Motion — United States v. Connecticut Nat. Bank
Supreme Court brief1974
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IN THE DEC 11
Supreme Court of the United tates
OCTOBER TERM, 1973 _ || MICHAE RODAL
No. 73-767 -
Unitep States oF AMERICA,
v. Appellant,
THE Connecticut NationaL Bank, THE First New
Haven NationaL Bank, and James E. Sirs,
Comptroller of the Currency,
Appellees.
ON APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF CONNECTICUT
MOTION TO AFFIRM
Gerorce D. Reycrartr
JoHN Boyer
Haven C. Roosevett
One Wall Street
New York, New York 10005
Counsel for Appellees, The Con-
necticut National Bank and The
First New Haven National Bank
Ricuarp G. BELL
205 Church Street
New Haven, Connecticut 06509
Counsel for Appellee, The First
New Haven National Bank
CADWALADER, WICKERSHAM & TAFT
TyLer, Cooper, Grant, BowERMAN & KEEFE
PuLLMAN, CoMLEy, BrapLey & REEvEs
Of Counsel.
December, 1973
INDEX
Motion to Affirm
Restatement of the Question Presented
Restatement of the Case
Connecticut Banking Structure
The Parties
Argument
Potential Competition ...........................-.-
Section of the Country
Line of Commeree ..................-
4]
BERR aww n nk
Conclusion
Citations
Cases:
Brown Shoe Co. v. United States, 370 U.S. 294
(1962) 10, 28, 39, 40
F.T.C. v. Procter & Gamble Co., 386 U.S. 568 (1967)... 11, 12
United States v. Continental Can Co., 378 U.S. 441
(1964) 36
United States v. El Paso Gas Co., 376 U.S. 651 (1964) 13
United States v. Falstaff Brewing Co., 410 U.S. 526
(1973) 11, 12, 14, 16, 18
United States v. Pabst Brewing Co., 384 U.S. 546
(1966) ; 30, 31
United States v. Penn-Olin Co., 378 U.S. 158
(1964) 11, 12, 16
United States v. Philadelphia National Bank, 201
F. Supp. 348 (E.D. Pa. 1962) -............ 27
PAGE
United States v. Philadelphia National Bank, 374 U.S.
321 passim
United States v. Phillipsburg National Bank, 399 U.S.
350 (1970) passim
United States v. Von’s Grocery Co., 384 U.S. 270
- (1966) 30
Whitney National Bank v. Bank of New Orleans &
Trust Co., 323 F.2d 290 (D.C. Cir. 1963); rev’d on
procedural grounds, 379 U.S. 411 (1965) -................. 19
Statutes:
Bank Merger Act of 1966, 80 Stat. 7, as amended, 12
U.S.C. Section 1828(c) (7) (A) 11
Clayton Act, Section 7, 38 Stat. 731, as amended, 64
Stat. 1125, 15 U.S.C. 18 9, 12, 27, 31, 39, 43
Conn. Gen. Stat., Annotated, Section 36-59 0.0... 17
Federal Reserve Act, 44 Stat. 1228 (1927), as amended,
12 U.S.C. 36(e) (1) (1962) 17
Miscellaneous:
Annual Report of the Bank Commissioner of the State
of Connecticut, March 6, 1973 _.2222...2.e eee eee eee 7
38 Fed. Reg. 3118 19
Federal Deposit Insurance Corporation Summary of
Accounts and Deposits in all Commercial Banks,
New York FDIC District, June 29, 1968 .................... 37
Federal Deposit Insurance Corporation Summary of
Accounts and Deposits in all Commercial Banks,
Philadelphia FDIC District, June 29, 1968 ................ 37
Federal Deposit Insurance Corporation Summary of
Accounts and Deposits in all Mutual Savings Banks,
FDIC, June 29, 1968 37
Federal Reserve Board, Distribution of Bank Deposits
by Counties and Standard Metropolitan Areas,
December, 1960
Moody’s Bank & Finance, Supp., July 1973
IN THE
Supreme Cowt of the United States
OCTOBER TERM, 1973
No. 73-767
a
Unttep States oF AMERICA,
Appellant,
v.
Tue Connecticut NationaL Bank, THE First NEw
Haven Nationa Bank, and James E. Smits,
Comptroller of the Currency,
Appellees.
ON APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF CONNECTICUT
i
MOTION TO AFFIRM
Pursuant to Rule 16(c) of the Rules of this Court,
appellees, The Connecticut National Bank and The First
New Haven National Bank, move that the judgment of the
District Court, reported at 362 F. Supp. 240, be affirmed.
Restatement of the Question Presented
Whether plenary review is warranted in a potential com-
petition case when no grounds are presented for disturbing
the District Court’s findings of fact or conclusions drawn
therefrom.
Restatement of the Case
CONNECTICUT BANKING STRUCTURE
Banking in the State of Connecticut is highly competi-
tive. Rather than a trend toward concentration, Connecti-
cut is experiencing a significant increase in the number
of banking alternatives available to the public. The number
of Connecticut commercial banks at November 1972 (64)
was the same as at year-end 1963 (GX-90; DX-71, DX-72).*
Since November 1972 six new commercial banks have been
organized in Connecticut and there now are more com-
mercial banks in Connecticut than there were in 1963 (cf.
n. 7, J.S. 6). Connecticut residents who commute to New
York and medium and larger sized Connecticut business
customers have banking alternatives which include the
nation’s largest banks with offices in New York City and in
Westchester County adjacent to Connecticut. Six New
York City banks alone drew over $483 million in deposits
from Connecticut in over 23,000 accounts during 1972
(DX-60; J.S. 26a). Furthermore, by year-end 1975 most of
the 68 Connecticut savings banks and their 229 offices will
provide additional banking alternatives offering a full
range of services, including checking accounts, to Connec-
ticut retail customers (DX-52, p. 13, Table 5; DX-94).?
1. The abbreviations used herein are as follows: “GX” for appel-
lant’s exhibits; “DX” for appellee banks’ exhibits; “Tr.” for tran-
scripts of proceedings below; “J.S.” for appellant’s Jurisdictional
Statement; and “Marine J.S.” for appellant’s Jurisdictional State-
ment in United States v. Marine Bancorporation, Inc. et al., No.
73-38.
2. The new Connecticut legislation according savings banks power
to offer personal checking accounts provides that such power may
be exercised by savings banks in all towns except those of less than
25,000 population in which the head office of a commercial bank with
assets of less than $50 million is located. Even in these towns sav-
ings banks may offer nape checking accounts in‘the circumstances
described in Section 8(b) and (c), Public Act No. 73-195.
3
Connecticut savings banks now offer a full range of retail
banking services other than checking accounts, including
personal loans.
The number of commercial banking alternatives available
to those customers, such as small business enterprises and
individuals whose banking options are the most highly
localized, has increased dramatically from 1955 to 1971
(DX-4).
Of the 169 towns in Connecticut, there have been
increases in the number of commercial banking alternatives
since 1955 in 107. There has been no change in 60 towns
and there have been decreases in only two towns in the
period from 1955 to 1971 (Tr. 1525-6; DX-4). In 20 of the
23 Fairfield County towns where Connecticut National
Bank has most of its offices, there are more commercial
banking alternatives available today than there were in
1955 and in no town are there less alternatives than there
were in 1955 (Tr. 1524; DX-4). In 23 of the 27 New Haven
County towns where First New Haven National Bank has
all of its offices there are more commercial banking
alternatives today than there were in 1955, while in only
one, the City of New Haven, has there been a decrease
during the same period (Tr. 1524-5; DX-41).
The two largest banks in the state, Connecticut Bank
and Trust Company (“CBT”) and Hartford National Bank
and Trust Company (“Hartford National”), were the two
most likely entrants into the City of New Haven under
appellant’s theories during the period 1955-1971. If these
two banks had entered New Haven de novo rather than by
acquisitions (which were not opposed by appellant), there
would have been no decline in the number of commercial
banking alternatives in New Haven during that period.
The proposed merger will result in no change in banking
alternatives available in either New Haven or Bridgeport
(Tr. 1525).
Be Se LILO PLEIN OE Re Le Te eee FEE EIR
4
Among the 119 towns in Connecticut outside Fairfield and
New Haven Counties, there has been an increase in the
number of banking alternatives in 64 of such towns and a
decrease in only one, while in the 54 remaining towns no
change occurred from 1955 to 1971 (Tr. 1525; DX-4).
Appellant’s banking economist, Dr. Neil B. Murphy, agreed
that between 1955 and 1971 banking in Connecticut has
become more competitive.*
Until 1933, branch banking was not permitted in Con-
necticut. In that year, the Connecticut legislature author-
ized branching on a limited scale. Connecticut’s branching
laws prohibit any bank from branching into any town which
is the head office town of any other bank.
