All the Presidents' Bankers by Nomi Prins

Author:Nomi Prins
Language: eng
Format: mobi, epub
ISBN: 9781568584911
Publisher: Nation Books
Published: 0101-01-01T00:00:00+00:00

Johnson and Mergers

Toward the middle of 1965, Johnson spoke widely of national economic growth, progress, and the Great

Society. He presided over the enactment of the Medicare program, and when he signed the Medicare bill

into law on July 30, 1965, at the Harry S. Truman Library in Independence, Missouri, he paid homage to a

plan that “all started” with Truman.51 A year later, Johnson presented Truman and his wife, Bess, with Medicare cards number one and two.

With respect to financial regulations, however, Johnson was nearly as laissez-faire as his banker

friends. Both Johnson and the bankers felt the country had moved past the more prudent restrictions of the

Great Depression (the bankers more publicly so). Neither Johnson nor the bankers saw any reason to

entertain legislative restrictions on the bankers’ desires to grow freely. Like Eisenhower, Johnson equated

strong American banks with a strong America. He also equated the size of US companies with national

strength.

The pace of US corporate mergers had already accelerated under Kennedy. In 1963, the number

reached 1,311, the highest figure since the Federal Trade Commission began tracking mergers in 1951.

The number of antitrust cases filed by the Justice Department had also risen—to twenty by the end of

1963.

This became a key concern for Johnson. As U.S. News & World Report noted, “For the first time . . .

businessmen have sounded protest against this action in [Johnson’s] administration.” 52 The FTC was

launching more complaints against big companies like US Steel, GM, and AT&T, as well. Fortunately for

him, the major bank regulator, the comptroller of the currency, sided on behalf of bank mergers. This

helped Johnson’s and the bankers’ cause.

Johnson was not above using his muscle to support mergers that would increase political power. The

Houston Chronicle, for instance, had been critical of him and endorsed Richard Nixon in 1960. 53 But John Jones Jr., the Chronicle’s president, was also the president of Houston’s National Bank of Commerce and was attempting to merge with Texas National.

The merger had been agreed upon by both boards of directors but was stalling at the Federal Reserve,

which tended to approve eastern mergers more quickly than other ones. But Johnson intervened; he made

Jones guarantee him the Chronicle’s support as long as he held the presidency. Following an off-radar

meeting at Johnson’s ranch, the president got his guarantee and Jones got his merger. 54

Manufacturers Hanover president Gabriel Hauge was fighting his own merger battle against Donald

Turner, the assistant attorney general in charge of the Justice Department’s antitrust division, who had

filed several suits against bank mergers on the grounds that they violated Section 7 of the Clayton Act and

Section 1 of the Sherman Act, which prohibited anticompetitive or monopolistic mergers (though not

generally for banks).

On August 24, 1965, Hauge sent an eleven-page letter defending his bank’s 1961 merger to

Congressman Richard Bolling. He deemed Turner’s August 6 letter to him “such an extraordinary

amalgam that I cannot let it pass without comment.”

Turner had contended in that letter, “there is no room for the argument that the antitrust laws were

displaced in whole or in part by the Bank Merger Act [of 1960], and if Mr. Hauge’s materials are

intended to assert to the contrary, they are plainly wrong.” 55

Hauge argued that his merger occurred “in good faith” and was “legal under then existing law.”

Further, he had never received notice from the Justice Department that it intended to sue either of the

banks involved in the merger. Turner eventually dropped his charges, and Manufacturers Hanover, the

merged entity, remained intact.

A few months later, the bank merger bill finished its route around Washington. When the House,

Senate, and Johnson passed the subsequent Bank Merger Act of 1966, it gave the appearance that more

mergers would be rejected for “monopoly” reasons under Section 7 of the Clayton Act and Section 1 of

the Sherman Act. But in practice, the bill left major bank mergers open to approval by the comptroller of

the currency and the Federal Reserve, both of which supported the consolidation of the financial arena.

Eight months later, an antitrust suit was filed to block a proposed merger of First City National and

Southern National Bank in Houston on the grounds it would substantially reduce competition and increase

“concentration in commercial banking in the Houston area. ”56 The merger had been approved by the

comptroller of the currency. With Johnson’s intervention, it remained so.

A month afterward, Special Assistant Joe Califano told President Johnson that “Stuart Saunders has

been calling me about the Penn-Central merger. He claims that you told him if he ran into any problems

delaying the merger, to get in touch with you and that you would move things along.” 57

In response, Johnson signaled his support directly: “You can be certain that I will be watching your

merger developments, and wishing you all success.” 58 Penn Central would become America’s biggest

bankruptcy in the 1970s.

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