Earnings of
Nonfinancial-Based Companies

1962
M illion
dollars
B org-W arner

$0.5

C o ntro l Data

1972

Percent
of total
earnings

M illio n
dollars

1981

Percent
of total
earnings

M illion
dollars

Percent
of total
earnings

$31

18.0%

1.5%

$6.3

10.6%

nil

55.6

96.2

Ford M otor

0.4

nil

44.1

5.1

186

n .a .1

G eneral Electric

8.7

3.3

41.1

7.8

142

8.6

G en eral M otors

40.9

2.8

96.4

4.5

365

109.62

G u lf & W estern

nil

29.3

42.1

24.5

ITT

1.2

2.9

160.2

33.6

387

57.2

M arcor

nil

9.0

12.4

110

n .a .3

50.4

21.6

209.0

34.0

3855

51.1

0.9

2.0

15.2

7.6

7.8

Sears4
W estinghouse

103.0

662.2

29.2

1,732

^ o rd M otor Company had a net loss of $1,060 million in 1981.
2General M otors and consolidated subsidiaries had a loss of $15 million after taxes; however, after adding
$348 million of equity in earnings of such nonconsolidated subsidiaries as G M A C , General Motors had after-tax
net income of $333 million.
3M arcor has been acquired by M obil Oil Company. In 1981, Marcor's operating loss was $160 million.
4Sears' financial service earnings are stated before allocation of corporate expenses to its business groups. In
1981, such expenses were $103 million.
5Does not include net incomes of Dean W itter and Coldwell Banker because they w ere acquired on
December 31, 1981.
SOURCE: 1962 and 1972 data from Christophe (1974), Table III, p. 10; 1981 data from company Annual
Reports and 10-K forms.

and

Morgan— earned

activities during 1981.

similar

total,

$1.78

billion

from

their

worldwide

Companies which had 1981 profits from financial activities exceeding $200
million are shown in Table 2.

Nine of the 17 are bank holding companies, but

of the top nine, only three are bank holding companies.
If the manufacturing companies listed in Table 1 engaged solely in the

Table 2
Earnings from Financial Activities, 1981:
Manufacturers, Retailers, Diversified Finance
Companies, Insurance-Based Companies,
and Bank H olding Companies

______________ Com pany______________

Earnings

($ millions)
Prudential
Equitable Life Assurance
C iticorp
Am erican Express
Aetna Life & Casualty
BankAm erica C orp.
Chase M anhattan C o rp .
ITT
Sears
J. P. M organ & Co.
G eneral M otors
C ontinental Illinois Corp.
M anufacturers H anover C o rp .
First Interstate Bancorp
C hem ical New York C o rp .
Security Pacific C o rp .
M errill Lynch

1,576
651
531
518
462
445
412
387
3851
375
365
255
252
236
215
206
203

dears' financial service earnings are stated before allocation of corpo
rate expenses to its business groups. In 1981, such expenses were $103
million.
SOURCE: Company Annual Reports and 10-K forms, as shown in
Appendix A, infra.

financing of products manufactured by them, then we might suspect they did not
compete vigorously with commercial banks.

As shown in Table 3, several of the

so-called captive finance companies provide credit, if not to all comers, then
to a wide clientele involved in purchasing goods unrelated to their parents1
products.
1972.

This tendency to diversify the customer base has increased since

It is clear that captive finance companies have the ability to evolve

in ways not originally contemplated by the founding company.

They can and

oftentimes do take on a life of their own that is unrelated to their parents*
operations.
less

than

For example, financing of General Electric products accounts for
5

percent

GECC’s

financing

volume.

Over

percent

Table 3
Percent of Financing in Conjunction with
Sales of Parent’s Products

1972

Com pany

1981

not available

43a

less than 1

Associates/G & W

C o m m ercial C re d it/C o n tro l Data

G eneral Electric C red it C o rp .
Borg-W arner Acceptance Corp.
W estinghouse C redit Corp .

Estimated from information in Christophe (1974), pp. 48-49. As of 1973, Westinghouse stated in
its 10-K that the percentage of its parent's products financed was a "small portion" of WCC's business.
bData shown are for 1975, the earliest date available.
SOURCE: For 1972, Christophe (1974), except as noted. For 1981, Annual Reportsand 10-Kforms.

Borg-Warner Acceptance Corporation’s income and assets result from financing
other companies1 products.
clientele.

Similarly, Westinghouse Credit serves a diverse

the other hand,

several

Appendix A are much more ,!captive."

the

finance

companies

shown

Included in this category are GMAC, Ford

Motor Credit, IBM Credit, Mobil Credit and Amoco Credit Corp.
Another way

look at

the

financial

activities

the

companies is by examining their total finance receivables.

nonfinancial

These data can be

found in Appendix A and in Table 4 which ranks the companies by financing
volume.

Although

some of

the receivables

of manufacturers

such as General

Motors and Ford are derived from foreign countries, Table 4 assumes that all
such

receivables

are

generated

domestic

customers;

consequently,

the

domestic receivables of bank holding companies are used for comparison.
Table 4 illustrates
United

States.

companies,

the

that banks are not the only major lenders in the
top

companies

shown,

one is an insurance company and broker,

seven

are

bank

holding

and two are the finance

Table 4
Total Domestic Finance Receivables
of 27 Selected Companies Having Over
$5 Billion in Receivables: 1981

Com pany

Receivables
($ billions)

B ankA m erica C orp.
G eneral M otors
C iticorp
Continental Illinois Corp.
M anufacturers H anover Corp.
Prud ential/Bache/P ruC ap ital
First Interstate Bancorp
Chase M anhattan C orp.
C hem ical New York C orp .
Ford M otor
Security Pacific C orp .
W ells Fargo & Co.
First Chicago Corp.
Sears
Equitable Life Assurance
Bankers Trust New York C orp.
J. P. M organ & Co.
C ro ck e r National Corp.
G eneral Electric
Aetna Life & Casualty
Am erican Express
M ello n National Corp.
M arin e M idland Banks, Inc.
G u lf & W estern
National Steel
M errill Lynch
W alter H eller

52.0
45.1
40.6
23.7
23.1
23.0
21.3
21.2
20.3
19.5
19.2
16.1
14.5
13.8
13.7
13.0
12.9
12.7
12.3
10.8
9.5
8.1
7.9
5.9
5.9
5.1
5.1

SOURCE: Company Annual Reports and 10-K forms, as shown in
Appendix A, infra.

subsidiaries of automobile manufacturers.

Of the next 11 companies, six are

bank holding companies.
Perhaps the best way to examine the impact of nonbank entry upon banks is
to look at what has happened to competition in individual product lines.

do this we examine the competitive thrusts made by the 34 nonbank companies
listed in Appendix A into various segments of consumer and business credit.
In addition, their role in deposit markets is also examined.

Consum er Credit

At year-end

1972, the date used by Christophe,

the three largest bank

holding companies held less consumer installment credit than the three largest
nonfood retailers which in turn held less consumer installment credit than
three

large

consumer

durable

goods

manufacturers

(see

Chart

1A).

apparent in Chart IB, these rankings have changed in a number of ways.

Most

CONSUMER INSTALLMENT CREDIT HELD BY SELECT LARGE BANK HOLDING COMPANIES,
RETAILERS AND CONSUMER DURABLE GOODS MANUFACTURERS AT YEAR-END

Chart 1A

billion dollars
30

1972
20

20
$12.5

mm
mm

General Electric
-Ford Motor

JJ M i l

10
$6.9

. I _ l j _ l j ”l“ _
i i i i i r.G e n eral
i i i i i i'
;rrn i r Motors
M

3 retailers

$*■3

Chase Manhattan

ClSlSSSbl'Citicorp
Bank Am erica
3 BHCs

Chart 1B

billion dollars

-Sears

l i n'

3 manufacturers

^J.C. Penney
“ Marcor

3 manufacturers

3 retailers

billion dollars

3 BHCs

notable is the dramatic gains made by bank holding companies, whether looked
at on a worldwide

or U.S.-only basis.

acquisition of consumer

Part

of this

gain was

due to the

finance companies by BankAmerica and Citicorp,

but

most of the increase is attributable to internal growth.
Over the last decade, the consumer installment credit held by the three
large retailers grew by a factor of 2 .1; that held by the three bank holding
companies grew by a factor of 6.4

(worldwide);

manufacturers grew by a factor of 3.7.

Clearly,

and that held by the three
the bank holding companies

experienced the highest growth rate of the three groups.
Another way to examine the impact of nonbank competition in the market
for consumer credit is to rank the companies in Appendix A by their total
consumer credit outstanding.

This is shown in Table 5a for the 15 largest

Table 5a
Top 15 Consumer Lenders:*
Combined Retail Mortgage and Consumer
Installment and Revolving Loans
as of December 31,1981
($ millions)
M ortgage
Loans

G eneral M otors
B ankA m erica C o rp .
C itco rp
Sears
Ford M otor
First Interstate Bancorp
Security Pacific C orp .
Beneficial C o rp .
W ells Fargo & Co.
National Steel
G eneral Electric
Prud ential/Bache/P ruC ap ital
Am erican Express
M errill Lynch
C ro ck e r National C o rp .

Installm ent and
Revolving Credit

Total

$31,077
9,703
9,556
9,528
11,892
4,418
3,799
3,078
1,977
71
2,792
5,142
5,035
4,725
1,192

$31,077
19,899
15,481
12,358
11,892
8,743
7,632
6,863
6,583
5,930
5,252
5,142
5,109
4,725
4,546

$10,196
5,925
2,830
4,325
3,835
3,785
4,606
5,859
2,460
74
3,354

*Data for bank holding companies are domestic loans; nonbank company data are worldwide. National
Steel's loans and some of Sears' loans are those of its savings and loan subsidiaries.

SOURCE: Annual Reports and 10-K forms, as shown in Appendix A, infra.

consumer lenders.

Of the top 15, only six are bank holding companies; within

the top 5, only two are bank holding companies.

Within the narrower category

of installment and revolving credit, the same trend is evident (see Table 5c).
Of

the

top

companies;

10 in consumer
the

top

five

installment

are

GMAC,

loans,

Ford

Motor

only

four

Credit,

are

bank holding

BankAmerica

Corp.,

Citicorp, and Sears.
In spite of their impressive growth, banks have a long way to go to catch
up with their credit-granting, manufacturing rivals in the more narrow field
of auto loans.

As can be seen in Table 6 , commercial banks as a group have

the largest market share in the auto lending product line with 47 percent of
the market at year-end

1981.

This share had fallen by thirteen percentage

points from the peak reached only three years earlier in 1978.

Table 5b
Top 15 Retail Mortgage Lenders*
as of December 31,1981
M ortgage
Loans
($ millions)
BankA m erica C o rp .
C iticorp
National Steel
W ells Fargo & Co.
First Interstate Bancorp
Security Pacific Corp.
Beneficial C o rp .
C ro cke r National C o rp .
Sears
G eneral Electric C red it C orp .
Household International
Equitable Life Assurance
G ulf & W estern's Associates
Chase M anhattan C o rp .
Avco Financial Services

$10,196
5,925
5,859
4,606
4,325
3,833
3,785
3,354
2,830
2,460
1,726
1,696
1,500
1,280
1,252**

*Data for bank holding companies are domestic loans; nonbank
company data are w orldw ide. Also, National Steel's and Sears' loans are
those of its savings and loan subsidiaries.
**Slightly over $1 billion of Avco's mortgage loans are second
mortgages.

SOURCE: Annual Reports and 10-K forms, as shown in Appendix A,
infra.

Over this same

Table 5c
Top 15 Consumer Installment
and Revolving Credit Lenders*
as of December 31,1981
Installm ent and
Revolving C red it

($ millions)
$31,077
11,892
9,703
9,556
9,528
5,142
5,035
4,725
4,418
3,799
3,623
3,183
3,078
2,792
2,726

G eneral M otors
Ford M otor
B ankA m erica C o rp .
C iticorp
Sears
Prud ential/Bache/P ruC ap ital
Am erican Express
M errill Lynch
First Interstate Bancorp
Security Pacific C o rp .
M ontgom ery Ward
J.C . Penney
Beneficial C o rp .
G eneral Electric C red it C orp .
Chase M anhattan C o rp .

*Data for bank holding companies are domestic loans; nonbank
company data are worldwide.
SOURCE: Annual Reports and 10-K forms, as shown in Appendix A,
infra.

Table 6
Domestic Automobile Loans Outstanding
as of year-end: 1977-1981
1981

1980

1979

1978

■ - - $ m illio n s - - -

(■

1977
. . . --------)

G eneral M otors Acceptance C o rp .1
Percent of total

$ 28,545
23%

$ 20,298
17%

$ 17,526
15%

$ 13,519
13%

$10,999
13%

Ford M otor C red it C o .2
Percent of total

$ 10,450
8%

$ 8,977
8%

$ 7,678
7%

$ 6,527
6%

$ 5,127
6%

C h rysler Financial C o rp .3
Percent of total

1,948
2%

$ 1,742
2%

$ 1,472
1%

$ 1,728
2%

$ 1,634
2%

Total of three auto finance com panies
Percent of total

$ 40,943
32%

$ 31,017
27%

$ 26,676
23%

$ 21,774
21%

$17,760
21%

Co m m ercial banks
Percent of total

$ 59,181
47%

$ 61,536
53%

$ 67,367
58%

$ 60,510
60%

$49,577
60%

O ther
Percent of total

$ 26,307
21%

$ 24,285
20%

$ 22,319
19%

$ 19,363
19%

$15,574
19%

Total auto loans outstanding

$126,431

$116,838

$116,362

$101,647

$82,911

includes small amount of financing of other General Motors products such as trucks and tractors.
2These domestic numbers are estimates. They also include a small amount of financing of Ford’s other products.
includes Canadian and Mexican automotive receivables. The 1977 figure includes a small amount of European receivables as well.
SOURCE:

F e d e ra l R e s e rv e B u lle tin ,

company Annual Reports and 10-K forms.

1978-81 period, the share of auto loans held by the captive finance companies
of General Motors, Ford, and Chrysler had increased by 12 percentage points,
to 33 percent of the market.

GMAC alone in 1981 held $28.5 billion of auto

loans, almost one-fourth of all auto loans outstanding and double its share of
the total market just three years earlier.
By way of comparison, Bank of America was the largest auto lender among
commercial banks with

$2.2 billion of auto loans at year-end

1981,

almost

three times the total of the second largest bank in auto loans but a mere
one-thirteenth the total held by GMAC.

It should be recognized that Bank of

America’s auto loans are confined almost totally to California, while GMAC
lends throughout the United States.

Nevertheless, GMAC’s market position as

measured by loans outstanding is enormous.

(Few financial services, no matter

how narrowly the product line is defined, are characterized by this degree of
dominance by the top few firms when the geographic market is viewed as being
national.

Travelers checks and credit cards are the other exceptions.)

At year-end 1981, according to their domestic consolidated Call Reports,
the top 25 commercial banks in auto loans had $10.4 billion of such loans on
their books,

and the top 100 banks had $18.0 billion.

GMAC alone held $28.5 billion,

As mentioned above,

1.6 times the amount held by the largest 100

commercial banking auto lenders.

Ford Motor Credit held $10.4 billion,

same as that held by the 25 largest commercial banking auto lenders.

the

These

figures are somewhat biased by the de facto exit of many lenders other than
the big

three

automobile

captive

finance

business during the last few years.
soaring cost

of funds,

binding usury

companies

from

the

auto

lending

This exit has occurred because of the
ceilings

in many

states,

and use by

General Motors, Ford, and Chrysler of below-market financing rates (at times,
rates below the cost of funds) in an attempt to boost sluggish auto sales.^

This shift of market share away from commercial banks and other lenders
toward

the

auto

captive

finance

dramatically in Tables 7 and 8 .

companies

illustrated

even

In 1978, commercial banks issued 55 percent

Table 7
Sources of New Consumer Installment Credit to Households

1978
$ billion
C om m ercial banks

1981
percent

$ billion

percent

23.6

2.3

1.7

Finance com panies

9.4

13.1

C red it Unions

6.7

1.9

O th e rs**

3.4

____7

___ .9

43.1

100

19.9

100

S&Ls

Total

*Less than $0.5 billion or less than 0.5 percent.
♦♦Includes mortgage pools, mutual savings banks, federal and related agencies, state and local
governments, and other lenders. Amount of loans and percent of total is computed as a residual.
SOURCE: Luckett, [10, Table 1, p. 282].

Table 8
A utom obile Credit by H older
($ billion)

Am ount
O utstanding

Net Change
During Year

New Loans

1978

1981

1978

1981

1978

1981

C o m m ercial Banks*

60.5

59.2

10.9

- 2.4

53.0

42.8

Finance C om panies

19.9

45.3

4.7

11.0

16.5

33.5

C red it Unions

21.2

22.0

3.1

0.9

18.5

18.1

101.6

126.5

18.7

9.5

88.0

94.4

Total

♦Includes both indirect paper and direct loans.
SOURCE:

F e d e ra l R e serve B u lle tin ,

April and August 1982, Tables 1.56 and 1.57, pp. A42-A43.

of new installment debt to households; finance companies accounted for only 22
percent of such debt.

In 1981 these relative shares had reversed themselves;

commercial banks issued only 12 percent of the consumer installment debt that
year while
increased
Many

finance
finance

noncaptive,

companies
company

accounted

share,

consumer

for

however,

finance

66 percent

was used

companies

have

Not

all of

to finance auto
moved

away

from

this

loans.
small,

unsecured cash loans toward making second mortgage loans; they held at least
$13 billion of second mortgage debt at year-end 1981 [10, p. 286].

As shown

in Table 8 , the captive finance companies of the auto manufacturers reinforced
for auto loans the trends shown in Table 7 for all consumer installment loans.
This

is illustrated in percentage terms

in Chart

But as

is stated

footnote 6 , the growth of finance company market share is distorted by the
fact that the loans of finance company subsidiaries of bank holding companies

CHART 2
SHARE OF DOMESTIC AUTO LOANS OUTSTANDING
1981

1978

SHARE OF NEW AUTO LOANS ISSUED
1978

1981

are classified as finance company loans rather than bank loans.
The

inference to be drawn from this discussion is that consumer loan

markets are very fluid in the sense that the share of new loans written by any
single group of lenders can change dramatically as economic conditions change.
Households apparently care about price and service, not the name or type of
financial or nonfinancial organization selling that service.^
C re d it C ards

As of 1972, Sears held a leading position over Master Charge and National
BankAmericard in the credit card business.
illustrating

vividly

that

Christophe [1] presented a chart

Sears1 18.5 million

active

accounts were

almost

double that of its two bank card rivals, each of which had about 10 million
active accounts.

As can be seen in Table 9, Sears was also the leader in

charge volume and account balances at that time.

Table 9
Consumer Credit Card Programs of M ajo r Card Issuers

N um ber of Active Accounts
at Year-End (m illions)
Sears
M asterC ard
Visa
A m erican Express
C ustom er Charge Volum e
($ billions)
Sears
M asterCard
Visa
Am erican Express
Total Custom er A ccount Balances
at Year-End ($ billions)
Sears
M asterCard
Visa
A m erican Express

1972

1981

18.5
10.3

24.5

10.0

25.8

22.1

10.0

6.3
5.9
4.4

9.8
26.1
29.3
n.a.

4.3

6.8

2.8

12.3
15.2
4.2

2.3

SOURCE: 1981 Company Annual Reports supplemented by phone discussions.
For 1981, MasterCard and Visa data are U.S.-only, while Sears and American Express
data are worldwide. Data for 1972 are from Christophe (1974), Chart II, p. 6.

pointed

out

William

Ford

[6],

the

significantly since Christophe’s study was published.

situation

has

changed

Using 1980 data, Ford

showed both bank cards having a slight edge over Sears in number of active
accounts and a very wide edge in customer account balances outstanding.
shown in Table
volume,

a very

9, by

1981 Visa had become the undisputed leader in charge

important measure

of business

activity

because

the

income

generated from merchants’ discount fees is proportional to its charge volume.
With U.S. charge volume of $29.3 billion during the June 1980-81 period, Visa
did nearly triple the volume of Sears; in 1972, Sears’ volume was 43 percent
greater than Visa’s.
As mentioned previously, Sears’ lead in 1972 should have been expected;
Sears began offering retail credit in 1910 while the two bank cards did not
come

into existence until

the early

1960s.

Greer and Rhoades

[7, p.

62]

pointed out that ’’bank credit card balances have grown at an annual rate from
three to nine times as great as Sears’ credit card balances over the period
1969-1973.” However, this point is somewhat disingenuous since the Sears card
was in the mature or declining phase of its life cycle while the bank cards
were in a nascent, high growth phase.
Nevertheless, there is no questioning the success of the bank cards. Many
retailers have begun accepting one or both bank cards alongside their own
proprietary cards.

For example, J. C. Penney began accepting Visa in 1980 and

Mastercard in 1981.

Montgomery Ward now accepts both bank cards.

Many of the

smaller regional department store chains which formerly accepted only their
own credit cards have begun to accept the two bank cards as well as American
Express

cards.

spite

this

trend,

General

Electric

Credit

offers

revolving credit programs to department stores whereby it issues private label
credit cards and services customer accounts.

The success of Visa and MasterCard vis a vis the Sears card does not
necessarily imply a victory for banks over a nonbank competitor.
is

simple;

companies

neither
that

Visa

nor

MasterCard

license a product

are

banks.

to franchisees.

They

are

franchising

The original

franchisees

were banks, but more recently this has not been the case.
1981

Annual Report, during

1981

"311

The reason

institutions

According to Visafs

joined

proprietary members and another 571 joined as agent members.

Visa

U.S.A.

Many were thrift

institutions— 318 savings and loan associations, 28 mutual savings banks, and
98 credit

unions— who

[chose]

Visa

the vehicle

for

consumer payment powers granted to them by Congress."

exercising

the new

Some of Visa’s growth

in the last few years is attributable to the popularity of Merrill'Lynchfs
Cash Management Account, which includes a Visa card.
An alternative way to interpret the data in Table 9 is to view Visa and
MasterCard
volving
stronger.

together

installment
In

1972,

approximating

credit.

a consolidated

this

context

the bank cards were

the

banking
bank

slightly more

system

cards

look

successful

re
even

than the

Sears card by all three measures— active accounts, charge volume, and account
balances.

1981,

the

banks

had more

than

double

the number

accounts of Sears, more than five times the charge volume,

of active

and about

four

times the account balances.
The

latter

interpretation

the

validity as the first interpretation.

success

bank

cards

has

as much

Very few banks issue their own pro

prietary cards, but more banks would issue such cards if they did not have a
vested interest in Visa and MasterCard.
The fewness of credit card issuers is suggestive of significant economies
of scale in producing credit card services.

The evolution of two major bank

cards represents an efficient adaptation by the marketplace; banks generally
produce products themselves when no significant economies of scale are pre

sent.

When there are economies, banks purchase services or products from the

Federal Reserve, large correspondents, or other suppliers who can produce the
service

product

securities

safekeeping

similar

this

cheaply.

are

respect.

obvious

checks, check

Travelers
examples.

Indeed, many

banks

Charge
act

clearing,

cards

appear

franchisees

and

for

be
the

American Express card just as they do for travelers checks issued by American
Express or by a few correspondent banks.

Business Loans
Commercial banks are an important source of credit to all businesses,
large and small.

Banks have a lion's share of outstanding commercial and

industrial (C&I) loans in the United States.

As can be seen in Table 10, the

Table 10
Business Lending by Selected Nonbanking-Based Firms and
Bank Holding Companies at Year-End 1981a

Com m ercial
and Industrial
Loans

Com m ercial
Mortgage
Loans

Lease
Financing

------------ )

( ................................... ------------- $million
15 In d u strial/C o m m u n icatio n s/
Transportation^

Total
Business
Lending

39,365

1,768

14, 417b

55,550

3,602

3,054

1,581b

8,237

4 Insurance-Based

399

35,506

892b

36,797

3 Retail-Based

606

10 D iversified Financial^

15 Largest BHCs
Dom estic
International
Total, Top-15 BHCs
Dom estic O ffices, All
Insured C om m ercial Banks

—

606

—

43,972

40,328

16,890b

101,190

141,582
118,021

19,481
5,046

14,279b

175,342
123,067

259,603

24,527

14,279

298,409

327,101

120,333c

13,168

460,602

aThis table includes business lending data for 32 of the 34 companies covered in Appendix A, infra. O m itted are
two oil-based companies which had no commercial loan receivables at year-end 1981.
^Includes domestic and foreign lending and may include leasing to household or government entities,
in c lu d e s all real estate loans except those secured by residential property.
^Financing by banking and savings and loan subsidiaries has been subtracted.
SOURCE: Company Annual Reports and 10-K forms as given in Appendix A, infra., and
April 1982, p. A76.

B u lle tin ,

F e d e ra l R eserve

15 largest bank holding companies held $141.6 billion of domestic C&I loans at
year-end
companies

1981,

slightly more than triple the total held by the 34 nonbank

shown

Appendix

Nevertheless,

lenders should not be underestimated.
and

importance

nonbank

Funds that large firms raise from banks

from the money and capital markets

smaller businesses.

the

are used

to provide

loans

to many

For smaller businesses, trade credit is the most widely

used source of credit, both in terms of the percentage of firms utilizing it
as a credit source [14, Table 3] and in dollar volume

[4, Table 2].

Trade

credit is admittedly an imperfect substitute for bank credit since it cannot
be used to pay other creditors or meet employee payrolls; nevertheless,

its

importance cannot be ignored.
Those firms that supply trade credit have alternatives to short-term bank
credit; for example, nonfinancial firms had $53.7 billion of commercial paper
outstanding at year-end 1981.

In addition, nonbank financial firms had $77.4

billion of commercial paper outstanding at that time; some (unknown) portion
of this was used to provide credit to businesses.
With respect to commercial mortgages, banks are an important source of
funds but so are insurance companies.

The four insurance companies listed in

Appendix A— Prudential, Aetna Life & Casualty, Equitable Life Assurance, and
American General Corp.— had $35.5 billion of commercial mortgages outstanding
at year-end

1981;

this compares with $24.5 billion of worldwide commercial

mortgages held by the 15 largest bank holding companies.
banks dominate in lease financing.

Nor do commercial

As shown in Table 10, with $16.9 billion

of lease receivables, the 34 nonbank companies listed in Appendix A engaged in
more lease financing than the 15 largest bank holding companies.
lease receivables of those 34 companies exceeded th.

total lease receivables

of the nation’s more than 14,000 insured commercial banks.

Indeed, the

Banks
lending.
panies.

and bank holding

companies

still are

Among the top 10 commercial lenders,
This can be seen in Table 11a.

the leaders

in commercial

seven are bank holding com

In the more narrow line of commercial

and industrial loans, only General Motors ranks among the top 10; the other
nine are bank holding companies (see Table lib).

In leasing, bank holding

Table 11a
Top 10 Com m ercial Lenders:*
C om bined Com m ercial and Industrial and
Com m ercial M ortgage Loans
as of D ecem ber 31,1981
($ millions)
Com m ercial
M ortgage
Loans

C o m m ercial and
Industrial Loans

$16,187
16,442
12,862
362
14,322
10,563
9,866
10,824
10,464
37

B an kA m erica C orp .
C itco rp
Co ntin ental Illinois C o rp .
Prudential
C h em ical New York C o rp .
Chase M anhattan C o rp .
M an ufacturers H anover C o rp .
G eneral M otors
First Interstate Bancorp
Aetna Life & Casualty

$4,643
2,635
3,043
14,928
731

2,012
1,552

10,219

Total

$20,830
19,077
15,905
15,290
15,053
12,575
11,418
10,824
10,464
10,256

*Data for bank holding companies are domestic loans; data for Prudential, General Motors, and Aetna are
worldwide.

