moal repu Top 30 Security Holders in the Burlington Northern SUMMARY OF THE NEW DATA AND ITS Shares SIGNIFICANCE 10. The holdings of Equitable Life Assurance Society, an ingurance company, were reported in that 100, 000 OWNERSHIP CONCENTRATED IN UNNAMED BANKS 11. The holdings of Paine, Webber, Jackson & Curtis, a brokerage house, were reported in that comStaff analysis of the preceding ownership report reveals pany's name.- 90, 896 12. Pace & Co. is a dominee for Mellon National Bank that holdings are concentrated in banks that are not even and Trust, which was not mentioned in the rementioned in the company's report to Federal regulators. port.. 80, 100 Furthermore, aggregation of stock reported in the name 13. Congen One & Co. is a nominee for Connecticut of multiple nominees for individual banks or other in General Life Insurance Co. It was not mentioned vestors reduces the number of top stockholders reported in the report. But the nominee name in this case, “Congen," offers a clue as to the identity of the from 30, as required by the ICC, to 20. holder.. 75, 000 For example, six of the top 30" holders of voting stock 14. Lages & Co. is a nominee for the First Jersey Nareported by the company (the Burlington Northern) are tional Bank, which was not mentioned in the nominees for Bankers Trust Company, which was not report.... 75, 000 mentioned in the Burlington Northern's ownership report. 15. The holdings of Stephens, Inc., an underwriting and holding company whose president, Justin T. Those nominees and the number of shares reported in Stephens, was elected to the BN's board of ditheir name by the BN are as follows: rectors this year, were reported in the name of the 69, 975 Hemfar & Co... 16. Emseg & Co. is a nominee for Northwestern Na 223, 950 Pitt & Co. tional Bank of Minneapolis, which was not men 200, 000 Lehcor & Co.. tioned in the report (BN president Robert W. 110, 000 Salkeld & Co.. Downing is a director of Northwestern National Bank). 63, 360 17. Cross & Co. is a nominee for the First Pennsyl51, 000 vania Banking and Trust Co., which was not 1. Thus, Bankers Trust Company's aggregated hold mentioned in the report.-- 57, 308 18. Monvan & Co. is a nominee for Montreal Trust ings.- 753, 219 Company, which was not mentioned in the re- port.. 50, 800 3. Lerche & Co. is a nominee for the Bank of New 19. Wilkin & Co. is a nominee for the St. Paul ComYork, which was not mentioned in the report.. 657, 270 panies, Inc., a conglomerate ingurance and financial company whose president and board 4. Thrte of the reported “top 30" holders of voting chairman, Ronald M. Hubbs, is a member of the BN's board of directors. St. Paul Companies Inc. was not mentioned in the report..... 50, 000 the report. Those nominees, and the number of 20. Anderson & Co. is a nominee for the Fidelity Bank (Philadelphia) which was not mentioned in the report.. 47, 482 300,000 Touchstone & Co.----- 185, 200 In summary, 11 of the Burlington Northern's "30 Mufun & Co... 76, 300 security holders * * * (with) the highest voting powers" Thus, State Street Bank and Trust's aggre were nominees for four banks--Bankers Trust, Chase gated holdings.. 561, 500 Manhattan, the Bank of New York and State Street 5. The holdings of a brokerage house, Merrill Lynch, Bank and Trust-none of which were mentioned in the Pierce, Fenner & Smith, were reported in that company's ownership report filed this year with the ICC company's name.. 342, 607 6. The BN reported 78,600 shares held by Norton and also filed with the SEC. The holdings of those four Simon Inc., a holding company. Two other re banks totalled 2,655,847 voting shares of common stock, ported holdings represent the interests of Nor or approximately 25 percent of the 10,671,887 shares ton Simon, a director of the BN. One is Hunt Foods and Industries, Inc., a subsidiary of voted at the annual meeting of the company last year. Norton Simon, Inc., with 122,200 shares. The The total holdings of all the unnamed banks among the other is Julia & Co., a nominee for Foundation BN's reported “top 30” security holders amounted to Funds of Norton Simon, with 49,600 shares. 3,641,932 shares, almost four times as much as those of Thus, Norton Simon interests, aggregated.-250, 400 the other investors, most of which were identified, among 7. Sigler & Co. is a nominee for Manufacturers Hanover Trust, which was not mentioned in the “top 30”. the report.-- 248, 875 USE OF MULTIPLE NOMINEES 8. Two of the reported top holders of voting stock The example upon which we have elaborated is by no are nominees for Morgan Guaranty Trust, which means uncommon. The holdings of institutional investors, is not mentioned in the report and whose especially banks, are often hidden from view of regulators former board chairman, John M. Meyer, Jr., is and the public through use of multiple nominees-"Hema director of both the Morgan bank and the BN. (Morgan Guaranty Trust is also the stock transfer far & Co.”, "Lerche & Co.”, “Kane & Co.”, “Bark & Co.”, agent for the BN). Those nominees and the "Pace & Co." and many more. In response to the Federal number of shares reported in their names: regulators' request for the addresses of these "security Douglass & Co... 150,000 holders” the companies report simply “New York, Ince & Co. 78, 460 Thus, Morgan Guaranty Trust's aggregated N.Y.”, “Boston, Mass.” or “Pittsburgh, Pa.", occasionally holdings. 