# Brief for the United States — United States v. First National Bancorporation, Inc. > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385001_1562%3A08 ## Record - **Collection:** Supreme Court brief - **Document type:** Brief for the United States - **Published:** January 1, 1972 - **Citation:** 405 U.S. 915 ## Text SEE ee eee nT Rs eee a An want ates EE kart wrmipneadeswnk asians ee ie aa ks ha wanes nomen k Statement: A. The structure of banking in Colorado_ - - - B. The acquiring holding company - - - - - - - -- C. The local geographic market___---_____- D. The acquired bank and the structure of Danke m Greeiey................... E. The proceedings--..------------------- Argument: Introduction and Summary -_------------- I. The effect of the proposed acquisition may be substantially to lessen competition in commercial banking in the Greeley area by eliminating the significant po- tential competition that the acquiring bank holding company provided in A. An acquisition that eliminates significant potential competi- tion in banking may substan- tially lessen competition within the meaning of Section 7 of the Clayton Act_._..------- B. The anticompetiti-e effect of an acquisition that eliminates a significant potential banking competitor is even greater where it is part of a State-wide trend toward concentration in 20 20 23 Argument—Continued Piet f C. The determination whether the acquiring firm is a potential competitor depends upon the objective facts relating to its independent entry into the mar- ket and not upon management’s subjective statements with re- spect to the likelihood of such SE camer ands enesate ns 28 D. Bancorporation is a_ significant potential entrant into the Greeley banking area_________ 36 1. The Greeley market is at- tractive to new entry__ 37 2. Bancorporation is one of the few firms that has the ability to enter the Greeley market in a meaningful way_______ 37 3. Bancorporation has shown substantial interest in expanding into new mar- Ly are 39 4. Bancorporation is a po- tential entrant into the Greeley market despite the testimony of a bank- ing official that he would not recommend _ the chartering of a new bank in that area_____ 40 EK. The effect of the acquisition may be substantially to lessen com- petition in the Greeley area____ 44 1. The Greeley market is highly concentrated ____ 47 PSEA TEM MERE LE ALES VDT REN Heras 6S MES Ill ‘gument—Continued 2. The acquisition of PNB Greeley by Bancorpora- tion may substantially lessen competition by eliminating Bancorpora- tion as a significant po- tential competitor in the Greeley market _---- --- II. The acquisition may substantially lessen competition in correspondent banking in CI cca stn e o ae ae ee ee nee A. Correspondent banking is a line of commerce and Colorado is an appropriate geographic market - B. The acquisition may substantially lessen competition in corre- spondent banking in the State _- cic nancnkne Geka an werk chet CITATIONS ISeS ! Abex Corp. v. Federal Trade Commission, 420 I’, 2d 928, certiorari denied, 400 U.S. 865___- The Bendix Corporation v. Federal Trade Com- seston, 450 F. 20 G34... .......-...-......- Brown Shoe Co. v. United States, 370 U.S. 294- Page 20, 53, 56, 57, 60 Ekco Products Co. v. Federal Trade Commission, Be Oe oo ok wd kuau dsp aenekanewe 22 Federal Trade Commission v. Consolidated Foods Corp., 380 U.S. 592_.------------- 60 Federal Trade Commission v. Procter & Gamble 2 Gs ee ere 21-22, 29 First National Bancorporation, Inc., In_ the Matter of, 57 Ved. Res. Bull. 613-_ - -------- 7 IV Cases—Continued General Foods Corp. v. Federal Trade Com- mission, 386 T°. 2d 936, certiorari denied, Be SM 6 oo bodiicdondexhumnnsinn ne Reynolds Metals Co. v. Federal Trade Com- mission, 309 F. 2d 2238__._...._.._.__.__- Stanley Works, The (Order of the Federal Trade Commission dated May 17, 1971), 3 Trade Reg. Rep. § 19,646____._________ United States v. Aluminum Co. of America, 377 te eS ae 21, United States v. Bethlehem Steel Corp., 168 F. a de TT Eee PE ee ee EDD United States v. Continental Can Co., 378 U.S. United States v. du Pont de Nemours & Co., Bh ee ee er eee United States v. El Paso Natural Gas Co., 376 ints Gena ka eadaee ne wunieas United States v. First City National Bank of Houston, 386 U.S. 361__..........-.----- United States v. First National Bancorporation, Inc., and the Security State Banking of Sterling, D. Col., C-2754, filed Dec. 2, 1970 United States v. Ford Motor Co., 286 F. Supp. 407, affirmed, No. 70-113, March 29, SPE Seatesenennccdensducebeaate 21, 30, United States v. Jos. Schlitz Brewing Co., 253 F. Supp. 129, affirmed, 385 U.S. 37_______- United States v. Kennecott Copper Corp., 231 PG ME ont cceneces cease cdenccees United States v. Kimberley-Clark Corp., 264 F. EE eye re mnne aa ees Ae re United States v. Pabst Brewing Co., 384 U.S. IR RMIT RTE RRA Page 24, 60 60 25 31, 60 22 Sie | een oe - Cases—Continued Page United States v. Penn-Olin Chemical Co., 378 ck | eee ee 22, 23, 29, 31, 35, 49, 50, 51, 53 United States v. Penn-Olin ¢ ‘hemical Co., 246 I’. Supp. 917, affirmed, 389 U.S. 308__--_- 35 United States v. Philadelphia National Bank, BPO SE 4 ck wascddnees baa ecosueees 20-21, 22, 27, 31, 48, 44, 48, 53, 56, 57, 59, 60 United States v. Phillipsburg National Bank, See ak Beh cs eeasicknyaeescveswnceens 2, 19, 23, 27, 31, 46, 47, 48, 51, 53, 56, 57, 60 United States v. Standard Oil Co., 253 F. Supp. SE Ons deve Cake kadub eae ew ee ceaeee 22, 31 United States v. Third National Bank in Nash- ville, 300 U.S. 171...........- _.. 2, 19, 46, 47, 49 United States v. Topco Associates, No. 70-82, O.T. 1971, decided March 29, 1972____--- 35 United States v. Vons Grocery Co., 384 U.S SS hale ce ons 4k e eee Sakae oe es 49, 61 United States v. W ilson Sporting Goods Co., 288 F. Supp. 543... .....-.-- Wea 22 Whitney National Bank in Jefferson Parish V. Bank of New Orleans & Trust Co., 379 U.S ie ee eat pace scadewaGneeeenys * 44 Statutes: Bank Holding Company Act of 1956, 70 Stat. 134, as amended, SO Stat. 237: Section 3(a)(3), 12 U.S.C. 1842(a)(3)__- 12 Section 3(c), 12 U.S.C. 1842(¢)______- 3,19, 45 Section 3(d), 12 U.S.C. 1842(d)__.-____- 5, 38 Section 11(b), 12 U.S.C. 1849(b)__...--_ 18, 27 Section 11(e), 12 U.S.C. 1149(e)____-__- 44 Section 12(c), 12 U.S.C. 1842(¢)_______- 45 Bank Merger Act of 1966, 12 U.S.C. 1828(¢) RL laceckdaaudeesodkeseucan 19, 27, 45, 46 vi Statutes—Continued Section 7 of the Clayton Act, 38 Stat. 731, as amended, 64 Stat. 1125, 15 U.S.C. 18_____- 2, 4, 18, 19, 20, 21, 27, 28, 29, 30, 31, 32, 35, 43, 44, 48, 49, 51, 53, 54, 57, 60, 61 Section 2 of the Expediting Act, 15 U.S.C. 29 2 Colo. Rev. Stat. 1963 § 14-3-1 (1969)______. 5 Miscellaneous: American Banker, February 24, 1971......-- 34 Areeda, Antitrust Analysis, 517 (1967)... __-- 22 Bain, [ndustrial Organization (2d ed. 1968), p. Ds s canccascncnesnhsnsekinenndaaeaioas 22 Board of Governors of the Federal Reserve System, Recent Changes in the Structure of Commercial Banking, 56 Yed. Res. Bull. Se (hee cntinababuniosanes 18, 26, 27, 33, 39 Pitofsky, Joint Ventures Under the Antitrust Laws: Some Reflections on the Significance of Penn-Olin, 82 Harv. L. Rev. 1007 (1969). 32, 35 Salley, 1 Decade of Holding Company Regu- lation in Florida, Federal Reserve Bank of Atlante, Monthly Review, (July 1970)... 