Introduction
Derived from three topics reported in New York Times articles on 13 August 1991, this essay discusses those three unrelated events, how and why they came about, and the consequences of the events described.
The three events reported were: a merger between BankAmerica and a Californian rival; the (then) recent increased levels of drugs smuggled through Panama following the U.S. invasion to depose and capture General Noriega two years previously; and a squabble between the members of the Education Board of New York and their manager Mr J Fernandez. Throughout the essay those three events are dealt with in the above order.
Regarding the $4 billion merger between BankAmerica and Security Pacific, described in an article by Pollack, the two corporations merged to form a newly-combined bank trading under the Bank of America name, and Richard M. Rosenberg, already the chairman and CEO of BankAmerica, retained those roles in the merged corporation. His opposite number at Security Pacific, Robert H Smith, took up the position of president and chief operating officer. Although most of the corporate staff were to be based in San Francisco, the new company’s headquarters were located in both San Francisco and in LA.
Based on the New York Times article by Treaster on the same date, the “event” covered was the massive and increased scale of the drug smuggling industry in Panama, following the U.S. invasion two years earlier. In those two years, the situation seemed to have become if anything busier in terms of drug traffic than before, with many drug smugglers openly dropping cocaine and other drugs shipments from light aircraft to boats waiting below, at all times of the day and night. Other smugglers reportedly delivered the drugs by air to remote unmanned airstrips within Panama, or delivered the cargos of cocaine and other drugs in a variety of boat types coming into Panama’s harbours and ports. Some experts – both Panamanian and American – believed that the volumes of drugs, mainly destined for the U.S. and Europe, were greater than ever before, including during the Noriega era when the traffickers were allegedly afforded safe passage in return for a slice of the profits. Aided by the U.S., the Panamanian authorities were seizing ever larger amounts of cocaine, suggesting that more and more was entering Panama.
According to the New York Times article by Berger, also published on 13 August 1991, a recent controversy within the New York Board of Education erupted over a dispute between, the board members and Joseph A. Fernandez, the day-to-day board manager, over his anger at the board members “flooding him with memos.” Fernandez was described in the article as “a newsmaking chancellor.”
Why it Happened
Regarding the banking merger reported by Pollack, according to analysts and others in the banking industry, such mergers are the result of banking overcapacity, so that by merging, the new business could effect savings by eliminating overlapping personnel, branches and functions, helping to offset losses arising from the recession and bad loans, etc. In addition, by merging two smaller banks, the resulting larger entities could compete better with larger foreign banks for international business. A contributory factor leading to this particular merger was the poor results posted by a weakened Security Pacific in the previous year or so, in part due to bad real estate loans made in Arizona and overseas.
In respect of the Treaster article about the drugs smuggling problems in Panama, the article reported that since the Noriega regime was ousted, the new civilian government had struggled to get Panama back onto an even keel following two years of U.S. sanctions, having inherited foreign debts of $6 billion along with an over-populated civil service and an army that was well known for its corruption and brutality. The resulting strikes, protests high crime rates and 20 percent unemployment encouraged the establishment of private security companies. After the Noriega era, which was noted for its repression but low crime rates in general, the citizens of Panama saw increases in robberies of banks and restaurants, kidnappings, ambushing of businessmen en route to/from the airports, and large numbers of burglaries and car crimes.
The new government dismantled the army and dismissed the officers, though most of the ordinary troops were permitted to join the newly-formed security force, which had a “gentler” approach and a reduced level of centralized control. Those ordinary ranks personnel earned around $300 per month, but were reputedly less than conscientious in the execution of their duties, or were open to bribery, leaving the way clear for the smugglers where the law enforcement had become lax and less than fully effective.
In addition, to favour the smugglers and ease their entry into the country, the Panama topography is a nightmare for the authorities. The border with Colombia – the country that is still the source of most of the smuggled drugs and the world’s drug refining and export capital – comprises 135-miles of dense rain forest. Then there are the coasts of Panama, extending some 1,700 miles, include countless small coves, bays and inlets, and the waters offshore are dotted with over 1,500 islands.
According to the article by Berger about the dispute within the New York Education Board, the underlying reason given for the upset was that because only three of the board’s members had full-time jobs outside of the board’s affairs, Fernandez felt that they had as a consequence excessive time on their hands, which the members were using to meddle in its management; in other words getting involved in matters he felt were outside their remit as board members.
There was also the factor mentioned that one board member, Ninfa Segarra, representing the Bronx, had almost made it to become the next president of the board when the Mayor stepped in and instead supported another candidate, the current board president Mr McCall. There were suggestions that Segarra was still smarting from that setback and from the sacking of her fiancé from his job in the Mayor’s office at about the same time. One might imagine that her disappointment and perhaps anger arising from her failed attempt to become president of the board, could have turned her into a disruptive influence at board meetings.