228, 460 adding a post office box number. These nominee names are 9. Sabat Co. is a nominee for Savings Banks Trust not in the city directory. They are not in the telephone Co. (New York), which was not mentioned in the book. Letters to some nominees whose post office box is report...... 124, 700 listed have not been answered. 1 According to the Nov. 9, 1973 Wall Street Journal, Mr. Simon The consequence of this continuing use of nominees in i recently sold a large part of his holdings in the BN. He criticized ownership reports to Federal regulators is a massive railroad conglomerates generally for spending undue time on nonrailroad enterprises, and for excluding women and younger men coverup of the extent to which holdings of stock have from the boards of directors, which he found dominated by banks become concentrated in the hands of very few institutional and trust companies. investors, especially banks. 91-011–732 page 239. PART I Cede & Co. 30 TOP STOCKHOLDERS OF 89 COMPANIES The stock reported in the nominee name “Cede & Co." has not been translated because it is in a different category. Part I of this report is an analysis of the responses A few words of explanation and caution about Cede & Co. eceived from 324 of the Nation's largest companies in are in order. esponse to a request last year for identification of their Cede (pronounced "seedy'') & Co. is technically a O top stockholders, the amount of common stock each nominee for a nominee. It was created in 1966 and became jeld, and the total number of voting shares of common fully operational in 1969 as the nominee for the Stock tock. The letters to the chief executive officer of each Clearing Corporation, & wholly owned subsidiary of the ompany stated that if the company records did not New York Stock Exchange, which furnished stock clearing conveniently identify the actual owner of the stock the service to member brokerage firms. Listings under Cede & street name (nominee) would suffice. Co. formerly represented deposits in the Exchange's Eighty-nine of the 324 companies responded fully to Central Certificate Service. In May 1973 the business of the query. Partial information was supplied by 74. CCS was transferred to a new Exchange subsidiary, the Subsidiary companies responded in 20 instances. Eighty- Depository Trust Company, for which Cede & Co. is three replied without submitting relevant data and 58 now the nominee. did not reply. All responses appear in Appendix B, Cede & Co., as record holder of securities of New York issuers, is entitled to vote stock, but does so only on The comprehensive industry-by-industry analysis of instructions of the Depository Trust member to whose these replies was prepared by Julius W. Allen, senior account such securities are credited. (Recent correspondspecialist in business economics at the Congressional ence regarding Cede & Co. and Depository Trust appears Research Service, Library of Congress, with the assistance in Appendix C, page 335.) of Miss Eugénie Dieringer. INCONSISTENCIES IN REPORTING 89 COMPANIES DESERVE COMMENDATION Inconsistencies in reporting of Cede & Co. holdings are described by Mr. Allen on page 131. In his Table 3 (p. 22), The 89 companies which fully responded to the query he identifies the 36 cooperating companies in which Cede deserve commendation. Their willingness to cooperate & Co. was reported as the largest stockholder, holding as contrasts' sharply with the unresponsiveness of most of much as 39 percent of an individual company's stock, and the other companies. The most unresponsive companies often reported as holding between 10 and 20 percent of were generally those subject to minimal public disclosure a company's voting stock. requirements--banks, retail companies, industrial and The Burlington Northern's previously discussed list insurance companies and miscellaneous transportation of "30 top security holders" filed with the ICC this companies. Policy considerations alone do not appear to year (p. 4), provides an example of obscure reporting justify this inattention. For instance, banks not only involving Cede & Co. It is not listed among the BN's manage huge blocks of stock as trustees. They also provide top security holders. However, the footnote at the bottom large amounts of capital in the form of loans to the same of the report states that as of January 12, 1973, Cede companies (which make conflicts of interest a definite & Co. held 803,604 shares. That is even