By 1969 the two far larger Hartford banks, CBT and
Hartford National, had begun to branch outside the Hart-
ford area‘ (J.S. 8a-9a). These two Hartford headquart-
ered banks dominate banking in the state. Together they
held 39% of the deposits held by commercial banks with
offices in Connecticut in 1970 (J.S. 42a). By year-end 1972
together they held 41.3% (DX-93) and have made nine
acquisitions since 1960 without opposition by appellant
(GX-72). Both are now statewide banks. With the excep-
tion of Union Trust Company, the state’s third largest com-
mercial bank, all other banks in Connecticut are still con-
fined to the same general areas where they were situated in
3. “The Court. Do you think between 1955 and 1971 despite the
decrease in the number of banks, . . . Connecticut as a whole has
become more competitive in banking?
A. Yes” (Tr. 406; J.S. 94a).
4. CBT and Hartford National had deposits at year-end 1969 of
$844 million and $838 million, respectively. Appellees, Connecticut
National and First New Haven, had deposits at the same date of
$336 million and $234 million. By year-end 1972, CBT and Hart-
ford National both had deposits over $1.3 billion, while Connecticut
National and First New Haven had $412 million and $272 million
(DX-69; GX-121, p. 12, GX-119, p. 6; DX-93).
5
the 1950’s. The resulting banking structure thus consists
of two dominant statewide banks based in Hartford, one
bank with offices from Greenwich on the New York border
to New London on the Rhode Island border in the southern
portion of the state and a number of smaller regional and
local banks. Only Hartford, among Connecticut's five lead-
ing cities, is the headquarters site of banks represented in
virtually all of the state’s leading business centers, includ-
ing Bridgeport, New Haven, Stamford and New London.
No bank from these towns has been able to enter Hartford
which is one of the most highly concentrated banking areas
in the country (Tr. 1292). Appellant’s enforcement policies
threaten to perpetuate that imbalance.
To the extent that there has been any increase in concen-
tration of deposits among Connecticut banks, or among
Connecticut commercial banks alone, since 1959, virtually
all of the increase is accounted for by the two dominant
Hartford banks and by two savings banks, all substantially
larger than appellees (DX-8; DX-9; DX-10; DX-13).
The combined share of all deposits in Connecticut com-
mercial banks held by CBT and Hartford National has
steadily increased from 34.5% in 1959 to 41.3% in 1972 (JS.
42a; DX-93). The share of such deposits held by the next
six largest commercial banks combined during the period
1959-1971 increased in some years and decreased in other
years, as one would expect in a competitive environment,
with a net increase of only 1.2% from 35.8% to 37.0% (DX-
13). In the ten years from 1961 to 1971, Hartford National
added $36.3 million to its capital accounts, while CBT added
$41.8 million. These increments alone are each substantially
larger than the total capital of either Connecticut National
or First New Haven (Tr. 928; DX-14; DX-15). In the one
year period September 30, 1971 to September 30, 1972, CBT
and Hartford National increased their total assets by $183
—
6
million and $196 million, respectively. Each of these
increases is almost equivalent to the total -assets of the
state’s tenth largest commercial bank, Second New Haven
Bank, which had $219 million at September 30, 1972 (DX-
76). The combined increases in assets gained in one year by
the two Hartford banks almost equal the total assets of
Connecticut National and exceed the total assets of First
New Haven (J.S. 9a). The combined additional deposits
obtained by the Hartford banks, CBT and Hartford
National, from December 31, 1969 to September 30, 1972
($745.3 million) exceeded the combined total deposits of
appellee banks at September 30, 1972 ($672.8 million) (J.S.
45a; Tr. 1526; DX-69).
_ For the one year ended December 31, 1972, the two Hart-
ford banks increased their combined deposits by about $580
million. Thus CBTincreased its share of deposits of com-
mercial banks headquartered in Connecticut from 19.1% in
1971 to 20.9% in 1972, while Hartford National increased its
share from 18.8% to 20.4%. During this same period,
Connecticut National’s share decreased from 6.5% to 6.2%,
while First New Haven declined from 4.7% to 41%
(DX-93).
Savings banks have traditionally accepted personal sav-
~ ings deposits and made loans secured by real property.
Connecticut savings banks have important additional
powers which savings banks in other states do not have (Tr.
1007). Connecticut savings banks are empowered to make
personal loans up to $5,000 repayable in monthly install-
ments. Savings banks may lend up to 8% of their total
assets in personal loans (Tr. 147, 212, 730). At September
30, 1972 total assets of Connecticut savings banks were
about $7.2 billion. Accordingly, at that date about $576
million were available at Connecticut savings banks for
personal loans (Tr. 730). Appellant's banking expert
eS
7
agreed that mutual savings banks in Connecticut are a rea-
sonable substitute for commercial banks for borrowers
seeking personal loans for a wide variety of purposes up to
$5,000 (Tr. 214).
Unlike most other states, savings banks in Connecticut
have more deposits than the commercial banks. As of year-
end 1971 savings banks had $6.1 billion in deposits, while
commercial banks accounted for $5.7 billion (DX-62; GX-
70).5
By December 31, 1975, savings banks in Connecticut will
have the power to accept demand deposits in non-interest
bearing personal checking accounts, and it is likely that
savings banks will seek legislation enabling them to offer
an even greater range of services (J.S. 17a-18a; Tr. 1648,
1764). .
THE PARTIES
First New Haven National Bank had $272.4 million in
deposits at year-end 1972, ranking thirteenth among all
banks headquartered in Connecticut and eighth among com-
mercial banks (J.S. 3a-4a).°
5. As*shown in DX-63, the percentage share of total savings
held by Connecticut savings and commercial banks fluctuated during
the five years prior to trial as follows:
Year-end as Banks
OP sik cas cennveraesxts 58.9 22.2
ee $82 . 232
"ee 59.2 22.2
WUD: ss crarscacstenveian 59.0 22.5
NE scicsasacunasconen 59.7 218
6 hanrtng ye Ge Aunt Deed a i Se er
of the State of Connecticut, March 6, 1973, pp. 108-109, there were
five savings banks with total deposits at December 31, 1972 larger
than First New Haven and two savings banks with deposits larger
than Connecticut National. Thus, the actual rankings of First New
Haven and Connecticut National at year-end 1972 were thirteenth
and sixth among all Connecticut banks.
—
First New Haven ranked fourth in deposits with $266 |
million at year-end 1971 among commercial banks with
offices competing in the City of New Haven behind Hartford
National ($1.1 billion), CBT ($1.1 billion) and Union Trust
Company ($530 million) (J.S. 48a; GX-70). Two savings
banks in New Haven also exceeded it in size. It thus
ranked sixth among all banks which have offices in New
Haven. At year-end 1971 there were nine commercial banks
and six savings banks headquartered in Connecticut with
total deposits over $200 million (GX-70; DX-52, p. 15).
First New Haven operates 22 offices, all in New Haven
County (J.S. 4a).
Connecticut National, with $412.2 million in deposits at
year-end 1972, ranked sixth among all banks headquartered
in Connecticut and fourth among commercial banks (J.S.
3a).? Connecticut National operates 51 offices of which 41
are located in Fairfield County adjoining Westchester
County in New York (J.S. 3a).
At year-end 1971, Connecticut National, with $375 million
in deposits, was the third largest of the Connecticut-head-
quartered commercial banks competing through offices
located in Bridgeport, and the fifth largest in Fairfield
County, ranking behind CBT and State National Bank of
Connecticut ($380 million) in Bridgeport and Hartford
National and Union Trust Company in Fairfield County
(GX-70; GX-72). In Bridgeport, People’s Savings Bank
had 1971 deposits of $721 million, nearly twice the size of
Connecticut National’s 1971 deposits (DX-52, p. 15; GX-70).
Connecticut National faces substantial competition from
many of the largest banks in the Nation located in New
York and Westchester County (J.S. 25a, 41a-42a).
The merging banks’ combined share of total deposits of
Connecticut-headquartered banks has decreased from 6.8%
7. See note 6, supra.
9
in 1959 to 5.9% in 1970 (DX-9), while their share of total
deposits held by Connecticut commercial banks decreased
during the same period from 13.8% to 11.6% and decreased
further by year-end 1972 to 10.3% (DX-17; DX-93). The
combined banks’ share of deposits held at year-end 1971
by Connecticut-headquartered commercial banks amounted
to 9.68%, when reduced by the deposits derived from Con-
necticut by only six New York City and four Boston-head-
quartered banks* and by the deposits in the offices of the
merging banks to be divested as required by the order of
the court below (J.S. 104a-105a). Applying the same reduc-
tion factors to reflect the proven banking business origi-
nated in Connecticut by the six New York and four Bos-
ton banks, the combined shares of commercial bank deposits
held by appellees would be approximately 8.8% and approx-
imately half that with respect to all Connecticut bank
deposits, including savings banks.
ARGUMENT
Appellant asserts that the questions presented here are
whether Section 7 of the Clayton Act (15 U.S.C. 18) has
been violated “by eliminating the two banks as significant
potential entrants into each other’s markets in Bridgeport
and New Haven and into other local banking markets in
Connecticut” and “by stimulating other mergers and by in-
tensifying the trend toward banking concentration in the
state as a whole” (J.S. 2). The question whether the two
banks are “significant potential entrants into each other’s
8. The Connecticut deposits of the six New York City and four
Boston banks reflected in the Report of the S Master (DX-60)
are well under the totals a 7S derived rom the state, as that
Report establishes. The competi ye these banks which
have aggregate assets well in me aa billion, over thirteen times
_ the total assets of all commercial banks in Connecticut, is self-
evident.
