How First National Passed Republic

and Other Stories of the Banking Game

May 1974By and Comments

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 their bank building in their lapels. Erecting the biggest bank building, like growing the tallest pine tree, is a contest which extends over generations, and, unlike the ever-changing score on ledger books, leaves behind a very tangible result.

The Dallas bank building saga began in earnest in 1954, when Republic’s new aluminum-walled, $25 million building eclipsed the Mercantile Bank Building. Atop the bank, deliberately providing the height for victory, was placed a giant beacon which looks like a seal balancing a ball. The beacon shone for miles into the surrounding prairies, beckoning to North Texas like some corporate star of Bethlehem. When the Republic Bank Tower was constructed adjacent to the bank, the beacon would shine directly into the Dallas Club every 60 seconds like a grandfather strobe, illuminating the fox trots and waltzes of Dallas’ elite.

The opening of the bank in 1954 was a two-day affair that included entertainment by a symphony orchestra, jugglers, and can-can dancers. The 4500 guests at the opening cocktail party wandered through the largest unobstructed banking area in the world, a glistening expanse of polished wood and marble roughly the size of (appropriately) a football field. There were gold rugs, gold-plated water fountains, gold curtains in the executive washrooms, and 3300 square feet of 18-carat gold leaf on the balconies. In 1954 few institutions in the humdrum world of banking could have pulled it off. In Dallas it was a vast success.

In 1963, First National set out to top Republic. The new First National Bank Building, completed in 1965, was 628 feet tall, 30 feet higher than Republic’s beacon. Republic turned right around and built the Republic Bank Tower, which eclipsed the First National Bank Building only months after it took the tallest building in Dallas title. This fall, First National will again try to have the last word. The First International Building, headquarters for First National’s holding company, tops out at 710 feet and stands as the tallest building in the Southwest. When First International began this one, however, Republic started acquiring land at Live Oak and Saint Paul streets, near its current buildings. It now controls 150,000 square feet and—who knows?—may be maneuvering to top First International again.

This rivalry has so dominated the Dallas skyline, and the institutions themselves seem so massive and permanent, that it is useful to remember that both banks in their present form are only 50 years old, and that the two men whose vision and talent drove them out of the wide open wilderness of Texas banking into established supremacy are not long in their graves.

Fifty years ago, both Dallas and Houston were boom towns, where a poor boy from the country or from an immigrant’s slum could arrive penniless and make his fortune. It was just this sort of young man who formed and led these great banks, men who came from obscurity to power and prominence—founders, visionaries, climbers. The first generation of Dallas bankers were all self-made men. Nate Adams of First National began as a clerk in 1889; Fred Florence of Republic was raised in Rusk and started out sweeping floors in a small bank in Alto; and Bob Thornton, of the other major Dallas bank, Mercantile, was from Hico and began as a traveling salesman. The success of these men was the success of their America and the vindication of its values; hard work, dedication, and a pioneer spirit of adventure.

Of the three, Fred Florence was the most creative banker. With his hawk-eyed vision he built Republic from a minor institution into the largest bank in the Southwest. Florence bankrolled wildcatters using oil in the ground as collateral, specialized in short-term loans with high turnovers, and was trying, literally on his deathbed, to play a pivotal role in James Ling’s nascent merger wizardry. Florence made his bank the bank of the hustling, energetic man with vision who needed capital. Florence took risks, he put his faith in Dallas, and his bank grew with the city’s economy.

But even as Republic grew it was always in the shadow of First National, Nate Adams’ bank. First National was the bank of the carriage trade—more conservative, stodgier, more Victorian than Florence’s Republic Bank. Adams not only was a self-made banker, he was a self-made gentleman, and his bank resembled those one reads about in Dickens. First National grew through retained earnings, played it close to the vest, and never doubted its rightful place as the largest and most established bank in Dallas.

It took Florence twenty years to make Republic the largest bank in Texas. Two years later (in 1950) First National brought over Ben Wooten—the number two man at Republic—in an unsuccessful attempt to restore First National’s regnancy. Ben Wooten was of Dallas banking’s second generation, which was shaped in the same mold as the first. Wooten started his banking career in Alba and went from there to Farmersville, where as cashier in the local bank he met a young boy named James Aston. Aston, who succeeded Fred Florence at Republic in 1960, had started his career as a $50-a-month bricklayer during the Depression.

Aston is the transitional figure between the second and third generations. At First National, the third generation in the person of Robert Stewart has been in power for fifteen years. Aston, who will soon pass Republic’s torch to the waiting hands of a man of Stewart’s age, has grown and adapted to the various challenges which both circumstance and Stewart’s energies have thrown his way, and he is much more a figure of modern banking than anyone else of his generation. Still, the pendulum has swung completely, and Republic, which was once the hungry, scrambling, outrageous upstart is now the stuffy, slightly out-of-date champion. Robert Stewart’s rejuvenated First National is picking ’up the challenge with a vengeance, and with a style which would have surprised and perhaps even appalled old Nate Adams.

The Dewey and Bob Show

Dewey Presley and Robert Stewart, respectively president and chairman of the board of First International, cultivate a team image. When the middle-level management of First International discuss their firm they inevitably end up referring to “Dewey and Bob.” Dewey and Bob are the architects, the movers, the visionaries, the men who personify the whole endeavor. In many ways, “Dewey and Bob” expresses one concept: “That idea first came from Dewey and Bob”; “Dewey and Bob made the first contacts with the banks we wanted to buy”; “It was Dewey and Bob who decided we should be separate from First National Bank.” Dewey and Bob are treated as a unit, a single leadership phenomenon conveniently divisible into two parts for greater efficiency, but one all the same.

