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Mr. PECORA. Well, call it advisable.

Mr. LORD. The last record of purchases of assets was the Guardian Bank of Trenton. That was on December 29, 1931. It amounted to $78,090.90. The Guardian Bank of Trenton paid no dividends either in 1931 or 1932.

Mr. PECORA. Does that complete the list?
Mr. LORD. That completes the list, Mr. Pecora.

The CHAIRMAN. What was your idea, Mr. Lord, in purchasing stock of these banks and taking them over when they were not paying any dividends at the time?

Mr. Lord. They were paying dividends, sir.

The CHAIRMAN. You just said they did not pay any for the year you bought them.

Mr. LORD. That was after we bought them. Senator Fletcher, all of the capital stock of the unit banks of the Group had been acquired by the first of May, I should say, of 1930, and those banks that were purchased were, I think, without exception, regular dividend payers—certainly the older banks for quite a period of years. The only bank that was added to the Group after April 1930 or May 1930, whatever the final date was, was the Guardian Bank of Royal Oak, which we organized out of the Group funds without issuing any stock. We put $175,000 into that capital structure to put a bank in a community of 25,000 people that had not had a bank for two years. There were no banking facilities there. There had been three banks in Royal Oak, with total deposits at the time of something over $11,000,000, as I recall it. They were all gone. There were no banking facilities at all in Royal Oak'; and the people there, some of the prominent business men, urged us continuously to start a bank, which we finally did. That bank is a 100 percent open and going great guns.

The CHAIRMAN. It seems that some of these banks which you bought in 1930 paid no dividends in 1931.

Mr. LORD. Correct. The CHAIRMAN. What was the occasion for the banks dropping off--the overhead increasing?

Mr. Lord. No, not overhead increasing. It was a case of the depression and the business situation, Senator.

The CHAIRMAX. I would like to get clear, for my own information, this point. Perhaps I am stupid about it. But suppose I owned stock, say, 1,000 shares, in one of those unit banks and the Group suggested to that unit bank that it declare a dividend of 5 percent, and it declared that dividend of 5 percent. I own 1,000 shares as a director of the bank. That dividend does not come to me, but it goes to the Group, as I understand. I hold stock of the Group. I have to have that, do I not;

Mr. Lord. As a director in one of the unit banks you own 10 shares of the par value of $100 each.

Mr. PECORA. In other words, the minimum amount required by the law ?

Mr. LORD. Yes, sir.
The CHAIRMAN. I understand that. What would I receive if

you declared a 5 percent dividend ?

Mr. LORD. You would receive the dividend that you would have gotten in the ownership of Group shares if you were not a director in that bank.

Mr. PECORA. In other words, the dividend on the stock of the bank which the director had to qualify would not go to that director, but would go to the Group?

Mr. LORD. Because the director had assigned those dividends.

Mr. PECORA. And in return for that the Group would, upon the declaration of its dividends, pay over to that director the amount of dividend that he would be entitled to receive if he had at that time the shares of Group stock taken on some basis of exchange, that he would be entitled to receive for the bank stock upon the termination of his directorship?

Mr. LORD. That is correct.

The CHAIRMAN. That is rather involved, to me; but as a practical illustration tell me what dividend I would get if I had a thousand shares.

Mr. Lord. It would depend upon what bank and the basis of exchange for the shares of that bank for Group stock, Senator. It was different depending upon the appraised value of those shares.

The CHAIRMAX. What I am trying to get at is this. As a director of the Group bank declaring a dividend of 5 percent I would be entitled to $50 dividend. But that does not come to me; that goes to the Group. I get the dividend of the Group from the stock that I own in that Group. What do I actually get out of that dividend?

Mr. LORD. We would have to take a particular instance and figure it out. I will be glad to do it for you if you want me to.

Senator Couzens. As a matter of fact, you might not get anything if the Group did not pay.

The CHAIRMAN. The Group was paying 3 percent, was it not? Mr. LORD. Sixteen percent.

Mr. Pecora. $3.20 on the par value, which was $20 a share, which would be at the rate of about 16 percent per annum.

The CHAIRMAX. In other words, a director would get a certain dividend, a certain percent on his investment, if he got the dividend as a director of the bank, based on the declaration of dividends there. But he would get more if he took his dividend from the Group stock?

