Superbankers in Control

Who controls American business? A report issued last week by two Senate Government Operations subcommittees, headed by Maine's Edmund Muskie and Montana's Lee Metcalf, says that the levers of corporate control are held by "a few institutional investors, principally six superbanks headquartered in New York." Of those six, the subcommittees found that as of 1972 the Chase Manhattan Bank was the largest single stockholder in 20 companies, First National City was the biggest owner in nine firms, Morgan Guaranty in four, Bankers Trust and Chemical in three each, and Bank of New York in two. Altogether, the report named 28 institutions, including insurance companies and mutual funds, that manage $5 billion or more in assets.

Largely by administering trust funds, including burgeoning pension funds, banks have great and growing stock powers. In communications, for example, the report cited Federal Communications Commission records of July 1972 to show that the Chase Manhattan Bank had full or partial control over more than 14% of the stock of the Columbia Broadcasting System and 4.5% of the stock of RCA, the parent of the National Broadcasting Co.; Bankers Trust Co. voted more than 10% of the stock of the American Broadcasting Co. and just under 10% of the stock of Metromedia. Banks have been so deeply into broadcasting that in 1972 the FCC had to liberalize its rules to increase, from 1% to 5%, their maximum legal share of ownership of more than one major broadcasting company. Otherwise, the banks would have had to sell $976 million in the stock of 25 broadcasting companies, a move that might well have depressed many shares.

In utilities, the report cited a 1971 Federal Power Commission study showing major banks to be among the largest shareholders of many electrical companies. Chase Manhattan for example was among the top ten shareholders in 42 companies; Morgan Guaranty Trust was a top ten shareholder in 41. The banks' holdings in other institutions, particularly insurance companies, are also growing.

The report added that control of even small blocks of stock "by a single or few like-minded financial institutions provides them with disproportionately large powers." Because institutional investors are attracted to the largest companies, the few men who control block purchases and sales often allow the stocks of smaller firms to languish. This has led to a two-tier stock market in which sound small and medium-sized corporations often cannot raise needed equity capital.

Potential for conflict of interest, including the misuse of inside information, is considerable, the report claims. "Some institutional investors make loans to companies in which they invest, or provide insurance coverage. Their representatives often sit on the companies' boards. Sometimes institutional investors help facilitate or block mergers."

The Senators particularly took issue with the big investors' practice of buying, selling and voting stock in the names of "nominees." The use of these "street name" partnerships is a matter of convenience, easing the transfer of stock, but a byproduct is that the identity of the actual holder is clouded. Stock controlled by the Bank of New York may be in the name of Lerche & Co.; stock controlled by First National City may be in the name of Dooling & Co. The State Street Bank has 99 such nominees, many with nautical company names: Oar, Jib, Halyard and Bilge.

Step for Reform. By law, street-name partnerships and the names of their parent institutions are registered with the clerks of the counties in which the nominees are based. Still it is difficult for the shareholders to penetrate the web of nominees' names to find who really controls his company. Even some Government agencies have failed to identify the institutions behind the nominees. When the FCC learned in 1969 that the banks were in violation of its 1% holding rule, it was because the banks themselves had confessed their error. The commission's specialists never had attempted to decipher the big banks' identities.

The Senate report overstated the case in branding the use of street names a "massive cover-up of the extent to which holdings have become concentrated." Yet, this practice has served to obscure the growth of the big institutions' control over business. As a step for reform, the Senate subcommittees urged that holders of 1% or more of a company's voting shares should report quarterly to the Library of Congress, which would then publish the facts about who really controls U.S. enterprise.

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