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Mr. LOXGLEY. Yes; they were frozen. It was lack of liquidity and we could not get liquidation fast enough to take care of the depositors.

Senator Couzens. So if you had closed up entirely and wiped out all your budgetary expense, you could not possibly have paid out your deposit liability?

Mr. LONGLEY. I do not know. That is what we were trying to work out, exactly.

Senator COUZENS. But that did not work out, did it?
Mr. LONGLEY. No; it did not.

Mr. PECORA. It could not possibly have worked out through the mere process of balancing the budget, could it?

Mr. LONGLEY. Not through the mere process of balancing the budget, no; but if we could, through our further efforts, get some liquidation in some way and get enough liquidity to take care of those depositors, and cut our expense and increase our income in some way, we thought possibly we might do it; we believed we could at the time.

Mr. PECORA. What specific efforts do you recall were made to unfreeze your assets or thaw them out?

Mr. LONGLEY. We put some special men on the work of liquidation, old, experienced men who we believed could do that job. You are just talking about that angle of it?

Mr. PECORA. Yes.
Mr. LONGLEY. I believe we got some better results in that way.

Mr. PECORA. Do you recall what results were obtained along those lines?

Mr. LONGLEY. No; I have not the figures.
Mr. PECORA. Were they substantial?

Mr. LONGLEY. I cannot give you the figures. No; I would not say that there was any great amount of liquidation that came from those efforts, but we tried hard enough. I would not say what it was; I do not remember. If they had been very substantial, I think probably they would have shown themselves more.

Mr. ÞECORA. In 1932, this very year in which application was made for loans from the R.F.C. for the immediate use and availability of the Union Guardian Trust Co., the Union Guardian Trust Co. declared a dividend, did it not?

Mr. LONGLEY. For the first quarter of 1932.
Mr. PECORA. Some time during the year?
Mr. LONGLEY. It was the first quarter of 1932.
Mr. PECORA. A dividend of $50,000!
Mr. LONGLEY. In the amount of $50,000.

Mr. PECORA. And that was paid to the group as the sole stockholder?

Mr. LONGLEY. That is right.

Mr. PECORA. What prompted the declaration of that dividend, in view of the then condition of the trust company?

Mr. LONGLEY. A very careful program had been laid out by the group company, to budget their requirements, and it was thought that the earnings of the trust company would permit that $50,000 dividend.

Mr. PECORA. Was it done in order to accommodate or respond to the wishes and plans of the group?

Mr. LOXGLEY. Why, I do not know that you can say that. Of course, the requirements of the group had something to do with it.

Mr. PECORA. Did it not have everything to do with it, as a matter of fact?

Mr. LONGLEY. I do not know that I can say that it had everything to do with it.

Mr. PECORA. What sound business consideration, apart from the desire of the group to increase its income, justified the declaration of this dividend by the Union Guardian Trust Co. in 1932?

Mr. LONGLEY. I do not know that there was any. They just injected $4,000,000 into the trust company. It was thought that the $4,000,000 would go a long way toward putting the assets in better condition; and $50,000 was such a small part of what they had just put in that they felt entitled to that amount, and the directors of the trust company agreed with them, some of them.

Mr. PECORA. There has been testimony given to this committee in the course of these hearings that during the years 1929, 1930, 1931, and 1932 the group received in cash dividends from various unit banks an aggregate of over $9,000,000, and that in the same period of time the group put back into various unit banks an aggregate sum of about $8,400,000. Are you familiar with those facts?

Mr. LONGLEY. No, not very. I know something, of course, about the amounts the group put back, some of the items that the group put back, because a large part of that came to the trust company.

Mr. PECORA. That is just what I was coming to. Is it not a fact that approximately seven and a half millions of dollars of that eight million four hundred thousand and odd dollars that the group put back into unit banks went to the Union Guardian Trust Co. alone ?

Mr. LONGLEY. Four millions at the close of 1931 and three and a half millions at the close of 1932. Seven and a half millions; that is correct.

Mr. PECORA. Which is an indication of the distress then being suffered by the Union Guardian Trust Co as compared with the distress being felt by all the other unit banks of the group; is that right? Mr. LONGLEY. That is right.

