Mr. LORD (after looking at the letter). No; I do not recognize it. They did not pay a dividend that quarter, did they?

Mr. PECORA. Apparently not. In fact I know they did not. But doesn't it appear that despite the representations that were being made currently by Mr. Brandon to the Group, the Group through its officers and directors, was insisting currently that this dividend be declared in accordance with the original suggestions or requirements of the Group as set forth in its letter to Mr. Brandon of July 1981?

Mr. LORD. Mr. Pecora, I think it would appear from that correspondence that the matter of dividends is left to the discretion of the separate boards. There was a suggestion made for the payment of a dividend, and the board used its own judgment and did not declare it.

Mr. PECORA. After the officers of the bank had indicated to the Group that it should not declare the dividend requested by the Group, or suggested by the Group, because of the position taken by the Comptroller of the Currency, doesn't it appear from this correspondence that the Group was persisting in the making of the suggestion that the dividend be declared?

Mr. LORD. Yes; but it does show that the board acted on its own discretion, regardless of any suggestions made by the Group or its officers.

Mr. PECORA. And it does also show that after the officers of the bank had indicated their original judgment, which was against the declaration of a dividend, as had been suggested by the Group, that the Group persisted in asking the bank's board to call, then, a special meeting of its board in order to declare the dividend suggested by the Group. Isn't that clear from this correspondence? Mr. LORD. It would seem to me so; yes.

Mr. PECORA. All right. Now, Mr. Lord, I want to show you what purports to be a photostatic copy of another memorandum, addressed to Mr. B. K. Patterson, executive vice president of the Detroit Union Group, by Mr. F. M. Brandon, president of the City National Bank & Trust Co. of Niles, Mich., under date of October 8, 1931. Will you look at it and tell me if you recognize it to be a true and correct copy of such memorandum in the files of the Group?

Mr. LORD (after looking at the letter). That is Mr. Brandon's sig

nature.

Mr. PECORA. Mr. Chairman, I offer it in evidence and ask that it may be made a part of the record.

The CHAIRMAN. Let it be admitted, and the committee reporter will make it a part of the record.

(A letter dated October 8, 1931, from F. M. Brandon, President of the City National Bank & Trust Co., of Niles, Mich., to B. K. Patterson, Executive Vice President the Detroit Union Group, was marked "Committee Exhibit No. 28, Dec. 20, 1933", and will be found immediately following where read by Mr. Pecora.)

Mr. PECORA. The letter received in evidence as Committee Exhibit No. 28 of this date being on the letterhead of the Guardian Detroit Union Group, Inc., and indicated as an inter-Group memorandum, reads as follows:

10 Mr. B. K. Patterson, executive vice president, Guardian Detroit Union Group, Inc.

From Mr. F. M. Brandon, President, City National Bank & Trust Co., Niles.
Subject Quarterly Dividend.

OCTOBER 8, 1931.

In compliance with your telephone request a special meeting of our Board of Directors was held last evening to further consider the matter of quarterly dividend. The directors are hesitant about declaring a dividend at this time. having been recently advised by Examiner Quinn that the same would be illegal if made. However, they want to comply with the request of stockholders if the same can be done in a legal manner, and therefore requested me to advise you of the situation, and to ask the management of The Group to request the dividend by letter, and to indicate that The Group Company as stockholders will take care of any requirements of the Comptroller of the Currency, without in any manner changing the capital and surplus account of the bank. I am assured by a majority of the Board of Directors that if this is done the dividend will be promptly declared, and I hope to hear from you tomorrow. Yours very truly,

F. M. BRANDON, President.

Now, Mr. Lord, do you know what happened after the receipt of this letter or memorandum from Mr. Brandon?

Mr. LORD. I do not.

Mr. PECORA. What was that answer?

Mr. LORD. I do not know. I do not recall it.

Mr. PECORA. Do you know whether or not the Group acted upon the suggestion of Mr. Brandon?

Mr. LORD. In what manner?

Mr. PECORA. As the letter suggested?

Mr. LORD. About the letter?

M. PECORA. Yes; about requesting the declaration of a dividend by letter.

Mr. LORD. I do not.

Mr. PECORA. And furthermore stating in its request for the declaration of such dividends that it, the Group, will take care of any requirements of the Comptroller of the Currency, without in any manner changing the capital and surplus account of the bank? Mr. LORD. I do not recall it.

