STATE OF FLORIDA
DIVISION OF ADMINISTRATIVE HEARINGS
FLORIDA BANKERS ASSOCIATION, )
)
Petitioner, )
)
vs. )
) MANUFACTURERS HANOVER TRUST CO. ) OF FLORIDA, and OFFICE OF THE ) COMPTROLLER, STATE OF FLORIDA, )
)
Respondents, ) CASE NO. 79-1190 and )
) FLORIDA ASSOCIATION OF REGISTERED ) BANK HOLDING COMPANIES, INC., SUN ) BANK OF MIAMI, FLORIDA COAST BANK ) OF POMPANO BEACH, FIRST NATIONAL ) BANK OF BROWARD COUNTY, THE DANIA ) BANK, FLAGSHIP BANKS, INC., ) PEOPLES FIRST NATIONAL BANK OF ) MIAMI SHORES, BANK OF HALLANDALE ) AND TRUST COMPANY, FLORIDA ) NATIONAL BANK OF MIAMI, and ) FLAGSHIP NATIONAL BANK OF MIAMI, )
)
Intervenors. )
)
REPORT
A hearing was held in the above captioned matter, after due notice, at Miami, Florida, on October 29-31, 1979, before Thomas C. Oldham, Hearing Officer.
APPEARANCES
For the Petitioner: Thomas J. Cardwell, Esquire
Post Office Box 231 Orlando, Florida 32802
For Respondent Robert A. White, Esquire Manufacturers Aubrey Kendall, Esquire Hanover Trust Paul Brenner, Esquire
Company of Florida: Mershon, Sawyer, Johnston, Dunwody and Cole
1600 Southeast First National Bank Building Miami, Florida 33131
For Respondent Eugene Cella, Esquire Comptroller Franklyn Wollett, Esquire
of Florida: The Capitol, Room 1302 Tallahassee, Florida 32301
For Intervenors Florida Association of Registered Bank Holding Companies, Inc., Sun Bank of Miami, Florida Coast
Bank of Pompano Beach,
First National Bank Thomas J. Cardwell, Esquire of Broward County, Post Office Box 231
and The Dania Bank: Orlando, Florida 32802
For Intervenor Robert Asti, Esquire
Flagship Blackwell, Walker, Gray, Powers, Flick Banks, Inc.: and Hoehl
2400 First Federal Building Miami, Florida 33131
For Intervenor
Peoples First G. Kenneth Kemper, Esquire National Bank of 9999 Northeast 2nd Avenue Miami Shores: Miami Shores, Florida 33l3
For Intervenor Bank of Hallandale and
Trust Co.: None
For Intervenor Richard A. Paige, Esquire Florida National Paige and Catlin
Bank of Miami: Alfred I. DuPont Building
Miami, Florida 33131
For Intervenor Howard A. Setlin, Esquire
Flagship National Therrel, Baisden, Stanton, Stillman, Bank of Miami: Brown and Wood
1111 Lincoln Road Mall, Suite 600 Miami Beach, Florida 33139
The purpose of the hearing was to receive evidence concerning the application of Manufacturers Hanover Trust Company of Florida for authorization to organize a trust company pursuant to Chapter 659, Florida Statutes.
The public hearing in this proceeding was preceded by prehearing conferences held on August 3 and September 17, 1979. As a result of those conferences, petitions to intervene in this proceeding were granted to the above captioned Intervenors. Petitions for intervention filed by seventeen state financial institutions were denied because their locations were outside the primary service area of the proposed trust company.
Motions of the Petitioner and several Intervenors to consolidate this case with six pending cases involving four similar applications in Palm Beach County were denied for failure to meet the criteria of similarity of facts and identity.of parties as required under Rule 28-5.07, Florida Administrative Code.
A Prehearing Order was issued on October 5, 1979, which permitted discovery requests concerning she operations of investment advisory services being conducted in Dade County by the Applicant's parent corporation or affiliate, but denied discovery concerning the profitability of operations of the Applicant's parent corporation or affiliates in states other than Florida for the reason that such information would not reasonably lead to the discovery of relevant and admissible evidence in this proceeding. Various other discovery motions pending at the commencement of the hearing were rendered moot either by intervening compliance by the parties or failure to pursue the motions at that time.
A motion of Petitioner and certain Intervenors for continuance of the hearing, dated October 10, 1979, predicated on the pendency of judicial proceedings in the Supreme Court of the United States concerning the constitutionality of Section 659.141, Florida Statutes, was denied by Order dated October 23, 1979.
The Applicant properly published notice of hearing in newspapers in Dade and Broward Counties within the time period specified in Rule 3C-9.05, Florida Administrative Code. (Exhibit 1)
Thirty-one exhibits were offered in evidence during the hearing which were received except for Exhibits 15 and 16. Exhibit 15 was the text of testimony by various representatives of Petitioner before Congressional Subcommittee on October 16, 1979, Exhibit 16 purported to be excerpts of testimony received by the same Congressional Subcommittee on that date. These hearsay documents were rejected by the Hearing Officer as irrelevant to matters in issue in this state proceeding.
The parties to the proceeding were apprised of a letter received by the Hearing Officer from First National Bank and Trust Company, Belleair Bluffs, Florida, dated September 18, 1979, wherein opposition to the application was stated. The parties were advised that the letter would not be considered because it had not been received during the course of the hearing. (Hearing Officer's Exhibit 1)
No member of the general public requested an opportunity to present oral or written communications at the hearing. Petitioner Florida Bankers Association and the applicant filed posthearing proposed findings of fact. Additionally, the applicant filed proposed conclusions of law for consideration by the Comptroller of Florida. The proposed findings of fact have been fully considered by the Hearing Officer and those portions thereof which have not been incorporated into the findings of fact herein are considered to be either irrelevant, unnecessary or unwarranted by the evidence presented at the hearing. In some instances, the proposed findings are conclusory in nature and therefore appropriately should be considered by the Comptroller in any final order rendered in this proceeding.
Respondent Comptroller submitted a statement of current policy of the Division of Banking, Department of Banking and Finance as to state trust companies, together with copies of final orders issued by the Comptroller in cases involving applications of First Family Trust Company, Security Trust Company of Palm Beach, Florida, Security Trust Company of Naples, and American Savings Trust Inc., for authority to organize proposed new trust companies.
