loan on the slower assets of some units of the Group for the purpose of making certain that under even the most stressing cirsumstances that might develop, all of these units could continue their operations and preserve and protect the deposits of their thousands of depositors throughout the State. The trust company was to be taken out of the banking business entirely and its real estate was to be gradually liquidated and its future business was to be strictly and solely that of a trust and fiduciary company and nothing more. In preparing this application to the Reconstruction Finance Corporation, Mr. Leyburn cooperated with us. In fact, the plant presented was as much Mr. Leyburn's as it was ours. He personally participated in all conferences we had with the Reconstruction Finance Corporation and in our presence advocated the plan. He advised us that in presenting his own views to the Reconstruction Finance Corporation Board in private session without presence on February 7, he strongly recommended the plan. In setting up this application and in selecting the type of security to be offered, we were also counseled by Governor Talley, head of the bank division of the Reconstruction Finance Corporation in Washington. We had available more liquid assets as collateral to the loan, but at the time of our first visit to the Reconstruction Finance Corporation, we were advised to select and offer the slower, nonliquid type of collateral, so that after the loan had been granted, there would remain in the units, substantial further capacity to develop additional liquidity if necessary, through the regular means of the Federal Reserve and correspondent banks. At the time of the stockholders' meeting, we had also observed the assistance rendered by the Reconstruction Finance Corporation to other banks and trust companies. We believed that the Reconstruction Finance Corporation, organized for the purpose of rendering the assistance that was being asked, would be ready and willing to come forward with such an advance when our application was formally acted upon. Up to that time our banks, and, in fact, all of the banks in the State of Michigan, had sought comparatively little help from the Reconstruction Finance Corporation, considering the total amount of the deposits in the banks in Michigan as compared to the total deposits in any other section of the country, or the country as a whole. The banks in the State of Michigan had, I believe, received only a very small percentage of aid from the Reconstruction Finance Corporation compared to that given to banks throughout the United States. We believed then, and we believe now, that the loan should have been granted. The application to the Reconstruction Finance Corporation speaks for itself. We were preparing for every future contingency. The potential seriousness of the nonliquid condition of the Union Guardian Trust Co. could not be overemphasized to the Reconstruction Finance Corporation. If future events should cause the trust company to exhaust its liquid funds, we were fearful that without the proper help at that time there would be "runs" on the other banks, and unless assistance was immediately forthcoming the banking system of the State of Michigan, and perhaps of the entire country, would be paralyzed. Prior to this time, directors had given most generously of their own funds to strengthen the liquid position of the unit banks. Moreover, the application to the Reconstruction Finance Corporation included, if necessary, the subordination of up to 7%1⁄2 million dollars 175541-34-PT 24 of deposits in the trust company, and additional group-owned assets, so that all the remaining deposits in the trust company could be paid in full from the proceeds of this loan. The board of the Reconstruction Finance Corporation was willing to lend 371⁄2 million dollars, but 43%1⁄2 million dollars was necessary. Six million dollars would have kept these institutions from closing. As a result of closing them, the added welfare contributions required from the Reconstruction Finance Corporation and the loss of income from the State of Michigan alone, to say nothing of the direct loss to the Government due to the closing, will amount to many, many times more than that 6 million dollars. Nine of our former units have been reopened and are doing business. Mr. PECORA. You say in your prepared statement business 100 percent." Mr. KANZLER. I am sorry. 