# Appendix — United States v. Connecticut Nat. Bank > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386414_0340%3A01 ## Record - **Collection:** Supreme Court brief - **Document type:** Appendix - **Published:** January 1, 1974 - **Citation:** 418 U.S. 656 ## Text IN THE Supreme Court of the Anited States OcToBER TERM, 1973 No. 73-767 U UNITED STATES OF an — V. — THE CONNECTICUT NATIONAL BANK, THE First NEW HAVEN NATIONAL BANK, AND JAMES E. SMITH, Cour- TROLLER OF THE CURRENCY ON APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF CONNECTICUT INDEX Page Relevant Docket Entries 1 Complaint by the United States filed August 23, 1971 8 Answer of The Connecticut National Bank and The First New Haven National Bank filed September 18, 19711 12 Order filed October 20, 1971 n Comptroller of the Currency to intervene .. 18 Intervenor’s Answer filed November: 22, 1971 19 Plaintiff's Answer to Defendants’ Interrogatory No. 18 25 N ii INDEX Transcript of Proceedings held before the Hon. Robert C. Zampano, United States District Judge for the District of Connecticut, commencing October 10, 1972: Appearances [2] Testimony of Frederick Glantz —direct—[43] —cross—[83] —redirect—[123] Transcript of Proceedings held before the Hon. Robert C. Zampano, United States District Judge for the District of Connecticut, on October 11, 1972: Appearances [132] : Testimony of Neil B. Murphy —direct—[136] —cross—[208] Transcript of Proceedings held before the Hon. Robert C. Zampano, United States District Judge for the District of Connecticut, on October 12, 1972: Appearances [280] Testimony of Neil B. Murphy (continued) —cross—[281] Transcript of Proceedings held before the Hon. Robert C. Zampano, United States District Judge for the District of Connecticut, on October 17, 1972: Appearances [429] Testimony of Neil B. Murphy (continued) — ———ů —— ——— redirect [547] Transcript of Proceedings held before the Hon. Robert C. Zampano, United States District Judge for N District of Connecticut, on October 19, 1972: Page 31 112 199 INDEX Transcript of Proceedings held before the Hon. Robert C. Zampano, United States District Judge for the District of Connecticut, on October 20, 1972: Appearances [713] Testimony of Jack C. Myles —direct—[716] —cross—[746] —redirect—[765] Testimony of Alexander Hawley (continued) —cross—[773] Transcript of Proceedings held before the Hon. Robert C. Zampano, United States District Judge for the District of Connecticut, on October 25, 1972: Appearances [813] Testimony of Alexander Hawley (continued) Testimony of Charles J. Stokes —direct—[868] —voir dire—[872] —direct—[879] Transcript of Proceedings held before the Hon. Robert C. Zampano, United States District Judge for the District of Connecticut, on October 26, 1972: Appearances [935] Testimony of Charles J. Stokes (continued) —direct— [936] —cross—[1013] Transcript of Proceedings held before the Hon. Robert C. Zampano, United States District Judge for the District of Connecticut, on October 27, 1972: Appearances [1124] Testimony of Charles J. Stokes (continued) —cross—[1141] —redirect—[1199] iv INDEX Page Transcript of Proceedings held before the Hon. Robert C. Zampano, United States District Judge for the District of Connecticut, on October 31, 1972: Appearances [1218] 755 Testimony of Merton J. Peck —direct—[1219] 756 —voir dire—[1224] 759 —direct—[1226] 760 —cross—[13826] 821 Transcript of Proceedings held before the Hon. Robert C. Zampano, United States District Judge for the District of Connecticut, on November 1, 1972: . Appearances [1352] 837 Testimony of Merton J. Peck (continued) —cross—([1353] 838 —redirect—[1422] 880 Testimony of Frank G. Chadwick —direct—[1430] 885 —cross—[1479] 915 Transcript of Proceedings held before the Hon. Robert C. Zampano, United States District Judge for the District of Connecticut, on November 2, 1972: Appearances [1511] 933 Testimony of William S. Krafchik —direct—[1512] 934 —cross—[1583] 976 —redirect—[1626] Testimony of Carl B. Adolphson —direct—[1638] —cross—[1643] —redirect—[1658] Testimony of James J. Terzakis —direct—[1666] Transcript of Proceedings held before the Hon. Robert C. Zampano, United States District Judge for the District of Connecticut, on November 7, 1972: Appearances [1679 te? INDEX: Transcript of Proceedings held before the Hon. Robert C. Zampano, United States District Judge for the District of Connecticut, On November 7, 1972 :—Continued Testimony of James J. Terzakis (continued) —direct—[1680] Testimony of Paul H. Johnson —direct—[1737] Testimony of Thornton B. Morris —direct—[1757] —cross—[1767] Testimony of John L. Donovan —direct—[1784] Transcript of Proceedings held before the Hon. Robert C. Zampano, United States District Judge for the District of Connecticut, on November 8, 1972: Appearances [1836] Testimony of Thomas F. Richardson —direct—[1865] —cross—[1881] Testimony of John L. Donovan (continued) —direct—[1904] —cross—[1928] Transcript of Proceedings held before the Hon. Robert C. Zampano, United States District Judge for the District of Connecticut, on November 9, 1972: Appearances [1999] Testimony of John L. Donovan (continued) —redirect—([2021] —recross—[2024] Testimony of Robert J. Blinken —direct—[2037] —cross—[2043] Testimony of James H. Gilbert —direct—[2059] —cross—[2067] vi INDEX Transcript of Proceedings held before the Hon. Robert C. Zampano, United States District Judge for the District of Connecticut, on November 9, 1972 :—Continued Testimony of William Schmiedel —direet—[2071] 1262 —cross—[2082] 1269 Testimony of Virgil DeChant —direct—[2090] . 1274 —cross—[2099] 1279 Testimony of Leon J. Simkins —direct—([2110] 1286 —cross—[2116] 1290 Testimony of Frederick M. Robison —direct—([2122] 1293 —cross—[{2128] 1297 Transcript of Proceedings held before the Hon. Robert C. Zampano, United States District Judge for the District of Connecticut, on November 15, 1972: Appearances [2144] 1306 Testimony of James E. Hagen —direct—([2147] 1308 —cross—[2164] 1319 —redirect—([2169] 1321 —recross—[2169] 1321 Testimony of Michael F. Fountain —direct—(2173] 1324 —cross—[2177] 1327 Testimony of Peter Stassa, Jr. —direct— [2224] 1352 —cross—[2238] 1360 f redirect [2253] 1369 Stipulation of November 8, 1972, concerning business solici- tation in Connecticut by representatives of New York city banks 1873 Transcript of Proceedings held before the Hon. Robert C. Zampano, United States District Judge for the District of Connecticut, on February 26, 1973: Appearances [2] 1376 Proceedings [3] - 1377 INDEX vii P Government Exhibits Gx-1 GX-2 an —— 1438 Gx-4 1456 ors 1457 Gx-6 — GX-7 2 GX-8 — G- 9 on GX-10 ase GX-11 ane arse 1464 GX-13 7 — GX-14 2 — GX-15 po GX-16 po GX-17 po GX-18 yn GX-19 pin —— 1474 G- 21 yo GX-22 ten GX-23 aaa ae — 1478 GX-25 ae GX-26 7 — GX-28 a GX-29 a GXx-30 — GX-31 — GX-32 as GX-33 — OX — 1513 aos 1514 — 1515 GX-37 * et 1517 GX 39 apo ae 4p 1519 GX-41 a Gx4s 1521 GX-43 — GX-44 — GX-45 — GX-46 — GX -47 iar 1527 6/22/78 77/16/78 9/12/78 10/11/78 2 RELEVANT DOCKET ENTRIES—Continued Court trial continues. Court trial continues. Court trial continues. Court trial continues. Court trial continues. Court trial continues. Intervenor rests at 11:20 A.M. Defendants rest at 11:27 A.M. with leave to 1 Govt. rebuttal witness sworn and testified. Plaintiff rests in rebuttal at 2:50 P.M. All parties rest at 2:50 P.M. Court trial continues. Oral Arguments. Notice of Appeal to the Supreme Court of the United States, filed by Plaintiff U.S.A. Record on Appeal sent Supreme Court. DXx-61 DX-70 DX-71 DX-72 DX-73 DX-74 DX-75 DX-76 —— DX-77 . DXx-78 DX-79 .. DX-80 . DX-81 DX-82 DX-83 DX-84 DX-85 DX-86 DX-87 DX-88 . DX-89 DX-90 DX-91 DX-92 ... NY.o28 ——— —— 2 8282222222327 827242 88225 7 « = 8 : 45 L 2 UNITED STATES DISTRICT COURT sa and FOR THE DISTRICT OF CONNECTICUT NEW has an. UNITED STATES OF AMERICA, Plaintiff, Civil Action No. 14583 = Filed: THE CONNECTICUT NATIONAL BANK — THE FIRST NEW HAVEN NATIONAL BANK, Defendants. COMPLAINT The United States of America, plaintiff, by its attorneys, acting under the direction of the Attorney General of the United States, brings this civil action to obtain equitable relief against the above-named de- fendants, and complains and alleges es follows: 1 JURISDICTION AND VENUE 1. This complaint is filed and this action is instituted under Section 15 of the Act of Congress of October 15, 1914, Cc. 323, 38 Stat. 736, as amended (15 U.S.C. § 25), commonly known as the Clayton Act, in order to prevent and restrain violation by the defendants, as hereinafter alleged, of Section 7 of the Clayton Act, 38 Stat, 731, as amended (15 U.S. c. § 18). 2. Each of the defendants has its principal place of business, transacts business; and is fouhd within the District of Connecticut. 11 5 THE DEFENDANTS 3. The Connecticut National Bank (hereinafter referred to as “Connecticut National") is made a defendant herein. Connecticut National is a banking association organized under the laws of the United States of America and maintains its principal place of business in Bridgeport, Fairfield County, Connecticut, ö : 4. The First New Haven National Bank (hereinafter referred to as "First New Haven") is made a defendant here- in, First New Haven is a banking association organized under the laws of the United States of America and maintains its principal place of business in New Haven, New Haven County, Connecticut. : III : TRADE AND COMMERCE 5. Commercial banks fill an essential and unique role in the nation's economy, Their principal functions are the acceptance of deposits for safekeeping and convenience in making payments by check, the granting of loans or advances of funds to individuals and business firms, and the creation through demand deposits of net additions to the supply of money. Most money paynents in the United States are made through checks drawn against demand deposits, and the creation and holding of such deposits is a function peculiar to commercial banks and one which makes them to a great extent the administrators of the nation's check paynent system, Through the making of loans to individuals and businesses, 5 * commercial banks supply a significant part of the credit requirements of the nation's economy. Commercial banks also accept time deposits from various. types of degpsitors and provide a wide variety of other financial services, including personal and corporate trust accounts, the collection of drafts, bills, and other commercial instru- ments, the acceptance of bills of exchange, the issuance of letters of credit, the sale of cashier's checks and drafts on correspondent banks, the purchase or sale of securities for customers, the sale of foreign exchange, and the renting of safety deposit boxes. This combination of services is undupfiicated by other financial institutions. 6. Customers of Connecticut National and First New Haven have regularly utilized interstate communications, including the mails, telephone and telegraph, to carry on their business with, apply for, and obtain the services provided by these banks. Connecticut National and First New Haven have regularly utilized interstate communications, including the mails, telephone and telegraph, to conduct business with customers and with other banks located in states other than Connecticut. Connecticut National and First New Haven are each engaged in interstate commerce. 7. Connecticut National is the fourth largest commer- cial bank in Connecticut. It operates 48 banking offices, including ten in Bridgeport, 29 in Fairfield County outside of Bridgeport, eight in New Haven County, and one in Litch- field County. On December 31, 1970, Connecticut National held total assets of about $398 million, total deposits of about $354 million (including IPC demand deposits of about 6 $154 million), and total loans and discounts of about $228 million, Connecticut National holds about 7 percent of the deposits held by commercial banks in Connecticut. 8. First New Haven is the seventh largest commercial bank in Connecticut, It operates a total of 21 offices, all in New Haven County, including eight in New Haven City. On December 31, 1970, First New Haven held total assets of about $315 million, total deposits of about $261 million (including IPC demand deposits of about $145 million), and total loans and discounts of about $185 million. First New Haven holds about 5 percent of the deposits held by commercial banks in Connecticut. ; | 9. The State of Connecticut is Wendy industrialized, with a large white collar population and relatively little farming. Connecticut's population grew at a rate of 17.9. percent during the 1960's, the highest rate of growth in the northeast .section of the United States. The state ranks first in the nation in per capita personal income and per capita value added by manufacture, Bridgeport and New Haven are the second and third largest cities in the state, respectively. Bridgeport is the leading industrial center in the state, and there is considerable manufacturing in the New Haven area also. Population in the Bridgeport and New Haven Standard Metropolitan Statistical Areas ("SMSAs") increased by 15 percent and 11 percent, respectively, in the 1960's. Population in Fairfield and New Haven Counties increased 21 percent and 13 percent, respectively, during the same period. 