NBD Bancorp, Inc.
NBD Bancorp, Inc.
Incorporated: 1933 as National Bank of Detroit
Total Assets: $45 billion
Stock Exchanges: New York
SICs: 6712 Bank Holding Companies; 6021 National
Commercial Banks; 6022 State Commercial Banks
NBD Bancorp, Inc. is the largest bank holding company in Michigan and the 18th largest such concern in the United States, with assets reaching $43 billion as of June 1994. The company’s early success was built on commercial banking, particularly with the state’s major automakers and their suppliers. In the 1980s, however, the company set a goal of expanding its consumer loan business and began a program of acquiring banks in other states, including Indiana, Illinois, and Ohio, as well as establishing the NBD Trust Company of Florida. Moreover, it has established foreign offices in England, Germany, Japan, Australia, Hong Kong, and Canada.
National Bank of Detroit was founded in the midst of a nationwide financial collapse. Although bank failures, especially of small institutions, were not infrequent during the 1920s, the stock market crash of October 1929 undermined the basic foundations of the U.S. banking system, resulting in 3,635 bank closings nationwide in 1930-31. Fearing the loss of their savings, consumers, both rich and poor, began to withdraw their money from banks, and, by early 1933, hoarding became rampant. In Detroit—the capital of the beleaguered automobile industry—even the major financial institutions, such as Guardian National Bank of Commerce and First National Bank of Detroit, were running out of liquid assets and nearing collapse.
Responding to pleas by Michigan bankers, the state’s governor, William A. Comstock, declared a statewide “banking holiday” on February 14, 1933, effective immediately. Suddenly depositors were prohibited access to their accounts, giving the banks time to find a way to stabilize the system. The Michigan action was soon adopted in other states, and, on March 5, 1933, Franklin D. Roosevelt, the newly elected president, ordered the closure of all banks across the nation.
For six weeks, Michigan was virtually without banking services. Revitalization of the system would come only with the help of the Reconstruction Finance Corporation (RFC), a U.S. government agency created in 1932 to assist financially troubled banks, railroads, and other businesses. The RFC began by establishing a plan to pay off small depositors, while also looking to start up new banks to replace those that could no longer be revived. Jesse H. Jones, a director (and soon-to-be chairperson) of the RFC, hoped to enlist the help of Henry Ford, head of Ford Motor Co., and Alfred P. Sloan, president of General Motors Corp., both of whom had a financial incentive in restoring order to Michigan’s banking system. The arrangement with Ford fell through, and, on March 21, Sloan and Jones announced the founding of National Bank of Detroit, or NBD. Sloan explained that his company was merely performing its patriotic duty and that it would divest itself from the bank “as soon as the situation was stabilized.”
According to the agreement, General Motors purchased all the bank’s common stock for $12.5 million, while the RFC put up the same amount for the entire issue of preferred stock. The new bank also took over assets of First National of Detroit and Guardian National Bank of Commerce. To run NBD, the General Motors board wanted to find a banker from New York, while Sloan preferred someone from the Midwest. Finally chosen was Walter S. McLucas—formerly chairperson of Commerce Trust Company of Kansas City, Missouri—who would serve as NBD’s president from 1933 to 1938 and as chairperson from 1938 to 1953.
The bank opened for business on March 24, 1933, in the First National Bank Building. Sidney Dowding, an NBD employee, described the first hours of operation: “When the day-gate to the main banking floor was lowered, a tremendous rush of people swarmed into the bank. They carried bundles of currency and coin wrapped in every conceivable way—in newspapers, paper and canvas bags, gunny sacks, cigar boxes, shoe boxes, and suit cases. Amounts ranged from a few hundred dollars to several hundred thousand dollars. Some individuals were accompanied by armed guards.”
By March 31, some 4,000 people had deposited a total of $29 million in the bank, and in nine months that figure would jump to more than $189 million, making NBD, with 26 branch offices, the 23rd largest bank in the country. By early 1935, NBD not only began making new real estate mortgage loans but also paid its first dividends to investors (NBD, in fact, would continue to pay dividends each year into the 1990s). The success of its first years were not without criticism, however. On August 12, 1933, the editorial page of the Detroit News carried the following complaint: “While Roosevelt is busy making the Automotive Industry and other industries establish working codes … the National Bank of Detroit, which is partially government owned, reduces salaries and thinks nothing of working their employees 16 hours a day.”
Despite such criticism, NBD would have a stable and dominant presence in Detroit throughout the 1930s. Increases in deposits and loans would result in some $500 million in assets by the decade’s end, with outstanding real estate loans reaching almost $14 million. The bank also opened its first drive-in window office in 1941. NBD’s immense size would allow it to contribute greatly to the country’s participation in World War II. NBD was a major seller of U.S. war bonds, for example, and it helped the U.S. government collect unpaid taxes. In 1942, Charles T. Fisher, Jr., the bank’s president, took a leave of absence to become a director of the RFC, which was then involved in financing war production. With so many men off to war, NBD began to hire women in great numbers, not only as tellers but also for accounting positions. Women would form as much as 67 percent of NBD’s work force during the war years.
