Appendix — United States v. Connecticut Nat. Bank
Supreme Court brief1974
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; Tae CONNECTICUT NATIONAL BANK,
THe First NEW
HAVEN NATIONAL BANK, AND JAMES E. Surrn, CompP-
TROLLER OF THE CURRENCY
oN APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF
INDEX
Relevant Docket Entries
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, 1971 3
Order filed October 20, 1971 granting the motion of the
Comptroller of the Currency to intervene *
Intervenor’s Answer filed November 22, 1971
Plaintiff's Answer to Defendants’ Interrogatory No. 18 —
udge
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.
Appearances [132]
Testimony of Neil B. Murphy
r nanguniarsinonioeeiinensinieesansienies
—cross—[208]
Transcript of held before the Hon. Robert C.
of Connecticut, on October 12, 1972:
— SI ——— ———
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)
—cross—[430]
—redirect—[547]
Transcript of Proceedings held before the Hon. Robert C.
Zampano, United States District Judge for the District
of Connecticut, on October 19, 1972:
109
112
156
198
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] 455
Testimony of Jack C. Myles
—direct—[716] 457
—cross—[746] 475
—redirect—[765] 487
Testimony of Alexander Hawley (continued)
—cross—[773] 492
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] 515
Testimony of Alexander Hawley (continued)
direct [868] 549
—voir dire—[872] 552
—direct—[879] 555
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] 588
Testimony of Charles J. Stokes (continued)
—direct—[936] 589
—cross—[1013] 633
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] 699
Testimony of Charles J. Stokes (continued)
—cross—[1141] 709
—redirect—[1199]
iv INDEX
of Proceedings held before the Hon. Robert C.
Zampano, United States District Judge for the District
of Connecticut, on October 31, 19722
Appearances [1218]
Appearances [13852] ...... a
Testimony of Merton J. Peck (continued)
—cross—[1853]}
—redirect—[1422]
Testimony of Frank G. Chadwick
—direct—[1430]
—cross—[1479]
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]
Testimony of William S. Krafchik
—direct—[1512]
—cross—[1583]
—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 D
of Connecticut, on November 7, 1972:
Appearances [1679]
i
Beez 3
wo
—
E
1031
INDEX
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] 1032
—cross—[1700] 1043
Testimony of Paul H. Johnson
—direct—[1737] 1065
—cross—[{1750] 1073
Testimony of Thornton B. Morris
—direct—[1757] 1077
—cross—[1767] 1083
Testimony of John L. Donovan
—direct—[1784] 1092
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] 1123
Testimony of Thomas F. Richardson
—direct—[1865] 1139
—cross—[1881] 1149
Testimony of John L. Donovan (continued)
—direct—[1904] 1163
—cross—[1928] 1177
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] 1218
Testimony of John L. Donovan (continued)
—cross—[2000] 1219
—redirect—[2021] 1231
—recross—([2024] 1233
Testimony of Robert J. Blinken
—direct—[2037] 1241
—cross—[2043] 1245
Testimony of James H. Gilbert
—direct—[2059] 1254
—cross—[2067]
vi INDEX.
i
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
—direct—[2071]
—cross—[
Testimony of Virgil DeChant
—direct—([2090]
—cross—[2099]
Testimony of Leon J. Simkins
—direct—[2110]
—cross—([2116]
Testimony of Frederick M. Robison
—direct—[2122]
—cross—[2128]
of Proceedings held before the Hon. Robert C.
Zampano, United States District Judge for the District
of Connecticut, on November 15, 1972:
BE 88 SF 82
Appearances [2144] 1306
Testimony of James E. Hagen f
direct — [2147 1308
—cross—[2164] 1319
—redirect—[2169] 1821
—recross—[2169] 1821
Testimony of Michael F. Fountain
—direct—([2173] 1824
—cross—[2177] 1827
Testimony of Peter Stassa, Jr.
—direct— [2224] 1352
—cross—[2238] 1860
—redirect—[2253] 1869
Stipulation of November 8, 1972, concerning business solici-
tation in Connecticut by representatives of New York city
banks 1873
of Proceedings held before the Hon’ Robert C.
Zampano, United States District Judge for the District
of Connecticut, on February 26, 1973:
Appearances [2] 1876
Proceedings [3]
INDEX
viii INDEX
Government Exhibits :—Continued
GX-49
GX-50
GX-51
GX-52
Page
1995
2008
2004
2004a
2010
2016
2017
2018
2019
2020
2021
2022
2028
2024
2025
2026
2027
2028
2029
2030
2081
2082
2038
2034
2085
2086
2087
2202
2208
2204
2205
2206
2207
2208
2209
2226
2227
2228
2230
2231
2232
2233
2234
2235
2236
2237
INDEX
Defendants’ Exhibits :—Continued
DX-48
Dx-49
DX-50
DX-41
DX-62
DX-53
DX-64
DX-55
DX-56
DX-58
DX-69
DX-60
DX-61
DX-62
DX-63
DX-64
DX-65
DX-66
DX-67
DX-68
DX-69
DX-70
DX-71
DX-72
DX-73
DX-74
DX-75
DX-76
DX-77
DX-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
DX-93
DX-94
Judgment of the district court dated July 16, 1973
Notice of Appeal to the Supreme Court by the United States
dated September 12, 1978
Order of the Supreme Court noting probable jurisdiction,
dated January 7, 1974
1081
[1678]
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF CONNECTICUT
Civil Action No. 14,583
UNITED STATES OF AMERICA, PLAINTIFF
vs.
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
November 7, 1972
Before:
Hon. ROBERT C. ZAMPANO, U. S. D. J.
116791 Appearances:
DEPARTMENT OF JUSTICE
Antitrust Division
Washington, D.C.
BY: JOHN W. CLARK, Trial Attorney
FRANK N. BENTKOVER, Trial Attorney
KELLY V. REA, Trial Attorney
Messrs. CADWALADER, WICKERSHAM & TAFT
One Wall Street
New York, New York
By: GEORGE D. REYCRAFT, Esq.
JOHN BOYER, Esq.
HAVEN ROOSEVELT, Esq.
1082
Messrs. PULLMAN, COMLEY, BRADLEY &
REEVES
855 Main Street
Bridgeport, Connecticut
By: HUNTLEY STONE, Esq.
GROVE W. STODDARD, Esq.
Messrs. GUMBART, CORBIN, TYLER & COOPER
205 Church Street
New Haven, Connecticut
By: RICHARD G. BELL, Esq.
UNITED STATES TREASURY DEPARTMENT
15th and Pennsylvania Avenue, N.W.
Washington, D.C.
By: CHARLES H. McENERNEY, JR., Trial At-
torney
FORD BARRETT, Trial Attorney
ear THE COURT: Are the parties ready to pro-
?
MR. REYCRAFT: Yes, your Honor.
James Terzakis.
JAMES TERZAKIS, having been previous duly sworn,
resumed the stand and testified further as follows:
DIRECT EXAMINATION CONTINUED
BY MR. REYCRAFT:
Q Mr. Terzakis, following your testimony of last week,
did you prepare an exhibit concerning the pro forma di-
vestiture of First New Haven’s Darby and CNB’s Orange
and Milford offices?
A Les, I did.
I show you—
MR. REYCRAFT: Let me have marked for identifica-
tion as Defendants’ Exhibit No. 71— 73—
Q Ishow you Defendants’ Exhibit 73 for identification
and ask you to describe that exhibit?
A What we did on this exhibit was—similar to the
original pro forma divestiture which included all six of-
fices but in this case, we added in the branch data from
or 1. of total dollars there, a net increase of. 30%
in terms of number of accounts.
. Terzakis, do you have with you statements of
ay
2
r
Q —CB&T and Hartford National Bank? Referring—
THE COURT: I’m sorry, I’m still on this 78. Would
THE WITNESS: Yes, sir. The original exhibit, your
Honor, was for the divestiture of six offices—this was last
Thursday’s i ‘
THE COURT: Right.
THE WITNESS: —giving the pro forma divestiture
of six offices, three of First New Haven and three of Con-
necticut National.
This is a new exhibit which was prepared over the
weekend which shows, at your request, what the pro forma
divestiture would look like for just the [1682] three con-
tracted branch offices.
THE COURT: All right. Now, what do the—for ex-
ample, column number of accounts, 11,942, what does that
mean?
THE WITNESS: Well, that’s the actual data that we
had from Connecticut National Bank office towns for those
towns in New Haven County and Fairfield County where
they have offices.
THE COURT: But I mean, what does it mean? Does
that mean 11,942 accounts will be—
THE WITNESS: No, sir, that’s the number of ac-
counts we had actually in our bank. That’s the actual
data, and then on the right-hand side it shows what it
would look like with the divested three branches.
MR. REYCRAFT: These are accounts, your Honor, of
the First New Haven National Bank which are from
That is: 11,942.
THE COURT: So, that the divestiture means that they
will have 1,040 accounts less after the divestiture?
THE WITNESS: That’s the net of what we would
have after the divestiture.
[1688] MR. REYCRAFT: Over 10,000 less.
THE WITNESS: 10,000 less.
Q What percentage of accounts of First New Haven
would remain in Connecticut National Bank office towns
11
8
5
:
:
i
F
you have a copy of D-74?
cut National and CBT, but not
I have Connecti
Second New Haven.
5 Eas E
23355
281JI 13411
A That is correct, Mr. Reycraft.
Mr. Terzakis, do
of overlapping accounts?
1036
Q Just a moment, please.
MR. REYCRAFT: Will you mark as Defendants’ Ex-
hibit No. 75 a document headed: Hartford National
[1686] Corporation Interim Report and Dividend Notice,
September 30, 1972.
116871 BY MR. REYCRAFT:
Q Mr. Terzakis, referring to D-75, which is the Hart-
ford National exhibit, what does it show concerning the
change in the past year?
A Well, in a similar vein, this shows that Hartford
National Corporation increased their total assets from
one million—1,289,000,000 to 1,485,000,000, or a net
crease of approximately $196,000,000. And I think
point that has to be made regarding each of these
is that that increase in total assets is almost the
of the tenth largest commercial bank in the State of
necticut, which is Second New Haven Bank, with assets
of 219,000,000. And that’s just a one-year increase.
This is typical of how these two large Hartford banks
have been increasing, anywhere from a hundred to two
hundred million in assets each year.
MR. REYCRAFT: Will you mark as Defendants’ Ex-
hibit No. 76 a statement of condition dated September
30, 1972, for the Second New Haven Bank.
THE COURT: On both these exhibits I notice in writ-
ing—for example, on 74 it says “Plus 183 MM,” and then
on 75 “Plus 196 MM.”
Did you write that in?
THE WITNESS: Yes, I did.
11688] THE COURT: What does that mean?
THE WITNESS: I might—
A (Continuing) Mr. Reycraft,
1961 CBT was a $507,000,000 bank and Hartford Na-
tional was a $514,000,000 bank, so i
creased their assets almost threefold in about eleven
twelve years.
be;
8
E
=
1037
Q Mr. Terzakis, are you familiar generally with the
profitability of First New Haven National Bank’s
branches?
A Les, sir, I am.
Q What has been the experience of First New Haven
National Bank in the profit potention of opening new
branches and the profitability of existing branches?
A Well, in 1971, year end, regarding our 22 offices,
we had a total of nine offices that were still showing
losses, and these nine offices aggregated some $525,000 in
losses. The other offices were profitable to varying de-
Has First New Haven established any inner city
branches knowing that they might not be profitable?
[1689] A Yes, sir, they have. Within the context, I
nue office but in the City of New Haven.
Q What were the circumstances under which those
two offices were established?
A Well, in the case of the Dixwell Plaza office, you
perhaps recall that in 1967 and 1968 New Haven was—
had undergone some civic disorders, and our board of di-
rectors was extremely interested in locating a branch in
the Dixwell Avenue area, and they had directed our
senior management to research for the possibility of plac-
ing a branch in the Dixwell Avenue area. We—I con-
ducted that research, and we had decided to place a
branch there to serve the Black community more di-
Now, in the Dixwell Avenue area at that time there
were approximately 75 percent of the population was
composed of Black residents. In the Howard Avenue
section, which is also an inner city area, we had approxi-
mately one-third of the residents were either Spanish-
speaking or Black. And we have placed branches in both
those locations.
11690] I think that the directors’ thinking on this was
1038
11
of New Haven, in your
sary to establish a
possible.
is that—first of all, let me
is of a CBD. This is from the
very high land valuation, an area
tration of retail
require that the CBD ordinarily should
census tract lines.
of New Haven, the CBD is defined
as that downtown area encompassed within the boundaries 2
1039
of the Oak Street Connecter, York, High, Chapel, Church,
and Olive Streets, so it’s a fairly concentrated area.
It does not extend out, for example, out to Whalley Ave-
eee oe aes et at oe eee ee Se
headquarters of a large number corporations;
for example, the Southern New Telephone Com-
pany, the UI Company, the New Haven Water A
the ts of Columbus. [1692] These are all located
Q Mr. Terzakis, did you participate in the prepara-
tion of a memorandum with the heading “We Have A
Q Can you tell me the circumstances under which
W um was prepared?
es, sir.
Mr. Johnson, who is now president of the Connecticut
Savings Bank, was, about the period of 1966
1969, working with me as a vice-president for the First
New Haven Bank, and, in addition to his other duties,
his principal duty was to work with architects and con-
tractors in the construction of new branches. Our rela-
tionship was close, because I was recommending new
1040
locations, and when these were approved by the Comp
troller of the Currency he would in fact pick it up from
there to establish these branches.
We were both quite concerned at that time about the
rapidly accelerating cost of branches, and, for example,
costs were going up, for example, in construction costs
about 10 percent a year, and this was pretty steady
through that three- or four-year period. It’s still going on
now. Land acquisition costs were rapidly rising, building
material costs were going up about 10 percent a year, and
I felt that—we both felt that we would be priced right
out of the branch banking markets.
So I thought, well, how can we overcome this, and I
thought about the mini branch concept, which, in effect,
really is, instead of building a, say, three- or four-
[1694] thousand-square-foot branch building, we built,
say, an eight- or nine-hundred or a thousand square foot
building. His thinking ran along the same lines as mine.
We also were wondering at that time—we used to
have discussions—how we might be able to help the bank
grow. Our management constantly sugges-
tions from its official staff and its employees. And oddly
enough I think we were both thinking about the same
thing. We were thinking, for example, how could we get
into closed towns, and in relation to what the banking
laws were at that time.
He said, “Why don’t you put that into a memo and
let’s take a look at it, and I will compare it against my
thoughts,” meaning Mr. Johnson’s. I did this, and follow-
ing some additions and some deletions, we submitted it
to the senior management for their perusal.
I had emphasized to Mr. Johnson that I did not want
to get involved in an in-depth study of this whole question
until I had a way of testing management’s reaction to
this memo, so that’s—the memo, as it appears in the ex-
hibit, is the way it was finally given to senior manage-
ment.
Q Un that general memorandum, did you give any con-
sideration to the personnel requirements?
A No, sir, I did not.
116951 Q Or the capital requirements?
1041
No, sir.
Or regulatory problems?
No, sir.
0,
Or bank security?
No, sir. I knew that they existed.
Pardon me?
I knew that these were problems that existed.
Page 8 of your memorandum contains a sentence,
“What are some of the problems,” and you list personnel,
money, incorporators, regulatory obstacles, bank security
and operations?
A Yes. I recognized that these were problems, but
there was no in-depth analysis of how many people would
be required, for example.
Q Did your management ever take any action on this
memorandum?
A No, sir, they did not. And I think that manage-
ment’s principal concern was the legal barrier.
MR. REA: Your Honor, I object unless it can be
shown he is aware of what management’s decisions were.
As I understand, he has not been a part of management,
nor has he attended board of directors meetings.
[1696] THE WITNESS: Can I clarify that?
THE COURT: Let Mr. Reycraft do it.
BY MR. REYCRAFT:
Q Mr. Terzakis, did you have any opportunity, fol-
lowing the submission of this memorandum, to discuss it
with any member of the management of First New
Haven National Bank?
A Yes, sir.
Q With whom?
A Mr. Johnson and I had one meeting with Mr. Chad-
wick and I believe Mr. Hooker, and we discussed this in
detail. They had an opportunity to read it, and, as I
say, their principal concern was the legal barrier, among
other problems.
Q Were there any other meetings in which you par-
ticipated with senior management?
A There were no other meetings with senior
ment, and I believe I recall Mr. Chadwick testifying that
OPO pO pO p
1042
it was never submitted to the board of directors or to
9 Lees, of the e e 3
you have any personal know any other
meetings or discussions concerning this memorandum in
the bank?
