The subcommittee met at 10 a.m., pursuant to adjournment on yesterday, in room no. 301 of the Senate Office Building, Senator Duncan U. Fletcher presiding. Present: Senators Fletcher (chairman), Adams, Townsend, and Couzens. Present also: Ferdinand Pecora, counsel to the committee; Julius Silver and David Saperstein, associate counsel to the committee; and Frank J. Meehan, chief statistician to the committee; Thomas G. Long, attorney for witnesses summoned in connection with Detroit Bankers Co.; Clifford B. Longley, attorney for John Ballantyne. The CHAIRMAN. The subcommittee will please come to order. Mr. Pecora, who will you have first? Mr. PECORA. Mr. Chairman, this is the beginning of the hearings in connection with the Detroit Bankers Co. I will call Mr. Ballantyne as the first witness. The CHAIRMAN. Mr. Ballantyne, will you please come forward to the committee table, stand, hold up your right hand, and be sworn? 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. BALLANTYNE. I do. The CHAIRMAN. Just take a seat there opposite that microphone on the committee table. TESTIMONY OF JOHN BALLANTYNE, 1750 BALMORAL DRIVE, DETROIT, MICH., PRESIDENT OF MANUFACTURERS' NATIONAL BANK OF DETROIT AT THE PRESENT TIME Mr. PECORA. Mr. Ballantyne, will you give your full name, address, and business or occupation? Mr. BALLANTYNE. My name is John Ballantyne. I reside at 1750 Balmoral Drive, Detroit, Mich. My occupation at the present time is president of the Manufacturers' National Bank of Detroit. Senator COUZENS. Mr. Longley, are you attorney for Mr. Ballantyne? Mr. LONGLEY. Yes, sir. Mr. BALLANTYNE. How was that, Senator Couzens? 5057 Senator COUZENS. I asked Mr. Longley if he was your counsel. I thought he was counsel for the Guardian-Detroit people. Mr. BALLANTYNE. Well, I have new counsel. Mr. PECORA. Mr. Ballantyne, were you connected with a company known as the "Detroit Bankers Co."! Mr. BALLANTYNE. Do you ask, was I? Mr. PECORA. Yes. Mr. BALLANTYNE. Oh, yes. Mr. PECORA. When was that company organized? Mr. BALLANTYNE. It was organized, or rather was formed on January 8, 1930. Mr. PECORA. Under the laws of the State of Michigan? Mr. BALLANTYNE. Yes. Mr. PECORA. Was it organized as a holding company to acquire, hold, and own stock of banking institutions and other corporations! Mr. BALLANTYNE. No. Well, now, I would have to know the law on instruments to be able to answer that, and I do not know the law. Mr. PECORA. Well, you can tell me whether Mr. BALLANTYNE (continuing). As a matter of fact, Mr. Pecora, at that time, let me say, so you may have the genesis of this matter: This operation was discussed for years almost before I knew anything about it. Mr. PECORA. Do you mean that the organization of the company was discussed for a year before its actual incorporation? Mr. BALLANTYNE. Oh, I think so, all of that time. Mr. PECORA. Did you participate in any of those discussions? Mr. BALLANTYNE. No; I didn't know a thing about it until the fall of 1929. Mr. PECORA. The fall of 1929 was prior to the incorporation of the company, wasn't it? Mr. BALLANTYNE. Yes. Mr. PECORA. Did you from that time up to January 8, 1930, participate in any discussions or conferences with regard to the formation of this company? Mr. BALLANTYNE. To some extent; yes. Mr. PECORA. With whom did you have such discussions, Mr. Ballantyne ? Mr. BALLANTYNE. Oh, I think there were meetings held of the proposed participants in it. Mr. PECORA. Who were they? Mr. BALLANTYNE. At that time Julius Haass was the chief party in it; and Emory Clark, and Dwight Douglas, and I think Ralph Stone, and Mac Browning, and Palmer Livingstone, and Mr. Chittenden, and I think John Woody. I believe those were the men, principally, who discussed the matter then. Mr. PECORA. Now, Mr. Ballantyne, in the course of those discussions, or as a result of those discussions, what did you learn to be the purpose for which the Detroit Bankers Co. was created? Mr. BALLANTYNE. Primarily to avoid-well, to get rid of unwise competition. To cut down the number of branches in Detroit. Mr. PECORA. To cut down the number of branches of what? Mr. BALLANTYNE. The number of branches of banks. There probable were three-hundred-and-odd branches at that time, or 360-am I right? (Inquiring of an associate.) Well, say 350 banking institutions in Detroit at that time. Mr. PECORA. Was this company created for the purpose of taking over a number of different banks with many branches? Mr. BALLANTYNE. Originally I don't think that was the intention, but I think it was rather confined to the two larger banks. But it later developed into the group of the Peninsula, the Bank of Michigan, and the Detroit Trust Co. Mr. PECORA. Did you become an officer or director of the Detroit Bankers Co. at the time when it was incorporated? Mr. BALLANTYNE. Yes, sir. Mr. PECORA. What office did you hold in it at that time? Mr. PECORA. Did you ever afterward become an officer? Mr. BALLANTYNE. Did you ask, Did I have to be an officer? Mr. PECORA. What officer did you become in the company? Mr. PECORA. Yes. Mr. BALLANTYNE. No; I did not until quite late, after Julius Haass' death. Mr. PECORA, Not until when? Mr. BALLANTYNE. Not until the death of Mr. Julius Haass. Mr. PECORA. What office did you then have, or were you elected to! Mr. BALLANTYNE. I succeeded Mr. Haass. Mr. PECORA. As what, the president of the company? Mr. BALLANTYNE. Yes; of the Detroit Bankers Co. Mr. PECORA. When did you become president of the Detroit Bankers' Co.? Mr. BALLANTYNE. I believe it was in May of 1931. Mr. PECORA. And for how long after that did you continue to serve as president of the Detroit Bankers Co.? Mr. BALLANTYNE. Until I left, in May of the following year. Mr. BALLANTYNE. Yes. Mr. PECORA. Do you know who succeeded you as president? Mr. PECORA. Who was it? Mr. BALLANTYNE. Do you mean of the Detroit Bankers Co.? Mr. BALLANTYNE. Was