The war’s end brought a new era for NBD. On April 2, 1945, Sloan announced that “the time has now come—with the emergency long since over, and the institution solidly established—for General Motors to retire from the banking business.” Sold a month later were General Motors’ remaining 509,550 shares, along with 250,000 new shares offered by the bank, bringing thousands of new shareholders to NBD. Then, on January 6, 1947, the bank made its last payment to the RFC, ending that entity’s involvement in the bank. Free from its two founders, NBD would continue to grow with the postwar economic boom, with assets reaching $1.4 billion by 1950. In 1948, the bank also became the first in the country to sell ten million U.S. savings bonds.
Up to this point, NBD’s impressive growth had taken place entirely within Detroit’s city limits. In the 1950s, NBD made a decision to expand its base by merging with banks in suburban Detroit, though none farther away than 25 miles from its downtown office, a limit established by Michigan law. These mergers would result in 32 new NBD branches during the 1950s, boosting the bank’s total number of branches to 67 by the decade’s end. In 1959, NBD moved its headquarters across the street to a newly built downtown office building designed by the noted industrial architect Albert Khan. The 12-story facility, located at 611 Woodward Avenue, cost the bank some $12 million and was the first multistory office building to be constructed in downtown Detroit in 25 years.
Meanwhile, NBD was undergoing numerous changes in management. McLucas, the bank’s longtime chairperson, died in 1953 and was replaced by Fisher, who had been president of the bank since 1938. Fisher, however, died five years later, and Donald F. Valley, formerly the executive vice-president, was elected chair and chief executive officer. Regular turnover would continue with the election of bank CEOs Henry T. Bodman in 1964 and Robert M. Surdam in 1972.
NBD entered the 1960s with assets of nearly $2 billion and outstanding real estate mortgage loans of some $140 million. Like other banks during this time, NBD began to take major steps toward electronic banking, including, for example, imprinting magnetic ink ID numbers on its customers’ checks. The bank also opened another 35 branches during the decade, mostly in suburban Detroit, raising the total number to 102. Moreover, steps were taken to expand its loan service to international markets. International Bank of Detroit, a wholly owned subsidiary of NBD, was established in 1963, and, in 1968, the bank opened its first overseas office, in London. This would be followed by offices in Frankfurt (1972); Tokyo (1973); Nassau, Bahamas (1978); and other locations.
While the bank was thus looking to make loans far beyond its base, it was also being forced to pay closer attention to problems in Detroit. In July 1967, race riots flared across the city, causing extensive property damage and bringing the city’s economy to a virtual standstill. Immediately afterward, new efforts to solve Detroit’s long-standing social and economic problems were begun. NBD branch officers, for example, worked as task force volunteers for New Detroit, Inc.—a coalition of community, labor, and business leaders—in order to address the problems that led to the riots. NBD has since shown obvious pride in its various commitments to community service.
NBD underwent major restructuring during the early 1970s. In 1972, it formed National Detroit Corporation, a bank holding company (defined as a corporation that controls at least two banks), and, on January 1, 1973, this new entity was made the owner of NBD. Nationwide, numerous other banks had already undergone a similar administrative restructuring, largely because it allowed them to avoid various legal restrictions regarding where they could do business, while allowing them to enter new, though closely related, activities, which for NBD eventually included mortgage banking, insurance, trust services, leasing, consumer credit processing, securities brokerage, and community and economic development. Throughout the decade, the bank was also able to establish or acquire new Michigan banks outside the Detroit metropolitan area. The company’s assets rose accordingly, from $4.7 billion in 1970 to $9.5 billion in 1980. In 1981, the holding company was renamed NBD Bancorp, Inc.
The 1980s saw even greater expansion, prompted by changes in state laws. The U.S. Bank Holding Company Act of 1956, known as the Douglas Amendment, had forbid bank holding companies from purchasing a bank in another state unless the other state explicitly allowed out-of-state ownership. In the early 1980s, states begin to pass such ownership laws. For NBD Bancorp, which was looking to lessen its dependence on the cyclical Detroit economy and especially on the automotive industry, this change brought great fortune. In 1986, NBD Bancorp began purchasing smaller bank holding companies in Indiana and Illinois, forming a ring of financial institutions around Lake Michigan. Its first out-of-state bank purchase was Midwest Commerce Corporation of Elkhart, Indiana. The following year, NBD Bancorp acquired the Illinois banking company USAmeribancs, based in Bannockburn, and State National Corporation, with branches in Evanston and Arlington Heights. NBD Bancorp soon entered the Ohio market as well.