7 10, The cities of Bridgeport and New Haven are about 20 miles apart, connected by good highvays. Several * offices of both banks are located in the area between the two cities, Among these offices are five offices of First New Haven and three of Connecticut National located in close proximity to each other in the towns of Orange, Milford, Derby and Ansonia, Connecticut. National and First New Haven are significant competitors of each other and of other commercial banks within this four-town area. Commercial banking in this area is highly concentrated, First New Haven and Connecticut Nationalchold about 39 percent and 20 percent, the first and second largest shares, respectively, of the total deposits held by all commercial banking offices in the area, If ‘the proposed consolidation between Connecticut National and First New Haven is consummated, the resulting bank would hold about 59 percent of the total commercial bank deposits in this area and operate eight of the area's 16 commercial banking offices. ö u. Commercial banking in New Haven County is also highly concentrated. First New Haven is the second largest bank headquartered in the county and holds the largest share, about 24 percent, of alt deposits in New Haven County banking offices, The four largest banks in the county together hold about 68 percent of all such deposits. Connecticut National's eight New Haven County offices hold about 5 percent of ali deposits held in the county. If the proposed consolidation between Connecticut National and First New Haven is consummated, the resulting bank would hold 8 about 29 percent of all deposits in New Haven County bank- ing offices, and the share of the four leading banks in the county would increase from 68 percent to about 73 percent, 12. Commercial banking in the New Haven SMSA, consist~- ing of New Haven and ten nearby towns, is also highly concentrated, First New Haven holds the largest share, about 40 percent, of commercial bank deposits in the SMSA. The two leading banks hold about 69 percent of all such deposits, Connecticut National's one office in Orange, which is within ; the New Haven SMSA, holds about 1 percent of total SMSA deposits; 13, Connecticut banking law permits statewide de novo branching into any city or town which is not the site of the head office of another bank, Five New Haven County towns in which First New Haven operates offices are presently open to de novo entry by Connecticut National. Four of these five towns are in the New Haven SMSA and three of the towns, East Haven, West Haven and Branford, are adjacent or very close to New Haven and would provide good locations fron which Connecticut National could compete more effectively in the New Haven area. | 14, Connecticut National has the capability and incentive to expand further into the New Haven SMSA by | de novo branching into those towns which are open to such branching or by acquisition of one of the four small banks which operate offices in towns adjacent to New Haven, Connecticut National could also enter New Haven City by forming a multi-bank holding company and chartering a de novo bank there, 9 15, Commercial banking in the Bridgeport SMSA is highly concentrated, Conriecticut National holds about 40 percent, the leading share, of total deposits in the Bridgeport SMSA, The two leading banks hold about 77 percent of all such deposits. First New. Haven's three offices in Milford, New Haven County (which is in the aridgeport SMSA) hold about 6 percent of total deposits in the Bridgeport SMSA, 16, Twelve towns in which Connecticut National operates offices are presently open to de novo branching by First New Haven, including all of the towns in the Bridgeport SMSA except the City of Bridgeport. Most of | these towns are adjacent or very close to Bridgeport and would provide good locations from which First, New Haven could compete more effectively in the Bridgeport area. 17. First New Haven has the capability and incentive to expand further into the Bridgeport SMSA by de novo branching. First New Haven could also enter Bridgeport City by forming a multi-bank holding company and chartering a de novo bank there. - 18, Presently, 139 of Connecticut's 177 towns and cities, containing a total population of about 1,550,000, are open to de novo branching by outside banks. In recent years, the larger banks in the state have begun to expand into areas more distant from their home offices. . Given the small size of the state and the ease of movement between major urban centers, it can be expected that regional and statewide banking systems will be established. Connecticut 10 National and First New Haven each hewe the capability and incentive to independently expand into Such a system. 19. The proposed consolidation between Connecticut National and First New Haven is part of a recent trend toward mergers of leading banks in different parts of Connecticut, The third largest bank in the state is the result of a merger of leading banks in New Haven and Stamford, and the seventh and 13th largest commercial banks in the state, located in Bridgeport and Waterbury, respectively, recently merged to form the sixth largest bank in the state, w ö 20. Defendants Connecticut National and First New Haven entered into an agreement on or about November 19, 1970, which will result in the consolidation of Connecticut National and First New Haven under the charter of First New Haven and with the title The First Connecticut National Bank, The Comptroller of the Currency approved the proposed consolidation on July 26, 1971. 21, The effect of the consolidation described in paragraph 20 above may be substantially to lessen competi- tion or tend to create a monopoly in violation of Section 7 of the Clayton Act jin the following ways, among others: (a) actual and potential competition between "Connecticut National and First New Haven — in the Bridgeport and New Haven SMSAs, in New Haven County and in the Orange-Milford- Derby-Ansonia area of Connecticut will be () (e) (4) (e) 11 permanently eliminated; concentration in commercial hosking in the Bridgeport and New Haven SMSAs, in New Haven County and in the Orange-Milford-Derby~Ansonia erea ot Connecticut will be significantly Increased; Connecticut National will be eliminated as a potential substantial competitive factor in the New Haven ‘area and in those parts of New Haven County where it presently does not operate commercial banking offices in competition with those of First New Haven; First New Haven will be eliminated as a potential substantial competitive factor in the Bridgeport area and in those parts of Fairfield and New Haven Counties where it presently does not operate ‘commercial ‘banking offices in competition with those of Connecticut National; the number of banks in Connecticut capable of independently expanding into statewide banking systems will be reduced; (f) both Connecticut National and First New Haven will be entrenched in their dominant positions in many local markets; and mergers and consolidations between other leading banks in Connecticut may be fostered, resulting in the concentration of banking 12 . IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF CONNECTICUT UNITED STATES OF AMERICA, Plaintiff, : CIVIL ACTION * No. 14583 THE CONNECTICUT NATIONAL BANK and THE FIRST NEW HAVEN NATIONAL BANK, ANSWER Defendants. 42 „4 „6 Defendants, THE CONNECTICUT NATIONAL BANK (“CONNECTICUT NATIONAL") and THE FIRST NEW HAVEN NATIONAL BANK (“FIRST NEW HAVEN"), by their attorneys, make the following answer to plain- tiff's complaint: 1. Defendants deny so much of Paragraph 1 as alleges that their proposed consolidation would violate Section 7 of the Clayton Act, 38 Stat. 731, as amended. Defendants are with- out sufficient knowledge or information to form a belief as to the truth of the remaining allegations of Paragraph 1. 2. 3. 4. 5 The allegations contained in Paragraph 2 are admitted, The allegations contained in Paragraph 3 are admitted, The allegations „ in Paragraph 4 are admitted, Defendants admit so much of Paragraph 5 as alleges the activities and services described constitute, in general, activities and services of commercial banks, but deny (a) that ter sectios 2 TA nett? : 4 je pee bane Bars 13 * ficient knowledge of information to of the remaining allegations of Paragraph 5. 6. The allegations contained in Paragraph 6 are admitted. 7. In answer to Paragraph 7, defendants deny that defendant Connecticut National is the fourth largest commercial bank in“ Connecticut. Further answering, defendants allege that there are more than three commercial banks actively competing in“ Connecticut that are larger than Connecticut National and that Connecticut National is the fourth largest commercial bank head- quartered in Connecticut. Defendants admit the allegations stated in the second and third sentences of Paragraph 7. Defendants are without sufficient knowledge or information to form a belief as to the truth of the allegatiorm stated in the fourth sentence of Paragraph 7. 8. In answer to Paragraph 8, defendants deny that defendant 1 First New Haven is the seventh largest commercial bank Ain“ con- necticut. Further answering, defendants allege that there are more than six commercial banks actively competing "in" Connecti- cut that are larger than First New Haven and that First New Haven is the seventh largest commercial bank headquartered in Connecticut. Defendants admit the allegations stated in the second and third sentences of Paragraph 8. Defendants are without sufficient knowledge or information to form a belief as to the truth of the allegations stated in the fourth sentence of Paragraph 8. 14 9. Defendants are without sufficient knowledge or infor tion to form a belief as to the truth of the allegations in graph 9. ™ 10. 1 answer to Paragraph 10, defendants admit that Bri port and New Haven are about 20 miles apart, and that several offices of both banks are located in the area between the two cities. Defendants deny that the “four-town area" is a proper or relevant area for the purposes of this case. Answering defendants allege that they are not in significant competition with each other in any section of the country. Defendants deny each and every other remaining allegation in Paragraph 10. 11. Defendants deny so much of Paragraph 11 as alleges First New Haven is the second largest bank headquartered in New Haven County, and defendants deny that New Haven County is a p or relevant area for the purposes of this case. Defendants are without sufficient knowledge or information to form a belief as to the truth of the remaining allegations in Paragraph 11, that it is denied that First New Haven and Connecticut National hold the alleged approximate percentage shares of all deposits in New Haven County banking offices. 12. Defendants deny so much of Paragraph 12 as alleges that the New Haven SMSA is a proper or relevant area for the purposes of this case. Defendants are without sufficient knowledge or ir formation to form a belief as to the truth of the remaining al- legations in Paragraph 12, except that it is denied that First New Haven and Connecticut National hold the alleged approximate percentage shares of commercial bank deposits in the New Haven -3 15 13. Defendants admit the allegations in the first sentence of Paragraph 13 and, answering further, defendants allege that de novo branching into a city or town in Connecticut which is not the site of the head office of another bank is only permitted by the appropriate state and federal bank regulatory authorities upon a showing by the applicant bank that additional bank office facilities are needed and would be supported by the local economy, a showing that can not readily be made with respect to most of the cities and towns in Connecticut where de novo branching is not barred under Connecticut law. Defendants deny that any town or city in Connecticut is open“ to de novo branching entry by Connecticut National and deny each and every other remaining al- legation in Paragraph 13. Answering further, defendants allege that no city or town in Connecticut is open“ as a matter of choice to de novo branching by Connecticut National which would ' ¢ace serious financial and regulatory obstacles in attempting to enter by de novo branching into any town in which First New Haven now operates an office. 14. Defendants deny each and every allegation in Paragraph 14. 15. Defendants deny So much of Paragraph 15 as alleges that the Bridgeport SMSA is a proper or relevant area for the purposes of this case. Defendants are without sufficient knowledge or in- formation to form a belief as to che truth of the remaining al- legations in Paragraph 1S, except that it is denied that Connecticut National and First New Haven hold the alleged approximate percentage shares of commercial bank deposits in the Bridgeport SMSA. -4- A 16 16. Defendants deny so much of Paragraph 16 as alleges that any towns in which Connecticut National operates offices are presently open“ to de novo branching by ros New Haven. “ing further, defendants allege that any attempt by First New u to enter by de novo branching into any towns in which Connecticut National operates offices would face serious financial and regu- latory obstacles. Defendants are without sufficient knowledge or information to form a belief as to the truth of the remaining al- legations of Paragraph 16. 17. Defendants deny each and every allegation in Paragraph 1) 18. Defendants are without sufficient knowledge or info to form a belief as to the truth of the allegations in the first sentence of Paragraph 18, except that it is denied that 139 of Connecticut's 177 towns are open“ to de novo branching by outs banks. Defendants are without sufficient knowledge or informa’ to form a belief as to the truth of the allegations in the second sentence of Paragraph 18. Defendants deny each and every other allegation in Paragraph 18. 19. Defendants deny so a of spend 19 as aileges that the proposed consolidation is part of a recent trend 8 me of leading banks in different parts of Connecticut. Defendants are without sufficient knowledge or information to form a belief as to the truth of the remaining allegations stated in Paragraph I , except that defendants admit that the Federal Deposit Insurance Corporation on June 12, 1969 approved the merger of The Fairfield County Trust Company (headquartered in Stamford) and The Union ani New Haven Trust Company (headquartered in New Haven) under the 17 a charter of Union and New Haven Trust Company and with the title *union Trust Company," that said merger created the third largest commercial bank headquartered in Connecticut and that plaintiff herein interposed no proceeding to enjoin that merger within the x prescribed statutory period. 20. Defendants admit the allegations in Paragraph 20. 21. Defendants deny each and every allegation in Paragraph 21. Affirmative Defense As and for a separate defense, defendants state that the anti-competitive effects which it is alleged may result from their proposed consolidation are clearly outweighed in the public interest by the probable effect of the transaction in meeting the ‘eonvenience and needs of the community to be served. The Defendant, The First New Haven National Bank a Richard G. Beli Tyler, Cooper, Grant, Bowerman & Keefe 205 Church Street New Haven, Connecticut Its Attorneys The Defendant, 4 The Connecticut National Bank Huntley Stone ’ . Pullman, Comley, Bradley & Reeves 855 Main Street Bridgeport, Connecticut Its Attorneys Dated: September 11, 1971 18 ee ee «71 UNITED STATES DISTRICT COURT FILED ~~ T33 A POR THE DISEACT OP CONNECTICUT Cer 22 8 os in Tl : U.S. die TAIT COURT REY RAVEN. COUN, UNITED STATES OF AMERICA, ) : N . Plaintif®, ) v. ) Civil Action No. 14583 THE CONNECTICUT NATIONAL BANK ) and THE FIRST NEW HAVEN NATIONAL BANK, . Defendarts, ) QORDER The Notice of Motion and Motion of William B. Camp, Comptroller of the Currency, to Intervene as a Party to this action and for addi- tional time having been filed with the Court, and the Court having corsidered the same. | IT IS HEREBY ORDERED that the Motion of the ler of the Currency is granted pursuant to Rule 24(a) (1) of the Federal Rules of Civil Procedure and the provisions of 8 1828 (c (7) (o) of Title 12, United states Code, and thirty days additional time to answer or otherwise proceed is granted. ORDERED THIS 772 day of October 1971. 