34 Solomon, Bank Merger Policy and Problems— A Linkage Theory of Oligopoly, Journal of Money, Credit and Banking (1970)__..__- 24 Turner, Conglomerate Mergers and Section 7 of the Clayton Act, 78 Harv. L. Rev. 1313 (UEP oinak cndnikén sameetendudnbinidans 22, 40 Vernon, Regulatory Barriers to Branching and Merger and Concentration in Banking Mar- kets, 37 The Southern Economic Journal BES CHE i adienncaebekddamasndenamainns 33 Wille, Foreword to Kohn and Carlo, Potential Competition: Unfounded Faith or Pragmatic Foresight? (New York State Banking De- RIUGEREE, BENGE « cunacsabonhatnsosdamaae 26, 34 — Oo’ in the Supreme Court of the United States Octosen Term, 1971 No. 71-703 Unirep STATES OF AMERICA, APPELLANT v. Fmstr Nationa, Banconroration, INc, AND THE Finst NaTiIONAL Bank or GREELEY APPEAL FROM THE UNITED STATER DIATHICT COURT FOR THE DISTRICT OF COLORADO BRIEF FOR THE UNITED STATES OPINION BELOW The memorandum opinion and order of the district urt (J.S., App. A, pp. 26-61) is reported at 329 F. ipp. 1003. JURISDICTION The memorandum opinion and order of the district urt was filed on July 12, 1971. On August 27, 1971, « district court entered an order denying plaintiff's mely motion, under F.R. Civ. P. 52(b) and 59, to open the record, to obtain additional findings of fact id conclusions of law, and to obtain the relief re- (a) 2 quested in the complaint (J.S., App. B, p. 62). The United States filed a notice of appeal to this Court on September 24, 1971 (J.S., App. C, p. 63). Probable jurisdiction was noted on February 22, 1972. The jurisdiction of the Court is conferred by Section 2 of the Expediting Act (15 U.S.C. 29). United States v. Phillipsburg National Bank, 399 US. 250; United States v. Third National Bank in Nashville, 390 U.S. 171. QUESTIONS PRESENTED 1, Whether acquisition of a leading bank in a con- centrated local market in Colorado by one of the largest holding companies in the state violates Section 7 of the Clayton Act by eliminating the potential com- petition of the acquiring firm and by contributing to the statewide trend toward domination of commercial banking by a few large holding companies. 2. Whether acquisition of the second largest bank in Greeley, Colorado, by the second largest bank hold- ing company based in Denver, Colorado, may sub- stantially lessen competition among Denver banks offering correspondent banking services to Colorado “country banks” by contributing to the trend toward foreclosure of outlets for such services in the state. STATUTES INVOLVED Section 7 of the Clayton Act, 38 Stat. 731, as amended, 64 Stat. 1125, 15 U.S.C. 18, provides in pertinent part: No corporation engaged in commerce shall aequire, directly or indirectly, the whole or any part of the stock or other 4 share capital and no corporation subject to the jurisdiction of the Federal Trade Commission shall aequire the whole or any part of the assets of another corpo- ration engaged also in commerce, where in any line of commerce in any section of the country, the effect of such aequi- sition may be substantially to lessen com- petition, or to tend to create a monopoly. * * * * * Section 3(¢) of the Bank Holding Company Act of 1956, 70 Stat. 134, as amended, 80 Stat. 237, 12 U.S.C. 1842(¢), provides in pertinent part: The [Federal Reserve] Board shall not approve— (2) any other proposed acquisition or merger or consolidation under this sec- tion whose effect in any section of the country may be substantially to lessen competition, or to tend to create a monopoly, or which in any other manner would be in restraint or’ trade, unless it finds that the anticompetitive effects of the proposed transaction are clearly out- weighed in the public interest by the probable effect of the transaction in meeting the convenience and needs of the community to be served. In every case, the Board shall take into consideration the financial and managerial resources and future prospects of the com- pany or companies and the hands con- cerned, and the convenience and needs of the conununity to be served. So in orginal. $66 -162--12——2 Pe ———— a STATEMENT This is a direct appeal from the judgment of the United States District Court for the District of Colo- rado, dismissing a complaint by the United States alleging that the acquisition by the second largest bank holding company in the State of Colorado, First National Bancorporation (‘*Bancorporation”), of The First National Bank of Greeley (“FNB Grecley’’), the largest independent bank and the second largest commercial bank in Greeley, Colorado, violated See- tion 7 of the Clayton Act. A. THE STRUCTURE OF BANKING IN COLORADO It is agreed that, insofar as this case involves potential competition, the relevant product market is, as the district court found (J.S. App. A, pp. 41-43), “commercial hanking.”’ * Denver is the banking, commercial and financial center of Colorado (see App. 219-221).’ It has almost a quarter of the State’s population and almost half of the State’s bank deposits (compare PX 21, App. 782, and DX 32, App. 1670). Bancorporation’s prin- cipal subsidiary, the First National Bank of Denver (“FNB Denver”) is the largest bank in the city; it * The court found it unnecessary to make any finding about product market in resolving the separate question relating to correspondent banking services (see n. 20, infra). *“App.” references are to the printed appendix in this Court: “PX” references are to plaintiff-appellant’s exhibits introduced in the district court; “DX” references are to {6 defendants appellees’ exhibits in the district court. GR Pa el rE nr 0 had 25.3 percent of the deposits in Denver County in December 1969 (PX 21, App. 782). There are also other significant banking markets in Colorado, which are located in the other population centers of the State—Colorado Springs, Boulder, Fort Collins, Pueblo, and Greeley. All of these cities are located along the Rocky Mountain front, north and south of Denver. Colorado prohibits branch banking,’ but does not prohibit common ownership of two or more separate banks by a holding company. In the 1960’s the leading Colorado banks began to form holding companies to bring local banks across the state under common control (PX 4, App. 534- 535). In 1960, there was one holding company operat- ing in Colorado—an out-of-state firm, Western Ban- corporation—which operated three subsidiary banks in Colorado accounting for 4.4 percent of total Colo- rado deposits.” By 1970, there were seven such com- panies, which together operated 41 subsidiary banks throughout the state (JS. App. A, n. 35), including 13 ° of the 27 banks outside of Denver that had June 1970 deposits of more than $20 million (PX 125, App. 1157). By concentrating on the acquisition of local market leaders in Colorado’s most significant bank- ing markets (DX 3, App. 1371-1372), these seven companies by 1970 had obtained 51 percent of the * Colo. Rev. Stat. 1963. § 14-3-1 (1969). * As an out-of-state holding company, Western Bancorpora- tion was barred by the Bank Holding Company Act of 1956 from further expansion in Colorado. 12 U.S.C. 1842(d). *This includes the post-trial acquisition of National State Bank of Boulder by Bancorporation. See n. 9 infra. 