If Presley and Stewart argue between themselves, no one else seems to be aware of it. Since 1960 they have had coffee together at 7 a.m. each workday morning in the employee’s cafeteria on the eighth floor of the bank. Their offices adjoin. When discussing the bank, one man begins sentences that the other finishes. Through long association each knows what the other will say, and one imagines them occasionally agreeing, “OK, Dewey, today you say my lines and I’ll say yours.” Such teamwork requires considerable effort, particularly when the ultimate boss, Stewart, is the younger man.

In appearance the two men could hardly be more different. Stewart dresses in modified London banker chic: pin stripes with tailored jackets and trousers with just the slightest hint of flare. In his coat pocket he always sports a neatly folded handkerchief. Presley seems most comfortable in straight-cut suits of Baptist deacon blue. Outside the bank his main interests are his family and the Baptist Church. He has taught a Sunday school class at Park Cities Baptist Church since 1950, and is chairman of the board of Baylor University. Presley is a benign, gentle-looking man, with an animated face and eyes that wink when he is talking about the driest of subjects. There is no indication that the routine of banking has worn him down, none of the dry brittleness that seems to settle on accountants after years of going over books. Hollywood could have picked him to play the lawyer in To Kill a Mockingbird. Presley is of the first two generations of Dallas bankers—a boy from Gilmer who made it big, and who brought his small-town virtues to the big city. It would not be far-fetched to imagine him whittling on an East Texas front porch.

Stewart, on the other hand, is mainline Dallas. His grandfather was chairman of the board of First National, and young Bob’s career was foreordained. He majored in banking at (where else?) SMU, and went to work as a cashier at First National in 1951, cashing checks, depositing rolls of pennies, balancing the money-flow through his window. But Stewart is not of the same breed as the other Dallas bankers, including Presley. His career at the bottom was short-lived, since he was clearly born to lead the bank. It did not seem like an affront to the natural order of things that he was a vice-president in two years and senior vice-president in eight (when he was 34). The next year he became, at 35, the president of the bank, with Presley as his senior vice-president.

The two men had a year’s notice of their pending ascension to the bank’s cynosure. “Dewey and I worked nights the whole year getting ready,” Stewart recalls. “Back then we weren’t even in the game with Republic. Fred Florence had been president of the American Bankers Association and was known all over the United States. The main problem was that I was so young.”

Thirty-five is young to be at the helm of a billion-dollar business anywhere. It is particularly young to be head of a billion-dollar business in Dallas. Oh, the Ross Perots and the James Lings can do it, but they aren’t running one of the city’s linchpin institutions. Perot and Ling are wildcatters—men of action who come and go, comets of business genius trailing opaque tails of mergers, conglomerates, and other business pyrotechnics. Stewart at 35 was responsible for the bank and for Dallas, and specifically, for his depositors’ money. So, there he was, bred to wealth, power, and responsibility, standing astride the second-largest bank in the Southwest, custodian of the pipelines of credit, as powerful with money in Dallas as the Arabs are with oil. The traditional role would have been one of counseling, caution, and restraint. But 35 is the age for adventure, mobility, and risk-taking. What Stewart did was to change the bank, but cautiously; to get it moving, but slowly. His determination was to change First National’s traditional complacency into aggressiveness. The problem was where to do it and how to begin.

Faced with Republic’s commanding lead in deposits and assets, Stewart and Presley decided to focus their energies elsewhere. “Our goal was profits,” Stewart says. For most businessmen, such a statement would be simple-minded at best: all businesses want to make profits. But while for years banks had been impressed by potential borrowers whose techniques of modern management isolated costs and revenues, they had not conspicuously done the same at their own institutions. Stewart and Presley unabashedly initiated a profit program at First National. They placed executives in charge of cost centers throughout the bank, each with a bonus incentive plan tied to the profits derived from his center. When the bank began acquiring other banks, the profit system was extended to each bank in the empire. Reporting systems were standardized, and the resulting network of profit plans rests in two small black notebooks on Stewart’s desk.

The profit system is run by a young aggressive staff. Attracting bright young people to banking in the Sixties was no easy task. The glamor businesses like computers, electronics, and investments were siphoning off the best talent. Banking was still saddled with the image of legions of Martin Chuzzlewits hunched over rows of high wooden desks entering the deposits and withdrawals for the day with quill pens. Stewart and Presley tried to rid their bank of that image. Their first step was to implement a retirement policy for the bank’s board of directors. (One glance at the photographs of any randomly chosen bank’s board amply illustrates just how important that retirement policy was.) Only two members of the board which named Stewart president in 1960 still serve. “Getting a good board was one of the most important things we did,” says Stewart.

Last year, First International, the holding company Stewart and Presley created, passed Republic in deposits.

The two men have revolutionized their bank. They have made it into a business, added cost and profit control and incentive bonuses, placed their stock on the New York Stock Exchange, and recruited a group of hungry professionals. At the same time they have consciously preserved the bankers’ virtues. They are calm, collected men. They do not hurry. They do not glance at their watches. They do not give the impression they are hustling, riding the edge, or taking any chances whatsoever. One feels his son’s paper route money would be safe with them.

Stewart was expressing that spirit of stability when he said, “Dewey and I are here at seven every morning because that’s just how banking is. Your customer doesn’t want to come in at nine and find you in a meeting.” Now such considerations certainly are important at the Pflugerville State Bank, but it’s been some time since someone strolled in off the street to ask Bobby Stewart about a loan to add on to his house. The reality may be long gone, passed down the ladder of corporate responsibility, but the myth is kept up, kept up even as Stewart and Presley run a $5-billion holding company, and conceivably could be in meetings all day, every day.

