Mr. KANZLER. I cannot recall. I suppose so. Mr. PECORA. Why didn't you tell them that anyway, without waiting to be heckled? Mr. KANZLER. Because I do not think it represents a fair picture of the earnings. Those accruals were good accruals. I think the record will show that they were collected ultimately. Mr. PECORA. What were you prepared to tell a heckling stockholder on the subject of selling to employees, had you been asked? Mr. KANZLER. Well, there were some rumors about the street that we were selling a lot of stock to employees. Mr. PECORA. Was it true? Mr. KANZLER. No, sir. Mr. PECORA. Had any stock been sold to employees? Mr. KANZLER. Yes; some stock had been sold. I recall, when I was in the bank in 1927, we had sold some stock to the employees. Mr. PECORA. Is that what you were going to tell them, about something that happened in 1927? Mr. KANZLER. I do not remember just exactly what that note refers to, but it would probably have been as to whether or not we were selling stock to employees. Mr. PECORA. Would your answer have been in the negative? Mr. KANZLER. I would have told them that we were not selling any stock to the employees, and had no employees' plans at that time. Mr. PECORA. What would you have told them on the subject of loans to officers? Mr. KANZLER. That we had changed our bylaws some year and a half or two years before, which made it imperative not to lend any officer, as I recall it, and that any loans to directors had to have the consent of the board of directors. Mr. PECORA. What would you have told a heckling stockholder on the subject of Group Co. statements? Mr. KANZLER. I would have told him that in view of the fact that the banks and trust companies were kept on our books in the Group Co., at their capital structure, omitting their surplus and their undivided profits and their reserves, that that was simply a bookkeeping statement, and did not have any significance, and that, as to whether or not it showed an operating profit or loss, was simply a clearing corporation, for purposes of operation. Mr. PECORA. In other words, you would have evaded telling this heckling stockholder Mr. KANZLER. I would not have evaded. Mr. PECORA. Pardon me. Let me finish my question. I have asked you to tell us what you would have told a heckling stockholder about the absence of a Group Co. statement, and the answer you made suggests to me that you were not prepared, and would not have told a heckling stockholder, on that score, that a Group Co. statement would have shown a deficit. You would not, would you? Mr. KANZLER. I think you will find in our statement that you put in evidence, that there is a Group Co. statement which it was proposed to put in intelligent form, because I think that keeping our group units on our books at their capital, regardless of their surplus and undivided profits, was not a very practical way of keeping a statement for public consumption. Mr. PECORA. Won't you please answer the question simply? I will repeat it. Had you been heckled by a stockholder at that meeting on the subject of the absence of a Group Co. statement, were you prepared to tell such a heckling stockholder that a statement so made would have shown a deficit? Mr. KANZLER. Mr. Pecora, I do not recall exactly what was in my mind in making that note. It is a small note. It does not elaborate very much, and I do not know just exactly what the purport of that particular thing was, except I would have explained that the Group Co. statement, in itself, as it was kept, was a clearing statement, and had very little significance. Mr. PECORA. What would you have told a heckling stockholder if he had asked you the question "Are they progressing?" What do you mean by that? Mr. KANZLER. I would have told him they were very progressive. I would have talked about the liquidity we had achieved in the various units. Our chart showed that our units had passed many other competitor banks in unit cities, and I would have told him that decidedly our organization was fighting and was at war with the depression. Mr. PECORA. Was that a stock phrase that somehow or other all officers and directors of the group learned to use, the one about fighting a war against the depression? The reason I ask is because both Mr. Lord and Mr. Patterson have used it in their testimony before the committee. Mr. KANZLER. I think it was very generally used. I think Senator Couzens used it. I think we have all used it. Mr. PECORA. What would you have told a heckling stockholder if he had asked you about the R.F.C.? Mr. KANZLER. I would have told him, as I recall it, that we were borrowing, in the trust company, a certain amount, and in our banks a certain amount, and I think the total was something around $13,000,000. Mr. PECORA. Why didn't you tell the stockholders that without waiting to be heckled on that subject? Mr. KANZLER. It was published in the newspapers. Mr. PECORA. How do you know your stockholders had read the newspapers? Mr. KANZLER. Mr. Pecora, I can assume that they are reading the newspapers, and I did not think it was up to me to get up there and say, "Gentlemen, I want you to know that one of the important things is that we are borrowing from the R.F.C." Mr. PECORA. In the notation you made on the last page of Exhibit No. 63, referring to this R.F.C. notation, you have three sets of numerals, one under the other, reading as follows: "13; 9.4; 35.” What do they refer to? Mr. KANZLER. I think those were the borrowings of the various banks from the R.F.C. I think those are the figures I just quoted.. Mr. PECORA. Had those borrowings been made at that time? Mr. KANZLER. Oh, yes. Those were published. Mr. PECORA. Borrowings of nearly $55,000,000-more than that. Mr. KANZLER. No, sir; $13,000,000, I think it was. Mr. PECORA. Here are the figures, 9.4 and, underneath, 35. 