6 State’s total deposits,’ although they owned less than one-fifth of all Colorado banks. As a result, despite an increase in the absolute number of banks and bank- ing organizations in Colorado between 1960 and 1970 (DX 28, App. 1653-1660), there has been a trend toward control by a few large holding companies of the leading banks in local market areas (see n. 28, infra, and accompanying text at pp. 24-25). %. THE ACQUIRING HOLDING COMPANY Bancorporation is a registered bank holding com- pany. It was organized by the state’s largest bank, First National Bank of Denver (**F NB Denver’’), to combine FNB Denver as its lead bank with three smaller Denver banks that had been organized de novo by principals of FNB Denver (PX 3, App. 513; PX 4, App. 534-535; PX 5, App. 552-554; PX 6, App. 557-561). In June 1970, FNB Denver had _ total deposits of $468.0 million (12.3 percent of total deposits held by Colorado commercial banks) ; it had total assets of $586.5 million, and loans and discounts of ¥340.8 million (J.5., App. A, pp. 29-30). Moreover, FNB Denver is the largest of the six Denver banks offering a full range of correspondent banking service to smaller Colorado banks.” As of August 1970, it had ‘Computed from PX 115, App. 1144-1145, and DX 28, App. 1655-1660. * Because of Denver's political, social, and economic signifi- cance in the state and region, smaller “country” banks through- out the state rely upon six downtown Denver banks to supply their primary needs for large bank services. These inter-bank operations are known as correspondent banking services, which include such things as check clearing, overline loans, advice on local banking regulations, international transactions, and a growing number of financial and bank-related services. a . é more than 37 percent of the Colorado interbank de- posits held by these six banks, as compared to approni- mately 23 percent held by each of the two next largest banks (PX 204, App. 1503; PN 205, App. 1304; see also App. 247-248). At the time of its organization, Bancorporation stated in its first annual report (PX 3, App. 513): The policy of our company is to ex- pand as rapidly and as wisely as possible through the acquisition of other banks in Colorado (preferably banks in_ those growth areas where Bancorporation may make the most significant contribution to Colorado’s economy and concurrently generate the highest profits for its share- holders) and through other legally per- missible investments and_ activities. Bancorporation has vigorously pursued this policy by attempting to enter all but one of the state’s six most significant markets. Its proposed acquisition of FNB Greeley was the first of six applications filed by the holding company between 1969 and 1971 seeking reeu- latory permission to acquire important banks in vari- ous Colorado local banking markets.” Its six applica- “In addition to the three applications discussed at n. 28, infra, Bancorporation has had two others. The Federal Reserve Board denied its application to acquire the only bank in the rapidly expanding Montbello section of Denver (DX 52, App. 1750-1759): it approved its acquisition of the second largest bank in Boulder. In the latter instance the government. did not bring suit because the acquired bank was in serious financial difficulties. Jv the Matier of First National Bancorporation, Ine.. 57 Fed. Res. Bull. 613. It also recently acquired a small bank in East Colorado Springs. Fed. Res. Bd. Order, April 26, 1972. Re... Soames tas tions involved banks with total deposits of $217.2 mil- lion (DX 1, App. 1329-1336); these included the state’s eighth, ninth and fifteenth largest banks (PX 123, App. 1155), which were the third, fourth and ninth largest banks outside Denver (PX 125, App. 1157). The holding company has other proposals under active consideration (PX 241, App. 1323-1328; see also PX 4, App. 535-536; PX 6, App. 561-564; App. 286). 8 Cc. THE LOCAL GEOGRAPHIC MARKET The district court found that the relevant geo- graphic market for purposes of determining the ef- fect of the present acquisition on potential competi- tion is the so-called ‘*Greeley Area,” consisting of the City of Greeley, Colorado, and the adjacent communi- ties of Evans, LaSalle, Peckham, Kersey, Gill, Eaton, Lucerne, Farmers and Bracewell (J.S., App. A, pp. 32, 4347). Appellees have not challenged this find- ing. The City of Greeley is located approximately 50 miles north of Denver in Weld County; it is the county seat (J.S., App. A, p. 29; App. 37). The Gree- ley Area is presently undergoing rapid development; in the past deeade it has grown substantially, while the entire economy of Weld County, previously agri- 1° With respect to the effect of this acquisition on actual com- petition among Denver-based banks for correspondent banking ; services, the court found it unnecessary to decide the relevant geographic market (see n. 20, ‘vfra). 9 cultural, has experienced a healthy diversification (App. 74-75).” The population of the Greeley Area increased from 45,228 to 58,500 between 1960 and 1970, an increase of 29.3 percent (PX 98, App. 1126). Most of this in- crease occurred within the City of Greeley, where the expansion was 47.8 percent (PX 88, App. 1118). Eco- nomic growth during the period was even more sig- nificant. For example, the consumption of electric power and of natural gas increased 115.8 percent (PX 101, App. 1127) and 127.3 percent (PX 100, App. 1127), respectively; and the number of main tele- phones went up 48.2 percent (PX 99, App. 1126). Retail sales for Greeley—which is Weld County’s trade and government center (App. 37-39)—were up 97.1 percent (PX 91, App. 1121), while gross sales rose 281.8 percent (PX 90, App. 1120). Moreover, personal income in Weld County increased from $119.5 million in 1959 to $212 million in 1968 (PX 103, App. 1128).” " Between 1950 and 1968, Weld County continued to be one of the nation’s top ten agricultural counties. But farm earn- ings, which accounted for 49.2 percent of the total personal income at the beginning of this period accounted for only 28.3 percent at the end. In the same period, earnings from manu- facturing increased from 4.1 percent to 11.1 percent (J.S., App. A, p. 34, n. 4; PX 104, App. 1129-1130). % Since three-fourths of Weld County's population growth is attributable to the City of Greeley (PX 88, App. 1118), pre- sumably a similarly disproportionate share of the county’s growth is personal income which was earned by Greeley residents. ie PE Te re 10 D. THE ACQUIRED BANK AND THE STRUCTURE OF BANKING IN GREELEY Within the Greeley Area, six separate banking or- ganizations operate eight banking cffices of varying size. Their relative market shares appear in tabular form at J.S., App. A, p. 33. The acquired bank, FNB Greeley, is the community’s largest independent bank, and its second largest banking organization (J.S., App. A, pp. 32, 48). It is also Colorado’s fifteenth larg- est bank in terms of total deposits, and ranks twelfth in the state in terms of total loans and discounts (J.S., App. A, p. 31). It has total deposits of $39.2 million, constituting 33.9 percent of the total deposits for the city, and 31.8 percent of the total deposits for the Greeley Area (J.S., App. A, p. 32). At the time of the proposed acquisition, the total assets of FNB Greeley were $47.7 million; its outstanding loans were $28.9 million, or 32.6 percent of the Greeley Area total (PX 73, App. 1097; PX 78, App. 1102). The largest banking organization