Did an executive ignoring orders change Bank of America history?

Former NCNB executive Luther Hodges Jr. has written “Bank Notes,” a book about his career and views on the industry.
Former NCNB executive Luther Hodges Jr. has written “Bank Notes,” a book about his career and views on the industry.

In the 1980s, a Bank of America predecessor bank famously used its ownership of a trust company in Florida as a foothold in the state that helped kick off its interstate expansion.

But a new book by a former top executive of Charlotte-based North Carolina National Bank says that move might never have happened – if he had followed orders from NCNB’s then-CEO.

In his recently published book, Luther Hodges Jr. says the late Tom Storrs asked him to find a buyer for the Trust Company of Florida during the 1974 recession, when customers were defaulting on loans and the bank was short on funds.

“I did not think that his request was a good idea for the bank’s future, and I quietly ignored him,” Hodges writes in “Bank Notes,” a 96-page book published by Blowing Rock-based Phoenix Press.

NCNB, under then-CEO Addison Reese, had acquired the Trust Company of Florida from Pittsburgh National Bank in the early 1970s. Hodges, who was a top Reese lieutenant along with a young executive named Hugh McColl Jr., was responsible for overseeing the holding.

Hodges, whose father had been governor of North Carolina, left the bank in 1977 to run, unsuccessfully, for a U.S. Senate seat. But the trust company would soon emerge as a key asset.

Then-general counsel Paul Polking discovered a legal loophole that appeared to allow NCNB to buy a bank in Florida because it already owned a trust company. In 1981, NCNB tested the theory by agreeing to buy the First National Bank of Lake City and won regulatory approval.

Suddenly, NCNB was a two-state bank, chipping away at long-standing restrictions on interstate banking. Soon, McColl would become CEO and super-charge the bank’s merger machine, changing the company’s name to NationsBank and then Bank of America along the way.

In his book, Hodges says he “cannot claim any sort of dramatic foresight to explain my inaction,” but he says his decision was “largely based on the fact that I thought NCNB Corporation was overreacting to the liquidity problems associated with the 1974 real estate recession.”

Hodges’ assertion adds a new wrinkle to the lore around NCNB’s acquisition history.

He notes that a 1993 book on the bank, “The Story of NationsBank,” doesn’t mention his role in preventing the trust company sale. A 1999 book, “McColl,” said it was Storrs’ “stubborn personal decision not to sell (the trust company), despite Luther Hodges’ recollection to the contrary.”

Storrs died in 2012. McColl, who retired from the bank in 2001, told the Observer he was not privy to conversations between Storrs and Hodges.

In an interview, Hodges said he is not convinced that Storrs really wanted to sell the trust company.

“With all due respect to Storrs ... he panicked a little bit about all the debt that everybody had back in those days, and he wanted me to call loans and all kinds of things,” Hodges said. “I thought he was wrong. Fortunately, he didn’t pursue it. He never mentioned it again.”

Hodges said he also ignored Storrs’ orders to back out of a loan commitment to C.D. “Dick” Spangler, who was leading a struggling bank called Bank of North Carolina in Jacksonville. Spangler, now a Charlotte billionaire, later became Bank of America’s largest individual shareholder after selling Bank of North Carolina to the bank.

Spangler could not be reached for comment.

Concerns about regulation

Hodges, 79, is now retired from banking and living in Blowing Rock. He still serves on company boards.

He said he wanted to write his book to get his “two cents out to the public” about the banking industry, including his concerns about excessive regulation. He experienced his own run-ins with regulators in the 1980s and 1990s.

After his unsuccessful Senate run in 1978, he held Commerce Department positions in Washington and in 1980 became CEO of a troubled bank called the National Bank of Washington. In 1985, regulators released the bank from extra supervision, but a dispute with a shareholder led to a legal battle and the bank’s failure in 1990, Hodges writes in his book.

Hodges resigned before the failure, but he and other directors later faced a lawsuit from the Federal Deposit Insurance Corp. A judge ultimately dismissed the suit in 1993 and harshly criticized the FDIC for bringing some of the claims, according to a Washington Post story at the time. The dispute cost Hodges “$1 million in personal legal fees,” he writes in his book.

As for the most recent financial crisis, Hodges contends that bankers get too much of the blame for the country’s housing meltdown. For decades, the federal government encouraged lower underwriting standards for home loans and pushed for a higher percentage of homeownership, he writes.

He says the Dodd-Frank financial reform law passed in 2010 to curb abuses in the industry went too far, and the market should have been allowed to correct itself.

“It seems like many of the articles coming out these days are tending to agree with me in the sense that the government may have had something to do with the recession,” he told the Observer, “and not just the big bad bankers.”

Rick Rothacker: 704-358-5170, @rickrothacker