175541-34-PT 925 Mr. KANZLER. No: that is 3.5. The CHAIRMAN. I thought the only borrowing was by the trust company. Mr. PECORA, I do not see any point in the figure "35" unless my eyesight is failing. Mr. KANZLER. The facts are, Mr. Pecora, that they were borrowing $3,500,000. I beg your pardon, Mr. Chairman? The CHAIRMAN. I thought the only borrowing was by the trust company. Mr. KANZLER. No, sir. Several of the other units were borrowing from the R.F.C. in lesser amounts. The substantial loan was to the trust company. Senator COUZENS. I am curious to know, Mr. Kanzler, why you did not apply for a loan in January or February of 1931, or January or February, of 1932, in view of the fact that you state that your conditions were much better in January 1933. I am curious, because you say you were progressively getting better, and over those years you had not asked for a loan. In view of the fact that you were progressively getting better, you asked for a loan? Mr. KANZLER. Senator Couzens, the exposures in 1932 was very much greater than the exposure in 1931. You might have a better bank in 1932, but it would go down if a competitor bank went down, even though the year before, when all banks were in perhaps worse condition, none of them would have had a run, and you would have been able to survive. Conditions were getting awful in Michigan. Senator COUZENS. I understood they were, and that is the reason for your applying, in 1933, because of the condition of your competitive banks, rather than your own condition? Mr. KANZLER. We were afraid runs would start. We had just had the experience in Port Huron. We had become, 100 percent, the only bank in Port Huron. We had become the only bank in Ionia. We were practically the only bank in Lansing. We had to take over the other bank in Lansing. As a matter of fact, in Michigan there was a system developing whereby the directors were passing by-laws, and under those bylaws they did not pay their depositors. They just decided that if somebody came in and said "Here, cash my check, they would say "What do you want it for?" and if they did not think he should have had the money, they did not let him have it. Under those circumstances our banks were standing up there and paying 100 cents on the dollar to anybody that asked for it. The CHAIRMAN. We will take a recess now until 10:30 tomorrow morning. Mr. PECORA. The witnesses in attendance will return tomorrow. (Whereupon, at 4:45 p.m., Thursday, Jan. 4, 1934, the subcommittee adjourned to meet tomorrow, Friday, Jan. 5, 1934, at 10:30 a.m.) COMMITTEE EXHIBIT No. 64, JANUARY 4, 1934 (This exhibit appears only in the committee's copy of the transscript.) (This exhibit is a mimeographed copy of a 6-page report addressed "To the Stockholders, Guardian Detroit Union Group," referred to by witness Kanzler in his testimony as a draft of report.) To the Stockholders, Guardian Detroit Union Group. The liquidity of our banking institutions has continued to improve, notwithstanding the conditions existing in the year 1932. The cash position of our banks and trust companies on December 31, 1932 totaled $100,079,745.74 in Cash and U. S. Government Securities against total deposit liabilities of $290,075,462.10. While bettering their liquid position, our banks have at all times continued to render constructive, helpful service to customers and have played an important part in encouraging industry in maintaining employment and in rendering distinct assistance and cooperation to their respective communities. The pursuance of this sound policy of looking first to the stability and liquidity of our banks and trust companies necessarily affected our earning power-for liquidity can be maintained only at the expense of profits. For the year ending December 31, 1932, the consolidated net earnings of the Group Co., banks, trust companies, and all other affiliated companies, after all expenses of operation, taxes, depreciation, and losses on securities sold, but before reserves, amounted to $1,316,952.00, equivalent to 85¢ per share on the 1,544,844 shares of stock outstanding (par value $20.00). Dividends paid during the year amounted to $375,134.00. Conservative policies required discontinuance of dividends during the second quarter of 1932. Remaining earnings of $941,818.52 together with recoveries of $1,031,005.93 plus sums taken from capital, surplus and undivided profits accounts in an amount of $8,966,932.17 totaling $10,939,756.62 were transferred to Reserves. The book value of group stock computed on the basis of the aggregate Capital, Surplus and Undivided Profits as reflected by the statements of the unit banks and trust companies, but not including Reserves, plus the net worth of the group and other affiliated companies at market prices of securities on December 31, 1932 amounts to $20.72 per share. The policy of liquidating securities affiliates which was initiated in 1931 has been continued during 1932 in an orderly manner. During 1932 securities carried on the books at $1,712,821.68 were sold with a resultant net loss of $42,201.91. A consistent effort has been made to liquidate only the least desirable holdings. On December 31, 1932 the aggregate market value of securities owned by these companies was $5,688,797.10. Rigid economies of operation were continued during the year with outstanding results. Expenses of operation for the year 1932, exclusive of interest paid depositors, were 25% less than for the year 1931. To effect further operating economies, the Grosse Pointe unit, the Guardian Bank of Grosse Pointe, was merged with the Guardian National Bank of Commerce on December 31, 1932. There was a substantial increase in the number of shareholders during the last year. There are now 9,697 shareholders compared with 8,945 on December 31, 1931. Ownership of large holders of stock remained practically unchanged during the year. Perhaps never in the history of banking has more been demanded of directors, officers and staff than in the past year. We wish to take this occasion to express our appreciation for the effort, loyalty and cooperation which has been shown. We also take this opportunity to thank our shareholders for their splendid support during the year 1932 which has resulted in increasing the amount of business directed to units of the Group. It is a privilege to call upon you during 1933 for a continuance of this confidence. The preeminence of the Guardian Detroit Union Group, Inc. as a vital factor in the economic and financial existence of Michigan becomes impressive when one considers the outstanding men representing its affiliated institutions as directors. With these contacts there can be no economic development of Michigan's industries without a direct reflection of such prosperity within our institution. Respectfully submitted. (ERNEST KANZLER) Chairman of the Board. (ROBERT O. LORD) President. Consolidated balance sheet, Guardian Detroit Union Group, Inc., including banks, trust companies and other affiliated companies December 31st 1932 NOTE. In the above statement all inter-company accounts have been eliminated. Among these are deposits $13,464,857.13 carried by affiliated companies and banks in the transaction of regular business with other unit banks of the group. Aggregate resources and liabilities of banks and trust companies affiliated with Guardian Detroit Union Group, Inc. December 31, 1932 |