in the Greeley Area is Affiliated Bankshares of Colorado, Ine., (“ABC”). It owns three banking institutions there, the combined deposits of which total $49.6 million, or 42.9 percent of the total deposits for the city and 40.2 of the total deposits for the area (J.S., App. A, p. 33; PX 74, App. 1098). ABC’s principal local sub- sidiary, Greeley National Bank, is almost the same size as the acquired bank (PX 73-86, App. 1097-1116; PX 114-118, App. 1142-1151; and see App. 77-78). The third largest banking organization operating in the Greeley Area, United Bank of Greeley (‘UB — ll Greeley”), is a subsidiary of United Banks of Colo- rado (“United’’), the state’s largest holding company (PX 114-118, App. 1142-1151). UB Greeley has $24.7 million in deposits, which are 21.4 percent of the total de- posits for the city and 20 percent of the total deposits for the area (J.S., App. A, p. 33). Together, the acquired bank, ABC and UB Greeley, have 98.2 percent of total deposits in the City of Greeley, and 92 percent of deposits in the Greeley Area (J.S., App. A, pp. 32-33). None of Bancorporation’s subsidiaries competes di- rectly with Greeley Area banks for local business, but the acquiring holding company has maintained a pres- ence in the area through a_ loan-production office operated by its lead bank, FNB Denver (PX 4, App. 538-539; PX 40, App. 952-953). It has made a number of large loans in the area (PX 48, App. 1057-1058), does some trust business there (PX 37), and has solicited business in the area (PX 38). Bancorporation is the largest Colorado holding company not already in the Greeley Area (App. 75- 76). Of the three remaining holding companies in the state not operating in the area at the time of trial, only two appear capable of competitively sigiificant entry; the third has a total combined deposit figure which amounts to less than the deposits held by the ‘The only other bank in the City of Greeley, State Bank of Greeley, is a commercial bank (App. 277) with less than 2 percent of local deposits (J.S.. App. A. p. 33). There are two additional banks in the Greeley Area, which combined have slightly more than 6 percent of the area’s total deposits (/béd.). acquired bank (7bid.; Compare J.S., App. A, pp. 35- 36, n. 5, with PX 74, App. 1098). E. THE PROCEEDINGS On July 9, 1969, Bancorporation applied to the Fed- eral Reserve Board, pursuant to Section 3(a)(3) o/ the Bank Holding Company Act of 1956 (70 Stat. 134, as amended, 84 Stat. 1763, 12 U.S.C. 1842(a) (3) ), for approval of the proposed acquisition of FNB Greeley. The Comptroller of the Currency recommended ap- proval, but the Department of Justice advised the Board that it believed the combination “would have a significantly adverse effect on competition’? (1X 48, App. 1718). The Board approved the application by a four-to-three vote on June 9, 1970." ™ Those three holding companies are: Colorado CNB Bank- shares, with combined deposits of $281.8 million; First Colorado Bankshares, with combined deposits of $120.4 million; Central Colorado Bancorporation, with combined deposits of $36 million (J.S.. App. A, pp. 35-36, n. 5). Mountain Banks, Ltd., the new holding company formed since trial which owns two of the banks Bancorporation proposed to acquire (see n. 28, ‘nfra), has combined deposits of $182.5 million. Wountain Banks, Ltd., 58 Fed. Res. Bull. 315. **The majority, while recognizing that Bancorporation had the capacity for de novo or foothold entry into Greeley, con- cluded that the banking market there was not so concentrated that Bancorporation should be limited to these alternatives (DX 48, pp. 1718-1719). The existence of a non-Denver bank holding company, (Affiliated Bankshares of Colorado, Inc.) in the area, it felt (DX 48, App. 1719-1720), assured sufficient market diversity to prevent increased “parallelism” in the Greeley Area. Nor did it consider particularly relevant the fact that Bancorporation’s application was but one of several by Colorado holding companies across the state; the impact of each proposed acquisition on the state’s banking structure must be FEM LT LPT TIT SAF . ‘ . . 2 —— 13 The United States filed this civil antitrust action on July 8, 1970, thereby automatically staying consum- mation of the acquisition under Section 11(b) of the Bank Holding Company Act of 1956 (70 Stat. 138, as amended, 80 Stat. 240, 12 U.S.C. 1849(b)).” It claimed that the acquisition would substantially lessen competition by (1) eliminating Bancorporation as a potential entrant into the Greeley Area, (2) removing it as an external influence on the relevant market, and (3) contributing to the trend toward dominance of the state’s banking institutions by a few large holding companies. In an amended complaint (App. 20-26), the United States further alleged that the acquisition would eliminate actual competition by foreclosure of FNB Greeley as a customer for the correspondent banking services in Colorado, offered by six Denver banks; and that this would contribute to the trend considered solely on its individual merits, the majority con- cluded (DX 48, App. 1719). The three dissenting members deemed the proposed acquisi- tion to be anticompetitive (DX 48. App. 1725-1728). In their view, the effect of the majority’s approval is to permit Ban- corporation, upon a minimal showing, to enter by acquisition into a market that is attractive for de wore entry, under cir- cumstances where its existing presence could be expected to expand into a full service operation in competition with exist- ing banks. They argued that the adverse impact of such a de- termination is accentuated by the ongoing holding company movement, which threatens to concentrate in the hands of a few the control of a large percentage of the banking institutions in Colorado’s six most significant banking markets (Denver, Colorado Springs, Boulder, Fort Collins, Greeley. and Pueblo). The time to stop this trend, they concluded, is now. *%* On October 4, 1971, Mr. Justice White continued the stay pending disposition of this appeal. Bee. 14 toward foreclosure of a substantial portion of the market for correspondent banking services due to holding company ownership of both supplier and customer banks, Following a trial on the merits, the district court distuissed the complaint. It ruled that the government had failed to show that the effect of the aequisition “would be substantially to lessen competition’ (J.S., App. A, p. 47). It discounted as “future horribles”’ (id. at p. 52) the government's evidence of a trend in Colorado toward the acquisition by statewide holding companies of leading banks in separate local markets. Instead, noting that thix was Bancorporation’s first attempt to expand beyond the Denver metropolitan area,” the court foeused only on the competitive unpact of this acquisition on banking in the Greeley Area. First, the court found that Bancorporation was not a potential de novo entrant into the relevant market. Relying solely upon figures showing comparisons of population per banking office (J.S., App. A, p. 49), it determined that neither the Greeley Area nor Weld County was “underbanked."’" >sancorporation off- The court stated that ~* * * this is the first effort on the part of the Government to halt the trend of acquisitions. It did not choose to intervene until after the United Banks of