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Mr. PECORA. But here is Mr. Brewer, in his letter of November 21, 1929, to you, reminding you that when he suggested you purchase that stock he told you that in view of the large holding which he then had in his own bank stock he did not feel that he should take on any additional shares.

Mr. LORD. Mr. Pecora, if that were so, why should we carry the stock and give Mr. Brewer the opportunity of buying it?

Mr. PECORA. That is what I want you to answer.

Mr. LORD. I do not know. I think Mr. Brewer's recollection of that was probably different from mine.

Mr. PECORA. Did you send Mr. Brewer a reply to this letter?
Mr. LORD. I do not know.

Mr. PECORA. In which you indicated a difference of opinion or recollection from his?

Mr. LORD. I do not recall. I may have discussed it with him. I may have written him. I do not recall.

Mr. PECORA. Now, let me show you another letter, a photostatic copy of which I show you, and which purports to be a copy of a letter addressed by you to Mr. Brewer on this subject under date of January 22, 1930." Will you look at it and tell me if it is a true and correct copy of such a letter sent by you to Mr. Brewer?

Mr. LORD. Yes, sir.
Mr. PECORA, I offer it in evidence.
The CHAIRMAN. Let it be admitted.

(The document referred to, letter, Jan. 22, 1930, Lord to Brewer, was received in evidence, marked "Committee's Exhibit No. 21", Dec. 20, 1933, and the same was subsequently read into the record by Mr. Pecora.)

Mr. PECORA. The letter which has been received in evidence as Committee's Exhibit No. 21 of this date reads as follows [reading]:

JANUARY 22, 1930.

(Personal) Mr. J. H. BREWER, % Grand Rapids Trust Company,

Grand Rapids, Michigan. DEAR JOE: I have been thinking over the question of the 7,204 shares of Guardian Detroit Union Group stock which the Detroit Company is now carrying. This stock was purchased primarily for you or for you and Mr. Waters, and while at the present time with a market of $120 the cost is two or three points in excess of that market, I think the fair thing would be for you to take over the stock because, frankly, I believe that within a year the stock will be worth anywhere from 25 to 5) points more than its present selling price.

My suggestion would be that the amount due on the stock be covered in two notes, one for $500,000 to the Guardian Detroit Bank and one for the balance of $379,433.45 to be made to the Guardian Trust Company. Our loaning limit in the bank is $800,000 unless we go to the board and secure the consent of two-thirds of the board members. We probably could make a temporary loan, using this stock as the major part of the collateral. However, it is likely that a loan of this size might be criticised by the Banking Commissioner if it had too large a proportion of Guardian Detroit Union Group stock as collateral. It would be my suggestion, if you have a substantial amount of other collateral of a readily marketable character, that perhaps some of the bank stock be removed and the other collateral be used. This would make the loan look less heavy with Guardian Detroit Union Group stock as security.

I realize that it is likely you will want to liquidate at some later date a portion of this bank stock, but I feel it would be very distinctly to your advantage to hold this stock for the next three to five years. I think with our situation throughout the State and with the economies we can make and the business which we can build up that this stock should be worth within a five-year period not less than $300 a share, and I, personally, would be very happy to see you benefit by holding the stock rather than by selling it at anywhere near present prices. Perhaps you have other securities that could be liquidated so that you would not be carrying quite as heavy a loan against the bank stock. So far as the bank and trust company are concerned, we are willing to carry you on a substantial loan for any reasonable period, and it would be my suggestion that the notes covering this particular transaction be made out for a period of six months with the idea that they would be renewed for another period of six months, subject, of course, to the understanding that the loan would be placed elsewhere or taken care of in some other way if the Banking Commissioner requires us to take such a loan out of the bank on account of the collateral being represented in too large an amount by Guardian Tietroit Union Group stock.

I am enclosing herewith a statement prepared by the Guardian Detroit Comrapy which shows the status of the transaction with interest figured up to February 1. This statement also shows, as you will note, the two credits on account of dividends and also the $60 check which you sent covering the sale of one-half share of stock.

If these suggestions which I have made are satisfactory to you, if you will let me know what additional collateral you can substitute for a part of the bank stock, I will be glad to have the notes made out and sent to you so the transaction can be completed by February 1. I shall be glad to have your ideas on the subject. Very sincerely,

(Signed) ROBERT O. LORD,

President. Now, does the reading of this letter refresh your recollection concerning the way this transaction was eventually handled ?

Mr. LORD. Well, the reading of that letter refreshes my recollection up to date, but I could not tell you, except that Mr. Joseph H. Brewer finally ended up with a loan with the Guardian Detroit Bank or the Guardian National Bank of Commerce.