These documents were received in evidence without objection. The Comptroller's incipient policy was not controverted during the course of the hearing. (Exhibit 2)
FINDINGS OF FACT
On April 23, 1979, the Division of Banking, Department of Banking and Finance (hereinafter "Department") received an application submitted by Joseph
L. McElroy, Robert M. Lovell, Walter F. Thomas, Robert C. Williams, and Robert
A. White (hereinafter "Applicant"), pursuant to Section 659.02, Florida Statutes, for authority to organize a corporation for the purpose of conducting a trust business to be located at 100 North Biscayne Boulevard, Miami, Florida. The proposed trust company will be named "Manufacturers Hanover Trust Company of Florida." It will be a wholly owned subsidiary of Manufacturers Hanover Trust Holding (Delaware), Inc. which will be formed as a subsidiary of Manufacturers Hanover Corporation, a bank holding company whose principal subsidiary is Manufacturers Hanover Trust Company, a New York Corporation located in New York City, which is primarily engaged in commercial banking and trust business in New York. (Testimony of Williams, Exhibit 3)
The organizers and proposed officers and directors of the proposed trust company are United States citizens and have good reputations for honesty and integrity. All but one of the individuals have had substantial banking or trust experience in the past, The one exception is an individual with extensive experience as an attorney in Miami who specialized in the practice of estate and trust law. Three of the five proposed directors have lived in Florida for at least one year. The proposed chief executive officer of the trust Company has been employed by Manufacturers Hanover Trust Company since 1960 and is currently a vice president for Trust and Estate Administration. He also presently is serving as the officer in charge of an investment advisory office established by Manufacturers Hanover Trust Company in Miami. The proposed investment officer of the trust company has been employed by Manufacturers Hanover Trust Company as an assistant trust officer since 1969. (Testimony of Williams Woolfolk, Exhibit 3)
The proposed capital structure of the trust company will be two million dollars, allocated $300,000 to capital stock, $1,600,000 to paid-in surplus, and
$100,000 to undivided profits. (Testimony of Zeigler, Exhibit 3)
The proposed trust company will be located in offices presently leased by Manufacturers Hanover Bank International which are currently occupied by that organization and also by the Investment Advisory Office of Manufacturers Hanover Trust Company at 100 North Biscayne Boulevard, Miami, Florida. The leased premises are on the 24th floor of a building at that location. Approximately 1,000 square feet of office space will be subleased to the proposed trust company for its use at an annual rental of approximately $10,000, plus pro rate expenses for utilities, maintenance and the like. (Testimony of Woolfolk, Composite Exhibit 4, Exhibit 5)
The Applicant's purpose in seeking to establish a trust company in Florida primarily to retain customers of Manufacturers Hanover Trust Company who maintain seasonal or permanent residence in Florida. It is anticipated that some 268 of these trust accounts will be eventually transferred to the new trust company. They are of various types and have an asset value of over
$339,000,000, with annual fees of $752,000. The Applicant also intends to seek new business accounts in its primary service area. It plans to offer a full range of fiduciary services to its customers, including administration of estates, personal trusts, custodial accounts, investment advisory services, corporate trust services, and employee benefit trust services. Although the proposed trust company will initially employ only two officers and one clerical
employee, extensive support services will be obtained by contractual arrangement with the Trust Division of Manufacturers Hanover Trust Company at the same rates charged to other clients for comparable services. These services will include maintenance of customer account records and provision of regular statements of transactions, tax information, custodial services, investment advice and research, and consultation and training assistance. Personnel of the Applicant will solicit new accounts, maintain various account records, and provide investment, and estate planning advice and services. (Testimony of Williams, Woolfolk, Exhibits 3, 8, 11-13)
The Applicant's designated primary service area (PSA) for the proposed trust company includes all of Dade and Broward Counties. The Applicant's office site is located in the downtown Miami business area near Interstate Highway 95 which provides access to connecting beltways and the Florida Turnpike. The decision to define the primary service area in Dade and Broward Counties was based on the fact that a sizeable number of existing customer accounts of Manufacturers Hanover Trust Company are located in that area, and due to the Applicant's belief that the area represented the best potential market for acquisition of new business. The Applicant expects to generate at least 75 percent of its new trust business in the primary service area. The primary service area of Dade and Broward Counties had a population of 1,887,892 persons in 1970, and increased 28.4 percent to 2,423,860 in 1978. This constituted about 27 percent of the total state population, It is estimated that by 1990, it will have a population of over 3,000,000. Almost 94 percent of the increase from 1970 to 1978 was due to migration of individuals moving into the area rather than natural increase of the population. In 1978, approximately 18 percent of the total population in the area consisted of individuals 65 years of age or over and about 23 percent between 45 and 65 years of age. It is estimated that by 1990 almost 22 percent of the population will be 65 years or over and slightly over 22 percent between 45 and 65 years of age. In 1977, the national percentage of population in the category of 65 years of age or older was 10.9 percent. (Testimony of Starke, Morgan, Exhibits 9-10)
The per capita income in the primary service area increased from $4,405 in 1970 to $7,785 in 1977. The per capita deposits in financial institutions in the primary service area rose from $5,954 in 1974 to $9,368 in 1978. Deposits in banks and savings and loan associations increased by over 70 percent between 1974 and 1978. (Testimony of Starke, Exhibit 9)
Trust assets in the primary service area in 1977 amounted to 23 billion dollars and is estimated to increase to over 4.5 billion dollars in 1990, an increase of over 95 percent. There are currently 26 banks with trust departments in the primary service area. A number of the banks are affiliated with bank holding companies such as Flagship Banks Inc., Florida National Banks, Inc. and Southeast Banking Corporation. The population per existing trust department in the primary service area in 1970 was 53,940. Although there was a population increase of 535,968 between 1970-1978, only four new trust departments were established--a ratio of one trust department for each 133,992 persons. Per capita trust assets in the primary service area rose from $711 in 1970 to $975 in 1977, representing a 37.1 percent increase. (Testimony of Starke, Exhibit 9)
The factors determining the extent of demand for trust services in a particular area include considerations of population and age distribution, personal wealth and income levels, and income growth. There is a higher potential for increased trust business in a rapidly growing area. The presence of a substantial segment of older population is significant because wealth is
normally concentrated in that portion of the population and they constitute the primary customer source for fiduciary services. The primary service area represents one of the major national markets for trust services due to rapid population growth, together with age and wealth characteristics of its population. However, public awareness of the benefits and availability of trust services is at a low level nationwide and in the primary service area. Experts in the field are of the opinion that better marketing efforts can be made to increase such awareness. There is, however, a conflict of opinion as to the value of mass media advertising in this respect. The presentation of educational programs helps to increase public awareness of the extent and advantages of corporate trust services. Attorneys, accountants, insurance companies, financial advisors, and relatives or friends of potential customers are the main competitors of financial institutions for fiduciary business. The amount and extent of this portion of the market is large, but unknown as to amount. (Testimony of Starke, LeMaistre, Morgan, Exhibits 9-10)
The national trust business is highly concentrated in a relatively small number of large banks, primarily in the eastern part of the nation. The largest 50 banks control almost two-thirds of the nation's trust assets and the largest 30 banks administer about as many trust assets as all other banks and trust companies. Manufacturers Hanover Trust Company has 48 billion dollars in total assets, with almost 27 1/2 billion dollars in trust assets which makes it the sixth largest trust company in the United States. It employs over 1700 individuals in its trust division and possesses highly sophisticated automated data systems and the like. It utilizes what are termed "common trust funds" for investments for trust accounts under $200,000. It also has created "peer trusts" for accounts as small as $50,000. The Applicant intends to use such of the services of Manufacturers Hanover Trust Company as may be available to its Florida operation. The application reflects that the applicant intends to effect "transfer" of 187 existing Florida fiduciary accounts of Manufacturers Hanover Trust Company with assets totaling almost $159,000,000 with an annual fee income of $725,000, during the first three years of operation. Eighty-nine of the existing accounts with assets totaling over $63,000,000 have beneficiaries, co-trustees, or principals who reside in the primary service area. A large number of the accounts to be transferred presently are being administered by the individual who will serve as the chief executive officer for the proposed trust company. Although no one in this customer group has been approached as yet to obtain consent to transfer of accounts, the Applicant believes that no problems will be encountered in this respect due to the fact that most of the customers would have continuity of their former trust officer and the convenience of services in Florida. Assuming that it will be successful in achieving transfer of the accounts, together with an estimated 64 new accounts, the Applicant projects gross fee income of $38,550 for the first year of operation, $314,375 for the second year, and $547,250 for the third year. It also projects an annual income of $140,000 as return on the investment of the
$2,000,000 initial capitalization. After deduction of estimated expenses, the Applicant anticipates a loss of $18,350 during the first year of operation, and net income of $121,975 and $221,350 during the second and third years. It is planned that the Applicant will administer the "transferred" accounts as agent for Manufacturers Hanover Trust Company inasmuch as the latter firm would remain the responsible fiduciary. (Testimony of Williams, Ziegler, Woolfolk, LeMaistre, Exhibits 3, 6, 8, 14, 31)
The Applicant will solicit new trust accounts primarily from present customers of Manufacturers Hanover Trust Company who move to Florida, new residents in the primary service area from metropolitan areas of other states and from Latin America, corporations and institutions in the primary service
area who are potential employee benefit trust customers, and those present residents in the primary service area who have not previously established a fiduciary relationship with a corporate trustee. The Applicant will seek to obtain the larger, profitable trust accounts with marketing efforts being directed at estates and personal trusts with assets exceeding $200,000 and investment advisory accounts in amounts of at least $300,000. It does not expect to generate significant amounts of new business from present customers of existing trust institutions in the primary service area. Trust customers usually remain with the institution which carries its account if acceptable services are being rendered. However, the Applicant does expect to identify and contact any former customers who are now utilizing other local trust facilities. (Testimony of Williams, Ziegler)
Trust departments of banks are frequently "marginally" profitable and usually produce less than 3 percent of a bank's gross income, Many trust accounts are with customers of the commercial banking department which include small accounts that the bank feels obliged to accommodate with trust services. These accounts produce either a small profit or are a "break-even" proposition. The larger accounts tend to subsidize the smaller ones because the services rendered in each instance are virtually the same. Trust departments of the eight banks in the primary service area which intervened in this proceeding generally have experienced an annual growth in trust business over the past few years. Such growth is attributed variously to more effective marketing efforts, inflationary factors, and growth of the community. Although most of these trust departments are currently profitable, the loss of large accounts would significantly affect the profit margin and would thus inhibit their ability to service small accounts. Their trust representatives are of the collective opinion that the entry of the Applicant into the primary service area will affect their ability to secure new large accounts from persons migrating to the area from other states who are familiar with the name and reputation of Manufacturers Hanover Trust Company. They also believe that the vast technical, financial, and marketing resources of that company which will be available to the applicant will provide extreme difficulty in competing for the large accounts. They further are of the opinion that other large out-of-state trust companies will seek authority to operate in the primary service area to protect their customer accounts in that location, if this application is approved. (Testimony of Morgan, Fine, Zimmerman, Phillips, Southworth, Kurras (Deposition
Exhibit 22), Wilson (Deposition - Exhibit 23), Bird (Deposition - Exhibit 27), Austin (Deposition - Exhibit 29), Exhibits 17-21, 24-28)
A telephone survey was made by a market research firm in October 1979 that sought to determine the extent of the market for fiduciary services in the primary service area. The questions in the survey included such matters as length of residence in the area, age of the person called, current utilization of trust or other financial services, types and amounts of potential trust accounts, and whether those called would establish new trust accounts or change existing ones to either a "major out-of-state institution" which opened a trust office in the area, or a "Florida-based institution." No calls were made to individuals residing in Broward County, but 290 persons responded to the survey in Dade County. The results of the survey are not found to be a reliable or representative assessment of the potential trust market in the primary service area. The limited geographical area covered by the survey, the incomplete selection of communities in which those who were called resided. and the misleading use of certain terms in the questions are the primary reasons for the above finding. (Testimony of Legg, Starke, Exhibit 32)
This REPORT is submitted pursuant to Section 120.57(1)(b)12, Florida Statutes, and Rule 3C-9.11, Florida Administrative Code.
