Manufacturers Hanover Corporation
Manufacturers Hanover Corporation
Assets: $66.71 billion
Stock Index: New York
The Manufacturers Hanover Corporation, the holding company of Manufacturers Hanover Trust, is one of the world’s leading banking and financial institutions. The company has relied on a long series of mergers and acquisitions to boost its influence nationally and worldwide. Manny Hanny, as the bank is nicknamed, is headquartered in New York City, where it was founded. The company’s history parallels New York City’s transformation from a postcolonial port into the world’s most important financial center.
Both the principal constituents of the company, the former Manufacturers Trust and Hanover Bank, are the offspring of mergers and acquisitions of banks that were organized and consolidated in response to the needs of the financial market. Manufacturers Trust’s earliest predecessor can be traced to 1812, when the New York Manufacturing Company was founded. Although it was ostensibly a textile company, the New York Manufacturing Company’s charter included the authorization to conduct banking activities, in 1817 this company’s banking business was acquired by the Phenix Bank, itself recently organized by influential city merchants and bankers. With the passage of Banking Act of 1865, the Phenix Bank became a national bank. The legendary J. P. Morgan was among the bank’s original incorporators. In 1851, the Chatham Bank, named after William Pitt, Earl of Chatham, was established by another group of prosperous merchants. One of these merchants, Earl G. Drake, served as the bank’s first president.
The creation of the New York Clearing House gave rise to the use of deposit accounts and checks for the settlement of financial transactions, significantly improving the city’s financial and banking services. In 1911, the Phenix and Chatham banks merged to form the Chatham and Phenix National Bank of New York. The Chatham and Phenix Bank soon became one of New York’s financial giants.
In 1915 Chatham and Phenix merged with the Century Bank, an institution Chatham and Phenix had held an interest in since its 1901 founding. Century brought 11 branches to the partnership, and special arrangements had to be made to retain these since only state banks were allowed to have branches. In the end Chatham and Phenix was the only national bank in New York City allowed to own branches.
The word “Manufacturers” in the name of today’s bank comes not from the New York Manufacturing Company of 1812, but from the Manufacturers National Bank of Brooklyn, which was established in 1853. In 1914 this bank merged with the Citizens Trust Company, a bank that opened its doors in 1905 to serve the Jewish businessmen who flocked to Brooklyn from Manhattan’s Lower East Side. It is under the Citizens Trust Company’s charter that Manufacturers Hanover operates today. After the merger of the Manufacturers National Bank and the Citizens Trust Company the bank became Manufacturers Trust.
This bank first ventured out of Brooklyn and into Manhattan in 1918, when it purchased the West Side Bank there. Shortly afterwards, it established its main office in Manhattan. By 1921 Manufacturers Trust had $40 million in deposits; by 1929 the bank had absorbed 11 other banks, had a total of 47 offices, and a presence in four New York boroughs. This expansion continued; late in 1931 Manufacturers Trust obtained more deposits and offices in the liquidation of five banks. This activity culminated in 1932 with the merger of Manufacturers Trust and the Chatham and Phenix Bank.
The bank continued to expand through more mergers and outright purchases, solidifying its position in the New York banking industry. In 1950 Manufacturers Trust made one of its largest mergers ever when the Brooklyn Trust Company became part of the organization. Chartered in 1866 by contractors William C. Kingly and Judge Alexander McGee, and given solid support by an influential state senator, Henry C. Murphy, Brooklyn Trust undertook the expensive and politically divisive task of physically linking Manhattan and Brooklyn. The total cost of the Brooklyn Bridge—$15 million, an enormous sum at the time—could not have been financed had it not been for Brooklyn Trust’s determination. The merger of the two banks in 1950 increased Manufacturers Trust’s office branches to 100, the most in New York City at the time.