Mr. PECORA. And notwithstanding that distress, the trust company in 1932 declared this $50,000 cash dividend which was received by the group?

Mr. LONGLEY. That is right.

Mr. PECORA. Were you a director of the group from its inception, Mr. Longley ?

Mr. LONGLEY. No.
Mr. PECORA. When did you first become a director of the group!

Mr. LONGLEY. Late in 1931—no; wait a minute. Of the group! I think that was early in 1932. I can give you that accurately. (After referring to memoranda) December 14, 1931, I was elected to the board of directors of the Guardian Detroit Union Group.

Mr. PECORA. Was that your first affiliation in any way, shape or form with the group?

Mr. LONGLEY. Yes; I think so.

Mr. PECORA. Had you been connected with it in any professional capacity, as an attorney, prior to that time?

Mr. LONGLEY. No.
Senator COUZENS. Were you a substantial stockholder at that time.

Mr. LONGLEY. I would not call myself a substantial stockholder. I had, I think, 120 shares, perhaps a little more. I think my holdings finally ran up to 320 shares.

Senator COUZENS. You heard Mr. Stalker's testimony, did you not, as to how he came to be relieved of the presidency of the Union Guardian Trust Co.?

Mr. LONGLEY. Yes; I think so.

Senator COUZENS. He testified, as I remember it-perhaps at the suggestion of Mr. Pecora—that a lawyer would make a better banker than he would.

Mr. LONGLEY. I do not know just how he put it. I think perhaps he said that a good lawyer would do a better job than a poor banker. But John Stalker was a good banker. He has worked with me very closely.

Senator CouZENS. Why was he removed, if he was a good banker? Mr. LONGLEY. He was not removed from the organization.

Senator COUZENS. No; but he was removed from the presidency of it and you were put in his place.

Mr. LONGLEY. Yes.
Senator COUZENS. Why did that happen?
Mr. LONGLEY. His services were not lost to the slightest degree.
Senator Couzens. He was demoted, was he not?

Mr. LONGLEY. Would you call the vice chairmanship of the board a demotion? I would say it was a promotion.

Senator COUZENS. Not if I understand the general processes of the operation of the minds of those directors, I would not call it a promotion.

Mr. LONGLEY. Well, I cannot follow those fellows.

Senator Couzens. What is your interpretation? Is that really a demotion or a promotion ?

Mr. LONGLEY. I do not think it was regarded as a demotion. Mr. Stalker went right on with his work as he had. I do not know whether he thought it was a demotion or not.

Senator COUZENS. His testimony so indicated; and I remember that Mr. Harriman of the Harriman National was made chairman as a demotion to take him out of the active management of the Harriman National Bank.

Mr. LONGLEY. I do not think I would call it a demotion in Mr. Stalker's case.

Senator COUZENS. He felt it was, because he said he thought a good lawyer would make a better banker than a poor banker would.

Mr. LONGLEY. I do not think it made very much difference in the services that he rendered and continued to render to the trust company.

Mr. Pecora. Mr. Longley, I show you what purports to be a photostatic copy of another statement or report obtained from the files and archives of the Union Guardian Trust Co., entitled “ Certificate of deposit withdrawals (Feb. 1 to Feb. 11, inclusive, 1933).” Will you look at it and tell me if you recognize it to be an authentic or true and correct copy of such a report or statement from the files and records of the Trust Co.?

Mr. LONGLEY. Yes; I think that is.
Mr. PECORA. I offer it in evidence.
Senator COUZENS. The same will be admitted.

(Photostatic copy of sheet entitled “ Certificate of deposit withdrawals (Feb. 1 to Feb. 11, inclusive, 1933)” was received in evidence, marked “ Committee Exhibit No. 91, Jan. 17, 1934.") (See p. 5056.)

Mr. LONGLEY. I am assuming it is correct, if you got it from the records.

Mr. PECORA. Yes. Will you look at this exhibit which has just been marked “ Committee Exhibit No. 91 ” as of this date, and see if you recognize any of the names of the depositors withdrawing their certificate of deposit accounts between February 1 and February 11, 1933—the names of any directors or officers either of the Union Guardian Trust Co. or of the group?