Colo- rade and Affiliated Bankshares had both entered the Greeley Area” (3.5. App. A. p. 37). "While Greeley’s ratio of 6454 persons per bank office ix lews than the 9854 ratio for the state, it is larger than the na- tional figure of 5,751 (J.S.. App. A, p. 49). Moreover, the addi- tion of a seventh bank based on 1970 population figures would draw the ratio down to 5.557, or slightly less than the national 15 cials, it pointed out, had denied any intention to enter the Greeley Area other than by acquisition of PND Cirecley. Moreover, “objective” evidence showing that Greeley’s growth was only “moderate,” and that the appropriate banking agencies would not now permit de novo entry, seemed, in the court’s view, to give sub- stance to these denials. Consequently, while reeog- nizing Bancorporation’s financial capability for de novo entry, it concluded that “the practical difficulties, together with the expense, argue against Bancorpora- tion’s following this route’ (LS., App. A, p. 50). The possibility that Bancorporation would make a “foothold” acquisition of Creeley’s smallest bank *™* was dixmissed as unlikely under “the objective evi- dence presented” (JS., App. A, p. 50); the court did not dixcuss, however, the other two “foothold” possi- bilities in the larger Greeley Area with respect to which the government had introduced evidence (see, Cy PX 73-83, App. 1097-1107). The court also concluded that there was little evidence demonstrating that Bancorporation was an existing in- fluence in the market by its presence in the “wings” (J.8., App. A, pp. 50-51). Finally, the district court rejected the government's argument that this acquisition would effect an anticompetitive foreclosure of FNB Greeley as a cus tomer for Denver-based correspondent banking serv- average. Among the several states, these ratios range from a state. wide average low of 2501 for South Dakota to a high of ATO for Florida (DX 22, App. 1623-1624). Colorado's ratio in the second highest in the nation (/b//.). i Soon, 2, infra, p. 22. : _ ices. It held that the 1.2 percent ” foreclosure claimed by the government was insub-tantial.” The court dis- tinguished cases holding similarly small market fore- closure percentages to be anticompetitive on the ground that they involved national markets in other industries (J.S., App. A, p. 60). The district court accepted this figure only arquendo. First, it found questionable the government's reliance on interbank de- posits as an acceptable measure of market shares in the corre- spondent banking market ; it pointed out that wide variations in the amount of uncollected funds in deposit accounts distort the sums actually available for investment by the correspondent banks. Second, the court found that the government's market was improperly restricted to the interbank deposits of Colorado banks held by six Denver correspondent banks (J.S.. App. A, pp. 58-59). * In light of this finding, the court found it unnecessary to de- cide whether Denver-based correspondent banking is an appro- priate “line of commerce.” and whether Colorado is an appropriate “geographic market™ or “submarket” (J.S., App. A, pp. 53-58). "On August 27, 1971, the district court denied the govern- ment’s timely motion to reopen the record, to obtain additional findings of fact, and to obtain the relief requested in the complaint (J.5., App. B, p. 62). The purpose of the motion was to place in evidence post-trial developments in Colorado banking, which, in the government's view, show that firms to which the merger route is barred a8 potential competitors often become actual competi- tors, The developments included United's decision to acquire a much smaller bank in Colorado Springs after the government's suit interrupted its effort to purchase that city’s third largest bank (App. 2001-2003; PX 244-245, App. 2022-2029), and the formation of a new holding company around two of the banks that Bancorporation unsuccessfully attempted to acquire in Colo- rado Springs and Pueblo ( App. 1997-2001; see n. 24, jnfra). In denying this motion the district court ruled that the evidence pertaining to the holding company formation was not newly dis- covered and that in the interest of finality it should not be the lasis for granting the relief requested (App. 2007). It permitted the government to present its evidence, however, so that it could 17 ARGUMENT INTRODUCTION AND SUMMARY The structure of the banking business in the United States is presently undergoing significant changes. With the relatively recent emergence of the bank hold- ing company movement, and, where permitted by state law, the branch banking movement, there now exists the potential for substantially-increased competition in commercial banking through new entry into pre- viously static local banking markets. But these expan- sive movements also present serious risks for future competition in this vital sector of the economy. The ultimate effect that this expansion will have on the competitiveness of the banking business in this country will depend largely on the method by which banking organizations are permitted to expand. When, for example, entry into new markets is accomplished independently or through the acquisition of a small hank as a foothold from which to compete for a greater market share, the local markets affected be- come the arena for greater competition, On the other hand, when banking organizations extend their mar- kets by aequiring leading local ban» in significant banking areas throughout a state, the potential com- petitive benefits of their entry are lost; they simply succeed to the share of the acquired institution and, in be utilized in this appeal (/bid.). With respect to United's deci- sion to attempt entry into Colorado Springs by acquiring a smal] bank. the court found it to be without probative value in the pres- ent case; it found that “Bancorporation would not go into Greeley on any foothold basis” ( App. 2007-2008). a pe many instances, eliminate strong independent locally- oriented banking competitors in the local markets. In many states, continued expansion by a few bank- ing organizations in the manner last described has recently resulted, or threatens to result, in a concen- tration of the statewide banking business in a few of the largest and most acquisitive organizations.” The situation in Colorado is a good example. There, the trend toward concentration has rapidly accelerated, with Denver-based holding companies endeavoring to acquire control of established institutions which have large market shares in the state’s more important local banking markets. This form of acquisition is known asa market extension—i.¢., the entry of a firm into a new geographic market by acquisition of a firm already doing business there. While it does not change existing market shares, it may well have a significant effect on market structure and behavior by eliminating the po- tential competition of the acquiring organization. This case involves the legal criteria by which the substantiality of such an effect is to be determined in market-extension acquisitions by banking organiza- tions; it raises squarely the question of the extent to which Section 7 of the Clayton Act forbids this de- veloping domination by large banking organizations of a substantial percentage of the banking business in a particular state. For, as we have noted, the state boundaries form the legal arena to which banking ex- 18 #2 See Board of Governors of the Federal Reserve System. Recent Changes in the Structure of Commercial Bavking, Fed. Res. Bull. 195, 205-208 (1970). for recent statewide changes in concentration. SER OTA —-~ . . , n . 