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beginning in March, 1931, when the American State Bank was about to fail and the Detroit clearing house banks took it over. From then on, all through the years following, covering October 1933, there was a continuous story of bank failures throughout Michigan. Í presented the first day here a chart which showed the failures for about a year

a and 2 or 3 months, and there were 195 bank failures in the State in that period. In addition, we were very seriously affected by withdrawals at the time Chicago had its runs on the downtown banks, and at the time approximately 200 of the Chicago outlying banks failed. In Toledo, which is only 60 miles from Detroit, in the summer of 1931 I think all except one or two banks in Toledo failed. All of that reacted on us so that the public mind was volatile, to say the least.

The CHAIRMAN. I can understand that, and I can see how declaring dividends might give the public the impression that the bank was on a sound basis; but the stockholders, while they were entitled to the dividends, might have left them in the bank and the bank would have had the money available there.

Mr. LORD. That of course is a question of judgment; and it was the judgment of the board and of the committee that the dividends should be paid. You may recall that the dividends were cut down gradually and finally cut off entirely after April 1931.

Senator ADAMS. Mr. Lord, with regard to the eight million-odd dollars that you put back, did the Group have the money available or did it borrow it?

Mr. LORD. It borrowed it.
Senator ADAMS. Where?
Mr. LORD. From New York and Chicago banks.
Senator ADAMS. It did not borrow it from its own banks?

Mr. LORD. No, sir. It borrowed it, if you will recall, Senator, partly on its own credit and partly on the endorsement of Mr. Edsel Ford and Mr. Mott.

Mr. PECORA. The annual report for the year 1931 filed by the group or the holding company with the Michigan Securities Commission, as has already been indicated, showed a deficit for the year of $288,930.33

Mr. LORD. That deficit, however, Mr. Pecora, includes the carryover of $39,000 from the previous year. If you will notice

Mr. PECORA. Yes; I see that.
Mr. LORD. That is the accumulated deficit.

Mr. PECORA. It shows a deficit for that year itself of about $248,000, does it not?

Mr. LORD. That is correct.

Mr. PECORA. Making allowances for the carry-over of $39,000 of deficit in the preceding year?

Mr. Lord. That is right.

Mr. PECORA. Look at the copy of the printed annual report to the stockholders for the year 1931 issued by the Group and point out to this committee if you can any statement or any information therein contained which informed the stockholders that the Group for the vear 1931 had incurred a deficit.

Mr. LORD. There is no direct statement to that effect.

Mr. Pecora. Is there any indirect statement to that effect, or any statement of any kind which so informed the stockholders?

Mr. LORD. I would say so; yes.
Mr. PECORA. Where?

Mr. LORD. The statement on page 7 shows the net earnings of the banks and trust companies of the Group after all expenses of operation and after setting aside adequate reserves for taxes and depreciation, banking quarters and equipment, $3,887,000 plus. That takes only the banks and trust companies. On the next page, in the middle of the page, the total operating loss of institutions other than banks and trust companies amounted to $542,957.68. That loss of $542,957.68 included also a deficit of the Group Corporation for that year.

Mr. PECORA. How can anybody reading this report and even putting emphasis on the portions thereof that you have just read deduce that for the year 1931 the Group or the holding company had a deficit, exclusive of the carry-over of the deficit for the preceding year, of nearly $250,000?

Mr. LORD. It cannot. This was a picture of all of the units, including the Group.

Mr. PECORA. There was no annual report issued to the stockholders of the group for the calendar year 1932, was there?

Mr. LORD. There was not.

Mr. PECORA. Why not? But before you answer that question, which I will withdraw temporarily, let me ask you this: Is it not a fact that the annual report filed by the group for the year 1932 with the Michigan Securities Commission showed that the deficit incurred by the group for the year 1932 was $714,331.26, which included the carry-over of the deficit for the two preceding years, aggregating $288,000?

Mr. LORD. That is correct, sir.

Mr. PECORA. Now I will ask you the question, why wasn't an annual report made of the group for the calendar year 1932? Mr.

LORD. There was a verbal report made to the stockholders by Mr. Kanzler, chairman of the board, at the annual stockholders meeting held, I believe, on January 28.

Mr. PECORA. Was there any minute anywhere or any document which shows what that verbal report or oral report was?

Mr. LORD. Any stockholders' minutes?