Mr. PECORA. Well, let me shown you by way, possibly, of refreshing your recollection on that subject, this paper which purports to be a photostatic copy of a memorandum addressed to Mr. Brandon by Mr. B. K. Patterson, under date of October 12, 1931. Will you look at it and tell me if it is a true and correct copy of such memorandum sent to Mr. Brandon by Mr. Patterson?

Mr. LORD (after reading the memorandum). I assume it is.

The CHAIRMAN. You assume it is?

Mr. LORD. Yes, sir.

Mr. PECORA. Mr. Chairman, I offer it in evidence, and ask that i' may be made a part of the record.

The CHAIRMAN. Let it be admitted, and the committee reporter will make it a part of the record.

(The memorandum addressed to Mr. Brandon by B. K. Patterson. under date of October 12, 1931, was marked " Committee Exhibit No. 29, December 20, 1933", and will be found immediately following where read by Mr. Pecora.)

Mr. PECORA. The memorandum which has been received in evidence and marked "Committee Exhibit No. 29" as of this date, and being on the letterhead of the Guardian Detroit Union Group, Inc., and an intragroup memorandum, reads as follows:

To Mr. F. M. BRANDON,

President City National Bank & Trust Co., Niles, Mich. From B. K. Patterson,

Executive vice president, Detroit Union Group, Inc.

OCTOBER 12, 1931.

Answering your letter of October 8th in regard to the matter of quarterly dividend: After giving further consideration to this matter it is believed inadvisable to ask that the City National Bank & Trust Co. of Niles pay to the Guardian Group the dividend which was requested for the third quarter.

Does that letter, or memorandum, serve to refresh your recollection as to the action taken by the Group in this matter after the receipt of Mr. Brandon's letter of October 8, 1931?

Mr. LORD. Mr. Pecora, I do not believe that I attended a meeting with Mr. Quinn. I do not recall that I ever knew him, or ever saw him. Without knowing the details of that conference between Mr. Brandon, Mr. Patterson, and Mr. Quinn it is pretty difficult for me to comment on your question, or to answer your question. I suppose that when Mr. Patterson wrote that letter he had been convinced by Mr. Brandon or by Mr. Quinn that the dividend should not be paid,. and he therefore acquiesced in it.

Mr. PECORA. Well, now, let us see about that. The letter of Mr. Quinn

Mr. LORD (interposing). No dividend was paid.

Mr. PECORA. The letter of Mr. Quinn suggesting a conference with Mr. Brandon and Mr. Patterson was written on September 19, 1931. as appears from the evidence here. Notwithstanding that fact on September 24, 1931, Mr. Maxwell, secretary of the Group, apparently had written to Mr. Brandon, further suggesting the declaration of a dividend, as appears from Committee Exhibit No. 26. And on October 8, 1931, as appears from Committee Exhibit No. 28, Mr. Brandon wrote to Mr. Patterson, in which he says:

In compliance with your telephone request, a special meeting of our Board of Directors was held last evening to further consider the matter of a quarterly dividend.

Then in this letter Mr. Brandon proceeds to state that the directors were hesitant about declaring the dividend because they had been advised by Examiner Quinn that to do so would be illegal. Mr. Brandon further advised Mr. Patterson in this communication, that if the Group wanted his directors to declare this dividend they probably would do so if the Group would request it in writing. and if in that writing they would further say that the Group would take care of any requirements of the Comptroller of the Currency. So it would appear that even after such conference was held the Group was still insisting upon, and advising and suggesting, that a dividend be declared. Isn't that so?

Mr. LORD. Not having attended the conference, or knowing the gist of it, I cannot answer that question, because I do not know all

the facts.

Mr. PECORA. Well, Mr. Lord, isn't your recollection of those facts. refreshed by this correspondence?

Mr. LORD. No; apparently not. I do know that in that same year, at the end of the year, there was taken out of the Niles Bank, or the first of 1932, a total of $148,491 of assets.

Mr. PECORA. Of doubtful assets of the Niles Bank?

Mr. LORD. Yes, sir. And I assume that was the result of the conference that Mr. Patterson may have had with Mr. Quinn.

Mr. PECORA. And despite the fact that it was considered advisable or necessary in January of 1932 for the Group to take out doubtful assets from this Niles Bank to the amount you have mentioned, in the fall of 1931 the Group was insisting upon a dividend declaration being made, in September of 1931.

Mr. LORD. Until convinced that it was unwise.

Mr. PECORA. NOW, 9 days after the sending of Mr. Patterson's memorandum to Mr. Brandon, which has just been read in evidence as Committee Exhibit No. 29, it appears that a communication was sent by Mr. John L. Proctor, Deputy Comptroller, Treasury Department, to the board of directors of the City National Bank & Trust Co. of Niles, Mich., according to a photosatic copy thereof which I have, which reads as follows:

TREASURY DEPARTMENT, Washington, October 21, 1931.