ISSUED this 13th day of December, 1979, in Tallahassee, Florida.
THOMAS C. OLDHAM
Hearing Officer
Division of Administrative Hearings The Collins Building
Tallahassee, Florida 32301
(904)488-9675
COPIES FURNISHED:
Honorable Gerald A. Lewis Comptroller, State of Florida The Capitol
Tallahassee, Florida 32301
Eugene Cella and Franklin Wollett
Attorneys for Respondent Office of the Comptroller
The Capitol - Room 1302 Tallahassee, Florida 32301
Thomas J. Cardwell
Attorney for Florida Bankers Association, Sun Bank of Miami, Florida Coast Bank of Pompano Beach, First National Bank of Broward County, The Dania Bank, and
Peoples First National Bank of Miami Shores Post Office Box 231
Orlando, Florida 32802
Robert A. White Aubrey Kendall and Paul Brenner
Attorneys for Manufacturers Hanover Trust Company of Florida
Mershon, Sawyer, Johnston, Dunwody and Cole 1600 Southeast First National Bank Building Miami, Florida 33131
Howard A. Setlin, Esquire
Attorney for Flagship Bank of Miami
Therrel, Baisden, Stanton, Stillman, Brown and Wood 1111 Lincoln Road Mall - Suite 600
Miami Beach, Florida 33139
Bruce Culpepper
Attorney for Florida Association of Registered Bank Holding Companies, Inc.
350 East College Avenue Tallahassee, Florida 32301
Robert Asti
Attorney for Flagship Banks, Inc.
Blackwell, Walker, Gray, Powers, Flick & Hoehl 2400 First Federal Building
Miami, Florida 33131
Richard R. Paige Paige and Catlin
Attorney for Florida National Bank of Miami Alfred I. DuPont Building
Miami, Florida 33131
Charles Cane
Attorney for Bank of Hallandale and Trust Company 801 East Hallandale Beach Boulevard
Hallandale, Florida 33009
G. Kenneth Kemper
Attorney for Peoples First National Bank of Miami Shores
9999 NE 2nd Avenue - Suite 200 Miami Shores, Florida 33133
=================================================================
AGENCY FINAL ORDER
=================================================================
STATE OF FLORIDA
DIVISION OF ADMINISTRATIVE HEARINGS
FLORIDA BANKERS ASSOCIATION,
Petitioner,
vs. CASE NO. 79-1190
MANUFACTURERS HANOVER TRUST COMPANY OF FLORIDA, and OFFICE OF THE COMPTROLLER, STATE OF FLORIDA,
Respondents.
and
FLORIDA ASSOCIATION OF REGISTERED BANK HOLDING COMPANIES, INC., SUN BANK OF MIAMI, FLORIDA COAST BANK OF POMPANO BEACH, FIRST NATIONAL BANK OF BROWARD COUNTY, THE DANIA BANK, FLAGSHIP BANKS, INC., PEOPLES FIRST NATIONAL BANK OF MIAMI SHORES, BANK OF HALLANDALE AND TRUST COMPANY, FLORIDA NATIONAL BANK OF MIAMI, and FLAGSHIP NATIONAL BANK OF MIAMI,
Intervenors.
/
FINDINGS OF FACT, CONCLUSIONS OF LAW AND FINAL ORDER
On April 23, 1979, the Division of Banking, Department of Banking and Finance (hereinafter Department) received an application submitted by five individuals, pursuant to Section 659.02, Florida Statutes (1979), for authority to organize a corporation for the purpose of conducting a trust business in Miami, Florida. Petitioner, Florida Bankers Association, (hereinafter FBA) timely requested a public hearing on the application after receipt of the application was properly noticed in the Florida Administrative Weekly on April 27, 1979.
The public hearing in this proceeding was preceded by prehearing conferences held on August 3 and September 17, 1979. As a result of those conferences, petitions to intervene in this proceeding were granted to the above-captioned Intervenors. Petitions for intervention filed by seventeen state financial institutions were denied because their locations were outside the primary service area of the proposed trust company.
Motions of one Petitioner and several intervenors to consolidate this case with six pending cases involving four similar applications in Palm Beach County were denied for failure to meet the criteria of similarity of facts and identity of parties as required under Rule 28-5.07, Florida Administrative Code. After publication of notice of hearing in newspapers in Dade and Broward Counties within the time period specified in Rule 3C-9.05, Florida Administrative Code, (Exhibit 1), this matter came on for hearing in Miami, Florida, before the Division of Administrative Hearings, by its duly designated Hearing Officer, Thomas C. Oldham, on October 29, 30 and 31, 1979. At the bearing, the parties were represented by counsel as follows:
APPEARANCES
For the Petitioner: Thomas J. Cardwell, Esquire
Post Office Box 231 Orlando, Florida 32802
For Respondent Robert A. White, Esquire Manufacturers Aubrey Kendall, Esquire Hanover Trust Paul Brenner, Esquire
Company of Florida: Mershon, Sawyer, Johnston, Dunwody and Cole
1600 Southeast First National Bank Building Miami, Florida 33131
For Respondent Eugene Cella, Esquire Comptroller Franklyn Wollett, Esquire
of Florida: The Capitol, Room 1302 Tallahassee, Florida 32301
For Intervenors Florida Association of Registered Bank Holding Companies, Inc., Sun Bank of Miami, Florida Coast
Bank of Pompano Beach,
First National Bank Thomas J. Cardwell, Esquire of Broward County, Post Office Box 231
and The Dania Bank: Orlando, Florida 32802
For Intervenor Robert Asti, Esquire
Flagship Blackwell, Walker, Gray, Powers, Flick Banks, Inc.: and Hoehl
2400 First Federal Building Miami, Florida 33131
For Intervenor
Peoples First G. Kenneth Kemper, Esquire National Bank of 9999 Northeast 2nd Avenue Miami Shores: Miami Shores, Florida 33l3
For Intervenor Bank of Hallandale and
Trust Co.: None
For Intervenor Richard A. Paige, Esquire Florida National Paige and Catlin
Bank of Miami: Alfred I. DuPont Building
Miami, Florida 33131
For Intervenor Howard A. Setlin, Esquire
Flagship National Therrel, Baisden, Stanton, Stillman, Bank of Miami: Brown and Wood
1111 Lincoln Road Mall, Suite 600 Miami Beach, Florida 33139
A Prehearing Order was issued on October 5, 1979, which permitted discovery requests concerning the operations of investment advisory services being conducted in Dade County by the Applicant corporation or affiliate, but denied discovery concerning the profitability of operations of the Applicant's parent corporation or affiliates in states other than Florida for the reason that such information would not reasonably lead to the discovery of relevant and admissible evidence in this proceeding. Various other discovery motions pending at the commencement of the hearing were rendered moot either by intervening compliance by the parties or failure to pursue the motions at that time.