A Not this particular memorandum. There were none.
116971 I might also add, Mr. Reycraft, that this was
solely our own thinking. It was not a charge from man-
agement that we produce this memo. It was one of our
ideas, and we submitted it as a suggestion.
Q Mr. Terzakis, I believe you have heard testimony
concerning the need for a larger lending limit.
Can you think of any other reasons where a larger
limit would be beneficial to various groups of customers?
A Yes, sir.
Perhaps you recall that Mr. Hawley of Connecticut Na-
tional Bank had mentioned that with their corporate cus-
tomers, when they have approved credit lines for their
customers and if this line is not being used, they require
a 10 percent compensating balance, and in the case of
where it is being used it’s 15 percent.
Well, in our case it is 10 percent for a nonused credit
line and 15 to 20 percent if the line is used. This is ne-
gotiable depending on how—how badly you want the ac-
count and how profitable we think it will be.
So that if we—for example, the legal limit which—our
legal limit is 2.4 million—were doubled approximately—
let’s, for the sake of example, say it was five million for
the consolidated bank; this would mean that the 10 and
15 percent requirements would also be [1698] doubled.
The percentages stay the same but the dollars increase.
What this would mean would be also that we could
better serve these corporate customers. It would also
mean that the ones who are presently going out of state
to the major money market banks for their loan commit-
ments—some of that money would be repatriated.
Now, in fact of repatriating this money, just want to
emphasize that that money originally belonged here in
Connecticut. It was generated here in Connecticut, and
we wanted to bring it back, and with a larger lending
1043
limit we could bring back some of those dollars, which, in
turn, could be reinvested in new plant and equipment.
This would mean added jobs for the local residents; it
would mean higher disposable personal income, increased
retail sales. It would boost the local economies consider-
ably.
The other thing it would do is that—say, for example,
in the case of the 10 percent line, where it’s not being
used, those balances would be doubled in terms of dol-
lars. All of these dollars would also be available for
loans and installment loans to families and indi-
viduals. So in that sense it helps not only corporations
but also the local people in the community.
[1699] MR. REY CRAFT: I have no further questions.
THE COURT: Mr. McEnerney?
MR. McENERNEY: Nothing.
THE COURT: Cross-examination.
11700] CROSS EXAMINATION
BY MR. REA:
Q Mr. Terzakis, on direct you referred to a number
of defendants’ exhibits which compared the business which
First New Haven derives from Connecticut National
Bank’s towns—
A Office towns.
Q —office towns—and you then—the second column
over, I believe, on those charts indicated what the per-
centage of business would be including the divestiture,
both of the six and three banks, is that correct?
A That’s correct.
Q And did you assume when drawing up these—this
divestiture column, that all of the accounts presently
held by offices to be divested would, in effect, be trans-
ferred to some other bank or banks?
A Yes, sir.
Q Last Thursday you testified on the Defendants’ Ex-
hibit 71 and 72, I believe you noted at that time that on
those two exhibits there were, I believe, ten national
bank charters that were disapproved and ten state bank
1044
charters that were disapproved. Do you recall that tes-
timony, Mr. Terzakis?
A Yes, sir, I do.
Q Do you have those documents before you?
A I believe I do.
[1701] Q Are you aware of the reasons which could be
applied to deny the approval of a bank charter, both na-
tional and state?
A Are you asking whether the regulatory authorities
tell us the reasons?
Q Well, are you aware generally of the type of analy-
sis that the regulatory agents perform when they are
evaluating a new bank charter?
A Basically, yes. They investigate very thoroughly
the background of the proposed incorporators, they inves-
tigate the community, its economic growth prospects,
where this new bank presumably would be located, and
usually what they say in the case of the state Bank Com-
missioner, he says something to the effect that he feels
that thera are no reasonable prospects for a profitable
operation of a new bank. In fact, when he turns them
down, and if he feels the opposite, then, he normally
would approve it.
Q In other words, does he issue a general statement
—4 would subsume in its conclusions a variety of fac-
tors
A A very general statement, and it doesn’t get into
too much detail.
Q And would it be your understanding, then, a state
or national regulatory could deny a charter if he found
the incorporators to be unqualified or inexperienced or
without certain level of character?
117021 A Yes, sir. I think—I think—and I can’t say
for sure on this—but I think that when they investigate
an incorporator’s background, they want to be sure he is
of impeccable reputation of the highest integrity.
Q And would they apply the same standards to other
potential bank owners, bank management?
A I believe so.
And if they found the same qualifications lacking in
those people, could they condition a denial on those facts?
1045
A They probably would, yes.
Q Do they also take into account the future earning
A Yes, sir.
Q The bank would be applying for a charter?
A Yes, sir.
they got about this, and I have never filed one for any-
body, so I have no real basis of answering all of those
questions, but I would say that if they found the capital
was inadequate, [1708] they would deny the application
or at least put it in abeyance, anyway.
Q And would you expect that the bank regulator would
also look at the distribution of stock of the bank to
be chartered?
A How it’s distributed?
Les.
A In terms of—
Q And the plans to distribute the stock?
A I would think so, yes.
Q And would that also be a factor upon which they
Q Were you aware that these types of reasons might
exist for approval or denial of a particular bank charter
when you drew up Defendants’ Exhibits 71 and 72?
A Well, generally, I was aware of the types of rea-
sons that might be used, but, in fact, the—when the
Bank Commissioner disapproves a new bank application,
he just uses—usually issues about a one-sentence com-
ment about the prospects of running a profitable opera-
tion in a particular town, and that’s it. He does not
usually get into the detail, at least not for published
notification, why it was turned down.
Q But certainly in reaching his decision, he would
[1704] consider the factors we have just discussed?
1046
o>
7
5
i
of any instance in which a group of
incorporators has applied both for—in sequence—for a
national, and if that’s disapproved, then for a state bank,
and vice versa?
A I’m not aware of any specific instance. I think it
probably has happened, but I don’t know of any specific
énstance.
Let me refer you to Defendants’ Exhibit 71, Page
4. Do you have those in front of you?
A Which one is that?
Q This is D-71.
MR. REYCRAFT: You took the exhibit over the week-
end, Mr. Rea, I don’t believe we have a copy of it.
A What's the subject of that exhibit?
MR. REYCRAFT: Do you have it?
THE WITNESS: What’ the subject of that exhibit?
Q These are the—application for new state chartered
banks, that’s D-71, let me show you the marking.
Referring to Page 4 of D-71, do you note that the
very last line—the presence of a bank entitled: Farming-
ton Valley Bank and Trust Company (Simsbury) filed
for a new bank [1705] charter September 8th, 67, dis-
approved December 18th, 1967?
A Yes, sir, I see that.
Q And referring to D-72, Page 1, second line: Farm-
ington Valley National Bank, Simsbury, filed May 22nd,
1967, disapproved September 6th, 1967? .
A Yes, sir.
Q Do you know if those two applications were filed
by essentially the same group of people?
A I do not.
Q Well, let me refer you to Defendants’ Exhibit 71,
Page 2, bank named East Hartford Bank and Trust Com-
the second line, filed December—pardon me—
ary 22nd, 1971, disapproved September 7th, 1971,
that into the dowtown, suburban, rural category?
A I'm not quite sure I understand the question.
[1708] Q Well, could a standard-sized branch be a
downtown branch, a suburban branch and a rural branch,
is that what you are saying?
A It's probably not likely to be a truly rural branch
because a market potential in a rural branch would be
quite thin normally.
ln other words, is it your testimony that the stand-
ard-sized branch would normally be larger than a branch
in a rural area?
A It depends. It depends on the size of the popula-
tion of the town. If you are talking four or 5,000
people, I don’t think we would put a standard-sized
branch in that town.
Q What costs would you associate with that type of
a branch?
A A standard type branch?
Q No, a rural branch.
A Well, this would depend whether it’s a store front
or whether it’s an independent building with drive-in
windows.
Q Can you give us a range of cost, please?
A I would guess it would probably be somewhat less,
perhaps around a hundred and fifty thousand.
S&F
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11
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i
8385
the inflation that we have had in the last three years.
Q And would you agree, then, that that cost would
be approximately one-fourth or one-fifth of the cost of
a standard-sized branch?
A Approximately.
Q And how would the operating cost compare—stand-
ard-size branch opposed to this mini branch?
seven to nine people. For example, our East Street office
in the City of New Haven or our Wallingford branch.
For a mini b it might be three or—what we call
three and a half le, three full-time people and per-
Q Do you recall—did you participate in answering the
plaintiff's interrogatories to defendants?
A Yes, sir.
Let me show you Plaintiff’s Exhibit 75, and I show
you the statement here which reads, These branch units
whose construction costs were one-fifth those of a stand-
ard-size branch“ and this is referring to the mini
branches—“and whose operating costs were one-fourth
those of the standard branch, were planned as all small
offices whose total installation costs would probably not
exceed 50,000.”
1050
Now, what was your reason for saying that the operat-
ing cost would be one-third as opposed to the one-fourth
that you indicated?
A This was an estimate. This was an estimate.
Q So that the one-fourth would be equally as ap-
plicable as the one-third?
A Well, I would think that probably that one-fourth
figure would be the more accurate figure.
THE COURT: I’m not quite sure I understand what
you mean by cost of opening a branch. Does that include
buying a tract of land, putting up a building, [1711]
putting in teller counters, paneling, burglar alarms?
THE WITNESS: Yes, sir. The full cost of an ac-
tually—a turnkey operation, opening the door, includes
all of the equipment, all of the shell costs, the finishing
cost inside, the cost of land. All that. If we own a
branch, we would own the land, too, usually, although
we have leased branches on landlord’s land. It still comes
out to the same thing, your Honor.
Q Can you tell us, Mr. Terzakis, what is meant by the
break-even time for a branch?
A This is the point at which your income covers your
direct and indirect
Q And does the initial cost, both the construction cost
and the operating cost, affect the break-even time, then,
for a branch?
A Both those items would affect the break-even cost.
Q And would it be your conclusion that the lower the
initial cost, that is: both the cost of the establishing and
the initial operating cost, lost that figure, the lower—the
shorter would be the break-even time?
A Yes, all other things being equal, yes.
And based on our discussions of the standard-size
[1712] branch versus the mini branch, would it be your
conclusion that the mini branches would tend to break
even in a shorter period of time?
A Yes, I think that’s a fair statement, yes.
Q And in view of the factors associated with mini
branching, would you agree that they provide the First
New Haven Bank, or any bank, for that matter, with a
greater degree of flexibility in its expansion plans?
1051
A Yes, sir.
ln other words, would it provide them with, in
effect, more tools at their disposal to expand into areas
throughout the state?
A It's a possible tool.
Q But it would provide an additional branching tool,
would it not?
A Yes, it would. But remember a mini branch is a
far different branch from a standard-sized branch, you
don’t have the full banking facilities in a mini
you don’t have a vault and you don’t have safe deposit
boxes, and remember, too, that a bank’s corporate image
is important here, too.
Q The mini branches would enable First New Haven
to enter towns, then, that might not support a standard-
sized branch, is that correct?
117131 A Yes.
Does your bank, Mr. Terzakis, establish branch
offices with an eye to economy?
A Yes, sir, we do. The growth of an economy in
a town?
Q Well, with an eye to economizing on the costs asso-
ciated with establishing a branch?
A Sometimes that’s true, and sometimes that’s not.
For example, in discussing our Dixwell Plaza office, we
did not feel that we should be economizing on that par-
ticular branch which was an inner city branch, we did,
in fact, spend a considerable amount of money establish-
ing that branch, it’s a very handsome—
The COURT: That’s one of my questions. When
was the last time, to your knowledge, a bank put a
branch up for $50,000.00? Is that an actual experience
of yours?
THE WITNESS: No standard-size branches at that
figure, your Honor. Standard-sized branch would be
much more expensive. If they owned the building.
THE COURT: You are talking about the mini
branches, but have you established any of those?
THE WITNESS: No, sir, we have not.
THE COURT: Has there been any reason why you
11714] haven't done it?
1052
THE WITNESS: Well, I think that management may
have some reservations about the efficacies of these types
of branches. I think that they’re seriously concerned
about the corporate image that they tend to project,
particularly if you locate a branch, a mini branch, next
to a competitor or across the street from a competitor
and he’s got a handsome colonial building with all of
the appointments in the building. It’s just a natural for
the public to compare First New Haven with XYZ Bank,
and I don’t think that reflects very favorably on our
corporate image.
Q If I may follow up on that—that line of ques
tioning, has the First New Haven Bank considered the
establishment of mini branches?
A Yes, we have.
And without duplicating Mr. Chadwick’s testi-
mony, were mini branches envisioned in this plan to ex-
pand into five or six towns and cities in Middlesex
County?
A Les, sir.
Q The point I was earlier making was that: is it
generally true that your bank would try to establish a
branch, all other things being equal, at a favorable cost
to the bank, in other [1715] words, where they could
save money, where they could cut costs, they would?
A This depends on the needs of the community, in
other words, it depends, for example, on how large the
trading area is that you are going to serve. If you are
talking, for example, of a downtown branch, you have
to put up a pretty handsome facility, and you can’t
economize on cost. Again, it depends on the size of the
trading area that you are serving.
Q Well, let me ask you this: Is leasing as opposed
to constructing a building one way of reducing branch
cost?
A I think the net—in chatting with our controller,
the net effect of leasing versus owning is not really too
much different. The net effect is still about the same
to us.
Q Have you performed any studies which compare
1053
the—at least the initial cost of leasing with the initial
cost of constructing a branch?
A I have not prepared any such studies, no.
Would it be your understanding that in leasing an
existing building there would be a reduced cash flow,
out of pocket cost, to the bank as opposed to constructing
a branch office?
A Yes, I would think so, although we have situa-
tions, for example—we are pretty flexible on how we
build these and how we handle them, we have situations,
for example, where we [1716] talk with owners of land
and they don’t want to get involved in the actual con-
struction of the building, and we have taken over the
actual construction of the building, made the payments
on out of pocket cost for putting up that building and
sold it back to the developer, and then he in turn would
lease it back to us.
And how many times have you done that?
A Well, I can think of—our East Street branch was
such a case. Perhaps two or three. I’m not certain on
that, though.
Q Out of your total of how many branches?
A Twenty-one. I’m not certain of the actual num-
ber.
Q Does leasing have the effect of lowering the initial
cost associated with branching?
A I think you have already asked that question, and
I think—the initial cost that you would lay out for a
branch in the case of a lease would be less.
Q And would this reduction in the out of pocket costs
enable the bank to establish more branches with a given
amount of dollars?
A Probably.
Q Can you tell us what percentage—
THE COURT: I’m not sure I follow this. I don’t
claim to be an economist, but if it cost $250,000.00 [1717]
to buy a piece of property and put up a building, and
let’s say your initial costs are $250,000.00, and you can
lease the same building for $150,000.00 per year, your
out of pocket expenses, your initial costs are reduced,
1054
but management would be close to idiocy if they leased
instead of purchased. Wouldn’t you say?
MR. REA: Yes
THE COURT: I don’t get the point here. Sure,
your lease is less, but it depends on what your initial—
your initial cost is less, but you have to figure long
run, too, don’t you?
MR. REA: I think you do.
THE COURT: The leasing prices is so high, you save
initially, but in the long run, it is poor business to lease.
MR. REA: I would agree with your Honor if, in
fact, the leasing cost would be close to the same as the
initial construction cost. I believe the contrary is true,
however, that the leasing is substantially less on the
order of anywhere from $3600.00 a year up to about
$30,000.00 a year.
THE COURT: This is not—we' re getting to the point
that’s troubling me. Are we just having an [1718]
esoteric conversation here, or are there some facts and
figures that you are showing me that that is so. I mean
these are all really hypothetical. If it is cheaper to lease,
any businessman will lease. If the lease prices are too
high in the town he wants to go in, or if the land prices
are too high, he may look to leasing, if they’re not—it’s—
did you ever use a middleman, either? I mean, do you
ever figure that maybe if the land owner knows a bank
wants to buy his piece of property, his price is upped
and you go to broker?
THE WITNESS: Yes, indeed.
THE COURT: And what do they call that, undis-
closed principal, and things like that?
THE WITNESS: A straw. In other words, a straw.
THE COURT: Til sit here and listen, but I’m not
satisfied that the questions are relevant, nor the answers
are, unless we have a little bit more—something con-
crete here for me.
MR. REA: Well, I was just going to proceed into
that area, your Honor.