Presley and Stewart refer to themselves as “commercial bankers.” They want to appear to be doing the same thing they have always done: banking. But since they formally left the bank in 1972 to head its holding company, banking is precisely not what they are doing. The group of professionals they have assembled at First International simply cannot be described as bankers. They are empire builders, with a vision- ary gleam in their eyes.

When Presley and Stewart set out to build a holding company team, they were looking for people whose skills and instincts transcended those used in normal banking operations. Accountants and attorneys were needed who were familiar with stocks and mergers, and with regulatory agencies. An investment and planning staff, as well as economists, were required whose horizons would be broader than one bank’s market. The whole team would have to adapt to the three basic holding company tasks: identifying, acquiring, and overseeing a growing number of member banks.

The key members of this holding company team initially came from First National, although some members came from outside companies. Paul Hill, Lubbock-born and bred with the accent, infectious humor, and expansiveness of a Panhandle Texan—complete with Texas Tech ring—became the controller and recruited a staff of accountants. Jim Byrd, a sometime-banker, sometime-professor, with a year-round sailing tan and English table manners, became the chief economist. Leonard Huber, with Byrd’s tan and Hill’s smile, is the investments and planning officer as well as the key contact for the security analysts; George Anson, the attorney who regularly entices seven-day weeks out of his small band of acquisitions specialists; Jim Merritt, the corporate secretary/treasurer who manages the constant flow of documents and filings.

As the acquisitions continued, Presley and Stewart came to realize that they were the only two bankers among the accountants, lawyers, and economists in the holding company. The growing number of member banks needed a banker to work directly with them. The two men were returning to Dallas from San Antonio last October when the name of Elvis Mason came up. While they were still on the plane they decided they wanted Mason to join them at First International, and made arrangements to talk with him at the American Bankers Association meeting in Chicago.

Mason was the successful head of his own holding company, First Security National Corporation of Beaumont, a stable and satisfying position for a man of 40. When Presley and Stewart first made their pitch. Mason was unenthusiastic. He had his house on Lake Rayburn, his position in the community, and he felt a loyalty to Beaumont. “I understand all that,” Stewart told Mason, “but in the first place this is a tremendous opportunity, and in the second place, do you want them to write on your tombstone, ’Here lies a good ole boy’?” Mason was convinced, and has joined First International as vice-chairman of the board. For the first time in fifteen years, Stewart and Presley will have a companion for early morning coffee.

First International: The Course of Empire

First International was not the first bank holding company to take advantage of the potential in the Bank Holding Act of 1970. First City, Bank of the Southwest, and Texas Commerce, all in Houston, were out there first. But when Presley and Stewart got into it, they rewrote the book.

“We started out,” says Stewart, “with our first priority to connect the two great areas of the state, Dallas and Houston. We went to the Federal Reserve in Dallas, to the Federal Reserve in Washington, and to the Justice Department, and we asked them all what we could do in Houston. The answer was that we couldn’t go with any of the big three (First City, Texas Commerce, Bank of the Southwest). So we picked Houston Citizens, the sixth largest.”

Once Houston Citizens became a part of First International on December 31, 1972, the team really went to work. There are three main stages to merger activity: targeting, negotiations, approval. The targeting sounds scientific—find healthy banks whose rates of growth are equal to or better than First International’s. Dr. James Byrd, chief economist, runs models and develops data to help determine which of the banks and regions that seem good really are. But of at least equal importance with scientific methods is the seat-of-the-pants feeling for the banks and their management which Dewey and Bob have built up through fifty years of familiarity with the Texas banking community.

After a bank has been identified, Presley and Stewart personally handle the negotiations. At First International there is no figure equivalent to Henry Kissinger. Presley and Stewart want to deal head man to head man, even though most of their target banks are one-fiftieth the size of their own. Usually the negotiations begin when Stewart calls up the president of a bank they have targeted.

“How’s this holding company thing look to you?”

“Bobby, it doesn’t look worth a damn. I wouldn’t touch it with a ten-foot pole. It’s the worst thing that’s ever happened to the state. How are you, anyway?”

“Fine, thanks. Say, Dewey and I would like to come down and talk about this holding company thing with you. Maybe buy you lunch.”

The biggest obstacle is what Bobby Stewart calls the “philosophical barrier.” Banks are pillars of a community, and bankers represent a community’s leadership more often than any other class. They control credit, and without credit, very little gets done. Local ownership and control is a symbol of dedication to local interests. Local bankers may fear that those hard-eyed big city bankers from Dallas will come in and determine who will get loans, and who won’t. Also, many of these bankers are the equivalent of Nate Adams’ generation: they founded their banks and/or have shepherded them to their present size. To sell out would risk losing their position in the community, and also, more subtly, perhaps subject them to banking management principles from places like Harvard Business School and other citadels of new-fangled ideas they might damn well just not understand. The holding company movement was a threat: to their communities, to their banks, to themselves.

Presley and Stewart combat this reaction by sticking with hard figures. The purchased bank will trade its stock for holding company stock listed on the New York Stock Exchange. The bank’s capital position will be improved; its potential loan demand will be greatly expanded; and it will enjoy data processing and management services otherwise uneconomical for a smaller bank. The clincher often comes when Presley and Stewart point out that the way the Fed is setting its policies, and with the goings on in Austin, it is possible that if the bank doesn’t get on board pretty quick they just might be left out in the cold later on.

