Mr. LONGLEY. No; I didn't make any inquiry. There wasn't much discussion about it so far as I know. Senator COUZENS. Was there any discussion about it? Mr. LONGLEY. I suppose it was in connection with the adjustment of deposit accounts, the withdrawal of large amounts from the Guardian. No; I don't remember any particular discussion about it. But I would assume that was it, that they withdrew that money when they were withdrawing such large amounts from their deposits. Senator COUZENS. May I draw your attention to a question propounded by Mr. Pecora on yesterday, which appears on page 1279 of the stenographic transcript of testimony, in which Mr. Pecora asked Mr. LONGLEY (interposing). Propounded to me? Senator COUZENS. Propounded to you; yes. [Reading :] When the board of the R.F.C. expressed its view to you gentlemen that the stockholders, large depositors, and others interested in those banks of the Guardian Detroit Group should be consulted by the management of the banks concerned, and an effort made to formulate a program designed to meet the problems presented and to strengthen the position of the banks, what, if anything, do you recall was done by the board and the officers of the Guardian Detroit Union Group, Inc. Then you made a somewhat lengthy, or perhaps it is a brief, explanation of what was done, which appears on page 1280. Now, what I want to ask you is this: When this condition existed, and you were advised by the Reconstruction Finance Corporation to consult the large depositors and stockholders, one of your large depositors deliberately withdrew $700,000 at the very time you were pleading for loans from the R.F.C. Mr. LONGLEY. Yes. But we were just withdrawing from them a million and some two hundred thousand dollars, I believe. Mr. PECORA. Well, those were class A trust funds. Mr. LONGLEY. That is true, but we were taking it out of their deposits. Senator COUZENS. I do not understand even now what you mean by that. Mr. LONGLEY. Well, we were withdrawing from the Guardian National Bank of Commerce something like-have you that total amount, Mr. Pecora? It was a million two hundred and something. Senator COUZENS. Withdrawing that money for what purpose? Mr. LONGLEY. For this readjustment of deposits of the A funds. Senator COUZENS. But when you went before the Reconstruction Finance Corporation in June or July of 1932, you were then stating that the Union Guardian Trust Co. was in very bad condition, in a frozen condition, and that you were afraid if nothing happened to help the situation or, at least, if anything happened to the Trust Co., the whole group of units would be affected. Is that correct? Mr. LONGLEY. Substantially so; yes. Senator COUZENS. And then following that, your Guardian National Bank of Commerce withdrew $700,000 from your deposits and further embarrassed the condition of the Trust Co. Mr. LONGLEY. No. At the same time we were withdrawing from them a million two hundred thousand dollars, or something of that sort, of A funds. Mr. PECORA. Yes; but you transferred those withdrawals to other banks. You did not keep them in the Union Guardian Trust Co. Mr. LONGLEY. That is true enough. But we withdrew from the bank, and the bank withdrew from us. Senator COUZENS. Yes; but you did not keep those funds in the Trust Co. There was a diminution in the aggregate of deposits of the Trust Co. through this transaction, and that is what I am trying to get explained, because these photostatic copies specifically show a diminution; and there was an even greater diminution in the deposits of the Union Guardian Trust Co. after this transaction than there was before, a lesser amount remaining. I find no evidence in your testimony, Mr. Longley, given on yesterday, to show that there was any attempt to take that matter up with the stockholders or large depositors; I mean the suggestion made by the directors of the Reconstruction Finance Corporation when you were applying to them for a loan. Mr. LONGLEY. Well, the suggestion to me was not to take it up with any other than the Ford Motor Co. Senator COUZENS. Well, that is not according to the record as it was read by Mr. Pecora on yesterday. Mr. LONGLEY. Yes, but Senator COUZENS (interposing). Nor is it in accordance with the questions propounded. Mr. LONGLEY. Well, that is as I recall, what happened. As I remember it, I was asked why the Ford Motor Co. should not take care of this. I do not remember anybody else being mentioned in the way of depositors. Senator COUZENS. And I am not saying there was any other one mentioned, but according to the testimony read from the R.F.C. record it appeared in the plural. Mr. LONGLEY. That is right. Senator COUZENS. It stated "stockholders and large depositors", and there was no specific reference