BY MR. REA:
Can you tell us, Mr. Terzakis, what percentage of
1055
40%? ies
A Yes (indicated). 5
And do you know what the annual rental fees
would be for those offices? /
A Well, I think you just gave the range, it was ap-
proximately $3600.00 to 3,000—$30,000.00, that’s the
lease cost, I think that’s the approximate range.
Q And would that be considerably less than any ini-
tial cost of constructing a branch office?
A Yes, it would be, but in looking at the long-range
effects of these offices, I think what hasn’t been brought
is approximately the same.
Q Mr. Terzakis, if I may refer to Defendants’ Ex-
hibit No. 60, this is the Masters’ final report, do you
have that exhibit?
[1720] A No, sir, I do not.
(Handing report to the witness.)
Q If you will refer to Page 26, which lists the 25
corporations—actually, I guess it should be 24, since we
have deleted the Town of North Haven—and on a sub-
sequent page it indicates that the defendants have stated
that none of these corporations is presently a customer
of either defendant bank.
Mr. Terzakis, were you responsible for submitting these
names as they applied to First New Haven?
A Yes, I was responsible for submitting them. The
actual preparation and checking out of whether they
were customers or not was at my direction, but it was
done, in fact, by another officer of the bank.
1056
Q Okay. Do you know, does First New Haven
solicit these corporations?
A To the best of my knowledge—well, we have new
business people that are on the road all the time, and I
know, for example, in the case of the F. D. Ives Com-
pany, which is next door to our East Street office, that
has been solicited, that particular company. There may
have been one or two others, perhaps more than that.
Q Have you visited any of these companies or spoken
to personnel in these corporations?
A No, sir, I have not.
[1721] Q Do you know what the general content of a
solicitation conversation is with a corporation?
A Only in very general terms. Generally, they try
to establish the fact that the particular company has
a need for a particular service. They may talk about, for
example, payroll services, computer services. They may
talk about bank reconciliation of their statements, some of
the general types of services that we have . We have
OJB, which is on the job banking, in some firms. These
are the general types of solicitations they would make of
these companies.
Q Would it become apparent to the soliciting officer
as os what banks this corporation presently did business
with?
A If the corporation treasurer noted which bank they
do business with, it would be, yes.
Q Would it be good salesmanship on the part of a
soliciting officer to say that, “Our bank can do X,Y,Z
things better than your existing banks?
A Well, I think if he can show some actual benefits
that we can provide as a bank that he is not presently
getting from his established bank account, this may be
one approach. He may, for example, offer an entirely
different type of service that no other bank offers, if
that happens to be the case.
Q But, in other words, in order to make this com-
parison of what your bank can do vis-a-vis the existing
banks, it would [1722] probably be helpful to know
who those existing banks were, would it not?
1057
A Who these companies bank with?
Q Right.
A Ves, I think it would be helpful.
[1723] BY MR. REA: :
Q Do you know how this list of 25 corporations was
derived?
A Yes, sir. We have identified some 200 companies
that are noncustomers of the bank, and these are com-
panies that we would indeed very much like to get as
customers. And it was derived from that list.
Q Did you perform this derivation?
A Well, in conjunction with another officer of the
bank; we went through the list and we picked out the top
25, from that list.
Q The largest 257
A Right, or the most—the most wanted 25, let’s put
it that way.
Q In other words, First New Haven does actively
solicit these firms for their business?
A Some of them. Some of them I can’t say. I just
have no knowledge whether all of these have been solicited.
Some of them have.
Would it be your opinion that these top 25 out
of a list of 200 would be corporations which would have
perhaps more banking alternatives available to them
than the bottom 25?
MR. REYCRAFT: Your Honor, I think it ought
[1724] to be clear that Mr. Terzakis does not make these
calls and this is not his area. If he knows, it is fine.
THE WITNESS: That’s correct.
MR. REYCRAFT: But I think this is not helping
Mr. Rea very much and he really does not have this
kind of knowledge. If he has it, something specific, I
do not object.
THE COURT: I think the witness is capable of say-
ing “I don’t know.” Objection is overruled.
Go ahead. Is there a question pending?
(The pending question was read by the reporter
as above recorded.)
— —
1058
A Well, I think that—what I haven't made clear is
that I don’t make officer calls.
Q Do you know the general size, the scope of opera-
tions, of some of these corporations listed on page 267
A I have no detailed knowledge of the scope of their
business activities, no.
Q Do you know anything about their credit standing
or their banking needs?
A No, sir.
Q You also testified on direct, I believe, about the
value of being in Downtown New Haven in order to
serve that [1725] area?
A Yes, sir.
Can you tell us, based on your personal knowl-
edge, how long the General Bank & Trust Company,
which, of course, is now Hartford National, has been
in Downtown New Haven?
A Well, they were in Downtown New Haven when I
first came with—to become employed with the First New
Haven National Bank eight years ago. They were down-
town.
But I mean previously. Would you assume that
they had been downtown at least thirty or forty years?
A Ihave no basis for making an assumption like that.
I just have no knowledge of how long they’ve been down
there.
Would you know the length of time that other
Downtown New Haven banks have been established in
Downtown New Haven?
A Only in the last eight years where I was employed
by the bank.
Q Do you have any reason to dispute the fact that
these banks have been located in the downtown area for
a considerable period of time, say thirty to forty years?
A That might be a fair assumption, yes.
Q Are you aware, Mr. Terzakis, that the greater pop-
ulation growth in the New Haven-Bridgeport areas has
occurred outside the central city in the last twenty years?
[1726] A Yes, sir.
Do you know, based on your market studies, when
this population shift first began?
1059
A Well, I think it paralleled the flight to the sub-
urbs that we found nationally from the central cities, and
it was probably in the early 50˙8.
Q I believe you have also heard some testimony con-
cerning the corporate exodus from New York and Boston
into Connecticut?
A Yes.
Q Do you know, based again on your market studies
and the awareness of the economy of the area, where these
corporations are located in Connecticut?
A Primarily Lower Fairfield County, in that area.
Q But can you give us an idea of central city as
opposed to suburban areas or outside of some of the cen-
tral cities?
A Well, I know, for example, there's a few in Green-
wich. I think it was American Can that located in Green-
wich. General Electronic is in the process of locating
in Fairfield.
Q Let me rephrase the question.
Do you know if these corporations are located in the
central business district as opposed to the outlying [1727]
areas?
A I don’t know for a fact where they have located,
no.
Q Do you know where some of them are located?
A The towns they're in, yes.
But would this be in the central area or in outlying
areas?
A I don’t know.
Q Do you know where shopping centers are being
located?
A Generally, shopping centers are being located out-
side the central cities.
Q Based on this testimony, population shift, shopping
centers being located outside, would it be your opinion
that this indicates that these areas are attractive for
purposes of branch expansion?
A I think that they are probably attractive to most
banks for branch expansion, because it’s an area where
—in other words, a bank looks for where there’s an
aggregation of people, where do people tend to congre-
1060
gate, and in shopping centers there’s specific reasons for
people congregating there, so they can shop; and where
you have large numbers of people congregating, it be-
comes attractive to some banks to locate in shopping
cen
[1728] Q I believe you also testified on direct concern-
ing the larger lending limit, which would, did you testi-
A
Q What was your basis for suspecting that local
money was leaving either your bank or the Connecticut
area?
A Well, in fact, when a company comes in and asks
company for a legal limit and it’s 2.4, it’s not the.
legal limit but it’s our prudent limit, and if we can’t
fulfill their loan requirements they seek other options with
other, larger banks or even out-of-state banks.
Q Have there been instances where existing customers
of First New Haven have demonstrated a reduction in
the deposits that they hold with First New Haven?
A Yes, sir, I think there have been, and I think
those were answered in the plaintiff's interrogatories.
Q Right.
Did you participate in answering that interrogatory?
A I collected the information. That was answered by
our lending officers.
Q Were you aware that part of that in
covered customers who apparently had reduced the de-
2 they held with the First New Haven National
A I think I was aware—could you identify that
[1729] interrogatory number?
Q Yes. That is interrogatory 41.
A Which subsection?
Q I am referring now to A, sub 4, which reads, 15
of the bank’s largest accounts have been compelled to
establish substantial relationships with out-of-area banks
and are vulnerable at any time to reduce further the
pressure deposits made at First New Haven.”
A Right.
8
poration.
Were you aware that in 1969 to 70 Mite drew down
the maximum limit from First New Haven?
A They drew down their maximum lend limit?
Q Yes.
A No. ;
Q Assuming that to be the case, would they have to
place with the bank some additional deposits?
A Well, they have to keep deposits in relation to
the—what their borrowing requirements are and whether
they’re using the line or not using the line.
Q Assuming they went from a nonuse to a use situa-
tion, they would have had to have deposited money at
the bank?
A Right.
Q Assuming also that in the next year or so Mite
repaid this loan in full, would that occasion a reduction
[a ea ee
A It probably would, but I can’t answer definitely
because I don’t handle corporate customers. I’m a re-
search man.
ln fact, couldn't the bank transfer from a non-
1062
interest demand deposit to an interest-paying certificate
of deposit under those conditions?
117811 A I can’t answer the question. I don’t know.
Q Would you agree that’s the function of a logical
business investment when an account borrows, places
compensating balance and then repays, and perhaps may
lower the compensating balance? Would that be the
local outgrowth of certain business decisions on the part
of these corporations?
A Well, I would think so, yes.
Q Let me offer another
A The compensating balance?
Q Yes.
A I would expect that.
Q Would there be any reason to suspect
account could not continue to do business with the bank
in all other areas; in other words,
ances were reduced.
Q Also in interrogatory 41 you designate the
of borrowers who would be likely to borrow in excess
[1782] defendants’ present lending limits.
A Specifically which one is that?
Q This is interrogatory 41, Part B, which reads,
“State the name and address of all other customers who
defendants believe would be likely to borrow in excess of
defendants’ present lending limits if the consolidation is
permitted and give the reasons for such opinion.”
A Yes, sir, that was prepared and submitted.
Did you prepare that?
A I collected the data. I did not prepare it. It was
prepared in our lending offices.
NR ee ee er W
on
A I was a coordinator of these things; in other words,
Perhaps I can save time if I offer the number ten.
A Ten are
[1788] Q Ten out of nineteen are headquartered in
Connecticut?
A It looks like to me about eight. I believe —oh,
excuse me. I think about nine.
Q Do you know how many of the companies listed of
the nineteen are national in their scope of operations?
A This will be difficult to answer, because, for ex-
ample, in the case of O. F. Mossberg, I have no knowledge
of —
Q Can you give us your best estimate? I do not mean
to give an exact percentage. For example, would you
assume that the Chrysler Corporation and General Motors
Acceptance—
Oh, yes.
Those—
Those are national.
Sears & Roebuck?
Right.
Do you know what would be the general credit
standing of these corporations?
A I can’t give you specifically what their credit
standing would be, but I would rate them as AAA
corporations, probably.
Q Would you assume, based on that determination,
that they would have many banking alternatives avail-
able to them?
[1784] A Yes.
OPO POP
1064
Q And that these banking alternatives would be lo-
FFF
Yes.
Q I believe you also testified on direct that the larger
lending limit would bring back local money to the con-
solidated bank.
Was it your testimony that this would increase the
amount of money available for other uses by the bank?
A Yes, sir.
Q Would it not be the case, however, that the in-
creased lending limit would result in a net outflow of
funds from the bank?
A Well, it would involve larger loan commitments,
yes, but it also would involve our corresponding percent-
age increases, meaning the 10 and 15 percent, which
would be repatriated to the bank. For example, if it’s
a nonused line, we require a 10 percent compensating
balance. Let’s say it’s a five-million-dollar loan; that
means five hundred thousand dollars. Now, if the limit
is increased, it would double the amount of dollars on
that nonused line, which makes more money available,
and there’s no outgo there.
But in a case of an account taking advantage of
the increased lending limit—which I suspect you would
[1785] hope to be the case, would you not?
A Yes.
there would be a net outflow of funds—that is,
increased funds lent minus the increase to the compensat-
ing balance?
A The point is that most of these companies are not
at the full limit throughout the year; they’re in and
out, and they’re borrowing seasonably, particularly for
inventory purposes, and that this gives us greater flex-
ibility in terms of moving funds around, and that the
velocity of the dollars—I think Mr. Chadwick testified
on this—dollars would be turned over much more rapidly.
This is very important to a bank.
At least in a situation where a bank avails itself
of the increased lending limit, there would be a net out-
flow of funds there, lending funds loaned as against the
1065
increases to the compensating balances; is that correct?
A The loan commitment would be bigger.
Q Could you answer the question?
THE WITNESS: Would you restate the question.
Read the question.
(The pending question was read by the reported
as above recorded.)
A Yes.
[1786] Q Is it also your testimony that a substantial
number of your present customers do not draw down
their maximum lending limit available?
A There are a substantial number of customers who
do not take the full limit?
Q Yes.
A Yes.
MR. REA: We have no further questions.
THE COURT: Redirect.
MR. REYCRAFT: No redirect.
THE COURT: Mr. McEnerney?
MR. McENERNEY: No, your Honor.
THE COURT: You are excused, sir.
(Witness excused)
MR. REYCRAFT: Your Honor, the witness is coming.
MR. BOYER: Mr. Johnson, please.
[1737] PAUL H. JOHNSON, called as a witness, hay-
ing been first duly sworn by the Clerk of the Court,
was examined and testified as follows:
THE CLERK: Will you state your full name and
address for the record, please?
THE WITNESS: Paul H. Johnson, 36 Kennedy Lane,
Madison, Connecticut.
THE CLERK: Thank you. You may be seated.
DIRECT EXAMINATION
BY MR. BOYER:
Q Mr. Johnson, what is your present position?
A I am president of the Connecticut Savings Bank.
Q How long have you held that position?
1066
A For approximately two months
Q Before that time, sir, what was your position?
A I was executive vice-president of the Connecticut
How long did you hold that position?
Yes.
came out of the service in 1961 and joined First
New Haven National and served in capacities until ap-
proximately [1738] July of 1971.
Q Could you describe your duties in your last year
at First New Haven?
A My position at that point was vice-president and
secretary of the corporation. I had responsibility in- the
branch administration area, primarily in terms of build-
ing and construction and supervision of new branches.
Q Could you describe your formal education briefly,
I—undergraduate degree from Brown, and a J. D.,
University of Connecticut School of Law.
Q Are you a member of the bar of Connecticut?
5
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4
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8
Q Could you describe, please, services that your
bank offers in terms of categories of deposit and loan
[1789] services?
A On the deposit side, savings accounts, and various
types of varieties and kinds; on the lending side, install-
ment loans and mortgage loans; and then the traditional
services of safe deposit and the collateral service of
1067
Q ee es nieap ante: Serene
A Yes.
Besides savings accounts, are there any other forms
P accounts, that
er
er Well, the addition of certificates of deposit, which
is a contractual obligation.
Q What rates are you currently paying at your bank
for regular savings accounts and for certificates of de-
it?
5 Regular savings accounts are 5 percent, with an
effective, because of a way of paying, of 5.20 percent.
Two-year certificates are 6 percent, with an effective
rate of 6.27 percent.
Q Are you paying at more or less or about the same
as, for example, savings and loan associations in New
Haven?
A About the same.
Q Could you describe, please, the rate structure for
your consumer installment loans generally?
11740] A We have a similar rate structure to
amongst other organizations; I think that our rate struc-
ture is probably a little bit lower than most banks. The
rate structure on consumer loans varies a tremendous
amount, depending upon the philosophy of the organiza-
tion that’s generating it.
Q Are you familiar with the commercial mortgage
lending that your bank engages in?
A Yes, I am.
Q Do you know whether any commercial mortgage
lending is undertaken at your bank where the borrower
has in mind using the proceeds for business purposes?
A No, that would be against the statutes of the State
of Connecticut.
leat DO You inquire as to the proceeds of his particular
A We control the proceeds. We—it must be done
on a first mortgage basis. Now, that’s not to say that
an individual could not use the proceeds for other pur-
poses by mortgaging his property and using it for other
purposes. We must be secured by first mortgage.
1068
Q In the consumer installment lending area, could
you describe the kind of loan purposes that your bank
will make a loan for?
[1741] A Yes, the normal range of loans for con-
sumers—automobiles, home improvement, boats, personal
reasons, travel, the normal range of consumer lending.
Q For these particular eategories of deposit and loan
services that you have described, what other financial
institutions are offering these same services in your
market area?
A Virtually all other financial institutions.
Q That includes commercial banks?
A Yes, sir.
Mr. Johnson, are you familiar with any efforts on
the part of Massachusetts savings banks to achieve third-
party payment privileges?
