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that sort. I know that these deposits were all taken care of just as fast as the liquidation of those assets would allow, and I know that they were continuously followed up with a view to liquidating them.

Senator COUZENS. Could that be the case in a deposit like W. S. Butterfield, $100,000, and Detroit Free Press, $100,000, and DetroitWindsor Ferry Co.,' $150,000, and Lewis H. Jones and Ida Jores, $50,000, and Pacific Steel Boiler Co., $100,000, and Stout Air Lines. Inc., $150,000? Would they likely be made for the purpose of taking up obligations?

Mr. VERHELLE. No sir.
Senator COUZENS. What were they?

Mr. VERHELLE. Those deposits were probably left there. The original intent of deposits with the security company was to leave on deposit money so that securities might be purchased when, as, and if certain issues came out without the necessity of transferring the money. In those particular instances it was done with a view of holding up or helping out the company in a number of those cases which you have read off there.

Senator COUZENs. In other words, of holding up the First National Co.?

Mr. VERHELLE. Yes, sir.

Senator Couzens. They paid 4 percent for the privilege of being held up; is that it!

Mr. VERHELLE. Yes, sir.

Mr. SAPERSTEIN. Will you now go ahead with your statement in regard to the First National Co.?

Mr. VERHELLE. Well, after Mr. Wilson left, and after Mr. Ballantyne left, or before they left, a study was made, as I say, by me of that particular company, and an attempt was made to provide a solution for it. The matter was taken up with the directors of the First National Co.; that is, with the old directors, for a new set of directors was appointed for the purpose of liquidating the company. And the matter was brought to their attention, the condition of these Statebank stocks, indicating that there was a substantial liability in connection with the holding of them, in addition to the loss involved in connection with the original investment. And it was rather definite in my opinion that there was a moral obligation on the part of the directors of $8,000,000, and a legal obligation to the extent of $1,140.0).

Senator COUZENS. Do you know whether any effort has been made to assert that liability?

Mr. VERHELLE. No, sir; I do not.

Mr. SAPERSTEIN. Was your refusal to give your approval to the writing down of this liability of the directors to approximately $450,000 the subject of criticism on the part of those directors?

Mr. VERHELLE. My resignation was requested a number of times by Mr. Clark, and I'understand he was the principal obligor in connection with that liability.

Senator Couzens. He was the principal obligor, do you say?

Mr. VERHELLE. Yes, sir. He had made the commitment to the Detroit Bankers Co. at the time of its confirmation, that he would hold them harmless from any loss in connection with that transaction.

Senator COUZENS. You will remember that Mr. Mills disagreed with your testimony, and that he regretted having to let you go. You heard his testimony?

Mr. VERHELLE. Yes, sir.

Mr. SAPERSTEIN. Did you ultimately resign as a result of those repeated requests made on you to tender your resignation?

Mr. VERHELLE. That was one of the many contributing factors of a similar nature. In other words, in view of the Pontiac transaction, that might be considered in connection with it.

Mr. SAPERSTEIN. That was another contributing factor?

Mr. VERHELLE. Well, that specific item was not, but it might have been in connection with this.

Mr. SAPERSTEIN. Have you anything further to say in regard to testimony that has been offered here by other witnesses?

Mr. VERHELLE. Not particularly; no, sir.
Senator Couzens. Well, let us go to the next witness?
The CHAIRMAN. You are now excused, Mr. Verhelle.
(Thereupon the witness left the committee table.)
The CHAIRMAN. Who will you have next?
Mr. SAPERSTEIN. Mr. Leyburn.

The CHAIRMAN. Mr. Leyburn, you will come around to the committee table. You have already been sworn, I believe.

Mr. LEYBURN. Yes; in the other Detroit case.
The CHAIRMAN. Well, that is all right.

TESTIMONY OF ALFRED P. LEYBURN, CLEVELAND, OHIO, CHIEF

NATIONAL BANK EXAMINER FOURTH FEDERAL RESERVE DISTRICT Resumed

Mr. SAPERSTEIN. Mr. Leyburn, I believe the record already shows that you are now the chief national bank examiner of the fourth Federal Reserve district.

Mr. LEYBURN. That is correct.

Mr. SAPERSTEIN. And that you were formerly chief national bank examiner of the seventh Federal Reserve district.

Mr. LEYBURN. That is correct.
Mr. SAPERSTEIN. Which includes Detroit.
Mr. LEYBURN. That is correct; yes, sir.