122 2 ta: 4 ) TED STAT er JUDGE | 19 UNITED STATES DISTRICT COURT FOR THE DISTRICT OF CONNECTICUT * UNITED STATES OF AMERICA, ) Plaintiff, ) . v. ) Civil Action No. 14583 THE CONNECTICUT NATIONAL BANK ) and THE FIRST NEW HAVEN NATIONAL BANK, ) Defendants, ) and ) WILLIAM B. CAMP, COMPTROLLER ) OF THE CURRENCY, ) Intervenor. ) INTERVENOR'S ANSWER Intervenor, William B. Camp, Comptroller of the Currency, ‘by his attorney, answers the Complaint herein, as follows: 1. Intervenor admits that plaintiff purports to bring this action under Section 15 of the Act of Congress of October 15, 1914, c. 323, 38 Stat. 736, as amended (15 U.S.C. §25); however, Intervenor alleges and avers that the standards to be applied by the Court in this case, are those set forth in 12 U.S.c. 81828 (c). as amended by the Act of Congress of February 21, 1966, P. L. 89- 356, 80 Stat. 7, commonly known ab the Bank Merger Act of 1966. 2. Intervenor admits the a in paragraphs 2, 3 and 4 of the Complaint. | 3. Intervenor admits the allegations of paragraph 5 of the Complaint to the effect that commercial banks fill a role in the nation's economy and that some commercial banks perform the functions outlined in paragraph 5, although not all, but denies all other allegations in said paragraph and any implication ee 20 22 therein that comercial banks are 21 in offering financial services and denies any implication therein that commercial banks are not in competition with other financial and lending institutions. 4. Intervenor, with regard to paragraph 6 of the Complaint, admits the allegations except that it denies every customer of each bank regularly utilizes interstate communications, including the * telephone and telegraph to carry on his business with or to apply for and obtain the services of either bank. 5. Intervenor denies the allegation in paragraph 7 of the Complaint that Connecticut National is the fourth largest commer- cial bank “in Connecticut". Intervenor admits the allegations in the second and third sentences of the paragraph and alleges it is ö without sufficient information to form a belief as to the truth of the last sentence in the paragraph. . 6. Intervenor denies the allegation in paragraph 8 of the Complaint that defendant, First New Haven, is the seventh largest commercial bank “in Connecticut". Intervenor admits the allega- tions contained in the second and third sentences of the paragraph and alleges it is without sufficient information to form a belief as to the truth of the last sentence in the paragraph. 7. Intervenor is without eufflelent knowledge to form a belief as to the truth of the allegations contained in paragraph 9 of the Complaint. . ö 8. Intervenor denies all the allegations contained in paragraph 10 except that it admits that several offices of defendan banks are located in the area between Bridgeport and New Haven and 21 -3- that these two cities are about twenty miles apart. Intervenor specifically denies Connecticut National and First New Haven are significant competitors of each other in any section of the country and specifically denies that combining of the four separate and distinct towns of Derby, Ansonia, Milford and Orange makes them a section of the country or relevant geographic market area for this Section 7 case. 9. Intervenor denies the allegation in paragraph 11 of the complaint that commercial banking in New Haven County is highly concentrated and that First New Haven is the second largest commer- cial bank headquartered in New Haven County. Intervenor denies that New Haven County is the proper or relevant geographic area for the purposes of this case, and denies that First New Haven and Connecticut National hold the allegea percentage share of deposits in New Haven County — offices. Intervenor is without suf fi- cient knowledge to form a belief as to the truth of the remaining allegations in the paragraph. 10. Intervenor denies the allegation in paragraph 12 of the Complaint that benkipg in the New Haven SMSA is highly concentrated and that the New Haven SMSA is a proper or relevant area for the purposesof this case. 8 denies that First New Haven and Connecticut National hold the alleged percentage share of deposits in the New Haven SMSA. Intervenor is without sufficient knowledge to form a belief as to the truth of the remaining allegations in the paragraph. 11. Intervenor admits the allegation in paragraph 13 of the Complaint that Connecticut law permits statewide de novo branching 22 244 into any city or town which is not the site of the head office of another bank providing either state or federal bank regulatory approval is first applied for and obtained. Intervenor further avers that in the case of Connecticut National, being a national bank, it must first apply to Intervenor and obtain approval from Intervenor before each de novo branch office can legally be opened, Intervenor denies that any city or town is open“ to de novo branch entry by Connecticut National as well as every other 1 remaining allegation in the paragraph. 5 12. Intervenor denies the allegations in patagraph 14 of the Complaint. 13. Intervenor denies the allegation in paragraph 15 of the Complaint that banking in the Bridgeport SMSA is highly concentrate and that the Bri dgeport SMSA is a proper or relevant area for the purposes of this case, Intervenor denies that Connecticut National and First New Haven hold the alleged percentage shares of deposits in the Bridgeport SMSA. Intervenor is Ada sufficient informa- tion to form a belief as to the truth of the remaining allegations in the paragraph. | 14. Intervenor Genies the allegations in paragraph 16 of the Complaint that there are any towns in which Connecticut National operates an office that are open“ to de novo branching by First New Haven. Intervenor avers that in the case of First New Haven, being a national bank, it must first apply to Intervenor and ob approval from Intervenor before any de novo branch office could be legally opened in any town in Connecticut. Intervenor is without sufficient knowledge to form a belief as to the truth of the rem , allegations in the paragraph. 23 - 5 = 15. Intervenor denies the allegations in paragraph 17 of the Complaint. 16. Intervenor denies the allegatio& in paragraph 18 of the Complaint that 139 of Connecticut's 277 towns and cities containing 1,550,000 people are open“ to de novo branching by outside banks. Intervenor is without sufficient information to form a belief as to the truth of the allegation contained in the second sentence of the paragraph. Intervenor denies the remaining allegations contained in the paragraph. 17. Intervenor denies the allegation in paragraph 19 of the Complaint that this proposed consolidation is part of a recent trend toward mergers of leading banks in different parts of Connecticut. Intervenor is without sufficient knowledge to form a belief as to the truth of the remaining allegations in the paragraph. 18. Intervenor admits the allegation contained in paragraph 20 of the complaint. 19. Intervenor denies each and every allegation contained in paragraph 21 (a) through (g) of the Complaint. AFFIRMATIVE DEFENSE Intervenor alleges that the Bank Merger Act of 1966, 80 Stat. 7, 12 U.S.C. §1828(c), is an affirmative defense to this action. Said Act provides an affirmative dafense in this case because any anti-competitive effects resulting from the proposed consolidation (the existence or substantiality of which is denied) are clearly outweighed in the public interest by the probable effects of . . the transaction in meeting the convenience and needs of the community to be served. Iz U.S.C. $1828(c) (5) (. See CHARLES H. McENERNEY, IN Attorney for William B. 5 Comptroller of the Currency Treasury Department ; 15th and Pennsylvania Ave., Washington, D. C. 20220 Area Code 202-964-2154 Dated: November 19, 1971 Interrogatory 18 With further respect to Paragraph 21 of the Complaint: A. State the actual. .. competition between Connec- tieut National and First New Haven . referred to in subparagraph (a), describe the amount of such competi- tion and state whether plaintiff contends that such “ac- tual competition” is substantial. B. State the “potential competition” referred to in sub- h (a), state whether the amount of such com- petition can be quantified and, if so, state such amount and whether plaintiff contends that such “potential com- petition” is substantial. C. Describe in detail each market, submarket, or sec- tion of the country in which plaintiff contends that “po- tential competition . . will be permanently eliminated.” D. Explain how “potential competition” between Conn- ecticut National and First New Haven will be eliminated. E. State whether plaintiff contends that the more rele- vant market, submarket, or section of the country for the purposes of this case is (1) the Bridgeport SMSA; (2) the New Haven SMSA; (3) Fairfield County; (4) New Haven County; (5) the City of Orange; (6) the City of Milford; (7) the City of Derby; (8) the City of Ansonia; (9) the City of Bridgeport; (10) the City of New Haven; or (11) any combination of any of the preceding. J 2 F. Define with particularity what plaintiff contends is the “Orange-Milford-Derby-Ansonia area; (2) the “New Haven area” and (3) the “Bridgeport area“. G. State whether plaintiff contends that potential com- petition in commercial banking between defendants will be permanently eliminated in any section of the country other than in New Haven County and in the City of New Haven, in Fairfield County and in the City of Bridge- port, and in the Bridgeport and New Haven SMSA’s. If plaintiff does so contend, describe any such other sec- tion of the country and state the facts upon which it is contended that potential competition therein will be per- manently eliminated. H. State the manner in which (1) “Connecticut Na- tional . . . [is] a potential substantial competitive factor in the New Haven area and in those parts of New Haven dunty where it presently does not operate commercial banking offices in competition with those of First N Haven”, and the manner in which (2) First New Ha . .. [is] a potential substantial competitive factor in Bridgeport area and in those parts of Fairfield and N. Haven Counties where it presently does not operate com- mercial banking offices in competition with those of Con- “TWh semen ¢ the allegations in subparagraph (e) . respect to ons in su e), state what plaintiff means by substantial“, identify “those parts of New Haven County where [Connecticut National} does not operate commercial banking offices in competition with those of First New Haven,” and state whether “those parts” constitute a separate market, sub- market, or section of the country. J. With respect to the allegations of subparagraph (d), state what plaintiff means by “substantial”, identify “those of Fairfield and New Haven Counties where {First New Haven] presently does not operate commercial banking offices in competition with those of Connecticut National”, and state whether “those parts” constitute a separate market, submarket, or section of the country. K. State whether the proposed consolidation will in- crease competition (1) with any other bank or other fi- nancial institution located in any market, submarket, or section of the country relevant to this proceeding; or (2) with any other bank of other financial institution now serving customers in any market, submarket, or Section of the country relevant to this proceeding from offices located outside said market, submarket, or section of the country. L. With respect to the allegations in subparagraph (e), state the number and identity of banks in Connec- ticut presently capable of independently expanding into statewide banking systems and state the number and identity of banks in Connecticut capable of independently expanding into statewide banking systems in the foresee able future. M. With respect to the allegations in subparagraph (f), state what plaintiff means by (1) “entrenched” (2) “dominant” positions and (3) identify each of the “many local markets” in which Connecticut National and First — Haven will be entrenched in their dominant posi- ons acquisitions between other (which] may be fostered” by te the amount of “concentra- in the state” plaintiff contends result, state the number of diverse “banking choices” preserved in the state, and de- t bank mergers promote eading banks in local markets.” contends is the minimum num- oans and deposits for a bank inde- d into a statewide banking system in of concentration in commercial of Bridgeport, New Haven, New Lon- in the State of Connecticut and the banks operating in such areas and the per- of offices, assets, loans and deposits held by each whether plaintiff contends that any of the de- concentration described in P, above, will be in- decreased as a result of the proposed consolida- defendants and, if so, state what plaintiff will be the resulting degree of concentration in ties of Bridgeport, New Haven, New London and Hartford and in the State of Connecticut. R. State whether plaintiff contends that defendants or either of them do not face significant competition from banks located outside of the State of Connecticut. Answer to Interrogatory 18 A. See answer to Interrogatory 5. B. “Potential competition” refers to that competition which éxists because of the potentiality that defendants would establish offices in closer proximity to each other, through establishment of de novo branches or banks or merger with a smaller bank, and thereby come into actual competition with each other. Such potentiality of entry is based upon defendants’ capability to enter as a source of significant new competition as indicated by defendants’ size, financial resources and demonstrated willingness to expand by de novo branching and/or merger with smaller banks, and incentive to enter as indi by the signifi- cant economic growth of the markets involved, as well as fn the geographic proximity and economic similarity of these markets. The effect of the elimination of this potential competition would be to eliminate the present influence which defendants’ ability to enter the relevant markets they are not now serving has on the competitive behavig of banks presently in these markets, and to eliminate ¢ fendants as a source of future deconcentration in th markets. Plaintiff contends that “potential competition” referred to in subparagraph (a) is substantial. The “amount” of such potential competition cannot be described by one number, but potential competition can be identified and VG a C. Potential competition will be eliminated in the follow- — areas, which are described in answer to Interrogatory 1A: New Haven SMSA, Bridgeport SMSA, Bristol SMSA, Danbury SMSA, Hartford SMSA, Meriden SMSA, New Britain SMSA, New London-Groton-Norwich SMSA, Nor- walk SMSA, Stamford SMSA, Waterbury SMSA and the State of Connecticut. D. Connecticut National and First New Haven are po tential