It was provided that none of the stock of the bank, the trust company, or the securities company should be acquired or transferred except in connection with the acquisition or transfer of a proportionate amount of stock of each of the other two companies, so that each stockholder would at all times own the same percentage of the stock of any one of the same companies as he owned of the stock of each of the other two companies.

The city of Detroit, as stated, was primarily dependent upon the automotive industry and various estimates placed the preponderance of this industry at from 50 percent to 75 percent of the total industry of the city. Citizens of Detroit, drawn not only from the motor industry but from other manufacturing industries, merchandising, construction, transportation, publishing, real estate, and the professions, were identified with the formation of Detroit's first group of related institutions equipped to transact every kind of banking, trust, and investment business for individuals and corporations. Included among these men were the following individuals, not only well known locally but in most cases of national reputation:

Ralph H. Booth, president Booth Publishing Co.

Roy D. Chapin, chairman of the board, Hudson Motor Car Co.
Howard E. Coffin, president National Aviation Corporation.
George R. Fink, president Michigan Steel Corporation.
Fred J. Fisher, vice president, General Motors Corporation.
Edsel B. Ford, president, Ford Motor Co.

Albert Kahn, architect.

Ernest Kanzler, now president Universal Credit Corporation. Alvan Macauley, president Packard Motor Car Co.

W. Ledyard Mitchell, vice president Chrysler Corporation. Charles S. Mott, vice president General Motors Corporation. Fred T. Murphy, trustee Murphy family trusts, also a trustee of Yale University.

Alger Sheldon, president Shelden Land Co.

From the above list it will be seen that there were upon the boards of one or more of the Guardian institutions individuals who were identified with an aggregation of motor companies representing probably well over 75 percent of the volume of the industry upon which it is estimated 10 percent of the population of this country depends and which is the largest single purchaser in the world of cotton, hardwood lumber, nickel, upholstery leather, polished plate glass, crude rubber, gasoline and oil, and an industry which for years has, generally speaking, paid the highest wages. It was, therefore, natural that the Guardian should become known throughout the country as an "automobile" bank.

Under this coordinated management these three institutions, which came to be known popularly as "the Guardian Group", grew and prospered so that within 2 years their aggregate resources amounted to approximately $78,000,000, exclusive of the figures of the Guardian. Detroit Co., the securities company.

In the early summer of 1929, in order to provide, among other things, an increase in capital of the securities company without at the same time increasing the capital of the bank or the trust company, neither of which institutions was in need of additional capital,

there was organized the Guardian Detroit Group, Inc.; that is the one shown in yellow at the top. The additional capital amounted to $3,694,500 and was raised $747,000 through the acquisition of the entire capital stock of the R. O. L. Co. and $2,947,500 by the stockholders of the Guardian Detroit Group subscribing to 32,750 shares at $90 per share. Of this additional capital $3,250,000 went to increase the capital of the securities company to $5,000,000 and the balance of $444,500 remained with the Group Co. as working capital. At or shortly after its organization the Group Corporation acquired all except directors' qualifying shares of the Highland Park State Bank and the Highland Park Trust Co. The city of Highland Park, although entirely surrounded by the limits of the city of Detroit, and although in effect an integral part of the economic and business district of Detroit, has continued to maintain its separate corporate identity. The same is true also of the city of Hamtramck. The officers and directors of the Highland Park institutions felt that it would be distinctly advantageous to effect a closer working arrangement with a large downtown bank. At that time the Highland Park State Bank, in addition to its main office, had seven branches within the corporate limits of Highland Park. As you may know, branch banking within the corporate limits of the municipalities in which a bank was located had been permitted in Michigan for many years, one of the larger Detroit banks having upward of

150 branches in Detroit.

The Guardian Detroit Group, Inc., was organized in May 1929, under the provisions of the general corporation laws Act 84, Public Acts of 1921, as amended, for the following purposes:

To acquire, own, hold, dispose of, and deal in stocks, bonds, and other evidences of indebtedness and securities, including those issued by any corporation, domestic or foreign, and to possess and exercise in respect thereto all rights, powers, and privileges of individual owners thereof, including the right to vote the same and to execute proxies therefor.

