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First Wisconsin Bankshares Corp. v. Board of Governors of Federal Reserve System


December 17, 1963


Author: Swygert

Before HASTINGS, Chief Judge, and CASTLE and SWYGERT, Circuit Judges.

SWYGERT, Circuit Judge.

Petitioner, First Wisconsin Bankshares Corporation, is a Wisconsin corporation with its office and principal place of business in Milwaukee. It is a registered bank holding company under the Bank Holding Company Act of 1956 (12 U.S.C. §§ 1841-1848). This court is asked to review, pursuant to section 9 of the act, 12 U.S.C. § 1848, orders of the Board of Governors of the Federal Reserve System denying petitioner's applications for prior approval by the Board of proposed acquisitions of eighty per cent or more of the voting shares of two Wisconsin state banks, the American Bank and Trust Company, located in Racine, and the Merchants & Savings Bank, located in Janesville.

The applications filed with the Board, pursuant to section 3(b) of the act, 12 U.S.C. § 1842(b), were the bases of separate proceedings before the Board. The Board denied approval of the acquisitions by orders which are before us on separate petitions for review. We propose, however, to treat these petitions together because of the similarity of their factual and procedural background and of the questions presented.

The Commissioner of Banks of the State of Wisconsin (whose recommendation was required to be solicited under section 2(b) of the act, 12 U.S.C. § 1842 (b)) advised the Board that he had no objection to the American application. Petitioner, at the request of the Board, filed supplementary information in support of its application. The Department of Justice wrote the Board opposing the application. On January 31, 1963, the application was denied. The petition for review followed.

Petitioner's application to acquire the stock of Merchants & Savings was opposed by both the Wisconsin Commissioner of Banks and the Justice Department. Because the Commissioner's recommendation was not timely filed, the Board was not compelled to hold a formal hearing pursuant to section 3(b) of the act. However, the Board did hold a public hearing "to afford opportunity for the expression of views and opinions by interested persons." Thereafter, the Board on May 22, 1963, denied the application and the petition for review followed.

Petitioner contends that the Board's findings and conclusions are not supported by substantial evidence; that the Board incorrectly interpreted section 3(c) of the Bank Holding Company Act; and that the Board deprived petitioner of due process by refusing to hear further evidence, by considering facts not found in the record, and by failing to inform the petitioner in advance of its alleged changed interpretation of the act.

Section 3(c) of the act, 12 U.S.C. § 1842(c), requires the Board to consider five factors in granting or denying acquisitions by a bank holding company. These factors are:

"(1) [The] financial history and conditions of the company or companies and the banks concerned; (2) their prospects; (3) the character of their management; (4) the convenience, needs, and welfare of the communities and the area concerned; and (5) whether or not the effect of such acquisition or merger or consolidation would be to expand the size or extent of the bank holding company system involved beyond limits consistent with adequate and sound banking, the public interest, and the preservation of competition in the field of banking."

Section 9 of the act provides that the factual findings of the Board if supported by substantial evidence shall be conclusive.

In the proceedings before us, the evidentiary facts, including statistical data, were supplied by petitioner to the Board. They are not in dispute.

The findings of the Board relating to the factors it is required to consider are ultimate factual conclusions drawn by inference from the primary evidentiary facts. It is our duty under section 9 to determine whether these ultimate findings have substantial support in the record. In discharging that duty, the reviewing court does not act as a super agency, substituting its judgment for that of the Board. Inferences of fact must remain within the purview of the administrative agency. The test is not whether the Board's findings are those that the court might have made de novo; rather, it is whether the Board's ultimate findings and conclusions could have reasonably been drawn from the primary evidentiary facts, and whether they are arbitrary or capricious. Northwest Bancorporation v. Board of Governors, 303 F.2d 832 (8th Cir. 1962).

Upon reviewing the records before us and applying the foregoing standard of review, we conclude that there is substantial evidence upon the whole record to support the Board's ultimate findings that led to the denials of the applications.

We do not think it necessary to make analyses of the multitudinous details on which the Board's findings rest in an attempt to demonstrate their reasonableness. Instead, the opinions of the Board, denying the two applications, are set forth below.*fn1 These statements we think sufficiently show that the Board, pursuant to the statutory mandate, gave full consideration to all the facts presented by petitioner and that its findings are not arbitrary, capricious, or unreasonable.

The first three factors which the Board must consider, financial history and condition, prospects, and character of management, as regards both the holding company and the bank whose control is sought, relate to the solvency of the institutions.*fn2

After reviewing the pertinent facts, the Board found that the financial history, condition, prospects, and management of each were satisfactory. Petitioner disagrees with the Board's finding that future management problems confronting each bank were not insurmountable absent acquisition by petitioner. It also says that insufficient weight was given by the Board to the lack of prospects for the banks' growth. While the facts relating to these matters might support the granting of the applications, we cannot say that the Board's findings were not reasonably supported by the evidence. Legitimate inferences could have been drawn either way. We are mindful of what was said in Northwest Bancorporation, supra, "Where either one of two inferences may reasonably be drawn from undisputed facts, the inference adopted by the agency or board whose duty it is to draw the inference from which it is to formulate its judgment may not be disturbed on appeal."

But even if we were to agree with petitioner, we are still confronted with the Board's findings with respect to the remaining two factors.

As to the fourth statutory factor, petitioner argues that the Board's failure to find that the proposed acquisitions would substantially serve the convenience, needs, and welfare of the Racine and Janesville areas is both contrary to the evidence and based upon a misinterpretation of the Bank Holding Company Act. The crucial issue, petitioner says, is "the validity of the Board's view that if local banking needs can be satisfied from non-local sources, there is no need to strengthen or improve the capacity of local banks to meet those needs sufficient to favor a holding company acquisition"; that this view is contrary to the legislative policy underlying the act because it favors increased dependence by smaller communities for their financial needs upon banking institutions in the "established money centers" of the country.

