That made a total of $14,100,000. Then there was an additional loan asked for the Union Guardian Trust Co. of $13,077,000. They already had a loan or a commitment of $14,000,000. The combined total for the trust company would have been $27,800,000. I am giving more or less round figures.

For this collateral had already been pledged of $31,790,000, and additional collateral of $6,300,000 was being offered, which was accepted by the R.F.C.

In addition to that collateral the Group Co. offered $898,000 of marketable securities and its building, the Union Guardian Building, in which it had an equity of $4,100,000, and all its assets in the Congress Corporation, which had some but uncertain value, which, while their face was million five, that is not a representative figure as to what they were worth. They were worth less than that. They were worth very much less than that, because of items which had been lifted out from the various banks by the Group Co.

That made a total loan required of $41,000,000, and this collateral, including that 4 million five of the Congress Corporation, was $67,947,000.

This loan was offered us on condition that we raise 2 million dollars for the capital of a mortgage company and an additional $4,218,000. Senator COUZENS. What was that additional for, in cash?

Mr. KANZLER. That was cash, yes; to further secure this loan. Senator COUZENS. Was there any other promise made to the R.F.C. as security for the loan?

Mr. KANZLER. No, sir; not that I know of.

Senator COUZENS. What did the R.F.C. value that at, the amount of the offer, 37 millions plus?

Mr. KANZLER. They offered $37,720,000.

Senator COUZENS. And that is what they valued the security at, is it?

Mr. KANZLER. That is the loan value that they attached.

Senator COUZENS. Yes; that is what I mean.

Mr. KANZLER. Yes, sir.

The CHAIRMAN. That is to all trust companies, banks in the Group, all together?

Mr. KANZLER. Yes, Senator Fletcher. We never knew how much loan value they would put up against, for instance, this item or that item or another item. We were just told that the total that we had offered had a loan value of $37,720,000.

Senator COUZENS. Was there not at that time discussed the subordination of some large deposits?

Mr. KANZLER. Yes, Senator Couzens; that is included in this figure that I have here.

Senator COUZENS. For the Union Guardian Trust Co.?

Mr. KANZLER. Yes, and when I say the Union Guardian Trust Co. asked for a certain amount, that subordination is included.

Mr. PECORA. Mr. Kanzler, in the preparation of this report which you read to the stockholders at the last annual meeting of the Group this report was calculated to give the stockholders a rather pleasing and confidence-inspiring picture of the situation, wasn't it?

Mr. KANZLER. Well, I don't think we inspired their confidence by telling them that we just had a run in Port Huron particularly. I think we tried to tell them about what the conditions were.

Mr. PECORA. Well now, among other things, you said:

The safety of funds which our depositors have entrusted to us is paramount to every other consideration. From this viewpoint 1932 was a year of notable improvement.

Had it been a year of notable improvement in that respect?

Mr. KANZLER. It certainly had. We had increased the liquidity of the Guardian National Bank of Commerce from 30 percent to 40 per

cent.

Mr. PECORA. Yes.

Mr. KANZLER. We had been very highly complimented on that That certainly was a notable improvement. In other units, the exact conditions of which I cannot recall right now, there had also been great improvement. It is obvious, of course, that the depression was not getting any better. The depression was getting worse, and everybody knew it.

Mr. PECORA. But you were improving your condition according to this report?

Mr. KANZLER. I think by comparison with what was going on we certainly were improving; our operations were improving.

Mr. PECORA. No, not by comparison with what was going on, but by comparison with the preceding year, had the safety of the funds of the depositors, the various banking units of the group, been improved over the preceding year?

Mr. KANZLER. Certainly you improve the safety of the funds of the bank when you improve it from 30 to 40 percent.

Mr. PECORA. Had they been improved?-is what I am asking you. Had the safety of the depositors' funds been improved for the year 1932 over the preceding years?

Mr. KANZLER. I think there was a great improvement from the consideration of the safety of funds which our depositors entrusted to

us.

Mr. PECORA. Where was that improvement manifest?

Mr. KANZLER. It was manifested in the greatly increased liquidity of some of our units.

