The Moneychangers

by Arthur Hailey

  “I’m disappointed in you, Tom. You never used to be dishonest with yourself, especially when you know the real reasons as well as I do.” As Straughan flushed, Alex persisted, “Have you any idea what kind of scandal would blow up if SEC stumbled onto this? There’s conflict of interest; abuse of lending limitation law; the use of trust funds to influence the bank’s own business; and I’ve not the least doubt there’s agreement to vote the Supranational stock with management at the next SuNatCo annual meeting.”

  Straughan said sharply, “If it’s so, it wouldn’t be the first time—even here.”

  “Unfortunately that’s true. But it doesn’t make this smell any sweeter.”

  The question of trust department ethics was an old one. Supposedly, banks maintained an internal barrier—sometimes called a Chinese Wall—between their own commercial interests and trust investments. In fact, they didn’t.

  When a bank had billions of dollars in clients’ trust funds to invest, it was inevitable that the “clout” this gave should be employed commercially. Companies in which a bank invested heavily were expected to respond with reciprocal banking business. Often, too, they were pressured into having a bank director on their board. If they did neither, other investments would speedily replace their own in trust portfolios, with their stock nudged downward as the result of a bank sell-off.

  As well, brokerage houses which handled the huge volume of trust department buying and selling were expected to maintain large bank balances themselves. They usually did. If not, the coveted brokerage business went elsewhere.

  Despite banks’ public relations propaganda, the interests of trust department clients, including proverbial widows and orphans, often rated second to a bank’s own interests. It was one reason why trust department results were generally so poor.

  Thus, Alex knew, the Supranational-FMA situation was not unique. Just the same, the knowledge did not make him like it any more.

  “Alex,” Tom Straughan volunteered, “I may as well tell you that at the money committee tomorrow I intend to support the Supranational loan.”

  “I’m sorry to hear that.”

  But the news was not unexpected. And Alex wondered how much longer it would be before he would stand so alone and isolated that his position in the bank would be untenable. It could happen soon.

  After tomorrow’s money policy committee meeting, where the proposals concerning Supranational were certain to be approved by a majority, the full board of directors would meet next Wednesday with Supranational on its agenda too. At both meetings, Alex was sure, his would be a lone, dissenting voice.

  He surveyed, once more, the ever-busy Money Trading Center, dedicated to wealth and profit, unchanged in principle from the ancient money temples of Babylon and Greece. Not, he thought, that money, commerce, and profit were in themselves unworthy. Alex was dedicated to all three, though not blindly, and with reservations involving moral scruples, the reasonable distribution of wealth, and banking ethics. Yet, when exceptional profit was in prospect, as all history showed, those with such reservations were shouted down or swept aside.

  Facing the powerhouse forces of big money and big business—exemplified now by Supranational and a majority in FMA—what could one individual, alone in opposition, hope to do?

  Little, Alex Vandervoort concluded dismally. Maybe nothing.

  11

  The meeting of the Board of Directors of First Mercantile American Bank, in the third week of April, was memorable on several counts.

  Two major items of bank policy were the subject of intense discussion—one, the Supranational line of credit, the other a proposed expanding of the bank’s savings activity and the opening of many new suburban branches.

  Even before proceedings began, the meeting’s tone was evident. Heyward, unusually jovial and relaxed, and wearing a smart new light gray suit, was on hand early. He greeted other directors at the boardroom door as they arrived. From the cordial responses it was clear that most members of the board had not only heard of the Supranational agreement through the financial grapevine but were heartily in favor of it.

  “Congratulations, Roscoe,” Philip Johannsen, president of Mid-Continent Rubber, said, “you’ve really moved this bank into the big league. More power to you, fella!”

  A beaming Heyward acknowledged, “I appreciate your support, Phil. I’d like you to know I’ve other targets in mind.”

  “You’ll hit them, never fear.”