A motion of Petitioner and certain Intervenors for continuance of the hearing, dated October 10, 1979, predicated on the pendency of judicial proceedings in the Supreme Court of the United States concerning the constitutionality of Section 659.341, Florida Statutes, was denied by Order dated October 23, 1979.
The purpose of the hearing was to receive evidence concerning the application of Manufacturers Hanover Trust Company of Florida for authorization to organize a trust company pursuant to Chapter 659, Florida Statutes.
Thirty-one exhibits were offered in evidence during the hearing which were received except for Exhibits 15 and 16. Exhibit 15 was the text of testimony by various representatives of Petitioner before a Congressional Subcommittee on October 16, 1979. Exhibit 16 purported to be excerpts of testimony received by the same Congressional Subcommittee on that date. These hearsay documents were rejected by the Hearing Officer as irrelevant to matters in issue in this state proceeding.
The parties to the proceeding were applied of a letter received by the Hearing Officer from First National Bank and Trust Company, Belleair Bluffs, Florida, dated September 18, 1979, wherein opposition to the application was stated. The parties were advised that the letter would not be considered because it had not been received during the course of the hearing. (Hearing Officer's Exhibit 1)
No member of the general public requested an opportunity to present oral or written communications at the hearing. Petitioner Florida Bankers Association and the Applicant filed post-hearing proposed findings of fact. Additionally, the Applicant filed proposed conclusions of law for consideration by the Comptroller of Florida. The proposed findings of fact were fully considered by the Hearing Officer and those portions thereof which were not incorporated into the Hearing Officer's findings of fact were considered to be either irrelevant, unnecessary or unwarranted by the evidence presented at the hearing. In some instances, the proposed findings are conclusory in nature and therefore the
Hearing Officer appropriately left consideration of such to the Comptroller. These proposed findings will be discussed at the conclusion of this Order.
Respondent Comptroller submitted a statement of current policy of the Division of Banking, Department of Banking and Finance as to state trust companies, together with copies of final orders issued by the Comptroller in cases involving applications of First Family Trust Company, Security Trust Company of Palm Beach, Florida, Security Trust Company of Naples, and American Savings Trust, Inc., for authority to organize proposed new trust companies.
These documents were received in evidence without objection. The Comptroller's incipient policy was not controverted during the course of the hearing. (Exhibit 2)
The Report of the Hearing Officer was submitted to the Comptroller on December 13, 1979. The Department and the Applicant agreed to an extension of the deadline under Florida Statute Section 120.60(4)(1979), until January 24, 1980.
Preliminary to a discussion of the specific Findings of Fact concerning the particulars of the instant application, a brief summary of the history and circumstances surrounding this application by an out-of-state bank holding company may prove beneficial to understanding the many complex issues directly relating to the matter before the Department. Numerous state and federal laws necessarily impact on, and therefore must be considered in reaching the ultimate conclusions in this case.
HISTORICAL AND LEGAL PERSPECTIVE
The proposed trust company will be a wholly-owned subsidiary of Manufacturers Hanover Trust Holding (Delaware), Inc., which will be formed as a subsidiary of Manufacturers Hanover Corporation, a bank holding company whose principal subsidiary is Manufacturers Hanover Trust Company, a New York Corporation which is primarily engaged in commercial banking and trust business in New York. As an affiliate and subsidiary of a bank holding company the proposed trust company is subject to both federal and state legislation.
Bank holding companies that control one or more banks have been regulated under the Bank Holding Company Act of 1956, as amended, 12 U.S.C. section 1841 et seq., which places fairly narrow limits on the scope of activities in which affiliated companies can engage.
Generally, 12 U.S.C. Section 1843(a)(1) prohibits a bank holding company from acquiring, directly or indirectly, ownership or control of any voting shares of any company which is not a bank. However, Section 1843(c)(8) provides that the above prohibition shall not apply to the acquisition or control of shares of any company the activities of which the Board of Governors of the Federal Reserve has determined by order or regulation to be "so closely related to banking or managing or controlling banks as to be a proper incident thereto." The Board has determined that performing or carrying on any one or more of the functions or activities that may be performed or carried on by a trust company and acting as investment or financial advisor are such activities deemed "so closely related to banking as to be a proper incident thereto." 12 C.F.R. Section 225.4(a)(4) and (5).
Of equal significance was the 1956 enactment of Section 3(d) of the Act, 12
Section 1842(d), which respects the intention of the McFadden Act of 1927 to maintain state law as the prevailing authority over bank expansion. Section
3(d) states in part that no application shall be approved that would permit a bank holding company to acquire a bank located outside the company's state of primary activity, ". . . unless the acquisition . . . of a state bank by an out- of-state bank holding company is specifically authorized by statute laws of the state in which such bank is located
In 1972, the Florida Legislature enacted Section 659.141, Florida Statutes, prohibiting a bank, trust company or holding company, the operations of which were principally conducted outside of the state, from owning or controlling, directly or indirectly, a Florida trust company or an investment advisory business furnishing services to trust companies or banks in Florida. This statute was enacted by the Florida Legislature and became law March 29, 1972, and was amended by a statute that became effective December 21, 1972.
Therefore, the Florida Legislature clearly expressed its intention to prohibit the acquisition or ownership of a trust company in the state of Florida by a bank, trust company or holding company operating primarily outside the state.
In October, 1973, Bankers Trust New York Corporation, a holding company, and B.T. Investment Managers, Inc., its subsidiary, filed suit against the Comptroller of the State of Florida as head of the Department of Banking and Finance, challenging the constitutionality of Section 659.141, Florida Statutes. Ultimately, on December 15, 1978, the United States District Court, Northern District of Florida held that a portion of Section 659.141, Florida Statutes, was unconstitutional as being in violation of the Commerce Clause of the United States Constitution. The Comptroller was specifically enjoined from enforcing the provisions of Section 659.141, Florida Statutes.
On May 11, 1979, the Comptroller of Florida filed a direct appeal from the Final Order of the United States District Court to the United States Supreme Court, and on October 1, 1979, the United States Supreme Court "noted probable jurisdiction" in the case. The primary focus of the Department's appeal is that the Bank Holding Company Act of 1956, and as amended, authorizes, recognizes and respects the right of each state to restrict bank holding company expansion across state boundaries, and forbids the entry of bank holding companies, principally conducting business outside of the state, into banking and certain "closely related" activities, such as the trust business, located within its jurisdiction. Oral argument before the United States Supreme Court was held on January 15, 1980, and it is anticipated that a final decision will be rendered prior to June, 1980, when the Court recesses for the summer.
The Bankers Trust case is the only known judicial decision involving the constitutionality of a state's statute prohibiting an out-of-state bank holding company's expansion into "closely related activities", and there has never been a judicial decision, state or federal, which has interpreted the Federal Bank Holding Company Act specifically in terms of bank holding company expansion across state lines into "closely related activities". To this extent, it is significant that the United States Supreme Court "noted probable jurisdiction" and allowed full briefing on the merits and oral argument.
FINDINGS OF FACT
Upon consideration of the evidence adduced at the hearing, the Report of the Hearing Officer submitted on December 13, 1979, is hereby adopted and incorporated herein. It should be noted that the sentence contained in paragraph 10 of the Hearing Officer's Report which reads,
"The Application reflects that the applicant intends to effect 'transfer' of 184 existing Florida fiduciary accounts of Manufacturers Hanover Trust Company with assets totaling almost $159,000,000 with an annual fee income of $725,000, during the first three years of operation."
has been corrected to reflect the true numerical aspects of this finding to comport with the Hearing Officer's numerical findings in paragraph 5: 268 existing Florida fiduciary accounts; assets value of $339,000,000, with annual fees of $752,000.
