How First National Passed Republic
and Other Stories of the Banking Game
(Page 4 of 7)
So far First International has acquired banks in El Paso, Abilene, Harlingen, Galveston, Odessa, Denison, Temple, Bellaire, and Irving, and three more banks in Dallas. The average administrative cost of acquiring each bank has been $100,000, which is why, as Stewart says, “We hate to lose an acquisition.” So far they have lost four: Arlington Bank and Trust, University State Bank in Houston, Citizens First National Bank of Tyler, and First National Bank of Waco.
When the Federal Reserve (the Fed) disallowed First International’s acquisition of the Tyler bank, it laid down for the first time guidelines as to what share of the state’s 24 largest banking markets any of the big five holding companies could control. It appears that First International, Republic, First City, Texas Commerce, and Bank of the Southwest are now barred from acquiring the largest bank in any of these 24 areas. The second largest is not fair game unless it has less than one-half the assets of the largest, and the third largest is also out unless it has less than one-fourth the assets of the largest.
If the Tyler principles are followed closely and uniformly by the Fed, then approximately fourteen of the 32 remaining independent banks with deposits over $75 million would be barred from merger with any of the big five—First International, Republic, First City, Texas Commerce, and Southwest. They would, however, be fair game for the other holding companies, some of which, like Allied Banc-shares in Houston, Fort Worth National, First United in Fort Worth, and Federated Capital of Houston, are embarked on aggressive bank acquisition programs of their own. On the other hand, the Fed has established a fairly ad hoc record of approvals that does not completely support the assumption that the Tyler principles will be closely followed. In March the Fed denied First International’s acquisition of First National in Waco; other major acquisitions, such as that of Austin National by Texas Commerce are still pending and their fate is uncertain. Republic may be the major long-run loser, even though First International has suffered the major disappointments so far. First International has completed the bulk of its first phase of acquisitions, but Republic must begin its journey through a new regulatory landscape.
The current First International strategy is to move outside the major banking centers on a selective basis into the growing markets of several smaller communities like Victoria and Longview. So far First International has been interested in banks with over $50 million m assets. The new rules make banks in the $30 million range more attractive. While this shift appears to have been made easily, the day after the Tyler decision Presley and Stewart each made ten calls to new banks around the state to open up negotiations or send out feelers. With the rules of the game being changed even as it is being played, there is no time to waste.
The holding company strategy of First International as it enters what the staff calls Phase II has been a model for the other holding companies. First International was the first to set up a separate holding company staff. The other holding companies are just beginning to follow suit. Their acquisitions have adhered closely to their stated philosophy—the member banks are each in strong positions and, apparently, healthy. Other holding companies have occasionally gone for “bargain banks,” banks whose performance meant they could be bought cheaply on the assumption that a steady-handed holding company management could turn them around, increase their assets and their earnings, and thus transform them into a blue-chip holding. As Hill says, “We hope these banks will turn out all right for their new owners. We know our banks are going to turn out all right.”
First International knows it is riding the crest of a wave. “If you feel electricity around here,” Byrd says, with a gesture of his arm encompassing the bank, the holding company, (the world?), “it’s because Dewey and Bob have us plugged into the most exciting banking venture going.” For people like Hill and Byrd, who came on board to be confronted by a dizzying succession of growth, reorganization, and acquisitions, First International is something special. Judging by the traditional measurements of price-earnings ratios, growth, and position in the market, it is. And while the denials of the Tyler and Waco applications are certainly setbacks, and while it has still not had the time to prove that it can manage a large bank holding company over the long run, First International seems secure in its newly-won pre-eminence.
Republic: The Bank at the Center of the World
If First International sees itself as a business, Republic considers itself an institution. Stewart and Presley pat their profit notebooks. James Aston turns almost every discussion of profitability, stock, and bank policy around to the subject of building the community. Words like Community, Man, and Service are customarily capitalized in Republic’s publications, and the banks and other businesses Republic invests in are referred to as “the Republic family.” And while Stewart and Presley are certainly community-minded men, nowhere in First International will the visitor see an artifact like the huge oil painting of the leadership of Dallas in 1956 that hangs behind the stage in Republic’s auditorium.
James Aston (Republic’s chairman of the board) is of that generation of civic leaders, strong-minded men, almost uniformly from small towns, who wed their personal visions to the vision of Dallas as a decent and profitable place in which to live. Aston is from Farmersville, the same town where Bobby Stewart’s predecessor, Ben Wooten, was a cashier in the local bank; Aston knew Wooten his entire adult life. Small-town intimacy and the plain-talking leadership it breeds sit as easily on Aston as they must have rested on Florence, Wooten, and Adams. Aston is the last of the breed that founded Dallas, men from rougher, more wide open times. One feels perhaps, just perhaps, Bobby Stewart could be taken on a horse trade; not Aston.
It is impossible not to admire Aston. The values and goals he espouses are, after all, the ones we all learned in civics class and Sunday School. If he were not a banker he would have made a superb preacher or an excellent five-star general.
Stanley Marcus, on his way one day to a Republic board meeting, glanced up at the repetitive geometry of the Republic building and saw in it the characteristic star which now all but the most unambitious Republic staff members wear in their lapels. Marcus made Aston a gift of a diamond star, and Aston wears it proudly. “As our people work here and learn what this bank is about, they learn what that star means—it means dedication,” Aston says, gazing with strong, clear eyes into some vision of a new future or some memory of a better past.
Obviously it is good business for bankers to be community men, just as it is sound practice for them to be helpful and friendly to a fault. “Our purpose,” Aston says, “is to build the country, not just to make money. I could run this bank with 100 people (instead of 2000) and invest all our money in federal funds—safe, long-term investments. But it wouldn’t build the country. It wouldn’t build Dallas. When the economy went soft two years ago, we could have cut back our short-term loans, but we didn’t. We lost money, but we did it because the community needed it.”
The observer accustomed to dealing with public figures becomes sensitive to a common syndrome: referring to the beneficial general interest when the specific interests of the politician/corporate head/administrator are not going well. Aston may be doing that, but it is doubtful. It is quite clear that he sees his g bank as the bedrock of Dallas. It is also quite clear that he personally owns very little stock in it. If one imagined their private finances to be the chief motivating factor, Bobby Stewart’s possession of more than $1 million worth of First National stock would perhaps incline him more to talk of profits, while James Aston’s holdings of less than $100,000 in Republic stock (an amount approximately equal to one year of his benefits under Republic’s retirement program) would free him to discourse at length on the good of the community. However, few people are so solely motivated by economic self-interest.
Republic is James Aston’s life, and, by natural extension, through it Dallas is his life. When U. S. Steel builds a major plant in Baytown and uses no Texas banks, Aston feels it a personal affront, just as he takes personally the penetration of the giants like Bank of America into Texas. (Their outpost in Houston has 26 employees). “Republic put $700,000 of its money into civic and charitable contributions in Texas last year. I’ll bet Chase Manhattan didn’t put one red cent into Texas,” he grumbles. Aston is running at Republic a sort of fiscal Alamo, defending Texas and its best interests from the profit-oriented assault by giant Eastern and California banks. But, like Travis, he may be doomed to go down in noble defeat.
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