The Morning News du lieu suivant : Wilmington, Delaware • Page 6

6 The Morning News, Wilmington, Del. Tuesday, December 7, 1971 Mader on the banks Du Pont Co. When the note cates for Du Pont's patronage I by protecting family and compa- Though the bank can vote the proxies of any stock in the trust, CHAPTER 6. THE MONEY-MAKERS BANKERS FOR THE I CORPORATE ESTABLISHMENT The Du Pont family has wned controlling interest in two of the four major banks in the state since the early part of the 5 'F Stay Photo by Pat Crow Headquarters of Wilmington Trust, 10th and Market Sts. ny interests.

The most important way that the Wilmington Trust Co. serves the interests of the Du Pont family is in its capacity as trustee of the family trusts. Through trusts, the family hands its wealth down for three or four generations with out paying over Du Pont Co. stock held in trust The trust department services of the Wilmington Trust Co. are directed toward the very rich, not the ordinary person who wants to set up a small trust.

Some trust department em ployes will work on small trusts. But, according to one trust offi cer at the banic, top manage ment frowns upon such services to the middle class. Instead, top management activity solicits large trust accounts through na- From Chapter 6 of Nader report This is a condensation of Chapter 6 of "The Company State," the Nader study group report on Du Pont In Delaware. Three dots (...) indicate omission of a phrase or more or several sentences; a star dash indicates omission of a longer section. The Morning News will run a condensation af about 6,000 words each day of one of the 15 chapters, plus associated stories.

tional advertisements. In its commercial publicity, the Wil mington Trust cites the bank's 'specialized experience in the management of substantial personal property" and Delaware's exception favorable trust laws." Delaware's statutes are indeed more favorable to persons establishing trusts than the laws of any other state. Non-residents setting up trusts do not have to pay inheritance taxes on intangible property such as stocks and bonds; nor do they pay state income tax on the interest earned by trust funds. UNTIL 1971, the state did not tax residents or non-residents when they first established trusts, although they still had to pay the federal gift tax. A major concession to the rich is Delaware's exemption of property held in a trust from state inheritance taxes through four generationsone more generation than is allowed under the laws of any other state.

The special concessions of the Delaware tax law have attracted some of the richest families in the country besides the Du Pont family to the Wilmington Trust Company, including the Mellons of Pittsburgh, the Millikens of New York, and the David K. Bruce family. The Du Pont family has taken full advantage of these favorable Delaware laws for establishing their trusts. According to a source in the Wilmington Trust family members put from 50 per cent to 70 per cent of: their wealth into trusts prior to their death. Until the summer of 1971, a member of the family could put his stocks into trusts and pay only federal gift taxes which were substantially lower than the federal inheritance taxes he avoided.

He paid no state gift or estate tax. Thus, after his death, executors would not have to pay estate taxes by selling stock to outsiders. The Du Ponts retain control over stock held in trust, though this power nominally rests with the banks as trustee. When a trust is established, the grantor usually gives the bank as trustee complete powers over the trust principal, including the power to vote proxies of the trust's stock and to sell the stocks originally in the trust. mm BU.

0. $. WT. OF twentieth century. Alfred I.

du Pont bought almost 100 per cent Delaware Trust Co. stock in 1916 and sold all of it to William du Pont a few years later. Similarly, the family and company have held controlling shares in the Wilmington Trust Co. since its formation at the turn of the century. The other two major banks in the state are personally interlocked with the corporate elite.

In 1969 the 26 directors of the a of Delaware included three Du Pont executives, two family members, as well as board members of three Du Pont-dominated firms: the News-Journal Company, Atlantic Aviation, and Laird, Inc. While the state holds the majority of Farmers Bank stock, three of the 25 directors to 1969 were connected to Du Pont: two family members and We Du Pont executive. Delaware has 13 state commercial banks and trust companies, two mutual savings banks, and five national banks. As of June 30, 1969, all banks in Delaware had combined total assets of $1.67 billion. Of these assets, the Wilmington Trust Co.

held 27 per cent. The other Du Pont bank had 11. per cent of the state's total bank assets, while Farmers Bank of Delaware had 18 per cent and the Bank of Delaware, 15 per cent. The four largest banks in Delaware, all with varying numbers of Du Fonts on their boards, control 71 per cent of the total bank assets in the state. These four banks control 92 per cent of the assets cf all state commercial banks and trust companies, while the two closely controlled Du Pont banks, Wilmington Trust and Delaware hold nearly 50 per cent of these assets.