After the initial success of the first wave of mergers had overcome much of the early suspicion, and when it became clear that First International really did want to keep the local banks’ management and boards, receptiveness increased. Banks started approaching First International. “We had one bank,” says Paul Hill, “where the president walked up to one of our people who was just down there doing some contracted data processing work and said, ’Hey, wanta buy our bank?’ ” According to Hill, the bankers who decided to go with First International agreed to the merger because of better service, because it will be better for the community, and because of improved loan capabilities. But of more than considerable importance has been the increased liquidity, marketability, and appreciation of their shareholders’ stock.

First International’s practice is to go for the healthy bank, since its earnings will enhance the earnings from First International’s assets. If it is well managed, then First International will not have to enter the touchy areas of changing management and struggling with the bank’s board. Someday, when a bank’s president or chairman of the board dies or retires, First International will very likely have to get involved by working closely with the board to plan management succession and perhaps to help locate management personnel. But for now the main innovations at the acquired banks have been improved budgeting, profit planning, and reporting techniques. For Paul Hill to do his job of monitoring the banks and plugging them into First International’s standard profit-maximization/cost-minimization banking philosophy, every bank has to adopt the same reporting system. Each bank is linked by computer to Hill’s office, where data for all of First International’s banks are entered simultaneously with their entry in the office of each bank. Hill says that it is a credit to many of these bankers that they did so well with fairly primitive accounting systems which often provided an accurate profit picture only at the end of the year. Hill’s primary job is “to get some good numbers in order to make profit planning work.”

Once Presley and Stewart have brought a bank far enough along to begin the actual merger talks, one of Hill’s accountants is dispatched to the bank. “The local bank usually puts him in a back room so no one will see him,” says Presley. “It takes time for them to get used to the idea they might sell.” The whole acquisition is reduced to the finest detail by computer, and the effects of changes in the price on First International’s stock, its price earnings ratio, and, one gets the feeling, its stationery supply, are plugged in. During final negotiations at the target bank a member of First International’s team carries a portable computer terminal. If a target banker says, “I’ve been thinking. What if we go up two tenths of a percent on our stock switch ratios?”, then the First International man can plug into a telephone and get the printout while Presley and Stewart are chewing over the idea.

Nothing is left to chance. As folksy and friendly as Stewart and Presley can be, the final deal will be nailed down in every aspect in the most professional way, with an eye always to First International’s long-run interest. “Sometimes we have to tell a banker,” says Stewart, a sort of friendly professorial tone creeping into his voice, “that if we let him dilute our stock then it’s going to be that much easier for the next guy to do it, and when that happens the man I’m talking to will then be holding our stock, and he’s going to think twice before opening the floodgates on getting what is about to become his stock diluted.”

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.

If so, Aston will not go down without a struggle. When he talks about the needs of Dallas, his eyes light up; when he talks about the current position of Republic, they narrow. Republic is on the defensive, and their position bewilders them and in fact seems downright unfair. First International has been getting all the attention, striding in full sunlight down the high road while Republic has seemed to be floundering in the briar patch, stuck inextricably to their financial tarbaby, the Howard Corporation—a widely varied collection of blue chip investments in oil; 20 Texas banks; six shopping centers, including Highland Park village; and undeveloped real estate. Reorganization of the Howard Corporation to conform to the Fed’s rules on what assets a bank holding company can own has been the main stumbling block preventing Republic from finally joining the other major Texas banks as a bank holding company. And so, when they finally announced their’ plans for Howard’s assets and their own holding company activities this March, Republic confidently expected their stock, which had been low in comparison to First International, to go up. It did not. On that same day, First International had just had its Waco acquisition disallowed by the Fed. Its stock went up. “We’re just snake bit,” said one Republic vice-president. “First International has got the market so charmed they could announce all their depositors had withdrawn their money and their stock would jump five points. We could say all that money had come here and sure as I’m standing here our stock would go down. It’s crazy.”

Clearly investor preference for First International, which sells at around 20 times earnings, over Republic, which sells around 13 times earnings, rankles the top men at Republic. “I ask every investor I can find,” says Aston, “what the hell’s wrong with our stock. They say, ’Not a damned thing, but holding companies have all the glamor these days.’”

Republic is counting on some of that glamor rubbing off as soon as Republic of Texas begins its holding company operations this May “We’ve had to turn banks away,” says Bill Hatfield, currently executive vice-president of Republic Bank and slated to be in the same position at Republic of Texas. “There’s not going to be any problem finding blue chip banks the minute we get the go-ahead to operate as a holding company.” Republic’s chief officers believe with the certainty of the Chosen that come this May they will begin to reclaim their rightful place as the acknowledged leader of Texas banking. “Right now everyone is talking about Bank B,” says a high-ranking officer at Republic, meaning First International. “This time next year they will be talking about us.”

Well, the visitor asks, why should a bank become part of Republic when First International, Texas Commerce, and First City all have better price-earnings ratios on their stocks and a better earnings record? Republic’s management is ready for that one. In the first place, they say, we are more innovative than any other bank. In the second place, those high price-earnings ratios can’t be sustained. People who get Republic stock will look for it to go up; buying the glamor banks like First International or Texas Commerce will likely lock a purchased bank into a stock that could decline. Besides, we have a more aggressive trust department, a better international operation, a more developed training program. We put our money in people. So our earnings are low. That’s because we had a few big loans go slow. That is just bad luck. The same thing can and will happen to other banks.

The clincher, however, is the litany: We have worked with a great number of Texas banks for many years, both the ones we own shares in and our correspondent banks. They are all part of the Republic family. They like our management and they like our community philosophy. We’re not talking about company x versus company y. These banks are our longtime friends, and they are waiting until we’re able to buy ’em. And we are going to be ready.