Mr. PECORA. How about all of the units as a whole? You were referring in this report to the safety of the funds in all of your banking units, were you not?

Mr. KANZLER. I did not refer-I admit that we had not done as well in the city of Dearborn where we had passed by another bank. I did not try to make this figure specific for every institution.

Mr. PECORA. You tried to give the general picture of the situation of all of the unit banks in the Group?

Mr. KANZLER. Yes, and I enlarged on it in my remarks with the charts.

Mr. PECORA. Yes, but in this portion, which is the only portion reduced to writing and of which we have an authentic record, you were referring to the safety of the funds of the depositors of all of the bank units, were you not?

Mr. KANZLER. Yes, sir.

Mr. PECORA. Now, considering the safety of those funds in all of the banking units as a whole, had their safety been improved during the year 1932 over the preceding year?

Mr. KANZLER. I felt we had done-it was a notable improvement all along the line.

Mr. PECORA. You mean the actual safety of all the depositors' funds had shown an improvement over the safety of those deposits for the preceding year, do you?

Mr. KANZLER. I Would say so.

The CHAIRMAN. Had your deposits increased?

Mr. KANZLER. No, sir; our deposits had declined.
Mr. PECORA. Now you say also in your report:

Despite the general adverse business conditions which prevailed, no less than $100,000,000 of assets of our banks and trust companies are held as cash or invested in United States Government securities against aggregate deposit liabilities of $290,000,000.

In that statement of the cash or Government securities assets of the banks, the banking units of your group, in that estimate of a hundred million dollars as the value of such assets did you include the Government bonds or securities which were pledged?

Mr. KANZLER. Yes, sir.

Mr. PECORA. How many of them were pledged and in what amount? Mr. KANZLER. I don't believe I can tell you.

Mr. PECORA. That is not something to be taken into account in determining the liquidity of the bank. Don't you deduct the pledged securities for the purpose of determining liquidity?

Mr. KANZLER. Well, these figures were compared with the preceding year, and they showed a great improvement.

Mr. PECORA. Well, that does not answer my question, Mr. Kanzler.

Mr. KANZLER. Well, Mr. Pecora, there are limitless ways of determining liquidity.

Mr. PECORA. Isn't that one of the ways?

Mr. KANZLER. That is one way.

Mr. PECORA. And isn't it a safe and sound way and an honest way?

Mr. KANZLER. Well, I think it is a great improvement. I think banks now for the first time are publishing statements showing pledged Government securities.

Mr. PECORA. Whether they are publishing them now for the first time or not, isn't it the safe, sound, and honest way of determining liquidity of a bank?

Mr. KANZLER. I think banks generally are improving their state

ments.

Mr. PECORA. That still does not answer my question, Mr. Kanzler. Let me put it in another way: In this report to the stockholders of the group you attempted or purported to present to them a picture of the operations of the banking units of the group as a whole for the year 1932, didn't you?

Mr. KANZLER. Yes, sir.

Mr. PECORA. And in that report you included a statement which meant in substance that the liquidity of the banks had improved during the year 1932 over the preceding year, didn't you?

Mr. KANZLER. The liquidity of the banks and trust companies as

a group.

Mr. PECORA. Now, Mr. Kanzler, as evidence of the liquidity of the banking units of the group you have stated in this report that

Not less than 100 million dollars of assets of the banks and trust companies are held as cash or invested in United States Government securities against an aggregate of deposit liabilities of 290 million dollars.

And you did not in that estimate of 100 milliom dollars of cash and Government assets eliminate the Governemt bonds that were pledged, did you?

Mr. KANZLER. Not as compared to the preceding year. And that is the way you get your improvement. But it was common practice for us to look at our liquidity in that way. And everybody looked at it in that way. And the only way to get a comparison was to see what you had done before, and on the basis of what we had done before, and what everybody had done before, it had improved, and that is what we tried to state.

Mr. PECORA. Did you know how liquid your banks were when you included in the assets of the banks those Government securities which were pledged?

