How First National Passed Republic

and Other Stories of the Banking Game

The elevator doors open on chaos. Teams of workmen are transforming the eighteenth floor of the Republic Bank Building in Dallas into the offices of Republic of Texas, the bank holding company which will have the state’s second largest bank as its flagship institution. The visitor picks his way over and around stacks of sheetrock and piles of expensive blond paneling, precut and numbered. He walks to a window still crisscrossed with protective tape and looks two blocks to the west, where workmen at the new First International Building are installing plywood veneer and vinyl covering in the future offices of First International Bancshares, the holding company anchored by First National Bank, the state’s largest bank and Republic’s arch rival.

Morrison Smith is standing on the bare cement floors in what will soon be his office at Republic. It should be an exciting and symbolic moment, a moment at the beginning of a new era in banking and at a significant step in Smith’s own career. In many ways it is, but at the same time something is bothering him. It’s the ceilings. They are too low. “I don’t know,” he says. “I think we’re going to miss those twelve-foot ceilings.” Smith is right. The new offices are different, somehow not like bankers’ offices. They are too low, too regular, too new to project the established, quiet, dignified power of a giant bank. These offices are for businessmen; they are functional, spacious, sterile, the sort of offices where people raise their voices. One wonders if Republic’s massive wooden desks will go well in them.

The leaders of the state’s largest banks are changing more than their offices. At First, at Republic, at Texas Commerce, at First City, at Bank of the Southwest, and at banks in other major Texas cities, a new breed of bankers is emerging. No longer are they gray financial handmaidens to the real movers and shakers of the state. During the past two years, bankers have been acquiring other banks and putting together merger after merger, moving and shaking on their own.

They have become empire builders, and the material of their empires is other banks.

The traditional banking rivalries, most notably between First National and Republic, have now spread from Dallas across the entire state. First owns the sixth largest bank in Houston, and Republic is acquiring the fourth largest. Houston’s big banks own sixteen banks in the Dallas area. For bankers accustomed only to vicarious participation in such heady games of high finance, this empire building is intoxicating stuff indeed. The old banking style, like the old bank offices, will no longer do.

As recently as three years ago, there were only three bank holding companies in Texas. The combined assets of their eleven banks was eight percent of the total assets of Texas banks. Today, Texas has eighteen major bank holding companies. They control more than 50 percent of the deposits in the state. Assets (deposits plus capital) of First International total more than $5 billion; Republic has $4.5 billion. Holding company bankers are pondering Texas maps stippled with color-coded flags that represent “acquired” and “available” banks selected with the help of sophisticated computer programming. A whole new vocabulary is being thrown around: words like beachheads, game plan, target banks. Like military generals in command bunkers, well-groomed men in dark suits and white shirts are working seven-day weeks. Time is precious, because at any moment the state’s constitutional convention, the legislature, the Federal Reserve Board, or the Congress could pass laws or implement policies which would block further acquisitions. The big banks don’t want a cease-fire, but if it comes they are maneuvering for the best positions.

The first large Texas bank to take advantage of the Bank Holding Act of 1970—which set regulations for banks to form holding companies which could own other banks—was Houston’s Bank of the Southwest, followed by First City and Texas Commerce, also of Houston. The two giants of Dallas banking moved more slowly, perhaps because their traditional leadership of Texas banking had made them complacent. Before Republic could begin, it had to come to some decision about the Howard Corporation, Republic’s’ wholly-owned corporation which held assets not permitted holding companies under the new law.

First National, however, was not so limited. From their ninth floor offices on Elm Street, Robert Stewart and Dewey Presley, respectively chairman of the board and president of First National, watched the burst of activity in Houston with considerable interest. The holding company idea offered advantages to their bank, to its stock-holders, and to its customers. It could also offer them a chance to reestablish First National’s traditional ascendancy in Texas banking, a position it has been forced to share with Republic since 1948. By forming a holding company and by moving quickly and skillfully enough while Republic was mulling over its decision on the Howard Corporation, First National not only could overtake its rival, it could forge far ahead.

The Battle of the Dallas Skyline: Republic Versus First

Few businessmen have held forth more about the virtues of competition and practiced them less than bankers. Traditionally they have been the “Stepin Fetchits” of the corporate world, middlemen between big depositors and big borrowers, or managers of service centers for the masses of folk endowed with more modest financial resources and needs. Bankers were custodians—with the dull, safe virtues that exemplify the custodial spirit. While they might have financed Columbus, they certainly never would have sailed themselves.

But even before the opportunities of the holding company movement were prodding other Texas banks into a more competitive posture, the major banks of Dallas had been contending in a rivalry which extended into everything. The most visible evidence of the competition between the emerging giants, Republic and First National, appeared in a characteristic way: a seesaw struggle to build the tallest building. Bankers care about their buildings. Buildings are visible, solid, permanent: the bigger and more substantial their building, they feel, the bigger and more substantial their bank. Many bankers wear small models of

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