or at least seventy-five percent (75%) of said capital stock, by the exchange of one share of the capital stock of this corporation, having a par value of Twenty Dollars ($20.00) for one share of the capital stock of Keane, Higbie & Company, having a par value of Ten Dollars ($10.00) and to secure the waiver by the stockholders of this corporation of the special right to subscribe for the stock of this corporation required in effecting such exchange.

If you are unable to be present in person, will you please promptly sign and return the enclosed proxy and waiver.

Yours respectfully,

JOHN N. STALKER, Secretary.

Now, on September 10, 1929, the stockholders, at the meeting called for and referred to in this letter, approved the acquisition of the Keane, Higbie & Co. stock on a share-for-share exchange basis? Mr. BLAIR. I believe they did.

Mr. PECORA. And that exchange was thereupon effected?

Mr. BLAIR. Yes.

Mr. PECORA. Who were the stockholders of Keane, Higbie & Co. at that time?

Mr. BLAIR. I do not think I can say.

Mr. PECORA. Do you recall the names of any of the largest in dividual stockholders of Keane, Higbie & Co. at that time?

Mr. BLAIR. Mr. Higbie was by far the largest stockholder; I am sure of that.

Mr. PECORA. Do you recall the extent of his holdings of Keane, Higbie & Co. stock at that time?

Mr. BLAIR. No, but I am quite sure it was much more than half. Mr. PECORA. He was a large majority stockholder?

Mr. BLAIR. Yes, sir.

Mr. PECORA. Mr. Higbie was also one of the officers of Keane, Higbie & Co at that time, was he not, or a director?

Mr. BLAIR. He was either president or chairman; I have forgotten which.

Mr. PECORA. The first time it was proposed to you as the executive head of the Union Commerce Corporation that that corporation acquire Keane, Higbie & Co. was when you were having breakfast at the Hotel Biltmore in New York City, some time in the summer of 1929?

Mr. BLAIR. Yes.

Mr. PECORA. You had gone to New York on that occasion to confer with representatives of Goldman-Sachs & Co. ?

Mr. BLAIR. Yes.

Mr. PECORA. Goldman-Sachs & Co. had indicated to you previously its desire to acquire something like 30,000 shares of the capital stock of the Union Commerce Corporation?

Mr. BLAIR. Yes.

Mr. PECORA. Did the Union Commerce Corporation at that time have authority to issue those 30,000 shares?

Mr. BLAIR. It did not.

Mr. PECORA. Did you tell that to the representatives of GoldmanSachs & Co. ?

Mr. BLAIR. Certainly.

Mr. PECORA. What specific offer did Goldman-Sachs & Co. make to you for those 30,000 shares?

Mr. BLAIR. $120 a share.

Mr. PECORA. And that was made some time in July 1929, if I correctly understand your prepared statement which is marked "Committee's Exhibit No. 80"?

Mr. BLAIR. I do not remember exactly, but I should think it was some time in July. I could not say definitely. I remember the occasion but not the date.

Mr. PECORA. That offer was originally suggested to you by Mr. Covington, one of the vice presidents of the National Bank of Commerce at that time?

Mr. BLAIR. He did not suggest the offer; he suggested that a man whom he knew was in touch with or a representative of a New York banking house. He gave me no information as to the name of the house or the individual he referred to.

Mr. PECORA. Well, it subsequently developed that the New York banking house he referred to was Goldman-Sachs & Co.?

Mr. BLAIR. Yes, sir.

Mr. PECORA. Did the individual that he referred to meet you in connection with this offer?

Mr. BLAIR. Oh, yes; we met in his office.

Mr. PECORA. Who was it?

Mr. BLAIR. Mr. Clarence M. Bitting.

Senator CouZENS. Was he with the Fisher Co. at that time?
Mr. BLAIR. Yes, sir.

Mr. PECORA. What was the total amount of capital stock which the Union Commerce Corporation had issued and outstanding at that time when you received this offer for 30,000 shares at $120 a share?

Mr. BLAIR. Of course it was something more than half a million shares, because the original amount as stated here was 500,000 shares. Mr. PECORA. I think it was just about 478,866 shares, was it notthe total number of shares outstanding?

Mr. BLAIR. I rather think it was more than that, because we had taken in the Griswold First State Bank prior to that, and something like 20,000 shares had been issued at that time.

