Memoirs

by David Rockefeller

  I liked the idea and discussed it with Alfred Barr, the chief curator at the Museum of Modern Art, who fully agreed. Jack McCloy was also open-minded about the proposal, and we formed a small committee that included leading art experts, Gordon, Jack, and myself, to select quality pieces of modern art for the building. We set aside $500,000, which in those days was enough to acquire a representative selection of modern paintings. From this relatively modest beginning the world’s first significant corporate art collection has grown to one worth almost $100 million.

  Construction began in late 1956, but we immediately ran into an unanticipated problem: water. In digging the foundation, the engineers discovered an underground stream about fifty feet below the surface. To deal with this problem and the tidal flow of the East River, which affected the water table under the building, we had to erect a cofferdam the size of the property, a costly modification since it had to be installed before we could begin excavation. The foundation itself was almost 100 feet deep, and eventually more than 225,000 cubic yards of earth and rock were removed. As a consequence, work was delayed and construction costs escalated dramatically. A number of citywide strikes slowed the work even more, and drove up expenditures as well. The preliminary estimate for the building alone was $55 million; in the end the full cost, including land and furnishings, was $145 million. Twenty-five years later, however, the market value of the building was almost three times that amount.

  I was more than a bit apprehensive about the immediate critical reaction to our novel bank headquarters. I need not have worried. “One Chase” received rave reviews in publications that ran the gamut from Forbes, which praised the “fresh and hopeful cast it has given the old financial district,” to Architectural Forum, which called it “the boldest and quite possibly one of the soundest investments made on Wall Street.”

  It is now widely acknowledged that Chase’s decision to remain downtown was pivotal in quelling the threatened exodus of other banks and financial institutions, and was a key first step in the renaissance of Wall Street.

  The late 1950s was the beginning of an eventful period for me and for Chase. We began the process of transforming an antiquated management structure and entrenched corporate culture into something more rational and capable of dealing with the contemporary world. We recommitted to lower Manhattan and in the process influenced others to remain there as well. And we built a dramatic edifice to serve as our headquarters—a building that exemplified the “new” Chase Manhattan Bank.

  Despite the bank’s progress during this period, not everyone at Chase supported or appreciated the changes I had sponsored. One executive in particular stood largely in opposition to the vision I held for the bank and the direction I thought it should follow. My conflict with this man would develop into a major struggle for power within the bank in the years immediately ahead.

  CHAPTER 13

  CONFLICT

  In December 1956 we put in place the final pieces of the plan that fully merged Chase and the Bank of Manhattan. I was promoted from executive vice president to vice chairman of the board, and George Champion became president and chief operating officer. We became the clear front-runners in the race to succeed Jack McCloy when he retired in early 1960. The stage was set for a competitive struggle between us that would last fifteen years.

  STRUGGLE FOR THE “SOUL” OF THE BANK

  George Champion was one of the best-known and deeply respected bankers in the United States. His election in 1958 to the presidency of the Association of Reserve City Bankers was testimony to this fact. George knew all our major corporate clients, and they valued his advice and friendship. He was sound, smart, professional, and level-headed. No other man so thoroughly personified the conservative banking culture of the Chase, a culture that I felt needed to change.

  Being a credit officer and a “damned good one” was all he cared about, and as far as he was concerned, it was all the bank should care about, too. He had worked hard to make Chase the country’s foremost wholesale domestic bank, catering primarily to large U.S. corporations. Filling their credit needs had always been Chase’s primary function; it was the principal source of our revenue and profits, and anything else, for George, was largely a diversion and a waste of resources. Over time, I came to understand that he had a visceral distrust of international expansion. He once told a group of credit trainees that “we would lose our soul” if the bank went international.

  I saw Chase’s challenges in a different light. My training and experience was not on the lending side. Rather, I had spent fourteen years in the bank’s Foreign and Metropolitan Departments. I understood the bank’s people and culture, and appreciated its great strengths and enormous potential as well as its glaring organizational and management weaknesses. I saw Chase’s future in terms of increased services to a worldwide clientele.

  Almost from my first days at the bank George and I sparred over goals and vision. Our debates were heightened by our very different personal styles. George was hale and hearty and occasionally loud. I was much more reserved, and my manner of communicating more subtle. But our conflicts were fueled by more than contrasting personalities. Part of it was that George saw me as his principal competitor in the bank’s hierarchy. More important, he and I fundamentally disagreed on how the bank should be organized and where it should be headed. George seemed wedded to the past, content with Chase’s role as the preeminent domestic bank. I saw the need for dramatic change and sought to lead the bank in new directions both internally and around the world. As our careers progressed, these basic philosophical differences sharpened, and our personal conflict intensified.

  “TROJAN HORSE”

  As president and chief operating officer George was in a dominant position, but he could not thwart all my ideas during the late 1950s since, as vice chairman, I reported directly to Jack McCloy and the board. During those years I devoted most of my time to building our new headquarters in lower Manhattan, integrating the personnel and programs of the post-merger bank, and trying to introduce a more effective management structure. These tasks did not provide me with any direct involvement with the lending areas of the bank, which remained George’s territory.