made to any particular company. Mr. LONGLEY. That is right. Senator COUZENS. So there would be no limitation upon the suggestion made by the R.F.C. that large depositors and stockholders should be consulted so as to put the Trust Co. in a sound condition. Mr. LONGLEY. Well, I do not know myself whether those minutes are correct or not. Ás I remember what happened, they are not correct. Possibly they put the word "depositor" in the plural. But the only thing that stuck in my mind was the word "depositor in the singular, and that happened over and over again. Senator COUZENS. Well, was there any attempt made between June of 1932 and the time of closing in February of 1933 to reorganize the trust company or to adjust its financial condition so that it might be relieved from its duties as a banker and remain only as a fiduciary institution? Mr. LONGLEY. No; not quite that. The Ford Motor Co., however, gave its aid at the end of the year 1932. And we were still hoping that in some way we could work out this deposit liability through a loan from the R.F.C. Senator COUZENS. As I understand it, there was no particular attempt made from the time of the large loan you got in July until January of 1933 to work out any plan of relieving the trust company of its deposit liability. Mr. LONGLEY. Yes; there was the plan I spoke of on yesterday. You will find it somewhere in the records of the trust company, a very careful budget plan, to cut down expenses, to cut down interest, to build up income, whereby we could try to balance the budget and work the thing out. Senator COUZENS. Yes; that may be in the minutes, but that does not give a record of any consultation that you had with depositors or stockholders. Mr. LONGLEY. I had plenty of conversation with one large depositor. Senator COUZENS. Did you have any with the stockholders of the Union Group? Mr. LONGLEY. I was continually talking to stockholders of the trust company, which was the Guardian Detroit Union Group. We were very much together, all of us. They, quite naturally, would be concerned. We spent hours and hours and Sundays and did everything else we could trying to work it out. Mr. PECORA, Mr. Longley, following up the line of examination by Senator Couzens, let me specifically recall to your attention at this moment what took place before the board of directors of the Reconstruction Finance Corporation at its meeting on July 5, 1932, which was attended by you, Mr. Bodman, Mr. Kanzler, Mr. Lord, and Mr. Walsh, as officers and directors not only of the Guardian Detroit Union Group, but also of some of the unit banks of the Group. Mr. LONGLEY. That is right. Mr. PECORA. I will read again to you from the Mr. LONGLEY (interposing). Wait a minute. Did you say some of the unit banks? Mr. PECORA. Well, the Guardian National Bank of Commerce was represented. Mr. LONGLEY. I see. Well, I think they were Group and Trust Co. representatives, perhaps. Perhaps others were not interested. Mr. PECORA. I will read again to you a portion of the excerpt from the minutes of the regular meeting of the board of directors of the Reconstruction Finance Corporation held on July 5, 1932, which I read on yesterday, and which is as follows: Mr. Bodman explained the problems confronting the 21 banks in Detroit and vicinity controlled by the Guardian Group, and stressed the seriousness of the situation. The board informed the bank officers present of its action in authorizing an emergency loan to the Union Guardian Trust Co. in the amount of $8,733,000, which it understood would relieve the situation temporarily, and indicated that it would consider making additional advances after the special committee had completed an examination of the collateral. The board, how ever And that means the board of the Reconstruction Finance Corporation expressed the view that the stockholders, large depositors, and others interested in these institutions should be consulted by the management of the banks concerned and an effort made to formulate a program designed to meet the problems presented and to strengthen the position of the banks. Mr. LONGLEY. Well, now, there is one place, Mr. Pecora, that I take issue on the correctness of those minutes. I do not believe we talked about banks at all. At that meeting it was a matter of the trust company. Mr. PECORA. Well, Mr. Bodman said Mr. LONGLEY (interposing). No, I don't think Mr. Bodman talked about banks. He can tell you better, but I don't remember about that. We had just one thing in our minds. Mr PECORA. You are not suggesting, are you, that these minutes are incorrect? Mr LONGLEY. I am not suggesting that, no. But it is not the way I remember it. Mr. PECORA. Is your memory or recollection of this discussion with the directors of the