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The industry groupings generally followed the clas- The bank numbered 1 does not appear in Appendix D, sification procedure used by the well known Value Line Table 2-A because it does not hold as much as 1 percent Survey. However, the industry groupings were limited by of the stock of any airline included in the sample. A the fact that the I1S was limited to 800 stocks and the convenient, arbitrary rule adopted in preparing Appendix present study focused its attention on only those stocks Table 2 was to list all the holdings (with full voting among the 800 held by bank trust departments for which rights) when any bank's holdings were as large as 1 perthe total portfolio concentration in 1969 was about 10 cent in any company in that industry. The case of bank percent or above. The amount of detail was limited by numbered 2, which held more than 7 percent of the stock the resources available to the investigator and a desire to in Trans World and Northwest Airlines and almost 5 permaintain the readability of this study. The data themselves cent of the stock in Eastern Airlines, merits considerable are quite revealing. Comments will be made about the thought. Eight of the 12 banks listed in this subtable hold airline and insurance industries only. The need for more 1 percent of the shares of two or more airlines. nearly complete studies of the industry ownership patterns that have developed, and will grow, merit continued and Debt, Control and Interlocks regular study. In view of the energy crisis Appendix D, Table 2-N, Petroleum and Gas Production and Dis- Two problems related to the range of the power of banks tribution, is also important to public policy consideration. are worthy of emphasizing. First, the commercial loan
departments of these same banks are very likely to make Airline Holdings by Banks
loans to all or most of these same airlines. The degree of
independence of their judgments in stock investment and The extent of the 4, 8 and 12 largest holdings and
in commercial lending activities merits further study. The the holdings of all 50 reporting bank trust departments of relations of a bank with its commercial borrowers may six important airlines is shown in Appendix D, Table 2-A. provide it with important financial information before
such information is made available to other investors The holdings of 10 percent or more of several airlines by through other channels of communication. Second, banks two to four bank trust departments in itself may not be
own different amounts of stock in suppliers competing for disturbing; further study of the appendix table shows airline business such as air frame and jet engine manuthe extent to which individual-but not identified-bank facturers. The extent to which interlocking relations trust departments hold parts of the voting stock of the between bank officers (or directors) and companies in same airline. Such study does raise new and vital issues. which substantial amounts of stock are held merits Note that banks numbered 2 and 3 hold more than 10 investigation. percent of the stock of Trans World, Northwest, and National Airlines. Banks numbered 2, 3, and 4 hold
1966 Institutional Ownership Pattern more than 15 percent of the stock of National Airlines,
A study of 1966 ownership patterns of 10 airlines which and banks numbered 3 and 4 hold more than 7 percent presented the portfolio concentrations for both bank trust of Eastern Airlines. If partial voting rights were included, departments and mutual fund complexes is reproduced as these percentages would be somewhat larger.
Table 7.-KNOWN CONCENTRATED HOLDINGS OF AIRLINE COMMON STOCK BY FINANCIAL INTERMEDIARIES-1966
(PERCENTAGE OF COMMON STOCK OWNED BY FINANCIAL INTERMEDIARIES)
Table 7.-KNOWN CONCENTRATED HOLDINGS OF AIRLINE COMMON STOCK BY FINANCIAL INTERMEDIARIES—1966
(PERCENTAGE OF COMMON STOCK OWNED BY FINANCIAL INTERMEDIARIES)--Continued
Investment companies--Continued Wellington Manage
ment (3). Keystone (5) Putnam Manage
ment (4) Channing (2). Fundamental In
vestors (2) Broadstreet (3) American Mutual,
et al. (3)-Lehman-One
William Street (2)
(Newark). Insurance Company
of North America (Philadelphia). Total in named
intermediaries.. Market value of
common stock, Dec. 31, 1966 (in millions)
1 Data from U.S. Congress, House, Committee on Banking and Currency, Commercial Banks and Their Trust Adivities, Emerging Influence on the American Economy, vol. I, staff report for the Subcommittee on Domestic Finance, 90th Cong., 2d se89., July 8, 1968 (Washington, D.C.: Government Printing Office, 1968).
• Data from United Statistical Associates, Stocks, vol. I of Corporate Holdings of Insurance Companies (New York: United Statistical Assoc., 1968).
• Data from Arthur Wiesenberger and Company, Investment Companies—1967 (27th ed.; New York: Arthur Wiesenberger and Co., 1967).
