## Facts

- Mercantile Texas Corporation, a multibank holding company with nine Texas banks, sought Board approval under BHCA § 3 to acquire PanNational Group, Inc., a smaller holding company with five banks in El Paso and Waco.
- Mercantile had no banks in El Paso or Waco; the firms did not compete directly in those local markets.
- The Board denied the application, finding that the acquisition would eliminate “potential competition” and have a substantially adverse competitive effect in El Paso and Waco, with no countervailing community benefits.
- Mercantile petitioned for judicial review, challenging (1) the Board’s interpretation of BHCA § 3(c) as granting broad discretion to reject “anticompetitive” mergers beyond incorporated antitrust standards, and (2) the sufficiency of the Board’s potential-competition findings.

## Issues

1. Whether BHCA § 3(c), 12 U.S.C. § 1842(c), allows the Board to deny an acquisition on generalized anticompetitive grounds tied to “convenience and needs of the community” even if the transaction does not violate the Sherman/Clayton standards incorporated into the statute.
2. Whether the Board made adequate, reviewable findings supported by substantial evidence to conclude that the acquisition violated the Clayton Act standard under a potential-competition theory.

## Decision

- The Fifth Circuit vacated the Board’s order and remanded for reconsideration and more thorough findings.
- The court held the Board lacks the claimed broad discretion: if the Board rejects a merger on anticompetitive grounds, it must find a violation of the Sherman and Clayton Act standards incorporated into BHCA § 3(c).
- The court held the Board’s factual findings were insufficient to support a potential-competition theory because key determinations were missing, preventing meaningful judicial review.

## Legal Principles

- Under BHCA § 3(c), the Board may deny a proposed acquisition on competition grounds only by applying the Sherman/Clayton standards expressly written into the statute; “convenience and needs of the community” does not create a freestanding anticompetitive veto beyond those standards.
- An agency invoking a potential-competition theory must make explicit findings on the doctrine’s necessary elements (including market conditions and likelihood/competitive significance of entry) and support them with substantial evidence.
- A reviewing court may uphold agency action only on the findings the agency actually made; it may not supply missing reasoning or affirm based on post hoc rationalizations.

## Conclusion

The Fifth Circuit limited the Board’s merger-denial authority under BHCA § 3(c) to determinations grounded in incorporated Sherman/Clayton standards and required detailed, evidence-based findings before a potential-competition theory can sustain a denial, vacating and remanding due to inadequate fact-finding.


Mercantile Tex. Corp. v. Bd. of Governors of the Fed. Rsrv. Sys., 638 F.2d 1255 (5th Cir. 1981)