'are doing Mr. PECORA. Do you want to eliminate that 100 percent? Mr. KANZLER. Nine of our former units have been reopened and are doing business 100 percent. I would venture to say that no national bank in the United States being liquidated by a receiver at this time has made a showing comparable with that of the Guardian National Bank of Commerce, the largest unit. These facts, together with the results of the liquidation of other units even under the adverse circumstances of receiverships, offer positive proof of the soundness of our view of the situation at the time of our application. That this loan was not granted, to my way of thinking, is a great tragedy. In conclusion, therefore, let us say that if you review the remarks made at the stockholders' meeting, and the application made to the Reconstruction Finance Corporation, which was prepared about the same time and 'revised shortly thereafter, in the light of the conditions as they then existed, I believe that you will find the statements in both of them fully justified by the facts. My own confidence in the situation is best indicated by the fact that from January 24, 1933, the date of the stockholders' meeting, to February 11, 1933, the last day the Guardian National Bank of Commerce was open for business, deposits of companies of which I am president, increased $2,095,000. Mr. PECORA. When did you prepare this statement? Mr. KANZLER. In my office. Mr. PECORA. When? Mr. KANZLER. Since I was here the last time, I mean in Washington. Senator COUZENS. That was about December 23 or 22, wasn't it? Mr. KANZLER. Yes, sir; I think so. Mr. PECORA. When you prepared this statement did you antici pate that you were going to be questioned about the annual report you made to the stockholders of the group on January 24 last, and the statement that you made to the Board of the Reconstruction Finance Corporation 2 weeks later? I began to see that we were not going to be able to express and portray the conditions under which we were then operating, and I felt-when I say, we were not going to be able to, I mean, speaking extemporaneously on the witness chair, and I felt that I ought to prepare what the facts were so that they would be considered in an orderly manner. Mr. PECORA. When you prepared this statement was there some apprehension in your mind that anyone comparing your annual report to stockholders of January 24 last with the statement you made on February 6, last, to the Reconstruction Finance Corporation, would find an inconsistency between them? Mr. KANZLER. No, sir; I thought it would be a reasonable question that would come up. Mr. PECORA. Did you anticipate that anyone reading those two statements would find an inconsistency therein? Mr. KANZLER. NO; I thought that the position should be explained. Mr. PECORA. At the very outset of this prepared statement which you have just read into the record you say: It might appear that certain remarks made to the stockholders at the annual meeting and the preliminary draft of the annual report in preparation for sending to stockholders seem to be inconsistent with statements contained in the Reconstruction Finance Corporation application. So apparently you did fear that somebody, in comparing the two statements, might see an inconsistency between them. Mr. KANZLER. I thought that somebody not fully familiar with the facts might think that there was an inconsistency. Mr. PECORA. Do you say there is no inconsistency? Mr. PECORA. No inconsistency in saying to the stockholders of the Group, for instance, among other things, that "The year 1932 was a year of notable improvement on the subject of the safety of funds which our depositors have intrusted to us"; or in saying that "Despite the generally depressed 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 deposit liabilities of $290,000,000"; or in saying, "While bettering their liquid position our banks have at all times sought to render constructive, helpful service", and so forth; or in saying, "Actual results, however, have developed an understanding in many quarters of the effectiveness of group banking as conducted and have made for our units many new friends and an enhanced reputation"? Mr. KANZLER. Mr. Pecora, I cannot recall all of the details of that situation, but Mr. PECORA. I am reading to you certain extracts from your report to the stockholders. Mr. KANZLER. Yes. Mr. PECORA. You say that is not inconsistent with the statement to the Reconstruction Finance Corporation, in saying to the Reconstruction Finance Corporation Board on February 6, last, that $20,500,000 would be required to liquidate deposits of the Union Guardian Trust Co. of Detroit but that the assets which they could offer as security for such loan would have a face value of only about $6,000,000? Mr. KANZLER. Mr. Pecora, that is after the R.F.C. with a corps of 15 men had been working day and night over these assets. There were 10 or 12 million of assets that the R.F.C. never looked at. It was this $6,000,000 that they said qualified and there were 12 million of assets besides. What we were doing in that case was taking the Trust Co. entirely out of the banking business. That was the deposit liability of the Trust Co. Senator COUZENS. You say the R.F.C. examiners did not examine the other 11 or 12 million dollars? Mr. KANZLER. Did I say they did not examine it? Mr. KANZLER. I misspoke myself. They did not accept it. It did not qualify under their various rules which I do not know. I think some of them were advances to trusts and things of that kind. They were receivables. Senator COUZENS. Do you say now that they did qualify? Mr. KANZLER. No; I say they did not qualify under the rules of the R.F.C.; but that does not