The new holding company offices at Republic will house, as they will at First International, a new breed of bankers. Republic, however, has a slightly more complicated personnel situation. Bobby Stewart and Dewey Presley have been working together since 1960. Whatever infighting there is at First International transpires beneath them. At Republic, Aston is the head of state presiding over a number of rival nobles, each with his fiefdom and power base, but all existing on the sufferance of Aston himself. Aston is like a strong-handed Eisenhower, a man above politics, a unifier, a father figure whose guiding hand touches his banking children from the president to the assistant cashier just returned from an operation. Aston has watched two key assistants, James Keay and James Berry, both 52, struggle for supremacy for the past 15 years. Keay appears to have won a fairly commanding position, emerging as chairman of the board of the bank and vice-chairman of the holding company. Berry is president of the holding company, but it is unclear just what his role will be with Aston above him and the very capable William Hatfield below him as executive vice-president.

Keay may seem to be in front simply because he appears more like a banker—tall, slender, elegantly dressed, looking almost like a Kennedy in spite of bifocals and a trace of an avuncular manner. Keay has Bobby Stewart’s ease of authority and apparent imperviousness to pressure. Berry, on the other hand, may be in fact equally or even more worthy. On his shoulders, however, the responsibilities of running a major bank do not sit so easily. He appears less in control; some bank employees confide that he always looks pursued. Perhaps he is, or perhaps he merely has more work to do. Behind him is Hatfield, a large, genial man with a beartrap mind. And behind Hatfield are platoons of what Aston refers to as “superstars, hot shots, race horses we can’t keep under wraps forever.”

When Aston retires, it is anybody’s guess who will end up in command. The new president of Republic Bank, Charles H. Pistor, won out over ten other senior vice-presidents for the job. His position looks strong, but Keay or Hatfield is probably the man to bet on, with Berry in the running as well. The end to such speculation is still down the road, presumably many bank acquisitions and a few personnel changes hence.

On a different level from the upper echelon is the rest of the Republic holding company team. Acquisitions will be primarily targeted by John English and Morrison Smith. English, a former senior financial analyst with the Fed, is charged with identifying target banks from a financial standpoint. Smith, whose experience with the bank examiners prior to coming to Republic and his past work with Republic’s correspondent banks have given him a detailed map of Texas banking and Texas bankers, will spearhead much of the personal negotiations and will buttress English’s analyses with his own first-hand knowledge. Sharon Cannon, a young attorney from Texas Tech formerly with the Fed, will supervise the work of Republic’s outside attorneys and will be responsible for acquisition applications and regulatory matters. Considering First’s staff of 5 attorneys, Ms. Cannon will have network cut out for her. In addition, Robert Scott is the treasurer, responsible for accounting procedures and management information systems; Lee Drain is the secretary; and Roger Jones is responsible for tax matters. Much of the staff is young. Smith and English are in their thirties and Cannon is 27. They are as yet unproven in holding company work, but their experience seems to equip them well for the task.

Republic at the Starting Gate

Before bank holding companies, prices of bank stock were of concern only to the patient investor who occasionally traded in bank stocks, most of which went quietly over the counter. Today bank stock is the crucial element in acquisition programs. Holding companies do not buy other banks; they acquire them by exchanging their stock for the stock of the target bank. The value of a holding company’s stock is what the target bank will receive for its holdings. If the holding company’s stock is valued by investors at a high level (in other words, if it has a high price-earnings ratio) then that holding company is in an excellent position to acquire other banks.

For example, let’s assume both the holding company and the target bank have profits that yield $1 per share of stock. If the holding company and the target bank simply exchange stock, then the target bank’s stockholders will receive stock which is earning the same per share as their own stock. Their earnings will be the same. However, investors set prices on bank stocks by considering other factors in addition to earnings. For example, the stock of First International and Texas Commerce sells for around twenty times what each share earns; Bank of the Southwest for around nine times; Republic around thirteen. There is a difference.

Now, if the target bank has a choice, here is the decision it must make. If it sells to First International or to Texas Commerce, then the value of the stock it receives will be twenty times earnings, or $20 per dollar of earnings. If it goes with Republic, the value will be $13 per dollar of earnings; with Southwest, $9 per dollar of earnings. A bank that earned, say, $1 million, would receive stock worth $20 million from First International and Texas Commerce.

$13 million from Republic; and $9 million from Southwest. To compete with the two leaders, other holding companies will have to give up proportionally more stock than would First International or Texas Commerce. Investors set price-earnings ratios for stock by their willingness to buy, sell, or hold certain stocks at a given price. The most important investors in setting this price are the large institutions, many in the East, whose portfolio managers deal in blocks of bank stock normally worth a minimum of $5 million. These trust managers base their estimate of a bank’s stock on many factors, among them past performance, their opinion of the bank’s management, the economic potential of the bank’s region, the regulatory climate, and their estimate as to whether the stock will go up or down.

These estimates can be very personal. When a portfolio manager for a large insurance company in Connecticut comes to Texas, he meets with bank leadership and develops an impression of their candor, their professionalism, their dedication to earnings, and their concern for the value of their bank’s stock. When he returns home he may place orders to buy 100,000 shares of bank x, and to sell 100,000 shares of bank y. Then he’s on the phone telling his friends what he learned, and within a week the institutional investor community (which is in fact quite small) is talking about it and making decisions to buy and sell massive amounts of stock. In the process bank x stock has risen four points to a new high, and the bank has received a healthy boost in closing a merger agreement with a wavering bank; bank y has fallen three points and its current merger prospects ask for time to think it over. This whole process may sound haphazard and unscientific. It is. It is also a crucial arena for any holding company seeking to build an empire. Without the confidence and support of the institutional investor community in its vital role of determining a bank’s stock price, then a holding company will be at a powerful disadvantage against another holding company. They may each have the same number of chips, but one holding company’s will be white and the other’s will be blue.

