The Chairman
Page 55
Empowering the “striped-pants” set at the State Department with greater authority and responsibility to conduct U.S. foreign policy rubbed directly against the grain of conventional wisdom. McCloy even made a point of praising one of Senator Joseph McCarthy’s chief targets, Secretary of State Dean Acheson. He launched a thinly veiled attack upon McCarthy’s simplistic view of communism. America, he argued, was antagonizing some of the very people in Europe who ought to be Washington’s natural allies, particularly European socialists, who he said were generally “liberal-minded individuals” and “almost uniformly bitterly opposed to Soviet Communism.” But he also lamented that “our intellectuals have not exerted the influence that they might have on the thinking abroad. . . .” For McCloy, the Cold War had become a war of ideas with the Soviets, and he was alarmed that America’s shock troops, the country’s intellectuals, were refusing to join the battle. In a veiled reference to McCarthy, he criticized “the many dangers of irresponsible and one-sided investigative procedures. . . .”8
Perhaps because he failed to attack McCarthy by name, the cursory press stories carried by The New York Times and other papers on the speech failed to dramatize his message. Nor did McCarthy—for the moment—respond to the attack. That would come later. But McCloy left Harvard feeling he had spoken his mind.
Back in New York on January 19, 1953, McCloy formally took charge of Chase Bank. Almost immediately, he was faced with a personal challenge. The bank’s annual shareholders’ meeting was scheduled to take place that week. Aldrich was already in Washington, preparing for his ambassadorship in London, and the bank’s veteran president, Percy J. Ebbott, was in bed with a bad case of the flu. McCloy, on the job only a few days, had to preside over what in the past had often proved a fairly raucous affair. He had read accounts of disturbances at previous meetings, where disgruntled shareholders had disrupted the proceedings with sharp questions aimed at the chairman. He also knew he would be seen by some shareholders as a novice to the world of commercial banking. So, as he walked into the room, he decided on the spot to try to defuse the atmosphere with a little self-deprecating humor.
As he sat down to chair the meeting, McCloy acknowledged that he was very much a “new boy” on the block. He wryly confessed that the last job he had held in a commercial bank was as a schoolboy in Philadelphia, when he worked briefly as a runner for Drexel & Co. He then told a story about a condemned horse thief standing on the gallows who turns to the sheriff and says, “This is the first time I’ve ever done this, Sheriff. Would you go a bit easy until I sort of get the hang of the thing?” At this, his audience burst into sustained applause and laughter.9
Actually, in financial terms, Chase’s shareholders didn’t have much to complain about. Earnings per share over the previous year had jumped nearly 20 percent.10 The one unhappy event in the previous year that shareholders were anxious to have explained was the collapse of negotiations conducted by Aldrich to merge with the Bank of Manhattan. Everyone recognized that, if Chase Bank was to keep pace with its rivals, it would have to expand its retail banking facilities. The Bank of Manhattan had what Chase did not—a large number of retail branches throughout the city. By contrast, Chase had what the much smaller Bank of Manhattan did not—a large portfolio of loans to major American corporations. In 1951, Aldrich had begun negotiations with the head of the Bank of Manhattan, J. Stewart Baker. Aldrich actually persuaded Baker to sign a merger agreement on August 17, 1951, which would have given Chase deposits of $5.9 billion and eighty-three branch offices, making it the largest bank in the city, and the second largest in the country. To his surprise, a few days later, Aldrich opened his morning newspaper to read a page-one headline announcing that the merger deal was off. Baker had unilaterally issued a press statement explaining that “legal obstacles” required an end to the negotiations. Aldrich was later told that the Bank of Manhattan’s lawyers had discovered that the bank’s charter, issued by the State of New York in 1799, required unanimous consent from all of its shareholders in order to sell its assets to Chase. Aldrich was sure this was merely an excuse to cover Baker’s last-minute doubts. Though he was deeply offended by Baker’s behavior, Aldrich still thought the merger attractive enough that in November 1952 he tried once more to reopen negotiations. But personal relations between the two men were so strained that the discussions went nowhere.11
News of the renewed negotiations had nevertheless leaked, and when McCloy walked into his first annual shareholders’ meeting in January, he was asked whether the deal was still a possibility. In response, he said with quiet authority that the merger proposal was “quite dead” and that any detailed discussion of the incident would be “quite out of place here.” The shareholders seemed satisfied with this and other answers he gave to their questions. He also orchestrated the defeat of a resolution hostile to the bank’s management which would have limited any bank officer’s profit-sharing compensation to $200,000 annually and placed a cap of $25,000 on pensions. There must have been some raised eyebrows when stockholders were told that McCloy would be earning the same salary as Aldrich, who, after all, had been with the bank for eighteen years. But the man’s affable demeanor made it hard for anyone in the room to object. One stockholder known for his troublesome questions even stood up and complimented McCloy’s handling of the meeting. “I can see,” he told him, “from the way you are presiding that you are the right man in the right place.” The next day’s New York Times reported, “The Chase meeting yesterday was one of the most peaceful in the history of the bank.”12
McCloy’s job was one of lofty supervision, not intimate direction, of Chase’s day-to-day operations. He was taking charge of an institution that processed $165 billion in checks every year and carried $2.6 billion in loans and mortgages. But the clearing of all these checks and the extension of loans was far removed from McCloy’s desk. The bank’s president, Percy Ebbott, who had been with Chase since 1929, ran the mundane aspects of the operation with a bevy of senior vice-presidents. “He held my hand,” McCloy recalled later.13