SOURCE: Annual Reports and 10-K forms, as shown in Appendix A, infra.

Table 11b
Top 10 C om m ercial and Industrial Lenders*
as of D ecem ber 31,1981
C o m m ercial and
Industrial Loans
($ millions)
C iticorp
B ankA m erica C o rp .
C h em ical New York C o rp .
C o ntinental Illinois C o rp .
G eneral M otors
Chase M anhattan C o rp .
First Interstate Bancorp
M anufacturers H anover C o rp .
Security Pacific C o rp .
First C hicago C orp .

$16,442
16,187
14,322
12,862
10,824
10,563
10,464
9,866
9,052
7,423

*Data for bank holding companies are domestic loans; data for
General Motors are worldwide.
SOURCE: Company Annual Reports and 10-K forms, as shown in
Appendix A, infra.

T a b le 11c

Top 10 Com m ercial M ortgage Lenders*
as of D ecem ber 31,1981

C om m ercial
M ortgage Loans
($ millions)
$14,928
10,219
9,357
4,643
3,043
2,635

Prudential
Aetna Life & Casualty
Equitable Life Assurance
B ankA m erica C orp .
Continental Illinois Corp.
C iticorp
Chase M anhattan Corp.
M anufacturers H anover C orp.
Transam erica C orp .
W ells Fargo & Co.

2,012
1,552
1,329
1,165

*Data for bank holding companies are domestic loans; data for the
insurance-based firms are worldwide.
SOURCE: Annual Reports and 10-K forms, as shown in Appendix A,
infra.

companies are overshadowed by their nonbank competitors.

As shown in Table

12, four out of the five top lessors are nonbank companies.

However, eight of

the top 15 lessors are bank holding companies.
Foreign banks have also added to competition in business lending during
the

last decade.

At year-end

1981,

U.S.

branches

and agencies

of foreign

banks held $31.1 billion of C&I loans to U.S. domiciled businesses (and $22.0
billion to non-U.S. addressees).
about

As can be seen in Table 10, this represents

10 percent of the amount of C&I loans

issued by U.S.

banks

to U.S.

businesses.
Three nonbank companies listed in Appendix A— Control Data’s Commercial
Credit

Corp., Merrill Lynch

Small Business Administration

and

ITT— have become

(SBA).

approved

lenders

for

the

This has increased the competition in

lending to small businesses because, prior to January 1980, SBA lending was
the sole province of commercial banks.

T ab le 12

Top 15 Lessors*
as of D ecem ber 31,1981

Lease Financing
Receivables
($ millions)
M anufacturers H anover C orp.
G eneral M otors
G eneral Electric
Ford M otor
G reyh o un d
C itico rp
B ankA m erica C orp .
C o ntro l Data
Security Pacific C o rp .
C o ntinental Illinois C orp.
C h em ical New York C o rp .
First Interstate Bancorp
Prudential
W ells Fargo & Co.
RCA

$3,601
3,209
3,019
2,088
2,044
1,883
1,813

1,211
1,195
1,123
1,117
910
892
887
706

* All data shown are w orldwide leases.
SOURCE: Annual Reports and 10-K forms, as shown in Appendix A,
infra.

Deposits
Turning

to the sources

funds

side of

the bank balance

sheets,

should be noted that substitutes for bank deposits have been around as long as
there has been a reasonably efficient
private

securities.

Treasury

bills,

secondary market
repurchase

for government

agreements

with

banks

and
or

government bond dealers, and large negotiable CDs are (imperfect) substitutes
for

bank

deposits,

including

demand

substitute, money market mutual funds

deposits.

comparatively

recent

(MMFs), grew from only a few billion

dollars in deposits in 1975 to over $230 billion of deposits by December 1982
when MMF deposits reached their peak just prior to the introduction of the
Money

Market

Deposit

Account

Institutions Act of 1982.

permitted

the

Garn-St

Money market funds, however,

Germain

Depository

had only just come

into existence when Christophe published his findings about overlaps between
banks and nonfinancial companies.
Table

13 shows

the MMF assets of the companies listed in Appendix A,

ranked by total MMF assets as of December 1, 1982.
for nearly 40 percent of all MMF assets.
with commercial bank deposits,
ranks

in deposit

These 10 companies account

If MMFs are directly competitive

then the combination of these

10 companies

size about halfway between BankAmerica and Citicorp,

nation’s two largest bank holding companies in deposits.

the

Merrill Lynch, with

MMF assets of $50.4 billion as of December 1, 1982, was roughly comparable in
size

with

Manufacturers

Hanover

and

Chase

Manhattan

which

had

worldwide

deposits of $42.5 billion and $55.3 billion, respectively, at year-end 1981.
Among the 10 companies listed in Table 13, only two, Sears and Ford, were

Table 13
M o n e y M arket Fund (M M F ) Assets of Selected Nonbank Institutions
Listed in Appendix A
D ecem ber 1,1982

Com pany

Num ber of
M M Fs

Net M M F Assets
($ billion)

50.4

15.5

Sears/Dean W itter

11.9

E. F. Hutton

7.7

P rudential/Bache

4.3

Am erican G eneral Corp .

0.4

Transam erica C orp .

0.3

Equitable Life Assurance

0.4

Aetna Life & Casualty

0.03

Ford M otor

not available

M errill Lynch
Shearso n/A m erican Express

90.9
SOURCE:

D o n o g h u e 's M o n e y F u n d R e p o rt,

December

1982.

among the companies studied by Christophe a decade ago.

Sears itself had only

about $0.5 billion in MMF assets; the remaining $11 billion of its MMF assets
were obtained through the acquisition of Dean Witter Reynolds in 1981.
Money Market Account

is not

an MMF by the usual

standards

Ford’s

as it is only

available to certain salaried employees of Ford, and investments are used to
purchase obligations of Ford Motor Credit.
In order to finance the loans extended to their customers,

few of the

nonbank companies rely to any significant extent upon deposits as a source of
funds.

(Even for the 10 companies shown in Table 13, MMFs are not a source of

funds.)

For the most part, their funds are raised in the money and capital

markets at competitive rates.
these nonbank

companies

Regulation

franchise.

Consequently,

are not,
At

the profit margins of most of

and have never been,

year-end

1981,

domestic

dependent
offices

upon

the

insured

commercial banks had $222.3 billion in savings accounts subject to a Q-ceiling
of 5.25 percent.

Alex Pollock [12] has estimated that roughly half of the

1980 profits of 31 of the 50 largest II.S. banks could be attributed to their
ability

pay

below-market

rates

savings

accounts.

The

continued

phase-out of Q-ceilings by the Depository Institutions Deregulation Committee
should

enhance

the market

position

lending

the nondepository

firms

8 9
listed in Appendix A. *
Particularly in the short time span since deposit interest rate ceilings
have been eliminated on some time and savings deposits, banks have begun to
fight back for sources of funds in a number of ways.

For example, Citibank

(South Dakota) has taken out several advertisements in the Wall Street Journal
that invite the reader to contact an account representative about rates and
other terms offered on several consumer CDs.
800

telephone

number.

Ironically,

one

Contact is available via a free
these

advertisements

appeared next to a similar ad from a money market fund.

recently

In the last year competition for deposits has

taken other new forms.

Alliances that would have been termed unholy not long ago are commonplace now.
Merrill

Lynch

has

marketed,

through

its

nationwide

network

some

475

offices, All Savers Certificates for Bank of America, Crocker National Bank,
and two S&Ls, one in Florida and another in Washington.

Merrill Lynch, the

same company that has $50.4 billion of MMF assets that purportedly compete
with bank and thrift deposits, also maintains a secondary market for retail
CDs issued by banks and S&Ls and has acted as a broker in the placement of
retail CDs
reach.
but

issued by 20 banks

and

thrifts,

thus

giving

them a nationwide

As can be seen in Table 14, Merrill Lynch is not alone in this regard

is joined

Sears/Dean

several

Witter,

companies

Shearscn/American

listed

in Appendix

Express,

and

These

Hutton.

include
Together

these four companies operate about 1,325 offices throughout the United States.
Even

rural

facilities,

locations

where

are no

farther

they

these

companies

have

than a newspaper,

advertisement and a telephone call away.

radio,

physical
TV,

office

or magazine

Thanks to Merrill Lynch, Sears/Dean

Witter, and Bache, City Federal Savings and Loan of Elizabeth, New Jersey, now
competes toe-to-toe on a nationwide basis with Bank of America for All Savers
Certificates and other retail CDs.
The market

for

funds

in denominations

greater

than

$100,000 has been

national ever since Citibank devised the negotiable certificate of deposit in
1961.

The

same

true

for

Bank-related commercial paper,

the

repurchase

agreements.

also sold in a national market,

amounted to

some $31.9 billion at year-end 1981.

market

for

large

What was true a decade ago for wholesale

deposit markets has now become true at the retail level— the deposit market is
national in scope.

T ab le 14

Depository Institution-Broker Relationships in the
Distribution of Insured Retail Deposits
As of August 1982

M ER R ILL LY N C H (475 offices)
ALL-SA V ER S C E R T IFIC A T E S for 15 thrifts nationw ide
R ETA IL C D s* for 20 banks and thrifts nationw ide including Bank of Am erica
S E C O N D A R Y M A R K E T IN R ETA IL CD s of 2 banks and 2 thrifts
91-D AY N EG O T IA B LE C D s for G reat W estern Federal Savings and Loan, B everly Hills
DEAN W IT T ER (8 Sears stores with financial center pilot program s and 320 Dean W itter offices nationw ide)
R ETA IL C D s* for 2 thrifts including Allstate Federal Savings and Loan
S E C O N D A R Y M A R K E T IN R ETA IL C D s for C ity Federal Savings and Loan, New Jersey
B A C H E (200 offices in 32 states)
ALL-SA V ER S C E R T IFIC A T E S for C ity Federal Savings and Loan
R ETA IL C D s* for C ity Federal Savings and Loan and one S&L in Los Angeles
S H E A R S O N /A M E R IC A N EXPRESS (330 dom estic offices)
A LL-SA VER S C E R T IFIC A T E S for Boston Safe-Deposit & Trust Com pany
R ETA IL C D s* for selected banks and thrifts
FID ELITY M A N A G EM E N T G R O U P (29 offices in 50 states)
A LL-SA V ER S C E R T IFIC A T E S fo r 6 banks including Security Pacific National Bank and First National Bank of Chicago
E.F. H U TT O N (300 offices in 50 states)
ALL-SAVERS C E R T IFIC A T E S for 15 regional banking com panies
ED W A R D D. JO N ES & C O M P A N Y (435 offices in 33 states)
A LL-SA VER S C E R T IFIC A T E S for M erchants Trust C o m pan y, St. Louis
M A N LEY , BEN N ETT, M c D O N A L D & C O M P A N Y (10 offices in 2 states)
A LL-SA VER S C E R T IFIC A T E S for First Federal Savings & Loan, Detroit
PAIN E W EBBER (240 offices)
ALL-SA VERS C E R T IFIC A T E S for 2 banks in C alifo rn ia, inclu din g Bank of Am erica
C H A R LES SC H W A B & C O . (offices in 38 states)
ALL-SAVERS C E R T IFIC A T E S for First N ationw ide Savings and Loan, San Francisco
THE V A N G U A R D G R O U P (offices in 50 states)
ALL-SAVERS C E R T IFIC A T E S for Bradford Trust C o m pany, Boston

*31/2-, 4-, 5-year, and zero coupon certificates of deposit.
SOURCE: Various issues of
periodicals.

A m e ric a n

Banker

and other general business

POLICY IMPLICATIONS

In 1963 the U.S. Supreme Court ruled in Philadelphia National Bank [15]
that commercial banking was a distinct line of commerce.

The ability to offer

business loans and demand deposits together with a cluster of other financial
services sets commercial banks apart from other depository and nondepository
financial

institutions.

The Supreme Court

still has not

changed

its mind

regarding the line of commerce in banking.
In 1983 the uniqueness of commercial banking as a line of commerce is
open to question.

The demand deposit monopoly disappeared long ago.

In 1972

mutual savings banks in New England innovated with NOW accounts which spread,
in

a number

different

forms,

outside

the

Northeast.

March

1980,

Congress had no choice but to codify the (retail) NOW account nationwide when
it passed the Depository Institutions Deregulation and Monetary Control Act
(DIDMCA).

denomination,
businesses,
and

high

accounts

recently,

interest

Congress

bearing

has

permitted

checking

what

accounts

for

amounts

households

small
and

thus giving legal sanction to the sweep account that technology
interest

rates

may

offered

had

already

brought

all

depository

into

existence.

institutions.

These
The

new
only

distinguishing feature between accounts is with respect to the frequency of
debits; four or more checks written against one of these accounts make it a
transaction account subject to reserve requirements.^

Demand deposits have

become a very small and unimportant source of funds for many banks, having
become a residual of compensating balances and frictional levels of deposits
that clear after preestablished presentment times.
generic

equivalents

are

offered

a wide

Demand deposits and their

variety

institutions;

the

uniqueness of demand deposits seems to have gone the way of the V-8 engine and
the vacuum tube radio.

Business loans have never been the sole province of commercial banks.

shown in Section III, banks have encountered increasing pressure from numerous
nonbank lenders in meeting the credit needs of business.

For many types of

business loans other than short-term commercial and industrial loans, banks
are no longer the dominant lender.
To argue the separateness of commercial banking as a line of commerce may
be making distinctions where there are no differences.
constituted

the

main

value

commercial

bank

The franchises that

charter

1963

when

Philadelphia National Bank was decided seem to be of little value today.
right

to issue noninterest

bearing demand deposits

and

5h percent

The

savings

accounts and to make commercial loans is not much of an advantage today.

The

combination of demand deposit powers together with commercial lending powers
does not seem to confer much advantage to banks,
savings banks already have had such powers
since

DIDMCA,

Circumstantial

and

S&Ls

evidence

obtained

suggests

(though somewhat more restricted)

similar

that

particularly since mutual

powers

commercial

banking

October
is

1982.

longer

distinct line of commerce.
Competition has also increased in consumer lending and in taking deposits
from households and other suppliers of funds.

The entry of many nonfinancial

firms into various segments of banking has heightened this competition.
The

upshot

banking— legal,
the

last

this

discussion

economic, perceived,

decade.

As a result,

that

barriers

entry

into

and real— seem to have diminished over

the number

of potential

entrants

into any

geographic market is very much greater than one would have thought a few years
ago.

Consequently,

the

severely constrained.
recent

years

Technological

the

advances

opportunity

exercise market

power

seems

to be

One important barrier to entry that has been reduced in
information
have

made

cost

advantage

national

data

of
base

incumbent
of

firms.

household

and

business credit histories available to all interested parties at a reasonable
cost.

These credit reports are provided by Dun & Bradstreet Credit Services,

and by two divisions of TRW— TRW Business Credit Services and TRW Credit Data
(see Appendix B).
Competition in financial services can no longer be measured by the role
of firms domiciled in a particular geographic area.

Many economic entities

have access to a wide range of suppliers for deposit and credit services, some
of whom are hundreds or thousands of miles away.

The opportunity to exploit

market power in such circumstances would appear to be minimal.
The

bottom

line

the

findings

this

study

that

the

line

commerce that was once called commercial banking has evolved into a new line
of

commerce,

the

provision

financial

intermediation

services.

Technological advances and long overdue statutory and regulatory changes have
blurred the distinctions between financial intermediation services offered at
the wholesale and retail levels;
businesses
services

and

households

offered

intermediation

and

banks,

services

between intermediation services offered to
government

S&Ls,

offered

and
by

entities;
finance
old-line,

between
companies;

intermediation
and

traditional

between
financial

institutions like banks and S&Ls and the services offered by the finance arms
of manufacturers

like General Motors,

General Electric,

and ITT,

retailers

like Sears, and diversified financial conglomerates like American Express.^
These companies are capable of exploiting profitable opportunities to provide
financial services when traditional suppliers fail to meet the public’s needs
at a reasonable price.

In the long run the low cost producers will survive.

The regulatory barriers that protected high cost producers have begun to be
removed; it is a matter of time before a Darwinian struggle determines the new
order of species in financial intermediation.

T ab le 15

Geographic Locations of M ajo r Financial Firms
that Provide C redit: 1981
Bank Holding Companies
O ffices

C itico rp
B ankA m erica C orp .
Chase M anhattan C orp .
M anufacturers Hanover C o rp .
C ontinental Illinois C orp.
C h em ical New York Corp .
J.P. M organ & Co.
First Interstate Bancorp
Security Pacific C o rp .
Bankers Trust New York Corp .
First Chicago C orp .
W ells Fargo & Co.
C ro ck e r National Corp .
M arin e M idland Banks, Inc.
M ello n National Corp .

States

N onbanking

40 & D .C .
40 & D .C .
15 & D .C .
32
14
23

422
360
42
471

6
13
39
4
27
16

20
135
7
19
427

Banking*
25
38
4
28
28

6
5
24
7

8
14

5
13 & D .C .

23
52
15
14
151

States

O ffice s**

6
5
not available

Other Major Creditors

A m erican Express
A m erican G en eral's C red ithrift
Financial
Avco C orp .
Beneficial C o rp .
Co ntro l Data's C om m ercial C redit
Ford M otor C red it Co.
G eneral Electric C red it C o rp .
G eneral M otors Acceptance C o rp .
G&W 's Associates First Capital C o rp .
H ousehold International
ITT
M errill Lynch
Sears

1400 Plus

24
47
36
50
50
50
50
50
47
35
50
50

545
1257
1470
900
330
480
310
670
1273
656
475
1285

*These figures are exclusive of banking branches in their home states but include offices of bank
subsidiaries.
**A vco Financial closed 539offices in 1981; Beneficial has closed 576 offices since 1980, stopped making
loans in 12 states, and sold its operations in Alabama and Tennessee; Household International closed 271
consumer finance offices in 1981; and the Associates consolidated 240 domestic offices in 1981.
SOURCE: Annual Reports and 10-K forms.

Given the above analysis, the new Justice Department guidelines seem to
be academic with respect to their application to the banking industry.
market

for many product

lines

seems

to be national,

The

and the existence of

hundreds to thousands of competitors suggests an absence of significant scale
economies,

at least with present-day technology.

checks and credit
large

cards.)

and

seems

geographic

scope

the

(Exceptions are travelers

The number of potential new entrants

increasing.
financial

Further,
activities

shown

of many

in
of

is fairly

Table
the

15,

larger

the
bank

holding companies covers a wide area and is almost as far-reaching as the
geographic coverage of many of the nonbank companies listed in Appendix A.
Other public policy problems are raised by the findings presented here.
Among

these

structure

for

problems
the

are

the

financial

definition

intermediation

the

appropriate

services

regulatory

industry.

Another

interesting question is whether the Federal Reserve should be given explicit
authority to provide wholesale payments mechanism services to all firms that
provide

financial

institutions.

intermediation

services,

not just

traditional

depository

The answers to these questions are beyond the scope of this

paper.

SUMMARY AND CONCLUSIONS
Competition from nonbanks appears to have increased in deposit taking,
business lending, auto lending, and most areas of consumer lending with the
exception of credit cards.

The preeminent position of commercial banks has

eroded somewhat in many of these product lines.
Commercial banks now enjoy few natural or regulatory advantages that set
them apart from other providers of financial intermediation services.
result,

consideration

definition.

should

given

to broadening

the

line

As a

commerce

FOOTNOTES
1.

In addition, Sears had 2,388 catalog outlets in the U.S. at year-end
1981.

More recently, J.C. Penney began offering retail financial services on an
experimental basis in five of its stores in Northern California.
This
pilot program began in December 1982 and was conducted jointly with First
Nationwide Savings Association, a subsidiary of National Steel.

In 1920, retailers and oil companies held almost four-fifths of consumer
installment credit.
At that time banks held just over 3 percent.
By
1950, banks had become the largest consumer installment lender with just
under 40 percent of the loans outstanding, well ahead of finance
companies which held about one-fourth and retailers and oil companies
which held one-fifth of consumer installment loans. For more detail, see
[11, Table 2].

Most of the financial activities of the ten companies shown in Table 1
are carried on domestically; many of the larger bank holding companies,
on the other hand, derive a significant portion of their business from
foreign activities, although the portion of profits from retail foreign
business is fairly small.
Thus, the profits of nonbanking-based com
panies and the larger bank holding companies are difficult to compare
directly.

The auto captive finance companies have a different profit orientation
than their competitors. The use of a captive finance company gives auto
manufacturers an added degree of pricing and marketing freedom not
enjoyed by the competition.
Indeed a captive finance company could, in
theory, lose money on every loan it makes provided its parent made up for
such losses in added sales volume at higher average prices.

The data are distorted somewhat by the fact that finance company
subsidiaries of bank holding companies are included with finance
companies. For example, in 1981, Citicorp held $9.6 billion of consumer
installment
loans,
$2.2 billion,
or
23 percent,
of which were
attributable to Citibank and Citibank (New York State); BankAmerica held
$9.7 billion of consumer installment loans, $6.8 billion, or 78 percent,
of which were attributable to Bank of America; and Mellon National Corp.
held $.9 billion of such loans, $.83 billion, or 87 percent, of which
were attributable to Mellon Bank. Further complicating interpretation of
the data is the tendency of some banks to sell consumer loans to their
finance company affiliate, and vice versa.7
*

In this context it should be noted that the post 1978 period, in
particular the three-year period beginning October 6 , 1979 to the pre
sent, has provided an unusual testing ground.
One desirable char
acteristic of a financial firm is that it be able to survive large
economic shocks— be it interest rate or regulatory changes or the com
bined impact of the two.
The least diversified firms, S&Ls, have not
done well in this regard.
More diversified firms like banks, auto

captive finance companies, and many diversified finance companies have
done somewhat better.
Diversification of product lines is neither a
necessary nor a sufficient condition for survival.
Rosenblum [13] has
shown that with no expansion of product lines, even S&Ls could have taken
steps to reduce the impact of interest rate changes on their net worth.
Kane [8 ] has shown how improperly priced FSLIC insurance induced S&Ls not
to immunize themselves against interest rate risk.
Eisenmenger has
argued that the real risk is political risk of unpredictable, capricious
changes in the legislative and regulatory environment [5].
It appears
that firms with little opportunity to diversify out of unprofitable
product lines have experienced greater difficulty over the last few years
than those who are less constrained. Many of the manufacturers seem to
have benefited from their presence in financial services and their
competition with banks and other lenders.

It could be argued that Regulation Q has hampered the ability of banks to
raise funds and that removal of Q-ceilings will enhance their ability to
compete for funds. However, all 15 of the bank holding companies shown
in Table 4 have long had access to nondeposit funding sources not subject
to Q-ceilings. It would seem that, at least for the larger bank holding
companies, elimination of Q-ceilings would increase the cost of funds but
not the access to funds.

Offsetting this advantage to some extent is the probability that the
phase-out of Q-ceilings will improve the ability of banks to immunize
themselves against the earnings impacts of changes in interest rates. As
shown in Rosenblum [13], by limiting the menu of maturities and interest
rates that can be paid on time and savings accounts, Regulation Q has
been an important barrier to immunization by banks and S&Ls and has
raised tremendously the interest rate risk exposure in those industries
over the last few years.

10.

11.

As of March 1983, noncorporate businesses as well as individuals are
eligible to have money market deposit accounts; however, only
dividuals, certain nonprofit corporations, and governmental units
eligible to have Super NOW accounts.1

in
are

Commercial banking and investment banking are still, for the most part,
separated by some Glass-Steagall provisions, but even these separations
are breaking down as cooperative agency relationships eliminate the need
for direct participation in underwriting.

REFERENCES
1.

Cleveland A. Christophe, Competition in Financial Services, New York:
First National City Corporation, 1974.

Cleveland A. Christophe, ’’Evaluation of ’Competition in Financial
Services:1 A Reply,” Journal of Bank Research, Spring 1975,
pp. 66-69.

Citicorp, Old Bank Robbers’ Guide to Where the New Money Is, undated
pamphlet.

Peter C. Eisemann, ’’Empirical Evidence on Sources of Business Finance,”
in The Future of the Financial Services Industry, Conference
Proceedings, Federal Reserve Bank of Atlanta, June 1981, pp. 77-84.

Robert W. Eisenmenger, ’’The Experience of Canadian Thrift Institutions,”
in The Future of the Thrift Industry, Federal Reserve Bank of
Boston, Conference Series No. 24, 1981, pp. 112-139.

William F. Ford, ’’Banking's New Competition: Myths and Realities,”
Economic Review, Federal Reserve Bank of Atlanta, January 1982,
pp. 4-11.

Douglas F. Greer and Stephen A. Rhoades, "Evaluation of A Study on
Competition in Financial Services,” Journal of Bank Research, Spring
1975, pp. 61-65.

Edward J. Kane, "S&Ls and Interest Rate Re-Regulation: The FSLIC as an
In-place Bailout Program,” in Proceedings of a Conference on Bank
Structure and Competition, Federal Reserve Bank of Chicago, 1982,
pp. 283-308.

9. Carol J. Loomis, "The Fight for Financial Turf,” Fortune, December 28,
1981, pp. 54-65.
10.

Charles Luckett, "Recent Developments in the Mortgage and Consumer Credit
Markets,” Federal Reserve Bulletin, May 1982, pp. 281-290.

11.

Richard L. Peterson, "Consumer Finance,” Financial Services: The Changing
Institutions and Government Policy, Prentice Hall, 1983
(forthcoming).

12.

Alex J. Pollock, "The Future of Banking: A National Market and Its
Implications," in Proceedings of a Conference on Bank Structure and
Competition, Federal Reserve Bank of Chicago, 1982, pp. 31-36.

13.

Harvey Rosenblum, "Liability Strategies for Minimizing Interest Rate
Risk,” in Managing Interest Rate Risk in the Thrift Industry,
Federal Home Loan Bank of San Francisco, Proceedings of the Seventh
Annual Conference, December 1982, pp. 157-180.

References (Continued)
14.

Paul R. Watro, "Financial Services and Small Businesses, Economic
Commentary, Federal Reserve Bank of Cleveland, January 11, 1982.

15.

United States v. Philadelphia National Bank, et. al., 374 U.S. 321,
10 L ed 2d 915 (1963).

16.

Walter Wriston, Hooray for Hollywood, Citicorp, November 1981.

APPENDIX A
Estimated Gross Finance Receivables and Selected Liabilities as of 12/31/81
Industrial/Communication/Transportation Based Companies

General Motors
Acceptance
_____Corp.____

Consumer Loans
Mortgage
Installment, Revolving Credit
Total
Commercial Loans
Commercial and Industrial
Mortgage
Total

—
31,077
31,077

10,824
—

10,824

Ford Motor
Credit
Company

General
Electric
Credit Corp.

^ United Fin.
CIT
Associates
Corp. of
Financial
First Capital
California
Corp. (RCA) (Gulf & Western) (Nat. Steel)
(million dollars)

11,892
11,892

2,460
2,792
5,252

971
1,392
2,363

1,500
1,742
3,242

5,378
113
5,491

3,069
962
4,031

4,097

2,447

—

4,097

—

2,447

5,859
71
5,930

—
—

—

Combined Ins.
and Finance
Subsidiaries
of ITT

ITT
Commercial
Financial
Credit Co.
Corp.
(Control Data)

698
1,235
1,933

698
1,040
1,738

630
1,293
1,923

2,417
192
2,609

1,465
192
1,657

1,395
—

1,395

Loans to Governments and
Financial Institutions

—

Other Loans

—

3,209

2,088

3,019

706

243

—

275

Total Finance Receivables

45,110

19,504

12,302

7,166

5,932

5,930

4,817

3,670

4,529

Selected Liabilities
Deposits
,
Short-Term Debt
Long-Term Debt

—
23,378
13,880

—
8,418
6,567

—
5,800
2,801

—
2,491

—
2,194
4,396

4,670
1,153
738

—
1,893
1,640

40
1,205
1,305

—
1,377
1,853

After-Tax Net Income
Finance Subsidiary
Consolidated Parent

365
333

186
(1,060)

142
1,652

42
291

12
86

387
677

56
677

50
171

>
i— *

Lease Financing

XAs of 7/31/81.
2
International banking subsidiaries not consolidated.
3
Figures stated net of unearned income.
A
Includes current portion of long-term borrowings.
SOURCE:

2,001

121

As of December 31, 1981 they had net receivables of $321 million and deposits of $303 million.
5

Includes construction lending.