Mr. PECORA. Was Mr. Carl Higbie a director at that time of the Union Commerce Corporation?

Mr. BLAIR. Yes.

Mr. PECORA. And a large stockholder?

Mr. BLAIR. No.

Mr. PECORA. You say in your prepared statement which is marked "Committee's Exhibit No. 80," referring to your original conversation with Mr. Higbie in which he first suggested that the Union Commerce Corporation acquire Keane, Higbie & Co., that "Mr. Sanger and I were staying at the Biltmore Hotel, and while eating breakfast there the next morning" and Mr. Higbie came into the dining room; that " we called him and he sat with us. During breakfast we told him of the Goldman-Sachs offer and asked him to think it over and give us some advice regarding it when he returned to Detroit. I gained the impression he thought well of the connection and the offer."

You gained that impression, I presume, from the conversation you had at breakfast that morning with Mr. Higbie?

Mr. BLAIR. Yes.

Mr. PECORA. Did he indicate that the first he knew of this offer of Goldman-Sachs & Co. was when you told him that morning? Mr. BLAIR. I do not think he could have known anything about it before that, because we did not receive the offer until late in the afternoon of the day before.

Mr. PECORA. Well, after you and Mr. Sanger returned to Detroit from New York following this conference you had with representatives of Goldman-Sachs & Co., did you meet Mr. Higbie in Detroit? Mr. BLAIR. He came to see me sometime after; I don't know how long after.

Mr. PECORA. Did he then express to you his opinion of the offer that you had received from Goldman-Sachs & Co. for these 30,000 shares of Union Commerce Corporation stock?

Mr. BLAIR. I do not remember. I know that he never opposed it

Mr. PECORA. You say in your prepared statement from that point on as follows:

“Just as we left the table "-meaning the breakfast table-" Mr. Higbie said to me in a jocular way, 'Why don't you buy Keane, Higbie & Co.?' To which I replied,' Give us a chance. Come and

see me.""

Was that the first time anyone had ever proposed to you that the Union Commerce Corporation acquire all the capital stock of Keane, Higbie & Co.?

Mr. BLAIR. As far as I remember; yes.

Mr. PECORA. You said in your prepared statement that Higbie asked you in a jocular way, "Why don't you buy Keane, Higbie & Co. ?",

Mr. BLAIR. That is the way Mr. Higbie would approach any business proposition.

Mr. PECORA. Did you answer him, equally in a jocular way, "Give us a chance. Come and see me "?

Mr. BLAIR. I think probably I did. We were both smiling, but both probably thinking a lot of things.

Mr. PECORA. Did you attach any seriousness to his jocular way of asking you why you did not buy Keane, Higbie & Co.?

Mr. BLAIR. I think I did. I expected he would come and see me, and he did come.

Mr. PECORA. He came?

Mr. BLAIR. Yes.

Mr. PECORA. Shortly after you returned to Detroit?

Mr. BLAIR. I don't remember just how long after; I should say 2 or 3 weeks.

Mr. PECORA. Then did you and he discuss in full detail the matter or plan of Union Commerce Corporation acquiring all of the capital stock of Keane, Higbie & Co. ?

Mr. BLAIR. Before we got through with our negotiations we did;

yes.

Mr. PECORA. Will you give this committee as briefly as you can the substance of the negotiations and conversation that took place between you as the representative of the Union Commerce Corporation and Mr. Higbie as the representative of Keane, Higbie & Co. which led ultimately to the acquisition of the capital stock of Keane, Higbie & Co. by the Union Commerce Co.?

Mr. BLAIR. I do not believe I can remember the details of the conversation.

Mr. PECORA. You conducted those negotiations actively in behalf of the Union Commerce Corporation, did you not?

Mr. BLAIR. I did. I remember this, that during these negotiations Mr. Higbie submitted a balance sheet and an inventory of the company's holdings. I remember we took the latest quotations of the securities and fixed from that a book value on Keane, Higbie & Co.'s stock. My remembrance is that that book value was something like 63 or 64 or 65 dollars. I remember that Mr. Higbie submitted a statement of the earnings for the first 6 months. I think that statement was made by Ernst & Ernst; he had some Ernst & Ernst statement with him at that time. Whether it was for the prior year or for that 6 months I do not remember. I do remember that I said to him, "Where did you make these earnings? Where did you get all of them?" And he went down through some papers he had; and I find this slip (indicating) with my papers, which I probably made at the time, indicating approximately where the earnings for the prior 6 months had come. Following all that we came down to the question of price and method of payment, and Mr. Higbie's suggestion was, as I stated. Whether that was his first suggestion or final one I cannot remember at this time. I rather think it was the first suggestion he made.