Senator Couzens. Mr. Leyburn, before Mr. Saperstein proceeds with your examination let me ask you: Can you tell us why you were transferred from the seventh Federal Reserve district to the fourth Federal Reserve district as chief national bank examiner?

Mr. LEYBURN. Senator Couzens, I knew you would bring that up.

Senator Coczens. Well, I don't know how you knew it. I did not discuss it with you.

Mr. LEYBURN. I know that. But I will tell you what is was: Politics !

Senator CoczENS. Oh, I did not know that politics entered into the Comptroller's office.

Mr. LEYBURN. When did you find that out!

Senator Couzens. Well, I have been getting lessons recently, and been assured that it did not.

Mr. LEYBURN. Well, that was why I was transferred. You may draw your own conclusions.

Senator COUzexs. Tell us why.

Mr. LEYBURN. Well, the junior Senator from Michigan, with whom you are acquainted, and although I have never met him personally, yet I have heard of the proceeding otherwise, requested my transfer, in connection with Senator Van Nuys, of Indianapolis, who had been recently elected, and who, I suppose, had listened to some fellow once who told him I cut a figure. In other words, that I was too brutal, I believe they said, and was too hard on folks, or words to that effect.

Senator Couzens. Were any complaints made in writing to the Comptroller of the Currency about you?

Mr. LEYBURN. I wouldn't know that, Senator Couzens. Complaints were made verbally. I do not know about any in writing.

Senator Couzens. What complaints did the Comptroller assim for transferring you from the seventh Federal Reserve district to the fourth Federal Reserve district?

Mr. LEYBURN. That I was too hard on the bankers, and that I was too brutal and got rough with them, or words to that effect.

Senator Couzens. Did the Comptroller agree with the complainants!

Mr. LEYBURN. I could not say as to that. But I was transferred.

Senator COUZENS. When he transferred you did he tell you he agreed with the complaints ?

Mr. LEYBURN. No, he did not; and, by the way, it was the Acting Comptroller, not the Comptroller.

Senator COUZENS. That was Awalt?
Mr. LEYBURN. Yes, sir; it was the Acting Comptroller.
Senator Couzens. All right. You may proceed, Mr. Saperstein.

Mr. SAPERSTEIN. Mr. Leyburn, I want to take you back to the period just before the merger of the People's Wayne County Bank and the First National Bank of Detroit.

Mr. LEYBURN. I will tell you what the history of it was if you will allow me. I think I can cover many of the things you are going to ask me if I may read extracts from this paper.

Mr. SAPERSTEIN. By "this paper” what do you mean?
Mr. LEYBURN. My résumé, I think, will cover the situation.

Mr. SAPERSTEIN. 'Was that prepared by you for the purpose of enabling you to give a concise statement of this matter?

Mr. LEYBURN. Yes, sir.
Mr. SAPERSTEIN. Then go ahead and tell your story.

Mr. LEYBURN. In the first place, let us get this straight: You have heard a story about rotten loans and rotten banks. The First National Bank of Detroit was not rotten-it was putrid; and I hope a certain Detroit newspaper does not print that statement upside down and make it look like roses.

Mr. SAPERSTEIN. As of what time are you now describing the condition of the First National Bank as putrid ?

Mr. LEYBURN. It will go back a considerable time. The Detroit Bankers Group differs from the Guardian Detroit Group by virtue of the fact that they had in some banks throughout the State of Michigan, as that chart on the easel shows, a minority stock interest, with the exception of the Pontiac Bank, and they subsequently secured control.

Now, the Detroit Bankers Co. owned all the stock of the Peoples Wayne County Bank and of the First National Bank, except qualifying shares. And they were also affiliated with the Detroit Trust

Co. The First National Bank in 1932 had 76 directors, and at the annual meeting in 1933 the board was reduced to 38 members. The consolidated bank originally had 194 branches, and that was reduced to 160. As a matter of fact, it was about the third largest bank outside of New York City, and it was a tremendous job to ever go through it.

In 1931-and that was before the consolidation—the First National Bank was not in good condition. As a matter of fact, the examination that Mr. Mark Wilson spoke of, and I think he meant September 25, 1931, showed slow assets $19,326,110 and doubtful assets $5,855,341 and losses $5,813,195.

Mr. SAPERSTEIN. Might I interrupt you for a moment right there? Mr. LEYBURN. Yes, sir.

Mr. SAPERSTEIN. Was this classification of assets, as estimated by the bank examiners, imparted to the directors of the First National Bank?

Mr. LEYBURN. Yes; that is the classification on page 11, that went to the directors of the bank. I mean the figures I just gave you.