  However, I used my staff as a kind of “Trojan horse” to initiate quietly a number of important changes. Although my group concentrated on operations, marketing, management development, employee relations, advertising, and public relations—all essential elements of a modern corporation—the department also included an upgraded economic research group and a newly minted organizational planning unit. Both of these operations, once they were up and running, became significant in analyzing the medium- and long-term banking environment in which we operated and in suggesting measures to capitalize on it. Inevitably, or so it seems in retrospect, this moved Chase in the direction I thought it should be moving. And as long as I restricted my activities to the bank’s staff functions and did not intrude directly on its fundamental business, George left me to my own devices, which I suspect he viewed as relatively harmless.

  END-RUNNING THE INTERNATIONAL DEPARTMENT

  There was one line department for which I had responsibility after the reorganization. It was called, rather vaguely, Special Investments, and through it I was able to expand the bank’s activities to several foreign countries and to broaden the scope of our financial services in cooperation with, but independently of, the International Department.

  I had to proceed in this way because while Jack McCloy sympathized with my view of international diversification, he never took any concrete actions to force the bank onto this new path. In some respects he had no other choice. Throughout his tenure Jack relied on George and his team of domestic lending officers to provide stable growth and acceptable earnings. As late as 1960, Chase had a total loan portfolio of just under $5 billion but only about 5 percent in loans outside the United States. So while Jack hedged his bets by allowing me to follow through on a number of projects, he never engaged in the difficult task of con
fronting the bank’s domestically based culture.

  In 1955, at the time of the Bank of Manhattan merger, we operated only seventeen foreign branches, nine of them clustered in the Caribbean—four of which I had sponsored myself. Our modest presence overseas stood in stark contrast to City Bank and the Bank of America, both aggressively extending their already extensive overseas networks in Europe, South America, and the Far East. In terms of foreign branch networks we were far behind our two major U.S. competitors, and the gap was widening.

  The Foreign Department, strongly supported by George Champion from his position as head of the United States Department, resisted expanding the range of products we offered beyond short-term trade finance and the traditional areas of correspondent banking. It pursued this course more out of fear than calculation. Our foreign correspondent banks supplied a substantial portion of our low-cost demand deposits, the principal base for Chase’s domestic lending. In the late 1950s the demand for bank credit increased substantially, but our deposits failed to grow at a comparable rate, raising the possibility that we would have to curtail our lending as we approached the limits established by the Federal Reserve. Under these circumstances George did not want to take any steps that might jeopardize relationships with our foreign correspondents who maintained large deposits with us.

  I considered this view shortsighted. Those deposits were very important, but we had to move beyond correspondent banking by opening more overseas branches, acquiring foreign affiliates, and providing a broader range of products, including ones that might require longer-term lending and even direct investments. I was convinced that in doing this we would not jeopardize our correspondent balances since I believed our correspondents needed us more than we needed them. Initially my arguments were not accepted, but I pressed ahead to develop our international activities through a number of vehicles.

  COMPETING WITH EX-IM

  President Dwight D. Eisenhower had entered office in 1953 proclaiming his intention to rely more on the U.S. private sector to finance foreign trade. This seemed to offer Chase the opportunity to enter the field of medium-term trade finance—an area that private commercial banks had neglected to that point, leaving the field almost totally to the government-financed Export-Import Bank.

  At my prodding we enlisted the cooperation of other U.S. commercial banks to create a facility that provided one-to-five-year medium-term credit for the financing of “big ticket” export items, such as steam shovels, electric turbines, earthmoving equipment, and railroad locomotives. We called on correspondent banks in the Northeast and Midwest, and eventually persuaded the National Bank of Detroit, the Mellon Bank in Pittsburgh, and the First National Bank of Boston to join with us and Chemical Bank of New York in launching a new trade finance corporation. We also called on many of our corporate customers, such as Caterpillar, International Harvester, John Deere, General Electric, and Westinghouse, to inform them of our plans. Finally, we spent a great deal of time in Washington with Ex-Im officials, who under their charter were required to “assist” private lenders in the promotion of American exports. However, we had learned from our customers that they were far from satisfied with Ex-Im’s performance. They complained of maddening delays, endless red tape, and relatively high-cost financing.

  All of this encouraged us to incorporate a joint venture, which we called the American Overseas Finance Corporation (AOFC), in June 1955. Each partner purchased equal shares of the $10 million issue of common stock. Jack McCloy, a strong proponent of the idea, served as the chairman, and I became a director.

  AOFC quickly demonstrated that our assumptions had been correct. It financed a number of trade deals and established lines of credit for several American manufacturers. By the end of 1956, AOFC held total assets of $11 million and had commitments to purchase more than $22 million in commercial paper; a modest beginning, perhaps, but the earliest private sector effort to respond to American exporters’ critical need for medium-term financing.