These elementary mechanics of the market in bank stocks control the engines of holding company empires. As Republic begins to gear up its holding company, it is facing some obstacles which are not insurmountable but which clearly place it at a disadvantage.

Republic is unique among Texas banks in already having an air of established empire about it, something like the assurance of China that in spite of the temporary successes of Britaip, America, Russia, and Japan, it is still the center of the world. This assurance is maintained (in the face of rather compelling evidence to the contrary) by Republic’s belief in the strength of its past and its faith in the destiny of its future. This destiny is not so much discussed as it is assumed. The assumption rests on these basic tenets:

The reorganized Howard Corporation will continue to provide, as it has for forty years, some crucial financial muscle to keep Republic dominant;

The valuation of Republic stock at thirteen times earnings is underpriced relative to First International and Texas Commerce, which are at twenty;

Republic offers services and status which no other bank can match.

The problem with this line of reasoning, like the problem with any world view consistent solely within itself, is that when it touches the outside world it doesn’t hold up. And it is the outside world, in the person of investors, which needs to be impressed by this logic in order for Republic’s stock to rise. The problems are these: Republic’s growth in earnings per share has historically not been as good as its major competitors’; the impact of the Howard Corporation is still unclear, and the detailed disclosure of its assets actually coincided with Republic’s stock going down; and Republic has not yet established a clear image of itself as an aggressively managed institution.

Still, Republic may well be able to maneuver a successful course through waters that will turn out to be only temporarily troubled. If its stock does begin to rise, then it will be in a strong position to proceed with an aggressive acquisition effort. Its strategy will have to be tailored to its position as a Johnny-come-lately to the holding company ranks. Two years of intensive activity by other holding companies have significantly reduced the number of available banks, as have recent regulatory decisions. Some the major banks still left on the acquisitions table will be likely candidates for Republic’s merger appetite, but until a clear upward trend in its stock becomes evident, Republic may have to strike some merger agreements less advantageous than those being forged by First International and Texas Commerce, which today clearly lead the pack.

The real moment of truth for Republic will come if its predictions do not come true, and if it remains lodged down in the second tier of holding companies with smaller institutions like Houston’s Allied and Federated, which are exhibiting some impressive energies of their own. Republic has been able maintain its prestige in the new world of holding company empires by its position poised to take off into an unknown future. If that prestige dips, as it might, then Republic may have to reconsider its management policy and its general position in the marketplace.

Such considerations in the last analysis may have little to do with what kind of services a bank’s customers receive,which is the final arrow in Republic’s quiver. There may be in Texas enough, banks to whom Republic’s self-proclaimed reputation as having the best services may indeed carry real weight, and for whom prices of stock represent only the fickleness of the marketplace. If this is so, then Republic could easily build a successful merger program through acquiring banks which are in sympathy with its philosophy, thereby maintaining and extending its position while telling investors to go hang.

The Regulators’ Dilemma: Is Big Best?

The energies of the new bank holding companies are redrawing the state’s banking map, but the institution which is channeling those energies and determining just what the new map will look| like is the Federal Reserve System. cording to the Bank Holding Company Act of 1970, the initial application to become a holding company and each new acquisition must be approved the Fed. Since Dallas is a regional headquarters of the Fed, all Texas bank holding company applications and acquisitions must go through its office on Akard Street, where a staff of lawyers and economists attach a recommendation for approval or disapproval. These recommendations, it should be noted, are not always followed in Washington.

Like the U.S. Supreme Court, the Fed does not discuss its policy. It speaks through its decisions. So far the decision which has spoken the loudest has been the disapproval of First International’s application to acquire Citizens First National in Tyler. The Fed apparently is embarking on a new course of actively encouraging competition among not just the five largest banks, hut competition including a second group of smaller holding companies who are effectively being allowed to negotiate with banks the big five are barred from approaching. If the Tyler principles hold, then it is quite likely that at least ten holding companies will be competing for both independent banks and for customers.

Although the big bankers will not criticize the Fed under any circumstances, they appear privately to be worried that decisions like Tyler may prevent Texas banks becoming large enough to compete nationally. Texas holding companies are small-time by national standards—stock car racers, as it were, and not Grand Prix class. First International ranked 26th in the nation in deposits in 1973. Republic was 28th; First City in Houston 43rd; Texas Commerce in Houston 48th; and Southwest Bancshares in Houston 74th. There are banks larger than the Dallas banks in San Francisco, New York, Los Angeles, Chicago, Buffalo, Pittsburgh, Detroit, Minneapolis, Boston, and Philadelphia. The largest Houston banks trail banks in cities like Phoenix; Milwaukee; Winston-Salem, North Carolina; Bala Cynwyd, Pennsylvania; Bloomfield Hills, Michigan; and Columbus, Ohio. No matter how spectacular its growth, it is virtually impossible for First International to edge past First Bank System of Minneapolis (50 percent larger than First International), into the ranks of the twenty largest U.S. banks. In size at least, Texas banks have little to brag about.

