United States v. Third National Bank In Nashville, 86

Decision Date04 March 1968
Docket NumberNo. 86,86
PartiesUNITED STATES, Appellant, v. THIRD NATIONAL BANK IN NASHVILLE et al
CourtU.S. Supreme Court

[Syllabus from pages 171-172 intentionally omitted] Daniel M. Friedman, Washington, D.C., for appellant.

E. William Henry, Memphis, Tenn and Joseph J. O'Malley, Washington, D.C., for appellees.

Mr. Justice WHITE delivered the opinion of the Court.

In this case the United States appeals from a District Court decision1 upholding the merger of Third National Bank in Nashville and Nashville Bank and Trust Company against challenge under § 7 of the Clayton Act. The court below concluded that the merger, which joined the second largest and the fourth largest banks in Davidson County, Tennessee, into a bank which immediately after the merger was the county's largest bank but since has become the second largest, would not tend substantially to lessen competition and also that any anticompetitive effect would be outweighed by the 'convenience and needs of the community to be served.' We disagree with the District Court on both issues. We hold that the United States established that this merger would tend to lessen competition, and also that the District Court did not point to community benefits in terms of 'convenience and needs' sufficient to outweigh the anticompetitive impact.

I.

Like other urban centers in the Southeast, Nashville has grown steadily since World War II in both population and economic activity. Commercial banks, as 'the intermediaries in most financial transactions,'2 grew along with their city. From 1955 to 1964, for example, total assets of all banks located in Davidson County increased from $548,300,000 to $1,053,700,000, an increase of 92.2%. The number of banks hardly changed. Indeed, since 1927 there has been only one new bank in the county, Capital City Bank, and at the time of this merger it had achieved only .9% of the county's bank assets. The other banks at the time of the merger, and their percentage of total bank assets in Davidson County, were First American National, 38.3%; Third National, 33.6%; Commerce Union, 21.2%; Nashville Bank, 4.8%; and three small banks, two of them located in Davidson County towns outside Nashville, .6%, .3%, and .3%.3 The merger before us thus joined one of the three very large banks in Nashville and the one middle-sized bank. Its result was to increase from 93.1% to 97.9% the percentage of total assets held by the three largest banks and from 71.9% to 76.7% the percentage held by the two largest institutions.

The two merging banks played significantly different roles in Nashville banking. Third National was characterized by the Comptroller of the Currency as one of the strongest and best managed banks in the Nation and by the District Court as 'strong, dynamic and aggressive.' 4 It had 'a history of innovating services or promptly providing new services,'5 a recruitment program at local universities, a continuous audit program, and a legal lending limit of $2,000,000. It had 14 branches at the time of the merger and served as correspondent for smaller banks located throughout the central south.

Nashville Bank and Trust Approached the merger with a more checkered history and a less dynamic present. Until 1956 it was largely a trust institution. In that year, under the direction of W. S. Hackworth, in changed its name from Nashville Trust Company and embarked on a drive to become a full-service commercial bank. This program enjoyed considerable success. Between 1955 and 1964, Nashville Bank's deposits grew from $20,800,000 to $45,500,000, and its loans and discounts from $8,100,000 to $22,800,000. In both categories it grew faster than the county average and faster than Third National. This growth, however, occurred at a substantially faster rate before 1960 than after that year. Before 1960 it was growing more rapidly than the other banks in the county, and after that year more slowly. Its share of total Nashville banking business thus declined from a high of 5.72% on June 30, 1960, to 4.83% of June 30, 1964.

The District Court made elaborate findings as to why Nashville Bank and Trust 'reached a plateau on which it remained until the date of the merger' and why in this period 'it was a stagnant and floundering bank.'6 From those findings, and from the broad picture of Nashville Bank's history and operations which emerges from the testimony and exhibits in this case, it appears that the principal reason was that key members of its management, the men who had been responsible for the bank's progress in the late 1950's, had advanced in age and either retired or slowed their activities. The bank's officials nonetheless made but scant efforts to recruit and advance young talent. Nashville Bank paid substan- tially lower salaries than the other Nashville banks, had no funded pension plan, and conducted no systematic recruiting program. On January 1, 1964, the bank's board of directors had 13 members, of whom four were 75 or over, nine were 65 or older, and 11 were 63 or older. Of the six department heads four were 65 or older and the other two were 59. The average age of the 15 officers working outside the trust department was over 60. The District Court painted in somber hues the banking policies and the economic results which seemed to flow from the failure to hire young talent. Essentially, Nashville Bank was not aggressive or efficient, and it had stopped growing, so that it could not open branches (it had only one) or embark on a correspondent banking program. It was nevertheless an institution of substantial size, with assets of $50,900,000 and deposits of $45,500,000. It was profitable, and it offered somewhat different services, occasionally at somewhat lower rates, than its competitors.