On April 23, 1979, the Division of Banking, Department of Banking and Finance (hereinafter "Department") received an application submitted by Joseph
L. McElroy, Robert M. Lovell, Walter F. Thomas, Robert C. Williams, and Robert
A. White (hereinafter "Applicant"), pursuant to Section 659.02, Florida Statutes, for authority to organize a corporation for the purpose of conducting a trust business to be located at 100 North Biscayne Boulevard, Miami, Florida. The proposed trust company will be named "Manufacturers Hanover Trust Company of Florida." It will be a wholly owned subsidiary of Manufacturers Hanover Trust Holding (Delaware), Inc., which will be formed as a subsidiary of Manufacturers Hanover Corporation, a bank holding company whose principal subsidiary is Manufacturers Hanover Trust Company, a New York Corporation located in New York City, which is primarily engaged in commercial banking and trust business in New York. (Testimony of Williams, Exhibit 3)
The organizers and proposed officers and directors of the proposed trust company are United States citizens and have good reputations for honesty and integrity. All but one of the individuals have had substantial banking or trust experience in the past. The one exception is an individual with extensive experience as an attorney in Miami who specialized in the practice of estate and trust law. Three of the five proposed directors have lived in Florida for at least one year. The proposed chief executive officer of the trust company has been employed by Manufacturers Hanover Trust Company since 1960 and is currently vice president for Trust and Estate Administration. He also presently is serving as the officer in charge of an investment advisory office established by Manufacturers Hanover Trust Company in Miami. The proposed investment officer of the trust company has been employed by Manufacturers Hanover Trust Company as an assistant trust officer since 1969. (Testimony of Williams, Woolfolk, Exhibit 3).
The proposed capital structure of the trust company will be two million dollars, allocated $300,000 to capital stock, $1,600,000 to paid-in surplus, and
$100,000 to undivided profits. (Testimony of Zeigler, Exhibit 3)
The proposed trust company will be located in offices presently leased by Manufacturers Hanover Bank International which are currently occupied by that organization and also by the Investment Advisory Office of Manufacturers Hanover Trust Company at 100 North Biscayne Boulevard, Miami, Florida. The leased premises are on the 24th floor of a building at that location. Approximately 1,000 square feet of office space will be subleased to the proposed trust company for its use at an annual rental of approximately $10,000, plus pro rata expenses for utilities, maintenance and the like. (Testimony of Woolfolk, Composite Exhibit 4, Exhibit 5)
The Applicant's purpose in seeking to establish a trust company in Florida is primarily to retain customers of Manufacturers Hanover Trust Company
who maintain seasonal or permanent residence in Florida. It is anticipated that some 268 of these trust accounts will be eventually transferred to the new trust company. They are of various types and have an asset value of over
$339,000,000, with annual fees of $752,000. The Applicant also intends to seek new business accounts in its primary service area. It plans to offer a full range of fiduciary services to its customers, including administration of estates, personal trusts, custodial accounts, investment advisory services, corporate trust services, and employee benefit trust services. Although the proposed trust company will initially employ only two officers and one clerical employee, extensive support services will be obtained by contractual arrangement with the Trust Division of Manufacturers Hanover Trust Company at the same rates charged to other clients for comparable services. These services will include maintenance of customer account records and provision of regular statements of transactions, tax information, custodial services, investment advice and research, and consultation and training assistance. Personnel of the Applicant will solicit new accounts, maintain various account records, and provide investment, and estate planning advice and services. (Testimony of Williams, Woolfolk, Exhibits 3, 8, 11-13)
The Applicant's designated primary service area (PSA) for the proposed trust company includes all of Dade and Broward Counties. The Applicant's office site is located in the downtown Miami business area near Interstate Highway 95 which provides access to connecting beltways and the Florida Turnpike. The decision to define the primary service area in Dade and Broward Counties was based on the fact that a sizeable number of existing customer accounts of Manufacturers Hanover Trust Company are located in that area, and due to the Applicant's belief that the area represented the best potential market for acquisition of new business. The Applicant expects to generate at least 75 percent of its new trust business in the primary service area. The primary service area of Dade and Broward Counties had a population of 1,887,892 persons in 1970, and increased 28.4 percent to 2,423,860 in 1978. This constituted about 27 percent of the total state population. It is estimated that by 1990, it will have a population of over 3,000,000. Almost 94 percent of the increase from 1970 to 1978 was due to migration of individuals moving into the area rather than natural increase of the population. In 1978, approximately 18 percent of the total population in the area consisted of individuals 65 years of age or over and about 23 percent between 45 and 65 years of age. It is estimated that by 1990 almost 22 percent of the population will be 65 years or over and slightly over 22 percent between 45 and 65 years of age. In 1977, the national percentage of population in the category of 65 years of age or older was 10.9 percent. (Testimony of Starke, Morgan, Exhibits 9-10)
The per capita income in the primary service area increased from $4,405 in 1970 to $7,785 in 1977. The per capita deposits in financial institutions in the primary service area rose from $5,954 in 1974 to $9,368 in 1978. Deposits in banks and savings and loan associations increased by over 70 percent between 1974 and 1978. (Testimony of Starke, Exhibit 9)
Trust assets in the primary service area in 1977 amounted to 2.3 billion dollars and is estimated to increase to over 4.5 billion dollars in 1990, an increase of over 95 percent. There are currently 26 banks with trust departments in the primary service area. A number of the Banks are affiliated with bank holding companies such as Flagship Banks, Inc., Florida National Banks, Inc. and Southeast Banking Corporation. The population per existing trust department in the primary service area in 1970 was 53,940. Although there was a population increase of 535,968 between 1970-1978, only four new trust departments were established -- a ratio of one trust department for each 133,992
persons. Per capita trust assets in the primary service area rose from $711 in 1970 to $975 in 1977, representing a 37.1 percent increase. (Testimony of Starke, Exhibit 9)
The factors determining the extent of demand for trust services in a particular area include consideration of population and age distribution, personal wealth and income levels, and income growth. There is a higher potential for increased trust business in a rapidly growing area. The presence of a substantial segment of older population is significant because wealth is normally concentrated in that portion of the population and they constitute the primary customer source for fiduciary services. The primary service area represents one of the major national markets for trust services due to rapid population growth, together with age and wealth characteristics of its population. However, public awareness of the benefits and availability of trust services is at a low level nationwide and in the primary service area. Experts in the field are of the opinion that better marketing efforts can be made to increase such awareness. There is, however, a conflict of opinion as to the value of mass media advertising in this respect. The presentation of educational programs helps to increase public awareness of the extent and advantages of corporate trust services. Attorneys, accountants, insurance companies, financial advisors, and relatives or friends of potential customers are the main competitors of financial institutions for fiduciary business. The amount and extent of this portion of the market is large, but unknown as to amount. (Testimony of Starke, LeMaistre, Morgan, Exhibits 9-10)
The national trust business is highly concentrated in a relatively small number of large banks, primarily in the eastern part of the nation. The largest 50 banks control almost two-thirds of the nation's trust assets and the largest 30 banks administer about as many trust assets as all other banks and trust companies. Manufacturers Hanover Trust Company has 48 billion dollars in total assets, with almost 27.5 billion dollars in trust assets which makes it the sixth largest trust company in the United States. It employs over 1,700 individuals in its trust division and possesses highly sophisticated automated data systems and the like. It utilizes what are termed "common trust funds" for investments for trust accounts under $200,000. It also has created "peer trusts" for accounts as small as $50,000. The Applicant intends to use such of the services of Manufacturers Hanover Trust Company as may be available to its Florida operation. The application reflects that the Applicant intends to effect "transfer" of 268 existing Florida fiduciary accounts of Manufacturers Hanover Trust Company with assets totaling almost $339,000,000 with an annual fee income of $752,000 during the first three years of operation. Eighty-nine of the existing accounts with assets totaling over $63,000,000 have beneficiaries, co-trustees, or principals who reside in the primary service area. A large number of the accounts to be transferred presently are being administered by the individual who will serve as the chief executive officer for the proposed trust company. Although no one in this customer group has been approached as yet to obtain consent to transfer of accounts, the Applicant believes that no problems will be encountered in this respect due to the fact that most of the customers would have continuity of their former trust officer and the convenience of services in Florida. Assuming that it will be successful in achieving transfer of the accounts, together with an estimated 64 new accounts, the Applicant projects gross fee income of $38,550 for the first year of operation, $314,375 for the second year, and $547,250 for the third year. It also projects an annual income of $140,000 as return on the investment of the
