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Mr. SAPERSTEIN. Mr. Wilson, when we recessed you had indicated that you had some suggestions that you desired to make to this committee to assist it in framing legislation in regard to the banking situation. Will you be kind enough to read those suggestions into the record ?

Mr. WILSON. With your permission, just for a few moments, I should like to make a brief statement with regard to certain matters that I would like to clear up before I give you those suggestions.

Mr. SAPERSTEIN. Very well.

Mr. Wilson. I would like to hand to you a letter dated May 25, 1932, addressed to the First National Bank & Trust Co., Pontiac, Mich., and signed by Alfred P. Leyburn, chief national bank examiner, Seventh Federal Reserve District. There has been quite a good deal of discussion with regard to the Pontiac situation and the establishment of a new bank, and I would like to offer this letter as a partial explanation.

Mr. SAPERSTEIN. The letter which the witness has just handed to me is on the letterhead of the Treasury Department, Office of the Comptroller of the Currency, Chicago, dated May 25, 1932. It is addressed to the First National Bank & Trust Co., Pontiac, Mich., and signed by Alfred P. Leyburn, chief national bank examiner Seventh Federal Reserve District. I will offer the letter in evidence. The CHAIRMAN. Let it be received.

(Letter_dated May 25, 1932, from Alfred P. Leyburn to First National Bank & Trust Co., Pontiac, Mich., was received in evidence, marked “Committee Exhibit No. 174, Feb. 8, 1934 ", and appears in the record where read by Mr. Saperstein.)

Mr. SAPERSTEIN. The letter which has been marked " Committee Exhibit No. 174" of this date is dated May 25, 1932, and reads as follows [reading]:



Chicago, May 25, 1932. FIRST NATIONAL BANK & TRUST Co.,

Pontiac, Mich. DEAR SIR: An appraisal of the assets of the First National Bank and Trust Company, Pontiac, Michigan, in November disclosed a very serious impairment of capital and surplus caused by losses. This was aggravated to a large extent by the closing of the other bank in your city which caused heavy withdrawals, and consequently it was necessary to collect on your best assets, which include bon and securities.

The officers and directors of the bank were advised of this unsound condition and it was requested that it be remedied, otherwise it would be necessary to make a 100% assessment on all the stockholders, as provided by the statutes, for the protection of the depositors. This, of course, would have meant a thirty days' notice to the shareholders and a meeting, which would have caused adverse reports concerning the condition of the bank and would undoubtedly have resulted in its closing due to this publicity.

An effort was made to secure the new capital necessary by the sale of additional stock, but it was not successful. The directors then entered into negotiations with the Detroit Bankers Company and with the assistance and full approval of the Comptroller of the Currency, an agreement was consulmated whereby that company organized a new bank, provided the entire capital and surplus of $750,000.00, assumed all liabilities, and took over all assets of the old bank.

To insure against loss from further shrinkage in the value of bonds and other assets and that these could be liquidated within a period of two yen at the valuations fixed by the officers and directors a guarantee fund created. The amount of this fund is $600,000.00, the equivalent of an assement of 100% which would have been levied upon all the stockholders.

The prompt and generous action of the small group of directors, officers stockholders and public-spirited citizens who met the emergency by agreein: to temporarily provide the guaranty fund and posted cash and securitiamounting to $600,000.00 unquestionably saved the closing of the bank. It lite wise saved the stockholders from an immediate assessment of 100%e on their stock and undoubtedly prevented further losses in the event they would have been compelled to raise funds from the sale of securities or otherwise to meet the assessment.

It would appear that the stockholders should recognize that the burden of this guaranty fund justly belongs to the stockholders in proportion to their individual holdings and not to the few who came to the rescue of the bank by making considerable sacrifices and assumed the guaranty in order that the deal might be consummated. Very truly yours,

(Signed) ALFRED P. LEYBURS, Chief National Bank Examiner, Seventh Federal Reserve District. Have you anything to add to that statement in regard to the First National Bank & Trust Co. of Pontiac!