Mr. Lord. He might, or he might get less. Let us take perhaps the simplest instance. The old units of the Guardian Detroit Group, that is, the so-called " unified stock” of the Guardian Detroit Bank, were exchanged for Guardian Group stock on the basis of five for one. The old stock was $100 par and the Guardian Group stock was $20 par. So you had exactly the same aggregate par value. Now, if the Guardian Detroit Bank had declared a 10 percent dividend on its stock, that 10 percent dividend would go to the Group Co. Had you retained your old Guardian Detroit unit stock you would have gotten that 10 percent. The Group Co. itself, by the action of its own board, might declare that full 10 percent individends and might declare only 5 percent in dividends on your $20 par shares. It depended on whatever the Group directors declared out. Does that clarify it a little bit?

The CHAIRMAN. At $3 a share you would get more dividend from the Group than you would from the bank?

Mr. LORD. On the basis of par value, if all that the Guardian Detroit Bank declared into the Group was declared on the Group stock also, your basis of percentage on your par value of that stock would have been exactly the same, because you had five shares at $20 par value in exchange for one share at $100.

The CHAIRMAN, I understand.

Mr. PECORA. Mr. Lord, Mr. A. A. F. Maxwell was secretary of the Group in 1931, was he not?

Mr. LORD. He was secretary at one time. When he resigned as secretary I do not recall.

Mr. PECORA. And as such secretary did he from time to time send letters to the executives of different bank units of the Group with regard to the declaration of dividends by such bank units?

Mr. Lord. He might have.
Mr. PECORA. Do you know of instances in which he did?

Mr. Lord. Not definitely, no, because I have none of his correspondence.

Mr. PECORA. Did he have a different form of letter from the one that you had in communicating with executives of unit banks on the matter of dividend declarations by such banks?

Mr. Lord. I do not know anything about his letters, Mr. Pecora.

Mr. PECORA. Will you look at this document which I now show you and which purports to be a photostatic reproduction of a letter sent by Mr. Maxwell, secretary of the Guardian Detroit Union Group, Inc., under date of June 11, 1931, to Mr. H. S. Reynolds. president of the Union & Peoples National Bank of Jackson, and tell me if you recognize it as a true copy of such a letter?

Mr. LORD. Mr. Pecora, I have never seen this before. I have no way of identifying it except that it is certainly a photostat and shows the Guardian Detroit Union Group on the top of it. There is no way in which I could identify it. I never saw it before. There is no way I could identify it.

Mr. PECORA. It is the correspondence of another man, written not by him in his individual capacity or right but written by him as secretary of your Group.

Mr. Lord. But I did not pass on his correspondence, Mr. Pecora.

Mr. PECORA. There was a Mr. Reynolds that was president of the bank referred to in that photostatic copy of a letter?

Mr. LORD. Yes, indeed.

Mr. PECORA. May we have that photostatic copy marked for identification?

(The document referred to, letter, June 11, 1931, Maxwell to Reynolds, was marked for identification Committee's Exhibit No. 16", Dec. 20, 1933.)

Mr. PecorA. Was it part of Mr. Maxwell's duties as secretary of the group

to communicate with the executive heads of unit tanks of the group on the matter of dividends?

Mr. LORD. He was secretary of the company. I would not say that it was particularly part of his duties.

Mr. PECORA. Whose duties was it to send out such letters?
Mr. LORD. Excuse me, Mr. Pecora. I did not get the question.

Mr. PECORA. Of course you did not get the question. One of your associates was talking to you while I was addressing the question to you.

Mr. LORD. May I have the question?
(The pending question was read by the reporter.)

Mr. LORD. I do not know that it was anyone's specific duty. The letters that you presented yesterday would indicate that perhaps it was my duty.

Mr. PECORA. Can't you tell us definitely whose duty it was to send ont such letters? You were the president of this group from its inception, and you surely ought to be able to tell us something about the assignment of duties.

Mr. LORD. Mr. Maxwell was secretary, and it may be that at times he was asked to send out such letters as he did send out in confirmation of verbal arrangements that had previously been made, and verbal conversations and suggestions as to the question of dividends. In practically every case of the letters that you referred to yesterday in the matter of dividends, those letters were more or less confirmation of personal conversations that were had with the heads of these various units. We had a budget. We knew what the banks were earning. We watched their earnings, and there was always discussion of the dividends with the heads of these institutions as to what their institutions would be justified in paying as dividends.

