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dropped 10 points or 11 points or 5 points, depending on what the margin at that time was, that would immediately have a very unsettling effect on the public's mind as to the safety of their deposits in the various units and there would be withdrawals and hoarding would commence.

Mr. PECORA. Then the policy of the group in declaring its dividends was shaped partly, if not entirely, by a consideration of the effect upon the public mind with respect to the condition of the banks that were units of the group?

Mr. KANZLER. Yes, sir; I think that that had a decided influence in the mind of all of the individuals. I would say quite certainly that had a substantial effect upon the minds of the individuals declaring the dividends.

Mr. PECORA. Do you think that if that had not been the state of the public mind a different dividend policy would have been pursued by the group?

Mr. KANZLER. I have no question of it.

Mr. PECORA. From that is it fair to infer or to conclude that the directors of the group in declaring the dividends which they did declare from time to time fixed those dividends at a figure that was designed to bolster up public confidence in the banking units of the group?

Mr. KANZLER. No, sir; I would put it the other way: I would say that they declared the dividends in such a way that they would not destroy the institutions by reason of the runs that might be incited by a lack of confidence.

Mr. PECORA. Isn't that another way of saying that it was fixed in a fashion that was designed to keep up confidence of the public in the banking units?

Mr. KANZLER. I don't think it is the same thing.

The CHAIRMAN. Were dividends declared in order to keep up the prices of the stock, the quotations on the stock?

Mr. KANZLER. The price of the stock was one of the problems, and in spite of the fact that the dividend was declared in lessening amounts the stock acted rather irregularly and affected the institutions.

May I read you a letter from one of our units on that subject?

Senator COUZENS. Were there many transactions in the stock from day to day, Mr. Kanzler?

Mr. KANZLER. Yes, sir; there were a great number of them.
The CHAIRMAN. What stocks were listed?

Mr. KANZLER. All the bank stocks in Detroit were listed on the Detroit Exchange.

The CHAIRMAN. Was this group stock listed?
Mr. KANZLER. This group stock was listed, yes, Senator Fletcher.
The CHAIRMAN. Any of the units?
Mr. KANZLER. May I show you this letter?

Mr. PECORA. The Senator has asked also about the stocks of the unit banks.

Mr. KANZLER. No, sir; the units were not listed. They were all consolidated in one stock and that stock was listed on the exchange.

Senator COUZENS. Those two groups were the Guardian Detroit Union Group, Inc., and the other group that you mentioned?

Mr. KANZLER. That is correct; yes, sir.

Senator COUZENS. And you say there were a great many transactions taking place in those stocks every day?

Mr. KANZLER. Yes, sir.
Mr. PECORA. What is the letter you want to read?

Mr. KANZLER. This is a letter written by R. P. Shorts, president of the Second National Bank & Trust Co. of Saginaw, Mich.

Mr. PECORA. That was one of the group's unit banks?

Mr. KANZLER. That was one of our very fine unit banks; yes, sir. It is today. It is open today. This is a letter to Mr. James L. Walsh, executive vice president, Guardian Detroit Union Group, Inc., Detroit, Mich.

Senator COUZENS. What date?
Mr. KANZLER. That is dated December 21, 1931. (Reading:]
DEAR COLONEL: Have just wired you as follows: “Congratulations on ne
job and assurance of every assistance and cooperation”, which I now confirm.

And then something more about the job.
Mr. PECORA. Suppose you read the whole thing.
Mr. KANZLER (reading]:

Your new job is going to give you broader opportunities than you have ever had before and certainly the group needs some good men in Detroit devoting his entire time to its interests.

My own opinion is that the most constructive move you could possibly make at this time for the benefit of group banking in general, and our two Michigan groups in particular, would be to make arrangements whereby both the Detroit Bankers and Guardian stock would be immediately taken off the market. The Detroit Bankers stock has been nose-diving for some little time now and they might be in just the proper attitude to approach on this subject. Only last week one of our depositors withdrew $5,000 from our bank in cash and put it in a safetydeposit box, plainly stating that while he had every faith in our bank as a separate institution, he was worried about the declining market on Guardian stock-and would keep his money in cash until things got straightened around.

A large percentage of the decrease in Group deposits can be traced directly to market quotations on its stock. If the stock of both Detroit groups were not listed and constantly flaunted before the public's eye—the same as applied 5 or 10 years ago—both our depositors and stockholders would be in a much happier frame of mind. I know all of the usual arguments presented against taking our stock off the market and I am confident that it would be the most constructive step the group could take at this time, and I would go so far as to do it alone—if the other Detroit crowd would not join.

Now that that is off my chest, I feel ready for the day's work.
Good luck to you!
Cordially yours,

R. P. Shorts.
That was in '31.
Mr. PECORA. That was on December 21, 1931?
Mr. KANZLER. Yes, sir.

Mr. PECORA. That was written by R. Perry Shorts, who then was president of the Second National Bank & Trust Co. of Saginaw?

Mr. KANZLER. That is correct, sir.

Then on April 28, 1932, he wrote again. He wrote that time to Ernest Kanzler, chairman of the board, Guardian Detroit Union Group, Inc., Detroit, Mich.