“The chairman’s first duty might be described as talk,” reported Fortune in a profile of McCloy later that year. Certainly, part of the chairman’s job was ambassadorial. He was the public symbol of a financial institution intimately associated with the Rockefeller dynasty. All together the Rockefellers owned about 5 percent of Chase’s stock, which in practice represented a controlling interest. The entire history of the bank was intertwined with the Rockefeller fortune. It had been created by the family and had always been managed by a board trained to keep one eye on the family’s interests and desires. John D. Rockefeller, Jr.’s son David was a thirty-eight-year-old vice-president, and clearly an unspoken part of McCloy’s job was to groom the youngest Rockefeller son to take charge of the family bank. Fortune’s editors casually commented that part of his new job was to preserve “the dignity of its [Chase’s] own name and that of its Rockefeller stockholders. . . .” A natural Rockefeller envoy, McCloy had known David and his father since teaching some of the boys sailing thirty-odd years earlier at Bar Harbor. He had provided legal counsel to the family and had lent his name and reputation to the family’s law firm, which itself had been created by the family to represent both its personal interests and those of Chase. The family trusted his common sense and discretion. In an era when the Rockefeller name still evoked popular resentment and opprobrium, McCloy’s disarming personality could be counted on to diffuse criticism. “New Chairman McCloy,” observed Fortune’s editors, “is a man adept at talk that is affable, wideranging, informative, discreet and effective.”14
Soon after his first stockholders’ meeting, McCloy decided that, in an effort to get to know his employees and how the bank functioned, he would go around the building and introduce himself. So, one morning at nine o’clock, he started on the ground floor and greeted everyone he met with the words “Hi, I’m Jack McCloy.” He told his colleagues, “I’m finding out what the bank is about.” For some weeks, he b
egan his day in this manner, trying to work his way up the building, floor by floor. He did not, of course, succeed in meeting all nine thousand of Chase’s employees, but he quickly won a reputation for his easygoing familiarity.15
Symbolism aside, it was primarily McCloy’s job at Chase to keep himself in a state of perpetual conversation with the bank’s major clients. He called the whole process “working the economy, keeping it moving.” From the beginning, the chief executive officers of America’s largest corporations came to him, and often offered him a seat on their boards of directors. Within months, he became a director of AT&T, Metropolitan Life Insurance Co., and Westinghouse Electric Co.16 (Typically, such directors were paid $5,000-20,000 a year for attending board meetings.) On these interlocking corporate boards sat dozens of officers from other banks and corporations, and during the conversations he had with these and other businessmen about town, often over the phone but frequently at one of Wall Street’s luncheon clubs, McCloy would solicit new corporate depositors and opportunities to lend Chase money.
When McCloy joined Chase, 75 percent of its outstanding loans were to large corporations. This made the bank particularly vulnerable to the vagaries of a recessionary cycle. With the incoming Eisenhower administration promising to end the Korean War, it was apparent that 1953–54 was going to be a period of recession. Chase loans fell nearly 9 percent over the next two years, while the nation’s GNP declined 1.4 percent in 1954. Despite these trends, McCloy adopted an aggressive banking strategy. Reserves held against demand deposits were lowered, and he approved a dramatic increase in the bank’s foreign-exchange transactions. To compensate for the decline in demand for loans to corporate clients, he approved a huge increase in the bank’s portfolio of government securities.17
A few of McCloy’s colleagues thought that for a “new boy on the block” some of these policies were brashly taken and not a little risky. One such critic was George Champion, a senior vice-president in the bank who was known as a “bankers’ banker.” With Chase since 1930, he had been assigned during the depression to a troubled New Orleans bank indebted to Chase. For two years, he had grappled with depression conditions and the constant interference of politicians like Senator Huey Long. The experience confirmed his rockbed conservatism and left him with an indelible distrust of government. He disliked any hint of self-promotion and was once overheard telling a security analyst, “We’re not going to be pressured into showing profits.” In 1952, he had been promoted to direct Chase’s domestic department, making him a candidate for the chairmanship. He was clearly disappointed when Aldrich passed over him to choose McCloy.18
Champion had always believed the bank’s ratio of reserves to loans was too low, and so of course disapproved when McCloy lowered reserves even further. McCloy’s international ventures also made him uneasy. When Chase was considering a loan to a copper mine in Mexico, Champion automatically opposed it upon learning that the mine was owned by the Mexican government. “We are not here,” he complained, “to socialize the world.”19
Champion was equally unhappy when, in 1954, McCloy approved an unprecedented international credit transaction whereby Chase joined the International Monetary Fund and the U.S. Treasury in a $30-million loan to the Peruvian government for currency stabilization. To Champion’s horror, the loan was approved without the Peruvian government’s having to offer any collateral. Instead, the government in Lima agreed to an IMF-supervised program of fiscal reform. Such IMF economic-stabilization agreements were later to become common, but Chase’s participation in this loan was the first occasion on which a private bank entered into such an arrangement.20
Balancing Champion’s conservatism on such matters was young David Rockefeller. Before McCloy came aboard, Rockefeller had served an apprenticeship in the international department of the bank. He was younger and less experienced than Champion, but his name and future in the bank assured him a powerful voice in its affairs. Rockefeller was not one to worry about such mundane aspects of the business as deposit-to-loan ratios. Brimming with self-confidence that he could fulfill the role destined for a Rockefeller, he had a natural reserve and a serious demeanor that suited the profession he had chosen within the family business. He had strong opinions about how he wished to see Chase operated, but he needed someone like McCloy to glide him past his own occasional awkwardness.