entrants in parts of each relevant market identi- fied in C, above, in which they do not operate offices. | Thus potential competition exists between defendants in such markets. This potential competition, which is de — in B, above, would be eliminated by the consolida- on. E. Plaintiff makes no contentions regarding a “most relevant market.” Each market described in answer to . rang Mi is a relevant market. ee Milford-Derby-Ansonia area” is described in answer to Interrogatory 1A. The “New Haven area” and the “Bridgeport area” refer to the respective SMSA’s, which are also described in answer to Interrogatory 1A. G. Yes. These sections of the country are described in answer to C, above. Potential competition will be elimi- nated between defendants for the reasons stated in an- swer to B and D, above. H. Defendants are potential entrants into the markets described in answer to C, above, by establishing de novo branches and banks or by merger with “foothold” banks, I. Plaintiff used “substantial” as that courts in interpreting Section 7 of the Clayton as summarizing contentions in the complaint and answers to these interrogatories which describe the effect on po- tential competition resulting from the elimination of Con- necticut National as a potential entrant. “Those parts of New Haven County .. .” include the New Haven SMSA, Waterbury SMSA and Meriden SMSA, which are wholly or partly within New Haven County, and which constitute separate markets and sec- tions of the country. J. Plaintiff used “substantial” as that term is used by courts in interpreting Section 7 of the Clayton Act, and as summarizing contentions in the complaint and answers to these interrogatories which describe the effect on po- tential competition resulting from the elimination of First New Haven as a potential entrant. “Those parts of Fairfield and New Haven Counties .. include the Bridgeport SMSA, Norwalk SMSA, Stamford SMSA, Waterbury SMSA and Meriden SMSA, which are wholly or partly within those counties, and which constitute separate markets and sections of the country. K. (1) No. (2) No. L. The eight banks and banking organizations capable of independently expanding into statewide banking sys- tems are City National Bank of Connecticut, Colonial Bank & Trust Co., Connecticut National Bank, First Connecticut Bancorporation, First New Haven National Bank, State National Bank of Connecticut, Union Trust Co. and Second National Bank of New Haven. Hartford National Bank and Connecticut Bank & Trust Co., which plaintiff considers to be statewide banks, are capable of 3 further within the state. laintiff is unsure of what defendant means by fore- seeable future,” but makes no contentions regarding this time period. M. (1) “Entrenched” means that barriers to entry will be raised or maintained, defendants’ ability to maintain or increase their dominant market positions will be en- hanced and augmented, and competition will be lessened or inhibited. (2) “Dominant” refers to the fact that defendants hold approximately 40% of deposits in the Bridgeport and New Haven SMSA’s, the greatest market share of any bank operating in those markets. (3) Bridgeport SMSA, New Haven SMSA, Orange Milford- Ansonia area. N. Plaintiff contends that mergers and consolidations between other leading banks in Connecticut may be fos- tered, but does not contend that any particular or acquisitions between specific named banks may be fostered, or that any specific amount of concentration may result. Plaintiff contends that since all the relevant hie areas in this action are highly concentrated, all the “diversity in banking choices” presently available should be preserved and, in local markets, enhanced. Mer- gers of leading in local markets would result in a few very large in the state, each holding leading positions in the several local markets in the state. These — 1 oe onely ee oligopolistie markets, will be encouraged to pursue parallel practices in disregard of local competition conditions. Such merger of leading banks in different markets would elimi- nate potential competition in the several local markets in the state, which effects, taken together, would have a sub- stantially adverse effect on potential competition in the State of Connecticut. O. In answer to Interrogatory 15, plaintiff stated that regional and statewide systems held $200 million or more in deposits. Plaintiff makes no other contentions Q. Plaintiff does not contend that concentration in these cities will increase or decrease. In the State of Connecticut as of December 31, 1971, the share of total deposits held by the five largest banks would increase from 61% to 66%, and by the ten largest banking organizations from 83% to 85%. R. Plaintiff contends that neither defendant faces sig- nificant competition in the line of commerce of commer- cial banking from banks located outside of Connecticut. 31 IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF CONNECTICUT Civil Action No. 14,583 UNITED STATES OF AMERICA, PLAINTIFF V. THE CONNECTICUT NATIONAL BANK and THE First NRW HAVEN NATIONAL BANK, DEFENDANTS and WILLIAM B. CAMP, COMPTROLLER OF THE CURRENCY, INTERVENOR. United States Court House 915 Lafayette Boulevard Bridgeport, Connecticut October 10th, 1972 Before: Hon. ROBERT C. ZAMPANO, U.S.D.J. Appearances: UNITED STATES DEPARTMENT OF JUSTICE Antitrust Division Washington, D. C. ‘ By: JOHN W. CLARK, Trial Attorney FRANK N. BENTKOVER, Trial Attorney KELLEY V. REA, Trial Attorney Messrs. CADWALADER, WICKERSHAM & TAFT One Wall Street New York, N. Y. By: GEORGE D. REYCRAFT, Esq. JOHN BOYER, Esa. HAVEN ROOSEVELT, Esq. + PULLMAN, COMLEY, BRADLEY & REEVES 855 Main Street Bridgeport, Connecticut By: HUNTLY STONE, Esq. Messrs. TYLER, COOPER, GRANT, BOWERMAN & KEEFE 205 Church Street New Haven, Connecticut By: RICHARD G. BELL, Esq. UNITED STATES TREASURY DEPARTMENT 15th and Pennsylvania Avenue, N.W. Washi 8 By: CHARLES H. McENERNEY, Jr., Esq. FORD BARRETT, Esq. {8] THE COURT: In the matter of United States of America versus the Connecticut National Bank and the First New Haven National Bank, Civil No. 14,583, are the parties ready? MR. REYCRAFT: Ready, your Honor. MR. CLARK: Ready, your Honor. THE COURT: The record should note that the Court has met with counsel on several occasions, including a formal pretrial, and certain matters have been agreed upon, including the lead counsel for each side, and various other trial housekeeping matters. In addition, the Court has been informed that each side wishes to present comprehensive trial briefs follow- ing the trial with findings of fact and legal memoranda. Also pending for business this morning is the petition of George D. Reycraft to be admitted to the Bar in this Court, and I will certainly grant that. So, therefore, the petition of George to be admitted for ad- is Court by the clerk. Pleasure to welcome you to the of this Court, Mr. Reycraft. [4] The Court has also been informed that the parties have been meeting and have been agreeing upon certain procedures, which the Court appreciates. However, there is one stipulation that I believe should be read into the record, and I will do so now. “It is hereby stipulated by the parties that the attached documents marked as Plain- tiff's Exhibit 1 through 115 for Identification, Defend- ants’ Exhibits 1 through 52 for Identification, and Inter- 33 venor's Exhibits 1 and 2 for Identification may be ad- mitted into evidence subject to objection as to relevancy or materiality. The parties retain all rights to correct mathematical or computational errors in their own ex- hibits and to point out such errors in the opposing parties’ exhibits and retain all rights to attack the weight or char- acterization of the opposing parties’ exhibits.” Very well. I believe the government wishes to make an opening statement. I’ll hear that at this time. MR. CLARK: May it please the Court, plaintiff’s case consists of more than 100 exhibits and i by two expert witnesses. Our approach will be objective, di- rected toward an analysis of market structure as defined by generally accepted economic standards. We deal in such relatively unexciting concepts [5] as concentration ratios and merger trends. We so not neces- sarily by choice, because the Supreme Court has told us that this is the way that mergers must be analyzed under the applicable statute. Dry and impersonal though the numbers may be, they are the stuff of these cases. Thus, though our case will not take a long time to introduce, it is, indeed a substantial one. Section 7 of the Clayton Act provides that a merger or acquisition shall not be permitted, and I quote, “Where, in any line of commerce, in any section of the country, the effect of such acquisition may be substantially to lessen competition or to tend to create a monopoly.” This rather broad general language has been interpreted many times by the Supreme Court and the general result has been, not surprisingly, that the statute means what it says. The unmistakeable message is that Section 7 does not require certainty, it does not require exactitude, it does require that a merger shall not be permitted if its effect on competition, actual or potential, may be sub- stantial. As the Supreme Court said in Brownshoe, one of the early cases under the statute, and I quote, “It is appar- ent that a keystone in the erection of a barrier to what Congress saw was the rising tide of economic [6] con- centration was its provision of authority for arresting mergers at a time when the trend to a lessening of com- petition in a line of commerce was still in its incipiency,” In hia National Bank, a Section 6, at 374 U.S.—approxi Court said: we must be alert to ional intent by permitting investigation. And so, in any ‘ the co bodied in simplify the test purts ou the interest of sound competitive effects. reme Court consolida- , “In any line of com- „This implies that case in 1963 and in the Phillips- commerce. In the Philadelphia action decided recently unique cluster of prod- offered by [8] i offered by commercial banks. In Connecticut this is true of mutual savings banks. There is some competition between commercial banks and mutual savings banks as to these services. Just as there was between mutual savings banks and commercial banks in Philadelphia, and savings and loan associations and commercial banks in Phillipsburg. The Supreme Court expressly recognized this in Phil- lipsburg, but held that because of the uniqueness of the package of services, commercial banking was a line of commerce. And so it is in Connecticut. plaintiff has done so, it is well established, as noted by the Supreme Court in Philadelphia and Phillipsburg, that convenience is a significant factor in commercial banking. Bank [9] customers, except for the very largest, tend not to travel great distances for banking services. Thus, the location of a bank’s offices determines to 2 large extent the bank’s service area. But definition of a banking mar- ket must also take into account bank customers, where they live, where they work, or in the case of business, where that place of business is. This is why plaintiff contends that the standard metropolitan statistical areas, or SMSAs, in Connecticut are appropriate sections of the country. We will show that in MSMA is a self-contained labor market where the majority of its residents both live and work. Given the significance of convenience in banking and given the fact that the leading banks in the MSMAs, 86 including Bridgeport and New Haven, operate offices throughout the MSMA—approximates a banking market. The evidence will show that each defendant is the leading bank in its own MSMA, it has more deposits in that MSMA than any other commercial bank. These two MSMAs, New Haven and Bridgeport, adjoin each other, and where they join, defendants’ offices are close to each other. Specifically in the Orange, Milford, Ansonia and Derby area, offices of defendants’ are in direct competi- tion with each other. This is where a competitive [10] overlap exists. This, too, is an appropriate section of the country con- sistent with the Supreme Court’s holding in Philadelphia, which said, “The proper question to be asked in this case is not where the parties to the merger do business, or even where they compete, but where within the area of competi- tive overlap the effect of the merger on competition will be direct and immediate.” Finally, plaintiff urges, and defendants apparently agree, that this Court consider the effect of this consoli- dation on the state as a whole. One can hardly view this p consolidation of two of the largest ten banks in the state with branches where the distance between major metropolitan areas are relatively short, without consider- ing the ultimate effect on the state as a whole. 