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If, on the other hand, Congress really believes that bank stock ownershipwhether or not coupled with outside activities—gives rise to tendencies which are not now controllable and must be checked, the necessary results can be accomplished by simple amendments to existing law. There is certainly no need for writing a Magna Carta of Abolutism for the Federal Reserve Board.
In the first place, it should not be forgotten that practically every bank in the country, if it is to stay in business, must maintain its insured status with Federal Deposit Insurance Corporation. Congress can, therefore, easily use the weapon of insurance "conditions" to bring about a segregation of activities and to control expansion. Beyond this, is the possibility of amending the Investment Company Act of 1940. Either or both methods will readily accomplish all that ought to be done in the way of adding regulation on regulation.
There are other changes in the law which, perhaps, should be investigated in any event. At least one of these would benefit bank stock owners rather than add to their troubles. For the reserve fund section of the present law (Revised Statutes 5144) is both unnecessary and unfair. It should be repealed at the earliest possible moment.
If remedial legislation is needed, therefore, it should take the form of amendments to existing authority vested in agencies other than the Federal Reserve Board. This would be the easy, safe, and intelligent method. It would differ, in all these respects, from the unwholesome and undemocratic procedure suggested by the Federal Reserve Board in the measure which has been the subject matter of this discussion.
MAY 24, 1947.
ELLERY C. HUNTINGTON, Jr..
EXHIBITS ACCOMPANYING STATEMENT OF ELLERY C. HUNTINGTON, JR., BEFORE BANKING AND CURRENCY COMMITTEE, UNITED STATES SENATE, IN OPPOSITION TO BANK HOLDING COMPANY BILL (S. 829), JUNE 2, 1947
Exhibit 1 omitted in printing; on file with the committee.
THE ORIGINAL PROPONENTS OF THE MORRIS PLAN
(A partial list of men who gave financial support and personal service)
Figures for all reporting Morris Plan banks and companies:
(A) Estimate of total loans___
(B) Approx. number of total loans made__
Bankers Security Life Insurance Society:
May 24, 1947
$5, 000, 000, 000 18, 000, 000, 000
+$1, 000, 000 4,016, 535
CONSUMER BANKERS ASSOCIATION,
Col. ELLERY C. HUNTINGTON, Jr.,
DEAR ELLERY: I find your letter of the 20th, which was received only this morning a very easy one to answer.
As you know, I first became associated with the Morris Plan group in February 1928, as secretary to Tom Boushall, president of the then Morris Plan Bank of Richmond, subsequently the Morris Plan Bank of Virginia, and now The Bank of Virginia. The Morris Plan Corp. has always held a majority stock interest in that bank. As the president's secretary, and later his assistant, I had ample opportunity to know what was going on not only in that bank but in other banks in the group in which the corporation owned stock, both majority and minority interests.
In the period of 16 years prior to my entering the Naval service in 1944, I do not know of any instance where the corporation imposed any program or action on any bank in either group against the will or judgment of the local boards of directors or management. Whenever a difference of opinion arose, the local direction and management always came out on top.
Since assuming the executive direction of the Association late in 1945, after being relieved of active duty by the Navy, I have had numerous opportunities to visit with and talk to the 66 members of the Association all over the United States. In this capacity I have particularly been able to enlarge my contacts with the banks in which the corporation owns a minority stock interest, as well as Morris Plan institutions in which the corporation owns no stock. Nothing that I have heard since I have been with the Association would modify the impression expressed above. As a matter of fact-although I know it would have been contrary to the corporation's long-standing policy, which undoubtedly has been a wise one over a period of years-I am of the personal opinion that the local institutions would have profited much had the corporation sought more aggressively to forward programs and plans which it conveyed to and discussed with the local management.
I am not recommending that the corporation change its policy; but thought that the personal opinion expressed immediately above would best illustrate my understanding of that policy.
With best regards, I remain,
GARY M. Underhill,
May 20, 1947.
DEAR GARY: One of the points we may wish to stress, in connection with our opposition to the pending bank holding company bill (S. Bill 829), is that the Morris Plan Corporation, as an investor in bank stocks and as the owner and
holder of a minority interest in a number of Morris Plan institutions, does not pursue a policy of interference with managements.
Our relationships with our majority-owned banks are fairly well delineated in the protective agreement on which we have been working for more than a year and which has recently been circulated in final form. Our relationships with managements in which we have minority interests, however, can be demonstrated most effectively from the record.
You, of course, represent all of the institutions which are members of the Consumer Bankers Association. You talk with all managements periodically and are in a position to know their real feelings with respect to their relations with: us. They may say a good many unkind things about us which we never hear, and they may feel that we attempt to influence their operations, although I have been unable to find in the files any instance in which a complaint has been made by any so-called minority institution.
I am writing you now because I would like to know whether you have had any indications, at any time during the long years you have been associated with the Morris Plan institution, that there is any feeling on the part of minority managements that the Morris Plan Corporation or its officials have ever sought to impose their will upon such managements or in any wise interfered with local operations. With kindest regards.
