United States v. Connecticut National Bank

Decision Date22 June 1973
Docket NumberCiv. No. 14583.
CourtU.S. District Court — District of Connecticut
PartiesUNITED STATES of America, Plaintiff, v. The CONNECTICUT NATIONAL BANK and the First New Haven National Bank, Defendants, and William B. Camp, Comptroller of the Currency, Intervenor.

John W. Clark, Antitrust Div., Dept. of Justice, Washington, D. C., for plaintiff.

Huntley Stone, Pullman, Comley, Bradley & Reeves, Bridgeport, Conn., for defendant Conn. Nat'l Bank.

Richard G. Bell, Tyler, Cooper, Grant, Bowerman & Keefe, New Haven, Conn., for defendant First New Haven Nat'l Bank.

George D. Reycraft, Cadwalader, Wickersham & Taft, New York City, for both defendants.

Charles H. McEnerney, Jr., Office of Comptroller of Currency, Washington, D. C., for intervenor Comptroller of Currency.

MEMORANDUM OF DECISION

ZAMPANO, District Judge.

In this civil antitrust action, the government is challenging the proposed consolidation of The Connecticut National Bank (CNB), the fourth largest commercial banking association in the state, and The First New Haven National Bank (FNH), which ranks eighth among Connecticut's commercial banks. The complaint seeks an injunction, alleging that the merger will violate Section 7 of the Clayton Act, 15 U.S.C. § 18.1 The defendants have denied that their agreement to combine would be harmful to competition and have asked this Court to lift the stay on the Comptroller of the Currency's (Comptroller) approval of their plans, which was automatically imposed pursuant to the provisions of the Bank Merger Act of 1966 (BMA), 12 U.S.C. § 1828(c)(7)(A), when this action was initiated.

The Comptroller has intervened and participated throughout the proceedings as provided by 12 U.S.C. § 1828(c)(7) (D). The Court's jurisdiction under Section 15 of the Clayton Act, 15 U.S.C. § 25, is undisputed. After a lengthy trial and post-trial arguments and review of the voluminous briefs and statistical information submitted by counsel,2 this Court is of the opinion that the defendant banks should be allowed to merge, with the condition that certain divestitures in the so-called "Four Town Area" are accomplished as more fully set forth, infra.

In the pretrial proceedings, the Court appointed a Special Master who was of great assistance to the parties and to the Court in narrowing the issues to be presented. In addition, counsel for the parties demonstrated extraordinary competence, skill and cooperation. Their presentations were of incalculable aid to the Court.

I. FINDINGS OF FACT
A. THE DEFENDANTS

Both defendants are banking associations organized under the laws of the United States and both transact business and may be found within the District of Connecticut. CNB maintains its principal place of business in Bridgeport and FNH in New Haven, Connecticut. They are each engaged in interstate commerce.

(1) Connecticut National Bank

1. CNB was chartered in 1806 as the Bridgeport Bank, with general banking and trust powers and was converted to a national bank charter in 1865. The bank's only acquisition since 1958 involved the Atlantic National Bank in Stamford. (D-35; P-56).3 The rate of which CNB has expanded by de novo branching has abated in recent years. Between 1961 and 1965, CNB opened 15 offices. From 1965 to 1970, the bank added only five branches. (P-73; Tr. 1544).

2. As of December 31, 1972, CNB had total assets of $463.3 million, total deposits of $412.2 million, and total loans of $253.6 million, ranking seventh in deposit size among banks headquartered in Connecticut and fourth among commercial banks headquartered in the state. (P-122; P-70; D-10). Savings deposits constitute approximately 50% of CNB's total deposits. (Tr. 698). CNB has a legal lending limit of $2.8 million.

3. As of December 31, 1972, CNB operated 51 offices in 25 towns. Forty-one of these offices are located in Fairfield County, nine in New Haven County and one in Litchfield County. (D-39).

(2) First New Haven National Bank

4. FNH is the result of a consolidation in 1957 of the New Haven Bank, chartered under the laws of the State of Connecticut in 1792, and The First National Bank of New Haven, chartered on June 20, 1863, under the National Currency Act. Since its acquisition of Branford Trust Company in 1964, FNH has not engaged in any merger. (D-35, p. 55).

5. As of December 31, 1972, FNH had total assets of $333.4 million, total deposits of $272.4 million and total loans of $224.7 million, ranking tenth among banks headquartered in Connecticut and eighth among commercial banks in the state. (P-120; P-70; D-10). Savings deposits constitute approximately 50% of FNH's total deposits. (Tr. 1452). FNH has a legal lending limit of $2.3 million.