Texas banks are relatively small because Texans wanted them that way. Banking regulations filled Texas with small, localized banks, banks that would be dose to their communities and not so big and powerful as to monopolize credit. Texas has 1235 banks, more than any other state—more than eight times as many banks as California and four times as many as New York. While in 1971, before the holding company movement began, the five largest Texas banks contained 21 percent of the state’s deposits, in California the five largest banks contained 77.5 percent of the state’s deposits and, in New York, 56.2 percent. No Texas bank has even one-tenth the assets of the nation’s largest banks. A bank’s size is a fairly direct measure of the size loans it can make. Big businesses do not utilize small banks, and the inability of Texas banks to compete on the big deals has galled several generations of Texas bankers, who have watched big businessmen who are their next-door neighbors in Highland Park and River Oaks spurn their banks for the broader resources of New York and California institutions.

The bank holding company movement in Texas will make the state’s largest banks more competitive in a number of areas, but sheer size will not be one of them. The giants of banking are not sitting still, and an emerging nationwide competition among banks has them looking at Texas for customers. Holding companies dominate California, Florida, and New Jersey. New York will be open to state-wide branch banking in 1976, and it appears inevitable that the giant New York City banks will dominate that state. New York has already offered to open its borders to banks from states which will do the same for New York banks. While the U.S. will probably not see the emergence of huge banking-industry combinations like the zaibatsu which dominate Japan (imagine a merger of Chase Manhattan, IBM, and Exxon), some economists see the country eventually being dominated by around ten national bank holding companies, standing firmly astride the country’s entire financial marketplace.

There are strong political forces in the opposite direction, however. Ralph Nader has just published Citibank, a less than flattering account of the efficiency, service, and general performance of the nation’s second largest bank, First National City in New York. Congressman Wright Patman of Texarkana is laboring mightily, as he has for forty years, to limit the power of large banks and to force the Fed to be more rigid in its interpretation of holding company laws. Also, a considerable number of bankers oppose the holding companies. Their organization, the Independent Bankers Association, has as its outgoing president, Fred T. Brooks, president of Merchants State Bank of Dallas. The independent bankers rail against the size and impersonality of the big holding companies, and equate independent local banks with most of the virtues of American democracy.

While many independent banks may in fact be avoiding criticism of the holding companies because they envision selling out one day themselves, the voices have been loud enough to attract the attention of the constitutional convention currently sitting in Austin. In February, the general provisions committee proposed the continued ban on branch banking and the placement of a constitutional limitation on the size of the bank holding companies. A holding company would be barred from acquiring additional banks if it already owned more than eight percent of the domestic funds on deposit in the state. Since First International, First City, Texas Commerce, and Republic are at or near eight percent already, these holding companies are understandably opposed to this limitation. However, the committee has recently voted 12 to 5 to reconsider placing this limitation in the Constitution. The lobbying effort of 11 the holding companies to remove or to raise the limitation has been impressive and well-coordinated. Whether it will be successful remains to be seen, since for many delegates there is some political hay to be made by attacking big banks.

Banks and Dallas: The Common Vision

Dallas was, is, and probably always will be a booster’s town. From the extravagant designs of founder John Neely Bryan’s frontier outpost to the outlandish visions of the backers of the Dallas-Fort Worth Airport runs a common strain: if we close our eyes, relax our vigilance, whisper our doubts, then Dallas will simply disappear. Poof. Dallas has no natural advantages, its soil is relatively poor, there are no concentrations of minerals, no outlets to established trade routes, nothing to fall back on. Beyond the confidence, the boosting, the incantations of greatness chanted across the plains, lies . . . what? It is a question Dallas leadership has not felt comfortable asking. In fact, several generations of Dallas leaders have ignored such limitations, and combined extraordinary vision and hard work to create a city from a town otherwise destined to be about the size of Nacogdoches.

At the center of this truly unmatched civic strongmindedness and dedication have always been the bankers. They have for several generations bankrolled wildcatters and dreamers, oiled the gears for the movement of capital into North Texas from Europe and the East, and forsaken the banker’s traditional gimlet eye for the booster’s gleam. Oh, bankers have been vital to Houston as well, and the natural advantages of its boggy, pestilential swamps were not made clear until its own dreamers arranged the dredging of the Houston Ship Channel in 1914. But in Dallas the bankers combined with the key business leaders to run the city, and to run it the way they ran their banks, their businesses, their oil fields, and their insurance companies. In the process the general needs of Dallas came to be identified with specific business needs, but even so the spirit remained as James Aston described it: “We’ll fight tooth and nail for business, but when we go to the Citizens Council we put all that behind us and work for the good of Dallas.” In Houston, in Atlanta, in every other major city, the key business executives are rarely so intimately involved in running the city. Traditionally the major institutions are represented on chambers of commerce and civic bodies by passed-over elder statesmen or young executives in seasoning. Exactly the opposite is true in Dallas. The number one men get together and decide how things will be. Or, rather, they used to.

The Dallas establishment dates from 1936, when one day R. L. “Bob” Thornton (head of Mercantile), burst into the office of Nate Adams (head of First National), long arms waving like a scarecrow, and exclaimed, in his own idiosyncratic way: “What we need is the boss men organized so we can act quick . . . dydamic kind of organization . . . stupendjious effort . . . people doin’ things!” Adams’ response, the story goes, was a calculated nod of his well-groomed, well-controlled head; he had, after all, been thinking the same thing himself. And so the Dallas establishment was formed—not by politicians, not by businessmen, but by bankers. Over the years that initial push by Thornton and Adams matured into a guiding hand. When Fortune magazine chose the most powerful people in Dallas in 1964, among the nine businessmen and civic leaders they listed three bankers: Karl Hoblitzelle (then chairman of the board at Republic), James Aston (Republic), and Robert Stewart (First National).