Whereas the Morris Plan Corp. of America, a Virginia corporation having its general offices at 420 Lexington Avenue, in the city, county and State of New York (hereinafter sometimes referred to as the "corporation"), is the owner of more than 39 percent of the outstanding capital stock of (hereinafter sometimes referred to as "bank"); and
Whereas the corporation has determined upon a policy pursuant to which a portion of its stock holdings may be distributed to management, directors, and other local interests; and
Whereas the corporation has determined, also, to give to the directors and management of the bank such assurances as is reasonably possible looking toward a continuity of stock ownership; and Whereas
after sometimes referred to as "purchaser") desires to purchase the capital stock as now constituted of the bank from the corporation: Now, therefore, in consideration of the premises and of the sale of said stock and of the reciprocal undertakings herein contained, the parties hereto hereby covenant and agree for and on behalf of themselves, their heirs, executors, administrators, successors, and assigns, as follows:
1. The corporation hereby sells and the purchaser hereby purchases shares of the capital stock aforesaid at the price of $------ per share, making an aggregate purchase price of $.. for said number of shares, the receipt of which shares of stock by purchaser and receipt of which purchase price by cor poration are hereby acknowledged.
2. Purchaser agrees that he will not sell or otherwise dispose of said shares of stock nor any part thereof without first offering to sell same to corporation at the then book value thereof, it being understood and agreed that in the event the corporation does not take up and pay for the said shares within 30 days from the date such offer is received by it from purchaser, or within 30 days after the date of approval of any governmental agency or body having authority over the proposed transaction (hereinafter referred to as the "governmental agency") in case such approval is required, then and only in that event purchaser shall be free to sell or otherwise dispose of said shares to third parties.
3. It is agreed by and between the purchaser and the corporation that in the event of the death of the purchaser said shares of stock shall be offered for sale to the corporation as soon as practicable and at the then book value thereof, it being understood and agreed that in the event the corporation does not take up and pay: for the said shares within 30 days from the date such offer is received by it from the estate of purchaser, or within 30 days after the date of approval of the governmental agency, in case such approval is required, then and only in that event shall the estate of purchaser be free to sell or otherwise dispose of said shares to third parties.
4. The corporation agrees that it will not hereafter sell any shares of stock of the bank owned by it, the effect of which would be to reduce its stockholding in the bank below 51 percent of the total stock outstanding, or when, at the time of such sale, its stockholding in the bank is already below 51 percent of the total stock outstanding, without first
(a) offering to purchaser and to other purchasers executing contracts with the corporation substantially identical herewith, the opportunity to purchase all (but not less than all) of the shares of stock of the bank which the corporation desires to sell and in such proportions thereof among themselves as such purchasers may agree upon, at a price equal to the then book value thereof, it being understood and agreed that in the event all of said shares are not taken up and paid for by such purchasers within 30 days from the date such offer is made by the corporation or within 30 days after the date of approval of the governmental agency, in case such approval is required, then and in that event the corporation shall be under no duty or obligation to sell any part of said shares to any of the said purchasers but shall be free to sell all or any part of said shares to third parties;
(b) obtaining for purchaser the opportunity to sell his stock upon substantially the same terms and conditions as those upon which the corporation may wish to sell its own stock: Provided, That purchaser shall not have exercised his right to purchase pursuant to the provisions of subparagraph numbered 4 (a) hereof: And provided further, That the purchaser shall, within the period of his option under subparagraph 4 (a) hereof, have notified the corporation in writing of his desire to have his shares included with those of the corporation in such proposed sale.
5. The corporation agrees that whenever a proposed transaction hereunder shall require the approval of the governmental agency, it will, if permitted, make or cause to be made application for such approval for and on behalf of itself and/or purchaser and without cost to purchaser.
6. It is agreed by and between the parties hereto that all certificates for shares of the capital stock of the bank subject to the terms of this agreement shall have placed thereon an appropriate endorsement reading substantially as follows:
"The sale, transfer, and delivery of this certificate and of the capital stock represented hereby is limited and restricted in accordance with the terms of a certain agreement entered into by and between the registered owner and the Morris Plan Corp. of America, dated the day of 19.
a copy of which agreement is on file at the general offices of said corporation.' 7. The term "book value" as used herein with respect to any date shall mean, with respect to the common capital stock, the sum of the then capital surplus, undivided profits, and surplus reserves of the bank (after provision for reasonable reserves and exclusive of intangible assets), allocable to the common capital stock, divided by the number of shares of such common capital stock then outstanding, and shall mean, with respect to any other securities, such portion of the net tangible assets of the bank as may then be allocable to each unit of such securities, all as such items shall then be shown on the books of the bank. In the event of any difference of opinion between the parties respecting book value as defined in this paragraph 7, the book value shall be determined by an auditor of the corporation and by the president or in his absence the cashier (or other corresponding officer) of the bank and, in the event they cannot agree, then by any one of the following firms of certified public accountants to be selected by the corporation, namely, Peat, Marwick, Mitchell & Co., Arthur Andersen & Co., or Price, Waterhouse & Co. and the decision of such firm, so selected, shall be final and binding.
8. It is further understood and agreed by and between the parties hereto that this agreement shall cover not only the shares of the capital stock of the bank hereinabove referred to but also any securities, as related thereto, into or for which they may be exchanged or be exchangeable (and all rights with respect thereto) as well as any securities which may be issued or be issuable therefor upon any reclassification of the capital stock of the bank, by stock dividend or otherwise.
In witness whereof the parties hereto have executed this agreement in duplicate as of the day of
(Witness as to Purchaser)
THE MORRIS PLAN CORP. OF AMERICA