10
markets” is, of course, a question of fact which was deter-
mined by the District Court adversely to appellant. Appel-
lant’s proof on the subject was limited to (a) charts showing
de novo branching and merging histories of appellees and
other commercial banks in Connecticut, (b) evidence that
certain standard metropolitan statistical areas (“SMSA’s”)
in Connecticut have enjoyed good overall economic growth
(although a number of central cities including Bridgeport
and New Haven were stagnant or worse),® and (c) testi-
mony of an expert witness regarding the criteria used by
economists to rank the significance of potential entrants,
and the application of such criteria to this case.
The question whether the banks’ “markets in Bridgeport
and New Haven” were correctly determined by the District
Court when it rejected appellant’s contention that the nine
SMSA’s in Connecticut were ipso facto banking markets, in
conformity with this Court’s similar rejection in United
States v. Philadelphia National Bank, 374 U.S. 321 (1963),
United States v. Phillipsburg National Bank, 399 US. 350
(1970), and Brown Shoe Co. v. United States, 370 U.S. 294
(1962), is also a question of fact determined adversely to
appellant whose evidence was limited on this issue to testi-
mony as to how SMSA’s are constructed by the Office of
Management and Budget.
Appellant’s contention that the merging banks were sig-
nificant potential competitors in “other local banking
markets in Connecticut” is also an issue susceptible to
proof by testimonial or documentary evidence. Appellant’s
failure of proof on this issue was virtually total. Appellees,
9 Bridgeport’s population declined from 1960-1970, while total -
employment increased only 3.4% in contrast to the state as a whole
which realized ulation growth of 19.6% and an increase in total
employment of P38. New Haven’s population declined 9.4% and
total employment 9.5%. Manufacturing employment decreased
25.3% from 1963-1967 (DX-28; DX-29; Tr. 1262, 1272-3).
il
on the other hand, introduced a detailed objective study
of the structure of potential competition in the state pre-
pared under the direction of Dr. Merton J. Peck, Chairman
of the Economics Department of Yale University, which
concluded that the merger would not adversely affect
potential competition. The District Court accepted
Dr. Peck’s study and testimony and rejected appellant’s
fragmentary proof (J.S. 28a). Appellant is asking this
Court to make new findings of fact on each of these issues
based largely on rhetoric.
Finally, appellant’s characterization of the issues pre-
sented argues that this merger will stimulate other mergers
and increase concentration in the state when the record
establishes, and the District Court found, that the only
significant increase in concentration resulted from growth
by the two large Hartford banks which appellant has per-
mitted to make nine acquisitions since 1960. Appellees’
share of the state banking market has decreased.
The appellant’s unique statutory authority, 12 U.S.C.
1828(c)(7)(A), to obtain an automatic preliminary injune-
tion makes virtually certain that no anticompetitive merger
can be consummated without appellant’s acquiescence
(J.S. 101a).
Contrary to appellant’s argument, this case does not
present “important legal issues . . . involving bank mergers
that eliminate potential competition in commercial bank-
ing” (J.S. 12). The District Court correctly analyzed and
followed this Court’s decisions in United States v. Falstaff
Brewing Corp., 410 U.S. 526 (1973), United States v. Penn-
Olin Co., 378 U.S. 158 (1964) and F.T.C. v. Procter &
Gamble Co., 386 U.S. 568 (1967). The District Court agreed
that “The concept of potential competition is, of course,
a valid one” (J.S. 98a). In applying this Court’s decisions
12
the District Court simply found that appellant’s evidence
did not support its theories.
Affirmance of the District Court’s decision will not have
any significant adverse impact on the Antitrust Division’s
ability to enforce the antitrust laws. This Court’s deci-
sions in Falstaff, Penn-Olin and Procter € Gamble have
established the opportunity of the Department of Justice
to prove that the elimination of potential competition may
have the effects proscribed by Section 7 of the Clayton Act.
Successful utilization of this opportunity, however, requires
evidence which appellant, despite diligent efforts, was
unable to adduce.
The issues in this case are not “closely related to those
in United States v. Marine Bancorporation, Inc., et al.,
No. 73-38, in which the Court noted probable jurisdiction
on October 15, 1973” (J.S. 12, 13). As appellant admits,
this case presents “a different factual context” (J.S. 13).
In the Marine case, according to appellant’s Jurisdictional
Statement, the acquisition being challenged is by “the
second largest banking organization” in the state with
“total deposits of $1.6 billion (22.8 percent of total deposits
held by Washington commercial banks) . . .” (Marine
J.S. 7). Here the larger of the two banks ranks fourth
with deposits of $412.2 million, representing, even accord-
ing to appellant, only “6.2 percent of deposits of commer-
cial banks in Connecticut” (J.S. 7-8).
In the State of Washington no other competing system
of financial institutions will offer a full range of retail
banking services within the next two years.
In the Marine case the size of the smaller bank “had
increased by 50 percent” in the “five years preceding this
merger” (Marine J.S. 6). First New Haven’s size has
changed only from $222 million to $272 million in the past
five years and its share of deposits held by Connecticut-
_—
13
based commercial banks decreased from 5.5% in 1966 to
4.1% in 1972.'°
In Marine the District Judge announced his decision
from the bench after trial and “adopted, without change,
the defendant’s proposed findings of fact and conclusions
of law” (Marine J.S. 10). This Court has had occasion
to note that “mechanically adopted” findings “. . . do not
reveal the discerning line for decision of the basic issue
in the case.” United States v. El Paso Gas Co., 376 U.S.
651, 657 (1964).
In conformity with that view, Judge Zampano in Con-
necticut requested proposed findings of fact from all
parties and issued carefully detailed findings six months
after the trial which are clearly the product of careful
judicial deliberation and can in no way be characterized as
the wholesale adoption of findings proposed by either side.
Appellant contends that in the State of Washington “the
sponsored bank procedure has become an. established
method by which national banks enter new markets in
Washington” (Marine J.S. 9).
In the State of Connecticut no such entry has ever
occurred or been attempted.
Appellant contends in Marine that The National Bank
of Commerce (NBC) could have entered Spokane by
“acquisition of a smaller ‘foothold’ bank.” There is no
“foothold” or even “toehold” bank in the City of New
Haven to be acquired by Connecticut National. First New
Haven, with decreased earnings and continued losses on
nine of its branches, is in no position to acquire The
Lafayette Bank & Trust Co. in Bridgeport. James Staples
& Co. a private banker in Bridgeport with deposits of
$2.1 million (GX-65), would not even be a “toenailhold”
means of entry into Bridgeport.
10. Computed from GX-120, p. 12 and DX-12; DX-93.
—.
14
NBC does not compete with two banks over three times
larger throughout its service area as do both Connecticut
National and First New Haven.
In the Marine case, “The experts on both sides agreed
that Spokane is growing” (Marine J.S.17). Both Bridge-
port and New Haven have experienced declining business
and residential population (J.S. 34a-35a).
In the Marine case there was “objective evidence which
established that NBC was perceived by other banks in
Spokane as a potential competitor and as such exerted a
‘beneficial influence on competitive conditions in that mar-
ket’” (Marine J.S. 19). NBC also had a “longstanding
and conceded” interest in entering Spokane (Marine J.S.
17). NBC was “one of only two institutions capable of
entering Spokane de novo or by foothold acquisition”
(Marine J.S. 21).
There was no such “objective evidence” in this ease. The
evidence presented was to the contrary. In Connecticut
there would remain four commercial banks capable of enter-
ing New Haven and five capable of entering Bridgeport by
appellant’s standards (J.S. 33a, 35a). Appellant was not
unaware of the importance of such evidence (See Falstaff,
supra). The reason that appellant could not obtain such
“objective evidence” in this case, despite ample opportunity
to do so, is because the evidence did not exist.
The record in the Marine case showed “that the highly
concentrated Spokane market was marked by interdepend-
ent behavior in an atmosphere of friendly cooperation
rather than vigorous price and service competition” and
that there were “specific instances of cooperation between
competitors in such matters as rates and service charges
...”, as well as other specific evidence of anticompetitive
behavior (Marine J.S. 20). Again no such evidence was
introduced in this case because appellant could not obtain it.
15
Thus the reasons which led this Court to note probable
jurisdiction in the Marine case simply are not present here.
Summary affirmance of the District Court’s decision here
is, in appellees’ view, clearly appropriate.
POTENTIAL COMPETITION
Appellant failed in its burden to establish that appellees
were reasonably likely to become engaged in substantial
competition in the future or that the loss of either bank as
a potential entrant into other areas of Connecticut has any
actual or perceived impact on the market place. Appellant
did not even attempt to show that either defendant pres-
ently projects a significant competitive influence from the
fringe of the areas presently served through the threat of
entry—actual or perceived. Appellant’s entire proof on the
“wings effect” consisted of two paragraphs stating the
theory, with no application to the facts of this case."