  A beetle-browed director from upstate, Floyd LeBerre, board chairman of General Cable and Switchgear Corporation, came in. In the past LeBerre had never been especially cordial to Heyward, but now he shook the other’s hand warmly. “Delighted to hear you’re going on the Supranational board, Roscoe.” The General Cable chairman lowered his voice. “My switchgear sales division is putting in some bids for SuNatCo business. Sometime soon I’d like to talk about them.”

  “Let’s make it next week,” Heyward said agreeably. “You can be sure I’ll help all I can.”

  LeBerre moved on, his expression pleased.

  Harold Austin, who had heard the exchange, winked knowingly. “Our little trip paid off. You’re riding high.”

  Today, the Honorable Harold looked more than ever the aging playboy: a colorful plaid jacket, brown bell-bottom trousers, his gaily patterned shirt sporting a cerulean blue bow tie. The white flowing hair was newly trimmed and styled.

  “Harold,” Heyward said, “if there’s anything at all I can do in return …”

  “There will be,” the Honorable Harold assured him, then strolled to his seat at the boardroom table.

  Even Leonard L. Kingswood, the energetic chairman of Northam Steel and Alex Vandervoort’s most fervent supporter on the board, had a good word as he passed by. “Hear you corralled Supranational, Roscoe. That’s first-class business.”

  Other directors were equally complimentary.

  Among the last arrivals were Jerome Patterton and Alex Vandervoort. The bank president, his white-fringed, bald head gleaming, and looking as usual like a gentleman farmer, went at once to the head of the long, elliptical boardroom table. Alex, carrying a file folder of papers, took his regular seat midway on the left-hand side.

  Patterton gaveled for attention and speedily disposed of several routine matters. Then he announced, ‘The first main item of business is: Loans submitted for hoard approval.”

  Around the table a flurry of turning pages signaled the opening of FMA’s traditional blue, confidential loan folders, prepared for directors’ use.

  “As usual, gentlemen, you have in front of you details of management’s proposals. What’s of special interest today, as most of you know already, is our new account with Supranational Corporation. Personally, I’m delighted with the terms negotiated and strongly recommend approval. I’ll leave it to Roscoe, who’s responsible for bringing this new, important business to the bank, to fill in background and answer any questions.”

  “Thank you, Jerome.” Roscoe Heyward eased on his rimless glasses which he had been polishing out of habit and leaned forward in his chair. When he spoke his manner seemed less austere than usual, his voice pleasant and assured.

  “Gentlemen, in embarking on any large loan commitment, it is prudent to seek assurance of the borrower’s financial soundness, even when that borrower has a triple-A credit rating, as Supranational does. In appendix ‘B’ of your blue folders”—around the table there was again a riffling of pages—“you will find a summary I have personally prepared of assets and projected profits of the SuNatCo group, including all subsidiaries. This is based on audited financial statements plus additional data supplied at my request by Supranational’s comptroller, Mr. Stanley Inchbeck. As you can see, the figures are excellent. Our risk is minimal.”

  “I don’t know Inchbeck’s reputation,” a director interjected; he was Wallace Sperrie, owner of a scientific instrument company. “But I know yours, Roscoe, and if you approve these figures then they’re quadruple-A for me.”
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br />   Several others chimed in their assent.

  Alex Vandervoort doodled with a pencil on a pad in front of him.

  “Thank you, Wally, and gentlemen.” Heyward permitted himself a slight smile. “I’m hopeful your confidence will extend to the concomitant action I have recommended.”

  Although the recommendations were listed in the blue folder, he described them anyway—the fifty-million-dollar line of credit to be granted in full to Supranational and subsidiaries immediately, with financial cutbacks in other areas of the bank to become effective at the same time. The cutbacks, Heyward assured the listening directors, would be restored “as soon as possible and wise,” though he preferred not to specify when. He concluded, “I recommend this package to the board and I promise that, in light of it, our own profit figures will look very good indeed.”

  As Heyward leaned back in his chair, Jerome Patterton announced, “The meeting is open for questions and discussion.”