more than Bankers possibility). They have their own officers sitting on the Trust held in its six nominee accounts. The footnote portfolio companies' boards of directors (which makes it goes on to say that "shares held by Cede & Co. have difficult to avoid self-dealing, on the basis of inside in- been included in above listing (of 30 top security holders) formation). Thus policy considerations would seem to cut to the extent applicable.” There is no indication as to the opposite way. It is fair to infer that nondisclosure is which of the “top 30” accounts shares held by Cede & more the consequence of governmental apathy than Co. should be applied. corporate necessity. It is important to note that not all of the stockholdings Concentration in New York Bank Trust Departments analyzed in Part I necessarily carry voting rights. Banks The concentration of stockholdings in a whole range of may have sole, partial or no voting rights in stock they companies—energy, manufacturing, transportation, comhold. (An analysis of new data dealing with stock in which munications and retail trade among a handful of New banks and other institutional investors hold sole voting York bank trust departments is portrayed in Mr. Allen's rights appears in Part II. New data on holdings in which Table 4 (p. 24). It lists the holders of 2 percent or more of banks hold sole or partial voting rights appear in Part III.) the voting stock in three or more of the 89 cooperating Using the Nominee List, Mr. Allen and associates on our companies. Following Cede & Co. which was the holder staffs translated nominees into the actual institutional of record of 2 percent or more of the stock in 55 of the 89 investors. They found that frequently the “30 top stock- companies, were the trust departments of four New York holders” were but 20 or so, because holdings of the same banks. institutional investor were listed separately in two, three Chase Manhattan held 2 percent or more of the stock or more accounts. Nominees used by the various investors in more than half (46) of the companies. are included in the tabulations within Mr. Allen's report. Morgan Guaranty and First National City Bank held 2 percent or more of the stock in almost one-third (29 and The letter from Senator Metcalf and Senator Muskie requesting 28) of the companies. the assistance of the Congressional Research Service in the prepara Bankers Trust held 2 percent or more of the stock in tion of this report appears on p. IV. almost one-fourth (21) of the companies. 7 The 1968 Patman Committee study of 13,598 employee benefit Ranking slightly below Bankers Trust were the New accounts managed by 43 banks showed that the banks had sole voting rights in all stock investments in 81.5 percent (11,087) of Smith, with 2 percent or more of the stock in 19 reporting York brokerage house, Merrill Lynch, Pierce, Fenner & Table No. 5 (p. 24) shows the holdings of the above regarding the number of institutional investors (often eight institutions in the 89 cooperating companies. These very few) which held sole voting rights to substantial are the institutions which held 2 percent or more of the percentages of outstanding stock in some 800 companies stock in 10 or more of the 89 reporting companies, arranged included in the sample. by industry groups. Thus, for example, Chase Manhattan's However, the IIS report did not indicate the extent of trust department held between 9 and 6.9 percent of the the sole voting authority of single institutional investors stock in each of four airlines, between 8.3 and 5.3 percent in the stock of all the companies, or those within various of the stock in each of six railroads, and more than 5 industrial classifications. percent of the stock in each of five industrials, in addition That information would have been an invaluable addito lesser amounts of stock in other companies in each of tion to the report. It would have shown the voting potenthe categories. Table 5 also shows that the above eight tial of individual institutional investors across the whole institutions together held 20 percent or more of the stock range of the economy encompassed by the 800 named in a number of companies. companies in the sample. And it would have shown the extent to which a few institutional investors have subThe Top of the Pyramid stantial voting rights—and therefore influence or potential Were this report presented in geometric terms and influence among companies competing within an industry were full data on bank ownership available the top of group. the pyramid might well be the final page of Table 5, which ANALYSIS OF UNPUBLISHED DATA shows the holdings of the eight above institutions in banks. As noted previously, the response from banks to the query studies could have been based. Last year, William J. The SEC had collected the data upon which these regarding 30 top stockholders was poor; only nine of the 50 queried responded