The first two elements of the appellant’s case, the banks’
expansion history since 1955 and the record of economic
growth in Connecticut, are at least as probative of the
opposite conclusion as of the proposition that Connecticut
ll. “Q.... is there another beneficial effect which is related to
potential competition? A. Yes. In general, we think in terms of
a—if a concentrated market exists with a strong potential competitor
capable of entering, that in these cases the participants in the con-
centrated markets may find it to their advantage not to exercise
their market power. That is, the threat of an entrant in the so-called
—in the wings, the wings effect, could conceivably affect their
behavior in such a way that they may have—[the] outcome sane,
be more like a less concentrated market.
Q. You are saying that the mere existence of this potential com-
— has some effect? A. Yes, it could have some effect. Right”
(Tr. 207).
See - Tr. 556-557:
. a competitor in the wings will tend to have a desirable
aa within a market area, within some market area, if it’s
not presently operating there.”
16
National and First New Haven are likely to become sub-
stantial competitors in the future. Neither bank has
entered the other’s home office town nor have they entered
“other local banking markets in Connecticut” in competi-
tion with each other ouside the New Haven and Bridgeport
areas.
Appellant offered no evidence to support the view that
either bank has been “waiting anxiously to enter an oligop-
olistic market”, Penn-Olin, supra, 378 U.S. at 174, or that
either defendant “was so positioned on the edge of the mar-
ket that it exerted beneficial influence on competitive condi-
tions in that market.” Falstaff, supra, 410 U.S. at 532-33.
If remand were ordered by this Court to reassess the con-
clusions regarding potential competition reached by the
District Court, as requested by appellant, there is no fac-
tual basis in the record to decide in favor of appellant on
either question. The District Court would be at a loss to
reassess the supposed evidence of influence exerted on “the
edge” of the market, since there is no evidence to reassess.
In fact, as the District Court found, a closer analysis of
appellee banks’ expansion history reveals strong objective
evidence motivating against significant future de novo
branch expansion. Connecticut National opened 15 de
novo branches from 1961 to 1965. In the next five years
the bank opened only five offices and the profitability of the
bank in terms of return on investment increased by 30%
(J.S. 46a). This objective evidence counsels against the
statewide branching program in which appellant would
have appellees engage. Moreover, this five-year branch
expansion rate was the lowest among the nine largest
Connecticut commercial banks (J.S. 46a). —
Uncontroverted is the evidence that First New Haven
opened nine de novo offices since 1963, of which five are in
the City of New Haven (@X-73); that in 1971 nine of the
17
bank’s twenty-two offices were still showing operating losses
aggregating $535,000 per year (J.S. 51a); and that the
average cost of a new branch office has steadily risen over
the past decade to about $300,000 today (J.S. 47a, 51a).
The evidence is clear (J.S. 46a) that attractive branching
sites have become fewer and that the ratio of population to
existing banking offices is not sufficient in the towns in ques-
tion to support viable new branches.
First New Haven’s net income for the six months ended
June 30, 1973 ($1,108,793) decreased more than 14% from
the comparable period in 1972 ($1,300,549). The banks’
capacity and motivation to embark on important new
branching programs were examined in depth at the trial,
and, in objective terms, the District Court found appellant’s
theories were unsubstantiated (J.S. 46a-5la). These find-
ings are not clearly erroneous.
The banks are not free of their own will to expand geo-
graphically into areas served by other banks. No de novo
branch may be opened by either defendant (outside its own
head office city) in any city or town in which another com-
mercial bank is headquartered.’* Such towns, including all
the major urban centers of the state, are “closed” by law to
de novo branching. Appellant argues, nevertheless, that a
less anticompetitive (“toehold”) entry into such towns can
be gained by a resourceful bank by one of two alternative
means: (a) by merging with an existing small bank in the
closed town, or (b) by forming a holding company, causing
it to charter a new bank and affiliating with it.
In New Haven no such toehold exists or was shown to be
likely to exist. In Bridgeport the mere existence of The
12. Moody's Bank & Finance, Supp., July 20, 1973, at 1602. This
decrease is not surprising in view of the entry of the state’s largest
two banks into New Haven in competition with First New Haven.
13. Conn. Gen. Stat. Section 36-59, as amended; 12 U.S.C.
Section 36(c) (1).
18
Lafayette Bank & Trust Co., a $50 million institution, and
James Staples & Co., a private banker, does not lead to the
conclusion that they provide likely means of alternative
entry into Bridgeport for First New Haven. As the Dis-
trict Court found (J.S. 34a), where only two or three pos-
sible sellers exist as a means of entry, the premium that a
selling bank can extract tends to discourage merger (Tr.
1261). Moreover, First New Haven is fighting to retain its
business in New Haven against the state’s three largest
banks, two of which are over five times its size. Its stated
intentions not to enter Bridgeport are highly credible in
view of this threat to its primary service area and in view
of its unimpressive growth and profit rates in the past three
years. It is simply in no position to pay a premium to
enter Bridgeport and Fairfield County where it would
encounter the state’s five largest banks as competitors.
The court below recognized that testimony of the banks’
officers on this subject was “certainly not the last word .. .”
(see Falstaff, supra), but went on to note that “no reason
has been advanced for doubting their credibility” (J.S.
99a).
In evaluating the market impact of chartering a new
bank in a closed town by an existing bank, and how
such a hypothetical event is “perceived” by those in the
market, it is significant that no bank in Connecticut has
ever attempted it. The District Court found that the State
of Connecticut does not permit the chartering of a new
bank for the purpose of sale to a holding company (J.S.
57a). Between 1962 and October, 1972, 32 applications
were filed for new state charters, of which 17 were
approved, 10 disapproved and no action taken on the bal-
ance (DX-71).'*
14. The new bank chartered in Bridgeport after trial, referred
to in note 43 (J.S. 28) by appellant is subject to the proscription
in the Connecticut State Banking Department’s new charter appli-
cation (DX-7) that:
19
None of these newly chartered banks was organized by
a holding company. The Comptroller approved only three
of the 25 applications for new charters in Connecticut filed
from 1963 to the date of trial (DX-72 ; 1674-1677). Two of the
three were actually “interim” (or “phantom”) banks formed
by United Bank and Trust Co., a Hartford based bank, and
CBT to facilitate acquisitions of existing banks.'5 The only
new operating national bank was chartered in 1972 in Stam-
ford with initial capital of $2 million. On July 24, 1973,
after the trial, the Comptroller gave preliminary approval
to a new charter in the town of Fairfield, requiring initial
paid-in-capital of $2.5 million, the same amount required
by the State Banking Department for the new charter
approved in Trumbull after trial. Of four other state appli-
cations made in 1973, three are pending and one has been
disapproved in Windsor Locks.’®
Out of over 60 new charter applications filed and 20
approved in the past ten years by state and federal bank-
ing agencies, none has been by existing banks or holding
companies to gain new entry. The state, moreover, has
made it clear that it will not permit any new bank to be
formed for the purpose of sale to an existing banking
organization (Tr. 2156) and no bank in Connecticut has
attempted to use this route as a means of entry into
“closed” towns.’”
“This proposed bank is not to be organized for the purpose
of selling to, merging or consolidating with state bank
and trust company or national bank now in-eomence.”
15. See, e.g., 38 Fed. Reg. 3118 (Feb. 1, 1973).
16. The three applications pending are in the Towns of Clinton,
Hartford and New Milford. Towns newly closed to de novo
branching by approvals of new charters since November 1972
or er ic Monroe, Fairfield, Shelton and Ridgefield. Cf.
n. S. 6).
.17. Legal barriers were cited by one witness as the reason. (Tr.
1695) Cf. Whitney National Bank v. Bank of New Orleans &
Trust Co., 323 F. 2d 290 (D.C. Cir. 1963), rev’d on procedural
grounds, 379 U.S. 411 (1965).
20
>
All of these obstacles apply even if a bank should deter-
mine that the substantial capital costs involved in these
modes of entry will be incurred to the exclusion of other
competing demands for capital investment in the bank’s
operation that are predictably more profitable.
These legal, regulatory and financial obstacles are high
“barriers to entry” and the higher the barriers, the less
significant is the influence of potential entry on the behavior
of competitors already in an area protected by the barriers.
Put simply, the competitors already present in a “closed”
city, such as New Haven, do not take seriously the prospect
that a Bridgeport bank will somehow climb the barriers,
since there are no small, “toehold” banks headquartered in
New Haven and the de novo charter route has never been’
attempted in Connecticut and would require the organizers
to make false statements if they were organizing a state
bank (J.S. 56a).
Similarly, with respect to those towns which are “open”
to de novo branching in Connecticut, entry must be ~~
approved by bank regulatory officials who apply objective
standards based on population and income. Testimony by
the Regional Administrator of National Banks established
that a number of public interest criteria are taken into
account in the Comptroller’s determination whether to
approve or disapprove a new branch. One of the principal
standards in this process is the capacity of a particular
community to support an additional banking facility; in
short—the need for a new branch (J.S. 37a-40a).