19 pansion is limited, and from which out-of-state banks are excluded. The preservation of competition in banking has been a matter of recent concern to Congress. Both in the Bank Merger Act of 1966, 12 U.S.C. 1828(¢)(7)(D), and in the 1966 amendment to the Bank Holding Company Act, 12 U.S.C. 1842(¢), Congress barred federal regulatory approval of bank acquisitions which would violate the antitrust prohibitions of Section 7 of the Clayton Act unless “the anticompetitive effects of the proposed transaction are clearly outweighed in the public interest by the probable effect of the trans- action in meeting the convenience and needs of the community to be served.” It directed the federal courts to follow the same standard. See e.g., United States v. Phillipsburg National Bank, 399 U.S. 350; United States v. Third National Bank in Nashville, 390 U.S. 171; United States v. First City National Bank of Houston, 386 U.S. 361. In resolving the question relating to potential com- petition in this case, the district court erroneously required the government to prove that competition “would be” lessened (J.S., App. A, p. 47), rather than looking to whether the effect of the questioned acquisi- tion “may be substantially to lessen competition or tend to create a monopoly,” as required by Section 7. Moreover, it applied subjective rather than objective criteria in determining the substantiality of the ac- quiring bank’s role as a potential competitor; it failed to give due weight to existing concentration in the Greeley Area; and it ignored the relationship between 45-165 -72 4 ~ —— this particular acquisition and the undisputed trend ] toward concentration throughout the state. | \ Finally, the district court erred in failing to recog- j nize that the elimination of the acquired bank as a 2 customer for correspondent banking services in Colo- a rado may substantially lessen actual competition in the ‘ state’s correspondent banking market. In evaluating | i this question, the court considered the FNB Greeley ( acquisition in isolation, without regard to the trend in Colorado toward foreclosure of the correspondent ( banking market through large bank holding company ( acquisitions. This Court and other courts have recog- { nized that where a trend toward substantial foreclo- 1 sure is present, acquisitions of relatively small market ‘ segments, such as the 1.2 percent involved here, are significant. See Brown Shoe Co. v. United States, 370 ; U.S. 294, 332-334. t ne I. THE EPFECT OF THE PROPOSED ACQUISITION MAY BE SUBSTAN- TIALLY TO LESSEN COMPETITION IN COMMERCIAL BANKING IN THE GREELEY AREA BY ELIMINATING THE SIGNIFICANT POTENTIAL COMPETITION THAT THE ACQUIRING BANK HOLDING COMPANY PROVIDED IN THAT AREA — a on A. An Acquisition That Eliminates Significant Pktential Com- petition in Banking May Substantially Lessen Competition within the Meaning of Section 7 of the Clayton Act. ' In a market with many firms of roughly comparable size and strength, internal competition can be generally relied upon to keep down prices, to promote efficiency, and to encourage innovation. But where the market is highly concentrated—where a few firms account for most or all of the business—there is, as this Court observed in United States vy. Philadelphia National OE RE IE 21 Bank, 374 U.S. 321, 363, a real danger that the firms vill find their interests best served by tacitly renounc- ng vigorous competition, by adopting a policy of “live ind let live.” Actual competition may then cease to be . fully effective force; by mutual, though tacit, con- ent, it may be abandoned in favor of parallel behav- or and the ‘‘easy life.” United States v. Aluminum /0. Of America, 377 U.S. 271, 280. It is therefore important that the firms in a con- entrated market remain subject to a significant form f competitive restraint; and that is the role of po- ential competition. Potential competition (i.e., the hreat of entry by strong firms outside the market ither independently or by acquisition of a smal] firm uready in the market) often provides the most sig- 1ificant limitation on the exercise of market power by he leading firms in a concentrated market. Conse- juently, the elimination by acquisition of one of the eading potential entrants into the market can have a significant anticompetitive effect on the existing mar- cet structure. And this is particularly so where, as ere, there are extremely few firms which have the neentive and capability to introduce a significant new ‘ompetitive factor into the market. For this reason, the effect of a merger or acquisi- ion which results in the elimination of a significant potential competitor “may be substantially to lessen “ompetition”, contrary to Section 7 of Clayton Act. Ford Motor Co. vy. United States, No. 70-113, O.T. 971, slip op. 6, decided March 29, 1972; Federal [rade Commission v. Procter & Gamble Co., 386 U.S. 22 568; United States vy. Penn-Olin Chemical Co., 378 U.S. 158; United States v. Continental Can Co., 378 U.S. 441; United States vy. El Paso Natural Gas Co., 376 U.S. 651.” The continued presence of a number of strong firms on the periphery of such a market with the capability and incentive to enter it is both an external factor influencing the conduct of those firms already inside,” and a possible source of future deconcentration through independent or “ foothold” entry.” This Court has recognized the importance of preserving the sources of deconcentration in concentrated markets. “[L]f concentration is already great, the importance of preventing even slight increases in concentration and so preserving the possibility of eventual decon- centration is correspondingly great.” United States v. Philadelplaa National Bank, supra, 374 U.S. at 365, *§ See also U'nited States vy. Standard Oil Co., (N.J.), 253 F. Supp 196 (D. NJ.) : Uuited States vy. Jos. Schlitz Brewing Co.. 255 F. Supp. 129 (N.D. Cal.), affirmed, 385 U.S. 37; United States v. Wilson Sporting Goods Co., 288 F. Supp. 543 (N.D. Ill.): Ekeo Products Co. y. Federal Trade Commission, 2A7 F.2d 745 (C.A. 7); General Foods Corp. y. Federal Trade Commission, 386 F.2d 936 (C.A. 3), certiorari denied, 391 U.S. 919. **See also Bain. /ndustricl Organization, 2d ed. 1968, p. 8: Turner, Conglomerate Mergers and Section 7 of the Clayton Act, 78 Harv. L. Rev. 1313. 1572-1373 (1965); Areeda, Anf/- trust Analysis, 517-518 (1967). *“Foothold” entry means entry by a new competitor into a market, through acquisition of a small competitor already operating there. See The Bendix Corp.. 3 Trade Reg. Rep. 19.288, vacated and remanded on other grounds, 7he Bendir Corporation y. Federal Trade Commission, ASO F. 2d 534 (CLA. 6): The Stanley Works (Order of the Federal Trade Commission dated May 17, 1971), 3 Trade Reg. Rep. © 19.646. 25 fi. 42.