A Yes, I am.
Could you tell us, please, what you know about
that?
A They were first initiated in the Springfield area
under the heading of NOW accounts. The NOW stands
for negotiable order of withdrawal. They have spread to
other parts of Massachusetts and to other states. They—
fundamentally what they are is a negotiable order of
withdrawal from a standard savings account, so that you
are able to earn the normal savings account rate, which
in Massachusetts is 514 percent, while you write drafts
against your particular account.
[1742] Q Are you familiar with the means by which
mutual savings banks in Massachusetts came to have
this power?
A Yes, I am.
Q Would you state what that was?
A Fundamentally, that the savings accounts have a
restriction within them that does not make them im-
mediate demand accounts, that there is a provision where-
by the bank can institute a 30- or 60-day waiting period,
and, because they‘re not demand accounts, they are al-
lowed to have this float period in order to have negotiable
orders of withdrawal, which, on their surface, look iden-
tical to checks.
1069
Q Do you know whether there are other states in the
Union where mutual savings banks offer third-party pay-
ment services?
A Yes, a number.
Q Could you state what they are?
A Offhand I can tell you the ones I know. I know
New Jersey, Rhode Island and Delaware all have that
privilege.
Q Has your bank make any study of the procedures
by which these savings banks in the states you have
mentioned handle such payment services?
A We have made reasonably extensive studies and
surveys.
Q Of what states, please?
[1743] A Of all the states that presently issue a type
of negotiable order of withdrawal or checking account
privileges.
Q Are you aware of any efforts by Connecticut com-
mercial banks to achieve third-party payment powers?
A Yes, I am.
Q Could you describe generally what your involve-
ment has been in that effort.
A Well, I have been on both sides of the fence. I
think there has been extensive legislative effort in order
to get straight demand deposit accounts in contrast to
negotiable orders of withdrawal. I think those efforts
are continuing and probably will continue.
Q Do you have an opinion, Mr. Johnson, as to wheth-
er mutual savings banks in the state, in the reasonably
foreseeable future, such as within five years, will be of-
fering third-party payment powers or checking powers?
MR. CLARK: Your Honor, I object once again to
this question as being highly speculative.
THE COURT: Are you talking about accounts simi-
lar to the NOW account?
MR. BOYER: Yes, I am, your Honor.
THE COURT: With respect to the NOW account, is
there a legal prohibition from your bank doing this?
[1744] THE WITNESS: Your Honor, I’m not positive
whether there is a legal prohibition. It seems to me that
the rules and regulations that are in effect in Massa-
1070
chusetts are very, very similar to the ones in Connecticut,
and therefore it’s not a legislative problem. We have not
explored specifically at this time whether or not there is
a legal prohibition in Connecticut.
THE COURT: Would you give me some concrete ex-
amples of how this works with your bank. If I have an
account at your bank, could I go down and have a check
issued to Southern New England Telephone Company?
THE WITNESS: Well, not in present form, no. The
only way you can do it as of the present time is you can
make a withdrawal from your savings account and we'll
issue a cashier’s check drawn on a commercial bank so
that you could pay the gas company.
Now, Massachusetts has put in a different system.
They allow—they give you a pad of documents that look
identical to a check, and then you are allowed to write
those at your leisure, and they pass through the same
clearing system that a [1745] normal bank check goes
through. But the withdrawal is taken out of an interest-
paying savings account.
THE COURT: All right.
THE WITNESS: We do not have that right now.
THE COURT: In Massachusetts they have something
that looks like a checkbook. A person has a savings ac-
count and can actually put down a utility company as
the payee, sign the check and mail it to the utility com-
pany, and they process it?
THE WITNESS: Les, sir.
THE COURT: The reason you have not done that
here is what?
THE WITNESS: Well—
THE COURT: Or are you thinking about it?
THE WITNESS: It would be speculation for me to
talk on behalf of all the savings bankers in the state,
but I think that our first effort is to get full checking
account privileges in contrast to the NOW accounts.
THE COURT: All right.
MR. BOYER: So, your Honor, the question
whether he has an opinion as to the likelihood of this
taking place—
1071
[1746] MR. CLARK: My objective, your Honor, is
since it involves legislative action—
THE COURT: It is highly speculative. I will take it.
It will go to weight later on.
A Yes, I do have an opinion.
Q What would that opinion be, Mr. Johnson?
A I think in one way or another it’s probably inevit-
able that the savings banks in this state have some type
of third-party payment system.
Q Has your bank considered whether in fact, if such
a system were available, you would implement that?
A Yes, we have.
Q What have you decided?
A We would be ready to implement it immediately.
Q Would that be based on your study of how it is
done in the states you mentioned previously?
A It's based on that plus a very careful survey of
what kind of services we would have to produce, our-
selves, and what kind we could buy from third parties
within the State of Connecticut.
MR. BOYER: I have no-further questions.
THE COURT: Mr. Johnson, before you go to cross-
examination, may I ask you this:
You were on both sides of the fence, so to [1747] speak,
within a very recent time, within the last two or three
years. Could you just list generally in what way, if any,
you feel that your bank is in direct competition with com-
mercial banks, and in what ways you feel that your bank
is in indirect competition with commercial banks, and
in what ways you feel that your bank has the field to
itself in certain categories?
By “your bank” I also mean savings banks in general.
Could you just list them for me.
THE WITNESS: It obviously can’t be complete, but
I'll do the best job that I can.
In terms of direct competition, obviously for all forms
of savings accounts. The interesting factor, as I view it,
is that the third largest savings bank in the state is
really a commercial bank and also the fourth largest sav-
ings bank in the state is a commercial bank. Connecticut
Bank & Trust is the third and Hartford National is the
1072
That leads me to the conclusion that rate is not always
a deci iding factor in terms of where a particular customer
his savings account. So [1748] that although that’s
— of strong competition, it’s also an area that
to the convenience of a market and where you
— a * area.
We're very competitive in terms of installment loans.
We're very competitive in terms of all categories mort-
gage loans, not just residential but also commereial.
We're indirectly competitive we're also competitive in
terms of people, and I think that, as far as I’m concerned,
that’s an extremely important commodity, that we try
and attract to our organization some of the same people
that commercial banks would like to attract to their or-
ganizations.
We aren’t competitive, obviously, in any phase of com-
mercial lending aside from the mortgage area. We are
competitive across the board in installment loans, and I
think that we're going to remain competitive in that
area, because of our ability to be involved in a rate
structure that allows us to be competitive.
That’s generally how I see it.
But I think that my having been a commercial bank-
er for ten years has given me some feeling for what the
commercial side is, and, as I’ve seen it [1749] over the
last ten years, there’s a growing level of competition that
I don’t think anybody envisioned ten years ago.
THE COURT: As a man in the business, would you
say that savings banks are in competition with com-
mercial banks?
THE WITNESS: I don’t think there’s any question
about it. They are.
THE COURT: All right, cross-examination.
MR. BOYER: Could I have one further direct ques-
tion on that, your Honor?
THE COURT: Tes.
BY MR. BOYER:
Q Mr. Johnson, do you compete for banking sites
with commercial banks, for example?
A Yes, I think we do. If you look at our branch
expansion, I think it becomes quite obvious that our
1078
expansion philosophy has related to one primary element,
and that is that the commercial banks have been more
energetic in their expansion moves than the savings
banks, and therefore in our first two new locations they
were both in communities that were—had home town
commercial banks that withstood further commercial bank
competition.
I think that we’re very competitive for sites.
11750 MR. BOYER: That is all. Thank you.
THE COURT: Cross-examination.
CROSS-EXAMINATION
BY MR. CLARK:
Q Mr. Johnson, from your days at First New Haven,
do you have an opinion upon the accuracy of the account-
ing methods as they reflect the profitability or the worth
of a branch to the bank?
A I don’t think there’s any question that they’re ac-
curate. I think that in any accounting method there are
elements of the accounting method that must go into the
calculations that reflect the over-all—the over-all profit-
ability structure and the over-all operation of the bank.
Q But some branches, even though ‘they may show a
loss on your books, you would consider highly valuable to
the bank, wouldn’t you?
A I have not known of any banks that have sold
branches under normal circumstances. I think that in
any large bank you must pump into the accounting meth-
od the over-all cost of your whole operation, you must put
in executive services, you must put in advertising costs,
that reflect the over-all cost to bank as a whole, and
distribute them out to each i dual profit center.
117511 So that whether or not a particular branch gets
its full portion of executive talent or advertising dollars
is really a determination that is subjective.
Q Taking one of the branches that First New Haven
has that I guess has been a chronic loser on the book, at
least—Devon—what is your opinion as to the worth of
that bank?
1074
A It would really be beyond my capacity to answer.
We wouldn’t mind having it as a savings bank, but
it’s—that’s a completely or a very different business, in
some respects, than commercial banks.
Savings banks and commercial banks, is that what
you are—
A Yes.
Q What is the opinion within First New Haven as to
the worth of the Devon branch to that bank?
A I assume that it’s—continues to be a valuable part
of their operation, although I am aware that at least
up to the time that I was there, during that period of
time, that it was not a profitable branch.
Q Mr. DelGreco, who is in charge of that portion of
the operations of First New Haven—
A That's Greco.
Q —what is his opinion of that branch?
117521 A It's a matter of conversation. He thinks it's
a reasonable branch. I would be speaking for him, and I
don’t think that would be appropriate.
Q He has said that he would like to own that branch,
himself?
A In conversation he has made that comment.
Q Do you consider yourself to be an aggressive bank-
er, Mr. Johnson?
A Yes, I do.
Q W
your bank?
A Yes, we are.
Q What is your first choice as to the manner in which
you will accomplish that?
A I think it’s a combination of seeking to find out
whether or not merger’s valid concept within the State
of Connecticut with mutual savings banks, and a second
alternative is de novo
Q You would first consider merger with another large
savings bank?
A Yes. We've already gone that route.
Q That is, you have already begun to consider?
A It was unsuccessful.
Q Which bank was that?
5 331
127
17525 5
ait
tive would be de novo
lish that?
the traditional way,
P
of Connecticut or anywhere,
t of view that there is not the
the people that are involved in
: em
the individual savings banks. There are 68 individual
statewide bank?
You think this is a feasible means for your
, we would accomplish it
Q
A It is. It’s a long, slow process, and it’s becoming
$253 3
1
Boe 421 11
i
Q But you think, then, that statewide operations are
A Well, I think that if I looked down the road I
becoming a necessity for your bank?
i
é
How would you accom
savings banks in the State of Connecticut, and I don’t
know when the last merger was.
3
A. Well
1076
would see ten years from now three or four major sav-
ings banks that would operate statewide. We have one
state savings bank right now that is obviously in state
wide expansion.
Q And you hope that your bank will be a part of
A I would hope so.
[1755] MR. CLARK: I have no further questions.
THE COURT: What bank are you speaking of?
THE WITNESS: Society For Savings.
THE COURT: What has been their history the last,
last ten or fifteen years?
THE WITNESS: They were the second largest sav-
ings bank in the state approximately six or seven years
ago. They are now the largest savings bank in the state
by about a hundred million dollars.
Their expansion traditionally had been to the north
of Hartford and to the northeast of Hartford. They
have recently filed for an application in Saybrook, and
I believe they have either filed or they intend to file for
an application in the western section of the state.
So you can see, quite obviously, that they’re—the spokes
of the wheels are beginning to go out.
THE COURT: Was this expansion all do novo?
THE WITNESS: Yes. In the last eight years they’ve
added eleven branches to their system, which has taken
them from approximately an eleven-branch system to a
twenty-two-branch system.
THE COURT: Redirect? ™
MR. BOYER: None, your Honor.
[1756] THE COURT: Anything further?
MR. BELL: No, your Honor.
THE COURT: You are excused, Mr. Johnson.
THE WITNESS: Thank you.
(Witness excused)
11757 THORNTON B. MORRIS, called as a witness,
having first been duly sworn by the Clerk of the Court,
was examined and testified as follows:
1077
THE CLERK: Will you state your full name and ad-
dress for the record?
THE WITNESS: Thornton B. Morris. 1 East View
Drive, Simsbury, Connecticut.
DIRECT EXAMINATION
BY MR. BELL:
Mr. Morris, what is your occupation?
I’m a commercial banker.
And where are you employed, sir?
I’m employed as President and chief executive offi-
cer of the Simsbury Bank and Trust Company, Simsbury.
And I take it that is a commercial bank, is that
correct?
A Yes, sir.
Q How long have you been president and chief ex-
ecutive officer of your bank?
A About eight and a half years.
Q Did you have any position with that bank prior
to that time?
A No, I did not.
Did you have any prior banking experience, sir?
117581 A My first experience from college days has
been in the banking business.
Q In the Simsbury Bank and Trust Company?
A I’m sorry, in the banking business.
Well, what position did you hold before you were
— and chief executive officer at the Simsbury
A I did bank examining in New Jersey and New
York. I was a lending officer with Morgan Guaranty
Trust Company in New York, and I was a senior vice-
president of Branch Banking and Trust Company, a
bank in North Carolina prior to coming to Simsbury.
Q In total, Mr. Morris, how long have you been in
the banking business, then?
A About 20 years.
Q 20 years, all right, sir. I think you stated that
the Simsbury Bank was a commercial bank?
PO PO
O
1078
A Les, sir.
Q How was it organized, sir, under what law was
it organized?
A. It was organized in 19ly under the laws of the
State of Connecticut.
Q And in general, sir, what kind of services does
[1759] normally offered by a bank of our size.
Q Well, what is your size, sir; would you give it to
us in terms of deposits?
About 34 million dollars in deposits.
Now, where is the main office of your bank?
In Simsbury.
Do you have other branches?
We have three.
Could you tell us where those are?
One in Avon, Connecticut; a second in Canton,
Connecticut; and a third in Granby, Connecticut.
Q What would you describe, Mr. Morris, as the
service area of the Simsbury Bank and Trust Company?
A The principal service area of our bank would be
the four towns in which we have branches, which is
roughly refered to as the Farmington River Valley.
Q Those are the four towns you just described?
A Yes (indicated).
Q Now, could you tell us, sir, something of the own-
ership of the Simsbury Bank and Trust Company?
A All of the outstanding stock, with the exception
of qualifying shares, of the Simsbury Bank and Trust
Company, is owned by a holding company, First Con-
necticut Bancorp in Hartford.
Can you tell us when the First Connecticut Ban-
corp [1760] acquired the Simsbury Bank and Trust
Company?
A In November of 1970.
Q Do you hold any position, sir, with the holding
company?
A I am chairman of the executive committee.
Q Any other position?
O ror
1079
A Director of—
Q Director of the company? All right, sir.
Now, could you tell us, Mr. Morris, whether there
are presently any other banks with offices besides your
own in the Town of Simsbury, Connecticut?
A Yes, there are two savings banks. The Society for
Savings and the Savings Bank of New Britain.
Q Now, to your knowledge, Mr. Morris, are you
aware at the present time of any application by another
financial institution to establish a branch in Simsbury?
A The Burritt Mutual Savings Bank of New Britain
has applied for a branch in Simsbury.
Q Is there a present application pending by that
savings bank?
A Yes, sir.
Q Is that the first time it’s applied to establish a
branch in your community?
A No, it applied in February of 1970, to establish
117611 a branch.
Q - it made an application in February of 19707
A Yes.
Q Did your bank take any position with respect to
that application?
A We opposed the application.
Q How did you go about opposing it?
A We wrote a letter to the Bank Commisioner stat-
ing our opposition, outlining what we thought were the
facts supporting our position.
When you say “Bank Commissioner”, I take it you
mean the State of Connecticut—Bank Commissioner, State
of Connecticut?
Is that the authority to whom a savings bank applied
for a branch location?
A Yes, sir.
- Q Is that the only authority to whom they apply? |
A They also, if they—I think all savings banks in
the State do have FDIC, Federal Deposit Insurance Cor“
poration, insurance on their deposits, they require the
approval of that agency, also.
Q Could you tell us what happened to that first
Burritt Savings Bank application in 1969?
1080
A The application was disapproved, declined by the
Bank [1762] Commissioner.
Now, do I understand that Burritt has made a sec-
ond application?
A Yes.
Q Incidentally, I didn’t ask you this before, but do
you have an idea of the size of the Burritt Bank?
A About a hundred and fifteen million dollars in
deposits.
Second application that you described, I take it, is
now pending, is that correct?
A Les, it is.
Q And to whom was that application made?
A To the Bank Commissioner of the State of Con-
necticut.
Q And was it also made to the FDIC?
A Yes, it was.