Company Annual Reports and 10-K forms.
^Includes income support payment from General Electric of $13 million after taxes.
Many companies do not report their receivables exactly as shown above, so some estimation was required to put the companies on a
comparable basis. We were often assisted with our estimations by conversations with company officials.

1,211

Estimated Gross Finance Receivables and Selected Liabilities as of 12/31/81 (Cont.)

Chrysler
Financial
Corp.

Borg-Warner
Acceptance
Corp.

Consumer Loans
Mortgage
Installment, Revolving Credit
Total

1,948
1,948

235
195
430

Commercial Loans
Commercial and Industrial
Mortgage
Total

1,350
—
1,350

1,394
—
1,394

Westinghouse
Credit
Corp.

Greyhound
Financial
Group
Subsidiaries
(million dollars)

IBM
Credit
Corp.

91
91

—
—

1,521
501

—
—
—

868

2,022

—
868

IBM Corp.

—
—

4,569
—
4,569

Diamond
Financial
Holdings
(Dana Corp.)

Armco
Financial
Services

556
25
581

—
—

n.a.
83
83

36
—
36

Loans to Governments and
Financial Institutions

—

Other Loans

—

129

—

293

528

275

2,044

—

501

Total Finance Receivables

3,591

2,481

2,388

2,044

868

4,569

689

537

Selected Liabilities
Deposits
,
Short-Term Debt
Long-Term Debt

—
300
2,538

1,111

622

—
981
882

—
158
978

—
415
162

—
773
4,389

646
67
35

—
424
236

After-Tax Net Income
Finance Subsidiary
Consolidated Parent

62
(476)

31
172

34
438

138

3,308

116

30
295

Lease Financing

—

^Includes income support payment from Chrysler of $70 million.

Estimated Gross Finance Receivables and Selected Liabilities as of 12/31/81
Diversified Finance Companies
Beneficial Corp.
. 7 Walter E.
_
& Unconsolidated Merrill *
Heller
Household
E.F. Hutton
Subsidiaries
Lynch
International International
Group
(million dollars)

Consumer Loans
Mortgage
Installment, Revolving Credit
Total

74
5,035
5,109

3,785
3,078
6,863

n. a.
4.725
4.725

103
148
251

1,726
1,989
3,715

1,192
1,192

Commercial Loans
,
Commercial and Industrial
Mortgage
Total

2,241
184
2,425

14
49
63

n. a.
n .a.
353

3,306
750
4,056

859

135

85?

135"

Loans to Governments and
Financial Institutions

1,409

—

n.a.

449

—

458

—

316

338

Other Loans
Lease Financing

Transamerica
Corp.

Avco
Financial BaldwinServices United

Loews
Corp.

775
865
1,640

1,252
1,485
2,737

1,134
81
1,215

53
906
959

610
1,329
1,939

3
241
244

n.a.
275
275

478
478

—

418

169

—

2,441

218

Total Finance Receivables

9,472

7,144

5,078

5,072

4,912

4,186

3,610

3,150

1,583

1,437

Selected Liabilities
Deposits
_
Short-Term Debt
Long-Term Debt

6,188
3,906
1,076

1,726
1,567
3,352

705
9,299
502

2,080
2,333
806

261
1,783
3,334

—
2,921
358

—
315
1,754

40
631
1,951

960
361
375

—
504
723

After-Tax Net Income
Finance Subsidiary
Consolidated Parent

518

(7.7)

203

142

223

78
70

253

lAs of 12/23/81.

2As of 11/30/81.
3
Includes current portion of long-term borrowings.
Includes construction lending.
SOURCE:

Company Annual Reports and 10-K forms.

^American National Bank and Trust Company of Chicago is consolidated .

Its total loans

outstanding were $1,385 million at year-end 1981.
American Express International Banking Corp.. is consolidated.

Its total loans

were $4,269 million.
2Two international merchant banking subsidiaries are consolidated.
Q
Valley National Bank is consolidated.

-TV

^
American
Express

Estimated Gross Finance Receivables and Selected Liabilities as of 12/31/81
Insurance-Based Companies

Prudential
Consumer Loans
Mortgage
Installment, Revolving Credit
Total
Commercial Loans
^
Commercial and Industrial
Mortgage^
Total

3.894
3.894

Bache Group

PruCapital

Prudential
Equitable
+ Bache Group
Life
Aetna Life
+ PruCapital
Assurance
& Casualty
(million dollars)

American
General
Corp.

Credithrift1
Financial, Inc.

5.142
5.142

1,696
2,692
4,388

564
564

429
429

362
~
362

362
14,928
15,290

9.357
9.357

37
10,219
10,256

1,002

—

1,639

—

892

—

2,887

1,254

22,963

2,580
141

1,107
45

3,687
186

1,248
1,248

14.928
14.928

486
678
1,164

American General
+ Credithrift
Financial

486
1,107
1,593

1,002
1,002

1,002

Other Loans

—

Lease Financing

—

Total Finance Receivables

18,822

Selected Liabilities
Deposits
«
Short-Term Debt
Long-Term Debt
After-Tax Net Income
Finance Subsidiary
Consolidated Parent

1,639
—

^Purchased by American General in 1982.
2
Increase in surplus before dividends.
3
Includes current portion of long-term borrowings.
SOURCE:

Company Annual Reports and 10-K forms.

312

1,576

13,745

651

'- T V

Loans to Governments and
Financial Institutions

->
10,820

1,431

1,164

2,595

35
263

28
97

245
92
546

245
120
643

462

164

15
164

164

Includes construction lending.

^Mortgages purchased in secondary markets not included

Estimated Gross Finance Receivables and Selected Liabilities as of 12/31/81
(million dollars)
Retail Based Companies
Oil Companies

Consumer Loans
Mortgage
Installment, Revolving Credit
Total

Mobil
Credit

Amoco
Credit Corp.

Sears

—
1,206
1,206

~
343
343

2,830
9,528
12,358

Montgomery
Ward
Credit

3,623
3,623

J.C. Penney*
Financial

1,755
1,755

J.C. Penney
Financial and
J.C. Penney Co,
Combined

3,183
3,183

Commercial Loans
Commercial and Industrial
Mortgage
Total

—
—
—

—

___

—

T7o

Loans to Governments and
Financial Institutions

—

Other Loans

—

832

—

Lease Financing

—

570

___

_ _

343

13,760

3,623

Selected Liabilities
Deposits
^
Short-Term Debt
Long-Term Debt

—
947
—

—
249
—

2,270
4,797
5,838

1,457
1,262

482
837

After-Tax Net Income
Finance Subsidiary
Consolidated Parent

52
2,433

13
1,922

650

*As of 1/30/82.

Includes current portion of long-term borrowings
3
Montgomery Wards' operating loss.

110

(160;

1,791

53
387

3,183

___

482
2,242

387

Al-5

1,206

Total Finance Receivables

Estimated Gross Finance Receivables and Selected Liabilities as of 12/31/81
Bank Holding Companies

Citicorp
Domestic
Worldwide

7,642
14,645
22,287

5,925
9,556
15,481

Commercial Loans
^
Commercial and Industrial
Mortgage
Total

45,181
5,294
50,475

Loans to Governments and
Financial Institutions
Other Loans'*

Manufacturers
Hanover Corp.
Worldwide
Domestic

20,864

10,196
9,703
19,899

2,005
3,363
5,368

1,280
2,726
4,006

1,327
1,858
3,185

1,198
1,858
3,056

16,442
2,635
19,077

34,651
5,326
39,977

16,187
4,643
20,830

31,115
2,865
33,980

10,563
12,575

20,350
1,779
22,129

9,866
1,552
11,418

9,143

1,287

8,386

1,237

10,177

2,745

11,378

3,009

2,852

8,466

8,260

2,458

1,667

2,013

Al-

Consumer Loans
Mortgage
Installment, Revolving Credit
Total

BankAmerica Corp.
Chase Manhattan Corp.
Worldwide
Domestic
Worldwide
Domestic
(million dollars)

1,883

1,813

203

3,601

Total Finance Receivables

86,640

40,580

79,506

52,039

52,186

21,196

42,306

23,097

Selected Liabilities
Deposits
.
Short-Term Debt
Long-Term Debt

72,125
23,508
6,930

94,369
10,602
1,711

55,300
10,446
1,515

42,462
8,851
1,082

After-Tax Net Income
Finance Subsidiary
Consolidated Parent

531

445

412

252

Lease Financing

Includes current portion of long-term borrowings.
2

Figures stated net of unearned income.

10,196
10,668

2,012

Includes construction lending.
^Includes federal funds sold and securities purchased under resale agreements.

Total lease finance receivables are included under domestic receivables because of the difficulties involved in separating
domestic leasing activity from international.
SOURCE: Company Annual Reports and 10-K forms and bank call reports. The Annual Reports and 10-K forms were the primary sources used,
reports were used to estimate the breakdown of loan categories where needed.

The call

Estimated Gross Finance Receivables and Selected Liabilities as of 12/31/81 (Cont.)

Consumer Loans
Mortgage
Installment, Revolving Credit
Total

J.P. Morgan & Co.
Chemical New York Corp.
Worldwide
Domestic
Worldwide
Domestic
(million dollars)

4,325
4,418
8,743

232
6,233

11,618
n.a.
11,618

10,464
n.a.
10,464

7,561

2,510

1,012

n.a.

947

3,597

1,162

1,117

309

910

30,728

20,318

29,892

12,869

23,445

21,279

914
1,597
2,511

914
1,588
2,502

1,091
1,919
3,010

1,091
1,914
3,005

65
213
278

Commercial Loans
Commercial and Industrial
Mortgage
Total

20,296
3,164
23,460

12,862
3,043
15,905

20,124
787
20,911

14,322
731
15,053

17,614
533
18,147

Loans to Governments and
Financial Institutions

4,858

2,633

4,477

196

Other Loans

1,841

1,584

1,213

1,123

Total Finance Receivables

33,793

23,747

Selected Liabilities
Deposits
Short-Term Debt
Long-Term Debt

29,594
11,013
862

29,430
9,166
525

36,024
9,796
496

After-Tax Net Income
Finance Subsidiary
Consolidated Parent

255

215

348

Lease Financing

First Interstate Bancorp
Worldwide
Domestic

65
155
220

6,0 01

27,407
5,293
476

—

—
236

-iv

Continental Illinois Corp.
Domestic
Worldwide

Estimated Gross Finance Receivables and Selected Liabilities as of 12/31/81 (Cont.)

Consumer Loans
Mortgage
Installment, Revolving Credit
Total

Bankers Trust
New York Corp.
First Chicago Corp.
Worldwide
Domestic
Worldwide
Domestic
(million dollars)

Wells Fargo & Co.
Worldwide
Domestic

3,833
3,799
7,632

n.a.
889
889

1,078
1,946

10,886

9,052
654
9,706

10,548
981
11,529

6,549
981
7,530

10,682
832
11,514

7,423

654
11,540

2,571

546

5,419

1,066

132

3,392

1,195

Total Finance Receivables

23,070

19,211

Selected Liabilities
Deposits
.
Short-Term Debt
Long-Term Debt

23,446
4,334
799

23,345
6,332
266

25,555
4,117
438

16,854
3,068
1,028

After-Tax Net Income
Finance Subsidiary
Consolidated Parent

206

188

119

124

Commercial Loans
Commercial and Industrial
Mortgage
Total
Loans to Governments and
Financial Institutions
Other Loans
Lease Financing

868

4,606
1,977
6,583

8,109

7,327
1,165
8,492

6,390
1,165
7,555

5,151

1,644

1,599

447

3,091

2,448

2,425

629

394

362

887

21,623

12,970

21,421

14,486

18,190

16,101

686

8-TV

Security Pacific Corp.
Domestic
Worldwide

Estimated Gross Finance Receivables and Selected Liabilities as of 12/31/81 (Cont.)

Crocker National Corp.
Worldwide
Domestic

Consumer Loans
Mortgage
Installment, Revolving Credit
Total

Total Top 15
Bank Holding Companies
Worldwide
Domestic

3,354
1,192
4,546

676
1,812
2,488

1,013
955
1,968

41,915
50,383
92,298

39,344
43,620
82,964

7,555
445

6,556
445
7,001

5,720
381

6,101

4,348
381
4,729

5,936
321
6,257

4,557
321
4,878

259,603
24,527
284,130

141,582
19,481
161,063

2,503

n.a.

1,349

402

77,308

16,944

567

670

626

32,409

30,468

8,000

Loans to Governments and
Financial Institutions

1,724

-TV

Commercial Loans
Commercial and Industrial
Mortgage
Total

Other Loans

o
Mellon National Corp.
Marine Midland Banks, Inc.
Domestic
Worldwide
Domestic
Worldwide
(million dollars)

—

921

916

615

232

184

14,279

Total Finance Receivables

15,423

12,695

11,773

7,850

10,428

8,058

500,424

305,718

Selected Liabilities
Deposits
Short-Term Debt1
Long-Term Debt

16,495
3,019

Lease Financing

After-Tax Net Income
Finance Subsidiary
Consolidated Parent

212

14,096
1,940
368

11,838
3,802
463

518,340
115,287
17,171

116

3,618

. .

Insurance Activities of Noninsurance-Based Companies
for Year-end 1981 (in millions)

Life/Health
$ 8,726 in force
640 in force
$
$ 6 , 2 1 2 in force
$ 6,800 in force

Beneficial Corp.
Borg-Warner
Chrysler
Control Data
Dana Corp.
Ford Motor
General Electric
General Motors
Greyhound
Gulf & Western
Household
International
E.F. Hutton
ITT
Loews Corp.
Merrill Lynch
Montgomery Ward
National Steel
Parker Pen
J.C. Penney
RCA
Sears

$ 7,393 in force

$
$
$

,476 premiums written
590 premiums written
86 premiums written^
1 2 1 premiums written

$
$

103 premiums earned
42 premiums written^ *

$
$

136 premiums written
23 premiums earned
4
53 premiums earned
518 premiums earned
96 premiums earned ^
133 premiums written

$
$

134 premiums earned

56 premiums earned
35 premiums written^

$ 4,090 in force
in force
in force^
in force
premiums earned
in force
in force
*
*
128 premiums written
$
$10,500 in force
$34,300 in force

$ 3,306
$ 3,400
$34,039
882
$
$ 7,500
$ 5,950

$
$
$
$

Credit

$ 77 premiums written

$396 premiums earned
*
$ 30 premiums written
$ 30 premiums written

Annuity

Other

$ 158 premiums written
$1,500 premiums earned

143 premiums earned

$127 premiums written
*
*

Mortgage
Mortgage
*

*
$1,127 premiums written

*
$3 ,100 premiums earned
$1 ,560 premiums earned
$

104 premiums written

120 premiums written
*

101 premiums written
*
$5 ,524 premiums earned

premiums earned

*Figures not available. $104 million of these premiums are from Empire Mutual Insurance in which Baldwin-United has
^
a 75 percent share of earnings.
rhis figure is for the Single Premium Deferred Annuity which lets investors make a single payment that is sheltered
from taxes until the proceeds are paid^ Baldwin-United is the nation's largest seller of this type of annuity.
^1980 data.
^Includes credit insurance
"^Includes investment income.
Includes reinsurance.
SOURCE:

Annual Reports and 10-K forms.

Liability and bonding,
mortgage, and municipal
bond: $186 premiums
written

A2-

American Express
Arraco
Avco Corp.
Baldwin-United

Property/Casualty

Bl-1

APPENDIX B: COMPANY SUMMARIES
Industrial-, Communication-, and Transportation-Based Companies

American Can Company

American Can has historically been involved in packaging, consumer
products, chemicals, and resource recovery. In 1981, the company announced it
would sell its paper operations and expand into financial services.
The
chairman, William Woodside, intends to develop a rapidly growing, specialized
financial division rather than to provide a wide range of financial services.
The company’s first step was to acquire Associated Madison, an insurance
holding company, in early 1982.
Associated Madison’s principal subsidiary,
National Beneficial Life, specializes in selling life and health insurance
through direct mail.
American Can plans to expand National Beneficial’s
marketing efforts by linking them with American Can’s Fingerhut subsidiary, a
direct mail merchandiser of consumer goods.
Later in 1982, American Can acquired Transport Life Insurance Company,
which is located in Fort Worth, and early in 1983, American Can acquired
PennCorp Financial Inc., an insurance company based in California.
The new
subsidiaries will become units of Associated Madison.
American Can is preparing to provide home banking and home shopping
services through two subsidiaries formed in 1981, HomServ and ViewMart.
HomServ is currently testing a home banking cable television system in San
Diego and Omaha. Eleven banks are using the system on a trial basis.
American Can’s entry into financial services is part of the company’s
strategy to focus on the high growth lines in all its business areas.
Its
goal is to become a specialist in every sector in which it operates.

A rm c o , In c .

Armco Financial Services Group (AFSG), a division of Armco Inc., has four
subsidiaries involved in insurance, leasing, and commercial lending. Armco’s
insurance activities began in 1953 when it established a subsidiary to cover
its own insurance needs.
Today, the Armco Insurance Group has 16 insurance
subsidiaries, 12 of which were acquired with the purchase of the NN
Corporation in 1980.
The group writes property-casualty and life insurance.
Another AFSG subsidiary, Armco Financial Services Europe Limited, sells
property-casualty insurance and reinsurance throughout the world.
Armco Financial Corporation is the commercial finance subsidiary.
It
leases and finances capital equipment in the United States and other
countries. In 1981, roughly 21 percent of its financing receivables were for
oil and gas drilling equipment, 16 percent for maritime equipment, 14 percent
for commercial aircraft, and 8 percent for construction equipment.

Bl-2

AFSG’s fourth subsidiary is Armco Management Corporation. It is involved
in real estate and internal lending.
It manages the investment portfolios of
the insurance subsidiaries.
Armco1s nonfinancial operations include production of energy equipment,
aerospace parts, specialty steels, industrial products, and carbon steel.
AFSG’s contribution to Armcofs total net income fell to 10 percent in
1981 after fluctuating between 14 percent and 22 percent over the previous
five years.
The decline in 1981 was due to increased underwriting losses
experienced by the insurance subsidiaries and to high income growth in the
energy equipment and aerospace divisions.
However, AFSG’s share of Armco1s
total assets has grown from 3 percent in 1976 to 8 percent in 1981. Armco1s
goal for 1985 is to maintain AFSG’s share at 8 percent, increase the energy
equipment and aerospace shares, and decrease the share of carbon steel.

Borg-Warner Corporation

Borg-Warner Acceptance Corporation (BWAC) is a wholly-owned finance
subsidiary of Borg-Warner Corporation. It was established in 1953 in order to
provide financing for Borg-Warner products, but now over 90 percent of its
income and assets result from business with other companies.
BWAC’s policy has been to concentrate on short-term financing. This has
enabled it to remain profitable despite recent high interest expense on its
own debt.
One of BWAC’s major activities is lending to dealers and purchasers of
consumer products and agricultural equipment. In 1981, the company reached an
agreement with Subaru of America to provide wholesale and retail financing for
Subaru1s car sales in the United States. BWAC plans to have a special office
for this purpose in each of Subaru’s distribution districts by 1983.
BWAC’s other services to businesses include leasing and financing of
sales installment contracts, trade accounts receivable, and insurance pre
miums.
The company also makes real estate loans and wholesale and retail
loans secured by manufactured homes.
BWAC’s insurance subsidiaries offer
credit life, disability, property, and liability coverage.
At the end of 1981, BWAC was operating 264 offices in the United States,
31 in Canada, 15 in Australia, 14 in Puerto Rico, and six in Europe.
Borg-Warner
Corporation was
originally
only an automotive parts
manufacturer. Now its nonfinancial subsidiaries manufacture air conditioning
systems, chemicals, plastics, and energy, industrial, and transportation
equipment.
Baker Industries, the protective services subsidiary, provides
Wells Fargo armored transportation, guard and alarm services, and the Pony
Express courier service. It also sells fire alarm systems.
In 1981, BWAC accounted for 18 percent of Borg-Warner’s consolidated net
income.
This contribution was down from 21 percent in 1980 but up from 12
percent in 1979.

Bl-3

Chrysler Corporation

Chrysler Financial Corporation (CFC) is a wholly-owned finance subsidiary
of Chrysler Corporation.
It provides wholesale, retail, and lease financing
to dealers of Chrysler products.
It also purchases retail installment
contracts from the sale of used vehicles of any make by Chrysler dealers. CFC
makes capital loans to Chrysler dealers to finance expansion and provide
working capital. The company no longer makes other commercial and industrial
loans. In 1981, it also stopped leasing to auto rental companies.
CFC's insurance subsidiary provides floor plan insurance to dealers.
It
also sells physical damage insurance and credit life, accident, and health
insurance to Chrysler customers.
The company has 95 U.S. offices in 43 states and the District of
Columbia, 17 offices in Canada, and one in Mexico. CFC sold its European and
South American operations in 1979 and its Australian operations in 1980.
In 1981, CFC concluded agreements with American Motors Financial
Corporation and VW Credit, Inc. to service their finance receivables. The two
companies will still bear the credit risk and raise the funds for their
receivables serviced by CFC.
CFC's business has been adversely affected by high borrowing costs and
the troubles of Chrysler Corporation in recent years. The damaging effect of
high interest rates was offset somewhat in 1981 by the company’s decision to
raise lending rates, and dealer credit losses decreased as car sales improved
slightly. However, CFC still suffered an operating loss in 1981. It showed a
profit only because of a $70.5 million payment by Chrysler Corporation under
the Income Maintenance Agreement between the two companies.
High borrowing
costs also forced Chrysler to make payments under the agreement of $57 million
in 1980 and $27 million in 1979.
The poor economic health of Chrysler Corporation made it very difficult
for CFC to raise new funds in 1981. Instead, CFC financed its operations by
restructuring its debt and extending existing agreements to sell some of its
receivables.
In 1982, the company made a new agreement to sell $400 million
of its receivables to a group of banks and $100 million to Chrysler to raise
funds. It has announced that it will attempt to sell more of its receivables
later in the year as well.
These sales were spurred by concern that a shortage of credit would hurt
Chryslerfs sales in parts of the country where banks are limiting their auto
lending.
At present, CFC is only able to finance about 10 percent of
Chrysler1s car sales, while General Motors Acceptance Corporation and Ford
Motor Credit finance roughly 35 percent and 25 percent of their parents' car
sales respectively.

Dana Corporation

Diamond Financial Holdings is a wholly-owned subsidiary of Dana
Corporation.
Its subsidiaries are involved in property and casualty
insurance, equipment leasing, real estate, and saving and loan operations.
On December 31, 1981, Diamond acquired General Ohio Savings and Loan
which has 46 branches in Ohio.
Its name is now Diamond Savings and Loan

Bl-4

Company.
In 1981, Dana transferred ownership of several domestic
international insurance companies and a bank to Diamond.
Dana Corporation manufactures truck components, service parts,
industrial equipment parts.

and
and

Ford Motor Credit Company

Ford Motor Credit Company was established as a wholly-owned, nonconsolidated subsidiary of Ford Motor Company in 1959. It provides retail and whole
sale financing for new and used vehicles sold by Ford dealers. In March 1982,
the Company restricted its new vehicle financing to vehicles manufactured and
distributed by Ford Motor Company.
From 1928 to 1933, Ford Motor Company financed the retail and wholesale
purchases of Ford cars through Universal Credit Corporation, a wholly-owned
subsidiary.
From 1933 to 1959, Ford held only a minority interest in this
finance company.
In 1966, Ford Credit expanded into direct consumer lending and into
commercial, industrial, and real estate financing. Other financing activities
include capital loans to Ford dealers and purchases of accounts receivable
from Ford divisions and affiliates.
These operations were a small part of
Ford Credit's outstanding finance receivables in 1981.
At the end of 1981, Ford Credit had a total of 279 branch offices.
Of
these, there are 146 vehicle financing branches in the United States and
Puerto Rico and 18 in Canada.
Other vehicle financing branches are in
Australia, France, and the Dominican Republic.
Ford Credit also has 82
consumer loan offices in 24 states and one in Ontario.
Other subsidiaries of Ford Motor Company provide financing for the sale
of Ford vehicles in other countries, although Ford Credit coordinates their
operations.
Ford Credit is thus involved directly or indirectly in 29 coun
tries .
Ford Credit finances its operations primarily by issuing commercial paper
and medium-term and long-term debt.
In 1981 and early 1982, Ford Credit's
ability to raise funds was restricted by reductions in its commercial paper
and senior debt ratings. The company was forced to rely more heavily on more
expensive bank borrowings. However, Ford Credit's sources of funds increased
in the spring of 1982 when Ford Motor Company offered a money market fund to
Ford employees.
The fund invests only in Ford Credit's commercial paper and
is initially limited to white collar employees.
But the company hopes to
include its blue collar employees once the fund is approved by the United Auto
Workers Union.
Ford Credit's subsidiary, The American Road Insurance Company, writes
physical damage insurance on most vehicles financed at wholesale by Ford
Credit.
American Road's principal subsidiary, Ford Life, issues credit life
and disability insurance for retail vehicle purchasers and for Ford Credit's
consumer loan customers.

Bl-5

General Electric Company

General Electric Credit Corporation (GECC), a wholly-owned subsidiary of
General Electric (GE) , was formed in 1932 to finance the distribution and sale
of GE products.
In the early 1960s, GECC began serving other businesses and
consumers.
Today, financing of GE products accounts for less than 5 percent
of GECC’s total volume.
The company has grown to be the nation’s third
largest finance company based on lending volume. At the end of 1981, it had
roughly 480 offices in the United States and Puerto Rico.
GECC's consumer financing activities include retail financing and
personal loans.
GECC purchases consumer installment sales contracts from
retailers in the United States and Puerto Rico.
It finances retail
inventories, primarily for GE products.
GECC also offers revolving credit
programs to department stores under which it issues private label credit
cards, services customer accounts, and purchases retail receivables. At the
end of 1980, GECC had $499 million of revolving credit receivables outstanding
under such programs. This figure is not available for 1981.
GECC’s direct cash loans are generally secured by home equity, although
it has four offices which make direct loans specifically to finance the
purchase pf pleasure boats. The company also finances the accounts receivable
of small personal loan companies.
GECC has reduced its involvement in retail and consumer financing in
recent years. Retail and consumer receivables dropped from 35 percent of the
company’s total finance portfolio in 1979 to 27 percent in 1981.
Over the
same period, operating profit from retail and consumer lending fell from 26
percent to 11 percent of total operating profit.
The company decreased the
number of offices providing retail financing from 460 in 1979 to 143 in 1981.
The number of offices providing personal loans has also decreased from 185 in
1979 to 133 in 1981.
While consumer lending has been declining in importance to GECC, the
company’s leasing business has been expanding rapidly.
Leasing receivables
grew from 13 percent of total receivables in 1979 to 24 percent in 1981.
Commercial and industrial lending as a whole increased from 28 percent of
operating profit in 1979 to 51 percent in 1981.
This increase in relative
profitability is probably attributable to leasing since GECC’s other corporate
loans fell from 24 percent to 21 percent of total receivables over the period.
GECC leases many types of capital equipment and facilities to businesses.
Among the assets it owns and leases are the largest U.S. flag tanker fleet and
the seventh largest commercial airline fleet in the nation.
It also leases
automobiles to car rental companies.
GECC was aggressive in pursuing the tax benefits of the "safe harbor”
leasing provision of the Economic Recovery Tax Act of 1981.
At the end of
1981, its unamortized investment in tax transfer leases was $202 million. In
1982, Congress eliminated most of the ’’safe harbor” tax benefits of leasing.
However, this will not affect GECC’s large investment in non-tax transfer
leases which made up over 90 percent of its total lease receivables in 1981.
GECC’s total leasing activities, including tax transfer leasing, reduced GE’s
tax bill by $479 million in 1981.
In addition to leasing, GECC provides other commercial and industrial
financing through general purpose secured loans, loans to finance equipment
purchases, loans secured by inventories and accounts receivable, purchases of
installment contracts from equipment sales, and preferred stock investments.

