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industry had very seriously affected conditions in Flint and in Jackson; that conditions were a little bit better in Kalamazoo, because the paper business had been rather satisfactory. I had commented on the fact that in Port Huron the situation was particularly difficult because of the fact that it was so easy for depositors to take money across the river and put it into Canadian banks. I commented on the general real estate situation involved in all units. I think that about represents it. There probably was some more said, but I do not recall exactly what it was.

Mr. PECORA. Mr. Kanzler, who prepared this document which has been marked in evidence as Committee's Exhibit No. 63 of this date?

Mr. KANZLER. Most of the text was prepared by myself. I asked for the figures from different individuals who were operating men in the group.

Mr. PECORA. Did you know whether or not, at the time you made this report to the stockholders on January 24 last, the group had incurred a deficit for the year 1932?

Mr. KANZLER. Are you speaking of the group as a group company, or of the banks and trust companies and affiliated institutions of the group?

Mr. PECORA. I am speaking of the group as a separate corporate entity.

Mr. KANZLER. I do not recall that I was particularly conscious of what the particular books of that one corporation showed. Any interest of the stockholders was in what their combined investment had done during the year, and that was the figure I was trying to give them. I did not think it was particularly important to know just what one of

the corporations in the group had done. Mr. PECORA. The stockholders to whom this report was made were stockholders only of the group, were they not?

Mr. KANZLER. Yes, sir.

Mr. PECORA. And, as such, do you not think they were interested in the financial condition of the group as a separate corporate entity?

Mr. KANZLER. I can only answer that by saying this, that we had prepared and had before our executive committee a form of the consolidated figures of all the banks and trust companies and all the affiliates and the Group Co., and we were publishing that because the stockholder then could see what the whole picture amounted to.

Mr. PECORA. Did you personally know, when you made this report at the last annual meeting of the stockholders of the group, whether or not the group, for the calendar year 1932, had done business at a net profit, or showed a deficit at the end of the year?

Mr. KANZLER. Mr. Pecora, I will have to answer that question this way. We did not pay any attention to the amount of dividends that might be received from group units to the Group Co., because we were not on a dividend-paying basis. The Group Co. paid no dividends. It was of no material moment at that time as to whether or not the cash position of the Group Co. was larger or less by reason of some dividends that either had been declared or had not been declared; and

Mr. Pecora. One moment. You said the Group Co. paid no dividends. You mean it paid no dividends during that year. Mr. KANZLER. No; at that time.

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another reason

Mr. PECORA. It did pay some dividends during the year 1932, did it not?

Mr. KANZLER. Yes, sir.

Mr. PECORA. Do you know what the aggregate amount of those dividends was?

Mr. KANZLER. I think it is stated in the report as something like $375,000.

Mr. PECORA. $375,134?
Mr. KANZLER. Yes, sir. That was the first quarter of 1932.

Mr. PECORA. Well now, can't you answer the question which I put to you before and which I think is rather simple and which I will repeat perhaps in another form: When, on January 24 last, you as chairman of the board of the Group made this annual report to the stockholders that were present, did you or did you not know that during the calendar year 1932 the Group as a separate corporate entity had incurred a deficit of $714,331.26, which included the carryover of deficits for the 2 preceding years amounting in the aggregate to $288,930?

Mr. KANZLER. In the way our reports were being made that was not material, to my mind.

Mr. PECORA. I have not asked you about its materiality or immateriality. I ask you if as a matter of fact you knew that during the calendar year 1932 the holding company or the Group had incurred a deficit in the amount stated?

Mr. KANZLER. The reason I am answering the way I am is because it never was material, and I do not know whether I ever saw a sheet showing a deficit or not, because of the manner of our keeping the books.

Mr. PECORA. Did you know whether or not the company had incurred a deficit for the calendar year 1932 when you made the annual report for that year to the stockholders at the meeting held on January 24, 1933?

Mr. KANZLER. I cannot say now, because I do not recall having placed particular emphasis on what the holding company position was.