Mr. Wilson. No; except the fact that there was possibility of fire breaking out in Pontiac, and in cooperation with Mr. Leyburn we decided to proceed with the organization of the new National Bank to take over the old First National Bank & Trust Co. of Pontiae, which was done. The General Motors Corporation put a million dollars on deposit; the Detroit Bankers Co. supplied a new capital of $750,000; three additional directors from General Motors Corporation were added to the board, and the local directors contributed approximately $500,000 and a pledge of securities to the Detroit Trust Co. as trustee to guarantee the stock assessment up to that extent; and we thought we were doing a good job in Pontiac, although I took the definite position with Mr. Ballantyne that the Detroit Bankers Co. should not go into Pontiac; that if the bank had to fail, let it fail and take the consequences; although I later went through it with Mr. Leyburn and made the set-up which led to the reorganization.

Senator COUZENS. You remember that there has been considerable testimony introduced here as to a diversion!

Mr. Wilson. That is right, Senator.

Senator COUZENS. A diversion of a dividend of a million and , half dollars of the First National Bank to the Detroit Bankers Co. for the purpose of liquidating their debt of which $750,000 mis later turned over to the Pontiac bank. Do you know anything about that?

Mr. WILSON. My recollection of that is that the dividend was one million and a half paid by the First National Bank to the Detroit Bankers Co. for the purposes indicated in the resolution draf ed by Mr. Long. Later on difficulty existed in Pontiac, and in order to save the situation the money was used for that purpose.

Mr. SAPERSTEIN. There is nothing in this letter which I have just read, exhibit 174, to indicate that the Comptroller of the Currency approved of or even knew of the fact that this fund of $750,000 was being diverted from the original purpose for which it had been created, is there?

Mr. Wilson. I do not believe Mr. Leyburn knew. He knew that the Detroit Bankers Co. was putting up the money. I doubt seriously if he knew from what pot it was coming. He just knew they were furnishing the capital. That would be my recollection.

Mr. SAPERSTEIN. Do you know at whose request or instigation the fund of $1,500,000 was diverted from its original purpose, namely, the liquidation of the indebtedness of the First National Bank?

Mr. Wilson. It was done with a great deal of care. The matter was presented as recorded in the minutes of the Detroit Bankers Co., and the members of the board of the Detroit Bankers Co., who were also the governing committee of the bank, after due consideration of all the facts that were then known, believed unanimously that we should


in and save the Pontiac situation. So they carried out the reorganization of this new national bank in Pontiac to take over the old First National Bank in Pontiac.

Senator Couzens. Did you make any check of the securities of the First National Bank & Trust Co. of Pontiac before the Detroit Bankers Co. went in there with new capital?

Mr. Wilson. Yes, we did, Senator; and I would like very much to present our findings on that.

Senator Couzens. I think it would be appropriate, because there has been a lot of controversy about the wisdom of the procedure, especially for those who put up the $600,000 to prevent the double assessment.

Mr. Saperstein. Will you take charge of these notes of yours and pick out the information that would help you to answer Senator Couzens' question?

Mr. Wilson. Prior to the time that the examination of the First National Bank & Trust Co. of Pontiac was made by the examiners of the Detroit Bankers Co. there had been an examination made by a national bank examiner under date of November 23, 1931. That was about 90 days prior to the time we finally perfected the reorganization. This national bank examiner's report reflected doubtful $89,659; and most of that was depreciation of bonds. There was a loss of $81,443, and most of that was additional depreciation of bonds which he thought ought to be written off. In fact, there was $88,562 of depreciation of bonds recorded in the doubtful column and $71,510.48 recorded in the loss column. So substantially all of the doubtful and loss items were depreciations. That was under date of November 23, 1931.

Senator CotzENS. I understood you to say, Mr. Wilson, that the Detroit Bankers' arrangement was consummated within 90 days after that?

Mr. WILSON. I think so.

Senator COUZENS. How do you account for the fact that Mr. Leyburn's letter was not written from Chicago until May 25, 1932?

Mr. Wilson. The reason for that, Senator, is that the directors out there who would put up this money desired to proceed with the stock

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assessment and they wanted a letter from Mr. Leyburn in order to show to the stockholders who had not originally contributed. That is my recollection.

In this national bank examiner's report there is approximately only $11,000 of doubtful loans and losses; and in our examinati that was made practically 90 days later than that we showed $100 of doubtful loans and discounts and $271,000 in doubtful and les loans and discounts. Our total recapitulation on that date was us follows: Doubtful, $728,000; loss, $814,000.

That shows quite a wide variation between the national-back examiner's report 90 days prior

The CHAIRMAN. What was the capital?
Mr. Wilson. The capital of that bank was $600,000.