Bl-6

GECC’s final major financing area is real estate financing which made up
about 28 percent of the company’s total receivables over the last three years.
Financing of inventories and mobile home and recreational vehicle sales
accounts for most of the real estate receivables.
GECC also makes interim
loans on commercial properties, provides future funding, and finances real
estate receivables.
In 1981, the company got into mortgage banking by ac
quiring Amfac Mortgage Corporation, now renamed General Electric Mortgage
Corporation.
In September 1982, GECC announced plans to offer mortgage
pass-through certificates based on Conventional Income Mortgages. A GECC unit
will acquire the mortgages from various financial institutions and then,
acting as the agent, sell the certificates to investors.
In addition to its traditional financial services, GECC is now taking on
some investment banking functions.
It arranges loan syndications for some of
its regular customers, and it is also expanding into debt placement services
for medium-sized companies. Its new unit, Acquisition Funding Corporation, is
involved in leveraged buyouts and other acquisition financing.
GECC offers property, credit life, accident, and health insurance to its
finance customers through its insurance subsidiaries.
However, over half of
the insurance companies’ premiums are from the sale of insurance products to
the general public.
Puritan Insurance Company sells property and casualty
insurance.
Puritan Life Insurance Company offers individual and group life
and accident and health insurance.
General Electric Mortgage Insurance
Company, which was formed in 1980, writes mortgage guaranty insurance.
In 1981, GECC’s reported income was increased by an income support
payment from GE of $25 million before taxes, which amounted to $13 million
after taxes.
The payment was required by an agreement between the two
companies to maintain GECC’s income at a 1.15 ratio to its fixed charges.

General Motors Corporation

General Motors Acceptance Corporation (GMAC) is a wholly-owned finance
subsidiary of General Motors Corporation (GM). It was incorporated in 1919 to
provide financing for GM’s products.
Except for limited financing of other
products, its mission remains unchanged today.
Since 1919, GMAC has grown to be the largest finance company in the
country in terms of lending volume.
At the end of 1981, it had 310 finance
offices in the United States and Puerto Rico, 30 in Canada, and 43 in other
countries.
GMAC finances the wholesale acquisition of GM products by GM dealers. It
purchases the installment loans from retail sales of GM products and from
sales of used cars of any make by GM dealers. GMAC also makes term loans to
GM dealers to finance expansion of current operations.
GMAC’s lease financing activities involve financing the sale of GM
products to leasing companies.
In 1976, GMAC began leasing capital equipment
directly and on a leveraged basis.
However, the company does not intend to
develop equipment leasing into a large part of its business.
GMAC’s insurance subsidiary, Motors Insurance Corporation (MIC), has 103
offices in the United States and nine in Canada. MIC provides physical damage
insurance on cars sold or leased by GM dealers. It insures GMAC on the dealer
inventories it finances. With a nonaffiliated company, MIC provides complete

Bl-7

insurance coverage to GM dealers and to GMAC on the cars it leases. MIC also
insures GM's obligations under one of its warranty plans.
Finally, MIC
cooperates with other companies to reinsure liability coverage on GM and GMAC.
Since 1975, MIC Life Insurance Corporation, an MIC subsidiary, has
provided credit life and disability insurance for GM customers in the United
States. It reinsures half of a group life insurance plan offered by GM to its
dealers. MIC Life also sells life and health insurance by mail to the general
public.

The Greyhound Corporation

Greyhound Corporation is a diversified company involved in four major
areas:
(1) bus manufacture and transportation, (2) food processing and
consumer products, (3) food services, and (4) financial services.
The
Financial Group subsidiaries have been increasing their contribution to
Greyhound’s consolidated earnings over recent years.
In 1976, the Group made
up 13 percent of total operating earnings, but by 1981, its share had grown to
27 percent.
One of the major Financial Group subsidiaries is Greyhound Leasing and
Financial Corporation.
It leases and provides other financing for capital
equipment throughout the world. A few years ago, leasing made up roughly 85
percent of its financing volume.
The company has since sought to diversify
its financial services.
In 1981, leasing made up only half of its new
business.
The company's other services include purchases of receivables from
resort developers, construction and mortgage loans, and loans to the film
industry.
Greyhound computer corporation leases computers and buys and sells used
computers. It operates in the United States, Canada, Mexico, and Europe.
Travelers Express Company issues and processes money orders, credit union
share drafts, and official checks.
It serves financial and other businesses
across the country and in Puerto Rico through a network of seven offices.
Greyhound added another processing service in 1982 by acquiring ACT
Systems, Inc.
This new subsidiary provides automated teller machines to
financial institutions in Michigan and Ohio.
Greyhound's Financial Group also has two insurance subsidiaries.
Pine
Top Insurance Group is involved around the world in reinsurance and commercial
property and casualty insurance. Verex Corporation sells residential mortgage
insurance, including insurance of mortgage backed securities.

Gulf & W estern Industries, Inc.

Gulf & Western entered the consumer and commercial finance business in
1968 when it acquired Associates First Capital Corporation. Associates First
Capital's principal operating subsidiary is Associates Corporation of North
America (The Associates).
In 1981, The Associates had roughly 670 offices in
the United States, 95 in Canada, 62 in the United Kingdom, 31 in Puerto Rico,
29 in Australia, and 10 in Japan.
The number of international offices grew

Bl-8

from 164 to 227 over the fiscal year as the company expanded its overseas
consumer operations. Its growth in Australia from three to 29 offices was the
most rapid.
The Associates1 commercial lending activities include financing dealer
acquisitions and sales of industrial and transportation equipment as well as
leasing car and truck fleets in the United States and Canada. The commercial
finance division also lends directly to businesses through The Associates
Business Loan Program.
The program expanded its factoring activities by
acquiring the assets of the Rusch Factors division of the BVA Credit
Corporation in October 1980 and the assets of the Factoring Group of First
National Bank in Dallas in May 1981.
The Associates’ consumer finance division makes secured and unsecured
loans to individuals and purchases retail sales contracts.
The division was
adversely affected in fiscal 1981 by low interest rate ceilings, increased
credit losses due to the recession, and more liberal federal bankruptcy laws.
The Associates responded to these problems by emphasizing second home
mortgages and reducing its unsecured lending.
It also consolidated 240
domestic offices and increased its international operations.
In 1981, the Associates brought its new consumer financial services
together under one division called Diversified Services.
The new unit
includes the Execu-Charge/Visa card, a loan-by-mail service for high income
individuals, several auto clubs, and a money order program.
Diversified
Services also includes Fidelity National Bank in Concord, California, which
was acquired by Associates First Capital in August 1980.
The bank provides
consumer services only. In November 1982, Associates First Capital offered to
acquire Heritage Federal Savings & Loan Association in Oakland, California.
The Associates has an insurance unit which serves the company’s finance
customers and the general public as well.
Emmco Insurance Company and Excel
Insurance Company provide property and casualty insurance.
Cumberland Life
Insurance Company offers credit life and disability insurance and term life,
accidental death, and dismemberment insurance.
Gulf & Western’s other financial subsidiary is Providence Capitol
International Insurance Ltd.
The company and its subsidiaries sell life
insurance, annuities, and property and casualty insurance.
It also develops
and manages real estate property.
Gulf & Western’s nonfinancial subsidiaries are involved in many diverse
areas.
The Leisure Time Group owns Paramount Pictures, Simon and Schuster,
Madison Square Garden Corporation, a music publisher, and a theater operator
in Canada and France.
Another group makes women’s clothing and home and
commercial furniture. The Manufacturing Group produces energy and industrial
products, automotive parts, capital equipment, and electronic games.
The
Automotive and Building Products Group distributes automotive replacement
parts, cement, and concrete construction accessories.
The Natural Resources
Group is involved in chemicals, cement, and zinc.
The Consumer and
Agricultural Products Group makes sugar, sugar derivatives, and cigars.
It
also operates several hotels and resorts in the Dominican Republic.

Bl-9

IBM

IBM Credit Corporation was incorporated as a wholly-owned finance
subsidiary of IBM in March 1981 • IBM Credit’s purpose is to purchase the
installment payment agreements resulting from IBM’s sale or lease of its
products in the United States. It began operations on May 1, 1981, and by the
end of the year it had $868 million in gross receivables outstanding.
Gross
trade receivables held by IBM at the same time were $4,569 million.

ITT

International Telephone and Telegraph Corporation (ITT) is involved in
financial services through its subsidiaries, ITT Financial Corporation, the
Hartford Insurance Group, and several captive finance companies that finance
ITT’s foreign sales.
ITT Financial Corporation was formed in 1974 through the merger of ITT
Thorpe Corporation and ITT Aetna Corporation. ITT Thorpe was a commercial and
consumer finance company acquired by ITT in 1969, and ITT Aetna was a consumer
finance company acquired in 1964. Today, ITT Financial has four subsidiaries
that provide commercial and consumer finance through 656 offices in the United
States, Canada, and the Caribbean.
ITT Industrial Credit Company is the largest commercial finance
subsidiary of ITT Financial.
It serves the construction equipment, real
estate, marine, natural resources, and various manufacturing industries
through its 32 offices.
It provides equipment loans and leases, large direct
loans, and other large leasing deals.
Its Real Estate Division makes second
mortgages, interim first mortgages, and construction loans on commercial
property.
In 1981, ITT Credit established an automated credit processing
system for equipment manufacturers and dealers to use in financing their
sales.
Another
subsidiary,
ITT Diversified
Credit
Corporation,
provides
wholesale and other secured loans to businesses.
The Wholesale Finance
Division has 18 offices in the United States and two in Canada.
The
Commercial Finance Division has three offices in the United States.
ITT Consumer Financial Corporation is the subsidiary involved in both
commercial and consumer lending.
It makes small, secured commercial loans in
29 states. In 1981, it created the ITT Small Business Finance Corporation to
make loans insured by the Small Business Administration.
The subsidiary’s consumer lending operations are conducted through 543
offices in 30 states.
It makes secured and unsecured personal loans and
consumer mortgages.
It also purchases consumer installment sales contracts,
although this activity has been declining . The company’s policy is to
concentrate on real estate secured lending, which made up 40.1 percent of its
consumer loans at the end of 1981.
Another
finance
subsidiary
of
ITT
Financial
is
Island
Finance
Corporation.
It provides consumer credit through 52 offices in the Caribbean
and the Netherlands Antilles.

Bl-10

The Lyndon Insurance Group is seeking regulatory approval in all states
to write various types of credit insurance directly. At the end of 1981, it
had obtained licenses in 36 states.
ITT Financial raises funds by selling commercial paper, notes, and
debentures.
However, three of its offices in Minnesota and one in Colorado
issue passbook savings accounts and thrift certificates.
The majority of ITT’s financial services income comes from the Hartford
Insurance Group, which was acquired in 1970. The Group writes and reinsures
almost all types of insurance.
It is now the seventh largest property and
casualty insurer in the nation.
In September 1982, Hartford purchased 25 percent of WFS Financial
Corporation, which is a holding company for Wheat, First Securities, Inc., an
investment banking and brokerage firm in Richmond, Virginia.
Wheat, First
Securities1 brokers market Hartford's insurance products.
ITT's
financial
and
insurance
subsidiaries have
increased
their
contributions to ITT’s profits over the past decade.
In 1972, financial
services made up 34 percent of ITT’s consolidated net income, but by 1981
their share had grown to 57 percent.
ITT’s nonfinancial subsidiaries are involved in telecommunications,
automobile and industrial products, semiconductors, consumer goods, the
Sheraton hotels, and natural resources.

National Steel Corporation

National Steel Corporation entered the financial services sector by
acquiring United Financial Corporation of California (UFC) in 1980.
UFC’s
principal subsidiary, Citizen Savings and Loan Association, acquired West Side
Federal Savings and Loan Association of New York and Washington Savings and
Loan Association of Miami Beach, Florida, in 1981. The combined savings and
loans adopted the name of First Nationwide Savings, a Federal Savings and Loan
Association.
First Nationwide has a total of 138 offices— 90 in California, 30 in New
York, and 18 in Florida.
Based on total deposits, it was the sixth largest
savings and loan association in the country at year-end 1981.
Despite the
problems plaguing the savings and loan industry, First Nationwide was
profitable in 1981.
In 1982, First Nationwide launched a franchise program,
First Savings Alliance.
This program offers other thrifts a variety of
services and a common name.
Also, late in 1982, First Nationwide planned to set up service centers in
five northern California J.C. Penney stores.
First Nationwide will sell
deposit accounts as well as loans at these centers, and First Nationwide will
market its money market deposit account to Penney credit cardholders through
the mail.
In addition to residential mortgage lending, First Nationwide is engaged
in mortgage banking and real estate development. It was also one of the first
to respond to a bill passed by Congress in October 1982 expanding the lending
powers of savings and loans. First Nationwide immediately set up a commercial
leasing subsidiary called FNS Leasing Company which reportedly will be managed
by two former Citicorp executives.

Bl-11

UFC has other subsidiaries involved in casualty and life insurance, small
business investment, and trustee duties for deeds of trust securing loans made
by First Nationwide. However, the income and assets of these subsidiaries are
small compared to that of First Nationwide.

The Parker Pen Com pany

Since 1892, The Parker Pen Company has principally manufactured and
marketed quality writing instruments.
However, facing stiff competition in
the writing instrument market and looking for a more profitable long term
business venture, Parker Pen, in 1981, entered the financial services business
by establishing First Deposit Corporation in San Francisco to develop and
market consumer financial services.
First Deposit Corporation then acquired the $5 million-asset Citizens
National Bank of Tilton, New Hampshire, now First Deposit National Bank, and
American Homestead First Life Insurance Company of Little Rock, Arkansas, now
First Deposit Life Insurance Company. Late in 1981, First Deposit Corporation
began a joint venture with Charles Schwab & Company to offer cash management
services to securities customers without the use of a money market fund, but
in June 1982, Schwab acquired First Deposit's interest in this venture.
In
September 1982, First Deposit Corp. acquired the $7 million-asset Redding
Savings and Loan Association, Redding, California.

R C A Corporation

RCA Corporation entered the financial services field by acquiring CIT
Financial Corporation (CIT) in January 1980. CIT was active in commercial and
consumer finance, insurance, and manufacturing.
It had also been a bank
holding company but had sold its 100 percent equity in the National Bank of
North America in April 1979, just shortly before being acquired by RCA. Since
the acquisition, RCA has sold three of CIT's manufacturing subsidiaries,
Picker Corporation, Raco Inc., and Gibson Greeting Cards. RCA also plans to
sell CIT's fourth manufacturing company, All-Steel Inc.
In January 1982, CIT sold its Canadian finance subsidiary, Canadian
Acceptance Corporation (CAC). CIT's financial statements for the previous
years have been restated without consolidating CAC. Thus, CIT's receivables
shown on our table of receivables outstanding on December 31, 1981 do not
include the receivables of CAC.
Today CIT has operations in the United States and Puerto Rico. At the
end of 1981, 53 percent of its receivables were from industrial financing and
leasing, 33 percent from consumer financing, and 14 percent from factoring as
well as commercial financing and wholesale lending.
The industrial financing and leasing subsidiaries assist more than 60
industries in purchasing and leasing capital equipment.
CIT Financial Services provides consumer financing in the form of second
mortgages; loans to purchase mobile homes, recreational vehicles, cars, and
other products; and educational loans.
It also finances the inventories of

Bl-12

consumer goods retailers.
In recent years, the division has been placing
greater emphasis on real estate secured lending.
CIT’s factoring subsidiaries are Meinhard-Commercial Corporation and
William Iselin and Company.
These two companies purchase the accounts
receivable of manufacturers and distributors and assume the full credit risk.
They also make secured and unsecured loans to businesses.
CIT Commercial Finance provides businesses with loans secured by their
inventories and accounts receivable.
CIT’s insurance subsidiary, North American Company for Life and Health
Insurance, offers individual and group life insurance.
In 1981, CIT formed
North American Company for Property and Casualty Insurance to reinsure
property and casualty coverage.
RCA also has an unconsolidated captive finance subsidiary called RCA
Credit Corporation. RCA Credit purchases certain installment sales contracts
from RCA. However, RCA is bound by an agreement to repurchase receivables in
default from RCA Credit and to maintain RCA Credit’s income at a certain ratio
to fixed charges.
At the end of 1981, RCA Credit had $476 million in gross
purchased receivables outstanding.

W estinghouse Electric Corporation

Westinghouse Credit Corporation (WCC) is a commercial/industrial finance
company owned by Westinghouse Electric Corporation.
It was formed in 1954 in
to finance the sale of Westinghouse Electric products, but it has since
expanded to serve a diverse business clientele.
By 1981, less than one
percent of its finance business involved products produced by the parent
company. It now has 119 offices throughout the United Sfates.
WCC’s Financial Services Group provides wholesale inventory financing for
consumer goods retailers. It has been limiting its purchases of retail sales
contracts over the past five years due to regulatory ceilings on interest
rates.
It now offers this service only to certain floor plan lending
customers.
In 1981 this Group began buying home equity loans in bulk in the
secondary markets.
The Group also provides financing for small business
equipment lessors.
The Industrial Equipment Group leases income-producing equipment and
makes equipment-secured loans.
Its main customers are in the construction,
mining,
printing,
energy,
information
services,
and marine
equipment
industries.
The Business Financing Group is involved in leveraged leasing, corporate
lending, preferred stock investments, and financing secured by inventories and
accounts receivable. WCC’s Real Estate Group finances commercial real estate
projects across the country.

B2-1

Diversified Financial Com panies

Am erican Express Com pany

American Express provides a broad range of financial services to in
dividuals and businesses through its travel, insurance, international banking,
and investment services divisions. The company moved into the latter area in
1981 through its acquisition of Shearson Loeb Rhoades, an investment banking
and brokerage firm.
American Express Travel Related Services Company (TRS) issues Travelers
Cheques and the American Express Credit Card.
The number of cardholders,
including the Corporate Card, rose 12 percent to 13.3 million in 1981, and the
number of Gold cardmembers grew 29 percent to two million.
TRS offers other
travel services through 1,104 offices around the world, publishes two
magazines, and sells merchandise through direct mail.
First Data Resources,
which provides credit card processing and authorization for over 5,000
financial institutions, was acquired in 1980.
TRS subsidiaries are also
involved in the provision of money order services to financial institutions
and video programming.
American Express1 insurance subsidiary, Fireman’s Fund Insurance Company,
offers property-liability and life insurance. It has more than 370 offices in
the United States and other countries.
American Express International Banking Corporation (AEIBC) and its
subsidiaries operate through 65 offices in 35 countries.
AEIBC has been
providing international, commercial banking services for more than 60 years.
Over the last ten years, AEIBC has expanded into loan syndication management,
construction financing, international debt portfolio management, and financial
advisory services.
In recent years, it has been developing its equipment
leasing and private banking businesses. AEIBC also supplies consumer banking
services on U.S. foreign military bases.
The new investment services subsidiary, Shearson/American Express, is the
second largest securities firm in the United States in terms of capital.
By
the end of 1981, it had 248 domestic offices in 217 cities in 37 states and 21
offices in foreign countries.
In March 1982, it merged with Foster and
Marshall, Inc., an investment firm with 52 offices in the Northwest.
The company’s financial services include raising capital for corporations
and government entities, margin lending to investors, mortgage banking,
investment management, and financial planning.
In 1981, it managed or
administered assets of $30 billion.
Shearson/American Express is joining with American Express’ traditional
businesses
to
expand
and
promote
the
corporation’s
services.
Shearson/American Express now offers a Financial Management Account which is
similar to Merrill Lynch’s Cash Management Account and which can be accessed
by check and the American Express Card.
In 1982, Shearson/American Express
began marketing Fireman’s Fund life insurance through its offices.
In recent years, American Express has also increased its cooperation with
commercial banks by linking its services with certain bank services. In 1980,
Fireman’s Fund Insurance started paying a fee to commercial banks for the
opportunity to sell insurance to bank customers.
In 1981, AEIBC began
providing international banking services to customers of commercial banks when
the banks could not satisfy such needs.
Shearson/American Express began

B2-2

selling deregulated 3^- and four-year certificates of deposit for certain
banks and thrifts in 1982.
American Express has a sophisticated communication and data processing
capability that services its travel, insurance, and brokerage businesses.
Warner Amex, a cable company which is partly owned by American Express, is
involved in testing electronic home banking systems.
Such technological
expertise will be an advantage to American Express in developing new financial
services in the future.
In September 1982, American Express was named to the list of companies
that make up the Dow Jones Industrial Average.
Dow Jones chose American
Express to be the first financial firm included in the index in order to
reflect the shift in emphasis of American business away from heavy industry
and toward services.

Avco Corporation

Avco Corporation is a diversified company with subsidiaries in financial
services,
insurance,
transportation structures and engines, management
services, and real estate development.
In 1980 and 1981, 56 percent of the
company’s revenues were generated by the Finance and Insurance Group and 44
percent by the Products and Services Group.
The Finance and Insurance Group is made up of Avco Financial Services and
its subsidiaries.
Avco Financial has a total of 1,257 finance offices.
Domestic offices are in all states except Alaska, Arkansas, and Michigan. The
foreign offices are in Puerto Rico, Canada, Australia, Japan, and the United
Kingdom.
The company’s financial services are primarily directed at the consumer
market.
It makes small, short-term loans secured by personal property and
larger, longer-term loans secured by real estate. It also purchases consumer
installment sales contracts from retailers.
Because of high interest rates on its debt and greater credit losses,
Avco Financial is raising its lending rates where legally possible and
concentrating on real estate secured loans.
Such lending accounted for 29
percent of its total consumer loans in 1979, 35 percent in 1980, and 50
percent in 1981. The company is also consolidating its operations in order to
decrease its operating expenses. In 1981, it closed 539 offices in the United
States and Canada.
Avco Financial is involved to a small extent in commercial financing,
primarily leasing of equipment and commercial furniture and fixtures. It also
makes some commercial loans secured by inventories, accounts receivable,
equipment, and real estate.
The Avco Financial Insurance Group writes and reinsures credit life,
disability and casualty insurance in the United States, Canada, and Australia.
The majority of its insurance is provided to customers of Avco Financial
Services.
The insurance group also offers casualty coverage to the general
public.
Another insurance subsidiary, Paul Revere Life Insurance Group, provides
life, accident and health, and annuity insurance. Its business is independent
of Avco Financial’s other insurance and finance operations.

B2-3

Baldwin-United Corporation

In 1968, D. H. Baldwin Company, a manufacturer of pianos and organs,
entered the financial services sector by acquiring the Central Bank and Trust
Company in Colorado. Mergers with many other financial firms took place over
the ensuing years.
Today, Baldwin-United Corporation is a diversified
financial services company with interests in insurance, savings and loan
associations, mortgage banking, trading stamps, and data processing. In 1981,
the musical instruments business made up 1 percent of Baldwin-United1s assets
and contributed 8 percent to operating profits.
Baldwin-United has several life insurance subsidiaries which sell
annuities and various forms of life insurance in 49 states and the District of
Columbia.
Its property and casualty insurance subsidiaries operate in 36
states and the District of Columbia.
In 1979, two of the life insurance subsidiaries introduced the single
premium
deferred
annuities
(SPSD)
which
have
since
grown
to
be
Baldwin-United1s largest product.
An investor in an SPDA pays a single
premium and is not taxed on the income until it is withdrawn, usually after
retirement.
Other features of the SPDA are guaranteed rates of return and
access to the funds in the account at any time.
The SPDA is marketed
primarily by brokerage companies.
In 1981, the revenues from sales of SPDAs
exceeded $1.5 billion which amounted to 60 percent of Baldwin-United1s total
operating revenues.
In March 1982, Baldwin-United acquired MGIC Investment Corporation, an
insurance holding company.
MGIC’s major subsidiary, Mortgage Guaranty
Insurance Corporation, is the largest residential mortgage insurer in the
United States.
American Municipal Bond Assurance Corporation, another MGIC
subsidiary, insures municipal bonds. The MGIC Indemnity Corporation provides
specialty liability and bonding insurance covering officers and directors of
financial institutions.
MGIC is also involved in several real estate development projects.
Occasionally, it provides financing to promote the sale of its real estate
investments.
Baldwin-United gained a retail insurance broker, Bayly, Martin and Fay
International, Inc., when the company acquired Bayly Martin’s parent, The
Sperry and Hutchinson Company, in October 1981.
Bayly Martin has offices
across the United States and in London and Paris.
In August 1982,
Baldwin-United announced it was selling 40 percent of Bayly Martin.
In 1981, Baldwin-United also acquired a controlling interest in the
American Mortgage Insurance Company (AMIC). However, at the time of the
acquisition, Baldwin-United entered into a consent decree with the U.S.
Department of Justice which requires Baldwin-United to sell its interest in
AMIC by February 1983 and to operate it as a separate entity until then.
In addition to its insurance subsidiaries, Baldwin-United owns Empire
Savings and Loan of Denver, the second largest savings and loan in terms of
assets in Colorado. Empire is taking advantage of new regulations that allow
savings and loan associations to provide some services formerly reserved for
commercial banks. It is offering NOW accounts, its own credit card, Visa, and
the American Express Gold Card.
It is also making some commercial loans as
well as consumer loans.
Empire opened four new branches in 1981 so that it had a total of 41
offices in Colorado at the end of 1982.
It planned to open six additional
branches in 1982.

B2-4

Baldwin-United used to own 12 commercial banks in Colorado as well. But
in December 1980, it transferred them to a limited partnership called the
Central Colorado Company in order to comply with the amended Bank Holding
Company Act. The partnership manages the banks, but Baldwin-Un.ited retains a
92.4 percent share in its earnings and dividends.
Baldwin-United has six mortgage banking subsidiaries which operate 35
offices in 12 states altogether.
Three of these companies were acquired in
1981: Moyer Mortgage Company of Dayton, Ohio; Fulton and Goss of Cleveland,
Ohio; and United Mortgage Company of Denver. By the end of 1981, the mortgage
banking subsidiaries were servicing a total of $4.4 billion in commercial and
residential mortgages.
Baldwin-United also has leasing operations in 40 states.
It leases
general capital equipment, cars, and farm equipment.
The agricultural
equipment division is experiencing especially rapid growth which the company
expects to continue.
Baldwin-United owns two trading stamp companies, Top Value Enterprises
and The Sperry and Hutchinson Company which was acquired in 1981.
Both
companies sell trading stamps, employee incentive programs, and travel
services.
Sperry and Hutchinson sold its furniture and carpet manufacturing
operations before the takeover by Baldwin-United, but it did retain its
insurance unit.
The trading stamp operations provide Baldwin-United with
low-cost funds to invest before the stamps are redeemed for merchandise.
At
the end of 1981, the reserves of the two companies together exceeded $344
million.
Baldwin Data Services, another subsidiary, was established in the early
1970s to provide data processing services to other Baldwin-United companies.
It
now
serves
outside
financial
institutions
and
manufacturing
and
distribution companies as well.
In 1980, Baldwin-United acquired a 58 percent share in The Continuum
Company, a leading provider of software, computer, and consulting services to
annuity and life and health insurance companies. Its customers are primarily
located in the United States, but the company is beginning to expand into
certain foreign markets.
Baldwin-United*s strategy of expansion into many financial service areas
has been beneficial for its stockholders.
Its rate of return on equity grew
from 22.8 percent in 1977 to 33.6 percent in 1981.
Its average return on
equity over the decade 1970-1980 was the highest on Fortune magazine's list of
the 50 largest diversified financial companies.
For the period 1971-1981,
Baldwin-United had the second highest average return of the companies on
Fortune* s list.
Thus, Baldwin-United has not only found the financial
services sector to be profitable, but it has also been more successful than
other firms with similar diversification strategies.

