Mr. BALLANTYNE. Yes.

Mr. PECORA. And I read further:

Resolved that J. C. Friedel, who has been heretofore appointed proxy to attend the annual meeting of the stockholders of the Peoples Wayne County Bank of Hamtramck, be and he is hereby directed to nominate the following as directors of the bank.

Then follows a long list. And I read further:

Resolved that Henry A. Haigh, who has heretofore been appointed proxy to attend the annual meeting of the stockholders of the Peoples Wayne County Bank of Highland Park, be and he is hereby directed to nominate the following as directors of the bank.

Then follows a long list of names. I read further:

Resolved that William H. McClenahen who has heretofore been appointed proxy to attend the annual meeting of the stockholders of the Peoples Wayne County Bank of Deaborn, be and he is hereby directed to nominate the following as directors of the bank.

Then follows a long list of names. And I read further:

Resolved that Henry Roehrig, who has heretofore been appointed proxy to attend the annual meeting of the stockholders of the Peoples Wayne County Bank of Wyandotte, be and he is hereby directed to nominate the following as directors of the bank.

Then follows a long list of names.

Resolved, that Ignatius J. Saliotte, who has heretofore been appointed proxy to attend the annual meeting of the stockholders of the Peoples Wayne County Bank of Ecorse, be and he is hereby directed to nominate the following as directors of the bank.

Then follows a long list of names.

Resolved that Arnott H. Moody, who has heretofore been appointed proxy to attend the annual meeting of the stockholders of the Peoples Wayne County Bank of River Rouge, be and he is hereby directed to nominate the following as directors of the bank.

Then follows a long list of names.

Resolved, that Frank W. Hubbard, who has heretofore been appointed proxy to attend the annual meeting of the stockholders of the Grosse Pointe Savings Bank of Grosse Pointe, be and he is hereby directed to nominate the following as directors of the bank.

Then follows a long list of names.

Resolved that Emmor Bales, who has heretofore been appointed proxy to attend the annual meeting of the stockholders of the River Rouge Savings Bank of River Rouge, be and he is hereby directed to nominate the following as directors of the bank.

Then follows a long list of names.

On motion, being duly seconded, the foregoing resolutions were unanimously adopted.

Now, Mr. Ballantyne, that indicates, does it not, the general policy that was pursued by the Detroit Bankers Co. with regard to naming directors of the various unit banks?

Mr. BALLANTYNE. I wonder if it was not necessary for the stock holders of those banks? They did not use duress, I am sure. There was no duress to it, particularly as to the directors' names. They might have added 1 or 2 to strengthen the situation; but there was no duress used.

Mr. PECORA. What do you mean by that?

Mr. BALLANTYNE. There was no force at all. The regular boards were named, as a general thing, and this was the authority given to those men to vote the stock for the reelection of the banks' boards. Quite generally the same boards were on there.

they had the power to change it.

Of course

Mr. PECORA. But, Mr. Ballantyne, take your case, for instance. At the time of the creation of the Detroit Bankers Co. were you a director of more than one of the unit banks that came into the holding company?

Mr. BALLANTYNE. No.

Mr. PECORA. After the formation of the Detroit Bankers Co. were you made a director of more than 1 unit bank?

Mr. BALLANTYNE. No; not until I assumed--I don't think I was until I assumed the duties of a man who died.

Mr. PECORA. According to the resolutions that I have read from. which were adopted at the annual meeting of the board of directors of the holding company held on January 12, 1931, you were nominated to be a director of the following unit banks at that timeMr. BALLANTYNE. I was put on

Mr. PECORA. Wait a moment. The First National Bank?
Mr. BALLANTYNE. Yes.

Mr. PECORA. The Peoples Wayne County Bank of Detroit?

Mr. BALLANTYNE. Yes. I have them all here and can read them

to you.

Mr. PECORA. I can get them from the record here. What others have you got?

Mr. BALLANTYNE. On April 24 I was appointed president of the Detroit Bankers Co. That was in 1931. On May 1 I was appointed chairman of the board of the First National Bank. On April 24, 1931, I was appointed president of the Detroit Bankers Co. On May 4 I was appointed director of the Peoples Wayne County Bank. On May 12, a director of the First Detroit Co. On June 2, a director of the Detroit Trust Co.; also on the executive committee. October 6, a director of the First National Bank. I think that is all.