The corporation’s other constituent bank, Hanover Bank, also traces its history back to the early 19th century. The National Bank of the City of New York was chartered in 1829, funded largely by John Jacob Astor. Its first president, Albert Gallatin, had served as secretary of the treasury under Presidents Thomas Jefferson and James Madison and helped negotiate the Louisiana Purchase of 1803. During Gallatin’s tenure as the bank’s president, the nation experienced a serious economic downswing culminating in the Panic of 1837. Gallatin is credited with guiding the banking system through this crisis and with establishing New York City as the financial hub of the country. In his honor National Bank was renamed Gallatin Bank. This bank merged with Hanover Bank in 1912.
Hanover Bank received its charter in 1851 with an initial working capital of $500,000, a substantial amount at the time. Although the discovery of gold in the West provided the initial impetus behind the bank’s inception, Hanover survived the gold bust, unlike the 1,200 other commercial houses that failed in New York City alone. By 1875 Hanover Bank, now a member of the national banking system, held a deposit line of $6 million. Under James T. Woodward, a noted city merchant who became president of the bank in 1876, Hanover Bank took the lead in the redevelopment of the post-Civil War South and provided financial support and banking services to entrepreneurs and companies engaged in the industrial expansion of the American West. By the time of Woodward’s death in 1910, Hanover Bank had built up a deposit line of more than $100 million and had total resources of $117 million.
The depression of 1873 forced Union Trust, another institution that became part of Hanover Bank, to close its doors temporarily, following a run on its deposits. The bank survived, however, and in 1918 Union Trust merged with Central Trust Company to form the Central Union Trust Company of New York, which then merged with Hanover Bank in 1929. The merger was conceived as a way to prepare for the foreseen recession, but it also broadened the new institution’s market by combining Central Trust’s specialization in corporate trust with Hanover’s specialization in personal trust.
The constant pursuit of new markets, a trademark of both Hanover and Manufacturers, and intense competition among banking institutions for new accounts—pension funds in particular—led to the merger of these two banks in 1961. With $6 billion in assets and $7.5 billion in the trust and investment-management business, the new Manufacturers Hanover Trust Company (MHT) ranked at the top of the business. Its pension-plan clients included Union Carbide, Chrysler, Texaco, and American Motors.
But the combination of Manufacturers Trust’s strength in retail banking and Hanover Bank’s strength in wholesale banking created fears of over concentration in the industry. The Justice Department claimed the consolidation violated antitrust laws and moved to break up the company. The merger, however, survived.
Under President Gabriel Hauge MHT expanded into the international market much as Hanover Bank had once expanded into the reconstructing South and developing West. By 1967, 20% of the company’s operating income was derived from its international business. By 1972, this share had increased to 40%. In 1968 Manufacturers Hanover, like the other New York money center banks, created a holding company, Manufacturers Hanover Corporation, and MHT became this company’s subsidiary.
During the early 1970s conservatism and bureaucratic inertia eroded the bank’s ability to adjust to major economic developments. The loan business provided 75% of Manny Hanny’s gross income, more than any other major bank. As interest rates plummeted, earnings dropped 8.5%. In response, the bank increased the size of its loan portfolios to offset the impact of declining interest rates. This policy further increased the bank’s exposure to economic fluctuations, caused in part by oil price increases. Moreover, the bank’s retail-banking operation, traditionally a strong performer, lagged behind other banks. Hauge acted to move Manufacturers Hanover’s reliance on loan-denominated cyclical earnings into more stable businesses such as retail operations, personal loans, and mortgage and consumer credit based on fixed interest rates.
Despite these problems, the corporation continued to grow during the decade. Its subsidiaries’ assets alone totaled $2.8 billion and by 1973 the corporation was worth $20 billion.
Manufacturers Hanover continued to expand during the 1970s by acquiring several subsidiary banks and opening more branch offices. In 1970 it acquired banks in Brussels and London, laying the groundwork for future benefits that would accrue from euromarkets flush with petrodollars. The bank also opened branches in Tokyo, Singapore, Rio de Janeiro, and Oslo, and, in 1974, a branch in Bucharest, the first such Western banking office in the Soviet bloc. This international activity spurred Manny Hanny’s growth; international business accounted for 60% of total earnings by 1977. As loans on more than $30 billion in long-term debt at fixed rates began to mature, earnings rose to $211 million in 1979, up from $85 million in 1970. Manny Hanny by then had 436 offices in 20 states and 78 facilities in 37 countries with a wide range of financing alternatives and noncredit services.