Source: Robert M. Soldofsky, Institutional Ownership of Common Stock: 1900-2000 (Ann Arbor, Mich. Bureau of Business, Graduate School of Business, University of Michigan, 1971), pp. 216-7.
HOLDINGS NOT AVAILABLE
OVERLAPPING OWNERSHIP WILL GROW
The primary limitation of this table was that the bank These overlapping financial interests are clear. What trust department holdings of less than 5 percent was not their consequences may be for patterns of competition available. At this earlier date the Chase Manhattan Bank's within an industry are not so apparent yet. The fact, to trust department held over 6 percent of the common repeat, that institutional holdings of common stock are stock of six different airlines, and Morgan Guaranty held growing faster than the total market value stock leads to over 6 percent of two airlines. These two banks between the very likely result that such patterns of overlapping them held 13.7 percent of Trans World Airlines stock. The "ownership" will grow both in terms of the number of mutual fund complex, Waddell and Reed, held another companies involved and the extent of individual portfolio 4.9 percent, and the Fidelity Group held 3.1 percent of concentrations. Trans World. These four financial intermediaries held 21.5 percent of Trans World Airlines. Waddell and Reed Insurance Industry Holdings by Banks held 4.3 percent in National Airlines and more than 2 percent of the stock of the three other airlines. The Fidelity The improved outlook for the insurance industry somegroup owned 8.1 percent of National Airlines and 6.6 time between 1966 and 1969 made its common stock an percent of Northwest Airlines. Between them the Chase attractive investment to bank trust departments. The Manhattan Bank and Fidelity group held 16.5 percent extent of such holdings in 1966 cannot be estimated beof Northwest Airlines, and the four largest holders owned cause of the general lack of conveniently summarized inmore than 20 percent of its stock.
formation. As shown in Appendix D, Table 2-1, in eight instances the four largest bank trust department holdings pass some specific proposals relating to industry portfolio were 10 percent or more of the stock of five of the insur- concentration patterns, institutional investors will start ance companies in the sample. Four of the 15 banks that adjusting their holdings. The pattern of the holdings of held at least 1 percent or larger concentrations of insur- mutual funds and bank trust departments is sufficiently ance company stocks held that percentage or more in at flexible so as to permit such adjustments within about a least two different companies. Banks numbered 26 and 3-year period. 28, which were probably not among the larger banks in The objective is to seek to prevent the continuing the group of 50 included in the IIš sample, particularly growth of industry portfolio concentration patterns which liked insurance company stocks.
will develop in the absence of legislation. Reducing the One point of substantial concern is that the book value shift in economic power to a small number of financial of the equity interest of insurance companies themselves institutions is important in the economic organization of may be only about one-third to one-fourth of the assets the nation and especially to the location of power within that they own. The high leverage ratio of insurance com- and over corporations. panies, which is appropriate for their industry, nevertheless gives the owners of insurance company shares a poten
MAY REDUCE TEMPTATION tial influence over additional vast financial resources.
The diversity of opinions among the 10 to 20 or more Bank-Insurance Company Relationships large institutional investors who may control very
substantial proportions of the stock of significantly The potential dangers from the influence over insurance competing companies in the same industry may reduce the company loans and stock portfolios that might flow from temptation to coordinate the activities of the portfolio a bank trust department's complex community of interest companies through legal means. In many major industries, with specific insurance companies could well lead to fur- such as broadcasting, air transport, insurance and oil and ther investigations and probably to legislation before the gas there are highly skilled regulatory agencies looking serious potential dangers result in any questionable ac- out for the public interest. Unfortunately, the number of tivities. Note that banks numbered 26 and 28 between such regulatory bodies is likely to increase because of such them owned about 11 percent of Aetna Life and Casualty, problems as that of maintaining the integrity of the enover 9 percent of Connecticut General Insurance, and vironment and pressing upon the physical limits of over 8 percent of Hartford Fire Insurance. Since the IIS available resources of many types. report, Hartford Fire has been merged into the Interna- The growth of patterns of concentrated stockholdings tional Telephone and Telegraph Co. (This action was within an industry by very large financial intermediaries approved by the Connecticut Department of Insurance is one which to date seems to be beyond the scope of existin May 1970). Bank numbered 28 owned over 5 percent ing antitrust laws. Direct legislation in this now area of of two multibillion dollar insurance companies.
national concern is needed before the problems become In order to prevent undesirable financial communities more intense and greater divestitures would be required of interest among financial intermediaries, over several to restore desirable competitive patterns. companies in other industries, additional study might well be undertaken in the near future. One bizarre problem is
LONG-RUN GROWTH OF INSTITUTIONAL the potential ability of one group of financial intermedi
STOCKHOLDINGS aries, such as commercial banks or insurance companies, to build a substantial stock voting position in another The growth of the relative and absolute amount of stock group of financial intermediaries.