$2,000,000 initial capitalization. After deduction of estimated expenses, the Applicant anticipates a loss of $18,350 during the first year of operation, and net income of $121,975 and $221,350 during the second and third years. It is
planned that the Applicant will administer the "transferred" accounts as agent for Manufacturers Hanover Trust Company inasmuch as the latter firm would remain the responsible fiduciary. (Testimony of Williams, Ziegler, Woolfolk, LaMaistre, Exhibits 3, 6, 8, 14, 31)
The Applicant will solicit new trust accounts primarily from present customers of Manufacturers Hanover Trust Company who move to Florida, new residents in the primary service area from metropolitan areas of other states and from Latin America, corporations and institutions in the primary service area who are potential employee benefit trust customers, and those present residents in the primary service area who have not previously established a fiduciary relationship with a corporate trustee. The Applicant will seek to obtain the larger, profitable trust accounts with marketing efforts being directed at estates and personal trusts with assets exceeding $200,000 and investment advisory accounts in amounts of at least $300,000. It does not expect to generate significant amounts of new business from present customers of existing trust institutions in the primary service area. Trust customers usually remain with the institution which carries its account if acceptable services are being rendered. However, the Applicant does expect to identify and contact any former customers who are now utilizing other local trust facilities. (Testimony of Williams, Ziegler)
Trust departments of banks are frequently "marginally" profitable and usually produce less than 3 percent of a bank's gross income. Many trust accounts are with customers of the commercial banking department which include small accounts that the bank feels obliged to accommodate with trust services. These accounts produce either a small profit or are a "break-even" proposition. The larger accounts tend to subsidize the smaller ones because the services rendered in each instance are virtually the same. Trust departments of the eight banks in the primary service area which intervened in this proceeding generally have experienced an annual growth in trust business over the past few years. Such growth is attributed variously to more effective marketing efforts, inflationary factors, and growth of the community. Although most of these trust departments are currently profitable, the loss of large accounts would significantly affect the profit margin and would thus inhibit their ability to service small accounts. Their trust representatives are of the collective opinion that the entry of the Applicant into the primary service area will affect their ability to secure new large accounts from persons migrating to the area from other states who are familiar with the name and reputation of Manufacturers Hanover Trust Company. They also believe that the vast technical, financial, and marketing resources of that company which will be available to the Applicant will provide extreme difficulty in competing for the large accounts. They further are of the opinion that other large out-of-state trust companies will seek authority to operate in the primary service area to protect their customer accounts in that location, if this application is approved. (Testimony of Morgan, Fine, Zimmerman, Phillips, Southworth, Kurras (Deposition
Exhibit 22), Wilson (Deposition - Exhibit 23), Bird (Deposition - Exhibit 27), Austin (Deposition - 29), Exhibits 17-21, 24-28)
A telephone survey was made by a market research firm in October 1979 that sought to determine the extent of the market for fiduciary services in the primary service area. The questions in the survey included such matters as length of residence in the area, age of the person called, current utilization of trust or other financial services, types and amounts of potential trust accounts, and whether those called would establish new trust accounts or change existing ones to either a "major out-of-state Institution" which opened a trust office in the area, or a "Florida-based Institution". No calls were made to
individuals residing in Broward County, but 290 persons responded to the survey in Dade County. The results of the survey are not found to be a reliable or representative assessment of the potential trust market in the primary service area. The limited geographical area covered by the survey, the incomplete selection of communities in which those who were called resided, and the misleading use of certain terms in the questions are the primary reasons for the above finding. (Testimony of Legg, Starke, Exhibit 32)
CONCLUSIONS OF LAW
When an application for authority to organize and operate a new trust company is filed, it is the applicant's responsibility to prove that the statutory factors warranting the grant of authority are met. It is the Department's duty to make an investigation of the five matters listed in subsection 659.03(1), Florida Statutes, which was done in this case, and then approve or disapprove the application in its discretion. This discretion is neither absolute nor unqualified, but is instead conditioned by a consideration of the factors listed in Section 659.03(2), Florida Statutes, wherein it is provided that:
The department shall approve or dis- approve the application, in its discretion, but it shall not approve such application until, in its opinion:
Public convenience and advantage will be promoted by the establishment of the proposed bank or trust company.
Local conditions assure reasonable promise of successful operation for the proposed bank or the principal office of the proposed trust company and those banks or trust companies already established in the community.
The proposed capital structure is adequate.
The proposed officers and directors have sufficient banking and trust experi- ence, ability and standing to assure reasonable promise of successful operation.
The name of the proposed bank or trust company is not so similar as to cause confusion with the name of an existing bank.
Provision has been made for suitable banking house quarters in the area speci- fied in the application.
If, in the opinion of the Department, any of the six foregoing requirements has not been met, and cannot be remedied by an applicant, it cannot approve the application. The Department believes that the applicant can, at least under certain circumstances, remedy the factors set forth in Section 659.03(2)(c), (d), (e) or (f), Florida Statutes, if they are found to be partially inadequate. For example, if all other statutory criteria are met, an applicant may increase capital, or make certain changes in the board of directors, or change the name, or alter their provisions for suitable trust company quarters, because these factors are within the control, at least to same degree, of the applicant. Furthermore, it is the Department's policy to allow applicants to make certain changes to these factors if all other criteria are
met; to do otherwise, would be to subject applicants to unnecessary red tape. However, it is the Department's position that there is little, if anything, that an applicant can do to alter the factors set forth in Section 659.03(2)(a) and (b), Florida Statutes, since the applicant CANNOT easily change the economic and demographic characteristics of an area. Therefore, if either one or both of these criteria are not met, the Comptroller cannot approve the application.
It is the opinion and conclusion of the Department that public convenience and advantage will NOT be promoted by the establishment of the proposed trust company in this case. Therefore, the criterion in Section 659.03(2)(a), Florida Statutes, IS NOT met.
The location and services offered by existing trust company facilities in the service area are considered indicative of the competitive climate of the market. The area's general economic and demographic characteristics are also considered in evaluating this statutory criterion. Because it is recognized that the establishment of a new trust company ANYWHERE would promote convenience and advantage for at least a few people, SUBSTANTIAL convenience and advantage for a SIGNIFICANT number of people must be shown, relative to the trust market potential.
The PSA, for purposes of applications for authorization to organize and operate a trust company pursuant to Chapter 659, Florida Statutes, is the smallest area from which the proposed trust company expects to draw approximately 75 percent of its accounts. It should be drawn around a natural customer base and should not be unrealistically delineated to exclude competing trust offices or to include areas of concentrated population.
It is the nature of the trust business that a neighborhood location is not a necessity. Unlike retail banking, frequent transactions in an account do not occur, and the trust account, once established, can usually continue without modification for a period of years.
The Applicant has realistically drawn its PSA to include Dade and Broward Counties. The proposed quarters would be located in a prime commercial area in the downtown Miami business area, and would conveniently serve its existing trust customers. As stated by the Applicant, the primary purpose in seeking to establish a trust company in Florida is primarily to retain these present customers who maintain seasonal or permanent residence in Florida. New business accounts in the PSA will also be sought, and the Applicant intends to offer a full range of fiduciary services to its customers, including administration of estates, personal trusts, custodial accounts, corporate trust services, and employee benefit trust services.
Dade and Broward Counties have a favorable age distribution for marketing and selling trust services. The substantial in-migration of retirees into the market has resulted in a significant percentage of people of age forty- five (45) or over. The presence of a substantial segment of older population is significant because wealth is normally concentrated in that portion of the population and they constitute the primary source of fiduciary services.
The low level of public awareness of the benefits and availability of trust services will be the subject of an active effort by the Applicant to increase public awareness of trust services. The extensive support services and expertise to be provided by the Trust Division of Manufacturers Hanover Trust Company would clearly facilitate this goal, to the benefit of the public.