BOARD OF DIRECTORS, CITY NATIONAL BANK & TRUST Co.,

Niles, Mich.

GENTLEMEN: A report of the examination of your bank completed September 19, a copy of which was furnished to you, shows that after allowing for the appreciation in United States securities and disregarding the depreciation in bonds coming within the classification of any of the four highest ratings by a disinterested and reliable concern engaged in the business of analyzing bonds and securities, losses of $14,476 on defaulted bonds, and the remaining bond depreciation of $105,927.71, consume the surplus fund, undivided profits, and reserves, excluding $14,819.12, which the examiner states is specifically allotted for taxes and interest, and impair the bank's capital to the extent of $34,638.27. As the law contemplates that the capital of a national bank shall be kept intact at all times, immediate steps should be taken to restore the bank's capital, which it is recommended be done from voluntary cash contributions on the part of directors and/or other shareholders.

Losses aggregating $68,458.90, summarized on page 11, should be charged off or otherwise removed.

While the present conditions prevail in your bank it is not in a position to pay any dividends.

There is enclosed a form to be executed and returned to this office as soon as the bank's capital has been voluntarily restored.

It is incumbent upon you to recognize the unsatisfactory condition of the slow and doubtful assets, aggregating more than $500,000, or approximately 50 percent of the total loans and discounts, and to be keenly alive to economical conditions as they affect borrowers.

This large aggregate of criticized assets, with the potential losses thereon, demand that matters be taken vigorously in hand and everything possible done to effect their collection, reduction, and adequate securing.

Please advise of the action taken with respect to making good the existing impairment of capital, and whether the losses referred to above have been charged off or otherwise removed, as well as the action taken and the progress made in liquidating or satisfactorily adjusting the criticized assets, forwarding copies of your communication to Chief Examiner A. P. Leyburn, no. 164 West Jackson Boulevard, room 129, Chicago, Ill., and to Examiner Henry F. Quinn post-office box 78, Grand Rapids, Mich.

Yours very truly,

JOHN L. PROCTOR, Deputy Comptroller.

Now, Mr. Lord, after having heard that communication read, do you recall whether or not its contents were ever brought to your attention?

Mr. LORD. I do not recall the details of the contents. I do know that the impairment of capital was repaired, and I assume that all other requirements of the Comptroller's office were carried out.

Mr. PECORA. When did you first learn that the capital of this Niles Bank, one of your Group units, had become as seriously impaired as the Deputy Comptroller of the Currency says it was in this letter? Mr. LORD. I do not recall, but I assume that that letter was written and received by Mr. Brandon.

Mr. PECORA. You have been telling this committee consistently since you began testifying here on the subject that the general procedure pursued by the Group in making suggestions to its unit banks with regard to dividend declarations by them was that before suggesting such a thing the executive officers of unit banks would indicate, either by mail, telephone, or other conversation, what was the condition of the unit banks.

Mr. LORD. Yes, sir.

Mr. PECORA. Now, is that so or not?
Mr. LORD. It is so.

Mr. PECORA. That is so?

Mr. LORD. Yes, sir.

Mr. PECORA. Well, then, didn't Mr. Brandon, sometime prior to the time when the Group was suggesting that his bank declare a dividend, in September of 1931, indicate to you the true condition of his bank, of its impairment of capital and its consequent inability to declare a dividend?

Mr. LORD. I do not think that Mr. Brandon realized the condition of his bank until

Mr. PECORA (interposing). He did not?

Mr. LORD. No; I do not think so.

Mr. PECORA. Do you mean to say that Mr. Brandon was the kind of a bank executive that he did not realize, until it was brought to his notice by the national bank examiner, what the real condition of his bank was, with regard particularly to the serious impairment of capital?

Do

Mr. LORD. Mr. Pecora, later on

Mr. PECORA (interposing). Will you just answer that question? you think that Mr. Brandon was that kind of bank executive? Mr. LORD. I do.

Mr. PECORA. When did you first learn that he was that deficient? Mr. LORD. After this examination.

Mr. PECORA. And not before?

Mr. LORD. But let me say this

Mr. PECORA (interposing). And not before?

Mr. LORD. There was a question in our minds about Mr. Brandon for some time.

Mr. PECORA. Was he ever removed? I mean when that first came to your attention?

Mr. LORD. Not at first, but later.

Mr. PECORA. How long later was it?