held by financial intermediaries should be viewed from a Any recommendations that may result from inquiries long historical basis in order to construct a long-run into the holdings of bank trust departments, regulated projection. Both the historical and projected views show investment companies and other financial intermediaries the fact that institutional holdings of shares is growing over nonfinancial corporations should be applied equally faster than the total market value of the shares of U.S. to each type of institution. One further point is that mean- companies whose stocks are available to the general ingful regulations should be applied to mutual fund
public.88 The inevitable result of the past and future complexes, that is, to groups of mutual funds that are conditions, that lead to the more rapid growth of instituunder common management control.
tional holdings of common stock than the total market
value of U.S. traded stocks, is an increase in average portHoldings Can Be Adjusted Downwards
folio concentrations and their spread through an increasing
number of industries. Possible future legislation dealing with industry concen- The original 1970 projections for the institutional holdtration patterns is likely to result in some stock disin- ings of stock for the years 1980 and 2000 from a 1968 vestment, but such disinvestment could take place over a base data are shown as Table 8. period of up to 3 years after the enactment of these recommendations. The FCC has used such a procedure.
** Soldofsky, op. cit. chapter V, Growth of Stock Ownership by
Financial Intermediaries to the Year 2000, pp. 73–104 and pp. 208– In fact, if it becomes clear that the intent of Congress is to 222.
Tablo 8-PROJECTED MARKET VALUES FOR STOCK HOLDINGS OF FINANCIAL INSTITUTIONS
1 Data from United States, Securities and Exchange Commission, Source: Robert M. Soldofsky, Institutional Ownership of Com"Statistical Series," Release No. 2358, May 1, 1969, p. 5, table 3. mon Stock: 1900-2000 (Ann Arbor, Mich.: Bureau of Business,
· For widely held companies only including both common and Graduate School of Business, University of Michigan, 1971), p. 209. preferred stocks. GROWTH PATTERNS
amined. Changes in the legal and financial environments
affecting each of these groups were examined and recent Growth patterns for noninsured corporate pension and prospective developments were considered. Table 8 funds, regulated investment companies, state and local includes the percentage of the total market value of stocks pension funds, life insurance companies, property and held by each institution in 1968 and the corresponding casualty insurance companies, university and college en- projected percentages for 1980 and 2000. The growth dowments, foundations and common trust funds were ex- rates utilized also are shown in the table.
Table 9.-ESTIMATED HOLDINGS OF NYSE LISTED STOCKS BY SELECTED INSTITUTIONAL INVESTORS (EXCLUDING
BANK-ADMINISTERED PERSONAL TRUST FUNDS)
(Dollar amounts in billions)
Source: Freund, William C., and David F. Minor, “Institutional Activity on NYSE: 1975 and 1980,” Perspectives on Planning, N YSE, No. 10, June 1972, p. 2. Growth Paths Projected
parisons of the straight lines, from 1968 through 1972, Figures 1 and 28 show the projected growth paths from with the actual results suggest the success and errors of the 1968 base data; these figures differ in that Figure 1 the projections. (Straight lines on these semi-logarithm carries the projections to 1980 only and Figure 2 carries charts represent constant growth rates.) The projections them to 2000. The differences in the clarity of the detail for the total market value of all stocks, noninsured pension and perspectives
make each of these figures useful. Both funds, and property and casualty insurance companies figures present actual stock holding for each institution have worked out rather well to date. The projections for at the end of each year from 1960 through 1972. At the mutual funds are much higher than their 1972 year-end date that the original projection was made, the actual value, and the projections for life insurance companies values for 1968 through 1972 were not available. Com- and state and local retirement funds are substantially See Appendix D, pp. 373–374.
below their projected levels.