Mr. PECORA. Was that because Mr. Brewer finally agreed to take over this stock while it was being carried for him by either the Guardian Detroit Bank or the Guardian Detroit Co.?

Mr. LORD. I don't recall what he took over of the stock, Mr. Pecora. Mr. Brewer had holdings in the Grand Rapids National. He had a loan in the Guardian National Bank of Commerce. He put up Guardian stock. He put up outside collateral.

The CHAIRMAN. Do you recall, Mr. Lord, that the notes referred to in this letter were actually executed by Mr. Brewer?

Mr. LORD. Well, I do recall that Mr. Brewer had a loan in the Guardian Bank, and whether it originated in this transaction or from some later transaction I could not swear to it. I suppose it was in connection with this transaction.

The CHAIRMAX. Do you remember the amount of that loan?
Mr. LORD. No: I don't have the figure.

Mr. PecoRA. Now, I want to go back for a moment, Mr. Lord, to your letter to Mr. Brewer of November 18, 1929, marked “Committee's Exhibit No. 19.” In the concluding paragraph of that letter you make this statement:

In further reference to that certain loan in the Grand Rapids National about which I spoke to you, I feel very strongly that if I were in your position I would arrange to have the loan paid at this time. I have information on the outside which leads me to believe that the company's business is in far from food shape and that their prospects for the coming year are not very encouraging.

What was that “ certain loan " that you refer to in this letter?

Mr. Lord. I cannot tell you the name of the corporation, but it was the loan to an industrial company in Grand Rapids; had nothing to do with this transaction whatever.

Mr. PECORA. Now will you look at this document which I now show you and which purports to be a photostatic reproduction of a letter from Mr. Brewer addressed to Mr. B. K. Patterson, vice president of the group, under date of April 13, 1931, to which is attached and in which reference is made to a letter addressed to Mr. Brewer as President of the Grand Rapids National Bank under date of April 10, 1931, signed by Henry F. Quinn, national bank examiner? Will you look at those documents and tell me if they refresh your recollection in any way with regard to the subject matter thereof!

Mr. Lord. I don't recall having seen this before, but I can identify this as Mr. Brewer's signature, sir.

Mr. PECORA. I offer it in evidence.
The CHAIRMAN. Let it be admitted.

(Memorandum dated April 13, 1931, from Joseph H. Brewer to B. K. Patterson, together with attached letter dated April 10, 1931, from Henry F. Quinn, national bank examiner, to Joseph H. Brewer, and also attached tabulation of loans and discounts and bonds and securities was thereupon designated “ Committee Exhibit No. 22. Dec. 20, 1933 ”, and the same appear immediately following as read by Mr. Pecora.)

Mr. PECORA. The letter that has been received in evidence and marked “ Committee's Exhibit No. 22” of this date, reads as follows (reading]:

GUARDIAN DETROIT UNION GROUP

Intra-Group Memorandum

Date April 13, 1931. To Mr. B. K. Patterson, Vice President, Guardian Detroit Union Group, Inc. From Mr. Joseph H. Brewer, President, Grand Rapids National Bank

DEAR MR. PATTERSON : I enclose herewith copy of letter from Mr. Henry F. Quinn. What are your suggestions? Very truly yours,

(Signed) Jos. H. BREWER.

President. There is a stamped and hand-written memorandum in the lower right-hand corner of this letter reading as follows:

" To Mr. Waldo from B. K. Patterson, date 4–17.

“ We must must being underscored—“ charge these off. R. O. L. does not "_" does not" being underscored—“ want to disturb the earnings picture. What shall all do!"

Accompanying the letter to Mr. Patterson from Mr. Brewer is a copy of a letter addressed to Mr. Brewer reading as follows (reading]:

APRIL 10, 1931. Mr. JOSEPH H. BREWER, President Grand Rapids National Bank,

Grand Rapids, Mich. DEAR SIR: There is herewith attached a schedule of estimated losses resultant from the examination of the Grand Rapids National Bank, Grand Rapids, Michigan, as of March 27, 1931.

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Included in this list, as you will note, are certain items listed in the previous examination as losses that were not absorbed by the bank.

Losses as herein estimated should, of course, be promptly eliminated from the banks assets. Yours very truly,

(Signed) HENRY F. QUINN

National Bank Examiner. And attached to Mr. Quinn's letter is a schedule entitled “Loans and Discounts ", and then follows enumeration of various loans, the aggregate amount of which is $111,196.46. Senator TOWNSEND. What is the date of the letter?

