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acutely affected the banks, did you approve the policy of suggesting, and I use that term advisedly because that is the term that has been used here by Mr. Lord, to the boards of the various banking units of the group, that they pay dividends that were not justified by their current earnings? Mr. KANZLER. Well, in the first place I do not believe it was a

, policy.

Mr. PECORA. Well, whether it was the policy or not it was done, wasn't it?

Mr. KANZLER. We of the group company were aware that dividends were being declared by individual units from time to time.

Mr. Pecora. Were you also aware that those dividends were being declared by those different units pursuant to the suggestions of the group addressed to those units?

Vr. KANZLER. Not entirely. We assumed that there would, naturally, be a contact between the officers of the group and the officers of the individual banks, and that they would work out what would be a reasonable program as to what they should contribute by way of dividends to the group.

Mr. PECORA. Was such a program specifically worked out as a result of conferences that were held between officers and directors of the group on the one hand, with officers and directors of the unit banks on the other hand?

Mr. KANZLER. I have no knowledge of what happened in 1930 or 1931.

Mr. PECORA. Why not?

Mr. KANZLER. Because that was an operation problem, and as directors we knew nothing of that.

Mr. Pecora. As directors you knew nothing about the facts and circumstances that would have to be taken into consideration in declaring dividends for the group?

Mr. KANZLER. The picture that we got, as I recall it, was that dividends were being received at such a rate from various units, and that as a result of such receipts and as a result of the earnings, or estimated earnings, as the case may be, of the combined units which would be turned into the group company in the form of dividends, that a dividend from the group company to the stockholders would or would not be recommended, and the officers usually recommended that to the directors.

Mr. PECORA. What officers recommended it to the directors?

Mr. KANZLER. It depended upon who was reporting on the estimated earnings, or what was expected by way of dividends. Sometimes it might be an executive vice president. Sometimes it might be the president.

Mr. PECORA. Do you refer to officers of unit banks, or officers of the group?

Mr. KANZLER. Of the group company.

Mr. Pecora. Officers of the group company, in other words, from time to time advised the board of directors of the group of the earnings of the unit banks of the group?

Mr. KANZLER. Yes, sir.

Mr. PECORA. And upon that information so received the directors of the group took action with regard to the declaration of dividends by the group?

Mr. KANZLER. Yes, sir.
Mr. PECORA. That was the procedure, was it?
Mr. KANZLER. Yes, sir.

Mr. PECORA. As part of the information laid before the directors of the group by its officers, respecting the earnings of the unit banks, did the board receive at those conferences, or on those occasions, statements of the condition of the unit banks, with respect to their ability to pay dividends, and the amount of dividends?

Mr. KANZLER. As the group corporation got more organized, and as that seemed to become a more important item, I would say in 1932 there were statements made on the condition of the individual banks to the directors, in more or less detail.

Mr. Pecora. Were not those statements made during the year 1930 and the year 1931 ?

Mr. KANZLER. I do not recall directors meetings where the conditions of the units were examined, as a director matter. I do not recall

any such

Mr. PECORA. Were you, from the outset, a member of the executive committee of the board of directors of the group?

Mr. KANZLER. Yes, sir.

Mr. PECORA. Was that kind of information brought to the attention of the executive committee of the board of the group during the years 1930 and 1931?

Mr. KANZLER. I think that at times members of the executive committee who were heads of units might get up and make remarks about the condition of their own units.

Mr. PECORA. Was there not a so-called examining group or staff organized by the group, whose particular function it was to inquire regularly into the condition of the various bank units of the group? Mr. KANZLER. That was a force directed by Mr. Patterson.

Mr. PECORA. Exactly. That work was entrusted to Mr. Patterson, or entrusted to his direction.

Mr. KANZLER. And his organization.

Mr. PECORA. And his organization, primarily because of the fullness of experience which Mr. Patterson had as a national-bank examiner and à chief national-bank examiner before he became an officer of the group, was it not?

Mr. KANZLER. We all had confidence and believed in his ability.

Mr. PECORA. You believed in that ability because of the experience he had had as a national-bank examiner and chief nationalbank examiner for a great many years, did you not?

Mr. KANZLER. Yes, sir.

