Mr. PECORA. From time to time customers of the Guardian Detroit Bank, subsequently called the Guardian National Bank of Commerce, turned over to the bank securities belonging to such customers, and they were turned over to the bank for safekeeping purposes, for the account of the customers, were they not?

Mr. LORD. That is customary. I have no details as to whether we actually had some at any given period. That is customary in any bank.

Mr. PECORA. What was the custom followed by the bank with respect to whether or not it included in its reports to the public the value of those securities as among its resources?

Mr. LORD. Held in safe-keeping?

Mr. PECORA, Held in safe-keeping.

Mr. LORD. I do not think they were ever included, Mr. Pecora. Certainly they should not have been.

Mr. PECORA. I show you what purports to be a printed copy of the annual report for 1929 issued by the Guardian Detroit Union Group, Inc., over your signature as its president. Will you look at it and tell me if you recognize it to be a true and correct copy of such annual report so issued?

Mr. LORD. Yes; I would say so.

Mr. PECORA. I ask that it be marked in evidence, but not spread on the minutes because of its voluminous size.

The CHAIRMAN. Let that be done.

(The document referred to, Annual Report, 1929, Guardian Detroit Union Group, Inc., was received in evidence, marked "Committee Exhibit No. 51", Dec. 21, 1933, and the same is not reproduced here for the reasons stated above.)

Mr. PECORA. I want to call your attention to page 9 of this printed report which has been marked in evidence as "Committee's Exhibit No. 51", under the caption Aggregate Resources and Liabilities of Banks and Trust Companies Affiliated with Guardian Detroit Union Group, Inc., as of Dec. 31, 1929. Do you see, on the asset side, under the caption Resources an item reading: "Customers' securities, safe keeping, $12,594,330.16", and an offsetting item on the right-hand side, under the caption of Liabilities reading the same way? Mr. LORD. Yes, sir.

Mr. PECORA. Did you know that that was there?

Mr. LORD. Well, I did not recall that it was; no.

Mr. PECORA. Do you know why this statement of aggregate resources of unit banks, as a consolidated statement, showed that item! Mr. LORD. I suppose because that consolidated statement was made up by adding the items of the various separate unit banks. That item is along the lines of just what I was speaking about this morning in connection with the Niles bank, where they took out of each side the trust assets. In other words, some of the banks in the group, as I recall it, following an old fashioned custom, had included in their statements the safe keeping bonds, which, when you include them in the total resource figures, unduly inflate the totals.

Mr. PECORA. It builds up the picture of the bank's size.

Mr. LORD. It builds up the picture, and I assume it is in that particular statement, because that statement was made up by adding all the separate statements. I know of no other reason why it should

have been in there, and personally I do not think it means anything in the statement and should be left out of all statements.

Mr. PECORA. Was it not put in this statement, and in the various statements of the unit banks, in order to build up the picture of the bank's size?

Mr. LORD. I do not think so.

Mr. PECORA. What other purpose could it serve than that?

Mr. LORD. Mr. Pecora, it certainly was not put into that statement for that purpose. Whether it was put into the separate unit statements in their published statements for that purpose, that is something I do not know, because they prepared those separate unit statements and sent them in, and I had nothing to do with that.

Mr. PECORA. If they sent them in to your group, they were sent in for the information of the officers of the group.

Mr. LORD. Yes; but they were prepared by the

Mr. PECORA. You had an opportunity of correcting that practice if you thought it was a wrong practice.

Mr. LORD. I think that was corrected in later years.

Mr. PECORA. In the case of the unit banks?

Mr. LORD. I believe it was. Maybe I am mistaken.

Mr. PECORA. I think you are.

Mr. LORD. Then I am mistaken. Personally I never liked it in a statement.

Mr. PECORA, I have before me committee's exhibit no. 36, which is the printed annual report of the Group for the year 1930, and it shows separately for each of the unit banks, a statement of condition at the close of business December 31, 1930. I observe that this item of customer's bonds held for safe keeping appears in the annual statement for 1930 of the Union Industrial Trust & Savings Bank of Flint; in the statement of the Grand Rapids Trust Co. of Grand Rapids; in the statement of the First National Trust and Savings Bank of Port Huron; and in the statement of the Trenton State Bank, Trenton, Mich. I understand that practice was continued in several of the unit banks thereafter.

Mr. LORD. Mr. Pecora, if we had wanted to build up the total reSources by including that, we would have done it with every bank that had any safe-keeping bonds. The mere fact that it appeared in some was probably because it was their custom to publish their statements with those items in there, on both sides of the balance sheet. Mr. PECORA. Under date of May 5, 1931, it appears that a letter was written to you by Mr. E. R. Morton, vice president of the City National Bank and Trust Co. of Battle Creek, one of your unit banks, a photostatic copy of which I now show you. Will you look at it and tell me if you can identify it as a true and correct copy of such a letter?