Among the advantages that would accrue to the Applicant's customers are the availability of quality portfolio and investment management tools through dissemination of information from the parent or affiliated organizations and the availability of top quality personnel.
The above factors must be viewed in conjunction with the Bankers Trust appeal and the impact of the Court's forthcoming decision. "Convenience and advantage" is not a static concept. It must be viewed not only in terms of the immediate present, but also there must be some degree of assurance that it will continue in the foreseeable future. That assurance cannot be demonstrated because of the Bankers Trust appeal. As noted above, a decision is anticipated prior to the end of the Supreme Court's current term, in June, 1980. Of significance is the fact the issues will be determined by the Court, and such a decision must necessarily be dispositive of the threshold question of whether the Applicant is precluded from establishing a Florida trust company.
If the Florida law is upheld by the United States Supreme Court, the Applicant could not organize and operate a state trust company in Florida, and if a trust company had previously been opened, there would no longer be any legal authority for the continued operation of such a trust company. Such company would be operating in violation of Florida law, and it would be the sworn duty of the Comptroller, as a constitutional officer and as head of the Department of Banking and Finance, to uphold and enforce the law of the State of Florida. There being no specific authority to permit the continued operation of such a trust company, it would therefore be the obligation of the Comptroller to order such trust company closed as being engaged in the unauthorized trust business in the state.
In the opinion of the Department, it would not promote the public convenience or advantage for a trust company to deal with the public in fiduciary matters when there is a substantial and significant risk that the trust company, by operation of law, would have to close its doors. Members of the public who may have received some convenience or advantage by the opening of a Florida office would be greatly inconvenienced and disadvantaged thereby. There is a clear detriment to the public interest in having a trust company operating with the risk that within six to nine months it may have to close its doors, which would be the necessary result if Florida law is upheld by the United States Supreme Court. The public should not be unnecessarily exposed to such risks, nor should the Department of Banking and Finance be required to ignore such threats to the public interest. The fiduciary relationship between a trust company and its customers involves continuing legal obligations, which would be endangered, if not wholly extinguished, if the company were required to close.
In summary, Florida law, if upheld, would prohibit the Applicant from opening a trust company in the State of Florida. The issue of the constitutionality of such law is currently pending before the United States Supreme Court. Therefore, there is a very real and substantial possibility that the Applicant in the instant case could be legally prohibited from operating a trust company in Florida. Such factors, and their impact on this case, do not support a conclusion that "public convenience and advantage" would be promoted by the establishment of the proposed trust company at this time.
The Applicant has the burden of demonstrating that the public convenience and advantage would be promoted. In view of the foregoing, the Applicant did not sustain such burden. Therefore the Comptroller is compelled as a matter of public policy to find "convenience and advantage" is not met.
It is the opinion and conclusion of the Department that local conditions do NOT assure reasonable promise of successful operation for the proposed trust company and these trust companies already established in the community. Therefore, the criterion in Section 659.03(2)(b), Florida Statutes, IS NOT met.
Current economic conditions and, to a lesser extent, the growth potential of the area in which the new trust company proposes to locate are important considerations in determining its probable success. Essential to the concept of trust company opportunity is that there does and will exist a significant volume of business for which the new trust company may realistically compete. The growth rate, size, financial strength and operating characteristics of other fiduciary institutions in the PSA are also important indicators of economic conditions and potential business for a new trust company. It is noted that the statutory standard requires that local conditions ASSURE reasonable PROMISE of successful operation for the proposed trust company and those already established in the community, NOT merely that local conditions INDICATE a POSSIBILITY of such success.
Fiduciary management involves a public trust. Unlike private enterprise establishments generally, trust companies manage and control large sums of the public's assets and therefore the Department has a responsibility to protect the public's interest. Only persons with the highest standards of integrity and demonstrated expertise should be authorized to accept responsible positions in trust institutions.
Public interest is best served by having a trust service system whereby new competition is encouraged where appropriate, yet at the same time ensuring that the financial resources of the residents in the community are stable and safe. That was the obvious intent of the legislature in regulating corporate entry into the trust service industry.
As noted by the Hearing Officer, it is anticipated that some 268 accounts of existing customers of Manufacturers Hanover Trust Company will be eventually transferred to the new trust company. They are of various types and have an asset value of over $339,000,000 with annual fees of $752,000. Eighty- nine of the existing accounts with assets totaling over $63,000,000 have beneficiaries, co-trustees, or principals who reside in the primary service area. These existing accounts, together with anticipated now business, contribute to the reasonableness of the Applicant's projected assets under management for the first three years of operation.
There is a higher potential for increased trust business in a rapidly growing area. The presence of a substantial segment of older population is significant because wealth is normally concentrated in that portion of the population and they constitute the primary customer source for fiduciary services. As found by the Hearing Officer, the PSA represents one of the major markets for trust services due to rapid population growth, together with the age and wealth characteristics of its population.
The Hearing Officer, in Findings of Fact number twelve (12) notes that trust departments of banks are frequently "marginally" profitable and usually produce less than 3 percent of a bank's gross income. It is also well known that "larger" accounts tend to subsidize the "smaller" accounts, which for the most part, are offered as an accommodation to the customers of the commercial banking department.
It is true that the Applicant would be competing to a large extent with existing trust institutions for these "larger accounts." It is also true that loss of large accounts would affect the profit margin and would thus inhibit the ability of trust departments to service small accounts. Increased competition by the Applicant may result in some trust departments evaluating their program and require changes to effectively compete. However, it is not felt that entrance into the market of the Applicant by itself would adversely affect existing trust institutions to a significant degree. Section 659.03(2)(b) speaks in terms of "reasonable premise of successful operation for the . . . proposed trust company . . . and these banks or trust companies already established in the community."
A loss of profit in a trust department does not necessarily affect the successful operation of a bank. Suffice it to say, that there is a lack of finding and proof that the financial well-being of any institution would be significantly impaired.
These factors must also be viewed in light of the Bankers Trust appeal. Again, because of the substantial and significant risk that the trust company would have to close its doors, there is not the necessary assurance of the reasonable promise of successful operation. The erosion of public confidence in trust institutions which could result from the closing of an institution does not assure reasonable premise of its successful operation. The public confidence in such financial institutions, so necessary for the proper and beneficial operation of these businesses for the public good, could be seriously jeopardized. It is the Department's duty to protect the public from such risks.
The Applicant has the statutory burden of demonstrating that conditions assure the reasonable promise of its successful operation and that of established institutions in the area. In view of the foregoing, the Applicant did not sustain suck burden. Therefore, to the extent that the Comptroller is compelled as a matter of public policy to find that "convenience and advantage" is not met, likewise it is ancillary that "reasonable promise of successful operation" cannot be assured because of these same factors and considerations.
It is the opinion and conclusion of the Department that the proposed capital structure of the proposed new trust company is adequate. Therefore, the criterion in subsection 659.03(2)(c) Florida Statutes, IS met.
Capital should be adequate to enable the new trust company to provide the necessary trust services, including hiring and training qualified personnel and developing investment and management systems to meet the needs of prospective customers. It should be sufficient to purchase, build or lease a suitable permanent trust company facility and equipment. The Department believes that the initial capital for a new trust company generally should not be less than $2.0 million. Therefore, this criterion is met.
It is the opinion and conclusion of the Department that the proposed officers and directors have sufficient trust experience, ability and standing to assure reasonable promise of successful operation. Therefore, the criteria in subsection 659.03(2)(d) Florida Statutes, ARE met.
The organizers, proposed directors and officers should have reputations evidencing honesty and integrity. They should have employment and business histories demonstrating success, and should be responsible in financial
affairs. Generally, at least one member of a proposed board of directors, other than the chief executive officer, should have direct trust experience. In additional, the organizers, proposed directors and officers shall meet the requirements of Section 659.11, Florida Statutes, and shall not have been convicted of an offense constituting a violation of the banking or trust laws involving moral turpitude, or a breach of trust. Officers shall have demonstrated abilities and experience commensurate with the position for which proposed.