Mr. PECORA. Showing just what the report was that you say was made?

Mr. LORD. I don't know.
Mr. PECORA. What is that?

Mr. LORD. I don't know of any. I know that there had been in course of preparation the document itself. After the meeting of January 28 Mr. Kanzler by appointment left for Washington in connection with the Trust Co. loan from the R.F.C.

Mr. PECORA. I know, but why wasn't an annual report printed and published and given to the stockholders for the year 1932?

Mr. LORD. Because Mr. Kanzler was then in negotiation in connection with the loan from the R.F.C. and expected to include in the annual report a separate statement as to the result of those negotiations.

Mr. PECORA. My dear man, anything done in 1933 should not be contained in the report for 1932, should it?

Mr. LORD. He wanted to bring the stockholders down to date. Upon the conclusion of the

Mr. PECORA (interposing). An annual report merely embraces the operations for the calendar year for which it is issued, does it not?

Mr. Lord. Yes; but it seems to me

Mr. Pecora (interposing). Then why wasn't an annual report for the year 1932 issued?

Mr. LORD. I just stated, Mr. Pecora, that Mr. Kanzler left the day after the meeting. So far as the annual report is concerned for 1932, that was in charge of Mr. Huelsman, Mr. Kanzler, and Mr. Waldow, the auditor.

Mr. PECORA. Was it not also in charge of you?
Mr. LORD. No; it was not.

Mr. PECORA. Why wasn't it for the year 1932, although it apparently had been for the preceding years?

Mr. LORD. It was for this reason: The executive committee meeting at which the annual report to be issued was discussed was held on January 20.

The CHAIRMAN. What year?

Mr. LORD. In 1933. And at that time I was spending most of my days and some of my nights at Port Huron, where our competitive bank had failed across the street, trying to save our own institution. I was not at that meeting. I had no activity and no part in the preparation of the annual report for '32 at all.

Mr. Pecora. Now let me ask you to tell this committee how many stockholders actually attended the annual meeting of the Group which was held on January 24, 1933.

Mr. LORD. I would say 30 or 40.
Mr. Pecora. Out of a total of how many stockholders?
Mr. LORD. Eight or nine thousand.

Mr. PECORA. Those 30 or 40 for the most part were men who were either officers or members of the board of the group, were they not?

Mr. LORD. I should say—when I said 30 or 40 I meant outside stockholders besides the officers, Mr. Pecora. I should say there were 50 or 60 there perhaps out of 8 or 9 thousand.

The CHAIRMAN. About how many? Mr. LORD. Eight or nine thousand stockholders. Mr. Pecora. Now, let me read to you from photostatic copy which I have of the minutes of the annual meeting of the stockholders of the group held on January 24, 1933, in which it appears

Mr. Lord (interposing). When was that?

Mr. PECORA. January 24, 1933—in which it appears Mr. Ernest Kanzler presided as chairman of the board. I will read from the minutes as follows (reading]:

Whereupon the chairman presented the annual report of the corporation for the year ended December 1, 1932, which, upon motion duly seconded and carried by unanimous vote, was approved, and a copy of said report was ordered placed on file with the corporate records of the company and similar copies mailed to all stockholders of record.

Now, where is that report that was placed on file and which according to this motion which was unanimously carried, was ordered mailed to all the stockholders of record?

Mr. LORD. I attended that meeting, and my recollection is that Mr. Kanzler gave a verbal report, reading from some various notes.

There certainly was not at the meeting any printed copy of an annual
report to my knowledge.
Mr. Pecora. There was a written copy, was there not?
Mr. LORD. Not to my knowledge. He had a typewritten paper.
Mr. PECORA. Then what does this motion mean?

Mr. LORD. I don't know. I don't know what I should say that is incorrect, because I remember Mr. Kanzler standing there and reading from various notes that he had in his hand and discussing the situation in regard to the various units.

Mr. PECORA. Well, it is customary for the head of a corporation at the annual stockholders' meeting to present to the stockholders a full report, is it not?

Mr. LORD. He did.
Mr. Pecora. Of the corporation for the preceding year?
Mr. LORD. He did, verbally.

Mr. Pecora. But apparently, according to the minutes of the annual stockholders' meeting of the group held on January 24 last, the report which was presented to the stockholders by the chairman of the board, Mr. Kanzler, was approved “and a copy of said report was ordered placed on file with the corporate records of the company and similar copies mailed to all stockholders of record.”