Beneficial Corporation

Originally incorporated in 1929, Beneficial is now an international
financial services corporation with interests in merchandising as well.
Its
primary involvement is in consumer lending.
In recent years the company has
promoted growth in real estate secured loans, especially second mortgages. At
the same time it has sharply reduced its unsecured personal lending and
purchases of sales finance contracts.

B2-5

Beneficial has also been consolidating its consumer finance operations.
It closed 437 U.S. offices, a 23 percent reduction, in 1981, This was after
reducing the number of offices by a net 149 in 1980. Beneficial has stopped
making new loans in 12 states where regulations and poor economic conditions
were hurting profitability.
In addition, the company sold its remaining
operations in Alabama and Tennessee.
By the end of 1981, Beneficial had 1797 consumer finance offices, 1461 of
which were in the United States.
Its domestic business is greatest in
California, New York, Ohio, Pennsylvania, and Texas.
Its foreign consumer finance offices are in Canada, the United Kingdom,
Australia, West Germany, Japan, New Zealand, and Ireland.
In the United
Kingdom, Beneficial Trust Limited is licensed as a bank.
It takes deposits
and offers consumer and commercial banking services.
Beneficial's commercial banking subsidiary, Peoples Bank and Trust,
operates through seven branches in Delaware.
It implements Beneficial's
pre-approved, revolving consumer loan program.
Such programs have now
received regulatory approval in 29 states. Peoples Bank and Trust also issues
Visa and MasterCard credit cards.
In September 1982, Peoples Bank and Trust
agreed to purchase the credit card portfolio of First National Bank of Denver
which has 100,000 accounts and $40 million in oustanding receivables.
Beneficial's commercial finance activities include equipment leasing and
lending secured by inventories and accounts receivable. While commercial
financing is a very small part of Beneficial's business at present, the
company expects it to grow in the future.
Beneficial sold its saving and loan subsidiary, First Texas Financial
Corporation in November 1982.
BENICO, the Beneficial Insurance Group, is primarily involved in consumer
credit insurance.
It also writes and reinsures life, annuity, accident and
health, and property and liability insurance.
Beneficial's merchandising subsidiary is Western Auto Supply Company, a
retailer that specializes in automotive supplies.
Spiegel Inc., which was
part of the merchandising division, was sold in 1981.

Bradford National Corporation

Bradford National Corporation, formerly Bradford Computer and Systems,
Inc., and its ten subsidiaries offer primarily five services:
corporate
shareholder services, mutual fund services,
trust services, securities
clearance and draft collection services, and systems and facilities services.
Corporate shareholders services and systems and facilities services have
usually accounted for most of Bradford's revenues.
Through its Shareholder Services Group, Bradford provides computer,
clerical, and administrative services for certain banks who function as
transfer agents or registrars for corporations. Approximately 100 banks in 30
states use these services including Chase Manhattan, Crocker, and Mellon.
Through its chartered trust companies— Bradford Trust Company, New York;
Bradford
Trust
Company
Boston;
and
Security
Trust
Company,
Los
Angeles— Bradford provides shareholder services directly to banks' customers.
Until 1981, Bradford owned, along with Crocker National Corp., Western
Bradford Trust Company, a state chartered bank in California. Bradford owned

B2-6

49,9 percent of Western's common stock.
In 1981, Bradford sold its 49.9
percent interest to Crocker.
Also through its trust companies, Bradford acts as a transfer agent for
investment companies, including mutual funds. Bradford maintains shareholder
records and provides shareholders, mutual funds, and dealers with such
services as processing subscriptions, redemptions, and dividends.
In addition, Bradford Trust Company provides custody services, and
Bradford Trust Company Boston provides automated recordkeeping and information
processing for clients, and both trust companies offer trust operations
services, including trust accounting for bank trust departments.
Bradford
Financial Processing services supplies the accounting module.
Bradford's trust companies are its in-house banks.
They accept demand
deposits from Bradford's subsidiaries; they lend securities belonging to trust
customers and obtain cash collateral from the borrowers.
This cash can be
used by Bradford's clients for reinvestment.
The trust companies also make
broker loans and advances to customers against draft collections to facilitate
securities clearance.
Bradford's trust companies do not make commercial
loans.
The trust companies also act as trustee and administrator of IRAs and
Keogh plans and as a servicing agent for plans designed for employees'
benefits of tax-exempt organizations.
Bradford Broker Settlement,
Inc.
(BBSI), Bradford's broker-dealer
subsidiary, also acts as a trustee and administrator of IRAs and Keogh plans.
This subsidiary offers securities brokerage back office services and clearing
services to stock brokers, and in 1981, BBSI began offering execution
capabilities in connection with its clearing services.
In January 1982, BBSI began offering clearing and execution services to
banks and thrifts for their discount brokerage programs. These services were
initially part of Bradford's asset management account (AMA) package which was
developed in 1981 for the Industrial National Bank of Rhode Island and which
is now marketed to other banks.
"Personal Asset Account," Bradford's AMA package, offers automatic
transfer of incoming funds into money market funds, a zero balance checking
account, a charge card for use in ATMs, automatic loans through a line of
credit, automatic bill paying, and many securities investment options.
Through Bradford Securities Processing Services (BSPS), Bradford clears
securities for commercial banks, brokers, and dealers through a network of
facilities.
BSPS' subsidiary, SPS Options Service, clears options and
executes trades on the Chicago Board Options Exchange. In 1980, when Bradford
acquired the Health Care Services Division of Optimum Systems Inc., Bradford
began servicing medical insurance claims.
And in 1981, Bradford became the
transfer and fiscal agent in relation to the sale in the secondary market of
SBA guaranteed loans for the U.S. Small Business Administration.
Bradford offers a System and Facilities service which includes management
consulting, feasibility studies, and systems specifications*
In 1979, Bradford National acquired Eagle National Life Insurance
Company, Lexington, Kentucky. At the time of this acquisition Eagle National
had over $100 million of life insurance in force.
Eagle National Life, now
Eagle National Corporation, offers claims processing and control services to
self-insuring employers.
Eagle National Corp. owns Bradford National Life
Insurance Company, a life and health insurer which is licensed in 39 states
and the District of Columbia.
In August 1982 Bradford agreed to sell 81
percent of Eagle National Corp. to Whitehall Insurance Holding Ltd., a
subsidiary of Aim Management Inc., a Houston-based mutual fund manager.

B2-7

Walter E. Heller International Corporation

Walter E. Heller International Corporation is a holding company with two
commercial finance subsidiaries and a commercial bank that primarily serve
small- and medium-sized businesses.
Its largest finance subsidiary is Walter E. Heller and Company (Heller)
which was formed in 1919.
Heller’s business is concentrated in the United
States.
It operates 60 commercial finance offices in 27 states and five
commercial finance offices in Canada. It also has 37 consumer loan offices in
Puerto Rico and 10 in Canada.
Heller’s activities include commercial lending, leasing, and factoring.
It has been making commercial loans secured by inventories and accounts
receivable since the 1930s and collateralized term loans to finance equipment
purchases since 1940. These loans accounted for 46 percent of Heller’s finance
receivables at the end of 1981.
Heller’s factoring operations began in 1935, and by the end of 1981, the
company was serving approximately 665 factoring clients.
Factored accounts
receivable made up 12 percent of Heller’s outstanding finance receivables at
the end of 1981. However, factoring contributed 22 percent of the company’s
commercial finance volume during the year.
In 1938, Heller started a rediscounting service for furniture retailers
and consumer finance companies. Heller lends to these companies so that they
can offer their own credit programs.
Rediscounting is a minor part of
Heller’s business.
It made up only 4.7 percent of Heller’s finance
receivables in 1981.
Heller finances the commercial real estate and construction industries
through its Abacus Group.
Abacus has been making commercial mortgages and
construction loans since 1961, and in 1972, it expanded into mortgage banking.
At the end of 1981, 23 percent of Heller’s outstanding receivables were real
estate loans.
Heller has been involved in leasing since 1962, but it was not a large
part of Heller’s business until 1976 when the company acquired Chandler
Leasing Corporation.
Heller leases capital equipment which it purchases
specifically for each client.
Leasing receivables made up 11 percent of
Heller’s finance receivables in 1981.
The company’s consumer lending activities began in 1962.
It makes
personal and second mortgage installment loans in Canada and Puerto Rico.
Consumer lending accounted for only 2 percent of Heller’s outstanding loans in
1981.
Heller provides financial advisory services through its Capital Services
Division. Capital Services assists with mergers, acquisitions, and direct and
private placements.
The division also provides venture capital through its
Small Business Investment Corporation.
Walter E. Heller International’s second finance subsidiary is Walter E.
Heller Overseas Corporation (Heller Overseas).
It began providing commercial
financial services in Europe in 1964, and it is now involved in 23 countries
throughout the world.
In most countries, Heller Overseas’ subsidiaries are
owned jointly by local banks or other financial institutions.
Heller Overseas’ principal financial service is factoring.
In 1978, it
expanded into equipment financing and leasing in Europe and Latin America. By
the end of 1981, its equipment finance and lease receivables totaled $50
million. Heller Overseas’ subsidiaries provide import and export financing to
U.S. companies. They also finance the working capital needs and acquisitions

B2-8

of foreign subsidiaries of U.S. multinationals. Heller Overseas accounted for
about 13 percent of Heller International's total finance receivables at the
end of 1981.
In 1973, Heller International acquired its third financial subsidiary,
American National Bank and Trust Company of Chicago.
The purchase converted
Heller International into a bank holding company subject to restrictions on
its other lines of business under the Bank Holding Company Act.
In order to
comply with
these
restrictions,
Heller
International
sold its three
manufacturing
subsidiaries over the period from 1973
to
1977.
The
subsidiaries manufactured office furniture, commercial food service equipment,
and enamel surfaces on lighting fixtures.
American National has its main office and a business service office in
Chicago and another business service office in Washington, D.C.
It also has
branches in London and Grand Cayman and representative offices in ten other
countries in Europe, Asia, and Latin America.
American National provides
commercial, consumer, and correspondent banking services.
It also offers
trust and portfolio management services for individuals and institutions. At
the end of 1981, the bank had $1.4 billion in loans outstanding, of which 72
percent were to domestic businesses and 11 percent to foreign borrowers.
In 1981, Heller International's commercial finance subsidiaries made up
41 percent of the company's net income before corporate expenses.
However,
this share was unusually low due to a special write-off by the domestic
finance subsidiary to account for several problem loans and a diversion of
funds
in its Phoenix office.
From 1977 through
1980,
the finance
subsidiaries' share of net income before parent company expenses fell from 68
percent to 61 percent.
The remaining share was entirely attributable to the
bank, as the last manufacturing subsidiary was sold in 1977.

Loews Corporation

Loews Corporation is a diversified company with interests in insurance,
consumer finance, hotels, cigarettes, theaters, and watches.
Loews owns 90.8 percent of CNA Financial Corporation, which has
subsidiaries in insurance and consumer finance.
CNA's insurance divisions
sell property and casualty and life insurance.
CNA's consumer finance subsidiary, General Finance Corporation, makes
installment loans and purchases auto finance loans from car dealers.
The
company's profits were hurt in 1981 by high interest expense on its debt and
increased credit losses resulting from a liberalized federal bankruptcy law.
General Finance reacted to the adverse conditions by closing or consolidating
130 finance offices and selling $39 million of receivables during the year.
Loews' nonfinancial subsidiaries are Lorillard, a manufacturer of
cigarettes and chewing tobacco; Loews Hotels; Loews Theaters; and Bulova Watch
Company.

B2-9

M errill Lynch & C o.

Merrill Lynch is a diversified financial services firm involved in
securities, insurance, financing, and real estate.
Its principal subsidiary,
Merrill Lynch, Pierce, Fenner & Smith (MLPF&S), is one of the largest
brokerage and investment banking firms in the country.
It has more than 400
offices in the United States, Guam, and Puerto Rico.
A subsidiary, Merrill
Lynch, Royal Securities Limited, provides brokerage services through 20
offices in Canada. Merrill Lynch International operates 48 brokerage offices
outside the United States and Canada.
Merrill Lynch International also provides merchant banking services
through subsidiaries in London and Panama.
The two merchant banks accept
deposits and make Eurocurrency loans.
They account for much of Merrill
Lynch's $353 million in gross loans outstanding at the end of 1981.
In 1977, MLPF&S cooperated with Bank One of Columbus, Ohio, to introduce
a major new service for investors called the Cash Management Account (CMA).
The CMA is a brokerage margin account which automatically sweeps idle funds
into a money market fund and allows the investor to borrow against the
account's assets. Bank One provides special checks and a Visa card to be used
to access the account. The minimum investment of cash and securities required
to open a CMA is $20,000.
In 1981, MLPF&S added a government securities money fund and a tax exempt
money fund to the CMA service so that investors can choose among three funds
for their idle account balances.
The CMA has experienced rapid growth.
By the end of 1981, there were
583,000 accounts, up from 186,000 the previous year. Total CMA assets at year
end 1981 were $33 billion. As of September 1982, the CMA had close to 780,000
customers and over $50 billion in assets.
Although Merrill Lynch received a
patent for the CMA, Merrill Lynch's competitors in the brokerage industry have
responded to the popularity of the CMA by introducing similar accounts of
their own over the last two years.
But the CMA is the largest of the asset
management accounts.
Merrill Lynch has five money market funds in addition to the three
involved in the CMA service. Total assets of the money funds grew 150 percent
in 1981 to reach $38.3 billion by the end of the year.
This included $22.6
billion in the Merrill Lynch Ready Assets Trust, the largest investment fund
in the United States, and $12.3 billion in the CMA Money Fund.
Merrill Lynch is broadening its consumer services through the Equity
Access Account which provides a revolving line of credit secured by home
equity. The new account is being tested in California and was expected to be
offered in Arizona later in 1982.
Merrill Lynch is also expanding into commercial lending.
In 1976, it
formed Merrill Lynch Leasing Inc., which leases equipment and acts as a broker
in equipment and real estate lease investments.
In 1981, Merrill Lynch
organized a new subsidiary, Merrill Lynch Capital Resources Inc., to finance
commercial projects, provide venture capital, and lend to wealthy individuals.
Merrill Lynch Leasing is now included in the activities of Capital Resources.
The new subsidiary plans to develop its business by capitalizing on Merrill
Lynch's established relationships with corporations and individuals.
In recent years, Merrill Lynch has entered the insurance and real estate
fields as well.
In 1974, it acquired Family Life Insurance Company. Family
Life is primarily involved in mortgage protection life insurance.
It serves
residential mortgage customers of 407 lending institutions.
It also provides

B2-10

mortgage protection disability insurance,
regular life insurance,
and
annuities.
Several insurance agencies associated with MLPF&S since 1975 sell
life insurance and annuities. In 1981, Merrill Lynch sold AMIC Corporation, a
mortgage default insurer that Merrill Lynch acquired in 1979.
Merrill Lynch provides real estate financing through Merrill Lynch,
Hubbard Inc.
This subsidiary is also active in mortgage banking and real
estate management.
Merrill Lynch Realty Associates (MLRA) is a residential
real estate brokerage firm formed in 1978.
In 1981, MLRA bought 16 real
estate brokers in California, Florida, Nevada, and Oklahoma. The company now
has majority interests in 23 such firms. MLRA also has a division engaged in
commercial and industrial real estate brokerage.
Another Merrill Lynch
subsidiary provides executive relocation services.
Despite its increasing encroachment on the traditional banking functions
of lending and deposit-taking, Merrill Lynch is developing other services
which should increase banks’ penetration in some areas. For instance, Merrill
Lynch account executives now market insured, negotiable, retail certificates
of deposit. Banks which sell their CDs through Merrill Lynch benefit from its
close contact with investors and its extensive interstate office network. As
of September 29, 1982, Merrill Lynch was offering more than 50 investment
alternatives for IRA accounts (including federally insured CDs of depository
institutions) and had opened 360,000 accounts with over $2 billion in assets.
Merrill Lynch pursued this idea one step further in a recent agreement to
establish a secondary market for the 3^-year CDs of Bank One of Columbus and
the four-year CDs of Home Federal Savings & Loan Association of San Diego.
Merrill Lynch will not only sell CDs for the two banks, but it will also find
buyers for CD-holders who later wish to sell their instruments.
Thus the
owners can divest their CDs without incurring the penalty for early
withdrawal.
This liquidity makes the certificates more attractive to
investors and therefore easier for the banks to sell. Merrill Lynch receives
a fee from the banks for providing this service.
Commercial banks are not the only ones benefiting from Merrill Lynch’s
marketing strength.
In 1981, the company also began marketing All-Savers
certificates for 15 thrift institutions.
Merrill Lynch’s plans for future expansion include development of its
communications capacity. The company is involved in a joint project with the
Port Authority of New York and New Jersey to build a satellite firm called
Teleport on Staten Island.
The facility will be in contact with 22 domestic
satellites and eventually with international satellites as well. It will take
ten years to complete, but data transmission may begin as early as 1983.
Merrill Lynch will manage the facility and lease space to ten or twelve other
companies.
Teleport will enable Merrill Lynch to cut its communications costs and to
provide new communications services to its customers.
The facility will be
linked to Manhattan and Jersey City by fiber optic cables which could be
extended to other areas as well. Merrill Lynch’s clients could hook up to the
system by telephone or cable. Thus Merrill Lynch may eventually compete with
AT&T and other communications companies as well as brokerages and banks.

B2-11

Transamerica Corporation

Transamerica Corporation is a diversified company with interests in
insurance, financial services, air travel, car rental, and manufacturing.
In
1981, the insurance and financial services subsidiaries accounted for
approximately 70 percent of Transamerica1s operating income.
Transamerica Occidental Life Insurance Company is Transamerica1s largest
subsidiary.
The company and its affiliates provide ordinary life insurance,
group life and health insurance, ordinary reinsurance, and pension products.
Transamerica Occidental is active in every state except New York. Its foreign
operations are in Canada, Puerto Rico, the Virgin Islands, Guam, the United
Kingdom, Australia, and Hong Kong.
Another subsidiary, Transamerica Insurance Group, writes and reinsures
property and casualty insurance in the United States and Canada.
Transamerica Financial Corporation is Transamerica1s consumer finance
subsidiary. In the early 1970s, Transamerica Financial decided to concentrate
its operations and increase its branch sizes in areas where market and
regulatory conditions were most favorable.
In 1981, it had 436 offices in 22
states.
Transamerica Financial's primary activity
is consumer installment
lending, which made up 93 percent of the company's receivables in 1981. The
company also finances sales contracts and revolving charge accounts.
In
recent years, it has emphasized real estate secured lending. Such loans made
up 65 percent of the company's portfolio in 1981.
Transamerica Title Insurance Company, a subsidiary of Transamerica
Financial, offers title insurance and escrow services for real estate
transactions.
In 1979, Transamerica acquired Transamerica Interway, a transportation
equipment leasing company.
Its subsidiary, Transamerica ICS., leases a fleet
of cargo containers.
It has 232 depots in 44 countries. Another subsidiary,
Transamerica Transportation Services Inc., leases piggyback trailers to
railroads and steamship lines.
It also leases a fleet of over-the-road
trailers to private and common carriers in the United States.
Transamerica has several other subsidiaries involved in financial
services.
Transamerica Equipment Leasing Company provides tax-oriented
leveraged leases to businesses and syndicates participations in certain
financings.
Transamerica Investment Services advises four Transamerica
investment funds including Transamerica Cash Reserve, a money market fund.
Transamerica Mortgage Corporation engages in mortgage banking in seven western
states.
Transamerica's nonfinancial
subsidiaries
are
Budget
Rent
a
Car;
Transamerica Airlines, a provider of charter and scheduled service to
passenger and cargo markets; and Transamerica Delavel, a manufacturer of
precision engineered products.
In 1981, Transamerica sold United Artists to
Metro-Goldwyn-Mayer Film Company.

B3-1

Insurance-Based Com panies

Aetna Life & Casualty

Aetna Life & Casualty owns the nation’s fourth largest life insurance
company and the third largest property-casualty insurance company.
It also
has interests in real estate, satellite communications, petroleum products,
and other financial services.
In 1981, the company was second in terms of
assets on Fortune magazine’s list of diversified financial services companies.
Aetna’s insurance subsidiaries sell life, health, and property-casualty
insurance as well as pensions and annuities to individuals and group clients.
American Re-Insurance Company, an Aetna subsidiary, reinsures property and
casualty coverages in the United States, the United Kingdom, Canada,
Australia, and New Zealand.
Aetna has approximately 600 insurance offices in the United States and
Canada.
In 1981, over 95 percent of the company’s insurance revenues came
from its domestic operations.
In addition to its insurance subsidiaries, Aetna has a Diversified
Business Division which consists of several firms in real estate and
specialized technical areas.
Urban Investment and Development Company
develops and manages commercial real estate throughout the United States.
Ponderosa Homes constructs houses in California.
The Division owns a 29
percent interest in Geosource Inc. which supplies products and services to the
petroleum industry.
Aetna is also involved in a joint venture with IBM and
Comsat General to develop a satellite system for business communications. The
partnership had, as of year-end 1982, two satellites in orbit and was serving
several corporate customers.
Aetna is engaged in other activities which compete directly with the
banking sector. For example, Aetna provides financing through the investment
of its insurance portfolio.
Such investments include mortgages on commercial
property, loans to policyholders, and term loans to the companies in its
Diversified Business Division.
Aetna used to have a business finance subsidiary, Aetna Business Credit
Inc., which provided secured loans to small- and medium-sized businesses all
across the country. However, Aetna sold the subsidiary to Barclays American
Corporation in December 1980.
In early 1982, Aetna formed two money market funds to market to its
customers.
By late December 1982, the Aetna Money Trust had net assets of
$17.0 million and the Aetna Tax-Exempt Money Trust had net assets of $13.7
million. Also in 1982, Aetna agreed to acquire Federated Investors, Inc., the
nation’s largest manager of institutional money market funds. The acquisition
was still being negotiated at year-end.
In September 1982, Aetna purchased a 40 percent share of Samuel Montagu
and Company, which was the wholly-owned merchant banking unit of Midland Bank
PLC of London.
The move was part of Aetna’s strategy to expand in
international insurance and financial services markets. The new relationship
may open opportunities for Aetna to service Montagu’s customers who wish to
invest in the United States.
Likewise, Montagu will be able to help Aetna
expand into international markets.

B3-2

Am erican General Corporation

American General Corporation is a holding company whose primary interests
are in life and property-casualty insurance.
The company also has a long
history of diversifying in and out of other financial areas.
At times its
interests have even encroached directly upon the banking sector. In 1981, the
company ranked 15th in terms of assets on Fortune magazine* s list of
diversified financial services companies.
The largest contributor to the company’s earnings is its Life Insurance
Division.
It has twelve operating subsidiaries, of which there are nine in
the continental United States, one in Hawaii and Guam, one in the United
Kingdom, and one in Canada.
The subsidiaries sell a full line of life and
health insurance as well as pensions and annuities through their network of
over 900 offices.
The Property-Liability Insurance Division has six operating subsidiaries
which offer auto, property, and workers* compensation insurance in the United
States. The division’s headquarters are in Maryland, and it has ten regional
and 35 branch offices throughout the country.
Like other insurance companies, American General earns a substantial
portion of its income from the investments of its insurance reserves. Some of
its investments such as commercial mortgages and loans to policyholders
provide financing in competition with other lending institutions.
Over the
past two years, the company has emphasized variable-rate mortgages as part of
its overall strategy to avoid long-term, fixed-rate investments.
At the end
of 1981, American General had just over one billion dollars in mortgages and
$429 million in policy loans outstanding.
American General’s noninsurance subsidiaries contributed only 5 percent
of the company’s net income in 1981. However, they are large competitors in
their own markets and have been part of American General for a long time.
American General took its first step into a noninsurance area in 1939
when it formed a mortgage banking unit called American General Investment
Corporation.
It currently owns a large mortgage banking firm and other
subsidiaries involved in real estate development and finance.
It sells some
of the mortgages it originates to American General's life insurance
subsidiaries.
The company’s next move into a noninsurance area did not occur until 1967
when it formed American General Management Company to advise a mutual fund.
In 1969, American General expanded further into investment services by
acquiring Channing Financial Corporation which had subsidiaries in insurance,
investment management, advisory services, and stock brokerage.
American
General sold Channing*s insurance subsidiaries soon after the acquisition. In
1974, American General merged Channing*s investment advisory firm with
American General Management Company.
In 1976, it sold Channing*s stock
brokerage firm, Emmett A. Larkin Company, and changed Channing’s name to
American General Capital Corporation (AGCC).
Today AGCC’s subsidiaries advise, market, and distribute 15 mutual funds
and three open end funds, and they manage pensions and profit-sharing plans.
AGCC’s money market fund, American General Reserve Fund, reached $333 million
in net assets at the end of 1981.
In addition to its current noninsurance subsidiaries, American General
has had other financial businesses in the past which are no longer part of the
company. One of these areas was banking, in which American General entered in
1968 by buying 34.7 percent of Texas National Bank of Commerce, now Texas

B3-3

Commerce Bancshares, Inc. American General sold its interest in the bank in
1972, after the Bank Holding Company Act Amendments of 1970 required the
company to divest its insurance and investment advisory services in order to
retain its status as a bank holding company.
Under an agreement with the
Federal Reserve Board, American General sold its shares of Texas Commerce over
the period from 1972 to 1980.
From 1973 to 1977, the Company owned a savings and loan association, Gulf
Coast Savings Association, which had four branches in the Houston area.
American General sold Gulf Coast because of federal regulations which prohibit
insurance companies that own savings and loans from investing in other savings
and loans. The regulations also prevent other savings and loans or companies
with savings and loan subsidiaries from buying American General stock.
Thus in the years prior to 1981, American General reduced its
diversification in noninsurance financial services. Over the same period, it
added steadily to its roster of insurance subsidiaries.
It completed
acquisitions of six life insurance companies from 1976 through 1981.
However, in February 1982, the company made a new move into noninsurance
services by purchasing Credithrift Financial, Inc., a consumer finance and
credit insurance holding company based in Evansville, Indiana. The company’s
major consumer finance subsidiary is Credithrift Financial Corporation, but it
also has two Morris Plan Companies in Indiana and one in California. In 1981,
secured direct installment loans made up 84 percent of their combined consumer
receivables, and the remaining 16 percent was made up of purchased retail
sales contracts.
Credithrift is currently emphasizing second mortgages
because of their large size and relatively low credit risk.
At the end of
1981, second mortgages made up 49 percent of the company’s direct installment
receivables.
Credithrift’s consumer finance companies operate 345 offices in 24
states.
Their business is greatest in California, Indiana, Ohio, Illinois,
Kentucky, Florida, Louisiana, and North Carolina.
In 1981, Credithrift
decided to discontinue its operations in Michigan because of that state’s low
usury ceilings. The company closed 18 Michigan offices during the year, and
it will close the remaining 18 offices as its outstanding loans mature.
Outside of Michigan, Credithrift eliminated another 58 offices in an effort to
reduce administrative costs by consolidating operations.
In addition to its finance subsidiaries, Credithrift has three insurance
subsidiaries. Merit Life Insurance Company writes credit life insurance and
reinsures credit life, accident, and health insurance on Credithrift’s finance
customers.
The other two insurance companies both provide casualty insurance. Great
Falls Insurance Company is primarily active in California. Yosemite Insurance
Company operates in 38 states and Guam. It mainly provides credit coverage to
Credithrift’s finance customers.
The acquisition of Credithrift approximately doubles American General’s
financing activity.
If American General had owned the finance company at the
end of 1981, its finance receivables would have been $1,164 million greater,
an 81 percent increase over the actual level.
Thus American General’s
present-day importance as a lender and a banking rival is understated in
Appendix A.