The Department concludes that the proposed officers and director have sufficient trust experience, ability and standing to assure reasonable premise of successful operation and therefore the criteria in subsection 659.03(2)(d), Florida Statutes, are met.
It is the opinion and conclusion of the Department that the name of the proposed new trust company, Manufacturers Hanover Trust Company of Florida, is not so similar as to cause confusion with the name of an existing non- affiliated trust company. Therefore the criterion of subsection 659.03(2)(e), Florida Statutes, IS met.
It is the opinion and conclusion of the Department that provision has been made for suitable quarters in the area specified in the application. Therefore, the criterion of subsection 659.03(2)(f), Florida Statutes, IS met.
Temporary quarters are not contemplated by the Applicant. The proposed trust company's permanent quarters will comprise approximately 1,000 square feet, and appears to be sufficient. The permanent quarters should be of a sufficient size to handle the projected business for a reasonable period to time. The facility should be of a nature to warrant customer confidence in the trust company's security, stability and permanence. Other pertinent considerations include adequate parking and expansion possibilities. Based on the record, and the nature of the financial institution involved, the criterion of subsection 659.03(2)(f), Florida Statutes, IS met.
FINAL ORDER
Based on the record, Findings of Fact and Conclusions of Law and policy considerations recited above, it is established that the two (2) statutory criteria set forth in subsection 659.03(2)(a) and (b), Florida Statutes, have not been met. In view of the fact these two (2) criteria, "convenience and advantage will be promoted", and "local conditions assure reasonable promise of successful operation", cannot be remedied by the Applicant at this time, it would not be within the lawful discretion of the Department of Banking and Finance to grant the application.
The Department's review of these criteria, which by their very nature are charged with factual, legal and policy considerations, must take into consideration the extremely uncertain future the Applicant's Florida operation would encounter. While it is apparent that the legal issues impacting this application will be resolved in the near future by the United States Supreme Court's decision, Chapter 120, Florida Statutes, mandates that the application either be approved or denied by a date certain, or it is automatically approved. Such a result is not in the best interests of the people of Florida.
This Department is receptive to arguments in favor of increased competition in the free marketplace and believes that the public is well served in a competitive, free enterprise system. This Department has supported
competitive and progressive measures in banking, such as expanded branching laws, merger laws, the international banking law, and like measures designed to promote the public interest and serve the needs and convenience of the people of Florida on an ongoing and permanent basis. However, there is considerable doubt in this case that such services would be provided on a permanent basis. Until such time as the constitutional issues are resolved, the uncertainty of such services being provided and the lack of assurance to the public of the continued availability of such services, as well as the effect on the public's confidence in the stability of their financial institutions, would undermine the financial system of the state and would not serve the best interests of the public.
Based on the foregoing, the application for authority to organize and operate a trust company at 100 North Biscayne Boulevard, 24th Flour, Miami, Florida, is HEREBY DENIED.
GERALD A. LEWIS
Comptroller of Florida The Capitol
Tallahassee, Florida 32301
(904) 488-0370
RULINGS ON PROPOSED FINDINGS OF FACTS AND EXCEPTIONS
The Department rules on the Proposed Findings of Facts and Exceptions, submitted by the parties as follows:
APPLICANT'S PROPOSED FINDINGS AND CONCLUSIONS
Applicant's Proposed Findings numbers 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, 15, 16, 17, 18, 19, 20, 21, 23, 24, 27, 28, and 29 are accepted to the extent that they are not inconsistent with the Findings of Fact rendered by the Hearing Officer.
Applicant's Proposed Finding number 22 is accepted to the extent that factual matters are discussed. However, to the extent that it suggests that "public convenience and advantage" will be promoted by establishment of the trust company, the Department rejects this conclusionary statement as inconsistent with the Department's conclusion as to this criterion based on the reasons as discussed in paragraph three (3) contained in the Conclusions of Law of the Final Order.
Applicant's Proposed Finding number 25 concerning the telephone survey has been dealt with in the Hearing Officer's Finding number 13, as adopted by the Department.
Applicant's Proposed Finding number 26 concerns several counter- arguments addressing contentions proposed by the Protestants. As to (1) "Concentration", (2) "Dual Banking", and (3) "Siphoning of Capital". To the extent that no significant findings of fact, if any, were premised on these contentions, there is no necessity to respond. A portion of the Hearing Officer's Finding of Fact number 10, was excepted to, concerning the "concentration" argument, and will be treated below in paragraph 9.
Number 4 concerning injury to existing institutions has been dealt with in the Final Order in paragraph 4 of the Conclusions of Law, as to the "reasonable promise".
The Applicant's Conclusions of Law numbers 1, 4, 5, 6, 7 are accepted. Numbers 2, 3, and 8 are rejected as contrary to the Conclusions of the Final Order.
PROTESTANT'S (FLORIDA BANKERS ASSOCIATION) PROPOSED FINDINGS
Protestant's Proposed Findings numbers 1, 2, 3, 4, 5, 13, 18, 19, 20, 21, 23, 29, 30, 34, and 35 are accepted to the extent that they are generally consistent with the Hearing Officer's Findings or with the Final Order.
Protestant's Proposed Findings numbers 6, 7, 8, 9, 10, 12, 14, 15, 16, 17, 22, 24, 25, 26, 27, 28, 31, 32, 33, 36, 37, 38, 39, 40, 41, 42, 43, 44, 45, 46, and 47 are rejected to the extent that they are inconsistent with the Hearing Officer's Findings or with this Final Order, or are otherwise irrelevant or immaterial.
APPLICANT'S EXCEPTIONS
The Applicant's Exceptions numbers 1, 2, 3, 4, 5, 6, and 10 concern Proposed Findings that were not specifically referenced in the Hearing Officer's Report. However, they are generally consistent with the Hearing Officer's Findings and have been accepted by the Department to the extent that they are consistent with the Final Order.
Exception 7, concerning Proposed Finding number 18, has been discussed above in paragraph 1.
Exception 8, concerning Proposed Finding number 22, has been discussed above in paragraph 2.
Exception number 9, concerning objection to portions of Finding of Fact number 10, is rejected. The first sentence of the Finding may speak in terms of "national trust business", but is viewed in terms of trust business throughout the nation. In no wise does it imply that there is a national market for personal trust business. The language should be viewed in the context of the overall finding.
Exception number 10 is duly noted and reflected in the Final Order.
Exception number 11 has been addressed in the Final Order in paragraph
4 of the Conclusions of Law as to "resonable promise."
CERTIFICATE OF SERVICE
I HEREBY CERTIFY that the original of the foregoing was filed with the Clerk of the Department of Banking and Finance and that a true and correct copy of the foregoing was sent by Certified U.S. Mail, Return Receipt Requested, to: Thomas J. Cardwell, Esquire, Post Office Box 231, Orlando, Florida 32802; Robert A. White, Esquire, Aubrey Kendall, Esquire, and Paul Brenner, Esquire of the firm Mershon, Sawyer, Johnston, Dunwoody and Cole, 1600 Southeast First National Bank Building, Miami, Florida 33131; Howard A. Setlin, Esquire, 1111 Lincoln Road Mall, Suite 600, Miami Beach, Florida 33139; Bruce Culpepper, Esquire, 350 East College Avenue, Tallahassee, Florida 32301; Robert Asti, Esquire, 2400 First Federal Building, Miami, Florida 33131; Richard R. Paige, Esquire, Alfred I. DuPont Building, Miami, Florida 33131; Charles Cane, Esquire, 801 Hallandale Beach Boulevard, Hallandale, Florida 33009; and G. Kenneth Kemper, Esquire, 9999 N.E. 2nd Avenue, Suite 200, Miami Shores, Florida 33138, on this 24 day of January, 1980.
FRANKLYN J. WOLLETT
Assistant General Counsel Office of the Comptroller The Capitol, Suite 1302 Tallahassee, Florida 32301
(904) 488-9886
| Issue Date | Proceedings |
|---|---|
| Jan. 25, 1980 | Final Order filed. |
| Dec. 13, 1979 | Recommended Order sent out. CASE CLOSED. |
| Issue Date | Document | Summary |
|---|---|---|
| Jan. 24, 1980 | Agency Final Order | |
| Dec. 13, 1979 | Recommended Order | Report to Department of Banking and Finance concerning application to establish trust company. |