It might be here stated that the general idea of acquiring the shares of banking institutions located throughout the State was to have an association with a number of strong banks in different sections of the State, banks a part of whose business had flowed to New York and Chicago and which could be handled just as well or better through strong Michigan banking institutions, thus retaining that business within the State. Through this association these banks could more capably handle the business of their own local and out-ofState clients, could supply more complete credit information, and through contacts of other unit banks in the Group could aid their clients in the development of the clients' own business. It was thought that such an association would naturally attract to the various local units a substantial amount of desirable business.

The Group Corporation had but one class of capital stock of $20 par value; 2,500,000 shares were finally authorized, of which there were finally issued and outstanding 1,544,844 shares. The issuance of these shares was in all cases validated by the Michigan Securities Commission.

Under the original articles of association or charter of Guardian Detroit Group, Inc., the company could, upon the affirmative vote of three fourths of its board of directors, issue and dispose of unissued

or increased stock of the corporation for the purpose of acquiring stock of banks or trust companies without offering to the stockholders of the corporation for subscription the stock to be so disposed of.

In accordance with these provisions of the charter, the Guardian Detroit Group, Inc., acquired all or substantially all of the capital stock, except directors' qualifying shares, of the following institu tions: Guardian Detroit Bank, Detroit, Mich.; Guardian Trust Co. of Detroit, Mich.; Guardian Detroit Co., Detroit, Mich.; Highland Park State Bank, Higland Park, Mich.; Highland Park Trust Co., Highland Park, Mich.; Bank of Dearborn, Dearborn, Mich.; National Union Bank & Trust Co., Jackson, Mich.; Federal Commercial & Savings Bank, Port Huron, Mich.; First National Bank & Trust Co., Port Huron, Mich.; Bank of Detroit, Detroit, Mich.

While Guardian Detroit Group, Inc., was negotiating with and acquiring stock of the above-listed institutions, another company called the Union Commerce Corporation of Detroit, Mich., had acquired or were acquiring all or substantially all of the capital stock, except directors' qualifying shares, of the following institutions: National Bank of Commerce, Detroit, Mich. Union Trust Co., Detroit, Mich.

Union Co., Detroit, Mich.

Michigan Industrial Bank, Detroit, Mich.

Union State Bank of Dearborn, Mich.

Bank of Commerce of Dearborn, Mich.

Jefferson Savings Bank, Grosse Pointe, Mich.

Union Joint Stock Land Bank, Detroit, Mich.

Ohio-Pennsylvania Joint Stock Land Bank, Cleveland, Ohio.
Mr. Pecora, that is the only corporation domiciled outside of the
State. It was later sold, as you know.

City National Bank & Trust Co., Battle Creek, Mich.
Keene, Higbie & Co., Detroit, Mich.

Union Industrial Bank and Union Industrial Trust Co., Flint, Mich.

Union Commerce Corporation had also acquired through exchange of its stock an approximate 40 percent interest in seven small banks located entirely in agricultural communities. In two other cases a 58-percent and a 78-percent interest was acquired.

Mr. PECORA. May I interrupt your reading of your statement to ask you if you can give at this place in the record the names of those seven small banks?

Mr. LORD. State Savings Bank, Vestaburg, Mich.; State Savings Bank, Stanton, Mich.; State Bank of Six Lakes; State Savings Bank, Remus; State Savings Bank, Clinton; and Lansing State Bank. That is six, and I believe the other was the Thompson Savings Bank, of Hudson, that was afterward sold back to the original owners, Mr. Pecora.

The CHAIRMAN. Were these institutions all acquired by stock arrangements?

Mr. LORD. Exchange of stock.

The CHAIRMAN. And no cash?

Mr. LORD. Yes. That is, so far as the Guardian was concerned. I think in one or two cases there was some stock purchased back from the owners in the case of the Union Commerce Corporation. I haven't the record on that.

Early in September of 1929 representatives of Guardian Detroit Group, Inc., and Union Commerce Corporation discussed the possible advantages which might arise from a merger of the two companies. The discussion pointed out manifest benefits, and, accordingly, a proposed plan and agreement was drawn up providing for the acquisition of the stock of Union Commerce Corporation by Guardian Detroit Group, Inc., through exchange of shares on a share-for-share basis after declaration of a 20 percent stock dividend by Guardian Detroit Group, Inc.

On December 16-or 17-Mr. Pecora and I differ in the date. We will say on December 17, 1929, the plan was declared operative, the title of Guardian Detroit Group, Inc., thereupon being changed to Guardian Detroit Union Group, Inc., which is its title today. Through this merger the Group Co. acquired ownership of stock in the financial institutions and other corporations referred to in the preceding paragraphs.