John F. McGillicuddy became president of Manufacturers Hanover in 1973, when Hauge became chairman. It became increasingly clear to McGillicuddy that in order for the bank to remain profitable in the 1980s, it would have to continue developing and diversifying its services as international competition for new markets increased.
By 1979, despite high earnings, it was ominously apparent that Manny Hanny had become overdependent on international loans. Loan-loss reserves were bolstered 25% as debt repayments from Third World borrowers became increasingly uncertain. By mid-1984, when a 31% drop in the company’s stock price forced Manny Hanny to publicly acknowledge that it would write off part of Argentina’s $1.3 billion debt to the bank, McGillicuddy had already moved to counteract Manufacturers Hanover’s overexposure to Latin American debt.
In late 1983 Manny Hanny bought CIT Financial Corporation from RCA for $1.5 billion, at the time the largest sum a bank had ever spent for an acquisition. This bold move increased Manufacturers Hanover’s total assets to more than $63 billion and over 1,000 offices. Nonbank subsidiaries then accounted for 20% of earnings. The addition of CIT brought the West Coast, the Southwest, and Atlanta into Manny Hanny’s financial orbit.
Critics maintained, however, that Manny Hanny had still failed to make necessary structural adjustments. The following year McGillicuddy announced a major shift in the company’s strategic thinking. Market share would no longer serve as the rationale behind growth. The Latin American debt crisis had illustrated the folly of piling up bad debts. Corporate streamlining and decentralization became the new order.
The bank was divided into five sections to place direct responsibility for performance on managers, and 5,000 employees were let go between 1986 and 1988 alone. A new information system in the accounting system helped to more accurately reveal profits and losses incurred by various units. Unprofitable services were discontinued and the bank sought to decrease its reliance on fickle depositors. Less profitable operations like the Belgian subsidiary and the British consumer units were sold off to reduce overhead. The $1.6 billion Manny Hanny raised through this sale of these businesses was used to help raise reserves $2.3 billion. These reserves, in part, offset the $2.1 billion in bad loans the bank wrote off.
Despite strong earnings of $200 million in 1986, troubles continued as the bank’s large Third World, energy, and real estate loans continued to plague it. In 1987 Manny Hanny lost $1.14 million. Continuing to sell off smaller, less-profitable operations, the bank earned $966 million in 1988, bolstered by Brazil’s payment of $146 million of its debt. The bank’s Third World loan exposure fell by $700 million in 1988, aided in part by the conversion of some Brazilian debt into a 17% holding in a Brazilian chemical company.
Manufacturers Hanover still has a way to go in reconciling its bad loans and recovering from its earnings slump. At about 22%, its reserves are below the U.S. average of 25%, which in turn is below international reserves as high as 75%-100%. The bank has, however, begun a strong recovery. Its strategy now depends on the success of its wholesale-banking, regional-banking, and CIT subsidiaries.
Manufacturers Hanover Trust Co.; CIT Group Holding, Inc.; Manufacturers Hanover Futures, Inc.; Manufacturers Hanover New Jersey Corp.; Manufacturers Hanover Equity Corp.; Manufacturers Hanover Equity Capital, Inc.; Manufacturers Hanover Capital Corp.; Manufacturers Hanover Leasing International Corp.; Manufacturers Hanover Venture Capital Corp.; Manufacturers Hanover Securities Corp.; Manufacturers Hanover Securities Holding, Inc.; Manufacturers Hanover World Trade Corp.; Manufacturers Hanover Data Services Corp.; Manufacturers Hanover Wheelease, Inc.; Manufactures Hanover Educational Services Corp.; Manufacturers Hanover Financial Corp.; MHC Holding (Delaware) Inc.
Growth of a Bank, New York, Manufacturers Hanover Trust Company, 1970.