1111 How then, given this line of commerce and these sections of the country are the effects of the consolidation to be measured. Supreme Court decisions are clear by an analysis of market structure and concentration or share of total bank deposits in the market as the accepted measure of market structure. Where existing present competition is eliminated the decisions tell us that by com- bining the market shares of the two merging partners, one may gauge the effect of the merger. If this technique is employed in the intervening area between the both MSMA, where the two defendants compete we contend the illegality of this consolidation manifests a sizeable in- crease in concentration clearly a violation of law and the evidence will so prove. Where defendants are not competing substantially at the present, the process of an analysis is difficult. There the question is whether there is potential competition be- 87 tween defendants which will be eliminated. The question here is whether the leading bank in Bridgeport and the leading bank in New Haven, the fourth and eighth largest banks in the state, headquartered only twenty-five miles apart in two of the largest cities in the state and each already operating one or a few offices in the other’s MSMA at a time [12] when all of the large banks are expanding geographically throughout the state, whether there is potentially competition between these two banks. The answer is practically forced upon us. By every ob- jective standard the answer can only be: of course. There is potential that Connecticut National Bank will enter the New Haven SMSA and compete with First New Haven which is the leading bank there. There is potential that First New Haven will enter the Bridgeport SMSA and compete with Connecticut National Bank which is the leading bank there. Either effect by itself violates Sec- tion 7. There is an added affect in these SMSA’s; result- ing bank would be about twice as large as either bank is now. Each already is the leading bank in its market. At twice the size the resulting bank could entrench these pading positions ; other smaller banks may be inhibited enter other SMSA’s in the state where they are Rating offices and oe with each other or stakgbly towards state-wide banking by the larg- in the state. How will this come [13] about? solidations such as this. In short order the poten- tial for increased competition in the several local markets would be severely diminished. The state would be irre- vocably locked into the highly concentrated market struc- ture which now prevails. This is a pivotal case which has ramifications for competition for banking throughout the state. The public policy embodied in Section 7 of The Clayton Act speaks loud and clear: Competition is of paramount importance in the American economy. Where the effect of a merger may be to substantially lessen competition, that merger should not be permitted. {14] MR. REYCRAFT: If your Honor please, this is, I believe, the seventh time that the Antitrust Division has attempted to proof in a District Court that the effect of an acquisition would violate the Clayton Act because it eliminates potential competition, These cases have been in all cases—these attempts have been in all cases rejected by the Supreme Courts. One of these cases is now on appeal to the Supreme Court and will be argued on Oc- tober 16th. One of the cases which have been tried, First Na- tional Bank of Jackson, Mississippi, acquisition of the Bank of Greenwood, the District Court found that that merger did not violate the antitrust laws on the govern- ment’s potential competition theory. Another case in Mississippi, the Deposit Guarantee Na- tional Bank—case following the disposition of the Jack- son case, of the First Mississippi case, that was settled by consent between the Department of Justice and the de- fendants and permitted the merger to take place. A third case is the First National Bank of Maryland in Baltimore, which acquired the First National Bank of Hartford County. That case was tried in the District Court and the Court found for the defendants in Janu- ary of 1970, and the merger was consummated. [15] The Department of Justice made no attempt to appeal either of these cases. In Idaho, the Idaho First National Bank of Boise ac- quired Fidelity National Bank in Twin Falls. That case was tried in the District Court and the District Court found for the defendants and that merger has taken place and the Department of Justice did not appeal. In United Virginia Bank Shares in Richmond, Virginia an acquisition of the People’s National Bank was tried in the District Court. That case was tried in October of 1971, and the District Court has now held in favor of the defendant banks. The First National Bank Corporation of Denver, Colo- rado applied to acquire the First National Bank of Gree- ley, Colorado, the District Court rules in favor of the de- fendants. And that case now—that is the one case which is now on appeal to the Supreme Court, ~ 39 So that these issues are factual issues which the gov- ernment is attempting to prove here, and so far uniform- ly there facts have been found by the Supreme Courts not to sustain the charges which were made. One of these cases is on appeal to the Supreme [16] Court and will be argued. So it isn’t enough for Mr. Clark to read from the Supreme Court’s decision of the Philadelphia bank case which did not involve potential competition, it involved direct horizontal competition be- tween two banks whose head offices were directly across the street from each other. Those banks, the Philadelphia National Bank and the Girard Trust Company, had the right under Pennsyl- vania law to merge or branch within a four county area, Philadelphia and the three contiguous counties. The Supreme Court found that that was the relevant ic market within which to assess the effect of that merger. Those banks would have had a combined share after the merger of about 36% of the banking busi- ness in this four-county area. That was direct head-on competition. They were existing competitors with head offices across the street from each other. That case bears no resemblance to a case involving a bank with a head office in Bridgeport and a bank with a head office in New Haven where the state law prohibits these banks from opening new offices in each other’s markets. As your Honor knows, the—there is head office pro- tection under Connecticut banking law. The First [17] New Haven National Bank cannot open an office in Bridgeport, and the Connecticut National Bank cannot open an office in New Haven under state law. So that the distinction between the Philadephia Na- tional Bank case and this case is like night and day. Now, Mr. Clark has argued that there is a horizontal effect from this merger in the four-town area which he has carved out, Orange, Derby, Milford and Ansonia. He has said that the two combined banks have a market share in excess of that involved in Philadelphia National Bank case. Well, we deny that that four-town area is an economic So that following the merger there will be more com- petitors in this four-town area than before the merger. Now, this is an effect which would not have taken place but for this merger. And I don’t see how any — can describe it as anything but pro competi- ve. We have offered, also, to make strenuous efforts in the form of which we will submit more formally to the Court to enter Hartford. Now, as your Honor knows, there is home office protec- tion in Hartford as well as in New Haven and Bridge- port. So that, I believe—the only means of supply for a bank outside that area is either by merger [19] or the possibility which Mr. Clark has referred to, but which no bank in Connecticut has yet pursued, of applying for a new charter and making a holding company acquisi- tion in that area: Now, this is a route which has many legal complica- Now, if there is one thing that seems clear to me in terms of the competitive necessities of the banking struc- ture in the State of Connecticut, it is that that the Hart- ford area needs additional competition. These banks are willing to provide that competition. Neither one of them could do it alone. Neither one of necticut National Haven and go all there is very little likelihood that it woul merger, although you could make the same kind of argu- ments about that merger that Mr. Clark makes about this one. He says that First New Haven [21] and Con- necticut National could each open offices all over the state and compete with each other. Well, you could say the same thing about Fairfield County and Union New Haven Trust Company, but they didn’t sue on that merg- er. One of the results has been that Union Trust Com- pany has just entered the New London area, it is pro- competition in the New London area, it did ring a small bank, a 15 or 20 million dollar bank. That acquisition has been approved and has now taken place, so that that mer’—mergers are not all bad, sometimes they can have pro-competitive consequences. The Union Trust merger is one which has had such a consequence in New London. This merger, as I have already said, will have pro- competitive consequences in Orange, Derby, Milford and Ansonia. It will have pro-competitive consequences in Hartford, and it will have pro-competitive consequences in New London. So Mr. Clark has the burden of showing that there’s a reasonable probability of a substantial lessening of competition. Now, the Supreme Court has said that it requires proof of a reasonable probability, not a mere possibility or con- jecture that maybe at sometime in the future somebody might do something. But he has the burden of [22] show- ing that this merger is going to adversely affect competi- tion in a—by reason—evidence which shows a reasonable probability that such effects will occur. We don’t think he’s going to be able to do that. There have been other mergers in the Connecticut area which the Department of Justice has not seen fit to at- tack. Hartford National acquired a bank in Fairfield County, Connecticut Bank and Trust Company acquired a bank in New Haven. Hartford National’s in New Ha- ven. So that I think even Mr. Clark would have to concede that all mergers are not all bad and some of them can have pro-competitive consequences. 1117 au injunction. It didn’t do so on those Hartford bank sitions, so it apparently has the view that they’re la and so have pro-competitive consequences. [28] Mr. Clark has also talked about the line of com- merce being limited to commercial banking. Again, he cites the Philadelphia National Bank case as his prin- cipal authority for that proposition. The Philadelphia National Bank case, as I said, involved two banks right across the street from each other. And there are some services which are available, at least in the best form from a commercial bank, but savings banks in Connec- ticut have powers beyond those that savings bank had in Philadelphia, and we'll put on testimony which will establish that beyond any doubt. And we will also put on testimony which will estab- lish that it is more than reasonably probable in the fore- seeable future that savings banks will have checking account privileges in. the State of Connecticut. Now, that was the principal distinction that the Su- preme Court relied upon to exclude savings banks from the commercial bank line of commerce in the Philadel- phia National Bank case. The main—deposits and checking accounts—well, sav- ings banks are going to have that in Connecticut, and we will have witnesses who will testify to that effect. Another—other competitive impacts on the [24] Con- necticut market, generally are demonstrated in the report of the special master filed with this Court which shows that New York banks are competing in the Connecticut market all the time. They had people combing this market for banking business, they attract very substantial vol- umes of loans from this area, they attract very substan- tial deposits from the area, and so do the Boston banks. ive Stockholders, they don’t pay the amount of fur, that commercial banks do. So they compete. All right—and Mr. Clark has conceded that, they com- pete at a substantial advantage over the commercial Now, Mr. Clark is going to ask your Honor to Con. be ore bn, commercial bank in Bridgeport is going tp dank in Merrie about the possibility that u nenn markt, idee ieee Say ener the Bri market, al it’s now prohibited law, than they are about competition from Savings banks in ble’s Savings Bank in Bridgeport is about twice as big an the Connecticut National Bank. It makes [26] morigage loans, it accepts savings deposits, it pays 3 45 rate on savings deposits than does the Connecticut Bank. whole theory is: forget about savings banks that’s in the line of commerce, but I want to worry about . t Connecticut state law won't let First New Honor, and I think that our witnesses will satisfy the Court on that. Just by way of conelusion, I have talked longer than I mean to, this is— this is a question of facts that Mr. Clark is—has to prove here. It is not enough for him to come in and say: well, here are the numbers and here is the standard metropolitan statistical area, and add them up and this is what you get. He has the burden of proof that there’s reasonably probably [27] anticompeti- tive effects which result from this merger, and he has to prove that by facts. Now, on six other occasions the District Courts have not agreed with the Antitrust Division. We don’t say that—in an appropriate case that potential competition shouldn’t be a violation of the antitrust laws, the elimina- tion of it, but it is a question of fact. There have been cases, the Penn Olin case that Mr. Clark referred to, the El Paso case, where El Paso and Pacific Northwest were directly competing with each other in pricing gas to the California market. They weren't — Pacific Northwest wasn’t in the market yet, but they were potential com- petitors and there was real competition between them. But there’s no case that the Supreme Court has de- cided, either on a potential competition or in an area involving direct horizontal competition, or anything like the case that the government has here. 46 So in conclusion, we think that this merger will have pro-competitive consequences in the Connecticut market and not the anti-competitive consequences that Mr. Clark contends. MR. CLARK: May I respond, your Honor? THE COURT: By all means. MR. McENERNEY: I wonder if it would be appro- priate [28] for me just to have a very, very short state- ment. THE COURT: I’m sorry, take your time. McENERNEY: May it please the Court, plaintiff’s case, as we view it, may be divided into two parts, name- ly: the actual competition case, as well as the potential competition case. Now, as to each of these parts, the plaintiff has the burden of proving that the effect of the proposed consol- idation between Connecticut National Bank and First New Haven in the words of Section 7 of the Clayton Act, quote, “may be to substantially lessen competition or tend to create a monopoly in any line of commerce in any section of the country.” For their line of commerce in both the actual and in the potential case, they have chosen commercial bank- ing, and for the section of the country as to the actual competition, they have chosen the four-town area of An- sonia, Derby, Milford and Orange. For the section or sections of the country in their po- tential competition case, they have chosen the State of Connecticut and each of the nine SMSAs, standard metro- politan statistical areas. Now, it is our position, your Honor, may it please the Court, that whatever significant SMSAs may have from the Bureau of the Budget viewpoint or for labor [29] studies or for census purposes or for housekeeping pur- poses or whatever, we contend that they have little, if any, or no relevance in this bank merger case for the very simple reason that plaintiff will be unable to demonstrate that each of the SMSAs is a banking market or a section of the country. It seems to us, your Honor, that in order to prove that the SMSAs is a relevant geographic market, plaintiff 47 must demonstrate that a banking customer living in the Town of Granby, for example, in the Hartford, SMSAs, can and does turn to the Glastonbury—some 20 miles away in the same SMSA—for his banking service. Banking has been characterized by two Supreme Court cases as essentially local in nature. That would be your Phillipsburg case, as well as your Philadelphia case, and it is submitted that each of the SMSAs is not local enough in nature. Further, since the Connecticut code governs whether a town is open or closed to branch banking, perhaps if the plaintiff could show that each of these towns is a banking market, then each town could conceivably be a section of the country. But inly the Connecticut code does not speak of SMSAs. No, as to the line of commerce, we claim that com- mercial banks in Connecticut ive very fierce [30] competition from savings banks for the savings dollar and for loans and that the line of commerce should in- clude them in analyzing the impact of this propsed con- solidation. Other courts cited in our brief at pages 15 to 17 have also thought this. Intervenor also alleges that any consideration of this consolidation should inelude the formidable out of state banks, particularly New Vork City which has been men- tioned in the comptroller's opinion approving this pro- posal and, of course, was the prime purpose of the spe- cial master’s report. Now, with respect to the actual competition case, we don’t want to helabor the points already made by Mr. Reycraft, except to say that the issue of the elimina- tion of actual competition seems moot to us, and if de- fendants are allowed by this Court to sell off these spe- cified branches to the purchasers mentioned in their pretrial brief, it would seem to us to have a very bene- ficial effect on competition and would in fact be a pro- competitive event as opposed to an anti-competitive event. Now, concerning the potential competition case— THE COURT: That wasn’t a condition imposed upon the comptroller? 