The total assets of the five national banks, none of which have el ther Du Pont family or company people on their boards, were less than one-tenth' the total assets of the Wilmington Trust Co. and only one-twentieth of the combined assets of the two Du Pont banks. The 25 savings and loan associations in Delaware are also quite small, with com bined assets of only $48.5 mil lion, as compared to Wilmington Trust's $450 million. There were 45 registered small loan compa rues in Delaware in 1969, and their combined total loans outstanding were less than one-fifth the amount of loans outstanding at the Wilmington Trust Co. BY ALL objective standards, then, the Wilmington Trust Co.

Is the largest bank in the state. Its position in the banking community is similar to that of the Du Pont Co. in the industrial community. It is an integral part of the company and family empire. Thirteen of the 24 directors of the Wilmington Trust Co.

are either members of the Du Pont family or executives with the company. The family owns approximately 25 per cent of the bank's stock, which is easily a controlling block. As the major holders of the bank's capital stock and a majority of the board of directors, the Du Pont Co. has control of the money deposited by the people of, Delaware in Wilmington Trust Not surprisingly, the Du Ponts patronize the Wilmington Trust. Du Pont family members put the bulk of their deposits and locate their trusts in this bank.

Furthermore, the Du Pont Co. keeps almost all of its Delaware bank deposits there. Only token company accounts" of a million dollars or soare in the three other major Delaware banks. The $1.8 billion Du Pont Co. Pension and Retirement Plan and the Du Pont Thrift Plan trust fund are both held by Wilmington Trust The Wilmington Trust recipro came due a year later, it had an unpaid balance of $3.4 million.

The Wilmington Trust, upon the advice of William S. Potter, a Du Pont in-law and attorney for Copeland sought and obtained judgment on this loan in a Wilmington court on June 19, 1970. Under bankruptcy law, any creditor that enters judgment less than 120 days before a petition of bankruptcy is filed must join the other creditors in a general settlement of all claims approved by the court. Conveniently, the date on which the Wilmington Trust entered judgment was 121 days before Copeland's petition was filed, making its judgment secure against other creditors. Bank officials claim that the perfect timing was pure coincidence and that they did not know that Copeland.

Jr. was about to file bankruptcy. But the bankers', protestations are hard to believe since both the bank and Copeland Jr. used the same Wilmington law firm and his father was on the Wilmington Trust board. Whether or not bank officials knew of Copeland intention to file for bankruptcy, Wilmington Trust effectively protected over $3 million of his assets, including his $500,000 Wilmington home, from his other creditors.

These assets were protected by the lien obtained by the bank through its timely action. Moreover, Wilmington Trust refused to execute the $3.4 million judgment until October 23, 1970, three days after the petition of bankruptcy was filed; it sold Lam-mot collateral $410,000 worth of stocks and bonds. By waiting until Copeland Jr. filed his bankruptcy petition to execute the judgment, the Wilmington Trust hid Copeland financial woes from other creditors. The sale of the collateral by Copeland own family bank would have attracted too much attention.

Copeland's creditors would not be likely to learn about the June, 1970 judgment itself, however. There are only a handful of subscribers (around 70) to the monthly publication in which the sole public notice of the judgment was made. The publisher, the Bank Credit Bureau, is located in Wilmington with an unlisted Lammot du Pont Copeland Sr. '(telephone number. The Wil mington Trust's June judgment against Copeland Jr.

was so secret, in fact, that he was able to obtain a $1 million loan from the Union Bank of Zurich, Switzerland one month after the judgment had been obtained. The Wilmington Trust also refused to turn over securities held by the bank as collateral for another Copeland creditor. On September 11 and 18,1970, attorneys for the International Brotherhood of Electrical Workers Pension Benefit Fund, Inc. (IBEW) informed the Wilming ton Trust Co. that they planned to take possession of 18,187 shares of Christiana Securities stock held as collateral in Wilmington Trust for the fund.