Senator COUZENS. So by comparison of those figures you conclude that the national-bank examiners had been very liberal in their

at praisal of the assets!

Mr. Wilson. The national-bank examiners had been very libera!

Senator COCZENS. Because your own investigation showed that the condition was much worse than that shown by the national-ia. examiners.

Mr. WILSON. That is correct.

The CHAIRMAN. Was the new bank successful? Has it gone ou all right?

Mr. Wilson. The new bank did not succeed, and there is quite a story to that.

The CHAIRMAN. They were reorganized and set up and reoper el and did business?

Mr. Wilson. They got organized and set up, and we also plane] in that bank one of our most capable men as executive vice president for liquidation purposes and for carrying through certain policies that we thought were sound for that institution; and I have a very complete record in regard to what was done during that period, from that time up to the date of the holiday.

Senator COUZENS. When did this reorganized First National Bank of Pontiac close?

Mr. Wilson. Are you referring to the new one that we set up!
Senator COUZENS. Yes.
Mr. Wilson. It was at the time of the holiday declaration.
Senator COUZENS. And it never opened after that?

Mr. Wilson. It never opened after that; but since that time it has paid its depositors 65 percent, already, within 4 months. One of the reasons it did not open was because there was a switching of papers.

Mr. SAPERSTEIN. What do you mean by that?
Mr. Wilson. I mean just that.
Mr. SAPERSTEIN. Can you define that for the purpose of the record!

Mr. Wilson. The First National Bank of Pontiac, as I am informed and believe, had approximately $600,000 of excess funds This bank had no bills payable at the time it was closed. It had substantial cash and bonds. I have a statement to that effect. It also had excess funds to the extent that it was able to purchase paper to the amount of about $600,000, and that was supposed to be print

paper purchased from the First National Bank of Detroit. At the time of the trouble in Detroit I am advised that there was nonrediscountable paper exchanged for the most desirable paper which was held by the First National Bank of Pontiac, because the bank in Detroit was trying to collect a substantial amount of paper which was eligible for rediscount with the Federal Reserve Bank of Chicago. In the final compromise they took approximately $100,000 loss on that paper and received, as I understand, about $100,000 for their $600,000 worth of paper, in cash, bought by the officials which assisted them in their plan for reorganization in the payment of certain funds to the depositors.

Senator Couzens. The First National Bank of Pontiac deposited $600,000

Mr. Wilson. It had bought paper from the First National Bank of Detroit, good-name paper.

Senator Couzens. Bought it outright?
Mr. Wilson. Yes, sir; surplus funds.

Senator Couzens. If they bought it outright, why was not the transaction closed? Why was the matter brought up again?

Mr. Wilson. Because after the Governor's holiday in Michigan the First National Bank was attempting to liquefy itself to the greatest extent, and in doing that they wanted this eligible paper back in their portfolio in order to show how much they could rediscount with the Federal Reserve bank, to have as much available cash on hand as they could, and they gave the Pontiac bank, in exchange for that, poorer paper not of a rediscountable type.

Senator COUZENS. Why did the officials make such an unfavorable exchange?

Mr. Wilson. I cannot answer as to that, Senator.
Senator COUZENS. Was it not a rather unusual situation?
Mr. Wilson. I think so; yes, sir.

Senator CouZENS. You have never been able to account for why the directors of the First National Bank of Pontiac should exchange $600,000 of good collateral for poor collateral ?

Mr. Wilson. No; and I was never able to account for why it was not relicensed after the carefulness with which it was set up.

Senator COUZENS. What effect did this exchange of collateral have?

Mr. Wilson. Following the holiday I think that bank should have been licensed, except possibly for the fact that $600,000 of quick assets were tied up and probably would get into litigation.

Mr. SAPERSTEIN. Do you know whether this switching of papers, as you describe it, was discussed by the board of directors of the First National Bank of Pontiac?

Mr. Wilson. I do not know, sir.

Mr. SAPERSTEIN. Do you know the officers who handled the transaction?

Mr. Wilsox. I presume the officer of the First National Bank at Pontiac was Harold B. Ward, who was the executive vice president, a most capable banker.

The CHAIRMAN. Did the Pontiac Bank get any money from the R.F.C.?

Mr. WILSON. They were not borrowing any money at that time, Senator; they did not need any money.

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