48 1311 MR. McENERNEY: It was mentioned, your Honor, in our opinion, but we did not condition our ap- proval on it. THE COURT: I am just curious about that. Can mergers be approved on such conditions? Is there prece- dent for that? MR. McENERNEY: I think the FICA has done it in one instance, but I don’t believe our office has. I can’t recall. THE COURT: But has your office considered a promise by merging banks to do A, B and C if merged? MR. McENERNEY: Yes, we have. We have. We have. And I think in a sense that is what we have done in this case. We have recognized that they would do this. Now, concerning the potential competition case, it is not enough, we submit, that plaintiff demonstrate that it is possible that some day both Connecticut National Bank and First New Haven will open an office in one of the nine SMSAs or in some Connecticut town. Because the SMSA or the town has projected growth, or in the case of a town where one bank is already there, that the other bank might possibly enter the town some day, and that, therefore, this approach—consolidation elim- inates this potential for competition. [321 We submit that the plaintiffs must prove by pro- ponderance of the evidence that but for this proposed con- solidation, both banks are reasonably probable, not just ible, but reasonably probable entrants, for anything is possible, but they must be reasonably probably entrants into towns where neither is now located or in the towns where one bank is already there, that the other is reason- ably probable entrant into that town, and that this is likely to happen in the reasonably foreseeable future. Unlike other industries, such as shoes, steel, liquid bleach and the like, where entry into new markets is solely with- in management’s discretion, entry into banking and into banking markets or towns is governed by statute, which are administered by bank regulatory agencies, and is not up to the free will of the bank. It is the bank regulatory authority, in this case the comptroller, who either allows 49 or disallows entry. Although we have contended, and still contend, your Honor, that it is part of the plaintiff’s proof to show that regulatory approval for branching into various towns will be granted, we are prepared to put on testimony which we believe will adequately demonstrate that all or substantially all of the towns in Connecticut are [83] adequately banked, and that permission for the addition of one or two branches in them will not be forthcoming. And finally, your Honor, under the Bank Merger Act of 1966, we say that assuming a violation of Section 7 could be found, that the convenience and needs of this pro- posed merger will clearly outweight any anti-competitive effect. [84] THE COURT: Mr. Clark. MR. CLARK: Your Honor, I want to respond at this time to Mr. Reycraft’s detailed outline of his settlement proposal which is exactly what it is and what it was. I contend, Your Honor, that this is wholly irrelevant in this case and I ask now that Your Honor rule that any evidence or reference to it is inadmissable. The defendants appear to be conceding one adverse effect of this merger and that is the elimination of existing competition in the intervening area between these two SMSA’s. He is making an offer in settlement but this is not the time for consideration of such a matter. We contend that if the merger is illegal for any reason it should be permanently enjoined, and the cases, the Supreme Court cases, the lower court cases, over- whelmingly support that notion that in an anti-trust case the relief where possible should be divestiture, total di- vestiture, if the parties have already merged or if they have not, permanent injunction. This is really, Your Honor, rather a matter of relief, not a matter to be considered during the trial on the matter. Their agreement to sell off branches is not a part of the con- solidation agreement. It was not entered into when these banks made their agreement, [35] It is simply a way, it appears, to take some of the sting out of this anti-competi- tive effect. That is a matter of belief. If the elimination of existing competition violates Section 7, then it is time to consider what is to be done about it. THE COURT: I don’t understand what you mean by it’s a matter of relief. Relief from whom? 50 MR. CLARK: Well, relief from the anti-competitive effect of this merger, the point being, Your Honor, that it is the merger and only the merger which is or should be under consideration here. That is the agreement that they entered into and that is the agreement that should be tried. THE COURT: Are you implying that there are cases and perhaps research of course will disclose it later. But from your experience and knowledge there are cases in which the court—courts have said: Oh, I find that this merger does have an anti-competitive eff and there- fore I will allow the merger except that in towns of A, B, C, and D the resulting banks shall divest themselves of any and all interest, et cetera, in those towns. Is that what you meant by relief? MR. CLARK: Yes, Your Honor, and I contend that there is a public policy against divestiture of banks or bank’s assets because, Your Honor, it has been [36] shown time and time again it doesn’t work. The intended result from a divestiture of a bank or a portion of a bank seldom is actually achieved. And in any event the proper time for consideration of that is if there is a finding that the merger violates Section 7, and not at this point. Mr. Reycraft is trying to get— THE COURT: Just go over that again. I am sorry to keep interrupting but I just want to make sure I know what lines and avenues are open to the Court without giv- ing you any indication I have prejudiced anything, which I have not. But is it your point that there is bifurcation of some sort here? MR. CLARK: Yes, sir. THE COURT: That if the Court makes a ruling that there is, or is not, violation and if it decides that there is, then the parties can come in again and say: All right, reserving all rights to have your decision considered by another forum, we are now willing to concede for the sake of argument that the Court is correct and therefore we offer the following to—by way of relief, that is, divesti- ture of the following banks in the following towns. Is that what actually happens here? MR. CLARK: Well, that is what actually happens [37] in almost every anti-trust case. The usual procedure viously the Court finds that merger to be illegal. Something must be done to set things as closely as possible back to the position that they were before the merger. THE COURT: Do I understand the Government's po- sition in this case is that we have two large banks wanting to merge and the effect of that merger is of concern to the Government in no other SMSA except the Orange-Ansonia- Milford— MR. CLARK: We are concerned of the effect of the merger on all of the SMSA’s in the state, in the entire state as a whole and in this four-town area where there is this immediate overlap. We contend that there are anti-competitive effects in all of these areas, so obviously if we are right, the actions which defendants-are propos- ing won’t alleviate that. But I saw, Your Honor, that it is well nigh impossible and certainly hardly ever done that a court should, while it is considering the legality of a merger, to at the same time consider possible relief or means of alleviating the [38] illegality which it has not yet decided, whether there is any or not. It is customary in anti-trust cases that there be a two-step process. First, a decision on the merits; second, a decision on the appro- priate relief. And—so we contend, Your Honor, that this whole subject of divesture of offices, of the undertaking by defendant should they be permitted to merge, to enter other SMSA’s as a combined bank, these—this subject is not a proper subject for consideration at this time be- cause there has been no decision as to what the effect of the merger will be. I note that Mr. Reycraft hasn’t sold these offices. These offices have not been sold—they still are a part of the bank and should the banks be permitted to merge under the existing agreement between them, these offices will all become offices of the combined bank. THE COURT: With respect to the Government’s mo- tion, I will reserve decision and perhaps in your brief you gentlemen can call the Court’s attention to the reserva- tion on the ruling and if it is indeed irrelevant, I will not 52 consider Mr. Reycraft’s statements. On the other hand, of course, if I find the case law is such that it should be considered in some aspect of the decision, I will so con- sider it. So decision is reserved on that motion. [39] MR. CLARK: Yes, Your Honor. Now, Mr. Rey- craft alluded to some district court decisions which he contends are relevant in your decision here. It is true that they all dealt with the subject of potential eompet- tion in banking. It is also true that they were all only district court cases and there is one finally on appeal to the Supreme Court. And so we can, of course, look to the Supreme Court for some guidance in this area. Mr. Reycraft has always pointed out that each case is a question of fact and therefore it is obviously so that each case is different. And there can be no denial that in none of these previous cases was there anything like what we have here. In none of these cases were there two banks both leading banks in the state; in none of these cases were there two banks headquartered only a few miles apart in a state as small as Connecticut. It is one thing to consider whether or not a bank in Jack- son, Mississippi would expand into-a relatively small agri- cultural area in Greenwood, Mississippi 95 miles away, and it is something else to consider the situation which we have here in Connecticut, a highly concentrated state banking market, a highly unified, very small geograph- ical area involved, and two big aggressive, leading banks. This consolidation, your Honor, is much, much differ- ent [40] than any which have been tried in the past where potential competition was a factor. I note that defendants are—well, they say on the one hand that entry into Bridgeport and New Haven by outside banks is im- possible, and, of course, we contend that that is not the case, and that entry into other markets in the state is impossible because of home office protection. They are willing to undertake to do it should they merge. Our contention is that both banks are quite capable of doing it now and that there is every potential that they would do it each separately if they had the opportunity. Poten- tial competition, it has been held by the Supreme Court, is to be considered objectively. Objective criteria are to be used to assess whether or not the potential competition exists. Defendants then would have us believe that the inexorable growth of the largest banks in this state phically will stop; that the explosive increase in the number of branches operated by these largest banks, which we have ee past fifteen years, will stop; that the inexorable in in competition which we have seen held by the ten largest banks in the state will stop. In other words, that all of the objective critera which the Government will point to as indications of the existence of significant potential [41] competition mean nothing, just because the defendants get on the stand and say so. We say that the standards set down by the Supreme Court assessments of potential competition require an objective analysis and the objective analysis in this case is overwhelming and leads to only one conclusion: that there is elimination of both potential and existing com- petition. THE COURT: All right. MR. REYCRAFT: I think Mr. McEnerney probably recalls now that the Comptroller’s office did on one prior occasion condition the approval of a merger on the di- vestiture of branches in the Wells Fargo Bank in Cali- fornia application to acquire First Western Bank and Trust Company. The Comptroller of the Currency con- ditioned his approval on the divestiture by Wells Fargo of all of the northern branches of that bank in Cali- fornia which were in competition with the Wells bank. That included all the northern branches. Now, I must add, in fairness, the Department of Justice didn’t like that position. They filed a complaint and that is in liti- gation, but the Comptroller of the Currency has done that and there is one a That is that there is no requirement that the proceed by any two-step process. I don’t know of any case where this has happened in a bank merger and there [42] is no necessity for it. And it is our view that the court should view this merg- er as it is going to take place, that is, what are the— what are the net effects of this merger and these are not idle statements that we are making about the divesture of these branches. We will do it and we will do it in— 54 and satisfy the Court in whatever form is required. And —show that it can be done, and it is our view that the Court should view the merger in its net consequence, not ignore what is a clear fact, that is, that we will do this. MR. McENERNEY: Nothing further, your Honor, ex- cept I do recall now as Mr. Reycraft said, the first ques- tion in the Wells Fargo case. THE COURT: Call your first witness. [48] FREDERICK GLANTZ, called as a witness, hav- ing first been duly sworn by the Clerk of the Court, was examined and testified as follows: THE CLERK: Will you state your full name and ad- dress for the record, please? THE WITNESS: Frederick B. Glantz. 