B3-4

The Equitable Life Assurance Society of the United States

Equitable Life Assurance is the third largest life insurance company in
the United States based on assets.
It sells life and health insurance,
annuities, and pensions throughout the country.
At the end of 1981, the
company was managing $43 billion in assets.
It is the largest pension fund
manager in the country with $29 billion of pension funds under management.
Equitable competes with banks by investing its insurance reserves in
commercial mortgage loans and policy loans.
In recent years, it has been
decreasing its mortgage lending and making equity investments in real estate
instead.
Most of the mortgages currently being made by the company are on
agricultural property. At the end of 1981, Equitable had over $10 billion in
mortgages and $2.7 billion of policy loans outstanding.
In 1980, Equitable established a money market fund called Equitable Money
Market Account.
As of December 1982, the fund had net assets of $433.3
million.
In June 1981, the New York State Insurance Department permitted Equitable
to offer corporate cash management services.
Since Equitable already has an
electronic clearing house network, the insurance company is in a position to
offer corporate cash management services nationwide.

John Hancock Mutual Life Insurance Com pany

John Hancock is a mutual life insurance company which has begun to
diversify into other financial services including mutual funds, equipment
leasing and financing, and financial planning.
Also in June 1982, John
Hancock entered the discount brokerage business.
John Hancock Advisers, Inc. was established in 1968, and through this
subsidiary John Hancock manages five open-end mutual funds— The Growth Fund,
the Bond Fund, the U.S. Government Securities Fund, the Tax-Exempt Income
Trust, and the Cash Management Trust— and advises two closed-end investment
companies— John Hancock Investors Inc. and John Hancock Income Securities
Corp. The mutual funds are sold by John Hancock’s broker-dealer subsidiary,
John Hancock Distributors, Inc., and at the end of 1981, John Hancock Advisers
managed $1.2 billion in assets.
John Hancock Financial Services, Inc. was established in 1980.
This
equipment
leasing
and
financing
subsidiary
serves
the
’’agricultural,
professional and general equipment markets’’ and at the end of 1981 had a
portfolio of $43 million of equipment financing.
Through its subsidiaries, Herbert F. Cluthe and Co. and Profesco Corp.,
John Hancock offers financial planning services. Cluthe services business and
trade associations, and Profesco services professionals and executives.
In June 1982, John Hancock acquired Tucker, Anthony & R.L. Day Inc., a
regional brokerage firm in New York. This firm is the 67th largest brokerage
firm and has 31 offices throughout New York State and New England.
John Hancock expects to diversify further in the financial services
industry.

B3-5

Prudential Insurance Com pany of Am erica

Prudential is the nation's largest life insurance company.
It sells
individual life, health, and property and casualty insurance as well as group
insurance and group pensions in the United States and Canada,
Its
international operations include subsidiaries in Belgium and Brazil and a
joint venture in Japan, the Sony Prudential Life Insurance Company,
Also,
Prudential sells individual insurance on U,S. military bases overseas, and its
reinsurance subsidiary is very active in international markets.
Prudential made headlines in June 1981 by acquiring the Bache Group Inc.,
one of the largest brokerage and investment banking companies in the country.
Bache1s principal subsidiary is the brokerage firm, Bache Halsey Stuart
Shields Inc. which in 1982 became Prudential-Bache.
Bache's money market
fund, MoneyMart Assets Inc., had net assets of $4 billion at the end of 1981.
The acquisition was a major step toward Prudential's stated goal of
becoming a full service financial institution.
In addition to expanding
Prudential's services, Bache offers a new network for marketing Prudential's
traditional products.
Bache serves individual, institutional, and corporate
clients through 201 offices in the United States and Canada and 25 offices in
17 other countries.
The two companies have already started cooperating on new products and
marketing initiatives.
In July 1981, they added the Chancellor Tax-Managed
Utility Fund to the seven other Chancellor mutual funds that Bache manages or
administers. The new fund is managed by Prudential and administered by Bache.
By the end of 1981, it had net assets of $97 million.
Prudential and Bache also worked together to introduce several other
mutual funds in 1982.
Prudential agents began to market eight Bache mutual
funds in Texas, Oklahoma, Pennsylvania, and New York in early 1982.
In
October, Prudential agents across the country started selling the Bache funds.
Both Prudential and Bache agents are selling PRUFLEX, Prudential's new
retirement annuity.
Prudential is also participating in the Bache Command Account which was
first offered in the spring of 1982. The new account is an asset management
service similar to Merrill Lynch's Cash Management Account.
Prudential is
managing the account's money market fund, and a Prudential subsidiary is
providing supplemental insurance of up to $10 million on the account.
The
minimum initial investment in the account is $20,000.
The new Bache Command Account also involves the services of two banks.
Bank One of Columbus processes Visa and check transactions for the account,
and Citicorp's Pass-Word Travelers Checks are offered to account customers.
Bache provides other marketing services to banks and thrifts as well. In
August 1982, it began a program called CD Plus in which it sells 3hr and fouryear certificates of deposit for several banks.
Bache agents also sell
All-Savers certificates for thrift institutions.
One fact that may be overlooked in all the publicity over the Bache
acquisition is that Prudential has traditionally provided various forms of
financing through the investments of its portfolio.
With $59.3 billion in
assets at the end of 1981, Prudential's portfolio is the largest in the
insurance business.
In addition to investing in stocks, bonds, and real
estate, Prudential lends to its policyholders and makes commercial mortgages.
At the end of 1981, the company had $15 billion in mortgages outstanding. Some
of these mortgages are of Prudential's joint venture real estate investments.

B3-6

In 1981, the company set up two separate accounts that will make shared
appreciation mortgages• These mortgages allow the creditor to share in any
increase in the value of the mortgaged property during the term of the loan.
In late 1981, Prudential established an industrial lending subsidiary,
PruCapital Inc., which combined Prudential’s leasing subsidiary and the
Regional Division of its Corporate Finance Department.
PruCapital finances
industrial and utility customers through leases of nuclear fuel cores, motor
vehicles, corporate aircraft, and equipment.
It makes secured and unsecured
commercial loans.
It also enters supply agreements whereby it purchases fuel
or other raw material used in a customer’s production process, stores it at or
near the production site, and sells it to the customer as needed. PruCapital
operates eleven industrial finance offices throughout the United States, and
it
conducts
its
lending
to
utilities
through
its
headquarters
in
Massachusetts.
Prudential’s development of PruCapital’s business is establishing the
insurance giant as an industrial lender.
Its acquisition of Bache increases
the range of its services, its customer contacts, and its investment funds.
Prudential is thus poised to compete directly with the nation’s banks and
other diversified financial companies.

B4-1

O il and Retail-Based Com panies

A m oco Credit Corporation

Amoco Credit Corporation was organized in 1969 and is a wholly-owned
subsidiary of Standard Oil (Indiana), Amoco Credit is principally engaged in
purchasing the receivables of Standard’s domestic subsidiaries, mainly Amoco
Oil’s revolving charge receivables of credit card customers.
In 1981 the
credit subsidiary purchased $345 million of receivables from Amoco Oil. Amoco
Credit’s income is primarily derived from interest on receivables purchased.
In 1981, Amoco Credit’s net income was $13.3 million.
In 1982, Amoco introduced a new credit card, the MultiCard.
This card
can be used to purchase gasoline, lodging at various motels, and food at some
restaurants as well as to cash personal checks of up to $50 per day.
Also,
the card provides discount and charge privileges with National Car Rental and
cash advances by wire of up to $100 per day.

M cM ahan Valley Stores

McMahan Valley stores began in 1919 with one store in Bakersfield,
California.
Today the family-owned furniture company has 69 stores in
California, Nevada, Arizona, and New Mexico.
In 1981, annual revenues were
more than $50 million, and it had over 110,000 retail customers.
Although McMahan Valley stores has been financing furniture purchases
since 1919, it took a big step into the financial services business in August
1982 when the Comptroller of the Currency approved McMahan’s application to
establish a de novo bank— Western Family Bank, N.A.— on the premises of
McMahan’s furniture outlets.
Western will be based at the furniture company’s headquarters in
Carlsbad, California, and it will open a branch in Colton, California.
Western also plans to open a Fresno branch in early 1983.
Western, which will principally serve low- and middle-income families and
minorities, will offer NOW accounts; financial counseling and planning; and
education, home improvement, auto, truck and farm equipment loans.
Western
will make no commercial loans.

M obil Corporation

Mobil Corporation (Mobil) was incorporated in 1976 to operate as a
holding company.
Its main business is conducted by Mobil Oil Corp. , a
wholly-owned energy subsidiary.
Mobil is also involved in chemicals, and,
since the acquisition of Marcor in 1976, in paperboard packaging through
Container Corp. and in retail merchandising through Montgomery Ward and
Company.

B4-2

Mobil owns Mobil Oil Credit Corporation (Mobil Credit) which operates
Mobil Oil's credit card business, purchases accounts receivables from Mobil
Oil, and issues short-term debt. At year-end 1981, Mobil Credit had over $1.2
billion of accounts receivable and net income of $52 million.

M ontgomery Ward & Com pany

Montgomery Ward & Company (Wards) is a retail merchandising concern with
389 retail department stores in 42 states.
Fifty-one of these stores are
centralized check-out Jefferson Ward stores.
Wards also conducts catalog
sales activities, and during 1981, Wards had net sales in excess of $5.7
billion.
Montgomery Ward Credit Corporation is a wholly-owned subsidiary of Wards
and is principally engaged in the financing of Wards' customer receivables.
For 1981, credit sales under Wards* revolving credit plan accounted for about
54 percent of Wards' total sales, and as of December 1981, Wards had
approximately 6.8 million customer charge accounts.
Wards also offers insurance products.
Through Montgomery Ward Life
Insurance Company and its subsidiary, Wards offers life and casualty insurance
to Wards' customers, and through Signature Financial Marketing, Inc., Wards
operates the third largest U.S. auto club and offers insurance and financial
services to Wards' customers.

J. C . Penney Com pany

J.C. Penney Company provides credit to its merchandise customers through
the J.C. Penney credit card. In 1979, J.C. Penney began to accept Visa in the
United States and Puerto Rico, and in 1980 it began to take MasterCard as
well. Neither bankcard is accepted by J.C. Penney!s Belgian stores.
J.C.
Penney
formed a finance
subsidiary,
J.C.
Penney
Financial
Corporation, in 1964. The new company's function was and still is to purchase
some of J.C. Penney's customer receivables and make loans to the parent
company. The sale of receivables to J.C. Penney Financial is dictated by J.C.
Penney's seasonal working capital needs.
As of early 1982, J.C. Penney Financial owned a little more than half of
J.C. Penney's total credit card receivables.
In previous years, J.C. Penney
Financial has held much higher percentages
of the parent company's
receivables.
In 1981, J.C. Penney terminated an agreement with Citicorp Industrial
Credit Inc. (CIC), a wholly-owned subsidiary of Citicorp, under which CIC had
been purchasing roughly 10 percent of J.C. Penney's receivables. J.C. Penney
then repurchased its receivables from CIC for $262 million.
Another J.C. Penney subsidiary, J.C. Penney Financial Services, is a
holding company for three insurance subsidiaries.
These companies sell life
and health insurance and car and homeowners casualty insurance.
J.C. Penney plans to sell Great American Reserve Insurance Company, the
subsidiary which sells life and health insurance through an agency network.
J.C. Penney plans to keep the other two insurance companies, J.C. Penney Life

B4-3

Insurance
Company and J.C.
Penney Casualty
Insurance Company.
Both
subsidiaries market their insurance through direct mail and through centers in
J.C. Penney stores.
Late in 1982, Penney agreed to let First Nationwide
Savings establish financial service centers in five Penney stores.
The
centers will combine the sale of First Nationwide’s deposit accounts and loans
with Penney’s insurance.
J.C. Penney also has a subsidiary involved in shopping center develop
ment, J.C. Penney Realty Inc.
At the end of 1981, J.C. Penney Realty had
interests in 47 shopping centers across the country.

Sears, Roebuck and Com pany

Sears, Roebuck and Company, the nation’s largest retailer, has been
involved in financial services since 1910 when it first began to provide
retail credit.
In 1931, Allstate Insurance was formed to sell car insurance.
Now Allstate provides almost all types of insurance to individuals and
corporations in the United States and Canada. The Allstate Insurance Group’s
consumer finance subsidiaries make installment loans secured by cars, light
trucks, boats, and home equity.
In 1961 and 1962, Sears acquired two California savings and loan
associations and combined them to form Allstate Savings and Loan.
Allstate
Savings and Loan has 90 branches in California, primarily in the Los Angeles
area.
It is the 12th largest savings and loan in California and the 18th
largest in the United States.
Sears entered the real estate industry in 1960 when it started Homart
Development Company to develop and manage shopping centers and other
commercial property.
In 1972, it purchased a mortgage banking company now
called Allstate Enterprises Mortgage Corporation.
Then in 1973, Sears
acquired its PMI subsidiaries which are involved in mortgage guaranty
insurance and mortgage banking.
Thus by 1981, Sears had developed a broad range of financial businesses
which contributed just over half of the company’s net income before deduction
of corporate expenses.
The Allstate insurance subsidiaries together were
largest in terms of net income and assets.
The credit card division was the second largest in terms of assets, but
its profits were hurt in recent years by the high interest costs and
restrictive state usury laws which have afflicted the consumer credit
industry.
The division had after-tax losses of $83 million in 1981 and $25
million in 1980.
Despite the unprofitable conditions, it has continued to
finance more than half of Sears’ merchandise sales. At the end of 1981, Sears
had $7.3 billion of gross credit card receivables outstanding.
On December 31, 1981, Sears launched a major new expansion into financial
services by acquiring Dean Witter Reynolds, the nation’s fourth largest stock
broker, and Coldwell, Banker and Company, the nation’s largest real estate
broker.
Dean Witter operates through roughly 320 domestic offices and nine
international offices. In mid-1981, the company introduced the Active Assets
Account, which is similar to Merrill Lynch’s Cash Management Account.
The
account offers brokerage services, automatic transfer of excess funds to a
money market fund, borrowing privileges, checking services, and a special Visa
card. By the end of 1981, 25,000 Active Assets Accounts had been established

B4-4

with total assets of over $400 million.
Dean Witter Reynolds InterCapital
manages the three money market funds which serve the Active Assets Account as
well as 12 mutual funds and institutional accounts. As of early 1982, it was
managing total assets of $11 billion. In late 1981, it started the Sears U.S.
Government Money Market Trust, a money market fund with investments in govern
ment securities. By August 1982, this fund had net assets of $410 million.
Coldwell Banker is engaged in real estate brokerage, mortgage banking,
property management, executive relocation in North America and the United
Kingdom, and other real estate related services.
It operates through 249
residential real estate offices, 54 commercial real estate offices, 24
mortgage banking offices, and 32 real estate management offices.
Sears is taking steps to integrate the services of Dean Witter and
Coldwell Banker with its retail and insurance businesses in order to increase
the range of its financial products.
It plans to use its large credit card
data base to market the services of the two new acquisitions. In 1981, there
were 24.5 million active Sears credit card accounts, and a total of 48 million
households— 57 percent of all households— held Sears cards.
In the summer of 1982, Sears opened new financial service offices in
eight of its stores across the country, and in November, Sears announced plans
to open financial service centers in 25 more stores.
Each center provides
insurance, real estate, and brokerage services and is staffed by salespeople
from Allstate, Coldwell Banker, and Dean Witter. And since late in 1982, the
new money market deposit account is being offered at in-store branches of
Allstate Savings & Loan.
Cooperation between Sears and Dean Witter in the provision of financial
services increased in 1982 when Dean Witter account executives began marketing
certificates of deposit for Allstate Savings and Loan. Dean Witter is also
expanding its services in this area.
It has followed the lead of Merrill
Lynch and is now selling retail CDs and making a secondary market in the
instruments for City Federal Savings and Loan Association of Elizabeth, New
Jersey. As of August 1982, Dean Witter was brokering retail CDs for two banks
and nine savings and loans. It was also creating a secondary market in retail
CDs for one bank and two savings and loans.
It is too early to tell how great a competitive threat Sears will be for
the banking sector. As mentioned, the company's provision of retail credit is
nothing new, and recently it has not been profitable.
The new acquisitions
will not increase competition in financial services unless Sears can expand
the two companies' services and market penetration beyond what they could
achieve on their own.
If Sears is successful, it will compete directly with
banks for savers' funds and consumer lending business.

B5-1

Bank Holding Com panies

BankAm erica Corporation

BankAmerica Corporation was established in 1968, and it became the
holding company for Bank of America National Trust and Savings Association in
1969. At the end of 1981, BankAmerica Corporation was the largest commercial
bank holding company in the United States based on assets and deposits.
In
the United States, Bank of America had 1,092 branches, 16 military offices,
four Edge Act subsidiaries, and four corporate service offices. The bank also
had 115 foreign branches and 17 international representative offices.
Altogether, BankAmerica Corporation was active in 77 countries through Bank of
America and through more than 800 offices of its other subsidiaries and
affiliates.
Bank of America offers a full line of retail, wholesale, and other
commercial banking services.
It has been expanding its retail services by
installing a network of automated teller machines throughout California.
At
the end of 1981, more than 300 of such machines were in operation.
Bank of
America has also been testing two new retail banking products in California.
One is a phone banking service, and the other is a video banking service that
is being provided in conjunction with the Times Mirror Company, the parent of
the Los Angeles Times.
In 1981, Bank of America began to emphasize adjustable rate mortgages as
part of its program to protect itself against interest rate fluctuations. By
the end of the year, Bank of America's outstanding adjustable rate mortgages
had grown to $382 million in home mortgages, $27 million in home equity loans,
and $6 million in mobile home loans. These variable rate mortgages comprised
only a small portion of Bank of America's total mortgage portfolio.
Bank of America’s lending services to corporations and governments
include loan syndications, lines of credit, and term loans.
The bank
participates in co-financings which include lenders in the private and public
sectors.
Bank of America also lends to agribusiness in California and
overseas and to small businesses, proprietorships, and professionals.
Another industry with a significant share of Bank of America’s loan
portfolio is the financial services sector.
The bank has more than 2,000
correspondent banking customers. In 1981, Bank of America’s outstanding loans
to financial institutions were approximately $5 billion.
The majority of
these loans were short-term credits and lines of credit .
Bank of America’s other services to corporations include equipment
leasing, cash management, and computerized business services.
Bank of America also trades and underwrites certain money market and
government debt instruments.
It acts as manager or co-manager for overseas
debt issues, particularly in the Eurodollar market.
In 1981, it participated
in 37 such debt issues with a combined total worth of $2.4 billion.
In the
United States, Bank of America is active in private placements.
It placed
more than $500 million in 1981.
Finally, Bank of America’s trust department offers investment planning
and management as well as custody and trust administration services.
The
department’s affiliated investment management company is BA Investment
Management Corporation.

B5-2

In addition to Bank of America, BankAmerica Corporation has many nonbank
subsidiaries.
The combined profits of these subsidiaries increased 4.3
percent to $48 million in 1981.
This alone made up 10.8 percent of
BankAmerica Corporation’s total income before securities transactions.
BankAmerica1s largest nonbank subsidiary is FinanceAmerica Corporation,
which was GAC Finance Inc. before it was acquired by BankAmerica in 1974. At
the end of 1981, FinanceAmerica and its subsidiaries had 253 consumer loan
offices in 39 states.
The company has been expanding its lending services to middle- and
upper-income customers, particularly, by making general purpose home equity
loans and home improvement loans. It also buys receivables in bulk from other
companies and finances retail and wholesale purchases of large consumer items
such as mobile homes, boats and recreational vehicles.
Like other consumer
lenders, FinanceAmerica has been emphasizing adjustable rate loans recently.
In 1981, BankAmerica integrated the BA Insurance Company Inc. into
FinanceAmerica. BA Insurance provides credit life and disability insurance to
consumer loan customers of FinanceAmerica and Bank of America. Early in 1983,
BankAmerica announced plans to acquire 24.9 percent of H.L. Capital Management
Group, a holding company with interests in workmen’s compensation insurance,
risk management, and reinsurance.
FinanceAmerica has an agreement
to manage BA Financial Services
Corporation, an affiliated company.
BA Financial Services’ subsidiaries
include two industrial banks, a commercial finance company, a corporate loan
company, and a floor plan lender.
BankAmerica is involved in mortgage banking and real estate advisory
services through its subsidiary, BA Mortgage and International Realty
Corporation. The subsidiary was formed in 1977 by the merger of BankAmerica’s
two
real
estate
subsidiaries,
BA
Mortgage
Company
and
BankAmerica
International Realty Corporation.
BA Cheque Corporation is the subsidiary that markets BA Travelers
Cheques.
In 1981, it began to offer travelers cheques in Deutsche marks and
English pounds to customers in the United States and overseas.
Another nonbank subsidiary of BankAmerica is Decimus Corporation which
leases computers and peripheral equipment.
It also offers data processing
services to banks and other financial institutions.
In November 1981, BankAmerica signed a letter of intent to acquire
Charles Schwab Corporation, the parent of Charles Schwab & Co. Inc., a
discount brokerage firm. The proposed acquisition was approved by the SEC and
the Justice Department in 1982 and by the Federal Reserve early in 1983.
In late 1982, Bank of America installed counters with Schwab services on
a pilot basis in six of its branches in the Palo Alto and Newport Beach areas.
Federal Reserve approval was not necessary for such a program.
Transactions
carried out at the counters will be automatically settled to the customer’s
checking account with Bank of America.
In 1982, BankAmerica established another new subsidiary, BA Futures Inc.,
to execute financial futures contracts.
BA Futures has two seats on the
International Monetary Market and a subsidiary of the Chicago Mercantile
Exchange, and it has applied to the Chicago Board of Trade for an associate
membership.
BankAmerica has also applied for Federal Reserve approval of a
futures execution and clearance service for customers not affiliated with
BankAmerica.
The consolidated net income of BankAmerica and its subsidiaries increased
steadily at an average annual rate of 17.5 percent from 1976 through 1980.
However, in 1981 net income fell by 30.8 percent. The company attributes this

B5-3

decline to shifting of low interest consumer deposits to market rate
instruments, high and volatile interest rates, high expenditures on electronic
banking equipment, and increased competition.

Citicorp

Citicorp, incorporated in 1967 as a holding company, today is a
multinational financial services organization staffed by over 58,000 people
serving individuals, businesses, and governments through more than 2,200
offices in 94 countries.
With its 422 bank and nonbank subsidiaries,
including Citibank (the nation’s second largest commercial bank), Citibank
(New York State) and Fidelity Savings and Loan, Citicorp offers a wide range
of financial services including commercial banking and trust services,
merchant banking, mortgage banking, consumer finance, credit card services,
asset-based financing, factoring, payment mechanism research, venture capital
financing, services to financial institutions, and the sale of travelers
checks (See tables below). As of December 31, 1981, Citicorp had total assets
of $103 billion, total deposits of $72 billion, and total net loans of $65
billion.
Citicorp is organized into banking units. The Institutional Banking unit
provides a variety of financial services to business, governmental, health,
educational, and charitable organizations worldwide and to non-U.S. financial
institutions. In October 1982, Citicorp established a state-chartered bank in
Delaware to provide cash management services for corporations and institutions
carrying demand deposits with Citibank.
Citicorp’s Individual Banking unit offers a complete range of financial
services to consumers and small businesses.
This unit is comprised of three
groups.
The first group, the Consumer Banking, Travel and Entertainment Group
provides traditional banking services domestically including checking and
savings accounts, loans, mortgages, and credit cards.
Credit card services are offered by Citibank (New York State), N.A. ,
Citicorp Credit Services Inc., Citicorp Custom Credit Inc.,
Citicorp
Financial, Inc., Carte Blanche, and Diners Club. In June 1981, Citibank moved
its credit card operations to a newly established subsidiary in South Dakota,
Citibank (South Dakota) N.A.
In early 1982, Citibank staged a massive nationwide credit card
solicitation campaign by mail and, in order to attract new customers, offered
special services to cardholders such as Citidollars (discounts on name brand
merchandise when a card is used for the purchase), Citiphone (a discount on
long distance phone calls), and Citiwheels (a low-cost auto towing service).
Also in August 1981, Citibank and Tandy Corp. introduced the first national
co-branded bank card, Radio Shack/Citiline, for customers who want to buy
big-ticket items from Tandy’s Radio Shack stores. The card can also be used
to purchase financial services from Citicorp affiliates.
The second individual banking group, the North American Division, serves
domestic customers outside the New York City Area. And the third group, the
Western Hemisphere Consumer Group, is responsible for loan delivery and some
deposit services domestically, primarily through nonbank affiliates of
Citicorp.
This group is also responsible for managing consumer business in
Latin America.

B5-4

Four other units provide specialized services to Citicorp’s customers.
The Investment Management Group (IMG) provides a broad range of products and
services to high net worth individuals and institutions. In 1981, IMG had $18
billion in discretionary assets under management.
Also, IMG acts as an
advisor for corporations, municipalities, and other domestic institutions and
as a trustee for employee benefit programs.
The Merchant Banking Group, located in 24 major cities around the world,
provides advisory and fund-raising services to corporate, governmental, and
financial institutions.
Advisory services include corporate, public, and
project finance and assistance with mergers, acquisitions, and divestitures.
Through Citicorp Capital Investors, Citicorp makes venture and risk capital
investments.
The Financial and Information Services Group provides information,
processing and marketing services to financial institutions within the United
States through 40 locations around the country.
The Financial Markets Group (FMG) is mainly responsible for maintaining
sufficient liquidity for the activities of Citicorp and Citibank; however, FMG
also underwrites,
distributes,
and trades U.S.
government and agency
securities, money market instruments, and certain state and municipal
obligations.
In 1982, Citicorp established a new subsidiary, Citicorp
Government Securities Inc., to carry on its government securities trading. As
part of the holding company, this subsidiary can open offices throughout the
country.
Citicorp is not just a United States bank with international branches; it
is a global institution with business activities around the world. To enhance
these activities, Citicorp purchased two transponders on the Westar V
Satellite,' thus becoming the first financial institution to own transponders
in space. ^The purchase strengthens Citicorp’s own communications system which
interconnects its more than 1,400 offices in 93 foreign countries, and
Citicorp can now sell communications space on its own transponders. Citicorp
has one earth station, an antenna which receives and sends information, and
Citicorp plans three more. Citicorp has invested substantially in electronic
banking technology— $500 million by year-end 1981.
Not only is Citicorp preparing for global electronic banking, but it is
also preparing for deregulation.
In an attempt to override geographic
barriers, Citicorp’s chairman has^ lobbied for interstate banking legislation
in California and Illinois. Also Citibank advertises its ’’innovative” CDs in
national newspapers.
These CDs can be purchased by calling a Citibank
representative via a toll-free number or through the mail.
In 1975, a
Citicorp Person-to-Person Financial Center in Salt Lake City was converted to
an industrial loan company that can accept time deposits, and in 1982
Person-to-Person opened three offices which can accept consumer deposits in
Minnesota.
As mentioned above, Citibank moved its Credit Card operation to
South Dakota and, in September 1982, acquired Fidelity Savings and Loan
Association of San Francisco.
Citicorp has also tested regulatory limits on product lines by
challenging the list of approved activities of banks and bank holding
companies.
Citibank has developed several products to compete with money
market funds.
Its most recent such product, the Insured Money Market Rate
Account, however, was stopped, as were the others, at the request of
regulators.
In April 1982, Citibank began a cash management account (much
like Merrill Lynch’s CMA) in collaboration with Quick & Reilly, Inc. Also in
June, Citishare, a Citicorp subsidiary, received approval to engage in data
processing and transmission activities including home banking, data bases

B5-5

(providing customers with information through terminals in their offices), and
packaged financial systems. In October 1982, Citicorp was granted permission
to engage in futures commissions activities overseas through a British
subsidiary, Citifutures Ltd., and then in December 1982, Citicorp received
permission to trade futures for its customers domestically through its
subsidiary, Citicorp Futures Corp.
Citicorp has been an innovator and a risk-taker in the financial services
industry.
In order to continue this trend Citicorp is trying to insulate
itself from interest rate fluctuations by becoming more dependent on fee
income through new and existing financial products and services. In 1981, its
ratio of noninterest income to net interest income was 65 percent, a
substantial increase over the 23 percent ratio achieved in 1977.