Q Did your bank take any action, Mr. Morris, with
respect to that second application which is now pending?
A We opposed it.
Q And would you describe the manner of your op-
position to it?
A Basically, the same as our first opposition, that is:
a letter to the Bank Commissioner outlining our—the
reasons for our opposition.
* What happened with respect to the question with-
wn.
[1768] Was any action taken by the authorities with
respect to that second application?
A The application was approved by the Bank Com-
missioner and the FDIC.
Q Subsequent to the approval by the Bank Commis-
sioner and by the FDIC, did your bank take any further
action with respect to the Burritt application?
A We are appealing the decision.
Q How are you proceeding to appeal the decision, sir?
A Through the courts.
Q Have you instituted legal action with respect to
that decision?
A Yes, I have. I’m sorry. I misunderstood.
1081
Q Do you recall against whom your action was insti-
tuted?
A It’s instituted against the Bank Commissioner and
the Federal Deposit Insurance Corporation, two separate
actions.
Those are two separate actions. Are those actions
now pending?
A They are now pending.
Q What was your objective, or what was your ob-
jective, Mr. Morris, in instituting those legal actions?
A To have the decisions reversed.
Q_ I ask you to explain why you seek to have those
decisions reversed?
[1764] A We feel—that is: the management and the
board of directors, Simsbury Bank—feel that our area
is becoming seriously overbanked, that is: there are too
many banking offices relative to the population base and
the nature of the population, and we feel that there—
additional banking facilities are neither necessary nor
desirable and they would be detrimental to the continued
financial success of the present bank facilities in the
area.
Q You believe that the appearance of another savings
bank office in your community would be detrimental to
your bank? ;
A Yes, sir.
Q Would you explain that, sir?
A We consider savings banks very serious competi-
tion. In the of our particular institution, about
60% of our d its are savings and other time deposits,
which—which is the area we compete very directly with
the savings banks, and about 75% of our total loan vol-
ume, are types of loans that savings banks can make.
Q Do you anticipate any additional competition from
savings banks in the future?
A We do. We expect that the savings banks will, in
due course, receive some sort of third party payment
powers, referred to as demand deposits.
Q Mr. Morris, to your knowledge, are there any oth-
er [1765] applications now pending by financial insti-
tutions to establish branches in your service area?
1082
A Yes, there is one other application.
Q What is that, sir?
A That's by the Windsor Federal Savings and Loan
Association to open a branch in Granby, Connecticut.
Q Has your bank taken any action with respect to
that application?
A We have notified the Federal Home Loan Bank
Board in Boston, who is the regulatory authority in
charge of federal savings and loan associations, that we
will oppose this application.
Q On what grounds, sir?
A That the proposed branch is neither necessary nor
desirable, and that it will have an adverse effect on the
operation of the banking offices currently serving the
Granby market.
Q You regard the savings and loan institutions as
also competitive with your commercial bank?
A We do.
Q In what respect, sir?
A In almost the same respect as savings banks. The
powers that they have are very similar to the savings
bank powers, directly compete with a major part of our
business.
MR. BELL: May I mark these for identification?
11766] I think I’m up to 77.
MR. BOYER: That’s correct.
Q Showing you, Mr. Morris, Defendants’ Exhibit 77
for Identification—as you if you can identify that docu-
ment, sir?
A It is a copy of our appeal to the Federal Deposit
Insurance Corporation.
Q Does that bear a title, sir?
A I'm sorry?
Q Does that bear a title?
A Want me to read the title?
Q The document itself is entitled as a complaint, is
it not, sir?
A Absolutely, yes.
Q Is this the complaint in your action against the
FDIC?
A Yes, sir.
1083
Q And it is currently pending?
A Yes, sir.
Q Let me identify one more—would you examine De-
fendants’ Exhibit 78, sir, and describe to me what that
is, if you can?
A This is our complaint—our substitute complaint in
our action against the Bank Commissioner.
Q Is that action pending?
A It is pending.
MR. BELL: [ll offer these.
[1767] THE COURT: Full exhibits.
MR. BELL: That's all I have, Mr. Morris, thank you.
THE COURT: Mr. Morris, let me ask you this: You
would consider yourself the president of a rather small
bank compared to the banks in Hartford and the banks
involved here?
THE WITNESS: Yes, sir.
THE COURT: How do you feel this particular mer-
ger affects you, if at all?
THE WITNESS: Your Honor, I wouldn’t see a di-
rect affect on our bank.
THE COURT: I’m talking about the CNB and First
New Haven.
THE WITNESS: Right.
THE COURT: Cross examination.
CROSS EXAMINATION
Bx MR. BENTKOVER:
Q Mr. Morris, your bank is nowhere near the two de-
fendant banks in this action, is it, in terms of geographi-
cal proximity?
A No, sir.
Q You are not in their market areas, are you?
A No, sir.
Q So you wouldn’t expect to feel any effect, then, from
[1768] this merger, would you?
A I wouldn’t expect to.
If two large banks in your market merged, might
you feel an effect?
A Conceivably.
1084
I believe you stated that your bank is a subsidiary
of First Connecticut Bank Corporation, is that correct?
A Correct.
And that’s a multi-bank holding company?
A Les, sir.
Q And what are the other subsidiaries of that com-
pany?
A The United Bank and Trust Company in Hartford
and the New Britain National Bank in New Britain.
Q And this company was organized in the year 1970?
A Yes, sir.
Q Prior to the organization of the company, was your
bank affiliated with the other two subsidiaries?
A No, sir.
Q So, then, that when your bank joined with the
other two and First Connecticut Bank Corporation, this
was the first relation or affiliation between the three?
A Yes, sir.
Q And what was the reason you chose to join with
the other two subsidiaries in a multi-bank holding com-
pany rather [1769] than through a merger?
A The principal reason was we felt that we could be
more competitive in our particular suburb and market as
an independent bank.
Q Could you be more specific?
A That we served a very small and defined trade
area, a suburb of Hartford, and that we thought that a
small independent bank in this trade area would be more
effective in competing for the deposit volume in our area.
Are there any other advantages which you saw for
the multi-bank holding company?
A Oh, yes, the advantages of size, of scale, the reason
—the principal reasons we put it together.
THE COURT: That comes to mind. In other words,
you wanted to keep your small, independent type image,
is that correct?
THE WITNESS: Yes, sir.
THE COURT: So why did you look around for some
—— to join in? What were the advantages to your
?
1085
THE WITNESS: The advantages, your Honor, I think
are two or three very significant ones, there are signi-
ficant advantages of scale, that is: we can do things
through the holding company by common purchasing
[1770] of supplies, common purchasing of insurance, com-
mon fringe benefit programs for employees of the banks,
where we do get the distinct advantage of size.
THE COURT: Do your legal limits of lending go up,
too, do you get that advantage?
THE WITNESS: Not—legally, we do not, we have
the advantage of only working with one another, our
lending limits remain exactly as they were when we
were independent banks, and also, I’m sure these were
brought out in the proceedings, banking has become a
very complex and technical business, and the holding com-
pany vehicle enables us to hire special experts, expertise,
in areas that we could not afford to hire as an independ-
ent bank, in the areas of investment or marketing. The
three banks share the expenses of experts they couldn’t
hire themselves.
THE COURT: And the other two banks are commer-
cial banks?
THE WITNESS: The other two banks are commer-
cial banks.
THE COURT: And were they of the same relative
size as you were when everyone joined?
THE WITNESS: No. The largest one is about three
times our size, that’s the United Bank in [1771] Hart-
ford, and the second one is twice our size. We are the
smallest in the group.
THE COURT: And in these conversations I suppose
someone said, “Maybe we should merger instead of form-
ing. this holding company.” Did that come up?
THE WITNESS: I’m sure—yes, your Honor. It was
mentioned that—and there are several reasons it wasn’t
pursued, Number one, banks and their people lose their
own identity with a merger, and number two, that—as
we mentioned—as I mentioned earlier, I thought we
could better serve our own trade markets retaining our
own identities.
THE COURT: All right.
1086
BY MR. BENTKOVER:
Are you aware that Connecticut has passed hold-
ing company legislation?
A Yes, sir.
Q Did your three banks, which are now subsidiaries
of First Connecticut Bank Corporation, play any role
in obtaining that legislation?
A We encouraged it.
Q What was the reason you encouraged the legisla-
tion?
A Our counsel had advised us that such enabling leg-
islation was necessary for us to form this holding com-
pany.
117721 Q So prior to the enactment of that legislation
you did not believe that you would be able to form a hold-
ing company, is that correct?
MR. BELL: I think he’s asking for a legal conclu-
sion of a witness who is not a lawyer and that’s a mat-
ter on which we have submitted that legal memorandum,
and I think it is beyond the competence of this witness?
THE COURT: Well, if it is, he can say so. Were
you acting on the advice of counsel?
THE WITNESS: Yes, sir.
So in acting under the advice of counsel, without
this legislation you would not have formed the holding
company, is that correct?
MR. BELL: Well, I object to that on the same
grounds. It is one thing, if your Honor please, to ask
the witness’ opinion if there are other parties involved,
that becomes hearsay, and I object to that, too, your
Honor.
MR. BENTKOVER: I’m not asking for his conclu-
sion. I just wondered whether if the holding company
legislation were not enacted, he would have done the same
thing, defendants have contended that this legislation
was not necessary for the establishment [1773] of hold-
ing companies.
THE COURT: Well, let’s get his opinion.
THE WITNESS: I don’t know what we would have
done had there been no legislation.
1087
MR. BENTKOVER: I have no further questions.
THE COURT: Redirect?
MR. BELL: Nothing, your Honor.
THE COURT: You are excused, Mr. Morris.
(Witness excused. )
THE COURT: May I ask this: if this merger was
not contested by the government within the period of 30
days, I guess, or whatever period of time, other banks
would come in and start a suit, is that correct?
MR. REYCRAFT: Yes, sir.
THE COURT: I know there’s a difference.
MR. REYCRAFT: They have to come within 30 days,
after 30 days it’s exempt from both public and private
suit, but within the 30 days they could.
THE COURT: Has anyone, or any agency, to your
knowledge, taken surveys of what the other banks had
to say about this particular merger? Are they solicited,
is someone going around saying: “How do you think this
merger will affect your bank“?
[1774] MR.McENERNEY: May it please your Honor,
we have gone down to the Regional Comptrollér, and
he will testify as to the types of investigation that is
made in the normal merger proposal, and specifically as
to this one, and Lthink that—I don’t want to presuppose
what his testimony will be, but, yes, the answer to your
question is: yes.
THE COURT: I don’t know if it has any relevance,
but were there any private actions also filed?
MR. McENERNEY: Not at all in this. a
THE COURT: I’m saying with respect to this one.
MR. REYCRAFT: There were none against your—
THE COURT: Is there any prohibition against one
being filed in the government acts? 0
MR. REYCRAFT: No, the government does not bar
a private action, there can be simultaneous actions by the
government and a private party.
THE COURT: Has that happened on many occasions?
MR. REYCRAFT: I know of one occasion on which it
did happen. There was a stockholder’s suit pending and
then the government filed a complaint to enjoin a bank
*
1088
_ merger, and then the stockholder amended his complaint
to amend a private antitrust cause of action as well.
That’s the only one I know about.
{1775] THE COURT: We will recess until 2:15.
(Recess taken for lunch.)
117761 AFTERNOON SESSION
THE COURT: Are the parties ready to proceed?
MR. REYCRAFT: Les, your Honor.
MR. CLARK: Yes, your Honor,
MR. REYCRAFT: Your Honor, the defendants have
one additional witness, Thomas Richardson, who is sched-
uled to be here tomorrow morning. Mr. McEnerney—
me—perhaps one more.
I should say we have issued a subpoena to the State
Superin t of Banking to discuss the holding com-
pany issue) the charter—new charter problem that has
come up in\testimony. And also Mr. a oo
pared an erhidit along the lines of the one that Mr.
zakis discussed this morning, giving effect to the divesti-
ture of the three offices under contract from the stand-
point of the First New Haven—from the standpoint of
the Connecticut National Bank.
Mr. Terzakis sponsored an exhibit this morning giv-
ing the effects of the divestiture from the standpoint of
the First New Haven, and if there’s no objection, we can
submit that exhibit.
THE COURT: I should understand that it a
little bit more than I do, and I am candid to it, but
I’m still having difficulty.
11777] In the left-hand column, if it says: 1,100, and
then in the right-hand column after divestiture it says:
170, does that mean 170 accounts have been divested, or
the 170 is what's left after the divestiture?
MR. REYCRAFT: Your Honor, the exhibit shows, as
mende whe & fatal of 11000
accounts, and after the divestiture, as I understand it,
1,041 accounts would be—would remain in First New
Haven towns.
tinue to have immediately prior to
assume the divestiture were to take
in Connecticut National towns, so
between the two banks in these towns, but for the 1,04
accounts from the First New Haven side, would have been
eliminated.
And from the standpoint of Connecticut National ac-
counts in First New Haven office towns, the divestiture
would result in 1,782 accounts overlapping, remaining.
[1778] Now, perhaps—I think, maybe, your Honor, I’ll
ask Mr. Terzakis to testify briefly to explain this ex-
hibit, I think it might be helpful to the record.
THE COURT: No, he explained it, and he explained
it, certainly, but, you see—I don’t want to draw this
out, but when I saw the figure in the right-hand column,
I didn’t know if that meant those were the amount of
accounts that were being relinquished, or those weré the
amount of accounts that would remain.
REYCRAFT: Remain.
THE COURT: You have answered that. That’s the
only question I have.
MR. REYCRAFT: All right.
Then, the exhibit which Mr. Terzakis prepared should
be marked as 79.
MR. BOYER: Mr. Krafchik.
MR. REYCRAFT: Krafchik.
Also, your Honor, we have a copy of a complaint which
was filed by the United States against the Fort Worth
National Corporation and Mutual Savings and Loan As-
sociation in Texas, which is a consolidation of a commer-
cial bank and a savings and loan association in Texas;
and the relevance [1779] of this complaint is that the
Antitrust Division alleges that competition between the
commercial bank and the savings and loan association will
be eliminated and that that will constitute a violation of
the antitrust laws.
So that we think it is perhaps a little bit i
but at least amplifies that they’re contending here that
1090
competition between commercial banks and savings banks
and savings and loans on the other hand should be ex-
cluded, in fact, in a case which is now pending in Texas,
alleges the consolidation of a commercial bank and a sav-
ings and loan association to be a violation of the antitrust
laws.
MR. CLARK: May I respond? I have no objection to
the introduction of the exhibit. I think it is hardly help-
ful here. The government did allege elimination of com-
petition between these two national institutions in the
submarkets within which they compete. And this is en-
tirely consistent with the Supreme Court’s holding in the
Phillipsburg case in which it held that commercial bank-
ing is also a lack of commerce, so while we have no objee-
tion to the exhibit, it is in no way inconsistent with the
government’s position here.
11780] MR. REYCRAFT: We also have a memoran-
dum on law and bank holding acquisitions of de novo
banks which has been served on both the Department of
Justice and the Comptroller of Currency that we would
like to submit for the record.
MR. CLARK: Your Honor, we will, of course, re-
spond on this, what we consider to be a legal issue. We
have nothing at this time, and I don’t anticipate that we
will within the near future. It was my belief and my
opinion that all parties would do this in their trial briefs,
and I didn’t know the defense was going to do it, but I
simply want to indicate that, of course, we will—out our
position on this.
THE COURT: By all means.
MR. REYCRAFT: Also, on the exhibits which have
been marked by the defendants 1 through 52 have been
stipulated into evidence by the government. The re-
maining exhibits up to 80, which I have just marked,
have not been stipulated, and I would like to offer them
at whatever time is appropriate. I don’t know if there’s
any objection from the government.
MR. CLARK: We have no objection.
117811 THE COURT: Without any objection, they
all may be admitted as full exhibits.
1091
MR. REYCRAFT: We have also a commitment to
the Court on statements by Mr. Chadwick on behalf of
First New Haven and Mr. Hawley on behalf of Con-
necticut National as to the market areas, we will
have those submitted, I believe, by tomorrow one
THE COURT: No hurry.
Were all your exhibits, Mr. Bell, marked as full ex-
hibits?
MR. BELL: Yes, your Honor. :
THE COURT: They were marked for identification.
MR. BELL: They were offered as full exhibits, 76
and 77 and 78.
THE COURT: Well, are there any exhibits that are
still pending identification?
MR. CLARK: I’m not sure, your Honor, I'd have to
check the record. We marked a couple after our first
batch were marked for the trial.