° An acquisition that eliminates such potential! competition may have no less serious anticompetitive effects than one that eliminates existing competition. Cf. United States v. Penn-Olin Chemical Co., supra, 378 U.S. at 168, 170-174. Potential competition is as important in banking as in any other industry, perhaps more so. Because local banking markets can support only a_ limited number of banks, such markets necessarily tend to be concentrated. The possibility of outside entry is, therefore, of particular significance, since it may be the only factor that inhibits anticompetitive conduct by firms within the market and also the most likely means for achieving market deconcentration. LR. The Anticompetitive Effect of an Acquisition That Elimi- nates a Significant Potential Banking Competitor Is Eveu Greater Where It 1s Part of a State-wide Tieud Toward Con- centration in Banking. A recent trend in the banking dustry has been the acquisition by large banks (in states that permit branch banking) or by holding companies of the lead- ing independent banks in concentrated local markets. The existence of this condition increases the anti- competitive effect of an acquisition, such as the one in- volved here, that eliminates from the edge of a local market a potential entrant which merely substitutes itself for an already established local bank with a “New entry can, of course, quickly alleviate ‘undue’ con- centration. And the possibility of entry can act as a substantial check on the market. power of existing competitors.” ['n/ted States v. Phillipsburg National Bank, supra, 399 U.S, at 377 (Mr. Justice Harlan, dissenting). oes be substantial market share. Such an acquisition not only removes the significant procompetitive effect upon local market behavior that the acquiring firm pro- vided; it also jeoparizes the vigor of competition in the area which, because of its concentration, depends so much on the presence of strong independent banks. When a few leading institutions within a state enter most of that state’s significant local banking markets by purchasing large market shares instead of competing for them, the same organizations begin to confront each other as the dominant factors in separate concentrated markets all over the state (App. 133-134). This creates a real danger that the domi- nant banks, not faced with the difficulty of having to compete locally for survival—as would be the case had entry been made de novo or by foothold aequisi- tion—will tacitly renounce vigorous competitive prac- tices in the areas in which they operate (App. 141- 142); the few state leaders, facing each other in commonly linked oligopolistic markets, will be en- couraged to pursue parallel practices in disregard of local competitive conditions (ibid; App. 133, 134).* ‘*As that condition develops the greater is the likeli- hood that parallel policies of mutual advantage, not competition, will emerge.”’ United States v. Aluminum Co. of America, supra, 377 U.S. at 280. Just such a situation now threatens in Colorado. Seven Colorado holding companies already control more than half of the state’s total deposits (J.S., App. *7 See also Elinor Harris Solomon, Bank Merger Policy and Problems—A Linkage Theory of Oligopoly, Journal of Money, Credit and Banking, p. 323 (1970). 24 Lee 25 A, p. 35); they own almost half (13) of the 27 most significant banks—those having total deposits in ex- cess of $20 million (PX 125, App. 1157)—outside of Denver. And, but for the institution of government antitrust litigation and the disapproval of other ac- quisitions by the bank regulatory authorities because of their adverse competitive effects, the degree of statewide concentration would have been even greater.” ** The largest state-based holding company, United Banks of Colorado, Ine... abandoned plans to acquire the . third largest bank in Colorado Springs because the purchase agree- ment expired during the period that a government antitrust suit to enjoin its consummation was pending (App. 2001- 2002), Similarly, Bancorporation’s attempt to acquire the sec- ond largest bank in Colorado Springs and El Paso County was dropped when the government brought suit (PX 145, App. 1199-1221; DX 54, App. 1764-1795). Its application to acquire the largest bank in Pueblo was rejected by the Federal Re- serve Board on competitive grounds (DX 49, App. 1729- 1736). And a government civil antitrust action is now pending with respect to its proposed acquisition of the largest bank in Sterling and Logan County (United States v. First National Bancorporation, Inc.. and the Security State Banking of Ster- ling, D. Col., C-2754, filed Dec. 2, 1970). Had the foregoing transactions been consummated, the total number of banks outside of Denver with deposits of more than $20 million that would now be controlled by these holding com- panies, including the instant acquisition, would be 18 out of 27 (see PX 125, App. 1157). Moreover, the state’s largest holding companies would have been much closer to the situ- ation in which each was operating with a large market share in each of the State's six most significant banking markets, namely, Denver, Colorado Springs, Pueblo, Boulder, Greeley and Fort Collins. United is now in six of these markets including Colo- rado Springs in which its foothold entry recently was approved. See n. 9 supra, and J.S.. App. A. pp. 35, n. 5. Western is in Denver and Fort Collins (‘bid.). The fourth largest, Affili- 26 A recognized authority in state and federal bank - regulation has recently written that ‘‘the potential competition standard may be the only criterion avail- able to the bank regulatory agencies or the courts by which a trend toward a market dominated by only a handful of banks or bank holding companies may be checked.” The trend may develop extremely ‘apidly.” Indeed, in a number of states it has reached ated Bankshares, Inc., is in Colorado Springs, Boulder and ireeley (hid). The appellee here, Bancorporation, is in Denver and Boulder, but would have been in all except Fort Collins (ibid.). Thus in the five markets outside of Denver in which these holding companies operate, thare would have been only three banks with deposits of more thaz $20 million not already controlled by them—one in Colorado Springs (the lead bank in Central Colorado Bancorporation, Inc.) and two in Pueblo). Compare DX 1, App. 1329-{436, DX 3 App. 1371 1372, and above text at pp. 5-6 with DX 2. App. 1337-1370. The banks Bancorporation sought to acquire in Pueblo and Colorado Springs are now the largest banks in a recently ap- proved new five-banks holding company (App. 1997-2000: Mountain Banks, Ltd.. 58 Fed. Res. Bull. 315). The organiza- tion is interested in further expansion, and one of its principal organizers testified that it would not rule out an acquisition of FNB Greeley should it become available (App. 2001). * Frank Wille, then New York Superintendent of Banking and now Chairman, Federal Deposit Insurance Corp., in foreword to Kohn and Carlo, Potential Competition: Unfounded Faith or Pragmatic Foresight? (New York State Banking Depart- ment, 1970). *° Board of Governors of the Federal Reserve System. Recent Changes in the Structure of Commercial Banking, 56 Fed. Res. Bull. 195 (1970). As there pointed out, statewide concentration ratios measured by total deposits held by the five largest bank- ing organizations are very high. The practical enforcement problera in dealing with a trend of acquisitions is especially acute in banking. Under the terms of the Bank Merger Act and the Bank Holding Company Act. RE EI