U.S. Business: Settling an Account

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By a short 30 minutes, the Justice Department failed in 1961 in its bid to block a merger between New York's Manufacturers Trust Co. and the Hanover Bank. Aware that Justice viewed the merger as a violation of the antitrust laws, the banks speeded up their negotiations, legally joined to form the nation's fourth largest bank half an hour before the trustbusters filed suit to stop the action. Faced with a fait accompli, a federal judge refused to consider the Justice Department's bid for a restraining order. Furious over the maneuver, particularly since the two banks had not discussed their plans with it, Justice immediately filed another suit.

Last week the trustbusters had their revenge. In Manhattan, Federal Judge Lloyd MacMahon ruled that the Manufacturers Hanover union had indeed conflicted with antitrust laws, and declared it illegal. It was the first bank merger to be declared illegal by any federal court below the Supreme Court, and it made the bank the largest firm ever to lose a merger case in the courts. The judge did not specify that the two banks must return to their original status, gave the bank and the Justice Department ten days in which to propose a settlement. Manufacturers Hanover Trust will probably attempt to effect a compromise, perhaps hoping to sell some of its branches to other banks or to spin them off to form a new bank.

Dividing an Omelet. Still angry over the 1961 maneuver, the Justice Department is not in a compromising mood, intends to press for a split-up. "Some persons seem to feel that you can't unscramble an omelet," says William H. Orrick Jr., head of Justice's antitrust division. "You can't. But you can divide it into two parts." Justice plans to ask the court to require the bank to divide its accounts, loans, branches and personnel into two independent banks, one about twice the size of the other—the ratio between Manufacturers and Hanover in 1961.

Even splitting the omelet poses sticky problems. In the 31 years since merger, Hanover's organizational structure has been completely integrated with Manufacturers, and many former Hanover executives are no longer among the firm's 10,000 employees. Manufacturers Hanover has current assets of $7 billion, $2 billion more than the combined assets of the parent banks, has gained six new branches (total: 136) and thousands of new customers. To Justice, this simply reinforces a contention that the merger materially reduced bank competition in New York; for the bank, it raises the question of how it can possibly assign its new assets and customers in any split. The bank is expected to fight right up to the Supreme Court any move to materially reduce its size.