  “Frankly,” Walter Sperrie said, “I see no need for either. Everything’s clear. I think we’re witnesses to a masterstroke of business for the bank and I propose approval.”

  Several voices together called out, “Second!”

  “Proposed and seconded,” Jerome Patterton intoned. “Are we ready to vote?” He obviously hoped so. His gavel was poised.

  “No,” Alex Vandervoort said quietly. He pushed his pencil and doodling away. “Nor do I think anyone else should vote without a great deal more discussion.”

  Patterton sighed. He set the gavel down. Alex had already warned him, as a courtesy, of his intentions, but Patterton had hoped that Alex, sensing the near-unanimous mood of the board, would change his mind.

  “I genuinely regret,” Alex Vandervoort was saying now, “to find myself before the board in conflict with my fellow officers, Jerome and Roscoe. But I cannot, as a matter of duty and conscience, conceal my anxiety about this loan and my opposition to it.”

  “What’s the trouble? Doesn’t your girl friend like Supranational?” The barbed question came from Forrest Richardson, a longtime FMA director; he was brusque-mannered, had a reputation as a martinet, and was a crown prince of meat-packing.

  Alex flushed with anger. No doubt directors remembered the public Unking of his name with Margot’s “bank-in” campaign three months earlier; just the same, he was not prepared to have his personal life dissected here. But he withheld a strong retort and answered, “Miss Bracken and I rarely discuss banking nowadays. I assure you we haven’t this.”

  Another director asked, “Just what is it you don’t like about the deal, Alex?”

  “Everything.”

  Around the table there was a restless stirring and exclamations of annoyed surprise. Faces which had turned toward Alex betrayed a lack of friendliness.

  Jerome Patterton advised curtly, “You’d better lay the whole thing out.”

  “Yes, I will.” Alex reached into the file folder he had brought and extracted a single page of notes.

  “To begin with, I object to the extent of the commitment to a single account. And not only is it an ill-advised concentration of risk, in my opinion it is fraudulent under Section 23A of the Federal Reserve Act.”

  Roscoe Heyward leaped to his feet. “I object to that word ‘fraudulent.’”

  “Objecting doesn’t change the truth,” Alex said calmly.

  “It is not the truth! We have made plain that the full commitment is not to Supranational Corporation itself, but to its subsidiaries. They are Hepplewhite Distillers, Horizon Land, Atlas Jet Leasing, Caribbean Finance, and International Bakeries.” Heyward snatched up a blue folder. “The allocations are spelled out specifically in here.”

  “All those companies are controlled subsidiaries of Supranational.”

  “But also long-established, viable companies in their own right.”

  “Then why, today and all other times, have we been speaking solely of Supranational?”

  “For simplicity and convenience.” Heyward glowered.

  “You know as well as I do,” Alex insisted, “that once the bank’s money is in any of those subsidiaries, G. G. Quartermain can, and will, move it around any way he chooses.”

  “Now hold everything!” The interruption came from Harold Austin who had leaned forward, slapping a hand on the table for attention. “Big George Quartermain is a good friend of mine. I won’t sit quietly hearing an accusation of bad faith.”

  “There was no accusation of bad faith,” Alex responded. “What I’m talking about is a fact of conglomerate life. Large sums of money are transferred frequently between Supranational subsidiaries; their balance sheets show it. And what that confirms is—we’ll be lending to a single entity.”

  “Well,” Austin said; he turned from Alex, addressing other members of the board, “I’ll simply repeat that I know Quartermain well, and Supranational too. As most of you here are aware, I was responsible for the Bahamas meeting between Roscoe and Big George where this line of credit was arranged. In view of everything, I say it’s an exceptionally good deal for the bank.”

  There was a momentary silence which Philip Johannsen broke.

  “Could it be, Alex,” the MidContinent Rubber president inquired, “that you’re just a little sore because Roscoe, and not you, was invited to that Bahamas golf game?”

  “No. The point I’m making has nothing to do with personalities.”

  Someone else said skeptically, “It sure doesn’t look that way.”