Worldwide Activities of Citicorp

Subsidiaries

Activity
Institutional Banking: corporate lending,
equipm ent leasing and financing, factoring,
and commercial finance

Citibank, Citibank (New York State), Citicorp
(USA), Citicorp Industrial Credit,
Citicorp Real Estate

Individual Banking: travel and entertainm ent
cards, MasterCard and Visa operations,
traveler's checks, and home and personal
finance

Carte Blanche, Diners Club, Citibank (South
Dakota), Citicorp Services, Citicorp Person-toPerson, Citicorp Acceptance Company

O ther:
Edge Act international banking
Private labeled credit card services
Processing and other services for
depository institutions
Data processing and transmission
Futures trading
M erchant banking
Venture capital financing

Citibank International Retail
Consumer Services
Citicorp Associates
Citishare
Citicorp Futures Corp.
Citicorp International Group
Citicorp Capital Investors

S O U R C E : G e o rg e G . K a u fm a n , T h e U.S. F i n a n c i a l S y s te m : M o n e y M a r k e t s a n d I n s t i t u t i o n s , second e d itio n , 1983,
P ren tice H all.

Citicorp Domestic Offices

U n i t e d S t a t e s (40 states and D.C.)
Citibank, N.A., branches
Citibank, N.A., subsidiaries
Citibank (New York State), N.A. branches
Citibank (New York State), N.A. subsidiaries
Citicorp subsidiaries

Total
S O U R C E : C itic o rp 's 1981 A n n u a l R e p o rt.

284
75
34
33
433

848

B5-6

M anufacturers Hanover Corporation

Manufacturers Hanover Corporation is the fourth largest bank holding
company in the nation with $59 billion in assets at the end of 1981.
The
corporation and its subsidiaries have more than 700 domestic offices in 32
states.
The company's international operations are conducted through 102
facilities in 40 countries.
The
Corporation's
principal
subsidiary
is
the .commercial
bank,
Manufacturers Hanover Trust Company. The bank was formed in 1961 through the
merger of the Hanover Bank with the Manufacturers Trust Company. At the end
of 1981, Manufacturers Hanover Trust had a total of 201 branches in the New
York metropolitan area.
Its international facilities include a network of
Edge Act offices, an International Banking Facility in New York, corporate
offices in Houston and San Francisco, 20 branches in 15 countries, 30
representative offices in 26 countries, and merchant banks in London and Hong
Kong.
Manufacturers Hanover Trust offers a complete line of retail banking
services.
These include services tailored for small- and medium-sized
businesses such as specialized financing, automated accounts receivable,
bookkeeping, and transfer and collection facilities.
The bank has also
installed Automated Teller Machines in the New York metropolitan area to serve
its retail customers.
Manufacturers Hanover Trust also provides a wide variety of wholesale
banking
services
to
corporations,
governments,
and
other
financial
institutions.
Its wholesale lending services include term loans, revolving
credit, letters of credit, inventory and accounts receivable financing, and
real estate construction loans.
Its non-credit services to corporate cus
tomers include cash management and assistance in securities placement.
Manufacturers Hanover Trust also provides correspondent banking services to
more than 3,000 banking institutions.
The bank is also active in public finance, sales and trading of U.S.
government and municipal securities, and trust services. At the end of 1981,
its trust division had more than $30.5 billion under fiduciary and investment
management.
Manufacturers Hanover Trust is currently expanding its U.S. network by
establishing a banking subsidiary in Wilmington, Delaware.
The Federal
Reserve approved the proposal in 1982.
The bank will be named the
Manufacturers Hanover Bank, and it will engage primarily in wholesale lending.
Manufacturers Hanover has other subsidiaries in addition to Manufacturers
Hanover Trust. Three of these subsidiaries are banks in upstate New York. In
early 1982, the three were merged into one bank named Manufacturers Hanover,
N. A.
Another subsidiary is Manufacturers Hanover Leasing Corporation which was
formed in 1972.
It leases equipment and property and makes loans secured by
equipment and property.
It is headquartered in New York City and has 18
offices in 15 states and Puerto Rico.
The company's subsidiaries and
affiliates also operate 25 international offices.
In 1973, Manufacturers Hanover moved into the mortgage banking business
by acquiring Citizens Mortgage Corporation, now called Manufacturers Hanover
Mortgage Corporation. The company currently has 25 offices in 10 states.
In 1975, the holding company purchased Ritter Financial Corporation, a
consumer finance company.
In 1980, Manufacturers Hanover acquired several
other consumer finance companies from First Pennsylvania Corporation.
These

B5-7

companies were subsequently merged with Ritter Financial, and the combined
company was named Manufacturers Hanover Consumer Services, Inc. (MHCSI).
MHCSI's operating units do business primarily under the names Finance One and
Finance One Mortgage Inc.
In 1982, MHCSI purchased the consumer finance receivables and certain
other assets of the American Investment Company. The acquisition included 67
consumer finance offices in California, Oregon, and Washington.
Including
this purchase, MHCSI now has 386 offices in 25 states, Puerto Rico, and the
Virgin Islands.
MHCSI lends directly to individuals and purchases sales finance
contracts. The company began offering second mortgage loans in 1981. By the
end of the year, real estate secured loans accounted for 26 percent of the
company's direct consumer loan portfolio.
MHCSI sells credit life, credit accident, health, and casualty insurance
to its finance customers.
It also reinsures credit life and credit accident
and health insurance provided to its finance customers by other insurance
companies.
In 1980 and 1981, insurance premiums contributed 11 percent of
MHCSIfs income, while its finance business accounted for most of the
remainder.
In 1979, Manufacturers Hanover formed a factoring and commercial finance
subsidiary called Manufacturers Hanover Commercial Corporation.
The company
presently operates nine offices.
The holding company's most recent addition is Manufacturers Hanover
Venture Capital Corporation which was established in early 1981. The new firm
makes equity investments in other companies.
Manufacturers Hanover's net income has increased at an average annual
rate of 12 percent from 1977 through 1981.
The corporation's foreign
operations have accounted for just under half of Manufacturers Hanover's net
income over the past several years.
Despite the growth in net income, Manufacturers Hanover's profits have
been squeezed in recent years by the high cost of funds and heavy competition
in lending markets.
Its interest rate spread has decline^ steadily from 2.29
percent in 1977 to 1.08 percent in 1981.

B6-1
Potential Entrants
The Dun & Bradstreet Corporation

Dun & Bradstreet
(D&B) has operations in broadcasting, marketing
services, publishing, and business-credit information services. It is in this
latter area that D&B has been the leader since 1941, and it is because of this
expertise that D&B could be considered a potential entrant into the financial
services industry.
Through Dun & Bradstreet Credit Services (D&B Credit
Services), D&B provides credit information on some 70 million U.S. households
and 4.9 million U.S. businesses, either electronically or through the mail.
D&B is making great advances in electronic delivery. In 1981, 40 percent
of D&B Credit Services1 inquiries were answered electronically through
DunsSprint, DunsDial, and DunsVue whereas in 1977 no inquiries were answered
electronically.
DunSprint enables complete information to be delivered, in
hard copy, instantaneously via online computer terminals in subscribers’
offices.
DunsDial enables subscribers to check information or to obtain
summarized information by dialing a toll-free telephone number.
Over the
phone, a D&B representative reads the desired credit information from a
computer terminal.
In 1981, over 11,000 DunsDial calls were answered daily.
DunsVue enables
subscribers
to obtain
ratings
and
summarized
credit
information from interactive terminals in their offices.
Although electronic delivery is progressing rapidly at D&B Credit
Services, those customers who do not need information quickly can have their
reports delivered by the U.S. mail.
D&B Credit Services mails over 8.5
million credit reports a year to its subscribers.
In 1981, D&B Credit Services introduced two new products.
The first
product, Duns Financial Profiles, compares the balance sheet and income data
of a company with that of other companies of the same size, location, and
industry. 1)&B has such data on over 800,000 companies. The second product,
Payment Analysis Reports, details a company’s bill-payment trend and compares
it with others in its industry.
In addition to providing business-credit information domestically, D&B
provides such information in 24 countries through D&B International. And in
1981, D&B’s National CSS, its computer services division, entered into a joint
venture with D&B Canada to provide online information on 500,000 Canadian
businesses, through Dun & Bradstreet Plan services.
Through a division of its publishing operation, Moody’s Investors
Service, D&B publishes financial manuals and handbooks and rates corporate
bonds, commercial paper, and municipal bonds. In 1981, Moody’s rated over 800
corporate bond issues and 953 commercial paper issues.
D&B markets and
administers group life, health, accident, and disability insurance for small
business through Multiple Employer Trusts. Plan Services uses D&B information
resources to assist in marketing these products to small businesses through
insurance agents.
Plan Services collects premiums and investigates and pays
claims.
Claims are then billed and premiums rebated to the insurance
underwriters.
Indeed, just as D&B uses its extensive credit information resources to
market insurance, D&B could move into the financial services industry by
making business and consumer loans. The likelihood of D&B making such a move
is reduced significantly by its success in its primary line of business, the
processing and sale of information.
Over the last decade D&B has averaged
24.5 percent return on equity (ROE); indeed, its lowest ROE in the last ten
years was 20 percent in 1975. An ROE of this magnitude is considerably higher
than that achieved by most banks which suggests that the sale of information

B6-2

on credit histories may be more profitable than lending to these same firms
and households.
In addition, D&B's sales of information could be hurt if it
were to engage in lending because of the potential loss of objectivity. Thus
even though it could easily enter the lending business by gaining a source of
funds through such means as the sale of commercial paper, D&B appears unlikely
to do so. Nevertheless, by reducing the information costs to all potential
lenders, D&B has probably made the lending business more competitive that it
would otherwise have been.

TRW

TRW
is
a
diversified
manufacturing
concern with
activities
in
computerized
credit
reporting.
In
1969,
TRW
entered
the
consumer-credit-reporting business with the establishment of TRW Credit Data,
a division of TRW Information Services.
In 1979, TRW Business Credit
Services, another division of TRW Information Services, began reporting
business-credit information in a joint venture with the National Association
of Credit Management (NACM).
Information
Services
gets
most
of
its
credit
information
from
participating subscribers that have automated their accounts receivable. Some
information is from manual reports and is supplemented with financial
information that is of public record. If the data from these sources are not
sufficient, Information Services will develop a credit history based upon a
subscriber's particular criteria.
TRW Credit Data has over 70 million consumers on file and serves more
than 10,000 grantors of consumer credit nationwide.
TRW Business Credit
Services has data on over 7 million business locations and markets its credit
information to NACM's 43,000 members and to nonmembers as well.
Business Credit Services reports its data in National Credit Information
Service (NACIS) Reports.
An NACIS Report contains trade payment information
on a company in question, including its six-month payment trend, bank
information, and relevant information supplied by Standard & Poors. An NACIS
report is almost entirely statistical.
TRW Information Services enables subscribers to access consumer-credit
and business-credit data in several ways.
In addition to requesting
information by telephone, subscribers who process many credit applications,
can go online with TRW's computers and read the credit information from
terminals in their own offices.
Subscribers can also send their inquiries on
computer tape to TRW and receive the desired credit profiles on tape or in
hard copy form.
By the end of 1981, TRW Credit Data was showing good results and the
growing TRW Business Credit was reducing its losses. Quite possibly, in the
near future, TRW could broaden the activities of TRW Information Services by
using the credit information which it has gathered to do just what many of its
customers do, namely profitably extend credit to consumers and businesses. As
with Dun & Bradstreet, such forward vertical integration will not likely
occur.
TRW also engages in manufacturing activities.
Included among these
activities are the manufacturing of automobile, electronic, and
aircraft
components; electronic systems equipment and spacecraft; fasteners; and
energy-related tools.

APPENDIX C
THREE C H R O N O L O G IE S O N INTERINDUSTRY A N D INTERSTATE DEVELOPM ENTS
A N D THE D EVELO PM EN T O F CASH M AN AGEM EN T P R O D U C TS: 1980-82

Christine Wabich
and
Harvey Rosenblum

Cl-1
APPENDIX C : THREE C H R O N O L O G IE S O N IN TERIN DUSTRY
AN D INTERSTATE D EVELOPM EN TS AN D THE D EVELO PM EN T
O F CASH M A N A G EM EN T P R O D U C T S : 1980-82
Introduction and O verview

This appendix contains three chronologies of events in the financial
services industry covering the January 1980-December 1982 period. The first
chronology deals with interindustry activities, that is, efforts by banks,
S&Ls, brokers, etc. to invade one another’s traditional product markets. The
second chronology concentrates on interstate activities, that is, efforts by
banks, credit unions, S&Ls and mutual savings banks to cross state lines in
deposit-taking and lending operations. The focus of the third chronology is
the growth of money market fund substitutes and cash management products.
These chronologies illustrate the nature of the kinds of innovative
activities which have contributed to the trends discussed in this paper.
These listings of events provide additional evidence of a movement toward a
comprehensive national market for most financial services.
The increasingly
aggressive nature of financial institutions in testing the limits imposed on
them by regulation can be seen by the acceleration in the number of entries in
the chronologies beginning in late 1981 and extending through 1982.
These
chronologies
are
intended
to
be
representative
of
the
interindustry, interstate, and new product activities that have occurred
during the last three years; these chronologies are not intended to be
comprehensive.
The primary source for items contained in this appendix was
American Banker. The information from the various issues of this newspaper
was supplemented by phone calls to the companies involved. Other periodicals
used were the Wall Street Journal and Fortune.

Cl-2

Interindustry Activities

January 1980

Commercial Credit Corp., a subsidiary of Control Data Corp.,
becomes the first nonbank SBA lender•
National Steel Corp., merges with United Financial Corp.,
parent of Citizens Savings and Loan Association, California.

June 1980

The Federal Reserve Board allows First Financial Group of New
Hampshire, a bank holding company, to acquire First Guaranty
Savings Bank, New Hampshire.

August 1980

Suburban Credit Union of Farmington, Massachusetts, merges with
Union Warren Savings Bank, Massachusetts.

October 1980

The Comptroller of the Currency permits Associates First
Capital, a consumer finance company and a subsidiary of Gulf &
Western Corp., to acquire Fidelity National Bank. Fidelity
divests itself of its commercial loan portfolio; therefore, it
technically is no longer a commercial bank.

November 1980

Wilshire Oil Company of Texas tries to persuade the Federal
Reserve Board to allow Wilshire to retain the Trust Company of
New Jersey. In a move somewhat similar to that of Gulf &
Western, Wilshire proposes to stop the bank from accepting
demand deposits.
(See October 1980, Gulf & Western.) The Fed
rejects Wilshire!s proposals, and the U.S. Third Circuit Court
of Appeals unanimously upholds the Fed's decision; the U.S.
Supreme Court declines to review the case.
The FHLBB allows Kaufman and Broad, a Los Angeles-based parent
of a life insurance company and of home building subsidiaries,
to buy 25 percent of the stock of Biscayne Federal Savings &
Loan Association, Florida.

December 1980

The Arizona Superintendent of Banks and the FDIC approve the
merger of Surety Savings & Loan Association, Phoenix, with City
Bank, a commercial bank in Sun City.
The Connecticut State Bank Commissioner allows Peoples Savings
Bank of Bridgeport, a mutual savings bank, to acquire Stamford
Bank & Trust Company.
Charleston Savings Bank, Massachusetts, acquires Hellenic
Credit Union, Massachusetts.

January 1981

Merrill Lynch & Company becomes the second nonbank SBA lender.
(See January 1980, Commercial Credit Corp.)

Cl-3

ITT becomes the third nonbank SBA lender through a subsidiary
of ITT Financial Corp., ITT Small Business Financial Corp.
(See January 1980, Commercial Credit Corp. and January 1981,
Merrill Lynch.)
March 1981

The FDIC merges the failing Fidelity Mutual Savings Bank of
Spokane, Washington, into First Interstate Bank of Washington.
California Federal Savings and Loan Association, Los Angeles,
acquires California Thrift & Loan.

April 1981

Prudential Insurance Company of America acquires the Bache
Group Inc., a brokerage house. In November 1982, Bache becomes
Prudential-Bache.
Commercial Credit Corp., a finance company and a subsidiary of
Control Data, buys Electronic Realty Associates Inc. (ERA), a
franchised real estate brokerage.
Legislation is passed which allows Pennsylvania mutual savings
banks to make commercial loans.

May 1981

Seattle-First National Bank actively markets a new profit
making venture— handling securities for customers on a third
party/profit basis. Customers can place orders through any
Seattle-First branch.
Merrill Lynch advises corporations on hedging with interest
rate futures, thus taking some business from banks because
Merrill Lynch can carry out its strategies while banks cannot.
J.P. Morgan & Co. forms a subsidiary to trade financial futures
for Morgan Guaranty’s account. In July 1981, the Federal
Reserve Board allows Morgan Guaranty to execute trades for its
customers; in December 1982, the Commodities Futures Trading
Commission approves.

June 1981

Mutual Benefit Life Insurance Co. turns into a securities
broker by expanding its services through Mutual Benefit
Financial Co., an in-house broker-dealer. Mutual Benefit Life
sells its new services through its 1,600 insurance agents
nationwide.
Prudential Insurance Company introduces a stock fund which is
available to the public and is designed to provide tax
advantages for upper income investors. It is distributed by
Bache.
The New York State Insurance Department gives Equitable Life
Assurance Society of the United States permission to offer
corporate cash management services.
American Express and Shearson Loeb Rhoades, Inc., a large
securities firm, merge.

Cl-4

Bechtel, a construction firm, merges with Dillion Read, an
investment, banking concern,
July 1981

E.F. Hutton & Company, a brokerage firm, buys International
Credit Corp., a subsidiary of International Paper Company,

August 1981

Household International Inc., parent of Household Finance
Corp., a consumer finance firm, acquires Valley National Bank
of Salinas. Household divests Valley National of its
commercial loan portfolio to retain it as a "consumer bank."
(See October 1980, Gulf & Western.)
First Texas Savings Association, a subsidiary of Beneficial
Corp., agrees to put ATMs in Kroger supermarkets throughout
Texas.

September 1981 Shearson Loeb Rhoades Inc., now Shearson/American Express,
acquires Boston Co. Inc., a diversified financial firm and
parent of Boston Safe Deposit and Trust Company, a trust
institution.
October 1981

Security Capital Corp., a real estate investment trust in New
York, acquires Benjamin Franklin Savings Association, Houston.
Shearson/American Express offers an insurance and annuity plan
through American Express’s insurance company, Fireman’s Fund.
Salomon Brothers, the nation’s largest private investment bank
and the world’s largest bond-trading firm, merges with Phibro,
the world’s largest publicly owned commodities trading firm.
ACLI, a commodity trading firm and the world’s largest coffee
dealer, merges into Donaldson Lufkin Jenrette, a brokerage
firm.
The Parker Pen Company acquires Citizens National Bank of
Tilton, New Hampshire, and American Homestead First Life
Insurance Company of Little Rock, Arkansas, through Parker
Pen’s new subsidiary, First Deposit Corp., San Francisco.
Citizens National divests itself of its commercial loan
portfolio.
(See October 1980, Gulf & Western.)

November 1981

H.F. Ahmansson & Company, an S&L holding company, acquires
Bankers National Life Insurance Company.
BankAmerica Corp. plans to acquire Charles Schwab & Company,
the nation’s largest discount brokerage firm; the Federal
Reserve Board approves the acquisition early in 1983.

Cl-5

Goldman Sachs, an investment banking partnership, merges with
J. Aron, a commodities and foreign exchange trader.
The FDIC approves the sale of Granite State Trust Company, a
small commercial bank in New Hampshire, to Plymouth Guaranty
Savings Bank, a New Hampshire thrift.
December 1981

Dana Corp., a manufacturing concern, acquires General Ohio
Savings & Loan Corp., Ohio’s largest savings and loan holding
company.
Sears, Roebuck and Company offers Sears U.S. Government Money
Market Trust, a money market fund; acquires Coldwell Banker and
Company, a real estate broker; and merges with Dean Witter
Reynolds, a brokerage firm.
Great Western Financial Corp., parent of Great Western Savings,
a federally chartered S&L, acquires the rights to purchase
Walker & Lee, a diversified brokerage and real estate services
firm. Early in 1983, Great Western acquires Walker & Lee.
Prudential Insurance Company sets up a trust company in
suburban Philadelphia to handle investments for its pension
plan customers.

January 1982

The Pendleton Banking Company, Oregon, merges with two Oregon
S&Ls into a single commercial bank, Pioneer American Bank.
American General Corp., one of the nation’s largest insurance
organizations, merges with Credithrift Financial Inc., a
consumer finance company.
H&R Block, Inc., Kansas City, Missouri, jointly promotes tax
seminars and the tax advantages of IRAs and All-Saver
certificates with several banks. Some banks give $10 off on
tax preparations as a premium for opening an IRA or All-Savers
account.
Banks and thrifts (including Crocker National Bank, Security
Pacific National Bank, and American Savings Bank) collaborate
with brokerage firms (including Bradford Broker Settlement,
Fidelity Brokerage Services, and Quick & Reilly Inc.) to offer
discount brokerage services to customers of the banks and
thrifts.
Teachers Service Organization, a Philadephia-based consumer
finance company which specializes in loans to teachers,
acquires control of Colonial National Bank of Wilmington,
Delaware.

February 1982

Marquette National Bank, a Minneapolis commercial bank,
acquires Farmers and Merchants Savings Bank, Minneapolis.

Cl-6

March 1982

Shearson/American Express and F&M corp., parent of Foster &
Marshall Inc., an investment banking firm, merge.
Hartford Federal Savings and Loan Association, Connecticut,
merges into Schenectady Savings Bank, New York, to form
Northeast Savings.
In California, Merrill Lynch & Co. tests its Equity Access
Account which gives homeowners access to the equity in their
homes through checks and debit cards.
The Federal Reserve Board allows Peoples Bancorp, of Seattle,
Washington, to acquire Tellus Financial Services, Inc., a
resort timesharing firm.
The Federal Reserve Bank of Kansas City allows American
Multi-Cinema Inc., a theatre chain, to increase its ownership
in First National Charter Corp., a $2 billion-asset bank
holding company in Missouri, from 8.46 percent to 24.9 percent.
The California Banking Department approves the merger of Equity
Savings & Loan Association, San Diego, into Commonwealth Bank
of Hawthorne, a California commercial bank.
Chase Manhattan Bank plans to form an investment banking
subsidiary, Chase Manhattan Capital Markets, to exploit changes
in the Glass-Steagall Act.

April 1982

Kemper Corp., a holding company of financial services firms,
and Loew Financial, a brokerage firm, merge, and Kemper
acquires two more brokerage firms by September 1982.
The Federal Reserve Board approves the merger of Scioto Savings
Association, Columbus, Ohio, and Interstate Financial Corp.,
owner of Third National Bank and Trust Company in Dayton.
The Comptroller of the Currency allows North Carolina National
Bank to establish a futures brokerage subsidiary to trade for
the bank’s customers; in September, the Commodities Futures
Trading Commission approves.
Through its new subsidiary, Capital Resources, Merrill Lynch
sells its commercial paper and long-term bonds on the open
market and then lends the proceeds to certain business groups.
American Can buys Associated Madison Co., a holding company for
National Benefit Life Insurance Co., Mass Marketing Systems
International, and Triad Life Insurance Company. National
Benefit Life plans a money market fund.

May 1982

Three S&Ls receive permission to start a joint securities
brokerage service that S&Ls nationwide can use to offer
investment services to their customers. The service, known as
Invest, begins operations in November.

Cl-7

Bank of Virginia is given regulatory approval to acquire four
branches of the ailing Northern Virginia Savings and Loan
Association.
June 1982

Citicorp purchases two transponders on the Westar V satellite
in preparation for global banking.
John Hancock Mutual Life Insurance Company acquires Tucker,
Anthony & R.L. Day., a regional brokerage firm in New York.
A new Massachusetts state law allows banks and thrifts to merge
or acquire each other. The law also ensures that thrifts have
the same powers as commercial banks by 1986.
California Federal Savings and Loan Association takes over the
trust department of Title Insurance and Trust Company.
Alington Five Cents Savings Bank, Massachusetts, intends to
acquire Tanners National Bank in Woburn, Massachusetts.
(See
June 1982, a new Massachusetts state law.) The acquisition was
still being negotiated at year-end.

July 1982

The Delaware Banking Commission grants E.F. Hutton a charter to
operate a trust company in Delaware to solicit Keogh and IRA
customers.
Sears, Roebuck and Company opens financial service centers in
eight stores to offer customers access to Allstate Insurance,
Coldwell Banker real estate, and Dean Witter Reynolds, Inc.
In November, Sears announces plans to open 25 more financial
service centers.
The Minnesota Banking Commission grants Inter-Regional
Financial Group Inc., parent of Dain Bosworth, a brokerage
firm, a charter to create Dain Savings Association in
Minneapolis; Dain Savings receives state approval in October.
The Comptroller of the Currency allows National City Bank,
Minneapolis, to form NCB Financial Futures, Inc.
Florida’s Freedom Savings and Loan, Tampa, acquires ComBanks
Corp. of Winter Park, Florida.
American Express tests IRAs and two money market funds with a
sample of its green card holders.
Aetna Life & Casualty Co. agrees to acquire Federated Investors
Inc., the nation’s largest manager of institutional money
market funds. The acquisition was still being negotiated at
year-end.

Cl-8

The Federal Reserve Board allows Citicorp to offer various data
processing and data transmission services nationwide through a
new subsidiary, Citishare Corp.
August 1982

The Comptroller of the Currency allows First National Bank of
Chicago to form a subsidiary to trade in the futures market for
its customers.
American Express starts a Cable TV show— "How’s Business?"
Cable TV represents an untapped resource for Amexco.
Citibank and Tandy Corp. introduce the first national
co-branded bank card for customers who want to buy big-ticket
items at Radio Shack stores and who want to purchase services
from Citicorp’s affiliates.
The Pennsylvania Department of Banking allows two Pennsylvania
savings associations to invest in a new real estate brokerage
firm.
The Comptroller of the Currency allows Security Pacific
National Bank to offer discount brokerage services through a
subsidiary of the bank rather than through its holding company.
In a joint venture, Merrill Lynch & Co. and the Port Authority
of New York and New Jersey plan to construct a teleport on
Staten Island.
The Comptroller of the Currency gives McMahan Valley stores,
Carlsbad, California, permission to establish Western Family
Bank NA on the premises of three of McMahan’s retail furniture
stores. The bank will make no commercial loans.