THE COURT: Perhaps at a converient time counsel
can get together with the clerk before the end of the
trial, just to make sure we—
MR. REYCRAFT: I have no objection to those that
Mr. Clark has marked during the—subsequent to the
[1782] stipulation, so they can go in, as far as we're
concerned.
THE COURT: Very well, they all may be marked
as full exhibits.
MR. REYCRAFT: Mr. Bell also has a memorandum
of law, your Honor, which he can describe.
MR. BELL: No, I didn’t.
MR. REYCRAFT: Excuse me.
MR. BELL: That’s all right. I don’t know if these
are exhibits or not. Did you want those marked, your
Honor, or not?
THE COURT: What’s that?
MR. BELL: That letter from the—this is a letter
from Mr. Chadwick who is out of town for the next
couple of weeks, your request of him was to send you a
note or a letter as to what he thought his service area
was.
THE COURT: I think that should be marked as an
exhibit, because that actually is in place of testimony.
1092
MR. BELL: This is the letter, and that would be 81.
THE CLERK: §81.
MR. REYCRAFT: I believe that Mr. McEnerney is
prepared to proceed, your Honor, and we will go out
[1783] of order.
THE COURT: Very well.
MR. McENERNEY: Call Mr. Donovan, please.
11784] JOHN L. DONOVAN, called as a witness hav-
ing been first duly sworn by the Clerk of the Court, was
examined and testified as follows:
THE WITNESS: John L. Donovan, 7 Walnut Road,
Wenham, Massachusetts.
DIRECT EXAMINATION
BY MR. McENERNEY:
Q Mr. Donovan, would you describe your present posi-
tion?
A I am Regional Administrator of National Banks,
the First National Bank Region, Boston Massachusetts.
Q How long have you held that position?
A A little bit over three years.
Q Could you tell me, prior to holding the position as
Regional Comptroller, what positions in the Comptroller’s
office you have held?
A I was appointed Regional Administrator in July of
1969; for the period December 1968 through July of 1969
I was Deputy Regional Administrator in Boston, Massa-
chusetts; for—from January 1967 through December
1968 I was an Assistant Chief National Bank Examiner
in Washington, D. C.; from March 1964 through De-
cember 1966 I was a National Bank Examiner in the
Fourth National Bank Region, Cleveland, Ohio; and from
December 1960 through March 1964 I was an Assistant
11785] National Bank Examiner in Cleveland, Ohio.
Q Mr. Donovan, could you give us your educational
background?
A After attending and graduating from parochial
schools in Columbus, Ohio, I graduated from Xavier Uni-
versity, Cincinnati, Ohio, in 1958 with a Bachelor of Arts
1093
Degree, and in 1967 J graduated from the Stonier Gradu-
ate School of Banking, Rutgers State University, New
Brunswick, New Jersey.
Q Have you been an instructor in connection with
banking?
A Well, yes. In addition to my formal education,
I’ve taken a number of banking courses, and then, dur-
ing my period with the Comptroller’s office, I have taught
at both regional schools in Cleveland, Ohio, and in Boston,
Massachusetts. In addition to this I have delivered
speeches to various banking groups and banking courses,
such as the American Bank Institute and the Bank
Administration Institute.
Q Tell us, please, how many regions the United States
is divided into for the purposes of the Comptroller’s of-
fice administering national banks.
A The Comptroller’s divided the United States into
fourteen national bank regions. The regional headquart-
ers are located in the major cities throughout the coun-
try in the geographic areas which the region covers.
[1786] Q Which region are you in?
A As I said earlier, the—this is the First National
Bank Region, and it covers the six New England states
of Maine, New Hampshire, Vermont, Massachusetts,
Rhode Island and Connecticut. It differs slightly from the
First Federal Reserve District, which covers all of the
six New England states with the exception of Fairfield
County, Connecticut, and in the Federal Reserve system
Fairfield County is in the Second Federal Reserve Dis-
trict, New York.
That is administered out of New York, is it?
New York City, New York, yes.
Your main office is where?
Boston, Massachusetts.
Do you have any subregions?
Yes, we have subregional offices in all six states.
In Connecticut we have one in Hartford, which is manned
by two Examiners and seven assistants. In Springfield
we have two Examiners and six assistants; they also
assist in the examination of Connecticut banks. And in
PO PO PO
—
1094
Providence we have two Examiners and seven assistants,
and they do some of the banks in Eastern Connecticut.
Could you explain to us the duties and responsi-
bilities of your job as Regional Comptroller.
A Well, my primary responsibility is to be the [1787]
Comptroller’s representative in the First National Bank
Region and to supervise the condition, solvency and liq-
uidity of the national banks. This is primarily through
the examination process.
In addition, I also supervise and investigate all ap-
plications for charters, branches, relocations of offices,
and merger or acquisition applications.
And then, finally, I have the normal managerial du-
ties of any supervisor with people working under him,
such as personnel promotion, review of performance and
the like.
Q Would you tell us how many people you have em-
ployed in your office?
A As of October 31st we had a total complement of
119 people. Four of these are part-time cooperative stu-
dents that work for us for a period and then go back
to college, and 115 full-time employees. The office staff
numbers 13, eight of which are clericals and five are
regional officials. We have nine trust examiners who
concentrate solely in the examination of the trust de-
partments of the banks, and the balance of 92 are com-
mercial examiners. They examine the commercial side
of the banks. That number is divided into approxi-
mately 30 commissioned examiners and 62 assistant ex-
aminers.
[1788] Q Could you tell us the number of national
banks that your region supervises and examines?
A As of June 30th we had 206 national banks in the
six states. This is now 205 with the conversion of the
Second New Haven Bank.
Q Does your office only examine national banks?
A That is correct. As a general rule we only ex-
amine national banks. We reserve the right to make an
examination of any state bank that desires to convert,
though.
1095
Q Could you tell me how many national banks are
headquartered in Connecticut?
A As of December 31st there were 26 national banks
headquartered in Connecticut. Four were unit banks in
the sense that they did not have any branches, and the
other 22 were—did operate branch offices.
Q Is branch banking allowed in Connecticut?
A Yes, it is permitted by the Connecticut State
Statute.
Q Can you tell us how long it has been authorized?
A Prior to 1933 branching was not allowed in Con-
necticut, and at that time they adopted their branching
statute, which included the Home Office Protection clause.
The statute has been amended from time to time since,
but [1789] they have never disturbed the Home Office
Protection aspect of it.
THE COURT: Is that an unusual statute, the Home
Office Protection Statute, or do many states have that?
THE WITNESS: No, your Honor, it’s common when
you—to a certain extent that—there are approximately
eighteen states that permit statewide branching with
certain modifications, and Connecticut is included in the
statewide branching category. There are sixteen states
that restrict it on a—to a lesser degree than statewide,
and there are sixteen states that do not permit branch-
ing at all.
But the limitation for home office is common in some
states.
BY MR. McENERNEY:
Q Could you tell us how long Hartford, New Haven
and Bridgeport have been closed?
A Well, to my knowledge, there has been at least one
bank in each town that was chartered prior to 1933, so
they’ve been closed since the inception of the branching
statute.
Q Would you tell me approximately how many branch
[1790] offices are operated in Connecticut at present?
8 = of—including both national and state banks?
es.
A As of June—or as of December 81st there were
1096
approximately 470 branch offices and an additional 61
commercial bank main offices, for a total of 531, I be-
lieve, banking offices, commercial bank offices.
Q In your opinion, do out-of-state banks compete in
Connecticut?
A Based upon my personal knowledge of the Boston
banks and my access to the work papers of those ex-
aminations, I am aware that they have some credit ex-
tensions to Connecticut-based companies. I would pre-
sume that they also receive competition from the New
York-based banks. There is a little from the Provi-
dence banks, but not to the extent of Boston and New
York.
THE COURT: I think one of the things you said is
that you are here representing the Comptroller—or is
the Comptroller going to testify?
MR. McENERNEY: No, he is not, your Honor.
THE COURT: Doesn’t the Comptroller make a much
stronger statement than you just made on that point?
I may be wrong, because I have not read [1791] his
opinion in some time, but—
MR. McENERNEY: You are speaking now, your
Honor, of the competition from New York? .
THE COURT: Yes. My recollection is that the Comp-
troller said something to the effect that the Boston and
New York banks canvass Connecticut from border to
border, and then he goes on, “and rightly so” or some-
thing; so I will find that in his opinion.
I am just wondering if this witness agrees or dis-
agrees with what I thought was a much stronger state-
ment, but when I find the statement we will read it
for the record and we will weigh it later on.
THE WITNESS: Well, your Honor, what I was at-
tempting to do was—on my personal knowledge, which
is limited to those banks in the First Region—I do
not have access to the reports of the Second National
Bank Region, which New York is in—there is a de-
gree of competition from the Boston banks.
THE COURT: Let me read what is among the state-
ments. Perhaps there are others, but this is the one
I had in mind:
1097
[1792] “Constituting as it does such a lush banking
market, the large billion- and near-billion-dollar institu-
tions in New York, Boston and Providence have can-
vassed it from border to border in search of business,
and rightly so.”
I get the impression from that it is a little bit more
than extending some credit to Connecticut-based busi-
nesses.
I would like to know what your opinion is. Do you
agree with that statement that I just read to you?
THE WITNESS: Well, very definitely, your Honor.
I have met, through bank conventions and bank meet-
ings, the corporate men of these—both the New York-
based banks and the Boston-based banks, that call in
Connecticut and are—I’d be willing to bet are present
in the state at any one particular time. There are sev-
eral of them, and they are calling on these customers.
I have no personal knowledge of their degree of suc-
cess in these call programs, but I have heard testimony
here in court that there is 500 million dollars of busi-
ness going down to New York City. I’d be willing to
believe that.
[1798] THE COURT: This is as good a time as any to
find out several things:
One, do you decide what your recommendation is go-
ing to be only on personal knowledge as a Regional Ad-
ministrator? For example, it seems impossible, incredi-
ble to me, that you can make any decision that is
put in front of you based on personal knowledge, if we
are using the term as lawyers use it.
For example, if First New Haven National says “We
have 1,302 installment loans,” vou do not come down
and count them, do you?
THE WITNESS: No, your Honor, we do not.
THE COURT: I mean, let’s get some ground rules
straight here. Are we going to hear opinions based on
his personal knowledge or based on an expert who rep-
resents the Comptroller?
MR. McENERNEY: Yes, your Honor.
1098
BY MR. McENERNEY:
Q Let me ask you this:
Do you know what the lending limits are of some of
these larger banks in New York and in Boston? Do you
know the size of some of these banks?
A I am—I know the size of some of the larger banks
[1794] in New York.
The First National City Bank is up around 30 billion
dollars.
Chase Manhattan is somewhere around 27 billion dol-
lars.
They scale down from there.
The Morgan Guaranty is, I believe, somewhere around
11 billion.
The largest bank in Boston is the First National Bank
of Boston, which is—has combined assets of about
5,400,000,000.
The National Shawmut Bank of Boston has assets of
about a billion two hundred million.
State Street Bank of Boston has assets of about a
billion one hundred million. .
And New England Merchants National Bank of Boston
has assets of around 950 million dollars.
Q Where do these banks rank in the size of all banks
in the United States?
A Well, the New York banks rank from second to
about eighth in size out of the top ten. There might be
one or two in there. The First National Bank of Boston
ranks somewhere around fifteenth or sixteenth in size
in the nation.
[1795] Q How would you compare their lending lim-
its with those of the two banks involved in this con-
solidation?
A Individually? Taking each one of these separately,
the Connecticut National and First New Haven?
Q I think in general terms.
A First New Haven separately—if you take the First
National Bank of Boston, their lending limit would be
around 40 million dollars, and I would expect that would
be about ten times. Better than ten times the Con-
1099
necticut National’s; thirteen times. Theirs is around 3
to 3% million, so 40 million would be about thirteen
times.
Q How would the lending limits of the two banks
involved in this consolidation compare with the Hart-
ford National and the Connecticut Bank & Trust lend-
ing limit? :
A The Hartford National’s lending limit is about
nine million dollars, and that would be about two times
the—a little bit better than two times Connecticut Na-
tional’s. It would be about three times—better than
three times First New Haven’s. I’m not that familiar
with Connecticut Bank & Trust’s lending limit, but I
believe theirs is around—between eight and nine million,
and again it would be two to three times greater.
Q Do you know the types of accounts or the types
of businesses that the New York and the Boston banks
tend to [1796] compete for in Connecticut?
A Yes. They compete primarily for the major cor-
porate accounts, the large, national concerns that are
doing business within the state, the insurance companies,
the manufacturers and that type of account.
Q Do you feel that these larger lending limits give
them a competitive advantage?
A Well, I think that they very definitely do, be-
cause most—first of all, most bankers would like to have
the customer shop at one place, and then most cus-
tomers, I feel, would like to minimize the number of
banking contacts that they have to maintain. And so it's
—it’s, you know, in effect, a two-way street.
Q Does your office regularly examine the two banks
involved in this proposal, in this consolidation?
A Yes, we do. The statute requires that we examine
banks three times in every two years, and we stagger
the examination for the surprise element, but we examine
the banks roughly anywhere between eight and twelve
months apart.
Q Are you familiar with the banking structure in
New Haven, Fairfield and Litchfield Counties?
I am more familiar with the banking structure in
Fairfield County and in New Haven County due to the
1100
limited [1797] number of banks in those two counties
as opposed to Litchfield, where you have many more
smaller banks. But I do have some knowledge of all
three.
Are you familiar with the deposit structure and
available banking business in these counties?
A Yes, I have reasonable knowledge of it. You
measure this by the population, by the number of—by
the size of the banks in those counties and by employ-
ment figures, sales figures and data such as that. It’s a
rough approximation of the available business there to
compete for.
Q Did your office investigate the proposed consoli-
dation involved in this case?
A We did make the investigation, that is correct.
Q Can you tell us who made the investigation and
the approximate length of the time that it took?
A Well, as is office practice, prior to our Washing-
ton office accepting an application for a merger or a
consolidation, the data is reviewed for its completeness.
The applicants are then told that it is acceptable for
filing. At that time they also deliver two copies to my
office in Boston, besides the thirteen copies they deliver
in Washington. This permits us to get a head start on
the investigation process in that we select an examiner
and give him the data so he can de some initial investi-
gation and [1798] review of the data. We are subse-
quently notified by Washington that they have accepted
the application, and at that point we designate this ex-
aminer to commence his investigation on the scene.
We selected Senior National Bank Examiner Lawrence
W. Verno to make this particular investigation. He is
the Senior Examiner in the Hartford headquarters here.
Again, as normal, he got—he received the applica-
tion and supporting documentation several days in ad-
vance, and he had approximately eight days to make the
investigation in the field and to write his report and
return it to me. This is the normal procedure in this
case.
* : Who would your examiner normally talk to in the
1101
A Well, he starts out and reviews the various cri-
teria for the—for the merger investigation, and then
he goes down and tours through the market areas and
the service areas of the two banks involved. He will call
on competitor bankers and he will conduct what we call
man-in-the-street type interviews. He'll try to call on
some of the businesses and some of the local populations.
Q Did he in this case talk with bankers in the bank-
ing areas of the Bridgeport-New Haven area?
A Yes, he did.
[1799] Q Do you know whether or not there were
any protests or objections? .
MR. CLARK: Your Honor, at this point I would
like to raise objection. It is hearsay. If he is going
to get into this examination report, then I think it
should be made available to the parties and, if neces-
sary, put in the record. :
MR. McENERNEY: Your Honor, I will withdraw
the question. I merely asked the question because you
raised a point before our lunch break as to whether or
not there was any protest in this case. That is the
only reason why I asked him the question.
THE COURT: You can ask him, as the Regional
Administrator, has any formal protest been entered by
any other party; in his capacity as a Regional Admin-
istrator he should know. But what you have asked him
is if he knows if Mr. Verno heard any complaints.
There is a big difference.
But, if there is an official file which contains letters
of recommendation, objections, things like that—I assume
be is custodian of the documents in his office—
MR. McENERNEY: Yes, your Honor.
[1800] THE COURT: —and I assume that any other
banks that is interested would be heard one way or
another, would put things in writing, just as Mr.
Morris testified to this morning. I cannot picture the
bank administrators leaving-it to conversation.
MR. CLARK: Your Honor, the Government’s posi-
tion is, however, if this is to be brought out through
testimony, that it is not best evidence; hence, since
Mr. Donovan himself did not conduct any of the in-
Q I will ask you the on:
Has any formal protest filed in this case?
A were no formal protests filed.
{1801} MR. CLARK: Your Honor, may I now ask
that that report be made available?