Mr. PECORA. The date of the bank examiner's letter is April 10, 1931, and it is forwarded by Mr. Brewer to Mr. Patterson, vice president of the Group, on April 13, 1931,

The schedule is as follows:

LOANS AND DISCOUNTS
Name
Dewey R. Moll..
Richard Marquardt.
Mackinaw Shores Club-
Fred Steenman.
C. T. Allen.
W. B. Banks.
Pat Birney---
F. W. Cavender.
A. D. Crimmins.
F. G. Deane.--.
Dudley Lumber Company-
Earl Eifert.
Ray D. Fonger--
H. M. Freeman
Festus Garratt.
Grand Rapids National Company.
Beecher Hale.
C. 0. Hart.
E. K. Hill.
Myron B. Hopkins.
C. M. Hurd.
H. L. Johnson_
W, F. Mille
G. W. Nicholson.
J. W. Parkhurst_
Tavis Lumber Company-
P. J. Peterson
B. Vande Meulen.
W. E. Williams --
Portage Point Association --

Amount
$79. 42
330. 75
270.00

49, 35
3,500.00
4, 000.00
3, 526. 33
5,503. 87
9, 000.00
5,000.00
9, 100.00
2,374. 27
2, 515, 00
5,000.00

750.00 8,000.00 4, 196.00 13, 107.00

391. 75 976. 51

844. 20 1, 156. 93 4,000.00 3, 070.83 3, 800.00 3,000.00 3,000.00 6, 000.00 2, 962. 25 5, 692. 00

111, 196. 46 S.

BONDS AND SECURITIES

Continental States ['tilities.
Seaboard All Florida-----
American Tel. & Tel. Stock.

16, 706. 25

4, 275.00 21,000.00

153, 277.71 S.

Depreciation on fixed assets, accrued throughout the fiscal period

by reserves but not charged off at the end of the fiscal period as should have been done.

Total.

28, 287. 85

181, 565. 56

Mr. Pecora. Now, referring to the memorandum in the lower right-hand corner of Mr. Brewer's letter to Mr. Patterson [reading]: R. 0. L. does not want to disturb the earnings picture

The reference to "R. O. L.” is a reference to you, is it not, Mr. Lord ?

Mr. LORD. I would assume so; yes.

Mr. PECORA. What is conveyed to your mind by that memorandum “R. O. L. does not want to disturb the earnings picture ?"

Mr. LORD. I suppose that the charge-off should be made either by lift-outs or by charges to reserves. Now, the record shows ] have given you this morning that in 1931 the Group Co. lifted out ninety-two thousand and odd also.

Mr. PECORA. Ninety-two thousand and odd dollars ?
Mr. LORD. Dollars of assets.

Mr. PECORA. And that was at the end of the year in which the bank declared ninety-nine thousand and odd dollars of dividends?

Mr. LORD. Yes. And during that year also, according to the figures I have here, the bank wrote off on its own books 153,000 plus.

Mr. PECORA. No; but what I want particularly to have you tell us, Mr. Lord, is what you had in mind when you indicated that you did not want to “ disturb the earnings picture.

Mr. LORD. I suppose it was the suggestion that those assets be taken out without charging them against current earnings.

Mr. Pecora. Was that a general policy that was followed in these unit banks?

Mr. LORD. What, the general policy?

Mr. PECORA. Take out slow or doubtful assets or bad loans in a fashion that would not disturb the earnings picture.

Mr. LORD. Mr. Pecora, the practice of banks

Mr. PECORA (interposing). No, no; not the practice of banks; the practice of these banks is what I want.

Mr. LORD. All right, the practice of these banks and other banks

Mr. PECORA (interposing). No; please confine yourself to the practice of the unit banks. “Sufficient unto the day is the evil thereof."

Mr. LORD. The practice of these unit banks was to accumulate reserves for just such a time as we ran into in 1930, 1931, and 1932, accumulate undivided profits for the protection of that bank and its depositors, and to take care of such necessary write-offs as took place.

Now, you know and I know that the banks during the past 3 years, few if any banks in the United States have been able to make their charge-offs out of current earnings. They have made the charge-offs out of reserves built up in former years, out of undivided profits, or from some other part of their capital structure.

Mr. PECORA. Did the Grand Rapids Bank have any such reserves available to absorb these bad loans?

Mr. LORD. They must have had
Mr. PECORA. At the end of 1931 ?

Mr. LORD. They must have had a capital structure that absorbed the 153.000.

Mr. PECORA. I asked you about reserves, not capital structure.
Mr. LORD. I haven't the figures on the reserves.

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