Just as most “closed” towns in Connecticut consist of
major population centers or medium-sized cities where the
head office of a commercial bank is located, most “open”
* towns consist of suburban or rural areas without high den-
sities of population. Thus, of Connecticut’s 128 “open”
towns, 41 had no commercial bank offices in 1972. These
z
cd
,
’
a
af
=< ee eee 5 x r ae ita RESP sas
=
21
towns average 2,600 in population, a level which experience
shows has not attracted any of the state’s 64 commercial
banks even to seek entry, whether or not the Comptroller,
or the State Bank Commissioner and the FDIC would
approve the application. In contrast the average popula-
tion per branch office in all “open” towns with one or more
commercial bank offices was 5,633 in 1972 (JS. 37a).
Clearly, an application to enter any town by de novo
branching in circumstances where the addition of one office
would result in a ratio of population per banking office
significantly below the state average presents a formidable
burden on-the applicant to establish need and to convince
the regulator that the community has the capacity to sup-
port the additional facility (J.S. 37a).
The District Court found that the addition of a single
office in many of the “open” towns where one or the other
of the appellee banks maintains an office would reduce the
population per banking office to a point significantly below
the state average (J.S. 38a-39a). In those “open” towns
where neither of appellee banks is represented, it would, of
course, require appreval of de novo branches of both banks
before any future competition would develop. The addition
of two new branches in many more of these “open” towns
_ would not only reduce the population per branching office
" below the state average, but even below the 2,600 threshold
level at which, on average, no bank has been attracted to
enter. Lack of economic opportunity in such case (the
expectancy of a low level of return on invested capital) can
thus be deemed either a barrier to entry or simply a lack of
inducement to enter.
In either event, it was not the appellee banks’ burden to
show that it is probable they would not enter such open.
towns, but rather the appellant’s burden to show that it is
reasonably likely that the legal, regulatory and economic
= on CERT OS
22
inhibitions to entry in the open towns would likely be sur-
mounted by both appellee banks. The appellant did not
carry that burden and offered no objective evidence on the
subject.
Even if entry into some of these open towns by both of
the appellee banks seemed to be a possibility, contrary to the
evidence, the question remains whether that possibility can
have any competitive impact in light of the number, size and
location of other banks which are, by objective criteria,
more likely entrants into a given area.
Taus, if it can be shown that in ten years time, given
projected population growth, a town could arguably support
two more branch offices, the removal of one of the merging
banks .as a potential entrant cannot have any discernible
effect on competition if there are in fact at least three more
likely entrants ranked by size and geographic proximity.
To test this hypothesis, Dr. Peck prepared tables (DX-27)
for all 165 “open” and “closed” towns in Connecticut
(affected by the consolidation as areas of potential entry)**
ranking appellees according to deposit size and geographic
proximity to the town in question among the ten leading
potential entrants.”®
18. See n. 14 (J.S. 29a).
19. Dr. Peck testified that his analysis of potential competition
took into account five of the six objective factors listed in appel-
lant’s answer to Defendants’ Interrogatory 18, namely size, financial
resources, demonstrated willingness to expand by de novo branching
and/or merger with smaller banks, incentive to enter indicated by
significant economic growth of the markets involved and geographic
a. He testified that he did not take into account the sixth
actor, “economic similarity of the markets”, since he “wasn’t sure
exactly what this element was or how it would be quantified” (Tr.
1236). A high degree of rank correlation was found among the first
three factors of size, financial resources and demonstrated willing-
ness to (Tr. 1233-1237). Ample factual basis was found
by the District Court ‘to support the opinion of the banks’ expert
witness that the town is the appropriate unit.of analysis of poten-
23
Dr. Peck’s study was based on the fact that branching
laws in Connecticut are written around towns, rather than
some other unit, and result in towns being either “open” or
“closed”, and on the recognized fact that convenience plays
a major role in the banking industry.” The starting point
for assessing the effect of a bank consolidation on poten-
tial competition accordingly is the smallest geographic unit
to which legal barriers to entry attach. This analysis
demonstrated that the proposed consolidation does not
eliminate the most likely entrant, ranked by size, into any
“open” town in Connecticut (J.S. 30a) and that generally,
ranked by both criteria of size and proximity, the bank
affected by the consolidation does not even rank among the
top ten most likely entrants (J.S. 31a).
‘The District Court found that in no case would there be
less than four firms identified by appellant as having state-
wide capabilities left as potential entrants. In those few
towns where either merging bank ranks among the top
‘ten potential entrants, the District Court found that, even
in terms of projected 1980 population, there is no prospect
that these towns could support more entrants than the
number of banks ranking ahead of appellee banks by size
and proximity (J.S. 38a-40a).
In summary, appellant’s burden of proof to show some
likelihood of potential competition between appellant banks
throughout the state cannot be carried merely by showing
that certain towns or metropolitan areas in Connecticut are
enjoying good economic growth. A burgeoning town of
30,000 may well be “overbanked” from the vantage point
~ 20. “A banker in Woodbridge, for example, would not be con-
cerned with a new entrant into Guilford, even though the two towns
are in the same SMSA. The reason is simple; the driving time
between the two towns is over 45 minutes and there are seven banks
with 39 offices in the intervening towns between Woodbridge and
Guilford” (Tr. 1239, 1347); (J.S. 28a).
24
of an outside bank or a regulatory official if there are
already six or seven commercial or savings bank offices
serving the area. The obstacles to new entry in such a case
are substantial and the necessary regulatory approval less
than assured. eover, the competitive significance of
removing only one of y potential entrants into a bank-
ing market (which has never been empirically established
by economic research) was not even addressed by appel-
lant.
With Bridgeport and New Haven both closed to de novo
branching, appellant’s case consists of no more than an
invitation to speculate on the ways these two banks might
structure future moves to overcome those two inconvenient
facts. The means suggested are (1) by engaging in major
de novo branching programs into the “open” towns, (2)
“foothold” acquisitions or (3) holding company affiliations
through newly chartered banks. Each of these alternatives
was shown by appellees’ evidence and found by the District
Court to be either unavailable or subject to clear regulatory
veto, or both, and inconsistent with the merging bank’s
economic motivations.
Professor Peck did not express any opinion on the like-
1 lihood of entry by either bank or the competitive weight
to be given the “wings” effect. Instead, he analyzed the
effect of the proposed transaction on potential competi-
tion as though it were important here, i.e., assuming that
appellant had proven the likelihood of entry, that there was
a “wings” or “perceived” effect and that competition from
savings banks should be ignored—all contrary to the record.
In this way, Professor Peck’s analysis focused directly on
appellant’s ultimate argument—that the proposed consol-
idation would be likely to result in a significant change in
the structure of potential competition in commercial bank-
ing in the State of Connecticut.
i |
aaa SNEERRE RAE NESTE GS SLR PE APN TPE ROLLY IONE ANE EIN EN ATE OE NO ttl
25
The analysis on which the conclusion was reached did not
take into account the competitive impact of savings banks
in Connecticut or the subjective expressed intent of any
banking officials. The District Court found that Professor
Peck:
“. . . limited his survey solely to commercial banks.
He did not take into account the presence of savings
banks; thus, it is evident that his conclusions would
be strengthened if the competitive effects of savings
banks had been considered” (J.S. 29a).
His conclusion that the merger would not adversely affect
the structure of potential competition among commercial
banks in Connecticut and the objective factors on which
that conclusion was reached were adopted by the District
Court (J.S. 28a, 99a). Appellant offers no persuasive rea-
son to review these factual issues here.
With full cognizance of the criteria to be applied in poten-
tial competition cases—capacity and incentive of the merg-
ing banks to undertake de novo entry, the perceived com-
petitive effects on the fringe of the market, barriers to
entry, the number and strength of remaining potential
entrants, the rank of the potential entrants, the rank of the
potential entrants affected by the merger and the structure
and trends within the market—the District Court took
pains to apply all of the relevant legal standards to the
facts on record. He found appellant’s proof fell short.
He need not have gone on to weigh the needs and conve-
nience of the community because he found no violations of
the Clayton Act.
¢
j
j »
198 Bs Rr
608 NSO RATS ALM he TH DW Ba
26
SECTION OF THE COUNTRY
Appellant contends that the District Court erred in find-
ing that the State of Connecticut as a whole was the only
relevant section of the Country within which to analyze the
competitive effects of this merger. Appellant argues that
“the New Haven and Bridgeport areas are also relevant
sections of the country” (J.S. 14).