Subsequently, Guardian Detroit Union Group, Inc., acquired by exchange of stock all or substantially all of the stock, except directors' qualifying shares, of the following institutions: Peoples National Bank of Jackson, Mich.

City National Bank & Trust Co., Niles, Mich.
Capital National Bank of Lansing, Mich.

Grand Rapids National Bank, Grand Rapids, Mich.
First National Bank & Trust Co., Kalamazoo, Mich.
Grand Rapids Trust Co., Grand Rapids, Mich.
Second National Bank & Trust Co., Saginaw, Mich.
National Bank of Ionia, Ionia, Mich.

In figuring the basis of exchange of stock of the Group Co. for that of the banks or trust companies acquired, it may be stated that in general the method was to reduce to a parity of actual value both the stock of the Group Co. and the stock of the bank to be acquired; and earnings of both institutions were also reduced to a parity both factors being given due consideration in arriving at a basis satisfactory to both parties at interest.

Actual values were determined by an examination of the assets of the bank with which negotiations were under way; and/or the examination reports of these banks by the National or State banking authorities; and the bank, through its representatives, in turn, was afforded an opportunity to satisfy itself as to the value of the shares of the Group Co.

From its inception Guardian Detroit Group and, inturn, Guardian Detroit Union Group, endeavored to preserve the local management and to follow the policy of developing the standing and prestige of that management, of the local institutions and placed the responsibility of such management upon the local boards of directors and local officers.

Without taking the time of this committee to read the minutes of the Group Corporation, I would call your particular attention to the proceedings of a meeting of the board held December 23, 1929, at which the basic policies of the corporation were clearly and definitely set forth. Article VI of the bylaws of the Group Co. provided:

Whenever at any meeting of the stockholders of a bank or trust company of which corporation shall at the time own 75 percent or more of the outstanding 175541-34-PT 92

stock, an election of such board of directors is held, the shares of such bank or trust company owned by this company shall be voted in favor of the election of a board of directors of which at least 75 percent shall consist of directors residing in the municipality where said bank or trust company is located or within a radius of 50 miles thereof.

This policy was adhered to. The selection of directors in the unit institutions was left to the unit directors who had previously been in charge of these institutions, and such changes as occurred after the acquisition of the stock of the unit institution by the Group Co. were very largely on account of death or an account of resignation for some other reason.

To further carry out these policies, the board of directors of Guardian Detroit Union Group, Inc., adopted the following resolution:

Resolved, That credit based upon the deposits in a local bank, which is a unit member of Guardian Detroit Union Group, Inc., shall be controlled wholly by the board of directors and the officers of the local unit bank.

The officers of each unit institution in the Group were responsible directly to the board of directors of their own institution.

The Group Co. performed the following useful functions for the local institutions without in any way violating the basic policy of encouraging local management to run their own banks, namely:

(a) Acting as a clearing house for information bearing upon policies, practices, and results obtained by the various member unit institutions.

(b) Systematically making available to all units the practice of the best with a view of enabling all to reach the highest standards of operations and resultant profit.

(c) Providing capable supervision in connection with building construction and management.

(d) Coordinating business development activities.

(e) Purchasing standard equipment and supplies in quantity.

(f) Providing an independent examining force, in no way responsible for the condition which its examination discloses, to supplement the work of the board of directors of a local unit in connection with the examining responsi bilities imposed by statute.

(g) Provding investment counsel and advice, together with statistical data and information on investments which the local institution, on account of its size, could not afford to provide for itself.

(h) Where local industries required credit beyond the loaning capacity of the local unit, the excess amount was offered to and frequently taken by other banking units in the group, thus obviating the necessity of these industries going outside the State for their credit accommodation.

In brief, it was the principal function of the Group Co. to act purely in an advisory capacity and as any stockholder would act in an institution where his funds were invested.

Admittedly, the institutions in the Guardian Detroit Union Group made many mistakes; but, to the best of my personal knowledge, mistakes of judgment. Loans that were well secured at the time made, suffered losses due in large measure to the velocity of the deflation. This situation occurred in most banks throughout the country necessitating banks in the United States charging down hundreds of millions of dollars of assets which under any reasonably normal conditions could and would have liquidated in full.

It might be of interest to this committee to know some of the many helpful and constructive things which the Group Co. accomplished. During the period from 1930 to 1933 the Group Co. purchased from unit banks and trust companies nearly $8,400,000 of