Seven banks, six of them in New York, manage nearly one-fifth of all the pension fund assets in America, giving them a heavy-handed influence in the stock market, a Senate Finance subcommittee was told yesterday.
Long the biggest manager of all, the Morgan Guaranty Trust Co. has alone been selling off $90 million worth of IBM stock each year for the past two years and still holds more than $1 1/2 billion worth, most of it in its pension accounts.
The enormous concentration of pension investments in the hands of a small number of financial institutions was underscored at a hearing before Sen. Lloyd Bentsen (D-Tex.), who has been striving for several years now to put a limit on the amount of stock that the mammoth money managers can hold in any one corporation.
A top executive of the Morgan bank insisted at the hearing that "we are not as big as we at first appear," but the leadoff witness, pension expert Roy A. Schotland, maintained that its holdings were breathtaking by any standard.
He said Morgan Guaranty, which controls $15 billion in pension accounts alone, holds well over 5 per cent of the outstanding shares of some of the nation's biggest corporations, including one of the other big banks, Manufacturers Hanover.
The Morgan bank held 5.37 per cent of the stock in Manufacturers Hanover at the end of 1976 and accounted for 24 per cent of the buying in the rival bank stock in 1974.
Guaranty's pension assets alone - not counting the $10 billion in other trust and investment accounts it manages - also include more than 5 per cent of Goodyear Tire&Rubber, International Paper, Pepsico, Armstrong Cork, Burlington Industries, Champion International, Connecticut General Insurance, Crown Zellerbach, Heublein, Lousiana Land, the Melville Corp., Pittson, Southern Railway, Squibb, Sterling Drug and UAL Inc. (United Airlines).
"Morgan," Schotland added, "is merely the big tip of a concentrated iceberg. Although there are over 4,000 trust departments in America, seven of them - six of the seven are in New York (Morgan, Citibank, Bankers Trust, Chase, U.S. Trust and Manufacturers Hanover - plus Pittsburgh's Mellon, in 5th place) - manage $63 billion, or 38 per cent, of all bankmanaged pension assets. This is over 17 per cent of all pension assets in America, in the hands of seven banks."
A Georgetown University law professor, Schotland called the concentration dangerous and said it poses unnecessary risks for pension beneficiaries, for the stock market, and for the companies where the pension accounts are invested in heavy proportions.
Bentsen agreed, pointing out that the 15 biggest banks manage roughly 60 per cent of all pension trust accounts and 12 top insurance companies manage approximately 80 per cent of all insurance company-managed pension assets. He said they tend to concentrate their investments in approximately the same 200 to 300 securities.
Morgan Guaranty's executive vice president, Harrison V. Smith, told the panel that at his bank, at least, "investments are made for investment reasons and not for control." He said he knew of no hard evidence that would contradict a 1971 Securities and Exchange Commission study which said "institutional tradings overall has not impaired price stability in markets."
Schotland said that in 1975 Morgan Guaranty did 38.5 per cent of all the buying in Kaiser Aluminum and 31 per cent of all the buying in International Nickel. Last year, it did 33 per cent of all the selling in Dillion Companies Inc., 15 per cent of all the selling in Knight-Ridder Newspapers and 13 per cent of all the buying in the Chemical Bank of New york.
When such concentrated trading occurs, he noted, it takes the big money managers a great amount of time to complete their transactions, in hopes they won't distort market prices. But he said prices are still affected and the drawn-out trading can at the same time cost pension accounts they very protections that diversified stock holdings are supposed to offer.
"In lay language, they're locked in," he told a reporter of the big banks. "The short of it is they're more like dinosaurs."