How it Happened
The merger between BankAmerica and Security Pacific reported by Pollack was made possible only because BankAmerica, following a period five years earlier when it almost failed, then made a really successful recovery, earning over $1 billion in both the previous years, putting it near the top of the list of healthy U.S. banks. That situation, coupled with their expansion ambitions, had provided the right conditions for a merger.
In the Treaster article about the drugs smuggling in Panama, it was reported that following the U.S. invasion and setting up of the new regime, President Endara and his new government – even if they had the resources – were reluctant to establish a strong military force (in the wake of the bad reputation of Noriega’s army), on the basis that the people wanted what money that was available to be spent instead on hospitals and other social projects. Gonzales Menendez, the national police chief had said that they wanted to improve the security forces if the U.S. would pay, because if the U.S. wanted to fight the drugs trade they had to help the Panamanian government. However, the U.S. had supplied millions of dollars in aid to Panama and to the neighboring countries of Colombia, Peru and Bolivia.
Regarding the New York Board of Education dispute, the Berger article did not explain just how the dispute between the board members and Mr Fernandez came into the public arena, merely commenting on their normal “collective silence” having been broken in the case of this upset. However, it did go into some considerable detail about the diverse backgrounds and origins of the individual board members, perhaps implying that the diversity itself contributed to the problem arising, or even made it more probable that such a dispute would occur. That is not the view of this researcher, who considers that diversity on such a board is not only desirable, but almost essential if it is to truly represent all shades of opinion on behalf of the public for whom it should be acting – inherent in the principles of democracy.
The Consequences
As a result of the banking merger, Pollack reported that the combined company expected within three years to have savings of circa $1 billion per annum, partly by axing thousands of employees and partly by closing perhaps hundreds of their combined total of 2,400 branches. The new company had circa $1.9 billion of assets, second only to Citicorp, America’s biggest bank. Rosenberg was quoted as claiming that “We have a historic opportunity to become the leader in American banking.” However, as stated in the article, regulators might require them to offload some branches in certain areas as their market share would be locally too high.
In Panama, according to the Treaster article, primarily due to the lack of law enforcement resources (including funding) and to the difficult terrain involved, coupled with what seemed to be less than highly motivated security forces, drug smuggling continued virtually unchecked – perhaps even escalating as some suggested – since the ending of the Noriega regime by the U.S. invasion.
That also appears to have allowed large scale money laundering activities within Panama to continue unabated. There were even suggestions that the Endara regime, whilst appearing cooperative with the U.S. authorities in those matters, had not so far initiated any anti-money laundering actions unless they were first proposed by the U.S. officials. The article also noted that Mr Endara and his Attorney General had been on the boards of banks closed down due to money laundering, though both maintained their innocence.
The New York Education Board article by Berger did not refer to any consequences of the spat arising over the memos that led to the accusation by Mr Fernandez of the other board members “meddling with management.” One may presume therefore that the affair was somewhat of a “storm in a teacup” and that the board returned to conducting its normal business afterwards, once the dust had settled.
Conclusions
It would appear from the referenced article that the merger between BankAmerica and Security Pacific reported by Pollack produced an almost totally positive outcome for the new merged company, if not for the many employees of both companies who stood to lose their jobs as a consequence of the rationalization process that would follow. Otherwise, from a business viewpoint, the industry experts were agreed that the move would strengthen the merged bank’s position – not just nationally but in the context of global business too, at the same time as resolving the former bad loan problems of Security Pacific.
Treaster’s article about Panama’s drug smuggling problem left no doubt that the drug smuggling problem in Panama had not been eradicated or even reduced by ousting Noriega; in fact his suggestion seemed to be that if anything it had become worse than ever, due to a more relaxed regime in Panama, with woefully inadequate and possibly corrupt security forces. The government lacked the resources and perhaps the will to fix the problem, though admittedly had a huge area and variety of terrain to monitor. It was concerning and disappointing in the context of the hoped-for “reformed” nature of Panama that there was still a suggestion that Endara and his Attorney General had links with money laundering, and appeared less than highly motivated to stamp it out.
The New York Education Board article by Berger appeared to have occupied the majority of its allocated page space in that issue of the New York Times by drawing pen portraits of the seven board members. Whilst that information was no doubt of interest to New Yorkers who at the time may have had a vested interest in the composition of their Education Board and the origins and backgrounds of its individual members, that information did not throw any further light on the origins of the upset over the excessive numbers of memos, which was almost treated as “in passing” by the author of the article, even though it was in reality the only current “event” that was described.
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References:
Berger, J. “Policy Is Born From Diversity on Board of Education.” (13 August, 1991). The New York Times. Retrieved from
Pollack, A. “THE BANK MERGER; BankAmerica in $4 Billion Deal To Acquire Rival Security Pacific.” (13 August, 1991). The New York Times. Retrieved from
Treaster, J., B. “Cocaine Is Again Surging Out of Panama.” (13 August, 1991). The New York Times. Retrieved from