ee EF 27 the point where two or three banking organizations together control more than half of the state’s total deposits (DX 30, App. 1662-1663). In some states where the concentration has been very intense, there have recently been some signs of deconcentration as new banking organizations have been created. The situation in the banking industry today is therefore at a crucial stage in which the trend could go either toward in- creased statewide concentration, or toward a more competitive situation.” ‘‘There is no reason to think that concentration is less inimical to the free play of competition in bank- ing than in other service industries’? (United States v. Philadelphia National Bank, supra, 374 U.S. at 369). The recent increase in concentration of the bank- ing business in Colorado necessarily is felt in the con- centrated local markets, as state-wide firms acquire one important bank after another. Section 7 of the Clayton Act applies equally to large and small bank- ing markets (ef. United States v. Phillipsburg Na- tional Bank, supra, 399 U.S. at 357-358). In determining the effect of the present acquisition upon competition in the Greeley Area, the broader context in which the the government must commence antitrust proceedings against an approved bank merger or holding company acquisition within 30 days of the approval. See 12 U.S.C. 1828(c) (6) and 1849(b). By the terms of the statutes, the government does not have the option, available in other industries, to take appropriate re- medial action at some later time to undo mergers which subse- quently appear to have been part of an anticompetitive trend. 31 Recent Changes in the Structure of Commercial Banking, supra, n. 30. 466-163—72—_5 ms iit i acquisition took part—the state-wide trend toward concentration—-is a significant factor. The district court, however, declined to consider the state-wide trend toward concentration in evaluating the competitive impact of this aequisition. It held, instead, that Bancorporation was not a potential en- trant into the Greeley market, on the basis of testi- mony by officials of that firm that in fact they would not have entered the market except by the aequisition of FNB Greeley. We argue below that the subjective intent of the acquiring firm is not the proper basis under Section 7 for determining whether it is a poten- tial market entrant. The district court's analysis is further flawed, however, by its failure to reeognize that the trend by all the bank holding companies in Colorado, including Bancorporation (see n. 28 supra), to enter important local markets made Bancorporation a more visible potential competitor to those banks in the Greeley market and increased the likelihood that it would have entered either by acquiring a sinaller bank or by itself attempting to come in independently. C. The Determivattonm Whether the Acquiring Firm Is Potential Competitor Depends Upon the Objective Facts Relating to Ita Independent Entry Into the Market and Not Upon Management's Subjective Statements With Leaspert to the Likelihood of Such Entry. In determining that Bancorporation was not a potential entrant into the Greeley Area, the district court placed principal reliance on testimony by FND Denver officials that Bancorporation did not intend to enter that market except by acquisition of FNB Greeley, with its large market share. **The evidence is uncontradicted,”’ it stated (J.S., App. A, p. 49) “that Banecorporation has no intention of entering the Greeley market if this acquisition is disapproved.” Although it found that “Bancorporation has the fi- nancial capability to enter the Greeley market de novo,” the court concluded (J.S8. App. A, p. 50) that “the practical difficulties, together with the expense, argue against Bancorporation’s following this route.” mere the emeet omedidedd 4S S.. Agy Aly. ob) that As this Court has recognized, however, the appli- cation of Section 7 to corporate combinations that involve the elimination of potential competition can- not turn on subjective statements corporate intent. In United States ¥. Penn-Olin Chemical Co., supra, 378 U.S. at 175, after a full review of objective evidence showing the capability and incen- tive of joint venturers to enter a market independ- ently, this Court held: “Unless we are going to re- quire subjective evidence, this array of probability certainly reaches the prima facie stage. As we have indicated, to require more would be to read the statu- tory requirement of reasonable probability into a re- quirement of certainty. This we will not do.” See also Federal Trade Commission v. Procter & Gamble Co., 386 U.S. 568, 580-581. The proper standard, we submit, for determining whether a firm is a potential entrant into a new mar- ket is based upon objective factors: whether, con- sidering the structure of the market, the putative entrant's financial capability to enter independently, x i its economic incentive to do so, and the reasonable prospects for making such an entry successful, there exists a basis for entry which would be reasonably acceptable to prudent management, if entry by acqui- sition of a large market share was not available. Section 7 is concerned with the prevention of anti- competitive market structures and is designed to cut off trends toward concentration in their incipiency. Business management, by contrast, is necessarily and properly motivated by a purpose to maximize profits. Decisions must be made by bank executives in light of the most immediate profit advantages to their banks; their business judgments do not depend on pre- serving the industry structure that is most likely to encourage competition. Thus, management's stated reluctance to enter a market de novo or by a foothold acquisition is not a ground for coneluding that the firm is not a poten- tial entrant. See United States v. Ford Motor Co., 236 F. Supp. 407, 421 (E.D. Mich.), affirmed, No. 70- 113, this Term, decided March 29, 1972. Almost always it is easier for a firm to enter a market by purchasing a large existing market share than by engaging in the com- petitive struggle required for independent entry or | expansion through a small “foothold” acquisition ; this method of entry has the additional attraction of also removing a significant competitor (i.c., the acquired firm) for the entering firm. Baneorporation had an announced policy of ex- panding as rapidly as possible through acquisitions into growth areas which would generate the highest 31 profits to shareholders (PX 3, App. 513). But, from the standpoint of preserving a competitive market structure, the fact that expansion can be accomplished by more profitable means is not a bar to or incon- sistent with independent entry. United States v. Standard Oil Co. (NA.), 23 F. Supp. 196, 220-223. 227 (D.NJ.). Section 7 reflects the fundamental con- cept of insuring that the profit motivation in our free enterprise system is directed into procompetitive channels. If management's subjective preference to maximize profits by entering a market through acquisition rather than independently were deemed controlling, Section 7 could not achieve its purpose of prohibiting all ac- quisitions whose effect “may be substantially to lessen competition.” It is therefore essential in assessing the role of a potential entrant on the edge of a market that the