Mr. PECORA. What was your purpose in making an annual report to the stockholders of the group if it did not include the purpose or object of stating to the stockholders whether or not their company, the group, the Guardian Detroit Union Group, Inc., had developed a deficit or a surplus for the year 1932?

Mr. KANZLER. The purpose was to tell them what the combination did, and that is what was told them.

Mr. PECORA. For the purpose of telling them what the combination did. Eliminate from your purposes that of telling them what the group as a separate corporate entity did on the whole.

Mr. KANZLER. Well, the Group Co. figures, whatever they were, were included in the consolidated figures. Nothing was eliminated. There was no deficit that was not stated if there was a deficit. There was no profit, if there was a profit, that was not stated in the combined figures.

Mr. PECORA. Have you a copy of committee's exhibit no. 63 of this date? That is this report or document that you handed me and which you say you read to the stockholders.

Mr. KANZLER. I just gave one away. I think I have another one here,

Mr. Pecora. Will you look at it, please?
Mr. KANZLER. Yes, sir.

Mr. PECORA. Look at it carefully. Point out to this committee anything therein stated which indicated in words or substance that the Guardian Detroit Union Group, Inc., for the calendar year 1932 had shown a deficit of any amount.

Mr. KANZLER. We stated this on page—I think it is marked "page 1":

That on the same basis and for the same period the consolidated net earnings
of the group companies, banks, trust companies and all other affiliated companies,
amounted to-
this figure.

Mr. PECORA. Where do you see that?
Mr. KANZLER. That is on page 1.
Mr. PECORA. I don't see it on page 1 of my copy.

Mr. KANZLER. Maybe if I can see your copy, Mr. Pecora, I can clarify that. (Pointing on Mr. Pecora's copy.s Beginning with that sentence.

Mr. PECORA. It is really page 3 of the document you handed me, although at the bottom of the page there appears the numeral 1.

Mr. KANZLER. That is right. I was looking at that when I said Page 1

Mr. PECORA. All right. Now read the portion that you said informed the stockholders of the group that they had a deficit for the year 1932.

Mr. KANZLER (reading): Ou the same basis and for the same period the consolidated net operating earnings of the group companies, banks, trust companies, and all other affiliated companies, amounted to $1,316,952.

Mr. PECORA. Is that the statement that you say informed the stockholders that the group operated at a deficit that year, or had a deficit at the end of the year?

Mr. KANZLER. That would include any operations of the Group Co., and if there had been a deficit or if there had been a profit that could have been included in that figure.

Mr. PECORA. Where is the language, figures, or statement of any kind here that by any manner of construction or interpretation that you choose to apply to the words used here, informs the stockholder that the group or the holding company showed a deficit at the end of the year 1932?

Mr. KANZLER. Mr. Pecora, I can only say this, that that was a clearing company and we did not show the exact earnings of some of the other affiliates here, because the whole picture was a consolidtaed picture, and we felt that whatever was material in the operations of a clearing company which could have been changed by the mere declaration of a dividend or by the transfer of some expense would have changed that figure. So it really was not a figure that the stockholder should have been or would have been interested in.

Mr. PECORA. Why do you think a stockholder would not have been interested in any figure or statement that would have informed him exactly to the effect that the company, the Group Co., for the year 1932, showed a deficit at the end of the year? Why didn't you consider that a thing that the stockholder of the Group Co. would be interested in?

Mr. KANZLER. For this reason: It might have been very misleading information. You might have had a subsidiary company making a great deal of profit and holding that profit, but simply not declaring it to the Group Co. Then to bring out a statement and say that the holding company was operating at a deficit because it had not transferred a dividend from a subsidiary company to a holding company and that for that reason it ran at a deficit, would not be telling an intelligent story.

Mr. PECORA. Do you think an intelligent picture of the financial condition of the Group Co. was conveyed to the stockholders through the medium of this report?

Mr. KANZLER. I think so, when taken in conjunction with the balance sheet.

Mr. PECORA. What balance sheet? Mr. KANZLER. Well, we had a balance sheet that we were to publish with this report.

Mr. Pecora. That you were to publish?
Mr. KANZLER. Yes, sir.
Mr. PECORA. Why wasn't it published?