Mr. LORD. Yes.

Mr. PECORA. I offer it in evidence.

The CHAIRMAN. Let it be admitted.

(The document referred to, letter, May 5, 1931, Morton to Lord, was received in evidence, marked "Committee's Exhibit No. 52" Dec. 21, 1933, and the same was subsequently read into the record by Mr. Pecora.)

Mr. PECORA. The letter received and marked "Committee's Exhibit No. 52" is on the letterhead of the City National Bank & Trust Co. of Battle Creek, dated May 5, 1930, and is as follows [reading]:

ROBERT O. LORD,

President Guardian Detroit Union Group, Inc.,

Detroit, Mich.

DEAR MR. LORD: Some amusement has been furnished here over a period of a few months by reason of advertisements of the old Merchants National Bank & Trust Co., in which they use the phrase "combined resources, $28,000,000.” The total footings of the bank run from $17,000,000 to $19,000,000, and, of course, the supposition is that in their trust department they have some $8,000,000 to $10,000,000. What comes directly from this is not particularly favorable; but, of course, it is only in a few instances. The public generally may be impressed with the magnitude of business. It would seem to me just as reasonable to make some approximate figures on the contents of your safetydeposit boxes and add that to your banking resources as to use the resources of your trust department.

Last week Mr. Bryan, of your examining force, wanted to know why we did not ask the Comptroller's office for a ruling. I noticed the other day, however, in the advertisement of your unit in Port Huron that they incorporated the resources of their trust department, thereby advertising the combined resources. Personally I do not feel that I am enough concerned about it to go very far. Therefore I am merely calling it to your attention for such consideration as you may care to give it.

Very truly yours,

E. R. MORTON, Vice President.

Mr. LORD. Might I say in that connection that the old Merchants National Bank was not a Guardian unit.

Mr. PECORA. Might I also remind you in that same connection that Mr. Morton in his letter to you tells you that in the advertisement of your unit in Port Huron they had incorporated the resources of their trust department, thereby advertising the combined resources.

Mr. LORD. They did, sir. I think you will find also, Mr. Pecora, that in the 1931 annual report such items were entirely eliminated in the consolidated statement.

Mr. PECORA. Were they entirely eliminated from the separate statements of the bank units?

Mr. LORD. So far as I know. For quite a period the State banking authorities in Michigan rather favored the publication of those figures. I never did favor it personally.

Mr. PECORA. Do you mean to say that the State Banking Commissioner favored the making up of reports of banks in a manner that included in the resources of the bank the accounts that they held in trust?

Mr. LORD. In safe keeping.

Mr. PECORA. Or in safe keeping?

Mr. LORD. That is my understanding, sir, and I never could understand it. I never liked it.

Mr. PECORA. Is that still the rule there?

Mr. LORD. I don't know what the rule is now.

The CHAIRMAN. As a matter of fact, funds that were held simply for safe keeping were not resources of the bank at all?

Mr. LORD. Senator Fletcher, the items referred to there were se curities that were held subject to safe-keeping, not dollars and cents. The CHAIRMAN. Not owned by the bank? They were not owned by the bank?

Mr. LORD. No, sir, indeed they were not. And it showed not only on the asset side but an offsetting item on the liability side, which was just a wash item.

Mr. PECORA. But they did not have any part in the bank's resources?

Mr. LORD. Absolutely none.

Mr. PECORA. And should not have been shown at all?

Mr. LORD. Absolutely no. You cannot argue with me about it. I am for it a hundred percent. They should have been out.

Senator ADAMS. Mr. Lord, it would perhaps also follow that banks ought not to accept that kind of items for safe-keeping, because it does add a contingent liability under certain conditions?

Mr. LORD. Senator, banks have to do that service for their customers. Frequently a man may have a loan with a substantial amount of collateral. He may pay the loan by check on some distant point, or when he is away, and asks the bank to hold that collateral in safe-keeping. Now, every bank which does that and does it properly issues a separate safe-keeping receipt identifying in detail those securities. They have to do that.

Senator ADAMS. They assume a certain liability?

Mr. LORD. They assume a certain liability, and it is a liability that the banks do not like to assume, but it is a part of the service that the banks have been asked to give for many years. A banker would much rather have a man take his collateral down and put it in his own safe-deposit box.