DEAR ERNIE: Answering your memorandum of the 27th, it strikes me that the first thing to decide upon is a definite program in regard to taking our Guardian stock off the market at least 30 days prior to July 1, on which date dividends may be discontinued. If it is decided to take the stock off the market on or about June 1, a certain constructive, educational program for the benefit of our stockholders should be inaugurated. If on the other hand, it is decided not to take the stock off the market, then an entirely different program should be followed.

I am strongly in favor of taking the stock off the market whether the other Detroit group does so or not, not later than June 1 and if this program is adopted, I would suggest procedure along the following lines:

Prepare a strong letter to all stockholders, which would be signed personally by Mr. Lord as president. This letter would go out to stockholders on the same day that we would draw the stock from the market and would give our reasons for such action. This letter should make no reference to whether or not any dividends are going to be paid in July, but would be devoted solely to the reasons why the directors or executive committee decided to take the stock off the market.

This letter should recite the fact that through manipulation of brokers and speculators, our stock (as is the case with many other high-grade stocks) has been batted around from pillar to post like a football and driven down to a price which is wholly inconsistent with its true intrinsic value; that it is immaterial to brokers whether a stock is sold or bought through them as they make the same commission in either case; that brokers in their desperation for commissions during these strenuous times are telephoning our stockholders all over the State almost daily, advising them one way or the other about Guardian stock and inviting orders from them to either sell or buy; that as a result of this action many stockholders become greatly alarmed over the true value of their stock and are inclined to be influenced by every rumor that blows; that the directors know the stock to be worth far more than its present market quotation and are concerned about the heavy unnecessary losses being suffered by stockholders who are selling out on account of unjustifiable fear and untruthful rumors; and that the only way to protect the stockholders against such sacrifices is to remove the stock from the market entirely.

The letter should then explain that the directors fully appreciate the advantage to all stockholders of having some facility available through which they can sell or buy Guardian stock whenever they desire to do so. To meet this situation the Guardian will operate a stock trading department for the sole benefit of its stockholders desiring to buy or sell Guardian stock only. Parties desiring to sell or buy, may list their orders with the stock department and the manager will gladly render such stockholders every assistance and cooperation in their endeavors to sell or buy at a fair and reasonable price.

The letter should also mention the fact that the recent revelations to the United States Senate Committee investigating the New York Stock Exchange clearly show that on account of manipulation of brokers and speculators, the prices listed for stocks are often fictitious, unreliable and untruthful manifestations of their true value-and that bank stocks, representing the financial background of our country in which every man, woman and child is directly or indirectly interested, should not be subjected to such speculative attacks.

The letter should then recite that the whole matter had been given most serious consideration by the directors and large numbers of stockholders and that the great weight of opinion was that the interests of all of our stockholders would be best served by removing the Guardian stock from the market entirely and handling sales transactions through a private department of the bank for the sole use of the company's stockholders-no publication to be given as to sales or purchases and every sale to be considered a secret and confidential transaction between the buyer and the seller.

My idea would be to carefully prepare a letter along the above lines and send same out to stockholders on the same day we take the stock off the market. I am confident that practically all of the substantial stockholders (who are not influenced by brokers) will commend this action on behalf of the director. When July 1 comes and it is decided that no dividend will be paid, another good letter should be prepared and sent out to the stockholders, over Mr. Lord's signature, telling them the reasons for such action. So many large corporations, like United States Steel, and so forth, have already discontinued dividends that the damage from our decision to do so will, by July 1, be largely discounted.

With these two things accomplished and out of the way, the officers and directors will then be able to devote their sole time and attention to upbuilding the resources of the whole Guardian Group without having their minds continually diverted to crisis after crisis directly chargeable to stock market conditions.

I might add that in my judgment, the Detroit Group already know about our decision to discontinue dividends on July 1 and they will not, therefore, at this time permit us to drag them into a position where they will be pulling our coals out of the fire by taking their stock off the market at the same time we do. They

will, however, be glad to to see us take such action and will very probably follow our lead within a period of 30 to 60 days, and then the whole atmosphere will be cleared on this stock proposition.

I am convinced that if we postpone taking our stock off the market until they will join us in such action, that they will string the matter along for many months and in the meantime, because of our paying no dividends on July 1, we will suffer far more than they will. Our problem is our own problem, and it is not the same as theirs, for the simple reason that they have not the July 1 nondividend action to face.

I am familiar with all of the arguments on the other side of the question and have weighed them carefully. The biggest argument is the question about the effect upon deposits. No one can foresee what such effect may be, but personally, I think it is being grossly exaggerated and I am not afraid to "face the music”, but am in fact more fearful of the results that may follow if we do not promptly take our stock off the market at least 30 days prior to July 1.

If you gentlemen finally decide to adopt the above plan, I shall happily cooperate to the fullest extent in preparing the necessary forms of letters, etc., to be used in carrying the program into effect. Cordially yours,

R. PERRY ŞHorts. Mr. Pecora. Mr. Kanzler, will you produce that letter that you have just read?

Mr. KANZLER. Yes.