September 1982 The Federal Reserve Board conditionally allows Bank of
America’s mortgage banking subsidiary to expand into equity
financing.

The Federal Reserve Board allows Citicorp to acquire Fidelity
Savings & Loan of San Francisco.
Union Planters National Bank in Memphis acquires Brenner Steed
and Associates Inc., a Memphis-based discount brokerage firm.
American Can Co. acquires Transport Life Insurance Company of
Fort Worth.
Gibraltar Financial Corp., parent of Gibraltar Savings & Loan
Association, California, establishes a securities brokerage
subsidiary, GFC Securities Corp.

Cl-9

Aim Management Inc., a Houston-based mutual funds manager,
acquires 81 percent of Eagle National Corp., a wholly-owned
insurance subsidiary of Bradford National Corp.
In a joint venture with Capital Holding Corp., a Kentucky-based
insurance company, Kroger tests Kroger Financial Centers in
several Columbus, Ohio area food stores. These centers offer
various kinds of insurance, mutual funds, and an annuity for
IRAs. In November, Kroger opens more financial centers.
The Parker Pen Company acquires Redding Savings and Loan
Association, Redding, California.
(See October 1981, the
Parker Pen Company.)
The Federal Reserve Board allows Bankers Trust New York Corp.
to buy and sell futures contracts for its customers through a
new subsidiary, BT Capital Markets Corp.
Xerox, an office automation company, agrees to acquire Crum &
Foster, the nation’s 15th largest property-casualty insurer.
The acquisition is expected to be completed early in 1983.
Charles Schwab & Co., a discount brokerage firm, establishes
kiosks in six branches of Bank of America. At these branches,
Schwab opens securities accounts, takes order to buy and sell
stocks and bonds, and debits and credits customers1 demand
deposit accounts.
(See November 1981, BankAmerica Corp.)
Amoco introduces a new credit card, the Multicard, which can be
used for gasoline purchases as well as for other services such
as lodging at various motel chains. The Card can also be used
for cashing personal checks of up to $50 per day.
United Jersey Banks negotiate to buy Richard Blackman & Co., a
discount brokerage. The acquisition was awaiting regulatory
approval at year-end.
Poughkeepsie Savings Bank applies to the FHLBB to acquire
Investors Discount Corp., a Poughkeepsie discount brokerage
firm.
October 1982

Marsh & McLennan Inc., a Delaware-based corporation with
insurance brokerage and investment management subsidiaries,
establishes a non-depository trust company in Boston.
The Comptroller of the Currency allows Security Pacific, Los
Angeles, to acquire Kahn & Co., as Memphis-based discount
brokerage firm.
Landmark Land Company, a real estate company in Carmel,
California, acquires the merged Heritage Federal Savings and
Loan and Dixie Federal Savings and Loan, both of Louisiana.

Cl-10

Aetna Life & Casualty buys a 40 percent interest in Samuel
Montagu & Co., a British merchant banking firm.
Congress passes the Garn-St Germain Depository Institution Act
of 1982 which allows depository institutions, beginning in
December 1982, to offer ceiling-free deposits directly competi
tive with money market mutual funds. In another section of the
act, Congress states a preference for failing depository
institutions to be acquired by other institutions of the same
type; i.e., S&Ls by S&Ls, banks by banks, etc. Another pro
vision gives S&Ls authority to make commercial loans.
Dreyfus Corp., a money fund group, applies to open a new
institution, Dreyfus National Bank & Trust Co. in New York.
Early in 1983, the Comptroller of the Currency grants Dreyfus a
bank charter.
First Fidelity Savings & Loan, Winter Park, Florida, and
American Pioneer Corp., a Florida-based insurance company,
agree to merge.
The Westport Co., a real estate development and management firm
based in Connecticut, agrees to acquire the $1.5
billion-deposit Dade Savings & Loan of Miami.
The Comptroller of the Currency approves Kanahwa Banking &
Trust Co.’s plans to install ATMs in several Kroger stores in
West Virginia.
Publix Super Markets allows any depository institution to
participate in its Publix Teller ATM network which it has
installed in its stores.
The Comptroller of the Currency grants Citibank NA the
authority to pool the assets of IRAs in one or more funds
(stock, bond, and money market) by the bank.
November 1982

Wilshire Oil’s Trust Company of New Jersey agrees to acquire
Elizabeth Savings Bank of Elizabeth, New Jersey. The Trust
Company will assume the charter of the Elizabeth Savings Bank
and operate under the name Trust Company of New Jersey for
Savings; therefore, Wilshire will not be in violation of the
Bank Holding Company Act. The Federal Reserve Board, however,
disallows the merger in December, and Wilshire agrees to divest
itself of the Trust Company.
(See November 1980, Wilshire
Oil).
The Fidelity group seeks to establish Fidelity Bank & Trust Co.
in Salem, New Hampshire. Early in 1983, Fidelity receives
state approval to open a bank in New Hampshire.
In an attempt to circumvent Arkansas usury law, Pulaski Bank &
Trust Co., Little Rock, forms a federal credit union for its
depositors.

Cl-11

Security Pacific National Bank forms a subsidiary, Security
Pacific Brokers Inc., to provide back office support for other
banks which offer discount brokerage services.
Tacoma Savings and Loan, Tacoma, Washington, and American
Federal Savings and Loan, both mutual savings and loans, merge
into a savings bank.
Associates First Capital Corp., the finance company subsidiary
of Gulf & Western, plans to acquire Heritage Federal Savings &
Loan Association in Oakland.
Rainier Bancorp, and Hambrecht & Quist, a San Francisco-based
investment banking and venture capital firm, form Rainier
Venture Partners, for venture capital investments.
BankAmerica Corp. asks the Federal Reserve Board to allow its
subsidiary, BA Futures, to trade for third parties.
December 1982

Two Sears stores on the West Coast offer shoppers the new
deregulated money market account at six in-store branches of
Allstate Savings & Loan.
Glendale Federal Savings & Loan Association becomes the
nation’s first savings and loan to offer SBA loans.
The Federal Reserve Board allows Imperial Bancorp, Inglewood,
California, to continue offering depository institutions
processing and electronic delivery of financial data through
its subsidiary, Imperial Automation.
The Federal Reserve Board conditionally grants Citicorp
permission to act as a futures commission merchant through its
subsidiary Citicorp Futures Corp.
J.C. Penney agrees to allow First Nationwide Savings and Loan
to set up financial service centers in five Penney stores in
northern California . The centers will combine the sale of
First Nationwide deposit accounts and loans with Penney*s
insurance activities. Also, First Nationwide markets its money
market deposit account and other products to Penney credit
cardholders through the mail.
The Securities Group, a New York securities dealer, agrees to
acquire Southern California Savings & Loan, Beverly Hills.
The North Carolina Savings and Loan League establishes a
discount brokerage subsidiary, in conjunction with Fidelity
Brokerage Services, for its 161 member thrifts.
Dreyfus Corp., a money fund manager, acquires the Lincoln State
Bank following the sale of the bank’s commercial loan
portfolio.
(See October 1980, Gulf & Western.)

C2-1

Interstate Activities

March 1980

Citicorp invests $10 million in Central National Chicago Corp.
in the form of nonvoting preferred stock with warrants to
purchase $12 million of common stock should interstate banking
be allowed,
(Later this option is relinquished.)

April 1980

South Carolina Federal Credit Union merges with the Navy
Federal Credit Union, Virginia, the nation’s largest.

May 1980

Provident National Investment Corp., a subsidiary of Provident
National Corp., parent of Provident National Bank of
Philadelphia, buys 5 percent of the shares of three
out-of-state banks.

October 1980

Financial Interstate Services Corp., Knoxville, Tennessee,
provides Bank-at-Home, an in-house computer banking service.
Since Bank-at-Home1s introduction, several other firms have
experimented with home banking.

February 1981

Delaware passes an out-of-state banking bill which opens the
state to major money center banks.

March 1981

Independent State Bank of Minnesota, the nation’s first
wholesale bank for small institutions, expands nationally.
The FHLBB releases a new merger policy which allows interstate
mergers for ailing thrifts.

April 1981

American Express tests a nationwide program which allows
holders of its gold card to obtain cash from ATMs owned by
certain banks around the country.

June 1981

Citibank establishes Citibank (South Dakota) NA in Sioux Falls
to handle its credit card operations.
(In March 1980, South
Dakota passed a bill to allow this move.)

August 1981

Marine Midland Banks, Inc., Buffalo, New York, infuses $25
million into Industrial Valley Bank and Trust Company,
Philadelphia, by buying newly issued common stock and nonvoting
preferred stock with warrants to buy an additional 20 percent
of Industrial Valley’s common stock should interstate banking
be permitted.

Baldwin-United Corp. purchases an option to buy three Arizona
S&Ls if and when interstate deposit-taking becomes legal.
Baldwin-United owns an S&L in Denver.
In anticipation of interstate banking, Western Bancorp,
announces that it will be called First Interstate Bancorp, as
will each of its twenty-one subsidiaries.
(See March 1982,
First Interstate Bancorp.)

C2-2

Sept. 1981

United Financial Corp., San Francisco, a subsidiary of National
Steel and parent of Citizens Savings and Loan, acquires an S&L
in New York and one in Miami Beach. The combined S&Ls later
become First Nationwide Savings.
Merrill Lynch & Company which has over 400 offices nationwide
markets All-Savers certificates for a California thrift and
later markets the certificates for fourteen more thrifts.
Other firms (including Fidelity Management Group, Paine Webber,
and E.F. Hutton) follow Merrill Lynch’s lead.

November 1981

Casco-Northern Corp., Portland, Maine, parent of Casco Bank and
Trust Company, sells First National Boston Corp. 56,250 shares
of its convertible preferred stock and warrants to buy addi
tional common shares.
Chemical New York Corp. and Florida National Banks of Florida,
Inc. agree to merge if interstate banking becomes legal.
Philadelphia Savings Fund Society moves its headquarters from
one end of Montgomery County to the other in order to widen its
commercial lending area to include lower Manhattan.
The FHLBB approves the consolidation of Glendale Federal
Savings & Loan, California, and First Federal Savings & Loan
Association of Fort Lauderdale, Florida.
After four years of marketing its Cash Management Account
locally, Merrill Lynch starts advertising nationally.

December 1981

J.P. Morgan & Company establishes Morgan Bank (Delaware), to
engage in wholesale commercial banking.
(See February 1981,
Delaware’s out-of-state banking bill.)
After receiving all the necessary approvals, Girard Bank,
Philadelphia, acquires Farmers Bank of the State of Delaware.
Banks of Iowa, Inc., a large bank holding company, and First
Bank Systems Inc., Minneapolis agree to consolidate should
interstate banking be allowed.
Boca Raton Federal Savings and Loan, Florida, and Mohawk
Savings and Loan Association of Newark, New Jersey, merge into
City Federal Savings and Loan Association, New Jersey.
Home Savings and Loan Association, Los Angeles, acquires one
Florida thrift and two in Missouri. In connection with the
acquisitions, Home Savings and Loan becomes Home Savings of
America.

January 1982

North Carolina National Bank Corp. acquires First National Bank
of Lake City, Florida, by using "a legal extrapolation of a
grandfather clause.”

C2-3

AmSouth Bancorp, of Alabama, South Carolina National Bank Corp.
and Trust Company of Georgia plan to merge into a single
holding company if and when interstate banking is permitted.
Until then, each is buying $2 million of nonvoting preferred
stock in the other two.
Home Savings of America, Los Angeles, acquires five Texas
savings associations and one in Chicago.
Midlantic Bank, New Jersey, and Florida Coast Banks plan to
establish Florida Coast Midlantic Co., N.A., a non-deposit
trust company. The trust company is in the planning stages.
February 1982

Chase Manhattan Corp. opens Chase Manhattan (U.S.A.) NA in
Delaware to initially handle consumer lending activities.
Golden West Financial Corp., a savings and loan holding company
in Oakland, California, merges with First Savings and Loan
Shares Inc., a Denver-based holding company owning troubled
S&Ls in Colorado and Kansas.
Security Trust Company of Sarasota, Florida, a subsidiary of
Northern Trust Corp., Chicago, becomes a full service
commercial bank and is now Northern Trust Bank of
Florida/Sarasota.
The FDIC invites commercial bank holding companies to bid on
the ailing Farmers & Merchants Savings Bank, Minneapolis, and a
bill is passed in Minnesota to allow the thrift to be acquired
by an out-of-state bank; however, Marquette National Bank, a
Minneapolis commercial bank, acquires F&M Savings Bank.
Chemical New York Corp. establishes a subsidiary in
Delaware— Chemical Bank, Delaware.
The FHLBB approves the merger of California Federal Savings and
Loan, Los Angeles, with one Florida S&L and three in Georgia.
Citicorp receives approval to establish Person-to-Person, a
thrift and loan association, in Glendale, California.

March 1982

Provident National Corp., parent of Philadelphia’s Provident
National Bank, establishes Provident of Delaware Bank for
wholesale banking operations.
Marine Midland Banks, New York, invests $10 million in Centran
Corp., Cleveland, in the form of newly issued nonvoting
preferred stock and warrants to buy over 2 million shares of
Centran1s common stock should interstate banking be permitted.
(See August 1981, Marine Midland Banks.)
First Interstate Bancorp., Los Angeles, plans to franchise its
corporate name and services to other banks nationwide although
the banks will retain their own management and ownership. In

C2-4

September 1982, First National Bank in Golden, Colorado,
becomes First Interstate’s first franchisee and becomes First
Interstate of Golden.
Maryland National Bank moves its credit card operations to
Delaware.
Hartford Federal Savings and Loan Association, Connecticut,
merges into Schenectady Savings Bank, New York, to form
Northeast Savings.
Girard Company, Philadelphia, acquires 4.8 percent of Guarantee
Bancorp. Inc. of Atlantic City and purchases $1 million of
convertible capital notes. Girard also buys an $8 million
debenture of Burlington County Trust Company, New Jersey, which
includes an option to buy one-third of the banks common stock
should interstate banking be allowed.
April 1982

The Bowery Savings Bank, New York, acquires Commonwealth
Savings and Loan Association, Margate, Florida.

May 1982

The Plus System, an ATM network, adds eight additional banks,
filling its remaining geographic gaps and becoming the first
national banking network.

June 1982

Chase Manhattan Corp. infuses $125 million into Pittsburgh’s
troubled Equimark Corp., a state bank holding company and
parent of Equibank. Chase Manhattan receives a 15-year
exclusive option to purchase full control of Equibank.
Philadelphia National Corp., parent of Philadelphia National
Bank, sets up Philadelphia Bank (Delaware) to handle its credit
card operation.
Alaska’s new banking law permits out-of-state banks to acquire
Alaskan banks without the states of those banks enacting
reciprocal legislation.
Merrill Lynch & Co. establishes a secondary market in
deregulated CDs that have a minimum maturity of 3h years for
two banks and two S&Ls. Merrill Lynch markets the CDs in 47
states. In July, Dean Witter also establishes a secondary
market in these CDs.
Equitable Bancorp., Maryland, moves its credit card operation
to a new subsidiary, Equitable of Delaware.

July 1982

The FHLBB approves the acquisition of First Financial of
Virginia Corp., parent of Washington-Lee Federal Savings & Loan

C2-5

Association, by Perpetual American Federal Savings & Loan
Association, Washington, D.C.
New York legislation amends the state’s banking law to allow
out-of-state bank holding companies to acquire control of New
York banks provided that the states of these banks reciprocate.
Merrill Lynch & Co. offers 4- and 5-year, fixed rate, FSLIC
insured CDs with a minimum denomination of $1,000 for nine S&Ls
in Ohio, California, Georgia, Florida, and Washington. Dean
Witter and Bache also markets these CDs for banks and thrifts.
Merrill Lynch & Co. markets federally insured money market
instruments in $100,000 units for banks and thrifts.
August 1982

Rainier Bancorp., Seattle, exercises its option to acquire
controlling interest in Peoples Bank & Trust Company,
Anchorage, Alaska.
(See June 1982, Alaska’s new banking law.)
The Federal Reserve Board and the shareholders of Gulfstream
Banks Inc., Boca Raton, Florida, approve the acquisition of
Gulfstream Banks by North Carolina National Bank Corp.
Erie Savings Bank, Buffalo, acquires the troubled American
Federal Savings and Loan Association, Southfield, Michigan.
California Federal Savings and Loan awaits regulatory approval
to acquire Family Savings and Loan, Reno.
North Carolina National Bank Corp. negotiates to acquire Pan
American Banks Inc., Miami; the acquisition was still awaiting
regulatory approval at year-end.
Bank of America sells zero-coupon, federally insured,
negotiable CDs through Merrill Lynch & Co. nationwide.

September 1982 The Federal Reserve Board allows Citicorp to acquire Fidelity
Savings & Loan of San Francisco.

The Board of Directors of Sea-First Corp., Seattle, votes to
proceed with its acquisition of Alaska Mutual Bank of
Anchorage; however, regulatory approval was still needed at
year-end.
Capital Savings, a federal savings and loan in Olympia,
Washington, acquires Havre Federal Savings & Loan Association
of Havre, Montana.
In the first reciprocal interstate bank acquisition between New
York and Maine, Key Banks Inc. of Albany agrees to acquire
Depositors Corp. of Augusta, the acquisition is expected to be
completed by the end of 1983.

C2-6

The Parker Pen Company, which owns a bank in New Hampshire,
acquires Redding Savings and Loan Association, Redding,
California.
Riggs National Bank, Washington, D.C., agrees to sell the
accounts receivable of its Central Charge Service to Citibank
(New York State) N.A. Citicorp intends to convert Central
Charge cardholders to Choice cardholders.
Liquid Green Trust, a $160 million money market fund joins the
CompuServe Information Service network. An investor can use
his personal computer to transfer money between the fund and
his account in any of the 11,000 banks which are members of the
automated clearing house.
Merrill Lynch begins marketing 91-day CDs for Great Western
Federal Savings & Loan Association, Beverly Hills. Also, Great
Western is working with Merrill Lynch to offer All-Savers
certificates, jumbo CDs, and life insurance.
Norstar Bancorp., New York, agrees to acquire Northeast
Bankshares Association of Portland, Maine, thus becoming the
second bank to use the reciprocal interstate banking
legislation between the two states.
(See September 1982, Key
Banks.)
City Federal Savings & Loan, Elizabeth, New Jersey, proposes to
acquire Home Federal Savings & Loan of Palm Beach.
Biscayne Federal Savings & Loan, Miami, agrees to sell eight
branches to California Federal Savings & Loan. California will
assume $410 million of savings deposits.
October 1982

The Federal Reserve Bank of New York allows Manufacturers
Hanover Corp. to establish Manufacturers Hanover Bank
(Delaware) in Wilmington to engage in wholesale banking.
The FHLBB authorizes Carteret Savings and Loan, Newark, New
Jersey, to acquire First Federal Savings and Loan, Delray
Beach, Florida, and Barton Savings and Loan, Newark.
Paine Webber places orders for Texas Federal Savings & Loan's
zero-coupon CDs.
Congress passes the Garn-St Germain Depository Institutions Act
of 1982. One of its provisions allows failing depository
institutions to be acquired by out-of-state banks or thrifts.
Citicorp establishes a state-chartered bank in Delaware to
provide cash management services for corporations and
institutions carrying demand deposits with Citibank.

C2-7

Sooner Federal Savings & Loan Association, Oklahoma, acquires
Corsicana Federal Savings & Loan, Texas• The two thrifts will
operate under the name of Texas Western Federal Savings and
Loan,
The FHLBB allows Glendale Federal Savings & Loan, California,
to open a de novo branch near Clearwater, Florida, and the
FHLBB is considering Glendale’s application to acquire seven
branches from First Federal Savings and Loan of Largo.
Texas Federal Savings and Loan Association offers zero coupon
CDs with a minimum denomination of $500 through 25 brokers.
Buffalo Savings Bank, New York, and Palmetto Federal Savings &
Loan, Florida, agree to merge.
First Nationwide Savings launches a franchise program, First
Savings Alliance, which includes a wide range of services and a
common name.
Paine Webber markets negotiable four-year CDs of Bank of
America and maintains a secondary market for these CDs.
Key Banks Inc., Albany, offers to acquire Depositors Corp., a
Maine bank holding company.
Person-to-Person Finance Corp., a Citicorp subsidiary, and
FinanceAmerica, a BankAmerica subsidiary, receive approval to
accept deposits, except demand deposits, in Minnesota.
November 1982

Empire of America, a multistate thrift institution in Florida,
buys two Long Island Savings and Loan Associations.
The Calvert Group, a money fund manager, sells six-month CDs
for Standard Federal Savings & Loan Association of Maryland
through a new subsidiary, Calvert Securities Corp.

December 1982

North Carolina National Bank Corp. acquires Exchange Bancorp.
Inc., Florida.
First National Boston Corp. agrees to infuse $25 million into
Colonial Bancorp., Waterbury, Connecticut. The agreement
permits First National Boston to purchase up to 24.9 percent of
Colonial’s common stock should interstate banking be allowed.
The Federal Reserve Board allows Exchange Bancorp., Florida, to
merge into North Carolina National Bank Corp., and the Fed
approves the merger of Downtown National Bank of Miami into
NCNB/Gulfstream Banks Inc.
First Nationwide Savings and Loan markets its money market
deposit account and other products to J.C. Penney Credit
cardholders through the mail.

C2-8

Freedom Savings & Loan Association, Tampa, Florida, sells four
branches to Carteret Savings and Loan, Newark, New Jersey.
The Vanguard Group, a mutual fund company, offers the new money
market deposit account to its customers through an agreement
with Bradford Trust Co. of Boston.
Anchor Savings Bank, New York, acquires, two Georgia thrifts.
Both houses of the Massachusetts State legislature pass and the
governor signs an interstate banking bill which allows
Massachusetts banks to expand into other New England states on
a reciprocal basis.
Merrill Lynch offers a six month, insured CD Participation in
conjunction with several S&Ls. Merrill Lynch buys jumbo six
month CDs and packages them with a minimum balance requirement
of $1,000.

C3-1

M oney M arket and Cash M anagement-Type Accounts

May 1980

First National Bank of Springfield, Illinois, offers a
high-rate investment product in which the bank, acting as an
agent, invests its customers1 deposits in money market funds.

October 1980

Citicorp's Choice Card which is operated by Citicorp’s
subsidiary, Citibank Financial, is introduced in Maryland,
Washington, D.C., and Virginia. The card’s Purchase Plan pays
8 percent interest on credit balances and is designed to
compete with money market funds. The Fed, however, orders
Citicorp to stop the Purchase Plan.

January 1981

The Federal Reserve Board allows First National Bank of
Maryland to pay 5h percent on its CardSavings which is
essentially the same as Citicorp’s Purchase Plan. The Maryland
bank, however, holds reserves on the CardSavings deposits and
pays 5% percent as it does on passbook savings accounts. In
its decision, the Fed says that the issuer of CardSavings is a
bank; whereas, the issuer of the Choice Card is not.

February 1981

In a joint venture, Western Bancorp., a California-based multi
bank holding company, and Dreyfus Corp., a mutual funds
manager, start a mutual fund to be used by the agency accounts
in Western Bancorp.’s trust departments.

April 1981

Dean Witter uses Visa’s debit card to offer a cash management
account similar to Merrill Lynch’s CMA.
Citibank and Northwestern National Bank allow their customers
to borrow money on their six-month money market certificates
through a checking account.

May 1981

The Bank of California NA, San Francisco, introduces a new
account to compete with money market funds. Because the
account is housed in the bank’s London branch, BanCal says it
is not subject to interest rate ceilings and reserve
requirements, but the Federal Reserve Board disagrees.
Provident National Bank, Philadelphia, announces its Circle of
Green program, a package of services which gives customers
access to credit lines and sweeps their deposits into money
market funds.

September 1981 MasterCard International and Fidelity Management Corp. develop
a cash management program for MasterCard members to offer their
customers.

Eleven state bankers associations in the midwest organize a
Delaware corporation to operate a money market fund for client
banks.

C3-2

Citizens Bancorp., Sheboygan, Wisconsin, collaborates with
Federated Securities Corp. to offer a cash management package
to the bank's customers.
Dreyfus Service Corp. sweeps excess cash from bank accounts
into its money market funds, and other firms (including
Bradford National Corp., Fidelity Management Group, and
Federated Investors) follow Dreyfus' lead.
December 1981

Bradford National Corp. provides a package of services to
financial institutions which allows them to offer asset
management accounts to their customers. Fidelity Management
Group, Quick & Reilly, and Federated Investors offer this
service as well.

January 1982

Visa petitions the SEC to allow it to start a money market
fund; however, Visa withdraws its petition in December.

March 1982

Rainier National Bank offers corporate customers same-day
access to money market funds through its cash management
program.
Orbanco Financial Services Corp., a Portland, Oregon holding
company, proposes a note with a minimum denomination of $5,000,
which bears market interest rates, and which has transactions
features. The Federal Reserve Board, however, disallows the
note.

April 1982

Prudential Insurance Company enters the money market funds
business in four states with registered Prudential agents
handling the sales.
Crocker National Bank uses two outside firms to create a cash
management-type account for its customers.

May 1982

Bankers Trust of South Carolina creates a new consumer
account— Money Management Account— that offers high yields with
checking and other services.

June 1982

Marine Midland Bank, Buffalo, and Lehman Brothers Kuhn Loeb
Inc. offer two new money market funds to the trust customers of
the bank and its correspondents.
Four states petition the DIDC to allow the financial
institutions in these states to offer NOW accounts free of
interest rate ceilings.

July 1982

Utah's commissioner of financial institutions approves a new
depository institution to compete with money market funds.

C3-3

September 1982 Citibank introduces the Insured Money Market Rate Account to
compete with money market funds. The account combines
deregulated 3%-year CDs and "bookkeeping" loans, requires a
$5,000 minimum deposit, and is completely liquid. Later in the
month, however, Citibank stops offering the account, perhaps at
the informal request of the Federal Reserve Board.
Talman Home Federal Savings and Loan Association introduces its
Instant Cash Account to compete with money market funds. The
account requires a $5,000 minimum balance and pays the rate of
a 6-month CD.
Wilmington Trust Co., along with Fidelity Brokerage Services,
and Bank of Delaware, along with Bradford Broker Settlement,
offer asset management accounts.
October 1982

Morgan Stanley & Company offers its first money market fund,
the Pierpont Fund, in association with Morgan Guaranty Trust
Company.
The Independent Bankers of Florida join Federated Securities to
offer the IBF Financial Services Account which includes dis
count brokerage services and a sweep account to banks not
affiliated with bank holding companies.
The First National Bank of Pennsylvania introduces its First
Money Management Account, an asset management account.
The SEC gives Boston Savings Bank permission to operate a money
market fund through subsidiaries.
Not to compete with money market funds but to share in their
success, Mellon Bank plans to offer a processing service for
major money funds.
Federated Securities offers banks the option of offering stock
and bond mutual funds as part of their asset management
accounts.
The DIDC authorizes an account which federal depository
institutions can offer and which is "directly equivalent to and
competitive with money market funds."

December 1982

The DIDC authorizes a Super-NOW account which federal
depository institutions can offer on January 5, 1983.

Full text of Working Papers (Federal Reserve Bank of Chicago) : Competition in Financial Services : The Impact of Nonbank Entry, Staff Study 83-1

FRASER