24 Stewart Road, Newton Center, Massachusetts. DIRECT EXAMINATION BY MR. BENTKOVER: Q Doctor Glantz, what is your profession? A I’m a Regional Economist with the Federal Reserve Bank of Boston. ; Q Would you describe for the Court your educational nd? A I have a Bachelor's degree in mathematics from the City College of New York, and a Doctor of Philosophy in economics from Syracuse University with a specialty in urban and regional economics. Q What professional position did you hold prior to your present position with the Federal Reserve Bank of Boston? A I was an instructor of economics at Temple Univer- sity at Philadelphia. Q What professional organization have you been af- filiated with? [44] A I’m a member of the American Economic As- sociation, and the Regional Science Association. Q Could you explain what that latter association is? A The Regional Science Association is a—er—dis- ciplinary group of scholars concerned with regional prob- 55 What is the nature of your work and responsibil- 36221... ng heey oy NS A As a regional economist for the Boston Fed., I'm concerned with monitoring regional economic conditions in New England and conducting studies on economic con- ditions in the New England region. Q Have you written on the subject of regional eco- nomics ; A I have. Q And what are your writings in that field? A I have a publication forthcoming in Regional Science Perspectives on evaluating—measures regional ac- counts, and I just published a piece on the New England —entitled the New England Economy, Recent Perform- ance and Recent Prospects of the New England Indica- tors. Q What was the subject of your doctoral dissenta- tion? A The title of the thesis was the Determinates of the Intermetropolitan Migration Patterns of the Econom- ically Disadvantaged it was concerned with the move- ment of labor, specifically unskilled labor, between metro- politan area labor markets. [45] MR BENTKOVER: Your Honor, I submit that Doctor Glantz is eminently qualified to testify on the subject of regional economics. THE COURT: Well, why don’t you just proceed and we'll see if you get any objection along those lines, and at that time I'll hear them. Q Doctor Glantz, would you briefly explain what the field of regional economics involves? A Regional economics essentially is a scaling down of the entire discipline of economics to the subnational level. We’re concerned with where economics takes place in space, we're concerned with what gets produced, where it gets produced and how it gets produced. Thus, we’re concerned with subnational economies. What causes the viability of these subnational economies, the interrelation- ships between these subnational economies that make for the economic well-being of an individual area. 56 Q What is a standard metropolitan statistical area, or for short, an MSMA? A Well, in regional economics, the region that ecno- mists are most concerned with is a self-contained spatial labor market. We're concerned with the fact that a city or a town—or for that matter, you could exaggerate and take it down to the individual city block level. You can’t examine the 1200 block of Main Street, it wouldn’t make very much sense. [46] Virtually all of the people living on the 1200 block of Main Street would not work on the 1200 block of Main Street, and vice versa. Well, the same thing is true of an individual city or town. The boundaries of cities and towns are largely accidents of history, and bear little, if any, relationship to the economic facts of life. So, as a consequence, econ- omists have constructed the notion of a standard metro- politan statistical area which is an aggregate of cities and towns and counties, building up a cluster of cities and towns and counties until we have a cluster in which virtually all of the people living in that cluster of cities and towns also work in that cluster of cities and towns, and this becomes an SMSA or a self-contained spatial labor market. Q How do you a this motion of a self-contained spatial labor market? A The Office of Management and Budget uses the county as the basic building block in constructing a metro- politan area. Exhibit P-1 presents the detailed criteria used by the Office of Management and Budget to con- struct the MSMA. Briefly, an MSMA is built around a central city, hav- ing a population of 50,000 or greater, or a group of cities within a 20 mile radius of one another having an aggre gate population of at least 50,000. [47] Then the county which contains the central city or cities, then forms the central county of the MSMA. To the central county we begin to cluster contiguous counties. The basis for adding on a contiguous county or excluding a contiguous county is based on the amount of social and economic integration between the county in question and the central county. 57 The OMB has set up specific criteria for determining economic integration based upon commuting patterns. At least 15% of those working—those living in the county in question must come into the central county to work. Or at least 25% of the labor force of the central county must come out and work in the county in question. Thus, we have very specific notions of commuting pat- terns in determining what is and what is not included into the SMSA. And then we add up county upon county until we have exhausted all counties which have specific economic integration with the central county. It should be noted that the procedure is somewhat dif- ferent in New England. In New England, the county is too large to be a meaningful unit. Cities and towns are much more meaningful. So the OMB when it constructs a metropolitan area in the New England region builds up using the individual cities and towns as the unit of analysis, using the same criteria of commuting between the central city and the individual towns in question. [48] Q Are the Bridgéport and New Haven areas clas- sified as SMSAs? They are. Would you describe which cities and towns— Separate SMSA? Yes, SMSAs? Yes, they are. What cities and towns are included in the Bridge- OMB to be in the Bridgeport standard metropolitan area, the City of Bridgeport, the Towns of Easton, Fairfield, Monroe, Shelton, Stratford, Trumbull and Milford City. Q What cities and towns are included in the New Haven SMSA? A Exhibit P-4 lists the cities and towns that OMB classifies in the New Haven SMSA. They include the central city of New Haven, the Towns of Bethany, Branford, East Haven, Guilford, Hamden, North Branford, North Haven, Orange, the City of West Haven and the Town of Woodbridge. 58 Q Do you consider the Bridgeport and New Haven SMSA to be a single integrated area, or two separate and distinct areas? A The Office of Management and Budget classifies them as two separate and distinct areas, and I would tend to agree [49] with them. Exhibit P-2 presents data from the 19—census of population on commuting between metropolitan areas in Connecticut. We can see from this that there is very little, if any, cross commuting between New Haven metropolitan area and the Bridgeport metropolitan area. Only 3.6% of Bridgeport’s resident labor force commutes to work into the New Haven metropolitan area. While only 2.7% of New Haven’s resident labor force commutes to work inte the Bridgeport metropolitan area. The two areas also meet the criteria of being relatively self-contained labor markets. 87% of the New Haven metropolitan area’s labor force actually works in the New Haven metropolitan area. Similarly for the Bridgeport metropolitan area, 83% of Bridgeport’s labor force actually works in the Bridge- port metropolitan area. So on the basis of our notion of a self-contained labor market, these two areas appear to be self-contained labor markets and there appears to be very little, if any, economic integration between the two. It should be noted, however, that because of the prox- imity, the spatial proximity of the two areas, actually bordering upon one another, the boundary between the Bridgeport and New Haven metropolitan area cannot be very sharply defined. Unfortunately, there’s no public data available on the 50] cross commuting between individual towns in indi- vidual metropolitan areas. Had this been available, I would suspect that the out- lying towns in each of the metropolitan areas would have -Substantially more economic integration with one another than the two individual metropolitan areas do. These outlying areas take on increased importance when we recognize that over the last several decades the growth that has been taking place in the metropolitan areas of this country has been taking place not in the central city, but in the outside central city or suburban areas. Exhibit P-8 presents the population distribution for the Bridgeport standard metropolitan statistical area in 1950, 60, and 70, and it shows that the City of Bridge- port’s share of the metropolitan area population has been steadily declining since 1950. Exhibit P-4 presents similar data for the New Haven SMSA and the same thing is true. The population of the City of New Haven has been steadily declining over the 20-year period. Actually, in 1970 the two metropolitan areas crossed the bench mark in which more than 50% of the popula- tion of the metropolitan areas now resided in the out- side central city or suburban areas rather than in the central city. Exhibit P-5 shows quite clearly where the growth in these two metropolitan areas has been taking place. Be- tween [51] 1950 and 1970 the City of Bridgeport’s pop- ulation declined slightly, declining by 1.4% over the 20- year period. Whereas the outside central city, the sub- urban portion of the metropolitan area, almost doubled in population over the 20-year period increasing by some 98.5%. Similarly for the New Haven metropolitan area, the City of New Haven declined by almost 20%, 19.4% over the 20-year period from 1950 to 1970, whereas the sub- burban area, the outside central city area, doubled in population, increasing by 100.6% over the 20-year period. Does either the Bridgeport or New Haven SMSA appear integrated with the New York area? A I don’t think so. Exhibit P-6 presents commuting patterns between selected standard metropolitan areas in Connecticut into the New York State area in 1970. It shows clearly that less than 1%, actually .95%, of the Bridgeport area’s labor force commutes to work into the New York City area. | For the New Haven metropolitan area, less than 1/10 of 1/5 indicated by the day there being too small to re- cord—works in the New York area. On the other hand, workers coming into—coming from New York into Connecticut also appear to be quite small for the metropolitan areas in question. 60 Exhibit P-8 presents the residents of the New York City [52] SMSA who worked in Connecticut in 1970 and we can see that the numbers are really insignificant, in most cases being less than 1%. THE COURT: Is that indicated by the dash? THE WITNESS: Percent working in Connecticut, dash, indicates that it is less than 1/10 of 1%. THE COURT: Less than 1/10 of 1%? THE WITNESS: Yes. But we have, for example, Bronx County, .48%, is less than 1%. So that the amounts of commuting between the New York metropoli- tan area into the State of Connecticut appears rather small, and actually it is concentrated in only two metro- politan areas. The Stamford SMSA and the New York SMSA. So from the census data from 1950 to 1970 census data on population commuting, that appears to be very little cross commuting or very little integration between New York metropolitan area and either of the two SMSAs, the Bridgeport area and the New Haven area. A Exhibits P-7 and P-8 present similar data obtained from the Connecticut Department of Labor from the Nineteen Sixty— Q Excuse me, Doctor Glantz. Were you referring to Exhibit P-8, or P-9? A Excuse me. P-7 and P-9—present data compiled [53] by the Connecticut Department of Labor from a 1964 survey on commuting patterns, and they show es- sentially the same results, that there is very little cross commuting between the New York metropolitan area and the individual labor markets in Connecticut that we are concerned with, the Bridgeport area and the New Haven area. Q Doctor Glantz, now let’s turn to the amount of com- muting with the Hartford and Boston SMSAs. Does the Bridgeport SMSA appear integrated with the Hartford or Boston standard metropolitan statistical area? A Again, it doesn’t appear to be. Referring back to Exhibit P-2, we can see that the amount of commuting between the Bridgeport metropolitan area and the Hart- ford metropolitan area, and similarly the Boston metro- politan area, is too insignificant to be recorded on the 61 least of significant receivers of labor from the Bridgeport metropolitan area, so I’d say that the Bridgeport area is not significantly integrated with either the Hartford or Boston areas. Does the New Haven SMSA appear integrated with the Hartford or Boston SMSAs? A Well, again, from Exhibit P-2, this doesn’t appear to be the case. The Boston metropolitan area does not appear on the list of significant recipients of New Haven labor in 1970. The Hartford metropolitan area does, but the amount of commuting [54] from the New Haven metropolitan area into the Hartford metropolitan area appears to be rather insignificant, some 429 persons who live in New Haven out a total labor force in New Haven of 145,000 actually commute into the Hartford metro- politan area. So while there’s some commuting between New Haven and Hartford, the numbers are really too insignificant to indicate any economic integration between the areas. THE COURT: Excuse me. Doctor Glantz, I have been following you fairly well. These last points you have been making. I haven’t been with you on the charts that you have been referring to in P-2. THE WITNESS: I’m on the page marked “New Haven SMSA”. THE COURT: All right. You said something on that should reflect movement from New Haven to Hartford? THE WITNESS: Okay. If you look on— THE COURT: Where would that be? THE WITNESS: If you look on the bottom of the list of 20 places, the last two lines, Hartford City, Hartford County and remainder of the Hartford SMSA, when we sum up the 159 people who live in the New Haven metro- politan area and work in the Hartford [55] City to the 270 who live in the New Haven metropolitan area and commute into the rest of the Hartford SMSA, we get 429 out of a total labor force of 145,000. It appears to me that this is rather insignificant. THE COURT: And Boston is not listed? THE WITNESS: Boston does not appear on the list of significant recipients. Even if we were to include the 62 total places not recorded, not listed in 20 places, 3,796, this is a percentage of 145,000—appears rather small. Less than 1%. So I’d say that, you know, even if we allocated everything that we don’t know to the Boston area, it would still be insignificant. THE COURT: I see. Thank you. Maybe I should give the court reporter a short recess. With all these statistics and the oral arguments, it is quite a bit for him to take down. Give him a five-minute recess. (Recess taken.) MR. CLARK: Your Honor, I neglected to do something when we started today, and that was to move, as I said I would, that Plaintiff’s Exhibits 1—Plaintiff’s Exhibits for Identification, 1 through 115, be admitted subject to motions to strike at a future time. THE COURT: Yes. Motion is granted. [56] Q Doctor Glantz, would you describe for the Court the New England region? A The New England region includes the States of Vermont, New Hampshire, Maine, Massachusetts, Con- necticut and Rhode Island. These six states—or the States of New England—in actuality, the region may really be subdivided into two separate regions, nothern New England, which is essentially rural, Vermont and New Hampshire and Maine, and the industrialized southern states, Connecticut, Massachusetts and Rhode Island. The vast majority of the population and employment that goes on in New England takes place in the indus- trialized south. In 1970 81% of the population of New England re- sided in the three southern states. In 1971, 83% of employment in New England was concentrated in the three southern states. In actuality, the population and employment is even more concentrated than this data indi- cates. Most of the region’s population lies on an industrial and commercial belt between New York and Boston. Exhibit P-10, which lists the population of Connecticut by counties in 1950, 60 and 70, indicates that the three Connecticut counties which lie on this narrow band be- tween Boston, Mass.