fully. The nine cooperating banks Casey, then Chairman of the SEC, agreed to our request to provide the data. The analysis of that heretofore unstitutional investors mentioned above. First National published data, by Professor Robert M. Soldofsky, a conCity Bank reported that Chase Manhattan's trust depart and Expenditures, is found in Part II of this report and to , ment held 2.7 percent and Morgan Guaranty's trust department held 2 percent of First National City Bank's Appendix D, page 345. stock. Bankers Trust reported that Chase Manhattan held The Allen study in Part I, based on 1971 and 1972 data 2.4 percent, and State Street of Boston 2.1 percent of and supplied voluntarily by the companies, deals with Bankers Trust's stock. stock holdings, not all of them necessarily carrying voting rights. The Soldofsky study in Part II, based on 1969 data, BANK NOMINEES DOMINATE HOLDINGS deals with the narrower matter of sole voting rights, ex cluding partial voting rights sometimes vested in bank Data from banks which submitted partial responses trust departments. show that bank nominees dominate the holdings of the 30 top security holders in banks. More than one-fourth of Bank Voting Power Increasing the stock in Wells Fargo was reported held by 21 unidentified bank nominees. The 30 top security holders in Professor Soldofsky finds the bank trust departments J. P. Morgan, holding more than one-fourth of the stock preeminent among the institutional investors, growing in that bank, included 22 unidentified bank nominees rapidly and attaining significant voting power within Fifteen percent of the stock in Chase Manhattan was other institutional investors (insurance companies). reported held by 22 unidentified bank nominees. The Most importantly, his summary data in Appendix reported bank holdings, in most instances, were several Table 2 show the extent to which 4 years agovarious times greater than the combined holdings of other in- combinations of big bank trust departments had attained stitutional and individual investors among the top significant percentages of sole voting rights within a broad security holders. range of companies within the same industrial classificaA wealth of current (1971 or 1972) data not heretofore tions-airlines, drugs, electrical equipment, insurance, available publicly follows in Mr. Allen's report. His machinery, food, chemicals, aerospace, building conglomwell-grounded general observations and conclusions begin erates and finance itself. Professor Soldofsky emphasizes on page 129. this point after citing sources of data on holdings of other PART II institutional investors: SOLE VOTING RIGHTS The only financial institutions not providing ! complete information routinely about the comWhile banks are generally not permitted to invest in mon stocks that they hold are the trust departcommon stocks for their own account, they have become ments of the commercial banks. major holders of common stocks as trustees or in other fiduciary capacities and, most importantly, in their role PART III as trustees of corporate pension funds. While banks do not own the beneficial interest in these securities which they BANK VOTING RIGHTS IN BROADCAST COMPANIES hold in these capacities, they often have the power to Professor Soldofsky found the data on broadcast comexercise voting rights either solely at their own discretion panies provided by the IIS report too inadequate to or with the concurrence of others. The Institutional Investor Study report of the Securities analyze. However, current (1972) data on voting rights and Exchange Commission concluded that institutions companies, was supplied to us by the Federal Communi (sole and partial) of named banks, in named broadcast have the potential economic power to influence many cations Commission. The data supplied by Chairman companies, particularly large companies, because of their Dean Burch, with accompanying analysis by the Constock holdings. The Ils report included, in Part 5, data gressional Research Service of the Library of Congress, House Document No. 92–64, Eight Parts. appear in Part III. We are advised by the FCC that the information sub- cetegories and others. Now Part III shows how these few mitted to it by the broadcast companies listed nominees banks identified above have major voting positions in rather than the banks which hold the stock, and that broadcasting as well. translation of the nominees to the actual banks required Possibly, were he still with us, Ed Murrow would say: the better part of 2 weeks' time by a veteran commission “This is the news." official, using the Nominee List. FCC Ownership Rules The FCC has several restrictions on ownership of broadThe list of holdings by banks in broadcast companies, as cast companies. One is the duopoly rule, which prohibits supplied by the FCC, is put in perspective by the Con- ownership of two AM, FM, or TV stations which serve the gressional Research