Lawyers for Wilmington Trust told the attorney for the pension fund that he had to give Cope land fifteen days notice of the impending possession action, and if the loan were still not paid, the fund could take possession of the collateral only after a ten-day grace period. According to Wilmington Trust, this is common practice among banks. But the "grace period" was not over until after the bankruptcy petition had been filed. Thus, IBEW is unable to get the securities until after the court deals with the bankruptcy petition. COPELAND Sr.

used his position of influence in the financial world to help his son float loans at a time when he must have known Copeland Jr. was in serious debt. Copeland Sr. had per sonally provided over $4 million to shore up his son's crumbling empire. And as director of the Chemical Bank of New York, Coepland Sr.

helped his heir obtain a $3 million loan from the Chemical Bank. When Wilmington Trust executed the judgment Vl including shares of its own capi tal stock, it normally sends copies of proxies to the trust beneficiary or to the grantor, if he is still alive, for directions on how it should vote the stock. Also, the grantor can subject Symbol of Wilmington Trust trustee voting power of the bank to certain restrictions. He may require the bank to obtain consent of a person, chosen by the grantor, before casting the votes of stock in the trust fund. Wilmington Trust's policy on the sale of stock held in trust also conforms to Du Pont interests.

The bulk of the trust assets of the Wilmington Trust Co. are held in General Motors, Du Pont, and Christiana Securities stocks. Recently, the bank made some effort to diversify the investment portfolio of the trust department; it sold some General Motors stock. But according to a source in the bank's trust department, no one considered selling Du Pont Co. or Christiana Securities stock.

Often Du Pont family members set up or supplement trusts for heirs which at the same time benefit a pet family project. For example, H. Rodney Sharp, Jr. established 22 different trusts before his death in 1968. In 1935 he supplemented a trust in the Bank of Delaware for his two sons as well as for the University of Delaware, one of Sharp's favorite Trusts have even been used by Du Pont family members to avoid antitrust problems.

Lam-mot, Irenee, and Henry Belin du Pont together placed into trust 150,000 shares of U.S. Rubber common and 17,736 shares of U.S. Rubber preferred stock in 1949 when they decided to break up the Rubber Securities Company to avoid an impending antitrust action. THE STORY OF "MOTSEY" COPELAND AND HIS FRIENDLY BANK While it is difficult to document every instance of Du Pont-related banks doing special favors for family members, it is clear that such abuses occur. The recent bankruptcy of Lam-mot du Pont Copeland Jr.

is instructive. Copeland a Harvard-trained securities analyst for the Du Pont began building a financial empire several years ago, often working through his holding company, the Winthrop Lawrence Corporation. In 1965 he earned $756,984 in personal income. At that time he also owned $10 million of life insurance and a $550,000 home in Delaware, in law ne purchased the Citizen News Company, which ran 39 suburban newspapers in Southern California. Other investments of Copeland Jr.

included a toy manufacturing company, a van line, and college dormitories. Copeland's California newspaper paid him $13,030 per month in consulting fees, while he was receiving over $300,030 in income annually from the 70 to 80 trusts established for his benefit by his father and grandfather. To finance this business empire, Copeland Jr. took out loans from over 46 banks and insurance companies. When Copeland Jr.

declared assets of $25.7 million and liabilities of $59.1 million in his bankruptcy petition on October 20, 1970 (one of the biggest personal busts in history), he caught all his creditors by surprise except one, the Wilmington Trust Co. In April, 1969, the Wilmington Trust loaned Copeland Jr. $3,713,925, secured by $509,000 in collateral and a $3,350,000 guarantee from his father, Lammot du Pont Copeland who was also a director of Wilmington Trust and board chairman of the St Photo by Pit Crowt Farmers Bank Trust, they were told that no such data existed in spite of the fact that the same bank examiners audited their accounts and presented them with similar detailed reports. Because the bank maintains a low ratio of loans to total assets, the Du Pont-dominated Wilmington Trust is totally unres ponsive to the community, in stead of putting capital into local loans, stimulating the Delaware economy, Wilmington Trust puts a large part of its assets into government and cor porate bonds The other large banks in Delaware have similarly high percentages of assets in investment securities, with the exception of the Bank of Delaware. These policies do not harm the Du Pont Co.

It never borrows from domestic banks. The company finances all its investments in America through proifts, and Du Pont employes can easily obtain personal loans in Delaware banks. Because the company has such an influential position in Wilmington financial circles, Du Pont employees do not have to obtain even a letter of recommendation from the company on their creditworthiness. If a person works for the Du Pont he is usually assumed to be a good credit risk. In contrast, the ordinary nnncnmflr Viae trniiKlo rrctfinrf banking services.