THE COURT: Which report?
MR. CLARK: The investigative report, and, indeed,
the entire file from which Mr. Donovan is drawing his
conclusion that there were no protests. That should be
made available.
THE COURT: Hasn't the Examiner’s file been made
file.
MR. CLARK: All right. Is that your only question,
whether there were letters of protest?
MR. McENERNEY: That is all.
MR. CLARK: You are not asking him whether or
not Mr. Verno or anyone else—
MR. McENERNEY: I withdrew that.
MR. CLARK: So there is nothing in the record that
would show what the investigator’s report contains or
whether or not any bankers expressed [1802] any mis-
giving to him about this merger; is that correct?
MR. McENERNEY: That is right.
THE WITNESS: I believe we were following the
6
Q
A
Q Do you also investigate these?
A The same basic procedures are involved with a
branch investigation as with a merger investigation.
There are several differences:
the application and economic brief is filed directly
the regional office by the applicants, and 11803] it
regional office that reviews it for completeness.
normally are not as
3
S.
to do what we have been doing for three weeks, i
the assistance of five attorneys on one side, four on the
other, bank presidents, vice-presidents, et cetera, et cetera.
What is the reason for the eight-day limitation?
1104
recommendation must be returned to Washington within
fifteen days of our receipt of notification, so this is the
major reason why we generally allow the investigating
days and we try to process it in
the time limit, but we
within the time limit in this case.
MR. McENERNEY: I think the answer probably is,
your Honor, that we have made an effort, since Mr. Gib-
ney left the administration and prior to Mr. Saxon, where
four, five, six and up to eight and ten months would
drag out on a merger application, on a branch—when
are entitled to a more prompt decision. I think that
this time span we are speaking of is in line with that
[1805] THE COURT: Well, it does reflect economy,
but does it also reflect on accuracy?
I’m not saying it does, unless there’s something here
that escapes me. But a major merger of at least two
banks is investigated for eight days by one man seems to
me to be a relatively short time to back up with underly-
ing—with compilation of underlying facts any decision,
that’s the only thing that comes to mind. I just hadn’t
realized that.
In fact, even when I have had challenges, private chal-
lenges to bank branches, I didn’t know that those exam-
inations were only taking three days. But, anyway,
this will have-¢0 go to weight, it certainly doesn’t go to
admissibility.
MR. McENERNEY: I think in addition the merger
application form does tend to summarize and bring to a
head the economic factors involved and many of the
statistics, and I think that it is not as if we would go
1105
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1106
Connecticut under his jurisdiction. There are 68 sav-
ings banks under his jurisdiction, also. He also has juris-
diction over the savings and loans, of which there are
approximately 17, and then he has one private bank
and one industrial bank under his jurisdiction. These
figures are as of December 31st, 1971.
Q Are you familiar with a press release issued by
the Comptroller of the Currency on February the 19th,
1965, concerning the limitation of new banking facilities
in certain areas in Connecticut?
A Iam familiar with the press release, yes.
I show you Intervenor’s Exhibit No. 2 for Identi-
fication and ask you if that is the press release that I
have asked you about?
A That is correct. This is the February 19th, 1965
press release.
Q Can you give this Court the substance of this press
release?
A The Comptroller was announcing an action on a
charter [1808] application—two charter applications in
Houston, Texas, and at that point in time he also an-
nounced that a third charter for—application for Hou-
ston had been denied. The Comptroller, who at that
time was Mr. Saxon, went on to state that it had become
apparent that certain banking markets in the country
were considered by his office, the Comptroller’s office, to
be closed for entry for a time being, primarily to allow
the substantial number of new entrants in recent years to
digest what had transpired and to become profitable and
viable institutions.
Q Was any part of Connecticut included in that press
release?
A Included in the press release was a statement that
2 II banking markets in Connecticut were considered
Q Can you define the term major banking markets”
as used in this press release?
A As used in the press release and as interpreted
by the regional office, it was those major population towns
in Connecticut, such as Bridgeport—without limiting
1107
it to these but, Bridgeport, Hartford, Stamford, Nor-
Al New Haven, New London, Norwich, Waterbury.
There might have been one or two others there. I—
Q Do you know whether the policy as expressed in
this press release has been revoked or rescinded by the
replacement to [1809] Mr. Saxon, William Camp?
A The press release has never been rescinded by
either Mr. Saxon or Mr. Camp to this day.
Q Has the policy behind this press release been strict-
ly applied to new bank charters in Connecticut?
A Up until recently it was strictly applied, from the
date of the press release. However, within the last six
months, approval was given to a charter group in Stam-
ford, which was one of the major banking markets, to
establish a new national bank. The bank opened within
the last three or four months.
Q Were state banks at any time covered by this press
release?
A No, they were not. This spoke only to charter
applications to the Comptroller.
Q Now, although the press release refers to—pri-
marily to new bank charters, has this policy—do you feel
this policy has any application to de novo branches?
A It was applied by the regional office to applications
in the major de novo branch applications in the major
banking markets. |
Q And have you made a study of the de novo branch
applications in your—in the State of Connecticut? In
the major banking markets, since 19657
A I had an examiner in my office review the branch
11810] applications in the major markets that we had
received from the date of the press release through ap-
proximately July 31st, and other than those banks al-
ready doing business in those markets, no outside en-
trants, with one exception, were permitted to enter.
i om . And how many instances are we speaking of since
A I believe there were 28 applications for these ma-
jor bank markets.
THE COURT: [I’m sorry, I’m just not following some
of this. When you say that de novo branching was not
1108
allowed into markets already established, aren’t all mar-
kets already established in the State of Connecticut? I
mean regardless of what area you are talking about.
MR. McENERNEY: I think he meant by banks al-
ready in the market. I'll ask him.
THE COURT: What—are you calling markets
SMSA’s?
THE WITNESS: No, your Honor, I’m not being
that specific, but, for instance, if a Hartford bank wanted
to branch into Hartford, we would accept the applica-
tion. If outside entrant were to try to branch into Hart-
ford we were falling back on the policy that there had
to be a period of digestion in a major market.
{1811} THE COURT: What am I overlooking?
Wouldn't home office protection be involved here, anyway?
THE WITNESS: Well, Hartford was a bad example
Norwich, for instance, there was a period of time in
which Norwich was open and if a bank existing in Nor-
wich at that time had a branch in Norwich at that time
wanted to expand their market or make a branch ap-
plication in Norwich, we would entertain that.
But if an outside bank came into Norwich, we would
not entertain that application. 3
THE COURT: Well, then, the testimony, that I have
heard so far about Hartford banks spreading into Fair-
field and New Haven, do I understand from your point
of view that was all by mergers rather than by de novo
branching? Or maybe you don’t agree with the major
premise that the Hartford banks have penetrated the
Fairfield and New Haven markets in the last few years?
THE WITNESS: No, your Honor, I do agree that
they have penetrated. I know the entry into New Haven
was by merger. I’m trying to recall who picked up the
bank, and in Fairfield, in the Town of Fairfield it
was also by acquisition, that’s correct.
THE COURT: So that you agree with the [1812]
Comptroller’s brief, which reads—somewhere—that the
Comptroller is unwilling to look favorably upon de novo
branching in the State of Connecticut. — I better
read it to you exactly.
1109
MR. CLARK: Your Honor, I think we ought to
clarify that, in fact, Hartford National’s entry into Fair-
field was not by merger, but by de novo branching.
THE COURT: You know, I had thought that, but
figured at some time in the future I'll look that up.
On Page 24 the Intervenor states, quote: “Intervenor
believes that the Comptroller’s unwillingness to allow
significant de novo branch penetration by FNH into the
area of CNB,” and so forth and vice versa, you agree
with that?
THE WITNESS: Les, your Honor, I do.
THE COURT:. That is a policy of—
THE WITNESS: That is a policy, yes, sir.
BY MR. McENERNEY:
Q When a national bank files an application for per-
mission to establish a branch in an area where the bank
already operates, what are the important factors used
by your office in arriving at a recommendation?
A Well, there are several major considerations, and
they [1813] are—have various parts. These major con-
siderations are the condition of the bank, its management
capabilities, its earnings, future prospects, capital ade-
quacy, convenience and needs of the community and the
legality of the branch.
Some of these are then subdivided. For instance, in
the earnings area the question becomes how much of a
drain will this new branch have on the earnings, under
condition or capital adequacy, either one, how much is
going to be put into the fixed assets of the—of the new
proposed branch.
Some of them are considered and immediately set
aside. In the question you asked, if they’re already in
the area, then I presume it’s legal to branch there, so
that that is not a question. But it is something we look
at before we look at the rest of the application. And—
but primarily in the situation you describe where the
bank has already representation in the area and they
wish to expand that, then we look to see whether there
is sufficient available business to support that operation
if that branch was not able to attract new business. And
1110
we measure this from the population figures of the area,
the businesses around, the examiners go out and look to
see what business are located in that area, what the ap-
plicant projects as business he wil attract, whether those
are reasonable.
THE COURT: Will you hold up one moment?
[1814] (Answer read.)
THE COURT: We're talking about de novo branch-
ing, aren’t we?
MR. McENERNEY: Tes, your Honor.
THE COURT: I thought you just told me a few
minutes ago that the Comptroller did not favor de novo
branching, except if the bank already is established in
that general area?
MR. McENERNEY: Perhaps I should clear this up,
your Honor.
THE COURT: Yes. ;
MR. McENERNEY: It’s in the major banking mar-
kets, now, every city and every town —and Connecticut,
we do not allege is a major banking market, we're
thinking of the larger the communities—now, it may
well be that most of those are closed by—for de novo
branching purchases, but this is the way we have de-
fined these, and this is what this press release was meant
to cover.
THE COURT: Well, why would the Comptroller feel
that way, what’s behind that policy? In other words,
if there’s six banks in the City of New Haven, and
ores “T want to come into the New Haven area,
Y novo branching, and we're a new [1815}
— . that's healthy, that's good, why should six
banks have all the fat New Haven business, why could
the 3 look with a jaundiced eye at that pro-
MR. McENERNEY: Well, I think in New Haven,
your Honor, we have picked a bad town because it is
closed to de novo branching to a bank headquartered here
in Bridgeport, co that CNB could not get in there in any
OTHE COURT: Well, it eould get into Woodbridge,
1111
maybe, or—I‘m sorry, it could get into West Haven
is an open town.
MR. McENERNEY: It could get into East Haven
and some of the other small suburban towns, and we
towns in that county, [1816] in that county as well as a
likelihood of CNB further branching into those areas,
he has looked at New Haven County, and he has made a
similar study and he has also looked at Fairfield County
and made a similar study, and I think he’ll give you the
results.
It may be confusing, the term “major banking mar-
kets”. It is not intended to be a twist, but it is intended
to cover the large towns, not the smaller communities,
like Avon or some of these. ;
THE COURT: Well, the thing—
THE WITNESS: Your Honor—
THE COURT: Yes, go ahead.
THE WITNESS: —as I understood the question you
were asking—is: why did the Comptroller state that
BE
5
:
&
5
:
5
8
1112
the Comptroller will restrict big competition from going
in and picking on them.
THE COURT: Why wouldn’t that apply to mergers,
too? For example, if I am trying to protect nine new
entrants into the general Connecticut market, I'd be
less fearful if some little de novo branch opening up
than I would be of some big merging resulting banks
coming in and really doing a job on little, old new char-
tered bank.
THE WITNESS: Well, I would have to know who
the applicant of the de novo branch was, your Honor,
before I could really speak to that. But this is—be-
cause I think—I think the merger—or a merger is just
the branches in existence at that time would continue
in existence after the merger, and there one day and
they’re there the next.
THE COURT: One obvious answer, Mr. Donovan, is
—and if I am incorrect, you tell me—one obvious answer
is that you can protect a newly chartered bank more
by merger than de novo branching, because de novo
[1818] branching puts a new entrant into the market,
and a merger eliminates one, so if you are trying to
protect newly chartered banks, the merger—in places, in
certain markets, can eliminate a competitor, whereas
de novo branching adds one. I mean, is that what the
Comptroller has in mind?
THE WITNESS: Your Honor, that’s approximately
what I was trying to say, and that’s it basically, yes, sir.
THE COURT: What banks is he trying to protect, do
you know, what are the nine banks?
THE WITNESS: Well, at that time—and this was
in that period immediately prior there was the Lin-
coln National Bank of Stamford, Connecticut, the Orange
National Bank of Orange, which was chartered in 63,
the Westport National Bank, the North Haven National
Bank, the Hamden National Bank, Citizen’s National
Bank of Southington and the Constitution National Bank
of Hartford.
THE COURT: Proceed.
1118
BY MR. McENERNEY:
Q Does any single factor determine whether or not a
de novo branch application will be approved or not? Or
will be recommended, in your case?
[1819] A If you forget the legality question, which
we would not accept a—a—a branch application if the
applicant—if it was illegal for them—the applicant to
branch into that location, then the remaining factors
are—are accorded various weights based upon the facts
in the application itself, and in that particular appli-
cation. No one works as a black ball, it’s kind of a
weighing factor, and there’s no magic formula or tem-
plate that you lay down and check off.
Q How would you characterize each of the two banks
involved in this proposal in-terms of where their busi-
ness is from?
A The—I think the most apt description of the two
banks is that they are both local banks. The First New
Haven National has confined their activities exclusively
to New Haven and its immediate surrounding areas.
In the case of the Connecticut National of Bridgeport,
the large majority of their branches are in Bridgeport
and in remaining portions of Fairfield County. They
do have one branch up in New Milford in Litchfield
County, and they do have six or seven branches in New
Haven County on the extreme western border of New
Haven County, but they’re primarily head office town
oriented.
Q Do you feel that these two banks compete strong-
ly outside of the areas wherein they have branches?
[1820] A I do not feel that they’re significant com-
petitors in the balance of the State of Connecticut. I
think in their own particular areas, which would be
primarily the Bridgeport and New Haven areas, that
they are strong competitors. But they do not compete
in other parts of Connecticut, no.
Q Well, do you feel that they compete significantly
in the Orange-Milford-Darby-Ansonia area?
A It is my personal opinion that they do not. I
ink when one considers the relative size of the two
merging banks, that the business they have there versus
that are
A
And do you have an opinion as to whether or not
this would increase or decrease competition in this area?
A in the immediate area of—of the four
towns, that it would very definitely have a procompetitive
impact, as I understand the agreement, it will intro-
duce the two major Hartford banks into this immediate
area and—where they are not presently located, and I
believe the branch in Orange is to be sold to a proposed
Q Could you explain the importance of available
banking business in consideration of an application for
a de novo branch?
A Well, this is one of these—these weighing factors
that are weighed under the convenience and needs con-
sideration, and it also carries over into the—into the
earnings prospects, that—and it is measured by the
population, sales figures, what industries are located, pay-
roll that are there, the degree of scale. Because it is—
it is people and it is trade that generate bank deposits,
and you have to have that in order for the branch to be
successful. And the applicant must demonstrate that
he has a good chance of obtaining a portion of that
business that’s there.
Q Did you recommend approval of this proposed con-
solidation to the Comptroller?
A I did recommend approval of the proposed consoli-
dation, yes.
Q And could you tell us what your reasons were for
this recommendation?
1115
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Do you know in
are the greatest n ber of these nonbank towns?
A The majority of them are in the extreme northeast
corner, in Windham County, I believe, and in New
London County, which is more directly east, and Litch-
field County has a substantial number of them also, These
are all rural areas or large sections of them are devoted
to state or national forests.
Q In connection with your stury, did you examine the
[1825] towns in New Haven County where Connecticut
National presently has offices. |
A Ihave made a study of that, yes, of the New Haven
County towns that CNB is presently located.
Q Can you tell us what towns they are?
A Connecticut National is in seven towns in New
Haven County, Ansonia, Milford, Orange, Prospect, South-
bury, Waterbury and Wolcott. Of those seven towns,
1117
two are closed, Orange and Waterbury, so I did not even
at
MR. McENERNEY: These were made after.
THE COURT: After this case was started or before?
THE WITNESS: No, your Honor’s correct; these
studies were made in preparation of my testimony here,
after the application.
THE COURT: All right, go ahead.
A (Continuing) The Towns of Ansonia and Milford
I did not study any further than the fact that these
are the [1826] towns in which the branches were up
for sale, so I ignored those.
In the remaining towns—that is, Prospect, Southbury
and Wolcott—in all three they all presently have branches
there, and, if you introduced one additional bank entrant,
it would reduce the population per banking office sub-
stantially below the state average, which is a little over
5,600; I believe it’s about 5,630.