The District Court found to the contrary based in part
on appellant’s own evidence. Appellant sought to demon-
strate that the nine Connecticut Standard Metropolitan
Statistical Areas, as defined by the Office of Management
and Budget, were the appropriate geographic banking mar-
kets in this case.2!_ The cities of New Haven and Bridgeport
are both the focal points of separate SMSA’s, but under
Connecticut banking law each of these cities is treated as
a unit for home office protection purposes, while the SMSA
has no legal significance. The SMSA as a “market” con-
cept was essential to appellant’s potential competition
theory, however, because it had to show, as a threshold to
proving its allegations, at the least, that one of the two
merging banks is one of the most likely entrants into the
other’s market. Since both New Haven and Bridgeport are
closed to de novo branching by banks headquartered outside
those cities, appellant must argue that entry into any town
in the SMSA would constitute entry into the principal mar-
ket of the resident bank. Its only witness to so testify
admitted that his familiarity with the geographic area con-
sisted of attending “a couple of Yale football games.” The
21. Appellant also sought to demonstrate that a “four-town
area” consisting of Orange, Derby, Ansonia and Milford con-
stituted a section of the country. Its own expert witness, however,
did not agree that this was a banking market and appellant has now
abandoned that contention (J.S. 4).
22. The locale was in the City of New Haven as well as in the
_ New Haven SMSA (Tr. 312).
27
District Court, understandably, did not accept this testi-
mony nor did the District Court find persuasive his and
appellant’s contention that the town of Woodbridge, a small
semi-rural community in the New Haven SMSA, could con-
stitute a meaningful toehold entry for Connecticut National
to compete in the City of New Haven.
Appellant’s principal evidence in support of its conten-
tion that SMSA’s are ipso facto sections of the country
within the meaning of Section 7 of the Clayton Act in a
bank merger case was the testimony of Dr. Frederick
Glantz who described the manner in which SMSA’s are de-
lineated. Dr. Glantz, who conceded his lack of expertise
in banking and who made no analysis of competition or
banking markets in this case, admitted that the definition of
SMSA’s did not include consideration of any banking data
and was not developed as a tool for analyzing banking mar-
kets (J.S. 18a). Dr. Murphy, who was offered by appellant
as an expert on bank competition, agreed that Stamford
and Norwalk (separate SMSA’s) and New York City might
all be part of the same banking market (J.S. 25a).
The Department of Justice in its report to the Comptrol-
ler of the Currency on this merger did not use the SMSA
concept in discussing competitive effects but relied instead,
as appellees did at trial and as they do here, on the
town as the unit of analysis and the State of Connecticut as
the relevant geographic market (J.S. 19a).
This Court in Philadelphia, supra, at the urging of appel-
lant, specifically rejected the eight county Delaware Valley
area, which comprises the Philadelphia, Pennsylvania-New
Jersey SMSA, as the appropriate section of the country.
374 U.S. at 357. The Court below had stated that “at the
very least it (the section of the country) must include the
entire Delaware Valley.” 201 F. Supp. 348, 364 (E.D. Pa.
1962). Appellant contended in this Court that that was
error.
28
Appellant argued in this Court in Phillipsburg, supra,
that the SMSA was not the appropriate section of the coun-
try in which to evaluate the competitive effects of the pro-
posed merger of Phillipsburg National Bank and Trust
Company and Second National Bank of Phillipsburg. There
the SMSA included Lehigh and Northampton Counties in
Pennsylvania and Warren County in New Jersey. But the
Department of Justice argued that Phillipsburg-Easton, a
smaller area, was appropriate and this Court accepted that
argument. Appellant argued that the District Court in
that case erred when it “stressed the economic and social
integration among the population and other businesses in
the larger merchandising area that it viewed as the only
appropriate geographic market” (in other words, the
SMSA).”3 Appellant now contends that the District Court
in this case should have done what it contends was error on
the part of the District Courts in the Phillipsburg and Phila-
delphia cases. The United States, even as an advocate,
should not be allowed to shift course so blithely to accom-
modate the exigencies of its case.
As this Court has pointed out: “While there is undoubt-
edly some commercial intercourse between smaller com-
munities within a single ‘standard metropolitan area,’ the
most intense and important competition—will be confined
to—the particular communities in such an area and their
immediate environs.” (emphasis added) Brown Shoe Co.,
supra, at 339.
Appellees’ position in this case follows that view of this
Court as expressed by Chief Justice Warren. The town
or community is the appropriate unit for analysis of the
competitive effect, particularly where, as here, home office
protection varies by town. The state as a whole is the
relevant “section of the country” within which to appraise
23. Brief for Appellant at 32-33, Phillipsburg, supra.
>
, _ : OI ETE RR IE OE x eee
Oe ee Se ee Oe Se ee ee 6 . C i
29
any effects because, subject to home office protection, that
is the area “which state law apparently recognizes as a
meaningful banking community in allowing . . . banks to
branch within it...” Philadelphia, swpra, at 361.
Appellant demonstrates some uncertainty in determining
which geographic area to select to maximize its opportunity
to find some anticompetitive effect resulting from this
merger. On the one hand its argument that the SMSA is
the relevant banking market requires it to concede that the
two banks are in separate markets and not in significant
competition with each other. On the other hand it argues
that this Court’s decisions in ordinary horizontal competi-
tion cases are controlling here. Appellant cannot deny that
each bank is now prohibited by law from branching into the
town in which the other has its head office, New Haven and
Bridgeport, respectively. It asserts that 82.7% of the
146,596 workers living in the Bridgeport metropolitan area
and 88.7% of the 129,810 workers living in the New Haven
metropolitan area work in the area where they live. These
figures alone demonstrate, since, as appellant argues, “bank-
ing is a business in which the geographic market is particu-
larly affected by convenience of location to the customer
who is neither very large nor very small” (J.S. 17, 18),
that the two bs are not in significant existing competi-
tion with each offfér and that this Court’s decisions in hori-
zontal merger cases do not apply.
Appellant then turns to the State of Connecticut as a
whole. As appellant concedes “under this horizontal analysis
(using the state as a whole) neither of the merging banks
“could have competitive significance as a potential entrant
in the principal operating area of the other” (J.S. 14).
Appellant argues nevertheless, that this Court’s decisions
in Philadelphia, supra, Phillipsburg, supra, United States
RINSE INET EROS EE SEPALS ART
30
v. Von’s Grocery Co., 384 U.S. 270 (1966) and United States
v. Pabst Brewing Co., 384 U.S. 546 (1966), establish a per se
rule of illegality based on the conclusion that the combined
banks would have 11.3 percent of the market.* But in Phil-
adelphia, Phillipsburg, Von’s and Pabst the merging parties
were in substantial direct competition with each other. In
Philadelphia the head offices of the two banks were across
the street from each other and the banks competed through-
out the four-county area within which both were limited by
state law in branching and merging.
In Phillipsburg the merging banks were direct competi-
tors.
“PNB and SNB are direct competitors. Their main
offices are opposite one another on the same down-
town street. SNB’s only branch is across a subur-
ban highway from one of PNB’s two branches.” 399
U.S. at 354.
This Court’s decision in Von’s also involved two firms
in direct competition with each other. Mr. Justice White
described the two firms as “substantial competitors” and
observed that “[T]he merger not only disposed of a sub-
stantial competitor but increased the concentration in the
leading firms.” 384 U.S. at 281 (emphasis added). Not
only are Connecticut National and First New Haven not
“substantial competitors” but the merger by definition
would not increase concentration in either of the two
claimed banking markets on which appellant offered its
proof in the District Court. There would be no increase in
' the concentration ratios in the Bridgeport or New Haven
24. As we discussed earlier, appellees’ combined share of depos-
its held by Connecticut-based commercial banks was only 10.39%
at year-end 1972 and when reduced by proven Connecticut business
= by New York banks and divestiture would be approximately
%.
APNE AIO CEN OAT NER TT IRE MENA —————
31
SMSA’s following the merger and, in fact, there would be
a decrease, due to the decision by the two banks to sell six
branches to new entrants.
Appellant’s citation. of Pabst, supra, is also inapposite.
There this Court said “The merger of Pabst and Blatz
brought together two very large brewers competing against
each other in 40 States. In 1957 these two companies had
combined sales which amounted to 23.95% of the beer sales
in Wisconsin, Illinois and Michigan and 4.49% of the sales
throughout the Country.” Pabst, swpra, at 551.
Cases holding unlawful mergers between companies which
are direct competitors throughout their market areas have
no application to this case where appellant has stated the
principal question presented to be whether Section 7 is
violated “by eliminating the two banks as significant poten-
tial entrants into each other’s markets in Bridgeport and
New Haven and into local banking markets in Connecticut”
(J.S. 2).
This case is a potential competition case by the appel-
lant’s allegations in the complaint, its proof at trial and its
statement of the questions presented. In such a case mar-
ket share figures taken from horizontal merger cases are 4
largely irrelevant. “fs
The District Court found correctly that the Bridgeport
SMSA does not comprise Connecticut National’s relevant
banking market, relying in part on the fact that only 57%
of Connecticut National Bank’s deposits originated from
towns in the SMSA. The District Court concluded that
Connecticut National’s market was the area within which it
had established branch offices (J.S. 20a).25 That area con-
sisted of 25 towns in Fairfield, New Haven and Litchfield
Counties. The District Court found the SMSA concept
25. Cf. Philadelphia at 361, where the Court noted that the area
where the banks had branched was the area of effective competition.