Service, which has identified parent same area. Another rule permits an investor-institutional companies, stations owned by broadcast companies, those or individual-to own up to 21 stations-seven AM, companies' total shares of stock, and the percentage of seven FM, and seven TV, provided that no more than five stock within the portfolios of principal banks, individually of the latter are VHF stations. Beyond those liberal and collectively. provisions, no individual or bank was permitted until Broadcast companies, as the Library of Congress last year to own more than 1 percent of the stock of other analysis shows, are often subsidiaries of companies that broadcast companies with 50 or more stockholders. (Muare not primarily engaged in broadcasting--Avco, Dun tual funds have been permitted to own up to 3 percent. and Bradstreet, General Electric, Westinghouse, Schering- since 1968.) Plough Corporation, Kansas City Southern Industries, In 1972 the Commission raised the ownership limitations Kaiser Industries, Fuqua Industries, Pacific Southwest for banks from 1 percent to 5 percent. It raised the limit Airlines, Rust Craft Greeting Cards, Inc. because so many banks were in violation of the Com mission's 1 percent regulation that, to comply with it, Voting Rights of New York Banks 19 banks would have had to divest themselves of $976 mil lion in stock in 25 companies.o The data in Part III show the substantial voting rights of a few New York banks in networks and major broadcast Inadequate Ownership Reports companies. This FCC data shows that, for example: The FCC did not know that the banks were in gross Chase Manhattan Bank has sole or partial voting violation of regulations until the banks told the Comrights to more than 14 percent of the stock in the mission about it. The data submitted by the banks were Columbia Broadcasting System, as well as 4.5 percent based on a survey conducted among the 19 largest banks of the stock in RCẢ Corporation, parent of the in April 1969. It took 3 years to get that material to and National Broadcasting Company; considered by the Commission. Then the Commission Bankers Trust has voting rights to more than 10 gave the banks 3 years more to get in compliance with percent of the stock in American Broadcasting Com the more lenient rules, which may be relaxed further pany, and 9.8 percent of the stock in Metromedia; before then. The Commission has before it now requests from insurance companies to raise their allowable holdings Bank of New York has voting rights to 12.7 percent from 1 percent to 5 percent, and requests from the mutual of the stock in Pacific and Southern Broadcasting funds to raise their allowable holdings from 3 percent to Company, which includes four TV and eight radio 10 percent. stations; The problem at the FCC is inadequate and misleading First National City Bank has voting rights to 7.1 corporate disclosure to a Federal agency. As Commissioner percent of the stock in Capital Cities Broadcasting Nicholas Johnson stated in his dissent in a related case Corporation, which includes six TV and 11 radio later last year: stations; The problem is that the Commission's ownerManufacturers Hanover Trust and U.S. Trust ship reports, for a variety of reasons, are not proCompany have voting rights amounting to from 3.4 viding the relevant information on institutional percent to 11.1 percent of the stock in 14 broad- holdings of broadcast stock. The Commission is casting groups; often reduced to asking transferee applicants to Eleven banks have voting rights to 38.1 percent of ascertain from the institutional holders of their stock whether the institution is in violation of the common stock in CBS. Eight banks have voting rights to 34.1 percent of the common stock in ABC. Commission rules, as a condition to Commission Chase Manhattan and Bankers Trust together have approval of the application in question. This voting rights to 19.8 percent of the stock in CBS, and inquiry is not always made * * * 17.4 percent of the stock of ABC. A third New York Somewhere in the foggy past there was an bank, Bank of New York, has voting rights to 7.2 effort underway to revise the Commission's percent of the stock in ABC and 3.3 percent of the ownership reporting form. Perhaps that effort stock in CBS. needs to be revived. 10 Part I of this report shows that these same banks have Because of their pertinence to this study the two FCC significant holdings--not all of them necessarily including orders referred to above, including dissents, are included voting rights--in a broad spectrum of the economy, in- in Appendix E, pages 377. cluding energy, transportation, manufacturing and retailing. Part II of this report shows that a few unnamed • FCC 72-391, 75954, Docket No. 18751, RM-1460, Report and Order Adopted May 9, 1972. banks had sole voting rights within those same major 10 FCC 72-525, 79407, File No. BTC-6682, adopted June 14, 1972. |