Mr. SAPERSTEIN. All right. Go ahead.

Mr. LEYBURN. An examination of the Peoples Wayne Bank on November 12, 1931, showed that they had about 60,000 separate mortgages, which is probably about the largest total in the United States, or pretty close to it, and they approximated $138,240,000. In view of the fact that the management was such, that the stock ownership was held by the Bankers Group, you would have to consider them all as one, and it was felt that if the consolidation was effected you would get economy of operation. As a matter of fact, in the consolidation $20,000,000 was taken out, and everybody was of the concensus of opinion at the time that they were afraid of the real estate in there, and that it was probably the best thing to do under the circumstances.

The first examination of this bank after the consolidation was made on May 6. 1932, and concluded June 3, 1932. At the conclusion of that examination, or about June 10, I met the examiner who conducted the examination, and this so-called “ Governing committee” up there that did not govern.

At that meeting were present Mr. Alger, Mr. Bowen, Mr. Emory Clark, Mr. Ralph Gilchrist, Mr. James S. Holden, Mr. James T. McMillan, Mr. Wilson W. Mills, Mr. Truman H. Newbery, Mr. Wesson Seyburn, Mr. E. D. Stair, Mr. Oscar Webber, and Mr. Utt, the examiner.

Mr. SAPERSTEIN. With the exception of Mr. Utt, were the other persons all members of the governing committee?

Mr. LEYBURN. They were, as to these names I am giving you.
The CHAIRMAN. How many branches did they have!

Mr. LEYBURN. They originally had 195, which number was reduced to about 160 branches in the city of Detroit.

Mr. SAPERSTEIN. The Chairman is referring to the Peoples Wayne County Bank?

The CHAIRMAN. How many did they have? Mr. LEYBURN. I do not know how many, but after the two banks were consolidated they had 195 branches. They must have had over 100 branches themselves, I think, before the consolidation.

The CHAIRMAN. Well, I did not quite catch that. Were branches permissible under the Michigan law?

Mr. LEYBURN. Yes; in cities.
The CHAIRMAN. Those all were within that limit?
Mr. LEYBURN. Yes, sir.
Mr. SAPERSTEIN. Go ahead, Mr. Leyburn.

Mr. LEYBURN. At that examination, which was the first examination after the consolidation, a total of 256,370 shares of Detroit Bankers Co. stock was pledged as collateral; which, of course, we criticized. The liquidity of that bank at that time was about 28 percent. As a matter of fact, this bank never did have much liquidity. I am reminded that Mr. Mills asked, “ If a bank were 70-percent liquid, what would it do with it?” Well, I don't know how he would know, for this bank was never over 35-percent liquid at any time. Officers and employees loans were $3,083,000, on which there was a loss of $2,000,000. And that is the line you were talking about yesterday.

The Detroit Bankers Co. was also a heavy borrower at that time. The governing committee admitted that the condition of the bank was unsatisfactory. Some of their real-estate loans had started to go bad, with approximately $8,000,000 subject to foreclosure.

The bank had also guaranteed part of the American State Bank. and there was the possibility of a very heavy loss. It had alo guaranteed a part of two banks in Redford, Nich., in which they were interested.

It was recommended that they cut the dividend from 16 percent to 8 percent, and even then that would be unjustified so far as earnings and assets were concerned. Yes; but it would have been bad business, you know, to cut the dividends right off after consolidation.

During the examination President Ballantyne and Vice President Wilson resigned because they could not agree with the policies of the directors, and they realized the true condition of the bank. And Mr. Ballantyne resigned in order to keep his self-respect, he said. And that is just what he did. And that is what Mark Wilson did. And I would believe anything that Mark Wilson would tell me. And what they needed was about six Ballantynes and a dozen Mark Wilsons up there. Some of the other directors did not resign in order to save a self-respect they did not have.

Mr. SAPERSTEIN. Was it your observation that Mr. Ballantyne was not getting the control and cooperation that he wanted ?

Mr. LEYBURN. Yes. I have listened to the testimony here, and I will say that it gave Mr. Mills the whip hand. He could be a Missolini under that situation. That governing committee ran that bank. There is no question about that. When the directors of any bank delegate authority to someone else to run it they cannot escape responsibility for such action. That committee was absolutely dominated by Mills.

We felt at that time that the bank had about $19,000,000 in loss. and at least $70,000,000 of slow assets, and $54,000,000 of doubtful assets.

Mr. SAPERSTEIN. Was that opinion imparted to the directors of the bank?

Mr. LEYBURX. Yes; verbally at this meeting.

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