Furthermore, in the Town of Wolcott there is a state
charter application pending with the State Bank Com-
missioner.
Q In New Haven County, could you tell us what towns
First New Haven has offices in?
A First New Haven is located in ten towns in New
Haven County. These are Branford, Derby, East Haven,
Guilford, Hamden, New Haven, Orange, Wallingford,
West Haven and Milford.
Of these ten towns, three are closed. That’s Hamden,
New Haven and Orange. So I didn’t consider them any
further.
In the Towns of Branford, Guilford and Wallingford,
the additional—the addition of another entrant would re-
duce the population per banking office substantially below
the state average, and I think, again, that it would make
it [1827] more difficult for a new entrant to become
successful and to become a profitable and viable branch.
1118
Q How about in the Towns of East Haven and West
Haven? t 5
Connecticut National was denied applications in West
Haven in 1967; we denied Hamden National Bank for
branches in West Haven in 1966 and 1968; and in North
Haven we denied an application for—or—I’m sorry—
in East Haven we denied an application of the North
Haven National Bank in 1968.
Again, this goes to the balancing process, that we weigh
the—all these considerations, these seven or so considera-
tions, at the time the applications were made.
Q Can you tell us in which towns in New Haven
County neither Connecticut National nor First New
Haven have branches?
A There are twelve towns in New Haven County in
which [1828] neither applicant is located.
The Towns of Meriden, North Branford, North Haven,
Seymour and Woodbridge are closed, so I did not con-
sider those any further.
Beacon Falls and Bethany have no banking office within
their borders. They both have populations under 4,000.
They could probably support a branch office of someone.
I think it d take a little longer to make it profitable.
Q What do you think the likelihood in a town—
A But I don’t think they could support two, if you
argue that for these two banks to compete they both have
the point I was trying to make, Honor: that we
have to try to carry Water on shoulders. We—
besides just wr
rage
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opinion of the—or the common good of the populati
one consideration. You also must remember that most
becoming neutral [1832] competition, it actually could
be detrimental?
THE WITNESS: That is correct, your Honor, and
this is what the Comptroller meant in 65 when he said
“a period of digestion.”
Here we had opened nine banks, nine new charters, in
a three-year period prior to that press release, and they
had found that—first of all, new charters get what's
in the trade known as the reject business; they are
down some place else so they go to the new guy
: a problem with the
quality of their loans. They Y operate at a loss
for the first three to five years; I’ve seen some operate
5
f
i
BE
right after the press release we would have, or told
them “You are wasting your time.”
THE COURT: Are you in a position now to say as
a general rule now that the time out is about over, that
the banks that were the concern of the Comptroller back
in 1965 have been doi pretty well and are in a healthy
state here in Connecticut?
THE WITNESS: Well, taking a quick look at some
of these candidates—or some of these new charters, some
are not in operation any longer, and the others have
become profitable; and I think in all cases they finally re-
covered their initial capitalization, and they’re now earn-
ing money on a profitable basis. There are—there is
bank list, which is a bank in serious trouble. There
is a kind of touchy area for me, because I’m—it is
confidential.
11834] THE COURT: Of course, if you get into areas
where you exercise judgment and you are subject to hav-
ing your judgments explored in a court of law, but as
I look at the law, the courts should review these things
de novo, and to the extent your knowledge is helpful,
fine, to the extent you don’t want to put it forward on
~ grounds of confidentiality absent objection, that’s
e, too.
THE WITNESS: I definitely did not mean your
Honor. I just meant that I’m not used to talking in pub-
lie about this particular subject of condition, manage-
1122
rn
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11211 2
7 11511417
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1128
[1835]
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF CONNECTICUT
Civil Action No. 14,583
UNITED STATES OF AMERICA, PLAINTIFF
v8.
THE CONNECTICUT NATIONAL BANK and THE First NEw
HAVEN NATIONAL BANK, DEFENDANTS
and
WILLIAM B. CAMP, COMPTROLLER OF THE CURRENCY,
INTERVENOR
United States Court House
915 Lafayette Boulevard
Bridgeport, Connecticut
November 8th, 1972
Before:
Hon. ROBERT C. ZAMPANO; U.S. D. J.
[1886] Appearances:
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, New York
By: GEORGE D. REYCRAFT, Esq.
JOHN BOYER, Esq.
HAVEN ROOSEVELT, Esa.
1124
Messrs. PULLMAN, COMLEY, BRADLEY &
REEVES
oe Main Street
ridgeport, Connecticut
By: HUNTLEY STONE, Esq.
GROVE W. STODDARD, Esq.
Messrs. GUMBART, CORBINy TYLER & COOPER
205 Church Street
New Haven, Connecticut
By: RICHARD G. BELL, Esq.
UNITED STATES TREASURY DEPARTMENT
15th and Pennsylvania Avenue, N.W.
Washington, D.C.
By: CHARLES H. McENERNEY, IR., Trial At-
torney
FORD BARRETT, Trial Attorney
18371 THE COURT: Are the parties ready to pro-
ceed?
MR. REYCRAFT: Yes, your Honor. Mr. McEner-
ney and Mr. Clark have agreed that we can take a wit-
ness out of order, if that’s agreeable with your Honor.
THE COURT: Yes, it is,
Before we hear testimony, perhaps a statement of posi-
tions will be helpful to the Court as we go along. As
you know, we have used this technique throughout the
trial and it has been helpful to me. I do recognize that
your briefs cover all points in law and in fact, but here
is what’s on my mind—and perhaps we can get a state-
ment of position on it from counsel—the Clayton Act
is directed toward prohibition of mergers that tend to
substantially lessen competition, and although it is recog-
nized that there is no litmus test for this, some commen-
tators, and perhaps the Department of Justice, like to
approach it from an objective point of view and say, in
effect, that the more entrants in the market leads to pro-
competition which leads to lack of monopolies and leads
to benefits to the consumer.
On the other side of the scale is the law that says
even if there is less competition, but the convenience and
1125
needs of the community outweigh the [1838] adverse
effects of that lessened competition, then the courts may
take that into account and approve the merger.
Then one expert said that you can reach a point where
there’s neutral competiton, where the more entrants into
the market doesn’t necessarily mean that the consumer is
benefited proportionately.
For example, we have all driven down highways and
we have seen one gas station, and the gas price may be
42 cents a gallon, a month later another gas station goes
up next door, and it goes down to 41 cents, and maybe
this goes on till the price is 39 cents with five gas sta-
ten gas stations, and the price is still 39 cents; and
that thought came to mind and I asked if there was a
theory in economics on this, and I believe the expert
said: yes, they call that pure competition, or neutral
competition.
Now, we learned yesterday, I believe, from Mr: Dono-
van, that there’s still another dimension, and this is my
question: Whether this is another dimension or whether
it is encompassed within the general principles that I have
mentioned. And the question is this, that I have: Mr.
Donovan seemed [1889] to indicate that it is his duty,
representing the Comptroller’s office, to see to it that pro-
competition does not have adverse effects on banks. In
other words, in effect, he’s saying procompetition can have
adverse effects which the Court should take account of,
or saying it another way: that the rules should be wheth-
er a merger lessens competition adversely and not just
whether it lessens competition. And he went on to imply
that banks are subject to regulation, that’s what Con-
gress had in mind, and that it may be all right for the
big department stores to open up next door to each
other for a solid mile, and if the result is bankruptcy
for all of them, well, that’s the way business is. But
certainly not a theory that should be applied in bank-
ing because of the Congressional intent and the impor-
tance of banks in the general economy.
What I’m getting around to: is that a new dimension
to convenience and needs, or is that a principle encom-
1126
passed within the theory of convenience and needs; Have
I made myself clear?
MR. REYCRAFT: Yes, your Honor, very clear, very
clear.
MR. CLARK: Your Honor, I want to make several
[1840] points regarding the Department of Justice’s
or perfect competition—it is quite clear, and I think every
economist would agree, that there’s probably no banking
Doctor Peck, I think, referred to such markets as pro-
duce markets. Doctor Murphy also testified on this point,
sort of thing where there are many, many, many sellers
omy.
The test which the Supreme Court has established for
the measurement of the—of competition in a market is
concentration, and this is beyond dispute at this point,
there have been several cases in which [1841] the Su-
preme Court has set down standards of concentration
which then indicate the degree to which there is competi-
tion, or at least the degree to which the market struc
ture would foster competition, and it is the concentra-
tion ratio which the Supreme Court has told us that we
must be most concerned with.
Now, in this case, the concentration ratios, plaintiff con-
tends of how they’re computed, whether on a SMSA basis,
whether on a state basis, are so high that this merger
must have anticompetitive effects. Either on potential
competition basis in the local markets or on a statewide
basis, the concentration which is the factor which the
courts tell us we must be most concerned with is 80
1127
high that this is the inevitable result, and this is the legal
conclusi court.
T I appreciate your answer, and per-
haps I misled you in trying to seek what’s troubling me
for solution. What I'm saying is aside from the fact—
THE COURT: As there a principle in the cases or
in the legislative history of the Clayton Act that states
that the anticompetitive effect must be adverse before
there’s a violation of the Clayton Act, [1842] or is there
that even if the government proves a violation of the
Clayton Act, which parenthetically we don’t think they
can here, even if the Court finds there is a violation, the
Court can find that, nevertheless, the convenience and
mr id that can be done by the Court, yes, sir.
stores can :
to get out and compete and get all the business you can,
and we'll take our chances. In the case of a bank—if you
take, for example, a bank which has maybe 200 million
. dollars of assets, probably no more than 10% of that
1128
represents stockholders equity, the deposits are all owned
by individuals in the community who ha’ money
ve their
in that bank, so that if a bank fails, it is not just the
stockholders with their own money, they’re play-
ing with other people's money, and a lot of that money
went down the drain during the 1930’s, so Congress pass-
ed a number of laws, incl the Federal Deposit Insur-
ance Act, which provided for insurance for deposits, it
restricted entry.
Banking is unique in many respects, in that unlike
i
i
f
f
entries should be restricted so that banks aren't goi
to be put in a hazardous financial situation [1 844
that depositors’ money will be j
Now, that, we think, should be taken into account
the first side of the equation, that is: as to whether
F ee ee When
FCC someone is
a likely entrant or not, first nln diar J have the burden
stantial, C is one
thing to say in a horizontal merger case, that is: a
merger between two banks across the street, and
what the Philadelphia National case was about.
Gamble and Clorox case where Proctor and Gamble was
the most likely entrant in the household bleach business
—there is the General Foods, SOS case [1845] which is
a Court of Appeals case, but concentration ratios are—
that Mr. Clark is talking about, I’m sure what he is
referring to are what are largely the merger cases be-
the anticompetitive effects, then the merger may never-
theless be permitted.
The burden is on defendants; it is their burden to
prove that, and it is their burden also under the national
decision of the Supreme Court to prove that these bene-
fits to the convenience and needs cannot i i
a less anticompetitive way; that is,
only that there are benefi
not be achieved in any other
But I come to this issue of regulatory app
Plaintiff contends that the issue of
if in issue at all, does involve an
and needs. This is the intervenor’s
think, if he can show it at all—and we
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THE COURT: I am sure the answer to my question
11850] is in the transcript by now, and 1 will study it
as time goes on, but let me just turn the question around
to make sure:
Is the rule that the government must show a sub-
stantial lessening of competition, or is the rule that the
government must show a substantially adverse competi-
tive effect? In other words, are those two principles dif-
ferent?
But are you saying that the governm 's burden is
[1851] to show a substantially less competitive effect,
be it beneficial or adverse to the banking community? In
1132
other words, is the government’s burden merely to show
that as a result of a merger there is substantially less
competition in the market?
MR. CLARK: It is our burden to show that the ef-
fect may be substantial, yes, sir, your Honor.
THE COURT: May be substantially less?
MR. CLARK: Yes.
THE COURT: Is there an added factor that it must
also show that that effect is adverse?
MR. CLARK: No, your Honor.
THE COURT: What if a Court should find—and my
mind is completely open, but for the moment I want to
explore all the avenues—that there is less competition in
the market but it has a beneficial effect? Am I under the
principle of convenience and needs at that point, or have
I added a new dimension to the law?
MR. REYCRAFT: Your Honor, I would like to an-
swer at-a little length, if I may.
THE COURT: Yes.
MR. REYCRAFT: First of all, the statute [1852]
does say “substantially lessen competition,” and the courts
have said that this means a reasonable probability of
8 lessening of competition, not a mere possi-
ility.
So the government has the burden of proving that,
and they have to put some kind of evidence in that com-
petition has been significantly lessened.
One way of interpreting Mr. Clark’s remarks is “We
think it substantially lessens competition”; then maybe
sometime in the future something might happen that
would bring that about. That is not the law.
I think that under the first step that your Honor has
described, before you get to convenience and needs, all
of the competitive facts and effects should be taken into
account. If the proposed merger has a procompetitive
consequence in one area and maybe some anticompetitive
consequence in another area, I think that the Court not
only can but is required to take all of these into account
and say All right, on balance the government has not
shown a reasonable probability that the courts require,
1133
and I have taken into account both the pro and any ad-
verse effects”—and I think that [1853] the Court does not
cludes the law as to what a bank
tering a market. If it is a closed town—there is noth-
ing more objective than the fact that the State
ture prohibits entry into a particular town or that a reg-
ulator will not or has not allowed entry in a particular
town. Those are facts which we think should be taken
into account in the first step; that is, whether there i
an adverse effect on competition.
If the Court nevertheless finds that there is a—
stantially less competition” and “substantially adverse
less competition.”
I see a difference in those two things.
MR. REYCRAFT: That is not statutory language.
[1854] I tell you, that started being used in, I guess,
reports that were prepared by the Department of Justice
and the regulatory agencies after the Bank Merger Act
was passed in 1960.
There is no statutory language “substantially adverse.”
As a matter of fact, there are a number of different
kinds of phrases that are used by both the Department
of Justice and the regulatory agencies. At one time “sub-
stantially adverse” in the Department of Justice’s re-
port used to be the worst kind of report; more recently, as
I understand the code, “significantly adverse” is the
worst comment.
None of this has any statutory basis as far as the
language is concerned; nevertheless, people use that, ob-
viously, and “significantly adverse” and “substantially
adverse” tend to be equated with the Clayton Act test,
which I think is the way people have intended to inter-
pret it.
THE COURT: Let me ask it this way; I am sure this
1134
has all been answered, but I will ask you and Mr. Clark
and Mr. MeEnerney:
Is there any difference in your mind between the
phrases substantially less competition” and [1855] sub-
stantially adverse less competition”? Mr. Clark, is there
any difference between those two phrases legally or in
the case law?
MR. CLARK: Yes.
Legally, the test is that the effect—
THE COURT: I meant to say statutorily.
MR. CLARK: There is no reference to “adverse” in
the statute, and I do not think that it is found very often
in case law, either. The statute says the effect in any
life of commerce and in any section of the country.
So there is no weighing process found in the Clayton
Act.
THE COURT: Okay.
Mr. Reycraft, what do you say?
MR. REYCRAFT: I have always understood the
agencies which have used this language, which are Anti-
trust Division, the Comptroller’s office, the FDIC and the
Federal Reserve Board, when they say “substantially ad-
verse,” to mean the Clayton Act test. That is the way
I have understood it.
THE COURT: My first question is: Do you see a
difference? Is there a difference between the two phrases
that I have used?
[1856] MR. REYCRAFT: I think we might agree,
your Honor, as nonlawyers looking at the words, that
they could easily be understood to have a different mean-
ing. I think that they are not understood to have a dif-
ferent meaning by the agencies which use them.
THE COURT: Mr. McEnerney?
MR. McENERNEY: I do not see much difference
between them, your Honor; I really do not. The words in
the statute are “in any section of the country which may
be to substantially lessen competition,” and the word
“substantially” is used but there is no “adverse,” as has
been pointed out. I do not see too much difference.
THE COURT: All right. Then I have made more
THE COURT: Go f t he was. applying
T ; t was a a
[1857] different test, that not only must there be les-
sened competition but there must be adverse lessened com-
petition.
MR. REYCRAFT: Your Honor, I think there is a
third thing that we have not mentioned, and that is that
the first place, why Congress said there should be a
Comptroller of the Currency. His duty is to examine
banks; this is basically what they are, a bank examina-
tion [1858] agency. They examine banks to see whether
they have good loans or bad loans. They tell them, when
they classify certain loans as risky, “Get them off the
books; you need more capital; you can do that and do
that.” Their basic role, as Congress gave i
banks sound and healthy primarily because they
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1136
THE COURT: Wh
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