sonally, 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 assign 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 com plainants?

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 quali fying 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 examina tion 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 also guaranteed a part of two banks in Redford, Mich., 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 busi ness, 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 Mus solini 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 $49,000,000 in losses, 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. LEYBURN. Yes; verbally at this meeting.

Mr. SAPERSTEIN. That is, to the governing committee?
Mr. LEYBURN. Yes.

Mr. SAPERSTEIN. It was not imparted to the directors?
Mr. LEYBURN. Oh, no; to the governing committee.

Mr. SAPERSTEIN. Why wasn't it given to the directors of the bank? Mr. LEYBURN. Well

The CHAIRMAN (interposing). Do you mean the First National Bank?

Mr. LEYBURN. This was the merged bank. You could not take a board of directors, which at that time was composed of about 78 men, and discuss a condition like this of a bank and not expect to "bust the bank, and all smart money go out of it. As a matter of fact, there was some evidence introduced here that some of the directors were talking about what happened in board meetings. Do you remember the letter on yesterday?

Now, when they spoke up, two or three of them, they said: "We figure on about $45,000,000." And that nearly knocked us out of our

chairs.

Mr. SAPERSTEIN. About $45,000,000 what?

Mr. LEYBURN. Of losses.

Mr. SAPERSTEIN. Did they tell you what they figured as doubtful or slow?

Mr. LEYBURN. No; I think they just said losses. I will give them the benefit of the doubt on that.

Mr. SAPERSTEIN. Your estimate was $49,000,000 losses, while theirs was $45,000,000?

Mr. LEYBURN. Yes, sir. And there was no way to take care of that without busting the bank. And you know what the condition was at that time.

I submitted to the board of directors a statement which showed slow $76.849,369, doubtful $91,138,760, and loss $8,545,777. It was concluded to take out this loss of approximately $8,500,000.

Now, based on that examination, which of course goes to Washington with the yellow sheet on it, the Comptroller of the Currency addressed a letter to the board of directors of that bank, and he said:

Will you kindly review the report at your next board meeting, and thereafter advise this office of the action taken and the progress made in remedying each of the matters mentioned.

And he made particular reference to the $4,000,000 loan to officers, employees, and the management of the bank. Then he went on to say:

The extremely large aggregate of slow and doubtful assets, especially the latter, which are shown at $91,000,000, and other unsatisfactory conditions in the bank, reflect a state of affairs calling for constructive and vigorous action and changed policies with a view to bringing about a marked improvement in the bank's condition as rapidly as this can be accomplished.

Then he went on to say:

Since the contents of the examiner's report and the criticized matters are so self-explanatory, it is believed unnecessary to dwell further herein on the situation in your bank.

Now, President Sweeny replied to that letter of the Comptroller's, about a 3-page letter, and he stated that the report had been reviewed with the governing committee.

Now, granting that it is true, what did he tell the governing committee? If there was any questioning of the report it would go back to him.

The next examination of the bank, just before the bank holiday, was made November 18, 1932, and was concluded in December. A meeting was held with the governing board around Christmas time. The classifications as shown by the report that went to the directors was: Slow, $78,305,000; doubtful, $83,874,000; loss $6,013,000.

The question of dividends was considered, and they were advised that no dividends should be paid at that time at all, because it would not be legal to do it. To that Truman Newberry took violent excep tion. And, as you may recall, Truman H. Newberry was elected the United States Senate once, and he came down here to Washing ton to take his seat, but found it was crowded. [Laughter.]

Mr. SAPERSTEIN. Can you give us the names of the members of the governing committee who were present at the time?

Mr. LEYBURN. F. M. Alger-well, will you give me a copy of the minutes of that date, because Mr. Stair was not present at this meeting I am sure, and I do not want to do anybody an injustice. I be lieve you have a photostatic copy of those minutes.

The CHAIRMAN. While Mr. Saperstein is looking for the minutes let me ask you: I think Mr. Mills testified that they never declared any dividend without your approval.

Mr. LEYBURN. I know he did; and I will get to that a little later on. He testified to a good many other things, too.

The CHAIRMAN. That he wanted to centralize authority, I believe, in this combination, and I presume he got that. Then his idea was to reduce the overhead and expenses.

Mr. LEYBURN. Well, he reduced the overhead all right when he raised his own salary the first of the year from $40,000 to $50,000. I think he wanted the distinction of being the only bank in the United States or industrial leader that did it. So he claimed he had a contract, and I don't know whether he did or not, but at least he didn't have to take the money. He could not distinguish between "" mine and "thine" very well, I should think.

66

Mr. SAPERSTEIN. You are referring to a photostatic copy of the minutes of the governing committee of the board of directors of the First National Bank of Detroit dated Friday, December 30, 1932. are you?

Mr. LEYBURN. That is right. Whoever was present was the gov erning committee.

Mr. SAPERSTEIN. According to the photostatic copy which is enclosed with a copy of your report, the following members were present

Senator COUZENS (interposing). Let us have the report put into the record. As long as that is a photostatic copy of the actual minutes, let us put them in.

Mr. LEYBURN. You see, what they wanted to do was

Senator COUZENS (interposing). Just a minute. Let us get this into the record first.

Mr. LEYBURN. Certainly.

Mr. SAPERSTEIN. I will offer this photostatic copy of the minutes of the meeting of Friday, December 30, 1932,