it Mr. Mills? [Inquiring of an associate.] No; it was Mr. E. D. Stair. Mr. PECORA. When you were succeeded by Mr. Stair as president of the company did you continue to serve as a director of the company? Mr. BALLANTYNE. Oh, no. Mr. PECORA. Did you at that time sever all of your nection with the company? Mr. BALLANTYNE. Absolutely. official con Mr. PECORA. Now, I have here what purports to be a photostatic reproduction of the articles of association of the Detroit Bankers Co. Mr. BALLANTYNE. Yes. Mr. PECORA. Will you be good enough to look at it and tell me if you recognize it to be a true and correct copy of such articles of association? Mr. BALLANTYNE (after looking at the paper). It is substantially correct. Mr. PECORA. Mr. Chairman, I offer it in evidence. The CHAIRMAN. Let it be admitted and made a part of the record. (The Articles of Association of the Detroit Bankers Co. was marked "Committee Exhibit No. 1, Jan. 24, 1934 ", and will be found at the end of the day's proceedings; and also there are portions of it appearing immediately below as read by Mr. Pecora.) Mr. PECORA. This paper has been marked "Committee Exhibit No. 1" as of this date. I shall only read for our immediate purposes article III of these Articles of Association, as follows: The purpose or purposes of this corporation are as follows: To acquire, own, hold, vote and exercise all rights of ownership of and to sell and dispose of shares of the capital stock of banks and trust companies and of other corporations or associations engaged in purchasing, selling on their own account or as agents of others, underwriting or dealing in corporate and other securities, or of any other corporation engaged in any business or activity incidental to or related to or of assistance in the conduct of any such business aforesaid. Now, and the following provisions of article V thereof: The total capital stock authorized is Fifty Million ($50,000,000.00) Dollars and one hundred and twenty (120) shares of no par value. The amount subscribed is one hundred and twenty (120) shares of no par value. The amount paid in is One thousand two hundred ($1,200.00) Dollars. The number of shares of Common Stock is two million five hundred thousand (2,500,000) of the par value of Twenty ($20.00) Dollars each. The number of shares of Non-Par Value Stock is one hundred and twenty (120); the price of each and at which they have been or it is proposed they shall be sold is Ten ($10.00) Dollars. The classification of the capital stock and the privileges, rights, voting powers and restrictions thereof are as follows: The par value shares shall be known as Common Stock. The non par value shares shall be all of one class and shall be known as Trustee Shares. Said Trustee Shares shall not participate in dividends, assets or subscription rights. Until December 31, 1934, the Trustee Shares shall have exclusive voting power in the election and in the removal of Directors, and all other voting power shall be vested in the Common Stock, except that no increase or decrease of the capital stock or change in the number or qualification of directors shall be authorized or other class of stock created or the sale of all of the property or business of this corporation, or the sale of any substantial part of the shares of capital stock or property or business of the following institutions: the Peoples Wayne County Bank, the First National Bank in Detroit, the Detroit and Security Trust Company, the Bank of Michigan, or the Peninsular State Bank, shall be authorized except by and with the vote of at least two-thirds of all of the outstanding shares of the Common Stock and of a like proportion of the Trustee Stock. Upon December 31, 1934, said Trustee Shares shall be redeemed and cancelled on payment of Ten ($10.00) Dollars per share. On and after January 1, 1935, all of the voting power of the stockholders shall be vested in the Common Stock. During the time the voting powers in the election of directors shall be vested in the Trustee Shares the right to vote the same cumulatively shall obtain. The right of holders of Common Stock to vote cumulatively for directors from and after the date the voting powers in the election of Directors shall be vested in the Common Stock shall be and the same is waived, and the Directors of this corporation shall be elected by the affirmative vote of a majority of the stock then entitled to vote present in person or by proxy at any meeting of such stockholders called for that purpose. The amount of Common Stock paid for in cash is No Dollars and No Dollars have been paid in in property. The amount of No Par Value Stock paid for in cash is One Thousand Two Hundred ($1,200.00) Dollars. The amount of actual capital in cash or property, or both, which this corporation owned and possessed at the time of executing these articles is One Thousand Two Hundred ($1,200.00) Dollars. And article VI thereof: The term of this corporation is fixed at thirty (30) years. And article VII thereof: Names of stockholders, their residence, and shares subscribed by each, are: The names and addresses of officers and directors for the first year of the corporation's existence, are as follows: I will read the following from article IX of the Articles of Association: The following special statements pertaining to the primary organization of this corpolation and not included in the foregoing requirements are set forth under this article. (A) The holder of each share of Common Stock of this corporation shall be individually and severally liable for such stockholder's ratable and proportionate part (determined on the basis of their respective stockholdings of the total issued and outstanding stock of this corporation) for any statutory liabiliy imposed upon this corporation by reason of its ownership of shares of the capital stock of any bank or trust company, and the stockholders of this |