Mr. KANZLER. Mr. Pecora, when you ask me whether I personally know, of course I don't know. I never made any entries. I was not an operating man. We had an operating department, and they gave me figures in response to my questions, which I believed were reasonable and were thoroughly reliable. I had my regular business, and I would come and spend a good deal of my time attending to this business.

Mr. PECORA. To which business, your regular business?
Mr. KANZLER. No; to this business.

Mr. PECORA. Do you mean the group business?

Mr. KANZLER. Yes, sir. I did everything I could to try to help it along. Among the things I would do would be to ask questions about matters like this; and, quite naturally, I did not go through all the units to see whether any accounts were kept one way or another. I had to rely on the figures they gave me, and I believed them to be

true.

Mr. PECORA. You knew that in that figure of 100 million dollars of cash and Government securities as assets, there was included Government securities which had been pledged by the various unit banks. Mr. KANZLER. Well, we were making a comparison, and they had been included the year before.

Mr. PECORA. But you knew at this time that they were included in this statement of 100 million dollars cash and Government securities as assets?

Mr. KANZLER. Oh, yes. I knew that they were included.

Mr. PECORA. In this report you further stated to the stock holders:

While bettering their liquid position our banks have at all times continued to render constructive and helpful service to customers, and have played an impor tant part in encouraging industry to maintain employment, and have rendered distinct assistance in cooperating with their respective communities.

And in this statement you also make some mention of the fact, or what you stated to be a fact, that the unit banks had bettered their liquid position during 1932.

Mr. KANZLER. Yes, sir. I said this, as it shows, that as a group they were more liquid.

Mr. PECORA. Now, it was your purpose in compiling the figures embodied in your annual report to the stockholders to present a true and accurate picture, wasn't it?

Mr. KANZLER. Yes.

Mr. PECORA. And to give nothing that would be misleading.

Mr. KANZLER. There was nothing misleading.

Mr. PECORA. But I ask, that was your purpose, wasn't it?

Mr. KANZLER. Yes, sir.

Mr. PECORA. Now, you then say as follows, in this report:

for

The pursuance of this sound policy of looking first to the stability and liquidity of our banks and trust companies, it necessarily affected our earning power, liquidity can be maintained only at the expense of profits.

Wasn't that true during the years 1930 and 1931 also, namely, that liquidity could be maintained only at the expense of profits?

Mr. KANZLER. I would say so.

Mr. PECORA. Then why was it that during those years, 1930 and 1931, as appears from considerable evidence, documentary and otherwise, that has been introduced before this committee, the Group was urging the banks, or suggesting to the unit banks, the payment of dividends which could only be paid by dipping into the capital funds of the banks?

Mr. KANZLER. Only, as I see it now, because it was considered the wisest thing to do in the light of all the circumstances.

Mr. PECORA. Then you say in your annual statement as follows: For the year 1932 the operating earnings of the banks and trust companies in the group, after all expenses of operation, taxes, depreciation on banking houses, and equipment, and losses on securities sold, but before reserves, were $2,919,443. On the same basis and for the same period the consolidated net earnings of the member banks and trust companies, and all other affiliated companies, amounted to $1,316,952.

Now, in estimating or determining the amount of the net operating earnings of the Group Co. and all of its banking units and affiliates, was there any deductions made for reserves, and for mark-offs and write-offs?

Mr. KANZLER. In estimating earnings?

Mr. PECORA. Net operating earnings, which are stated to have been $1,316,952.

Mr. KANZLER. No, sir; I think not.

Mr. PECORA. Do you think that gives an accurate picture of the net earnings, without first deducting reserves, write-offs and markoffs?

Mr. KANZLER. Well, it was stated as being before reserves. But I might say, Mr. Pecora, that these paragraphs were given to me complete by our operating staff.

Mr. PECORA. I am asking you if you think that is the proper way of presenting an accurate picture.

Mr. KANZLER. Well, in those times everybody knew that there would be plenty of items that had to be written off.

Mr. PECORA. Everybody didn't know any such thing, because neither you nor I nor anyone else can tell what anybody else knew. That is so, isn't it? Aren't you assuming too much when you are assuming to tell this committee, or even to tell yourself, what everybody else knew?