Mr. PECORA. Was it the fixed policy of the Detroit Bankers Co. to make up the slates of directors to be elected for the various unit banks at the annual meetings?

Mr. BALLANTYNE. No; I don't think so. They might have interpolated a name.

Mr. PECORA. But they named the directors, did they not?

Mr. BALLANTYNE. Yes; they named the directors that were there. I suppose they exercised the power to reelect the same directors, if that is what you want me to admit. Yes; they did so.

Mr. PECORA. Do you know anything about a service charge made by the Detroit Bankers Co. which was paid to it by the various unit banks?

Mr. BALLANTYNE. I think, Mr. Pecora, I can answer your question. There was a service contract entered into and it involved some expense on the part of the Detroit Bankers Co. For instance, they had a force of expert insurance people over there; tax experts; but the duties were prescribed, I think, in the contract that was

written. They were express or implied, the specific duties were. I think all of them were manifestly good.

Mr. PECORA. I show you what purports to be a photostatic reproduction of that so-called "service contract" that you have referred to. This photostatic copy purports to be a copy of a service contract entered into between the Detroit Bankers Co. and the People's Wayne County Bank of Detroit. Will you look at it and tell me if that is a true and correct copy of the service contract to which you have referred?

Mr. BALLANTYNE. Yes; that is a copy.

Mr. PECORA. I ask that it be marked in evidence.

Senator COUZENS. The same will be marked in evidence without being spread upon the record.

(Photostatic copy of service contract referred to and identified by the witness was received in evidence, marked "Committee Exhibit No. 8, Jan. 24, 1934.")

Senator CouZENS. The subcommittee will take a recess until 2 o'clock.

(Whereupon, at 12:40 p.m., a recess was taken until 2 o'clock of the same day, Jan. 24, 1934.)

AFTERNOON SESSION

Upon the expiration of the noon recess, the committee resumed the hearing at 2 p.m.

Senator COUZENS (presiding). I desire to announce that Chairman Fletcher has charge of the gold bill on the floor of the Senate and has asked me to preside while he has charge of that bill on the floor of the Senate. The meeting will come to order, please.

TESTIMONY OF JOHN BALLANTYNE, DETROIT, MICH., PRESIDENT OF MANUFACTURERS' NATIONAL BANK OF DETROIT AT THE PRESENT TIME-Resumed

Mr. PECORA. Mr. Ballantyne, were these service contracts, of which committee's exhibit no. 8 is a sample copy, entered into between the Detroit Bankers Co. and each and every one of the banking units of that holding group?

Mr. BALLANTYNE. Mr. Pecora, I wonder if you would mind if I would transfer that question to Mr. Verhelle, who is under oath? Mr. PECORA. All right.

Mr. BALLANTYNE. I think perhaps he will answer it a little more intelligently than I will.

Mr. PECORA. Are you unable to tell us anything about these service contracts?

Mr. BALLANTYNE. I know in a very general way about them, as I spoke about them to you.

Mr. PECORA. Suppose you tell us first what you know of them, even if it be only in a general way.

Mr. BALLANTYNE. The terms of the contracts, the service contracts, the express terms, are mentioned in the contract.

Mr. PECORA. Yes.

Mr. BALLANTYNE. I think there were changes, some implied terms, something was done that was not expressed; but there was obviously

some-for example, immediately after the write-off that you are coming to perhaps in the situation we established a claims or recovery department, out of which we hoped to realize a lot of money, and that was put into this Detroit Bankers Co. operation, as well as those expressed duties. But that is something I am sure you would approve of yourself. It was done for a very manifest purpose and for the very best of results.

Mr. PECORA. What were those very best purposes and results that were sought to be attained through the medium of the rendition of these services under these contracts of the holding company and various unit banks?

Mr. BALLANTYNE. Oh, largely economies. I think there was purchasing, one of them. Now, you can purchase more

Mr. PECORA (interposing). Purchasing of what; supplies?
Mr. BALLANTYNE. Supplies, stationery, and so forth.

Mr. PECORA. Office equipment?