Mr. KANZLER. Because the next day I took the train to Washington, and from that time on until 2 and 3 o'clock every morning we were engaged in the operations which finally led up to the holiday

Mr. PECORA. Those operations were necessitated by reason of the financial condition of the banks that were units of the Group, were they not?

Mr. KANZLER. They were occasioned by our desire to provide for the future of what we thought might happen in certain eventualities,

Mr. PECORA. And what you thought would be a proper provision for the future was the obtaining of loans?

Mr. KANZLER. Yes, sir.

Mr. PECORA. And you sought those loans from the Reconstruction Finance Corporation?

Mr. KANZLER. Yes, sir.

Mr. PECORA. And that was occasioned by the financial condition of the banking units of the Group?

Mr. KANZLER. No, sir; it was occasioned by the financial conditions throughout the whole State of Michigan, by the financial condition of institutions in the cities where we had units. Our units were in comparably better position than many of the units in cities where we were doing business, and in conjunction with Mr. Leyburn we had thought it was essential that we develop a position for this Group, so that regardless of what might happen economically or what might burst out, what flame might burst out somewhere in Michigan, we would have spinal column of banks that would maintain itself regardless of what happened.

Mr. PECORA. Is there anything set forth in this report which you made to the stockholders which reflected that that was the situation, the situation which prompted you the day after you delivered this report for the year 1932 to the stockholders, to rush to Washington to seek financial assistance from the R.F.C.?

Mr. KANZLER. Why, I think so, decidedly. We had told them about the experience we had just had in Port Huron. They knew the conditions throughout the State of Michigan. They knew how many

I was

banks had failed. These were the strongest, practically without exception the strongest, surviving units in every city.

Senator COUZENS. Including Detroit?

Mr. KANZLER. No. But stockholders there knew the Detroit situation. There was no need describing to them the condition in which the city found itself and that we were working day and night to keep the city bonds from going into default. The general conditions of the country were well known.

Senator COUZENS. You said a while ago that some of the units, or the units of some of your competitors or the other group, were worse off than you were and that you had the strongest chain, if I interpret your testimony correctly. Is it not a fact that some of your units were in equally bad condition?

Mr. KANZLER. Well, I don't know what you call in bad condition. Certainly there were some units that we wanted to make more liquid, because were there a run to start in some of those cities it is obvious that they would have had a difficult time.

Senator COUZENS. You made a comparison between the units of the other group. I assume there was only one other group?

Mr. KANZLER. No, sir; I did not mean it in that sense. making a comparison. If I may state an example: We might have a unit, we will say, in Saginaw. There might be other banks in Saginaw that might not be as strong as our units. Should there be difficulty in one of those other units, it would immediately react upon our unit, and therefore it was our desire and our purpose, and that was why we came to the R.F.C., to make that Saginaw unit-I am just using that as an example so powerful that it could withstand any difficulty in that particular city. Now, as a matter of fact, Saginaw we felt was such a strong bank that we did not ask for any assistance for it at all.

Senator COUZENS. What banks did you ask for assistance for?

Mr. KANZLER. I haven't a recollection of all that now, Senator. That is, I think, a matter of record.

Senator COUZENS. Where?

Mr. KANZLER. Oh, I think the R.F.C. must have all those applications.

Senator COUZENS. Did you not make an application for the Group as a whole and take securities from a number of your units to make up the aggregate security for the R.F.C.?

Mr. KANZLER. No, sir; that was not the original application.

Senator COUZENS. I am not talking about the original; I am talking about the final application.

Mr. KANZLER. Well, the final application it was a question of applying for a loan for a mortgage company. Senator COUZENS. Yes.

Mr. KANZLER. And the mortgage company was to receive assets from individual units throughout the State.

Senator COUZENS. That is the point I am trying to get at. What individual units throughout the State?

Mr. KANZLER. May I refer to a record that I have here?
Senator COUZENS. Yes; certainly.

The CHAIRMAN. Had the mortgage company been organized and was it operating, or were you going to organize one?

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