Senator COUZENS. And before you go into that, Mr. Pecora, I would like to have the note that Mr. Kanzler wrote to Mr. Shorts that prompted that letter.

Mr. KANZLER. May I read that letter?
Mr. PECORA. Yes.

Mr. KANZLER. Would you like to follow it from this copy [handing document to Mr. Pecoral?

Mr. PECORA. Yes. I offer in evidence the letter that has just been read by the witness and which has just been produced by the witness.

The CHAIRMAN. Let it be admitted and put on the record.

(Photostat of letter on letterhead of Second National Bank & Trust Co. of Saginaw, dated Apr. 28, 1932, from R. Perry Shorts to Ernest Kanzler, was designated “Committee Exhibit No. 65, Jan. 5, 1934," and appears in full immediately above where read by Mr. Kanzler.)

Senator COUZENS. Now if you will read your letter.

Mr. KANZLER. Yes; I will read the first letter, a letter to Mr. P.. Perry Shorts, president Second National Bank & Trust Co., Saginaw, on April 27, 1932, from Mr. Ernest Kanzler, chairman of the board, Guardian Detroit Union Group, Inc., Detroit. (Reading.)

DEAR PERRY: Please don't forget that you are going to write out a program for the handling of “roman numeral two."

II. Pride of stock as affected by possible dividend action, which, in turn, might affect deposits of institutions.

1. Statement to stockholders in letter in advance of date.
2. Dividend action,
3. Possibility of withdrawing from exchange.
4. Publicity attending same.
5. Method of handling after-withdrawals.
6. Any other ideas you might have.

Very truly yours.
Mr. Pecora. That is a letter signed by you?
Mr. KANZLER. That was signed by me, sir.

Mr. PECORA. I offer in evidence the photostatic reproduction of that letter which has just been read by the witness.

The CHAIRMAN. Let it be admitted and entered on the record.

(Photostat of letter on letterhead of Guardian National Bank of Commerce of Detroit, dated Apr. 27, 1932, from Ernest Kanzler to R. Perry Shorts, was designated “Committee Exhibit No. 66, Jan. 5, 1934”, and appears in full immediately above where read by Mr. Kanzler.)

The CHAIRMAN. What was done about that? Was that course pursued as recommended by you?

Mr. KANZLER. It was discussed, Senator Fletcher, but it was considered that it would be too dangerous to take it off the market, and I think this next letter illustrates the thoughts in the minds of the directors and the gentlemen who were discussing this problem. After I received Mr. Shorts' letter I sent it up to Dr. Fred Murphy, who was chairman of the board of the Guardian National Bank of Commerce--that was previous stationery there and he was using that at the time and on May 5, 1932, he wrote me [reading]: MR. ERNEST KANZLER,

Chairman of the Board, Guardian Detroit Union Group, Detroit DEAR ERNIE: Commenting on the letter of Mr. Perry Shorts of April 28. I quite agree with Mr. Shorts that bank stocks should not be traded in on the open exchange. To withdraw the Guardian stock without having the Detroit bankers take a like action would, in my opinion, be dangerous. The fact that the American State withdrew its stock from the Exchange just before it went into the hands of the receiver is fresh in the memory of the Detroit public and I believe that such an action would materially affect deposits.

There can be no question but that brokers, as a class, are interested solely in the buying or selling of a stock in order that they may collect a commission. Undoubtedly their constant telephoning to stockholders has been very unsettling. The stock has, however, reached such a low level, a level out of line both as to book value as well as tó ultimate earning possibilities, that I do not feel that a still further decline from this point would be followed by any serious withdrawals. The public has become hardened to these low price levels and since this level is comparable to that of many other sound stocks it would seem to me to be less difficult to explain such a shrinkage than to allay the fears of the public as to the causes leading to withdrawal. Whether the stock is listed or unlisted its price for purchase and sale will be determined ultimately by the statement of earnings and general conditions of the group.

If the Detroit bankers would withdraw their stock at the same time ours was taken off, I should favor the action, but to withdraw our stock without a similar action on their part would, in my opinion, be a more dangerous procedure than to have the stock remain and decline to any limits, however low, which might be determined by the buying public and the brokers' manipulations. Sincerely,

FRED T. MURPHY. Mr. PECORA. I offer in evidence the photostatic reproduction of the letter just read by the witness, which the witness has produced.

The CHAIRMAN. Let it be admitted and entered on the record.

(Letter on letterhead of Guardian Detroit Bank, dated May 5, 1932, from Fred T. Murphy to Ernest Kanzler, was thereupon designated Committee Exhibit No. 67, Jan. 5, 1934", and appears in full immediately above where read by Mr. Kanzler.)

Mr. KANZLER. Mr. Pecora, I have another one I think is material right on that same point that I want to read. Mr. Pecora. All right.

Mr. KANZLER. This is a letter on the stationery of the Capital National Bank of Lansing, dated May 23, 1932.

Mr. PECORA. That was one of the units of the group?

Mr. KANZLER. That was one of the units of the group, a unit which controlled at this time some 85 or 88 percent of the deposits of the

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