uninvested, even for a day.
Therefore banks maintained a continual tally of all money moving in and out. A central cashier's department kept a finger on the flow like a physician on a pulse. If deposits within a banking system such as First Mercantile American's were heavier than anticipated, the bank through its money trader promptly loaned surplus funds to other banks who might be short of their reserve requirements. Conversely, if customer withdrawals were unusually heavy, FMA would borrow.
A bank's position changed from hour to hour, so that a bank which was a lender in the morning could be a borrower at midday and a lender again before the close of business. This way, a large bank might trade better than a billion dollars in a day.
Two other things could be said and often were about the system. First, banks were usually faster in pursuing earnings for themselves than for their clients. Second, banks did far, far better in the way of profit for themselves than they achieved for outsiders who entrusted money to them.
Alex Vandervoort's presence in the Money Trading Center had been partly to keep in touch with money flow, which he often did, partly to discuss bank developments in recent weeks which had distressed him.
He was with Tom Straughan, a senior vice-president and fellow member of FMA's money policy committee. Straughan's office was immediately outside. He had walked into the Money Trading Center with Alex. It was young Straughan who, back in January, had opposed a cutback of Forum East funds but now welcomed the proposed loan to Supranational Corporation. They were discussing Supranational now.
'You're worrying too much, Alex,' Tom Straughan insisted. 'Besides being a nil-risk situation, SuNatCo will be good for us. I'm convinced of it.'
Alex said impatiently, 'There's no such thing as nil-risk. Even so, I'm less concerned about Supranational than I am about the taps we'll have to turn off elsewhere.'
Both men knew which taps, within First Mercantile American, Alex was referring to. A memorandum of proposals, drafted by Roscoe Heyward and approved by the bank's president, Jerome Patterton, had been circulated to members of the money policy committee a few days earlier. To make possible the fifty million dollar Supranational line of credit, it was proposed to cut back drastically on small loans, home mortgages and municipal bond financing.
'If the loan goes through and we make those cutbacks,' Tom Straughan argued, 'they'll be only temporary. In three months, maybe less, our funding can revert to what it was before.' 'You may believe that, Tom. I don't.'
Alex was dispirited before he came here. His converser lion with young Straughan now depressed him further.
The Heyward-Patterton proposals ran counter, not only to Alex's beliefs, but also his financial instincts. It was wrong, he believed, to channel the bank's funds so substantially into one industrial loan at the expense of public service, even though the industrial financing would be far more profitable. But even from a solely business viewpoint, the extent of the bank's commitment to Supranational through SuNatCo subsidiaries made him uneasy.
On the last point, he realized, he was a minority of one. Everyone else in the bank's top management was delighted with the new Supranational connection and Roscoe Heyward had been congratulated effusively for achieving it. Yet Alex's uneasiness persisted, though he was unable to say why. Certainly Supranational seemed to be sound financially; its balance sheets showed the giant conglomerate radiating fiscal health. And in prestige, SuNatCo rated alongside companies like General Motors, IBM, Exxon, Du Pont, and U. S. Steel.
Perhaps, Alex thought, his doubts and depression stemmed from his own declining influence within the bank. And it war declining. That had become evident in recent weeks.
In contrast, Roscoe Heyward's star was high in the ascendant. He had the ear and confidence of Patterton, a confidence expanded by the dazzling success of Heyward's two-day sojourn in the Bahamas with G. G. Quatermain
Alex's own reservations about that success were, he knew, regarded as sour grapes.
Alex sensed, too, that he had lost his personal influence with Straughan and others who formerly considered themselves on the Vandervoort bandwagon.
'You have to admit,' Straughan was saying, 'that the Supranational deal is sweet. You've heard that Roscoe made them agree to a compensating balance of ten percent?'
A compensating balance was an arrangement, arrived at after tough bargaining between banks and borrowers. A bank insisted that a predetermined portion of any loan be kept on deposit in current account, where it earned no interest for the depositor yet was available to the bank for its own use and investment. Thus a borrower failed to have full use of all of his loan, making the real rate of interest substantially higher than the apparent rate. In the case of Supranational, as Tom Straughan had pointed out, five million dollars would remain in new SuNatCo checking accounts very much to FMA's advantage.
'I presume,' Alex said tautly, 'you're aware of the other side of that cozy deal.'
Tom Straughan appeared uncomfortable. 'Well, I've been advised there was an understanding. I'm not sure we should call it ithe other side.''
'Dammit, that's what it is! We both know that SuNatCo insisted, and Roscoe agreed, our trust department would invest heavily in Supranational common stock.' 'If they did, there's nothing down on paper.'
'Of course not. No one would be that foolish.' Alex eyed the younger man. 'You've access to the figures. How much have we bought so far?'
Straughan hesitated, then walked to the desk of one of the Trading Center supervisors. He returned with a penciled notation on a slip of paper.
'As of today, ninety-seven thousand shares.' Straughan added, 'The latest quote was at fifty-two.'
Alex said dourly, 'There'll be a rubbing of hands at Supranational. Our buying has already pushed up their price five dollars a share.' He calculated mentally. 'So in the past week we've bulldozed nearly five million dollars of trust clients' money into Supranational. Why?'
'It's an excellent investment.' Straughan tried a light touch. 'We'll make capital gains for all those widows and orphans and educational foundations whose money we take care of.'
'Or erode it while abusing our trust. What do we know about SuNatCo, Tom any of us that we didn't two weeks ago? Why, until this week, has the trust department never bought a single Supranational share?'
The younger man was silent, then said defensively, 'I suppose Roscoe feels that now he'll be on the board he can watch the company more closely.'
'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