STATE REGULATIONS LIBERALIZED
funds and estates were included in institutional holdings,
the 1968 percentage would have been increased about When projections are not confirmed by experience, they 12.7 percentage points to a total of 35.9 percent. By 1980, should be changed. Whether or not the change in the 20- institutional holdings including personal trust funds and year growth pattern of mutual funds will be permanent or estates administered by banks may be approaching 50 temporary is still an open question. A part of the more- percent of the entire market value of stocks. rapid-than-projected growth for life insurance companies may be due to the success of variable annuities, and
PROJECTIONS STILL REASONABLE continued liberalization of state regulations governing the percentage of their assets that may be held in the forin of The projections made several years ago for 1980 stock. The increase in the sales of variable annuities may
institutional holdings of stock still appear to be quite be reducing the total market values for mutual funds reasonable and the path marked from 1968 through 1972 because the former may be a rather good substitute for leads to no important revisions of the overall projections the latter. Furthermore, insurance salesmen's commissions for the year 2000. are substantially higher than those of mutual funds An important but neglected point is that these prosalesmen. In addition, many mutual funds have changed jections are made in terms of the total values for shares to a “no load" or no commission basis.
listed on the markets and for the institutional holdings of The slope of the line representing the total market value some part of these values. Portfolio concentration perof all securities is lower than that of most of the institu- centages are prepared on a different basis than the overall tional investors. This condition implies a lower growth rate dollar-based projections just discussed. The portfolio for total market values of shares than for institutional concentration percentage for each individual company holdings. This observation about relative growth rates is irrespective of its size is developed. The average value of much more important for the purposes of this paper than
these individual company concentration percentages is the exact projections and their accuracy to date.
calculated from these data. A given total market value of
stocks is compatible with a considerable range for the INSTITUTIONAL HOLDINGS RISING
average portfolio concentration percentage. High portfolio
concentrations for small and medium-sized, rapidly Three views of the increases in aggregate portfolio growing corporations probably affect the average value concentrations are noted. First, Table 8 shows that the and skew the distribution, as suggested by the data in total institutional holdings of stock was 23.2 percent of Tables 5 and 10. the total market value of all shares in 1968. The projections in Table 9 show this percentage rising to 36.3 percent by
HISTORICAL AND PROJECTED CONCENTRATIONS 1980 and to 55.2 percent by 2000. Figure 3 taken from the earlier study shows separate projections based upon SEC
The author's study prepared in 1970 included a figure and NYSE data. The SEC-based data did not result in that represented estimates of both the historical and what appeared to be reasonable projections, but the projected cumulative portfolio concentrations. Those NYSE-based projections lead to a range of 29.5 to 37.5
estimates, which are shown as Figure 4, also included percent for 1980 and 46 to 58 percent for 2000 for the estimates of the percentage of the total value of stocks comparable values of the NYSE-listed stocks in the hands
held by the institutions for 1966, 1980, and 2000. A of identified institutional owners.
major problem with these earlier estimates was the The actual percentages of NYSE values held by the inadequate information about the extent of the common institutions from 1968 through 1972 are as follows:
stock administered by bank trust departments.
The special data provided to Senator Metcalf by the YEAR
SEC from the IIS report provides a basis for very rough 1969.
estimates of cumulative portfolio concentration ratios as 1970.
of late 1969. The data included in Table 5 are increased by 1971.
2 to 4 times to adjust for the underestimation due to the These percentage points are plotted on the original figure
IIS sampling. These estimates for 1969 portfolio concen
tration ratios are shown as Table 10. If these data were as open circles. Their trend makes the upper range of the plotted on Figure 4, they would fall close to or around the 1980 projection appear to be the more likely actual out
1980 projection. In June 1972, the NYSE published projections for most
A tabulation from Wiesenberger's data for total portinstitutional holdings for 1975 and 1980; these projections and not included in the IIS sample, which are shown as
folio concentration for stocks held by mutual funds alone are reproduced as Table 9. These NYSE projections may be compared with those shown in Table 8 and Figure 3. Appendix D, Table 1-C, gives some support to the esti
mates shown in Table 10. One point worthy of note is that this official NYSE projection for 1980 shows institutional ownership at 38.7 Table 10.—ESTIMATED PORTFOLIO CONCENTRATION percent as compared with the 37.5 percent for the study
RATIOS AS OF LATE 1969 prepared in 1970.
Estimated number of companies Institutions May Administer Half the Stock by 1980
Portfolio concentration Another point that needs to be emphasized is that the
frequency ratio percent
For each range
distribution bank-administered personal trust funds and estates were excluded from both of these studies. The stocks held by
40.0 and up
8 to 16.
8 to 16. these personal trust funds and estates were about $97 35.0 to 39.9.
38 to 76. billion at the end of 1971 and may be expected to grow at 30.0 to 34.9
60 to 124. 25.0 to 29.9
94 to 192. least at the 8 percent rate anticipated for all stock values
20.0 to 24.9.
40 to 80..
134 to 272. on the market. If the bank-administered personal trust
30 to 60.