Mr. PECORA. Did that staff, or that division of the group engaged upon that work under the direction of Mr. Patterson, make reports from time to time, at regular intervals, to either the board of the group or the executive committee of the board ?

Mr. KANZLER. I recall some comments on some of the units. I do not recall the specific comments, but I do recall that Mr. Patterson did report from time to time on the condition of some of the units.

Mr. PECORA. I am going to be more specific. Were you aware of the fact that in 1930, as well as in 1931-but I am going to ask particularly about 1930—suggestions were made by the group, through its officers, to the executive officers of certain banking units of the group with respect to the declaration of dividends by the banking

units, and that upon receipt of those suggestions the officers of the banking units informed the officers of the group that the dividend which it was suggested by the group the bank should declare was not justified by the earnings?

Mr. KANZLER. I do not at the present time recall any such discussions, although they may have taken place.

Mr. PECORA. Such a discussion might have centered, if you recall it, around the declaration of a dividend requested or suggested by the group to be made by the Union Guardian Trust Co. for the second quarter of 1930. Do you recall anything about that?

Mr. KANZLER. I think that Mr. Stalker, or Mr. Blair may have made some remarks about the situation. I do not recall it specifically.

Mr. PECORA. What remarks did Mr. Stalker or Mr. Blair make about the situation around that time?

Mr. KANZLER. I do not specifically recall any remarks, but I do know that those gentlemen did comment on the progress

Mr. PECORA. Progress, you say?

Mr. Kanzler. In some cases progress, yes, sir. They were cutting expenses, and they were in a period of depression, and decline, and they were trying to work up their organizations' efficiency, to get better results, and they would comment on that from time to time, and sometimes perhaps the comments might not have been so favorable.

Mr. PECORA. Did this letter ever come to your notice, as the vice president and a director of the group? I am referring to the letter marked in evidence before this Committee as Exhibit No.7, of December 19, 1933. It consists of an intragroup memorandum addressed to Mr. Robert O. Lord by Mr. John N. Stalker, dated June 5, 1930, Mr. Stalker at that time being president of the Union Guardian Trust Co. [Reading:)

DEAR MR. LORD: We have your letter of the 4th instant with respect to the 5 percent quarterly dividend which you suggested that we pay this month. I presume a dividend of this amount is necessary to the fulfillment of your plan, and the officers are prepared to recommend it to the board. However, as you are aware, a dividend of this amount has not been earned. In addition to that, the trust company is setting up no reserves, and we feel that is not as it should be. There is no doubt in my mind that the company will suffer some losses.

That is not the entire letter, but I have read, I think, enough to indicate to you what the letier is, in order to recall it to your mind, if you had any knowledge of it at the time.

Mr. KANZLER. I think I recall that there was a general readjustment that was being worked out by the Trust Co., because of the fact that they were shifting some of the revenue earning departments from one company to another, and because there was a transitional stage and a merger, and a few other things going on, and that the officers did try to adjust themselves to a new situation.

Mr. PECORA. Did not the officers of the Trust Co. try to point out, in June 1930, to the officers of the group that the suggestion made by the group with regard to the dividend that should be declared by the Trust Co. was not a suggestion warranted by the facts?

Mr. KANZLER. I think that was their first idea, and I think there must have been some discussions whereby, in view of further expectations of some kind, there was a readjustment of the ideas that were expressed there. I think that was probably a sound statement at the time.

Mr. Pecora. Do you know that the readjustment was of a nature that led to the declaration of the dividend by the Trust Co. in pursuance of the original suggestion of the group, despite the fact that the officers of the Trust Co. pointed out that such dividend was not justified by the earnings?

Mr. KANZLER. I would not have known it, Mr. Pecora, except that I have been here and heard the testimony, and have heard that it had been done.

Mr. PECORA. Then, you were not aware of this correspondence that passed between the officers of the Trust Co. and the president of the group in June 1930?

Mr. KANZLER. I do not recall whether I was or was not, but I have heard it now.

Mr. PECORA. Is this the first time you have heard it, that is, since these hearings commenced?

Mr. KANZLER. I do not recall that I heard it before, but I think there was some oral discussion in the meeting. I do not think there were any letters produced or anything of that nature.