Mr. PECORA. What was it?

Mr. BLAIR. That we had reached a point where our minds met closely enough so that he proposed that we make an exchange on a share-for-share basis. Then I had been somewhat concerned about the Goldman-Sachs matter as to whether or not our stockholders would agree to waive; and I made it a part of the proposition that if our stockholders agreed to this, the stockholders of Keane, Higbie & Co. would assume that-I will not call it a contract; it was not a contract, but that arrangement which the directors had approved of with Goldman-Sachs & Co.

Mr. PECORA. The stock of Keane, Higbie & Co. outstanding at that time was very closely held, was it not?

Mr. BLAIR. I rather think so; yes. I never knew exactly, Mr. Pecora, how it was held. I never concerned myself with that particularly.

Mr. PECORA. Do you know how many stockholders there were at the time, of Keane, Higbie & Co. ?

Mr. BLAIR. I had an impression in some way that there were not more than a dozen, but I do not know that. I do not think I ever knew accurately. I was not concerned so much with individuals as I was with the proposition itself.

The CHAIRMAN. The committee will now take a recess until 2 o'clock.

(Whereupon, at 1 p.m., a recess was taken until 2 p.m. of the same day, Tuesday, Jan. 16, 1934.)

AFTERNOON SESSION

The subcommittee reconvened at the expiration of the recess at 2 p.m., Tuesday, January 16, 1934.

TESTIMONY OF FRANK W. BLAIR-Resumed

Mr. PECORA. When did you bring to the notice of the board of directors of the Union Commerce Corporation the proposition that that corporation acquire the capital stock of Keane, Higbie & Co. on a share-for-share basis?

Mr. BLAIR. I cannot give the date, Mr. Pecora. After the conversations with Mr. Higbie I talked with several of the directors. I do not ever remember the ones I talked with now, but we arranged for a meeting of the board very soon after that. I think it would be a very few days.

Mr. PECORA. I think it was on August 20, 1929.

Mr. BLAIR. Possibly that is so.

Mr. PECORA. Was the Keane, Higbie & Co. stock actively traded in at that time?

Mr. BLAIR. Oh, no; I do not think so. I think it was very closely held, and I do not think it was on the market at all.

Mr. PECORA. How did you determine, for the purpose of submitting a proposal for the acquisition of the stock to your board, the value of the Keane, Higbie & Co. capital stock?

Mr. BLAIR. We took the statement of Keane, Higbie & Co. and the inventory of Keane, Higbie & Co., applied the prices prevailing, as near as we could determine at the date we made the computation, and in that way arrived at what we thought was the book value of the company, and, as I remember, it was somewhere around $63 or $64 or $65 a share.

Mr. PECORA. Did its book value at that time, computed by that method, approximate the book value of the Union Commerce Corporation stock?

Mr. BLAIR. It was, as I remember, $10 or $12 a share more than the Union Commerce.

Mr. PECORA. What did Mr. Higbie indicate to you, at the outset of the negotiations, would be the advantages accruing to the stockholders of Keane, Higbie & Co. from this contemplated sale, did he say?

Mr. BLAIR. No. I doubt if he would tell me what advantage he thought they might receive. I think he would tell me what advantage he thought our stockholders might receive.

Mr. PECORA. What advantage did he say your stockholders would receive?

Mr. BLAIR. Well, he said that Keane, Higbie & Co. could bring to us, that is, to the trust company, trusteeships in corporations in which Keane, Higbie & Co. had a part in refinancing. He could bring to the bank bank accounts from these corporations; and that they could provide considerable earnings to the stockholders.

Mr. PECORA. Did he say by what methods those earnings would be obtained-what kind of business?

Mr. BLAIR. Oh, yes; through the investment banking business. Mr. PECORA. Were those results achieved after the acquisition of Keane, Higbie & Co. by your Union Commerce Corporation?

Mr. BLAIR. For perhaps 2 or 3 months, and then the cataclysm came that made it impossible for any investment house to make any money.