He mays have to present several letters of recommendation and may never be approved as a credit risk But it is exactly the ordinary customer, not the Du Pont fami ly member, who at times re ouires banking services for very basic needs housing, a small business, and some social mobility. Moreover, ordinary customers are faced with an increasingly more limited range of banks from which to obtain banking services since, within the 1st two decades, the four large banks in Wilmington have bought out many of the smaller banks throughout the state. HOME LOANS Du Pont related banks play a major role in determining the costs and the location of homes for individual families in New Castle County Since home loans are usually given out only to local residents, Delaware residents have to go to Delaware banks. Many families want mortgages insured by the Federal Housing Administration (FHA) for the longer pay-back period and lower down-payment than other mortgages. But there are only two banks in the Wilmington metropolitan area that deal seriously in FHA mortgages.

One is the Wilmington Trust which recently bought Symbol of Delaware Trust nut thp larppst hnmp nanfP against Lammot it sold his collateral but did not collect the rest of the money, $3 million guaranteed by the bank's director, Copeland Sr. Instead, it sold the judgment to a syndicate headed by Lammot du Pont Copeland Sr. The concern shown for young Copeland by the Wilmington Trust and his father, though commendable in Du Pont family circles, and the possible $3 million loss barely averted by sale of the judgment raise serious legal and ethical questions in the public sphere. By encouraging two banks to give million-dollar loans to his son at a time when he must have known Copeland Jr. was in grave financial trouble, Lammot Sr.

may have abused his position as director of these two banks. The directors of Wilmington Trust may have breached their fiduciary duty to the bank's shareholders when they refused to liquidate immediately the $3 million guar antee given by Lammot Sr. for his son's loan at Wjlmington Trust. Copeland decision to remain a director of the bank after the guarantee was not liquidated might be viewed as self-dealing, since the other directors would be reticent to force him to pay the debt if he were still one of their associates on the board. In the whole incident, the family interests were in direct opposition to the legitimate rights of bank stockholders, other creditors, and the public-at-large.

Wilmington Trust should have informed other potential creditors nf the bank's ment against Copeland Jr. so as to stop the spread of uncollecta-ble loans being given out to this Du Pont family member. Instead, Wilmington Trust made it possible for Copeland to obtain another $1 million loan after defaulting on the $3.5 million at Wilmington Trust. Non-Du Pont family stockholders and depositors of Wilmington Trust were left out of this closed interest-group arithmetic. Their deposits and shareholder interest were 1 11 Ml- 1 1 jeopardized necause wnmmgion Trust did not liquidate Cope- land's tremendous debt immediately.

If an ordinary person defaulted on a large loan at Wilmington Trust, the bank would have entered and executed judgment in full before bankruptcy completely wiped out the borrower's assets. The bank! would probably have taken the loan defaulter's home and liqui- dated in full the borrower's guarantee. But such was not the case for Motsey Copeland. Interestingly enough, bankruptcy will not impoverish Copeland Jr. because substantial portions of his assets are tied up in beneficial trusts.

Copeland Jr. used the $13 million in trust assets and $311,000 in trust income to inflate his own financial statement when securing loans around the country. But when he filed the bankruptcy petition, he correctly listed these trusts as "spendthrift" trusts which could not be attached by his creditors, in accordance with another Delaware law favoring the corporate rich. With this trust income, young Copeland will be bankrupt and earning $300,000 per year. INFORMATION AND PRIVATE CONTROL While the Wilmington Trust paid such special attention to certain of its wealthy clients, Delaware banks will not even provide detailed information about their activities to most Delaware citizens.

In order for private and public groups to evaluate a bank's performance jin a community, they must be given access to systematic data banking activities. The stale banking commissioner, John W. Green, warned an attorney who was trying to get certain information from the Wilmington Trust of which he was a shareholder, that he might be subject to criminal prosecution under a Delaware law that prohibits "willfully and maliciously (making) any false statement, rumor, or suggestion which is directly or by inference derogatory to the financial condition of any bank This warning is in line with the commissioner's general policy of friendly accommodation with the banks; he attends their discussions on loans, goes to their social functions, and, in general, tries to cultivate close personal contacts with the bankers. Although the commissioner does examine banks at least once every year in conjunction with the FDIC and Federal Reserve, he is more in tune with the banks' desire for privacy than strict regulation in the public interest. For example, he does not favor public disclosure of loan categories.