Mr. PECORA. Searching your own mind on the matter, Mr. Kanzler, do you think that if you had been informed in June 1930 of the facts pointed out by Mr. Stalker in his letter to Mr. Lord, a portion of which I have read to you, that you, as a director and officer of the group, would have taken the position that the trust company should, nevertheless, declare the dividend at the rate suggested by the group?

Mr. KANZLER. I cannot answer that question, because I do not know what Mr. Stalker had in mind as to what he might do in the way of future revenue-producing steps. That was a large operation. The trust company had always been a very successful one. Nobody knew what the next few months were going to bring. He may have thought he was perfectly justified, for the moment, in doing this, and in adjusting himself to it.

Mr. PECORA. I thought you were conscious, in June 1930 of the fact that you were fighting a war against the depression.

Mr. KANZLER. I had not said that. I said before that we realized things were not as good in 1930 as they had been in 1929.

Mr. PECORA. That is why I asked you at the outset this morning, Mr. Kanzler, when you first began to realize that the group was fighting a war against the depression.

Mr. KANZLER. I tried to indicate that

Mr. PECORA. So far as I understand your answers in the earlier part of your examination this morning, you became aware of the existence of the war against the depression sometime early in 1930.

Mr. KANZLER. You asked me yesterday where I got this expression "war against the depression.' I do not think it was ever used in 1930. I think that came as the crescendo developed. I do not remember when we first felt that it was as serious as it finally turned out to be.

Mr. PECORA. You were the head of a credit organization of great magnitude for many years, were you not?

Mr. KANZLER. It was organized in 1928, yes, sir.

Mr. PECORA. And as the head of that credit company, which was called the Universal Credit Corporation

Mr. KANZLER. That is correct.
Mr. PECORA. Were you not kept cognizant of business conditions?
Mr. KANZLER. Yes, sir; and we kept abreast of them.

Mr. PECORA. You did not have to know that a depression was on from knowledge that came to you as a director of the group, did you?

Mr. KANZLER. We had a very fine year in 1930.
Mr. PECORA. Do you consider that an answer to my question?
Mr. KANZLER. Yes I do.

Mr. PECORA. Did I ask you what kind of a year the Credit Corporation had in 1930?

Mr. Kanzler. No; you did not, but you say I was kept cognizant of conditions.

Mr. PECORA. When did you first realize that the depression was on? Let us put it that way.

Mr. KANZLER. I do not know of any one date.

Mr. PECORA. I do not mean to hold you to a specific day of the year. What period? What time? What season?

Mr. KANZLER. I would say that it became increasingly impressed upon my mind that things were getting constantly worse, and I would not say at one particular time that I started calling it a depression. I knew in October 1929 that we were going through something, and that impression magnified itself from month to month.

Mr. PECORA. When did it first assume the proportions of a depression, as you understand the term?

Mr. KANZLER. I would say, I cannot give you an answer. I do not know what I would term a depression”, in that sense.

Mr. PECORA. What did you term a "depression " when you said yesterday you were fighting a war against the depression? What were you referring to then?

Mr. KANZLER. I was referring particularly to the latter half of 1932.

Mr. PECORA. Is that when the war commenced, that you were fighting—the latter half of 1932?

Mr. KANZLER. That is when it seemed to me to develop into a battle.

Mr. PECORA. It was practically a catastrophe then, was it not?
Mr. KANZLER. It was pretty bad.
Mr. PECORA. It did not come overnight, in the latter part of 1932?

Mr. KANZLER. No; it did not. I say it was a crescendo that developed.

Mr. PECORA. When did the development commence, in your judgment?

Mr. KANZLER. I think, as an event, it started in the fall of 1929.

Mr. PECORA. You were a director of the Union Guardian Trust Co. in the year 1930, were you not?

Mr. KANZLER. Yes, sir.

Mr. PECORA. As a director of the Union Guardian Trust Co., you were familiar with the circumstances under which the bank declared a dividend at the rate of 20 percent per annum for the second quarter of that year, were you not?

Mr. KANZLER. We had the recommendation of the officers at that time, and the facts which they presented at the meetings.

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