Mr. PECORA. Let me read to you the language employed by Vr. Maxwell in this letter of June 11, 1931, addressed to Herbert S. Reynolds, president of the Union & Peoples National Bank of Jackson [reading]:

GUARDIAN DETROIT UNION GROUP

Intra-group Memorandum

June 11, 19.1. To Mr. Herbert S. Reynolds,

President, l’nion and Peoples National Bank, Jackson. From Mr. A. A. F. Maxwell,

Secretary, Guardian Detroit Union Group, Inc. To provide for the dividend disbursement for the quarter ending June 30th. 1931, on the capital stock of the Guardian Detroit Union Group, Inc., units of the group are asked to declare dividends on their capital stock which are to be payable in each instance not later than June 26, 1931, to holders of record on that date.

Your proportionate share of the disbursement calls for a quarterly dividend of 5.9 per cent ($11,500) on the capital stock of your institution. Please forward your check covering the shares registered in the name of Guardian Detroit Union Group, Inc., and your directors (the dividends on which have heretofore been assigned) to Mr. Bert K. Patterson, vice president and treasurer, said check to be received not later than June 29th, 1931.

Your acknowledgement of the receipt of this memorandum and advices when your board has taken the necessary dividend action will be very much appreciated.

Secretary. Mr. Pecora. That language would indicate to you, would it not, that the group was asking the Union & Peoples National Bank of Jackson, in June 1931, to declare a quarterly dividend at the rate of 5.9 percent, because that was that bank's proportionate share of the dividend disbursement which was to be made by the group.

Mr. LORD. That letter of itself would indicate it; yes.

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Mr. Pecora. Would you suppose that Mr. Maxwell, in writing such a letter, was transcending his duties as secretary of the group

Mr. LORD. I would suppose that Mr. Maxwell, in writing such a letter, was writing it in confirmation of previous conversations that I or some of his seniors had had with Mr. Reynolds in the matter of dividends.

Mr. Pecora. There is absolutely no mention of any previous conversation in this letter, is there?

Mr. LORD. No; but I know how the question of dividends was handled and discussed.

Mr. PECORA. How was it handled in this particular case?

Mr. Lord. I do not recall, but I know the general way it was handled. Mr. Reynolds would come to Detroit 2 or 3 or i times a month to discuss the affairs of his institution and policies, and the question of dividends undoubtedly came up in those discussions.

Mr. PECORA. You are quite sure of that, are you not?

Mr. LORD. On the basis of the way things were handled, Mr. Pecora.

Mr. PECORA. I say, you are quite sure of that?

Mr. LORD. To the best of my recollection. I cannot pin it on that particular date, but I do know that these discussions were constantly had with Mr. Reynolds and the other heads of these units.

Mr. PECORA. Could you refer this committee to any correspondence on that, to show that that was the custom and the practice?

Mr. LORD. No, sir: I could not; but I think if some of these unit heads were asked, they would tell you that was the way the thing was handled.

Mr. PECORA. All the correspondence heretofore put in evidence with regard to the declaration of dividends by the unit banks makes absolutely no mention of any prior conference.

Mr. LORD. I realize that.

Mr. PECORA. Now, I want to resume the matter of the transaction whereby there was acquired for Mr. Brewer

Senator Adams. Was this 5.9 percent dividend actually declared ? Mr. PECORA. By this Jackson bank? Do you know, Mr. Lord!

Mr. LORD. I do not know. I have not the record on that. What year was that? I can tell you what they paid during the year.

Mr. PECORA. For the quarter ending in June 1931.
Mr. LORD. I have no quarterly record at all.
Senator COUZENS. What was the yearly record?

Mr. Lord. In 1931 the bank paid, according to the figures shown here-

Mr. PECORA. $173,000, was it not?
Mr. Lord. $173,000.
Senator Corzexs. What percent was that?
Senator Adams. What was the capital?

Mr. LORD. I will have to look up the capital. (After examining papers :) On October 31 the capital stock was $700,000. It was about a 25 percent dividend.

Senator COCZENS. So, in effect, that dividend of 5.9 percent was paid.

Mr. LORD. I assume it was, Senator. I do not have it broken down.

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