In January 1964, the individuals who had owned controlling shares of Nashville Bank and Trust decided to sell 10,845 shares, a controlling interest, to a group of prominent Nashville citizens headed by William Weaver. The price was $350 per share. In February 1964, the Weaver group opened negotiations looking to a merger with Commerce Union Bank, Nashville's third largest. The negotiations were unsuccessful, however, because Weaver demanded $460 per share while Commerce Union offered only $360. Weaver then negotiated the sale to Third National, at a price of about $420 per share. The merger was approved by the boards of directors of both banks on March 12, 1964, and, after approval by the Comptroller of the Currency, was consummated on August 18, 1964.

II.

The legislative history of the Bank Merger Act of 19667 leaves no doubt that the Act was passed to make substantial changes in the law applicable to bank mergers. Congress was evidently dissatisfied with the 1960 Bank Merger Act as that Act was interpreted in United States v. Philadelphia National Bank, 374 U.S. 321, 83 S.Ct. 1715 (1963), and in United States v. First National Bank & Trust Co. of Lexington, 376 U.S. 665, 84 S.Ct. 1033, 12 L.Ed.2d 1 (1964), and wished to alter both the procedures by which the Justice Department challenges bank mergers and the legal standard which courts apply in judging those mergers. The resulting statute, however, as some members of Congress recognized,8 was more clear and more specific in prescribing new procedures for testing mergers than in expounding the new standard by which they should be judged.

Last Term, in United States v. First City National Bank of Houston, 386 U.S. 361, 87 S.Ct. 1088, 18 L.Ed.2d 151 (1967), this court interpreted the procedural provisions of the 1966 Act, holding that the Bank Merger Act provided for continued scrutiny of bank mergers under the Sherman Act and the Clayton Act, but had created a new defense, with the merging banks having the burden of proving that defense. The task of the district courts was to inquire de novo into the validity of a bank merger approved by the relevant bank regulatory agency to determine, first, whether the merger offended the antitrust laws and, second, if it did, whether the banks had established that the merger was nonetheless justified by 'the convenience and needs of the community to be served.' Houston Bank reserved 'all questions' concerning the substantive meaning of the 'convenience and needs' defense. See 386 U.S., at 369, 87 S.Ct. at 1094, n. 1.

III.

The proceedings that have occurred until now regarding validity of the merger here before us have been scrambled and confused, largely because the relevant statute, the 1966 Bank Merger Act, became law just prior to the trial and did not receive its first interpretation by this Court, in Houston Bank, until the decision below had been rendered.

The two banks agreed to merge on March 12, 1964. On April 27, 1964, they applied to the Comptroller of the Currency for approval, as the 1960 Bank Merger Act required. Pursuant to that Act, the Federal Reserve Board, the Federal Deposit Insurance Corporation, and the Department of Justice reported to the Comptroller of the Currency on 'the competitive factors involved.' The Federal Reserve Board reported that the merger 'would have clearly adverse effects on competition' by 'eliminat(ing) direct competition which exists between participants and * * * increas(ing) significantly * * * already heavy concentration * * *' The Federal Deposit Insurance Corporation reported that 'the effect of the proposed merger on competition would be unfavorable.' The Department of Justice reported that the merger 'would have severe anticompetitive effects upon banking competition in Metropolitan Nashville.' The Comptroller of the Currency, however, concluded that the merger would not lessen competition and would 'improve the charter bank's ability to service the convenience and needs of the Nashville public.' On August 4, 1964, he approved the merger.

On August 10, 1964, the United States, as this Court's decision in Philadelphia Bank authorized, sued in federal...

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