The significance of these moves was reflected in NBD Bancorp’s breakdown of deposits. At the end of 1973, a full 100 percent of its deposits came from the Detroit area. After it had begun to expand across the state, that figure had fallen to 97.5 percent in 1978 and 84.1 percent in 1983. In 1988, after a little more than two years of acquiring out-of-state banks, the company saw its Detroit area deposits drop to just 61.4 percent of the total. At the same time, the company was making its first push in consumer loans, which jumped from nine percent of the total in the early 1980s to 25 percent in 1992. NBD Bancorp’s out-of-state forays were greatest in Indiana, where in 1992, for example, it purchased INB Financial Corp. of Indianapolis, a holding company with assets of $6.6 billion, six separate banks, and 124 offices. After this acquisition, NBD Bancorp had an estimated 17 percent share of the Indiana deposit market, about the same percentage it maintained in Michigan, making it the largest bank holding company in both states. This dramatic expansion was overseen by Charles T. Fisher III, who was chair, president, and chief executive officer of the company from 1982 until his retirement in 1993. He was replaced as chairperson and chief executive officer by Verne G. Istock, while Thomas H. Jeffs II became president and chief operating officer.
In the early 1990s, NBD Bancorp continued to expand both inside and outside Michigan, as well as abroad. By mid-1994, assets had reached $45.2 billion, making NBD the 18th largest bank holding company in the United States. Unlike many other fast-growing bank holding companies, NBD Bancorp managed to expand without taking on a large amount of uncollectible debt. Its writeoffs for bad loans typically occurred at a rate less than half the average for large regional banks. Also in 1994 the company’s main subsidiary, NBD Bank, N.A., was making plans to discontinue its status as a national bank and to apply instead for a Michigan state charter. This move would likely save as much as $1.5 million in regulatory costs and give NBD Bancorp greater influence with the state legislature.
Various explanations have been given for the company’s success, though commonly praised has been its conservative lending style. NBD Bancorp avoided relying on giant loans (its average loan in the early 1990s was about $500,000, with few over $50 million), and loans were approved only after an unusually extensive review process. Only in his capacity as chairman of the executive committee could Fisher be described as “personally involved.” Moreover, despite the well-publicized economic problems of Detroit and Michigan, NBD Bancorp managed to do quite well in its home turf, in part because its dependence on the area’s automotive industry has greatly diminished. In the early 1990s, only about ten percent of its corporate loans involved car-related businesses, and many of these were to manufacturers of products, such as tooling, that were not strongly affected by economic cycles. Meanwhile, NBD consumer loans in Michigan greatly benefited from labor contracts giving laid-off autoworkers 95 percent of their salary for up to a year. It was perhaps the company’s familiarity with hard times—both from its origin in the Depression and its operation in an economically troubled state—that was ultimately responsible for its successful, conservative strategy. Fisher, summarizing this approach, explained, “If it grows like a weed, it probably is a weed, because an oak doesn’t grow that way. We’re in the oak business.”
NBD Bank; NBD Bank, Canada; NBD Bank, FSB; National Bank of Detroit-Dearborn; NBD Brokerage Services, Inc.; NBD Community Development Corporation; NBD Financial Services of Michigan, Inc.; NBD Insurance Company; NBD Leasing, Inc.; NBD Mortgage Company; NBD Real Estate Services, Inc.; NBD Securities, Inc.; Charter Oak Insurance Agency of Michigan, Inc.; Corporate Funding, Inc.; NBD Equipment Finance, Inc.; NBD Equity Corp.; NBD Transportation Company; NBD Illinois, Inc.; NBD Indiana, Inc.; NBD Bank (Wheaton, Illinois); NBD Skokie Bank, N.A.; NBD Bank (Elkhart, Indiana); NBD Bank, N.A.; NBD Bank (Columbus, Ohio).
Berss, Marcia, “Bank by Fisher,” Forbes, April 13, 1992, p. 52.
Byrne, Harian S., “NBD Bancorp: Detroit-Based Holding Company, Helped by Strong Ratios, Accelerates Expansion,” Barron’s, June 22, 1992, pp. 49-50.
Cocheo, Steve, “If It Grows Fast, It’s Probably a Weed,” ABA Banking Journal, February 1991, p. 48.
“G.M.C. Will Open New Detroit Bank,” New York Times, March 24, 1933, p. 31.
“GM to Sell Stock in Bank of Detroit,” New York Times, April 3, 1945, p. 26.
Jones, Jesse H., Fifty Billion Dollars: My Thirteen Years With the RFC (1932-1945), New York: The MacMillan Company, 1951, pp. 33, 54-69, 529.
Kennedy, Susan Estabrook, The Banking Crisis of 1933, Lexington: University Press of Kentucky, 1973, pp. 77-102, 193-195.
Kleege, Stephen, “Big Detroit Banks Outpace Michigan Auto Industry,” American Banker, January 10, 1992, p. 12.
“NBD Bancorp: Log Cabin Virtues,” Financial World, March 8, 1988, p. 14.
“New Detroit Bank Backed by R.F.C.,” New York Times, March 22, 1933, p. 25.
“New Detroit Bank Gains in Deposits,” New York Times, March 26, 1933, pp. 7, 12.
Rose, Barbara, “Bank Buy Vaults NBD to Top Tier,” Crain’s Chicago Business, April 1, 1991, pp. 3, 36.
“Stock Sale Today Shifts Control of the National Bank of Detroit,” New York Times, April 5, 1945, pp. 29, 32.