  Ex-Im officials viewed our entry into the field with alarm. They reacted by lowering interest rates to our potential customers in order to keep their business. Discussions—including a stormy one between McCloy and Secretary of the Treasury George Humphrey—failed to resolve the issue, and our partners became concerned about the competitive rivalry that was emerging between AOFC and Ex-Im. The other directors of the AOFC decided to sell the business rather than risk the displeasure of the regulators in Washington. We sold the company in May 1957 to IBEC for what we had invested in it.

  I was quite disappointed by this outcome, but although AOFC fell short of my ambitious expectations, I was pleased that Chase had emerged as an innovator in an important area of trade finance and, more important, had demonstrated to George Champion and his disciples that we could extend our international reach and at the same time strengthen our relationships both with correspondent banks and our large U.S. corporate customers.

  INVESTING IN THE DEVELOPING WORLD

  Shortly after the incorporation of AOFC, the Special Investments group explored another dimension of the international market by creating a subsidiary to invest in the developing world. We felt Chase should play an active role in the economic development process, and by doing so we could get in on the ground floor in Asian and African countries that had just thrown off the shackles of European colonialism as well as in nations still struggling to modernize their economies, as in Latin America.

  During my trips abroad I had noted the weakness of capital markets and the inability of local businessmen and entrepreneurs to borrow in order to finance growth. Interamericana had been an early and perhaps poorly conceived effort to address this problem in Brazil, yet the need for long-term infusions of capital still persisted there and in most developing nations. One approach was to invest directly in local companies, especially in those key sectors—such as mining, commercial agriculture, and manufacturing—that could generate jobs and produce consumer goods for the local market. Creating industrial development banks in countries with good economic profiles was another method that might enable us to leverage our funds with those of local investors to stimulate productive diversified investment.

  We had to be creative in accomplishing these goals since U.S. government regulations prohibited commercial banks from directly entering the investment banking field either alone or in combination with others, even outside the country. As a result, we restructured our existing Edge Act corporation (see Chapter 10) into a so-called nonbanking company, which allowed it to make direct investments outside the United States.

  From the very start we avoided the two problems that had complicated our previous efforts in Brazil and with AOFC. We chose partners with a strong commitment, and we found competent leadership to run the bank. We hired an experienced investment banker to run the operation, and in August 1957 established the Chase International Investment Corporation (CIIC). I became CIIC’s chairman, and we invited several experienced outsiders to join our board of directors.

  As a matter of policy we invested only in new projects and always with a “know-how” partner who understood the business and the local economy. CIIC quickly became active around the world. Among other initiatives it invested in a profitable textile mill in Lagos, Nigeria, the first major private industrial project with an American interest in that country. We also established a development bank in Iran, in partnership with Lazard Frères and a local Iranian group. The Industrial and Mining Development Bank of Iran was the first development bank organized by private investors and served as the model for others that we established later in the Ivory Coast and Panama. Both the Iranian and Nigerian projects were profitable, although each had to endure the uncertainties of politics in the developing world. The Iranian bank became a nationally important institution before it was seized by Islamic revolutionaries during the hostage crisis of the late 1970s.

  CIIC then took a major stake in the Esperance Land and Development Corporation in western Australia, which held title to 1.4 mi
llion acres on the shores of the Great Australian Bight. The Esperance project turned what had been an arid and virtually barren wasteland into a prosperous agricultural region.*

  In its early years CIIC produced good results on most of its investments and spectacular profits from at least one—an equity position in an oil refinery in Puerto Rico that returned several million dollars in a period of two years. As CIIC succeeded, the arguments against expanding the bank’s international activities were much harder to make from within the bank. CIIC gave us a chance to establish a presence in parts of the world where Chase had little exposure. Slowly but surely we began to create an image as an American bank with a concern for the well-being of the countries where we did business. In several cases CIIC also opened the door to opportunities for broader Chase activities in later years. The foundation that we laid in those areas in the 1950s was consistent with my vision for the international expansion of the Chase.

  But my ability to push this expansion aggressively was contingent upon my being given a position of greater authority in the bank, and my future role in the fall of 1959 was by no means clear. My fate rested in the hands of the twenty-three men who formed the board of directors of the Chase Manhattan Bank and would collectively select Jack McCloy’s successor.

  SHOWDOWN FOR THE TOP JOB

  Jack McCloy had been scheduled to retire in March 1960, but the board was divided on the choice of his successor and asked him to stay through the end of the year while they sorted things out. From the board’s perspective George was the logical choice as CEO. He was fifty-six, eleven years my senior, and had been with the bank since the late 1920s. I, on the other hand, was relatively young, and many on the board did not consider me a “real banker.” My principal responsibilities had been in management and marketing. I had never been a line credit officer, although, unlike either Winthrop Aldrich and Jack McCloy who became chief executives with very little knowledge of the inner workings of banking, I had spent fourteen years immersed in the operations of Chase and had encouraged a number of innovative changes. A large majority of the board recognized that policy changes of the kind I had been pushing were necessary and inevitable. They seemed to appreciate my creativity, but apparently they wanted a chairman with a solid record in credit and lending, areas where George obviously excelled.