Mr. LORD. Mr. Pecora, I
Mr. PECORA (interposing). Is that minute of the meeting wrong?

Mr. LORD. I should say the minute is incorrectly worded. There was not, I am certain, at that meeting a printed copy of an annual report. The CHAIRMAN. Or a written copy, any kind of a copy?

Mr. LORD. As I say, Mr. Kanzler stood there, as I recall it, and he had various notes, sheets, and he took up one subject after another and read it and talked about it verbally.

Mr. PECORA. Is Mr. Kanzler here?
Mr. LORD. He is in town.

Mr. PECORA. Do you know where he is at the moment? I want him here this afternoon.

Mr. LORD. I will try to reach him. Do you want me to reach him now or this noon?

Mr. PECORA. Mr. Chairman, would you allow the witness to suspend just a few minutes? I would like to find out if Mr. Kanzler will be here this afternoon?

The CHAIRMAN. We will adjourn very soon now.

Mr. PECORA. You can do it at 12 o'clock when the committee will take a recess.

Now, do you recall an instance where, as a result of the consolidstion of two of the banking units of the Group, the capital structure of the consolidated corporation was reduced and à dividend of $2,500,000 in bonds was declared to the Group Co.?

Mr. LORD. I do, sir. Consolidation of the Guardian Detroit Bank and the Bank of Detroit.

Mr. Pecora. Yes. When did that take place?

Mr. Lord. My recollection is in the middle of 1930. (After referring to data.) I haven't the information right here. I think it was the middle of 1930. Do you want me to give the exact date?

Mr. PECORA. No. Mr. Chairman, that would involve considerable examination of this witness. It is 5 minutes of 12. I suggest we recess.

The CHAIRMAN. You spoke about Mr. Kanzler's coming on to Washington to negotiate the loan from the R.F.C. Did he get that loan?

Mr. LORD. It is a long story. He did not.
Mr. PECORA. I am going to go into that in detail, Mr. Chairman.
The CHAIRMAN. We will take a recess now until 2 o'clock.

Mr. PECORA. Will you be good enough to ask Mr. Kanzler to be bere?

Mr. LORD. Yes.

(Accordingly, at 11:55 a.m., a recess was taken until 2 p.m. of the same day.)

AFTER RECESS

(The subcommittee reconvened at the expiration of the recess at 2 p.m., Thursday, Jan. 4, 1934.)

The CHAIRMAN. The committee will come to order. Proceed, Mr. Pecora.

Mr. PECORA. Mr. Ernest Kanzler.

TESTIMONY OF ERNEST KANZLER, 2501 IROQUOIS AVENUE,

DETROIT, MICH.

The CHAIRMAN. You solemnly swear that you will tell the truth, the whole truth, and nothing but the truth, regarding the matters now under investigation by the committee. So help you God.

Mr. KANZLER. I do.

Mr. PECORA. Mr. Kanzler, will you give for the record your full name, address, and business or occupation?

Mr. KANZLER. Ernest Kanzler; residence, 2501 Iroquois Avenue, Detroit, Mich.; president of the Universal Credit Corporation, with addresses at 1700 United Artists Building, Detroit, Mich.

Mr. PECORA. Mr. Kanzler, were you connected, as an officer or otherwise, with the corporation called the Guardian Detroit Unior Group, Inc.?

Mr. KANZLER. Yes, sir. I was chairman of the board during the year 1932.

Mr. PECORA. Were you connected with that corporation as an officer or director from its inception?

Mr. KANZLER. Yes, sir. I was one of the organizers. Do you want me to sketch the history?

Mr. PECORA. Yes. Just give an outline of your connection with the company from its inception.

Mr. KANZLER. In 1926 I was interested in organizing a bank, which was later called the Guardian Detroit Bank, with five other gentlemen. This bank opened its doors in June 1927.

Senator COUZENS. That was under a State charter, was it not?

Mr. KANZLER. That was under a State charter, Senator Couzens, in June 1927. The bank was affiliated with the Guardian Trust Co. and the Guardian Detroit Co. I was the vice president of this institution and a director in the Trust Co., and in the company. I left the active operation in March 1928, but since that time, and up to February 11, I retained a directorship in several of the affiliated insti

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