Mr. PECORA. NOW, I show you what purports to be a photostatic reproduction of a letter addressed to Mr. Scott D. Carpenter, vice president of the National Bank of Commerce, Boulevard Branch, Detroit, by Mr. James L. Walsh, vice president of the Guardian Detroit Bank, dated August 4, 1931. Will you look at it and tell me if you recognize it as a true and correct copy of such a letter sent by Mr. Walsh to Mr. Carpenter?

Mr. LORD. I don't recall ever having seen it, but I do not question the authenticity of it.

Mr. PECORA, I offer it in evidence.

The CHAIRMAN. Let it be admitted and entered in the record.

(Photostat of letter from James L. Walsh to Scott D. Carpenter, dated Aug. 4, 1931, was designated "Committee Exhibit No. 53, Dec. 21, 1933", and appears immediately following, where read by Mr. Pecora.)

Mr. PECORA. Letter marked "Committee's Exhibit No. 53" is as follows [reading]:

AUGUST 4, 1931.

DEAR SCOTT: The president of one of the Group units, in answer to my letter of July 10 regarding releasing news items to the press, wrote back as follows: "I would appreciate the courtesy if you would advise me just what kind of news items you will want and in approximately what kind of shape they should be presented, in view of the general dangers resulting from publicity originating from banks, et cetera."

Our answer to him was substantially as follows, and it occurred to me that a copy of it might clear up certain questions in your mind and also in the mind of A. C. Voss, whom you have appointed to handle these matters for your bank. "One of the big things we are striving to do is to convince the public of the proven ability of the men who are behind the Group. We cannot do this by writing eulogistic stories, but we can by showing the affiliations of our

leaders, the successes of our leaders, and, when there is no possibility of a kick-back, the views of our leaders. We have succeeded in obtaining a great deal of advantageous publicity from newspapers, financial, business, and trade publications, during the past 6 months, and we can safely say that we have carefully avoided anything of a controversial nature, and only news that might bring about a favorable and often an active good will for the Group has been disseminated.

"We believe that anything that will show the strength, the liquidity, the able management, the resources, and the wide services of the Group is advantageous. Resources, age, investment in United States Governments, no bills payable, satisfactory earnings, increase in one quarter's earnings against the previous quarter, increases in customers, increases in savings deposits, economies of operation and management-all of these things are distinctly valuable at this time. We have had many stories written around these facts, and we expect to have many more.

"Promotions, since they give an oportunity to tell of a man's record, are good, not only for the general public, for they point to ability and recognition of ability, but for the personnel, inasmuch as where one man can go ahead others may. Such stories improve the morale. Human stories, not maudlin. are good. They show that the institution, despite its size, is essentially a human organization.

We have endeavored to have stories appear that would point out that the group and each of its units recognizes that it and they will prosper in direct relation to the prosperity of the communities and the customers they serve. An anniversary, either of the institution or of a member of the institution, should provide an opportunity to point to the human sense, growth, strength, willingness to serve.

"There are stories of this type in every unit of the group. Many of them can be rewritten here and sent to the other units of the group, where, if they could not be used as written, they might show the way for similar stories to be written that would provide good local material.

"Primarily, so far as the publicity activities of your bank are concerned, we are more anxious to see you get favorable publicity in your papers and to send us copies in order that we can show your results to other units of the group. It is much more difficult for us to obtain items in the metropolitan press in Detroit; and few, if any, of the items you sent us so far as the bank is concerned, would be suitable for Detroit papers. However, they might be for the smaller papers in other group cities. We want to act as a clearing house here for these publicity items, and it was for that reason that we asked you to send us your publicity."

Cordially yours.

This letter would indicate sort of a general publicity policy on the part of the Group and its unit banks, would it not?

Mr. LORD. Well, I would say so; yes. I am not a publicity expert. Mr. PECORA. Was Mr. Walsh!

Mr. LORD. I assume he knew more about it than I did.

Mr. PECORA. And for that reason the publicity work was confided

to his care?

Mr. LORD. To a great extent; yes, sir.

Mr. PECORA. Now, in cases where C.D.'S were resorted to to offset bills payable, were the bills-payable items restored after the reports had been made in compliance with calls for a condition report?

Mr. LORD. Mr. Pecora, I would not have that information. Mr. PECORA. Who would have?

Mr. LORD. I would assume that in some cases the unit bank required the funds and borrowed them later.

Mr. PECORA. Who would have that information?

Mr. LORD. I suppose the only way to get that information would be to get it right off the books. I don't know any other way. It is quite possible those bills-payable items were restored at the first of the year when the Guardian Detroit Bank found it necessary to use the funds that had been deposited.