—Massachusetts and New York City, Fairfield County, Hartford County and New Haven County, account for 34 [57] of the state’s population in 1970. In Massachusetts the three metropolitan areas which lie on the belt, Boston, Springfield and Worcester, account for nearly % of the state’s population. So, really, what we have is two regions, a largely rural northern New England with population scattered throughout, an in- dustrialized southern New England with most of the population and economic activity taking place on a nar- row belt running between Boston and New York. THE COURT: Excuse me, Doctor Glantz, I followed your conclusions—I’m sorry, I have your conclusions, but I didn’t quite follow how you arrived at those conclusions in Exhibit 10. Would you just a little more slowly go over that so I’ll be able to follow it? THE WITNESS: If we look at the percents of Con- necticut’s population in 1970 residing in the towns of— in the counties of Fairfield, Hartford and New Haven, the three counties that lie on this belt between New York and Boston, we find that they accounted in 1970 for ap- proximately 34 of the state’s population. Now, on Exhibit 10 was the fact that in 1970, the three Massachusetts metropolitan areas which lied on the belt, the Boston SMSA, Springfield and Worcester __SMSA, accounted for nearly % of that state’s popula- tion, these two states being the two most populated states 1858] in New England, so really what we have is a vast amount of concentration of population and economic ac- tivity lying on this belt between Boston and New York. THE COURT: Very well. Thank you. Q Doctor Glantz, how would you characterize the pres- ent state of the New England economy? A Well, I think the New England economy is still in a recession. In July of this year unemployment in New England was 7.2% seasonally adjusted, compared to a national rate of 5.5%. In that same month industrial production in New England as measured by the Federal 64 Reserve Bank of Boston’s industrial production index in- dicated that industrial production in New England was 4% below its 1967 level, and in the United States in that same month, July of this year, industrial production was 13% above its 1967 level. So we can see that the United States economy has begun on the road to recovery some months back. Unemployment is going down, industrial production is up, but the New England region appears to be lagging somewhat in its recovery behind the nation. THE COURT: Were you looking at a chart— THE WITNESS: No. THE COURT: —for those conclusions? [59] THE WITNESS: No. Q Why is the economy of New England lagging be- hind—rather, why is the recovery of the New England recovery lagging behind that of the nation? A Well, part of New England’s problem is its indus- trial mix. Regions which tend to specialize in manufac- turing, especially durable goods manufacturing, that is: have a high proportion of their employment concentrated in these industries, tend to be affected much more severely in periods of recession than do other areas. The New England region has more than the average proportion in both durable goods manufacturing and man- ufacturing as a whole. So you would anticipate a deeper recession in New England, unemployment higher, indus- trial production lower than in the country as a whole solely on the basis of its industrial mix. But as far as lagging in its recovery, coming out of the recession, we have to take into consideration that New England has many locational disadvantages for many types of manufacturing. There are few raw materials in the region, the region tends to be remote from national markets, most of the population lies in other parts of the country, making New England stuck in the north- east portion of the country fairly remote from national markets. [60] Industrial fuel costs, as well as residential fuel costs, are higher in New England than in other regions. Wage rates for unskilled labor are somewhat higher 65 in New England than they are in other regions of the country. When you add up the sum total of these loca- tional disadvantages that translates into a cost disad- vantage for a manufacturer producing a product in New England trying to compete with similar manufacturers in other regions of the country. This isn’t a recent phenomenon, it’s been true for 30 or 40 or 50 years, perhaps even longer than that. The outcome of this is that the new manufacturing establishments that have come into being in recent decades have tended to locate near regions where they wouldn’t be hindered by the locational disadvantages that they would find in New England. This translates into New England having older plant and equipment which tends to make it somewhat less effective than its competitors in other parts of the country. So when we couple this with the fact that manufactur- ing takes it on the chin in recession— MR. REYCRAFT: Your Honor, excuse me, may I ask to what question this is in response? These are very broad conclusions and factual statements, and with all due regard to the witness’ expertise, when he talks about cost disadvantages of New England [61] industry, I just don’t know what the foundation for it is. THE COURT: You mean the foundation for his con- clusion? MR. REYCRAFT: His knowledge, yes, sir, these are factual conclusions. THE COURT: If that is a challenge to his expertise, you may cross examine him with respect to his expertise before he expresses an opinion. If it just goes to weight, of course, you will have an opportunity to cross ex- amine. But in his—these are opinions he is expressing. Now, I notice in some of the opinions he has ex- pressed, he’s referred to charts prepared by various or- ganizations and government agencies. The basis for these latter conclusions, the last few opinions he’s expressed, he has not referred to the foundation for those. MR. REYCRAFT: That’s the point. THE COURT: Well, there’s two things. One, that he’s relying on his expert experience in the field, or, two, he’s 66 relying on some statistics obtained from a source he hasn’t revealed. In either event, you have two alternatives, Mr. [62] Reycraft, if it is on the former, that is: on the basis of his expertise, you may object and now at this point challenge his expertise. If it is on the latter, that is: —you admit he’s an expert, but you don’t know what he’s deriving all this from, that would be based—that could be challenged on cross examination. MR. REYCRAFT: Yes, your Honor, I do not challenge his qualifications as a regional economist which is what he’s qualified for, so I’ll defer the cross examination. THE COURT: Very well. But since we have had this interruption, it gives me an opportunity to interject a question without interrupting you. | You haven’t mentioned the effect of imports from other countries as affecting the manufacturing decline in the New England states. I gather, so far from what you have said, is that you are taking the United States as a unit and you are saying: well, in other parts of the United States, labor is a bit cheaper, new factories are being started, and in New England, costs are higher, which, of course, from what you say, if those statements are true, that would account for your conclusions, But how about imports from other [63] countries? : THE WITNESS: Well, I was directing my answer to New England’s locational disadvantages vis-a-vis other regions of the country. Now, if a given industry was to face serious competition from abroad, that industry would suffer that competition regardless of its location in the United States, and that wouldn’t be a factor causing New England to be at a disadvantage when compared to other regions. THE COURT: In other words, they would all be at a disadvantage throughout the United States? THE WITNESS: They would all be at a disadvantage. A Let me recap. I have left off, I believe, by stating that the locational disadvantages in New England trans- lated into older plant and equipment by virtue of new establishments being located in other regions, this re- sults in New England establishments being somewhat 67 less effective, having older capital stock, being neces- sarily more labor intensive than their competitors in other regions, as a result of this when recovery comes and when manufacturing begins to retool, it is the more effective establishments that are retooled first, that pick up first, and these tend to be located in other regions of the country. So we would anticipate a lag in New England as far as recovery goes. [64] Q Is this situation equally true for all of the states of New England? A Well, it is generally true of the region as a whole. Each of the individual states in the region has a some- what different mix of industries, and each of the indi- vidual states would be affected to a greater or lesser ex- tent from the region’s locational disadvantages, which would translate into a somewhat different performance among the states over the cycle, and this is true. In July of this year while New England had an un- employment rate of 7.2% seasonally adjusted, the range of unemployment among the states in New England went from 7.8% in Connecticut to 4.8% in New Hampshire. Connecticut has an industrial mix with a lot of manu- facturing. This would be expected. Whereas New Hamp- shire has mostly rural—a rural economy. So that the industrial mix alone would account for some variation among the statés within the region and couple this with the fact that each state is located somewhat differently from each of the other states in the region, and then would therefore suffer to a greater or lesser extent from the locational disadvantages than the region as a whole, and they would experience different economic perform- ance over the long run, some states would grow faster than others over 20, 30, 40-year period, their industrial mix would translate into somewhat [65] different per- formance over the cycle. I think this can be illustrated, the different’ performance of the states, over a longer period, by examining the Exhibits L-11 through P-14. Exhibit P-11 presents the population of the United States and New England—and each of the six New England states, and what I’m focusing on now is the percentage change between 1950 and 1969. New England * 68 increased population by some 26%, somewhat less than the nation as a whole, which increased by 33%. Among the New England states, Maine grew at a rate of 8%, of the New England rate, while Connecticut grew at a rate of 49%, almost double the New England rate, and some 14% faster than the nation as a whole. In Exhibit P-12 we have similar data for employment. Over the 1950 to 1969 period New England’s employment increased by 33.5%. Among the states the range was from 20.7% in Maine to a high of 53.2% for Connecticut. Again, there’s a wide range of experience in growth of employment among the New England states. In P-13 we present similar data for personal income. And again between 1950 and 1969 period we see that New England increase personal income by 111%, some- what less than the nation as a whole, which increased by 120%, but among the New England states Maine in- crease personal income by 84%, while Connecticut in- personal income by 145%. [66] | In Exhibit P-14 we present similar date for per capita income, and here we see that the New England experi over the 50 to 69 period has been compar- able to that of the nation. New England growing by 67% in per capita income to the nation’s 65%, while the in- dividual states showed no great variation, I'd say the rates of gro there were comparable among the New England states. But in terms of the individual state’s economy, we have to recognize that while the rates of growth have been comparable over this period, the different states started from much different base periods. In 1950 per capita in- come in Connecticut was $2,587.00, substantially higher than the New England figure of $2,209.00 and higher than the United States figure of $2,065. And even with comparable rates of growth over the 1950 to 1969 period we see that this initial advantage that Connecticut had gets magnified, and by 1969 the gap had widened such that Connecticut had per capita income in 1969 of $4,239.00 as compared with New England’s 3,696 and the United States’ 3,416. So what these four exhibits show is that over the cycle, in the short run we would expect somewhat different performance from the indi- vidual states on the basis of differences in industrial mix, and over the longer run, 20 years, the past 20 years, we have seen that states which are more favorably sit- uated within the region, such as Connecticut, which doesn’t experience the severe locational [67] disadvant- ages that the region as a whole does, performed some- what better. Connecticut is favorably located, as I indicated before, between metropolitan New York and metropolitan Boston. So while the region as a whole may not be growing very rapidly, and these exhibits indicate it has been growing somewhat more slowly than the nation as a whole be- cause of its locational disadvantages, the intraregional differences show up quite clearly that Connecticut is reap- ing the benefits of a favorable location within the region, it is getting spill-overs from other parts of the region. Q Despite Connecticut’s favorable location, the state still has re [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386414_0340%3A01. Public record. Not legal advice.