For 40 years the yes and no men of Dallas have been meeting together to do good and to keep their city in safe hands. Adams and Hoblitzelle pushed decent housing projects for blacks in the Forties, just as their counterparts in the Fifties and Sixties would take an active, if not necessarily advanced, role in effecting Dallas school integration. Fred Florence’s pet project was the Southwest Medical Center, where his successor, James Aston, is still actively involved. The opera, the theater center, the struggling symphony orchestra, and a string of cultural and civic projects the bankers have sponsored are apparently of comparable importance to them as their business dealings. And while some members of the Dallas establishment may have made the odd million here and there on the side, the business-dominated government of Dallas has had basically a clean record.

Today the Citizens Council, the formal arm of the establishment, still meets, but its grip is loosening, at least in the political area. New groups, like blacks and young professionals, are being heard, and Dallas is entering a period when it may be more popularly governed. But these political realities do not dim the ardor and the dedication of Dallas bankers for fulfilling their civic duties. Such a lifestyle is still good for Dallas. It is also, one should add, good for business. We plain folks like to know our bankers are going to be around, and that they care more about what happens to our town than even we do. Somehow it makes our savings accounts seem a little more secure when the bank’s leaders are community men.

In the business arena, this sort of civic commitment has led to bankers going the last mile with the managers of fledgling Dallas businesses, men of vision and determination like themselves, but needing the one thing the bankers had—money. Texas Instruments, Sedco, University Computing Company, Electronic Data Systems, Dr Pepper, and a host of independent oil men and general business operators might never have either formed or survived without lenient, supportive bankers. Fred Florence of Republic used to pride himself in his motto, “The last thing we say is no,” which he contrasted with other bankers who said no first and then had to be convinced.

Bankers have also kept a watchful eye on their colleagues in the business world, most notably in the case of an upstart dropout with a Mandarin’s eye for high finance named James Ling. Ling’s Byzantine business and personal finances permeated the Dallas elite. When his empire began to totter, Ling was not only the largest employer in the Dallas area but vitally linked to insurance tycoon Troy Post, Sam Wyly of University Computers, The Texas Bank, and a grabbag collection of insurance, computer, and other companies. Clearly Dallas itself was at stake. And who should step in? None other than Robert Stewart of First National. Stewart used his leverage to push Ling out of control of LTV, and to install himself as a caretaker chairman of the board until confidence could be restored and Ling’s empire sorted out and placed under other leadership. Stewart’s actions could easily be justified and understood on purely business terms, but considering Dallas there were more than likely other motivations, perhaps unquestioned and even unconsidered, which prompted such a revolt. Ling was an upstart and never accepted in the Establishment, even though he made periodic overtures to it. And so the bankers exercised their power, even as they had earlier exercised their benevolence, on behalf of shareholders, creditors, and . . . Dallas.

New Powers, Old Responsibilities

Whether James Ling will be toppled from control of his empire is the sort of decision the leaders of these two giant banks are called upon to make: will this business grow and prosper, can this man really pay off a large loan, has this developer really thought through his plans? Not by choice and inclination alone do they play such a vital role in the future of Dallas and of Texas. It is inevitable that the leaders of these institutions, even as they are turning increased attention to their own empires, will continue to decide the basic economic direction of this region. These decisions naturally translate into who succeeds and who doesn’t, but also into whether anti-pollution devices will be manufactured, whether a firm to use garbage as building material will be set up, and whether a certain area of town will be developed. The leaders of these banks also establish, by policy and example, the attitude of their institution toward smaller customers.

Strolling amid the giant buildings the two banks have built in the past twenty years, the ordinary citizen may be unaware of First’s newly-won reputation, of the nuances of who will succeed James Aston at Republic, of the impact the holding company era will have on him or on his state. But it is the ordinary citizen who religiously puts a few dollars away in a savings account each month; who may need money for a car or for an operation or for a new business; who struggles to balance his checkbook. As they move their offices and embark more ambitiously on their course of empire, the key men at both of Dallas’ largest banks are moving to higher floors, further from the citizen on the sidewalk and more removed from the day-to-day life of ordinary people.

Men like Robert Stewart and James Aston have a problem keeping in touch. The president of an airline can travel on it to sample the service, just as the president of a soft drink company can drink his product to see how it tastes. The head of a bank cannot become an ordinary customer, cannot experience the feeling many people have about banks, a feeling close to fear. Banks after all are where the buck stops, where we all find out if our plans will come to anything, where a society based on credit must ultimately be rooted. Behind the smiling manner and the endless advertisements of how banks “understand your needs,” beyond the public relations, lies pure power.

And so in many ways the rivalry between First International and Republic is not the real story about banks in a community. The real story should probably be told by the customers, both those frustrated by the banks and those aided by them. Our hypothetical airline president and soft drink manufacturer cannot refuse a citizen a plane ticket or a drink if he can afford it; nor do they stand in judgment of his character prior to each transaction. Banks can and do. Thomas Jefferson was considering the potential for misuse of that power when he wrote that “banking establishments are more dangerous than standing armies.” Very seldom does criticism of how Dallas banks use their power get very far. It appears that the two largest Dallas banks have really been sincere when they talk of their dedication to building Dallas. The dedication is based on sound business principles. Mighty banks seldom prosper in stagnant communities.

And so the energies for empire continue, with new banks joining the lists of acquired and target banks each day. The holding companies are talking about becoming financial supermarkets in the future, where the customer could find one-stop service for banking, insurance, management consulting, data processing, leasing, investment counseling, mortgages, or travel arrangements. Such developments will not come without controversy and considerable struggle. But Texas bankers today are not a timid lot. Their eyes are to the future, and its potential seems boundless. Texas banking will never be the same again.

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