We believe the Board's view regarding this fourth factor is neither an arbitrary nor capricious treatment of the facts. This is demonstrated by what the Board said in denying the American application:

"Essentially, then, the banking needs of the community are being served at present, but Applicant argues that Racine and Wisconsin banks are entitled to a 'fair share' of banking business generated in Racine, and that, if the independent local banks cannot attract this share, then the facilities of a holding company and of its more powerful member banks should be brought into the community to capture and hold what rightfully belongs there. Had Congress intended such regional splitting up of the national banking market to be a basis for approving bank holding company expansion, it would have so stated. It did not so direct the Board.

"This is not to say that the banks in a community should not be strong and supple enough to serve the banking needs of that community. Where banking needs were going unmet, and where considerations under the remaining factors were not adverse to holding company acquisitions, then the Board has granted its approval to those acquisitions."

It should also be pointed out that the Board concluded as to the American application, "considerations under the fourth factor, then, lend some but only slight weight for approval," and as to the Merchants & Savings application, "the Board does not believe that a strong case for approval has been presented under the fourth factor." We think the Board's remarks can be interpreted to mean that the applications might have been granted were it not for the overriding findings that the proposed acquisitions would have an adverse effect on competition.

In applying the fifth factor, the effect on adequate and sound banking, the public interest, and the preservation of competition, the Board concluded that the proposed acquisitions would have effects which would be contrary to the public's interest in the preservation of banking competition in the relevant Racine and Janesville banking areas. The Board's inferences and reasoning leading to these conclusions are fully delineated in the Board's statements.

Northwest Bancorporation, supra, involved a problem similar to that which is presented here. Accordingly, the statement in that case is particularly pertinent:

"The drawing of an inference and the making of a judgment based thereon, particularly in this kind of case where the question is whether the acquisition of bank by petitioner will, in the future, adversely affect the public interest and lessen competition in the field of banking, necessarily requires the making of a prophecy. Here that prophecy has been made. The Board, upon whose special competency Congress relied in delegating the authority to approve or disapprove bank acquisitions by holding companies, concluded that in the overall picture the public interest would be adversely affected and competition would be lessened by the acquisition. Through use of the same facts petitioner finds that by the acquisition competition would be enhanced and the public welfare unimpaired. This is no more than a disagreement with the Board's conclusion. The responsibility of making the determination was vested by Congress with the Board and its conclusion must prevail."

We are convinced that the Board could reasonably find that an anticompetitive effect on the small banks of the relevant areas would result if the proposed acquisitions were permitted when taking into consideration the banking resources of petitioner, the size of American and Merchants & Savings and their extensive control of the areas' banking resources with the probability of an expansion of that control if the applications were granted.

Petitioner argues that in attempting to preserve competition among the local banks in the Racine and Janesville areas, the Board's decision "seriously jeopardizes, if it does not completely destroy, the ability of [the areas' banks] to engage in a competitive struggle with larger out-of-state banks now rapidly draining off the banking business of the [areas'] principal concerns." Such a result, it says, is antithetical to the purposes of the Bank Holding Company Act.

A similar argument was made in United States v. Philadelphia Nat. Bank, 374 U.S. 321, 83 S. Ct. 1715, 10 L. Ed. 2d 915 (1963). The Court rejected the application of the "concept of 'countervailing power'." Paraphrasing the Court's language to apply to the instant case, if anticompetitive effects in one market could be justified by procompetitive consequences in another, the result would be that bank holding companies could acquire control of so many banks that in the end there would be nothing left but large holding companies monopolizing a state's banking system. Moreover, as was pointed out in that case, the test of a competitive market is not only whether small competitors prosper but also whether consumers are adequately served. Here, the facts show that the large business concerns of the relevant areas have had no difficulty in obtaining adequate credit even though they may have had to go outside the areas to obtain it.

As the Board in its brief points out, even if it were conceded that the proposed acquisitions would promote competition with the large out-of-state banks, such fact would not offset the widened competitive gap between the banks petitioner seeks to acquire and the smaller independent banks located in the Racine and Janesville areas, putting the smaller banks at a greater competitive disadvantage than they are at the present. It is within the Board's competence, we think, to consider it better to preserve the competition afforded by smaller banks by denying the applications than to strengthen American and Merchants & Savings so that they might better compete against New York and Chicago banks.

Petitioner's contentions that it was denied procedural due process are without merit.

Under the provisions of section 3(b) of the act, if the Comptroller of Currency or the state supervisory authority recommends disapproval within thirty days after notification, the Board must conduct a hearing on the application. In the instant proceedings, the Wisconsin Commissioner of Banks interposed no objection to petitioner's request to acquire control of American. He did oppose its application to acquire Merchants & Savings; however, his recommendation was not received within the thirty-day period. Therefore, no statutory hearing was required as to either application. Northwest Bancorporation, supra.

We do not understand it to be petitioner's contention that a formal hearing should have been conducted; rather, it argues that the Board should have allowed presentation of further evidence upon petitions for reconsideration after the denials of the applications. In both proceedings, petitioner was afforded ample opportunity to present its evidence. In one, petitioner was given permission to amplify its application with an oral presentation and in the other, by written supplementary information.

We cannot agree with petitioner that the Board relied upon factual suppositions unsupported by the evidence. The statements made by the Board in denying the applications indicate that it relied solely upon the factual material submitted by petitioner.

The Board's orders are affirmed.

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