R.F.C. clear? Mr. LONGLEY. In a general way, yes. Mr. PECORA. Now, isn't it a fact Mr. LONGLEY (interposing). That is why in this particular connection it is clear: We were talking about the trust company. I do not believe any amount of discussion came into that connection with the condition of the banks. Now, it might have occurred and I might not have been attentive to it, but as I remember the situation we did not talk about the condition of the banks in that particular meeting. Mr. PECORA. What did you talk about? Mr. LONGLEY. We talked about the trust company, and we talked about the consequences. Mr. PECORA. What consequences were referred to by anyone? Mr. LONGLEY. What would occur if it was impossible to get liquidity in that bank, and be able to keep that institution open. Mr. PECORA. Well, will you tell us more in detail what was said about that? Mr. LONGLEY. Well, that was it generally. Mr. PECORA, What was it? Mr. LONGLEY. We emphasized lack of liquidity. Mr. LONGLEY. The Union Guardian Trust Co. Mr. PECORA. And what consequences were specifically stated would ensue in event the condition of the Union Guardian Trust Co. were not improved? Mr. LONGLEY. That you would have a reaction on every group bank, and every bank in Michigan in fact. Mr. PECORA. Isn't that practically what these minutes say? Mr. LONGLEY. No. You speak in those minutes, or whoever made them speaks of the condition of the banks, other than the trust company. And I don't think that was done. Mr. PECORA. Let me read: Mr. Bodman explained the problems confronting the 21 banks in Detroit * * * and expressed the seriousness of the situation. The situation was serious, was it not? Mr. LONGLEY. Yes, indeed. Mr. PECORA. And the seriousness of the situation extended to all of the unit banks of the group, did it not? Mr. LONGLEY. Yes; but that does not cover the discussion of the condition of those other units at all. That is what I am getting at. Senator COUZENS. I believe I see the distinction. Mr. PECORA. There may not have been any detailed discussion in regard to the condition of any other unit bank than the Union Guardian Trust Co. on this occasion; is that what you mean? Mr. LONGLEY. Yes. Mr. PECORA. But the seriousness of the situation with respect to the Union Guardian Trust Co. was discussed in detail, was it not? Mr. LONGLEY. Right. Mr. PECORA. And the discussion included the expression of the view or the fear that unless relief were given to the Union Guardian Trust Co. it would have to suspend? Mr. LONGLEY. Yes; it was possible that that might eventuate. Mr. PECORA. Was not the view further expressed at this meeting with the directors of the R.F.C. that, in the event of the suspension of the Union Guardian Trust Co., the other unit banks of the Guardian Detroit Union Group would be so affected by such suspension that they, too, would have to suspend? Mr. LONGLEY. I do not know how far you can go on that. The reaction would have been so serious that that might occur; yes. I think we can say that. We did not know just what the consequences might be, to tell the truth. Mr. PECORA. Did not that discussion lead to the expression of the view or opinion by the board of the R.F.C. that the stockholders, large depositors, and others interested in these various bank units of the group, should be consulted by the management of the banks concerned and an effort made to formulate a program designed to meet the problems presented, to strengthen the position of the banks? Mr. LONGLEY. Well, this is what sticks in my mind. We were asked why Mr. Ford should not take care of this. I think he was the depositor that was mentioned, as far as I know. I do not remember anything further than that. There might have been. Senator ČOUZENS. Was any reference made to stockholders? Mr. LONGLEY. I do not recall that. It is quite possible. Mr. PECORA. What, if anything, was done after the board of the R.F.C. expressed those views, by you and the others who met with the R.F.C. on July 5 to carry out the suggestion made by the R.F.C. that day? Mr. LONGLEY. I talked with the Ford people about this thing— not in furtherance of that, but in connection with the trust company, and a loan was made in furtherance of this application, but not of the amount we were applying for. Mr. PECORA. You were then applying for a $28,000,000 loan? Mr. LONGLEY. Yes; enough to take care of deposit liability, and an amount was finally given us by the R.F.C. with the thought that it would be sufficient, and we proceeded to do our best to balance the budget and carry it out with that loan. Senator CoUZENS. Of course a mere balancing of the budget would not have put you in position to pay out your deposit liability, would it? Mr. LONGLEY. Why not, if your assets are ultimately good? |