mean that they were not assets. Senator COUZENS. But I mean, do you think that they did qualify? Mr. KANZLER. I think Mr. McKee was a capable man, and when his examiners decided they did not qualify, they probably did not qualify. Mr. PECORA. According to the minutes of the meeting of the board of the R.F.C. on February 6, last, you admitted that there was a considerable gap between the value of the collateral which could be pledged and the amount of the loan desired. Mr. KANZLER. That is somebody else's language. Mr. PECORA. Did you not say anything like that in words or substance? Mr. KANZLER. The only thing that I know is the facts- Mr. PECORA. Did you say anything like that in words or in substance? Mr. KANZLER. That there is a gap? Mr. PECORA. A considerable gap? Mr. KANZLER. I do not know whether I said that or not. Mr. PECORA. A considerable gap between the value of the collateral which could be pledged and the amount of the loan desired? Mr. KANZLER. I do not know whether I said that. That is not my language. I don't know who said that. I can state the facts, if you are interested in them, Mr. Pecora. Senator COUZENS. I am curious to know how that got into the minutes of the Reconstruction Finance Corporporation if you did not say it. Mr. KANZLER. Well, I can't tell you that. I can tell you the facts, which are very clear, and they are right in this application which I just read. Mr. PECORA. Did you say this, in words or substance, to the Board of the Reconstruction Finance Corporation on February 6, last [reading]? Mr. Kanzler stated that they would be willing to proceed along that line despite the fact that they had been fearful of laying the situation before even a few of the largest corporation depositors or the directors of the Union Guardian Trust Co. because of the danger of knowledge of the situation spreading with resultant withdrawals of deposits. Did you say anything like that to the R.F.C. last February? Mr. KANZLER. After the R.F.C. examiners were in Detroit and they appraised the assets on that basis and we were being asked to secure subordination, it was in reply to that, if any such statement was made, namely, that we could not go to the national corporations which had deposits in the Union Guardian Trust Co., which also had deposits in our various units of the bank, and say, "Will you please subordinate some of these deposits, because if we get enough maybe we can get an R.F.C. loan." I think that would have been a very dangerous situation, and we did not dare to do it. Senator COUZENS. Who were present at the meeting when you were alleged to have made the statement? Mr. KANZLER. I think the whole board, Senator Couzens-Mr. Leyburn, Mr. McKee, Mr. Longley Mr. PECORA. Who was Mr. McKee? Mr. KANZLER. In the absence of Governor Tally, who was ill, Mr. McKee was in charge of bank loans for the R.F.C.; and Governor Tally thought that this was so important that he immediately sent Mr. McKee, who returned with us the day after we were in Washington, and he came to Detroit on a Saturday and we worked incessantly about 18 hours a day preparing these schedules; that is, the scheduling was under the supervision of some of the active officers of the institution. Senator COUZENS. Who else was at the meeting? Mr. KANZLER. I think, Senator Pomerene, Ogden Mills, Judge McCarthy, Mr. Miller, president of the Reconstruction Finance Corporation; and there was a rather long table, and on both sides of it there was a group of individuals whose names I do not recall. Senator COUZENS. Who took down the record of your statements? Do you know? Mr. KANZLER. I have no idea. The CHAIRMAN. As a matter of fact, there was a gap in the amount of the loans and securities, was there not? Mr. KANZLER. The gap was the $6,000,000, Senator Fletcher, that we were asked to provide. Mr. PECORA. What was the loan that you asked for $65,000,000, was it not? Mr. KANZLER. I think we asked for an additional $48,000,000 or $49,000,000, and that involved all the banks and trust companies in the State, and that was done Mr. PECORA. You asked for a total of $65,000,000, did you not? Mr. KANZLER. No; $14,000,000 had already been granted, so we asked for the difference between the two. The CHAIRMAN. What was the total amount you asked for? Mr. PECORA. In other words, what was the total that you had received and what did you ask for additionally? Mr. KANZLER. We asked for approximately $50,000,000 additional. We had approximately $15,000,000 at the time. Mr. PECORA. So this figure of $65,000,000 is accurate, is it not? Mr. KANZLER. Yes. I do not want to quibble about that. Incidentally in that connection we were told by Governor Tally, "If you are going to make a loan of this size or anywhere near this size "this was when we were down in the first instance-he said Be sure that you ask for a sufficient amount of money, because we would be very unhappy if we thought there should be relief given to those 24 banks and trust companies and should find that you did not do this thing adequately and should find that we failed in our purpose. |