Mr. BALLANTYNE. Office equipment and what-not.

Mr. PECORA. What other kind of service was rendered, actually rendered under these contracts?

Mr. BALLANTYNE. Everything, I think, that was expressed there. Could I see the contract again, Mr. Pecora?

Mr. PECORA. Surely [handing document to Mr. Ballantyne].

Mr. BALLANTYNE. The auditing was not attended to by the bankers. We thought that was a very desirable thing, to have the auditing staff outside of the bank.

Senator COUZENS. Did you then dispense with auditors within the units?

Mr. BALLANTYNE. Within the units; yes, sir. Accounting, credits

Mr. PECORA. Would not accounting come under the general heading

Mr. BALLANTYNE. The credits were not passed on by the

Mr. PECORA. Would not accounting come under the general heading of auditing?

Mr. BALLANTYNE. Yes; largely. Advertising was one of them, business promotion, purchasing, printing, rental of buildings; I presume that would have come under it. I don't recall.

no.

Mr. PECORA. Talk a little louder, please.

Mr. BALLANTYNE. Fidelity bonds; that was included. Insurance

Mr. PECORA. You mean surety bonds?

Mr. BALLANTYNE. Yes. I think that is the extent of it, with the possible addition of that recovery operation.

Senator COUZENS. Then to the extent that the Detroit bankers did those jobs the board of directors did not operate the units, did they? Mr. PECORA. The board of directors of the various units? Senator COUZENS. Yes.

Mr. BALLANTYNE. Well, I suppose it is rather a fine point, but I think we were perfectly willing it should be done, and of course in nearly every case any operation was performed. For instance, take this recovery department or claims department. Nothing was done that was not authorized and agreed to by the officer in charge of the thing. There was no contest of the power there at all, Senator. I can assure you of that.

Mr. PECORA. What actual facilities did the Detroit Bankers Co. have among its personnel to render all these services to all these unit banks?

Mr. BALLANTYNE. Well, we had a very excellent staff, experts in their line. That recovery department was chosen with great care. I think we had a man named Bratton, who is perhaps the most able man in Detroit on that kind of work. We had him and others. We had a man named Stead who was an expert on tax problems. We had really expert men in nearly every job.

Mr. PECORA. Do you know the aggregate amount that was paid annually by the various unit banks to the Detroit Bankers Co. under these service contracts?

Mr. BALLANTYNE. Well, I would just guess two or three hundred thousand dollars.

Mr. PECORA. I understand the sum is approximately $400,000. Mr. BALLANTYNE. Well [addressing Mr. Verhelle] would you know, Joe?

Mr. VERHELLE. No.

Mr. BALLANTYNE. You probably have it exact. I don't recall. It is pretty hard to remember all these details.

Mr. PECORA. Do you know whether, out of the moneys that the holding company received from the unit banks under these service contracts, the holding company realized a substantial profit, out of these services charges?

Mr. BALLANTYNE. It would be an indirect profit, I would say;

yes.

Mr. PECORA. A substantial profit?

Mr. BALLANTYNE. I would say yes.

Mr. PECORA. Do you know what proportion of the total fees paid by the holding company by the unit banks annually under these service charges represented profit to the holding company?

Mr. BALLANTYNE. Well, now, you take the accounting department in the holding company. If they had not had it the banks would have had it. That was divorced from the banking units proper, and it was very wise; that thing was very wise, Mr. Pecora. Mr. PECORA. I am not calling for that. I am asking you to give us if you can

Mr. BALLANTYNE (interposing). I cannot give you the detail. Mr. PECORA (Continuing). The proportion of the charges or commissions, fees, received by the holding company under these service contracts with the unit banks which represented profit.

Mr. BALLANTYNE. It was not fees or commissions. It was simply disbursements, salaries, and what not to employees. There were no fees or commissions involved.

Mr. PECORA. As a matter of fact, the holding company charged for these services?

Mr. BALLANTYNE. Just what they cost.

Mr. PECORA. Just what they cost?

Mr. BALLANTYNE. Yes.

Mr. PECORA. Then, you say there was no profit to the holding company?

Mr. BALLANTYNE. None to the holding company; no.

Mr. PECORA. How is that?