32
“particularly useless in New England where banking organ-
izations have offices and derive substantial deposits beyond
the boundaries of the SMSA where their head offices are
located” (J.S. 20a). He observed that the three federal
bank regulatory agencies define a bank service area as the
geographic area from which the bank derives 75% of its
deposits (J.S. 20a). The service area, as so defined, extends
beyond the Bridgeport SMSA in the case of Connecticut
National to the west to the New York border, encompassing
the Stamford and Norwalk SMSA’s, and in the case of First
New Haven extends beyond the New Haven SMSA to the
east, nearly to New London. ;
Appellant argues that the District Court’s definition of
the market was erroneous because it was seller oriented.
But appellant also argues (J.S. 21) that “although the State
of Connecticut is not a commercial banking market in the
customer-supplier sense described in Philadelphia National
Bank, it is nevertheless a ‘section of the country’ for deter-
mining the effect of the merger on competition.”
In assessing the competitive effects of a bank merger in
Connecticut, evaluation of the impact of New York City
based banks is inescapable. The State of Connecticut is
directly contiguous to Westchester County in-New York
State where banks headquartered in New York City are
permitted by state law to branch. New York City head-
quartered banks have numerous offices throughout West-
chester County and obtain banking business from Connecti-
cut, both on the retail level from the substantial number of
commuters who cross state lines and on the commercial level
from the active solicitation of customers in Connecticut
(J.S. 24a-27a).
Appellant’s expert banking witness, Dr. Murphy, agreed
that commuting patterns and the substantial competitive
interaction between New York City and Southern Con-
33
necticut, supported the conclusion that substantial compe-
tition exists for banking business in Connecticut from New
York City banks. Appellant’s evidence showed that
approximately 50,000 heads of households commute into
Connecticut from New York or vice versa in approximately
equal numbers and showed that this was part of an increas-
ing trend of cross-commutation. The evidence established
that in Fairfield County, where Connecticut National is
headquartered, the daily circulation of The New York Daily
News was 44,058 copies and The New York Times, 29,360
copies. The circulation of each of these New York papers
exceeded the circulation of Fairfield County’s only morn-
ing daily, The Bridgeport Post Telegram, which averaged
11,521 eopies, and combined amounted to approximately six
times as much. The evidence showed that New York banks
advertise heavily on television, which saturates Fairfield
County, in the newspapers and in the railroad stations.
The competitive impact in Connecticut of the advertising of
rates on savings deposits and rates charged for loans by
New York banks was found by the District Court to be sub-
stantial (J.S. 25a).
In a survey which covered only a part of the banking
business obtained by but six of the over 70 New York City
area banks, it was established that over $480 million in
Connecticut based deposits were held in over 23,000
accounts by these New York City banks. The survey also
showed that six New York City commercial banks alone
obtain over $381 million in commercial and industrial and
mortgage loans from Connecticut customers. These figures
do not include banking business obtained from Connecticut
~ by 64 other commercial banks headquartered in the New
York City area or the business obtained from Connecticut
by New York City and Westchester savings banks.
Appellant apparently agrees with the District Court’s _
finding that the state as a whole is an appropriate section t
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of the country in which to assess the competitive effects of
this merger, (J.S. 21), but as in the case of savings banks,
it would ignore the reality of existing competition from
New York banks in pursuit of its potential competition
theories.
LINE OF COMMERCE
The discussion of potential competition has dealt with the
issues on appellant’s terms—namely, that the line of com-
merce should be limited to commercial banking and that
existing competition from savings banks should be ignored,
although savings banks have more total deposits in Con-
necticut than do commercial banks and compete for over
75% of the loan business which commercial banks do in
Connecticut and by the end of 1975 will compete with
commercial banks for all retail banking business.
It is appellees’ view this Court’s opinions in
Philadelphia and Phillipsburg Y not require a District
Court to ignore competition where competition in fact
exists. Appellant’s banking economist has stated that
“some reconsideration of the commercial bank product line
specifications may be in order” since Philadelphia was
decided by this Court because of “increased competition
among commercial banks and thrift institutions for savings
type liabilities in the 1960s.” (DX-58). This statement is
in accord with appellees’ view and does not. imply that
Philadelphia was incorrectly decided. The reality is that
the extent of competition between commercial banks and
savings banks has drastically changed since the close of the
record in the Philadelphia case in 1962. Nowhere has the
intensity of such competition become more severe than in
Connecticut. Even if this case involved two commercial
banks headquartered in Bridgeport—the kind of direct
competition which existed in Philadelphia and Phillipsburg
—it would be unrealistic to ignore the fact that savings
banks in Connecticut are now strong competitors and will
compete for all retail banking customers (over 90% of
appellees’ accounts) by 1975.
At trial appellant failed to offer any proof on the line
of commerce issue, reflecting its view that it is no longer
necessary in any bank merger case to consider the size,
scope or functions of competing sources of financial serv-
ices in light of this Court’s decisions in Philadelphia and
Phillipsburg.
However, no decision of this Court has directed lower
courts to totally ignore existing competition from financial
institutions other than commercial banks in evaluating the
importance of potential competition in a commercial bank
merger case. Appellant argues here that this Court should
declare unlawful a merger which it alleges, but failed to
prove, may eliminate potential competition between the two
banks while asking the Court to ignore proven existing
competition which*both banks now encounter from savings
banks for over 75% of their loan business. Even if this
Court should find that commercial banking is the appropri-
ate line of commerce in this case, contrary to what the evi-
dence has established, it would be illogical and at odds with
the Court’s prior decisions to ignore the impact of savings
bank egmpetition on competitive behavior within a commer-
cial banking line of commerce.
In this appeal, the Court is being asked by appellant to
’. speculate that appellees will find their way around the law
and policy of the State of Connecticut and enter each
other’s markets at some time in the future, contrary to the
record and the findings of the District Court. It asks the
Court to conclude that the effect of the elimination of that
possibility “may be substantially to lessen competition, or
eee ee
36
to tend to create a monopoly” while at the same time it asks
the Court totally to ignore retail banking competition
where it now exists merely because it goes under a different
name. To do so would be almost as unrealistic as ignoring
competition between national banks and state banks merely
because they operate under different supervisory agencies
and may have somewhat different powers. This Court has _
refused to follow similar suggestions in prior cases such as
United States v. Continental Can Co., 378 U.S. 441 (1964).
The record is clear that savings banks in Connecticut are
direct competitors of commercial banks for time and sav-
ings deposits, personal loans and real estate loans as well
as for branch sites and personnel (J.S. lla). By year-end
1975 they will be able to accept demand deposits and hold
personal checking accounts. Appellant’s expert witness
agreed that such competition exists (J.S. 12a). Of the
ay
merging banks’ total IPC deposit accounts, over half pres-
ently consists of accounts for which Connecticut savings
banks are direct competitors (DX-35, Tables 1-6). Appel-
lant admits that over three-quarters of appellees’ total loan
portfolios consists of personal and real estate loans obtained
in direct competition with Connecticut savings banks (J.S.
16, n. 21).
Total deposits of Connecticut savings banks at year-end —
1971 amounted to $6.1 billion, substantially in excess of the
total deposits of Connecticut commercial banks—$5.7 bil-
lion at the same date (DX-62; GX-70). Two of the state’s
savings banks, moreover, are larger than all but the two
dominant Hartford commercial banks and are larger than
either of appellee banks (DX-52, p. 15; G@X-70).
With these facts on record, it is instructive to compare
the data available to the District Courts and to this Court
in the Philadelphia and Phillipsburg cases which led to the
—
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37
conclusion that the cluster of products and sertices offered
by commercial banks in Pennsylvania and New Jersey com-
prised a distinct line of commerce.
For Pennsylvania as a whole, commercial banks held
$13.7 billion of the $15.7 billion held by all Pennsylvania
commercial and savings banks.”*
Based on figures for mid-year 1960’ (the period on which
the trial record in Philadelphia was built) commercial
banks held $4.5 billion of the $6.3 billion of total deposits
of commercial banks and savings banks in the four-county
area adjudged the relevant geographic market in Phila-
delphia and savings banks in Philadelphia did not make
personal loans and did not offer checking accounts.
In the Phillipsburg-Easton area, held to be the relevant
geographic market in Phillipsburg, no savings bank com-
petition existed as of June 29, 1968, while total commercial
bank deposits in the Allentown-Bethlehem-Easton metro-
politan area were reported by the FDIC to amount to $1.1
billion at the same date. For the State of New Jersey as
a whole, commercial banks held $12.2 billion of the $14.7
billion in deposits of all state commercial and savings banks
in June, 1968.78
The relative immunity from savings bank competition
described in the /hiladelphia case is totally inapplicable
to Connecticut. Defendants’ Exhibit 52, “National Fact
Book of Mutual Savings Banking, 1972”, at Table 62 (page
46), shows that savings banks in Connecticut realized net
26. Federal Reserve Board, Distribution of Bank Deposits by
Counties and Standard Metropolitan Areas, December, 1960.
a. 4&8.
28. Federal Deposit Insurance Corporation Stmmary of Accounts
and Deposits in all Commercial Banks, New York FDIC District; id.