  “Gentlemen, gentlemen!” Jerome Patterton rapped sharply with his gavel.

  Alex had expected something of this kind. Keeping his cool, he persisted, “I repeat, the loan is too big a commitment to one borrower. Furthermore, pretending it isn’t to a single borrower is an artful attempt to circumvent the law, and all of us in this room know it.” He threw a challenging glance around the table.

  “I don’t know it,” Roscoe Heyward said, “and I say your interpretation is biased and in error.”

  By now it was obvious this had become an extraordinary occasion. Board meetings normally were either rubber-stamp affairs or, in event of mild disagreement, directors exchanged polite, gentlemanly comments. Angry, acerbic argument was virtually unknown.

  For the first time Leonard L. Kingswood spoke. His voice was conciliatory. “Alex, I’ll admit there’s some substance to what you say, but the fact is, what’s being suggested here is done all the time between big banks and large corporations.”

  Intervention by the Northam Steel chairman was significant. At last December’s board meeting Kingswood had been a leader in urging Alex’s appointment as chief executive officer of FMA. Now he went on, “Frankly, if there’s anything to be guilty of with that kind of financing, my own company has been guilty of it too.”

  Regretfully, knowing it was costing him a friend, Alex shook his head. “I’m sorry, Len. I still don’t believe that it’s right, any more than I think we should leave ourselves open to a conflict-of-interest charge by Roscoe going on the Supranational board.”

  Leonard Kingswood’s mouth tightened. He said nothing more.

  But Philip Johannsen did. He told Alex sourly, “If, after that last remark, you expect us to believe there is nothing personal here, you’re crazy.”

  Roscoe Heyward tried, but failed, to conceal a smile.

  Alex’s face was set grimly. He wondered if this was the last FMA board meeting he would attend, though whether it was or wasn’t he would complete what he had begun. Ignoring Johannsen’s remark, he declared, “As bankers we just don’t learn. From all sides—Congress, consumers, our own customers, the press—we’re accused of perpetuating conflict of interest through interlocking directorates. If we’re honest with ourselves, most accusations are on target. Everyone here knows how the big oil companies liaise with each other by working closely on bank boards, and that’s only one example. Yet we continue and continue with this same kind of inbreeding: You be on my board, I’ll be on yours. When Roscoe is a director of Supranational,
whose interests will be put first? Supranational’s? Or First Mercantile American’s? And on our board here will he favor SuNatCo over other companies because of his directorship over there? The shareholders of both companies are entitled to answers to those questions; so are legislators and the public. What’s more, if we don’t provide some convincing answers soon, if we don’t cease being as high-handed as we are, all of banking will be faced with tough, restrictive laws. And we’ll deserve them.”

  “If you followed through logically on all that,” Forrest Richardson objected, “half the members of this board could be accused of conflict of interest.”

  “Precisely. And the time is close when the bank will have to face that situation and amend it.”

  Richardson growled, “There may be other opinions on that score.” His own meat-packing company, as they all knew, was a large borrower from FMA and Forrest Richardson had participated in board meetings where loans to his company were approved.

  Disregarding the growing hostility, Alex plowed on. “Other aspects of the Supranational loan disturb me equally. To make the money available we’re to cut back mortgage lending and small loans. In these two areas alone the bank will be defective in its public service.”

  Jerome Patterton said huffily, “It’s been clearly stated that those cutbacks are temporary.”

  “Yes,” Alex acknowledged. “Except no one will say just how temporary, or what happens to the business and goodwill the bank will lose while the ban is on. And then there’s the third area of cutback which we haven’t touched on yet—municipal bonds.” Opening his file folder, he consulted a second sheet of notes. “In the next six weeks, eleven issues of county and school district bonds within the state will be up for bid. If our bank fails to participate, at least half those bonds are certain to remain unsold.” Alex’s voice sharpened. “Is it the board’s intention to dispense, so quickly after Ben Rosselli’s death, with a tradition spanning three Rosselli generations?”