McCloy found in Rockefeller an ally for his plans to push the bank into aggressively expanding its international activities. Unlike Champion, who hadn’t traveled much in Europe, let alone the developing world, Rockefeller had traveled abroad much of his life. After coming back from a couple of scouting trips to Brazil sometime in the early 1950s, he became completely sold on the idea of international expansion.21 Ever since the depression, the normal practice at Chase’s international department was to conduct its foreign business through a correspondent bank abroad. Loans were never given directly to a foreign corporation, most transactions were very short-term, and an emphasis was placed on financing trade or commodities. In short, Chase and virtually all other major U.S. banks took few risks when it came to doing business abroad. Champion wanted to keep it that way, and even in the international department there was a great deal of resistance to any rapid expansion of loans.
But McCloy’s World Bank experience had convinced him that there were plenty of banking opportunities abroad that could both earn a profit and contribute to development in places like Nicaragua, Brazil, and Egypt. Finding such profitable ventures in the developing world was quite a difficult task. Champion made it more difficult by demanding that these projects have the “right people with adequate skills.”22
International lending grew slowly. By the end of 1954, Chase was the third-largest bank in America. But it still only had foreign branches in eight countries, and these branches held modest deposits of $445 million and loans of only $120 million. Though Chase held the record for deposits by foreign-correspondent banks, roughly $650 million, most of this money was placed in New York merely to handle trading transactions.23 Thus, neither foreign nor U.S. bankers were making many long-term investments in one another’s economies, a fact McCloy deplored. But he realized that, if the bank was going to move abroad in a major way, it would take time to change attitudes.
In the meantime, he had been pondering Aldrich’s failure to negotiate a merger with the Bank of Manhattan. After only a few months on the job, he persuaded himself that there were good reasons to pursue the deal. To compete on its home turf, Chase absolutely needed to expand the number of its retail banking branches throughout the city. If it did not, National City could well overwhelm Chase before McCloy even had a chance to position the bank for an expansion abroad. To build these branches up from scratch would take time; the easiest route to domestic expansion lay in merger. Convinced that the Bank of Manhattan’s Stewart Baker had firmly shut the door to further negotiations, McCloy turned his eyes to the House of Morgan.J. P. Morgan & Co. was then a relatively small but highly prestigious “silk-stocking” bank. It did not possess the retail banking branches McCloy sought, but the idea of taking over what remained of the Morgan financial empire appealed to him. One day, he grabbed his hat and walked over to see George Whitney.24
Whitney had been a J. P. Morgan partner since 1920, and McCloy had known him since at least the 1930s, when both men were members of the Piping Rock country club. McCloy feared his suggestion of a merger might seem presumptuous to the patrician Morgan partner. So, in pitching the idea to him, he made a point of saying that he was prepared to step aside as chairman if Chase and Morgan could be joined. To his surprise, when McCloy asked, “Are you interested or is there no sense in my talking further about this?,” Whitney replied, “Keep talking. Keep talking.” However, two other Morgan partners, Harry Davison and the younger Tommy Lamont, got wind of the negotiations and put a stop to them. “With all their Morgan traditions,” recalled McCloy, “they put their foot down and said they would ‘never, never, never’ merge with anybody else, least of a
ll Chase.”25
McCloy then decided to take a second look at the Bank of Manhattan. He soon came across the brief prepared by the law firm of Dewey, Ballantine, which was used by Stewart Baker to justify his decision to back out of the merger. New York State banking laws did provide for the disposition of any bank’s assets by a simple majority vote of shares, but the Bank of Manhattan’s 1797 charter did not contain any provision for merger or consolidation of its assets in the face of minority shareholder opposition. Dewey, Ballantine argued on the basis of an old legal precedent (the well-known Dartmouth College case) that Bank of Manhattan shareholders could only approve a merger into Chase by a unanimous vote.