Philadelphia FDIC District, June 29, 1968; Summary of Accounts
and Deposits in All Mutual Savings Banks, FDIC, June 29, 1968.
—
38
gains in savings of $4.77 billion from 1950-1971 as com- |
pared to net gains of $1.86 billion in savings at Connecticut
commercial banks. This fact demonstrates that savings
banks have been nearly three times as effective as commer-
cial banks in competing for new savings deposits during
this period.
In none of the cases decided since Philadelphia have sav-
ings banks occupied a position comparable to that in Con-
necticut where they have more deposits and loans than
commercial banks and where they compete directly for the
bulk of commercial banks’ deposit and loan business. Ac-
cordingly, the record amply supports the conclusion that
“banking” in Connecticut is the relevant line of commerce—
including savings banks as well as commercial banks.
The differences between banking market realities today
and those under analysis in Philadelphia and Phillipsburg
led appellant’s chief witness to conclude that since this
Court’s decision in Philadelphia, economic evidence indi-
cates a change in the amount of competition between sav-
ings banks and commercial banks (Tr. 211). He stated
in the Summer 1971 Journal of Bank Research at page 18:
“|. That is, even if an analysis of competition in
each bank activity was undertaken in the years prior
to the Supreme Court decision [in Philadelphia] the
evidence over that period does not strongly support
the hypothesis that commercial bank time and sav-
ings deposits were close substitutes for MSB
[Mutual Savings Bank] deposits and S&L shares.
Thus, the Court’s finding was not inconsistent with
the statistical evidence of the 1950s. However,
increased competition ameng commercial banks and
thrift institutions for savings-type liabilities in the
1960s suggests that some reconsideration of the com-
mercial bank product line specification may be in
SSSR TR Ae GOES RN FEE ARTI TSN TES ES NITE ETE EE _
39
order. This is especially important if MSBs are suc-
cessful in obtaining the demand deposit privilege in
several of the states in which they are permitted to
operate and S&Ls make use of the capability to make
third-party transfers” (DX-58). -
Thus even if the issue in this case were the elimination of
actual competition, the record below justifies the conclusion
that the appropriate line of commerce in which to assess
the effects of the proposed merger would be “banking”,
including savings and commercial banks.
However, this is not an actual competition case, but, as
appellant concedes, a potential competition case.
_ Tt is now the law in Connecticut that, no later than
December 31, 1975, savings banks in Connecticut will have
the power to offer personal checking accounts. Thus by
1976 the competitive arena in Connecticut will include sav-
ings and commercial banks offering all of the important
retail banking services: savings and checking accounts, real
estate loans, personal loans for a wide variety of purposes
and passhook loans. For almost all retail customers both
savings and commercial banks will offer the cluster of
services that permits one-stop banking.
Nor can appellant argue that savings banks will not take
advantage of their new power to offer personal checking
accounts. Two savings bank officials testified at trial that
their banks would offer checking accounts if empowered
to do so, and one such official stated that his bank had
already made extensive studies of how to implement
demand deposit services (Tr. 1654, 1946).
To deny the certainty of savings bank competition for
personal checking accounts is to deny competitive reality
and hence the teaching of this Court which said in Brown
Shoe, supra, that the relevant product market in a Section
7 merger case “must be drawn with sufficient breadth to
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include competing products of each of the merging com-
panies and to recognize competition where, in fact, compe-
tition exists.” 370 U.S. at 326. Certainly in a potential
competition case, logic as well as Brown Shoe compelled
the District Court to recognize competition where, in fact,
competition exists and will exist even more strongly in the
immediate future.
By focusing solely on commercial banks’ power to make
commercial loans and accept commercial demand deposits
and neglecting the convenience and banking needs of the far
greater number of individual retail customers, appellant
urges application of the wrong standard. It is the retail
customers whose banking needs are most localized. As
appellant has pointed out to this Court, commercial bank
services such as “international transactions, commercial
loans of more than $1.2 million . . ., student loans and min-
ing loans” are of a type which “necessarily were not impor-
tant to the great bulk of bank customers in the area, and it
is the effect upon the entire market area which determines
the validity of the merger” (Marine J.S. 22).
The record shows that business borrowers are not con-
fined to New Haven or Bridgeport banks. They are solici-
ted on a regular basis by New York and Boston banks,
and, of course, the two dominant Hartford banks compete
statewide. The importance of potential competition between
the appellee banks would be lost on a business borrower in
Connecticut with even moderate banking requirements when
so many alternatives are available.
Appellant argues that Phillipsburg compels a result
contrary to that reached by the court below. We disagree.
With respect to the appropriate line of commerce, this
Court in Phillipsburg relied on the immense importance to
retail customers of one-stop banking:
“For some customers, full-service banking makes
possible access to certain products or services that
~
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AMIS NA ey ASIN RN ON PTO ee ERLE BEN Se BE a a at see TS
41
‘would otherwise be unavailable to them; the cus-
tomer without significant collateral, for example,
who has patronized a particular bank for a variety
of financial products and services is more likely to
be able to obtain a loan from that bank than from a
specialty financial institution to which he turns sim-
ply to borrow money.
“A customer who uses one service usually looks to
his bank for others as well, and is encouraged by the
bank to do so. Thus, as was the case here, customers
are likely to maintain checking and savings accounts
in the same local bank even when higher savings
interest is available elsewhere. This is perhaps par-
ticularly true of banks patronized principally by
small depositors and borrowers for whom the con-
venience of one-stop banking and the advantage of
a good relationship with the local banker—and thus
of favorable consideration for loans—are especially
important.” (citations omitted) 399 U.S. at 360-1
(emphasis added).
In Connecticut customers are likely to maintain checking
and savings accounts in the same local bank and will do so
by year-end 1975 in either a savings or commercial bank.
A customer without significant collateral can now turn to
either a commercial or savings bank for a personal install-
ment loan. A savings bank in Connecticut is not a “spe-
cialty financial institution to which (the depositor) turns
simply to borrow money.” For the retail customer a sav-
ings bank and a commercial bank will be equally useful
alternatives to which he can turn for the convenience of
one-stop banking and the advantage of a good relationship
with the local banker.”? Indeed full-service retail banking in
29. Contrary to appellant’s statement that the record establishes
that “savings banks in Connecticut do not compete with commer-
cial banks for commercial loans” (J.S. 16; n.21), DX-20 shows
savings banks with $26 million of such loans at year-end 1971 (Tr.
1008-1009).
Bs isa
42
both commercial and savings banks will be uniquely avail-
able to Connecticut’s banking public.
It is somewhat anomalous for appellant to argue on the
one hand that some of the benefits resulting from a bank
merger such as increased lending limits, international trans-
actions, sophisticated computer services and corporate and
municipal financing services are “not important to the great
bulk of bank customers in the area” because it is “the great
bulk of bank customers who make up the community whose
convenience and needs the merger is supposed to serve”
(J.S. 30-31), while asking this Court to ignore the fact that
it is the great bulk of bank customers in the State of Con-
necticut who are and will be the beneficiaries of the savings
and commercial bank competition.° For this great bulk
of bank customers—the retail bank customers—interchange-
ability of use and cross-elasticity of demand compelled the
District Court to conclude that the appropriate line of com-
merce includes savings and commercial banks.
In sum, the largest number of purchasers of banking ser-
vices can or will be able practicably to turn to both commer-
cial and savings banks for supplies. The advent of full
service one-stop retail banking at either type of bank cor-
rectly led the court below to conclude that ‘banking’ is the
appropriate line of commerce in which to assess the com-
pecitive effects of the proposed merger. In any event
whether this Court concludes that “banking” or “commer-
cial banking” is the appropriate line of commerce is rela-
30. As appellant’s own exhibits (GX-33; GX-48) show, 95% of
the demand deposit accounts at the main offices of appellee banks are
below $10,000 in size. Clearly, savings banks will be competitive
for the bulk of these accounts. Note 24 in the Jurisdictional State-
ment (J.S. 17) appears to be asking this Court to decide the line
of commerce issue on the basis of the dollar volume of accounts
held by less than 1% of the account holders at appellee banks’ main
offices set forth in such exhibits.
POEL LILI SAGE LNG ILE I NEE A NE Ee et
—
43
tively insignificant in a case where the appellant has failed
to prove any of the prohibited effects under Section 7 of the
Clayton Act no matter how narrowly or broadly the prod-
uct market is defined.
CONCLUSION
The judgment of the District Court should be
affirmed for the reasons set forth above.
Respectfully submitted,
Grorce D. Reycrart
JoHN Boyer
Haven C. Roosrtvett
One Wall Street
New York, New York 10005.
Counsel for Appellees, The Con-
necticut National Bank and The
First New Haven National Bank
Ricwarp G. Bett
205 Church Street
New Haven, Connecticut 06509
Counsel for Appellee, The First
New Haven National Bank
CapDWALADER, WICKERSHAM & Tart
Tyier, Cooper, Grant, Bowerman & KEEFE
Putiman, Comey, Braptey & Reeves
Of Counsel.
December, 1973
EGER DES IIS ELE PATE TEE SE: TI NT GN OR Ng
=e .
This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.