And, as he added in a study group interview, disclosure is not in the best interest of the banks. The commissioner, nevertheless, said he would like authority to look at the loan portfolio of banks to evaluate their performance in the community. He would like to banks are fak'5 I Inane 1ipalh nr nninff nnt nf tho state in search of high yields. But since Green's appointment in May, 1970, he has yet to channel his good intentions into an effective program of bank regulation. BANKS AND COMMUNITY NEEDS In terms of loan policies, the needs of the corporate elite are directly opposed to the interests of the public.

Du Pont family members do not normally require bank loans to buy a new car or home. A bank provides members of the Du Pont family with leverage to increase their wealth through investments and safe storage for capital. Since they can afford to have several million dollars lying idle as an emergency reserve, they seldom have need to borrow money and pay interest. Because of the large demand deposits maintained by family members, the Wilmington Trust has to keep enough cash on hand to meet their special needs as well as the normal cash needs of other depositors. As a result, the Wilmington Trust Co.

keeps from 10 per cent to 15 per cent more of its assets in cash and short-term federal funds than do all other banks in Delaware, thus denying the local economy the benefit of millions of dollars that might have been given out as local loans. If the cash account were reduced by 10 per cent of total assets, in line with the policy at other Wilmington banks, million would be released for possible investment in the community and the ac- wuuju sun ue auuve me i by state law to be held in cash accounts. Even when a local bank decides to finance a home mortgage, it charges interest at a ltlOJl. Moreover, there is a system of collaboration between realtors and bankers in the Wilmington area which imposes even higher prices on the purchaser of a home in Delaware and which increases the granting of loans, jFor example, the experiences of i home purchasers whom we shall can Mr. and Mrs.

O'Keefe are typical for the Wilmington area, according to local architects and realtors. Mr. O'Keefe talked with a Continued on Following Pagt serve and Federal Deposit Insurance Corporation (FDIC) examiners have complete access to a bank's records, they both publish only generalized figures similar to the balance sheets given in annual reports. The more detailed reports of the bank examiners are regarded as highly confidential; each report has a warning across the top of every page indicating severe criminal penalties if the report is shown to anyone except a bank officer. The aura of secrecy is so strong that the lawyers of a bank hesitate to read examiners' reports, even with permission of the bank officers.

The Securities Exchange Commission (SEC) and the underwriters are the only other outsiders to receive detailed information on a bank's activities. Both groups receive "composition statements" giving a detailed breakdown of the bank's assets and liabilities according to the specific categories necessary for a comprehensive evaluation of a bank's policies in terms of its financial security or impact on the community The concealment of examiners' reports and composition statements from the public is not needed to protect the com- Lammot du Pont Copeland Jr. petitive position of banks. The data in these reports informally circulate among financial institutions. Through personal contacts bankers know the degree to which their competitors are into the auto loan business, the types of people to whom they grant mortgages, or the degree to which they are making loans on the local or national market, This is especially true in a small city such as Wilmington, where banks still use a local clearing house to process checks and exchange banking tips.

The special ties between the Du Ponts and the Delaware banks have created a level of secrecy far beyond what is needed to respect the privacy of bank depositors. Although there is a need to protect bank depositors privacy, the argument for privacy is often used by bank officers as a smoke- screen to stifle the legitimate desires of the public to learn about banking policy. According to Lewis S. Munson, chairman of the board of Wilmington Trust, the bank even refused to give certain information to Congressman Wright Patman's House Banking Committee for an investigation of bank trust activities until required by subpoena to reveal the data. THE Bank of Delaware and the Delaware Trust on the other hand, cooperated with the Study Group; they gave data concerning the types of loans in their commercial and consumer loan portfolios, dictating some group posed the same questions to officials of the Wilmington company handling FHA mortr "nt of bank assets required gages in the state, me other bank is the Wilmington Savings Fund Society, with a board of directors filled with members of the urwer class.

If either of these two banks will not finance rate calculated by its own evalu-olans for home purchase, then atlon of the mortgage applies- rM Mp- 0W if 1 i.vv,.ei)fJ monu fomilinc arc in nffnpf nrn many ui in j. hibited from building. The home finance company bought out by Wilmington Trust had a reputation locally for approving applications for FHA loans on much more stringent standards than those established by the federal government. Wilmington Trust has continued that policy Strangely enough, attempts by public-spirited citizens to look into a bank's affairs have been challenged rather than aided by the state regulatory officials who are supposed to watch on the bank's policies, allowing ot the material directly trom tne someone other than bank offic- reports of federal bank examiners to assess the bank's per-, ers. When members of the study formance Although both the Federal Re- Brooks armored truck sits outside rear of.