6. As of December 31, 1972, FNH operated 22 offices, all in New Haven County. (D-38).

(3) Merger Agreement

7. CNB and FNH have entered into a Consolidation Agreement, dated November 19, 1970, which will result, if carried out, in the consolidation of CNB and FNH under the charter of FNH and with the title, "The First Connecticut National Bank."

8. CNB and FNH prepared and filed an application dated February 2, 1971, for approval of the proposed consolidation and of the Consolidation Agreement with the United States Comptroller of the Currency who supervises all national banks. (D-35).

9. The consolidation was approved by the Comptroller of the Currency on July 26, 1971. (Int-1).

(4) Divestiture

10. As part of the merger agreement, CNB has contracted to sell its Milford office to the Hartford National Bank (Hartford National), and its Orange office to the organizers of a new bank to be chartered. FNH has agreed to sell its Derby office to the Connecticut Bank and Trust Co. (CBT) upon consummation of the consolidation. (Tr. 838).

11. In addition, the defendants have agreed to divest themselves of three additional offices in Ansonia, Milford and Orange within one year after the proposed merger is approved. (Tr. 687-8).

12. To implement the divestitures, the acquiring banks will obtain by operation of law all of the banking business, including deposits, of the divested branches. The customers will not have to perform any act in order for their deposit business to be transferred to the acquiring banks. (Tr. 2215-6, 2218).

B. THE BANKING BUSINESS
(1) General Background and Regulation of Banking

13. Banking is distinguishable from most commercial enterprises in that both state and federal governments insist on the availability of stable banks and banking for the citizenry. If a bank fails, it is detrimental to the entire community. Banking is therefore regulated to insure there is competition; but measures are taken to assure that competition is not unbridled and yet doesn't become over-competitive so that bank failures result.

14. Mr. John L. Donovan, Regional Administrator of National Banks of the First National Bank Region4 described bank regulators as people who "carry water on both shoulders," in order to assure both competition and solvency in the banking industry. (Tr. 1829-1830). A primary concern in this business is that the competition not become so intense that bank failures result. (Tr. 1831-1832).

15. Congress has required that banks be examined by the Comptroller's Office to insure the health of the banking industry. 12 U.S.C. § 481. The function of the Regional Administrator of National Banks and his examiners is to examine the banks in his jurisdiction at reasonably frequent intervals to carry out the Congressional mandate. (Tr. 1940-1941).

16. The Regional Administrator is required by the Bank Merger Act to consider the financial, managerial resources, and the future prospects of the existing and proposed banking institutions.5 (Tr. 1944).

17. FNH has been a member of the National Banking System since its inception in 1863 and is the oldest chartered national bank with Charter No. 1; the Comptroller's Office has been examining it regularly since 1863. CNB has been a national bank since 1865. (Tr. 1928).

18. Federal statutes (see 12 U.S.C. § 481), require that national banks be examined three times in every two years. Generally, they are each examined between eight and twelve months apart. (Tr. 1796). The Comptroller's Office spends between 250 and 280 man-days examining a bank the size of FNH. CNB requires between 420 and 450 man-days. (Tr. 1928-1929).

19. A bank examination involves complete and thorough procedures to determine the bank's assets and liabilities. Between 80 to 85% of the dollar volume of the loan portfolio is reviewed. Examiners express opinions on the general competence of management, the bank's condition, earnings, capital adequacy, liquidity, internal controls, audit procedures, and future prospects for growth. (Tr. 1929-1931).

20. Copies of the examination report are filed with the bank and the Comptroller's Office in Washington along with any corrective action that may be required. Copies also are sent to the Federal Reserve Bank for the appropriate Federal Reserve District and to the FDIC in Washington. (Tr. 1929-1932). In bank mergers, the Comptroller requires a detailed application which is typified by D-35, the application of the defendants in this case. (Tr. 1935; D-35).

21. The Regional Director makes recommendations on the feasibility of branch expansions and mergers, but the final decisions rest with the Comptroller. With respect to an application for a de novo branch or consolidation with another bank, multiple factors are carefully scrutinized including the public need, profitability, economic character of the service area, population and business growth, any anticompetitive effects, management strength, capital adequacy, and legal considerations. In addition, there is verification and a critical evaluation of the application data, and competitor banks are consulted.

22. Pursuant to the BMA, the Department of Justice is notified of the Comptroller's approval of any merger and, after consideration of the...

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