Mr. LONGLEY. George W. Trendle is the only director on this list. I might say in that connection that Mr. Trendle had placed large sums on deposit in the A funds for investment, and I take it that these are withdrawals for the purpose of investing. Then above, on February 2, in the name of the Murray W. Sales Co. Of course that is a corporation of which Murray W. Sales was a director at that time. I do not see any others on here directly or indirectly connected with those withdrawals. Mr. Sales' withdrawal is apparently a normal one, $25,000. Mr. Trendle's seems to be quite a normal one.

Mr. PECORA. As I recall it, you became president of this trust company in the early part of the year 1932, at the annual meeting of the stockholders and directors?

Mr. LONGLEY. That is right.

Mr. PECORA. Are you familiar with the condition, reported by the State bank examiner, of the trust company, as result of his examination made as of August 8, 1932?

Mr. LONGLEY. In a general way, I think so.

Mr. PECORA. Do you know that at that time Mr. R. I. Hudson, who was the gentleman who made the examination for the Banking Commission of the State of Michigan, among other things reported as follows concerning the condition of the bank as of August 8, 1932? [Reading :)

It is practically impossible to determine the liquidity of this company. They have an authorized loan of $15.000,000 with the R.F.C. and, at the time of examination, had already obtained $7,426,685.44.

Mr. LONGLEY. I do not remember that, but if it was found in his report it is probably true. I have no question about it. Mr. Pecora. That comment was based on the facts, you think? Mr. LONGLEY. I think it was based on his examination. Mr. PECORA. You think it is a fair comment?

Mr. LONGLEY. Let me take it just a minute and see. (After referring to paper:) Well, I think that is a fair comment. It was a most difficult thing

Mr. PECORA. Did you know that the State bank examiner, in his report of examination of the bank made as of August 8, 1932, showed a net deficiency in the bank's condition of $2,915,889.34 ?

Mr. LONGLEY. That is not quite the way I would put it.
Mr. Pecora. That is the way he put it.
Mr. LOXGLEY. No. Is it not stated-have you a photostat of it?

Mr. PECORA. Yes.

Mr. LONGLEY. I think it is stated as estimated, is it not—the losses he suggests there?

Mr. PECORA. Under the caption of “Examiner's Estimate of Bank's Condition."

Mr. LONGLEY. So that was his estimate of the deficiency?
Mr. PECORA. Yes. Don't you think the estimate was accurate ?
Mr. LONGLEY. No; I do not.
Mr. PECORA. What do you think it was?
Mr. LONGLEY. We finally worked it out on a different basis.

Mr. PECORA. You know that he said, in reviewing the assets he found in the bank at that time, as follows:

Summary of assets just includes doubtful and loss, as practically all assets are slow and undesirable.

Mr. LONGLEY. I do not remember that note, but it may have been in there.

Mr. PECORA. Do you know that he stated as follows in that report: The figures set up in this summary give a fairly complete picture of this company. An effort has been made to set out in a fair manner the losses and doubtful items of the various departments. At the present time a complete analysis of the mortgage department is impossible, and many losses are apt to show up in the future. The company is in a very serious position, and final disposition is left to the office.

Meaning the office of the banking commission.
Mr. LONGLEY. I suppose; yes.
Mr. PECORA. Are you familiar with that?

Mr. LONGLEY. I remember it, generally. I have not seen it for some time, but I think it is probably just as he turned it in.

Mr. PECORA. That is, that is a fair report-a fair characterization?

Mr. LONGLEY. I think that is his opinion, all right. We had some differences on our final work-out of the thing; it was so difficult at that time to fix values, so difficult to determine what man could and what man could not take care of his future payments, and employ. ment was very, very poor in Detroit, and the curve on mortgage collections follows the curve of employment almost exactly.

Mr. PECORA. Do you know that he made the following comment in his report of that examination:

Credit files on loans and discounts very unsatisfactory. The few statements in files are mostly on corporations, hardly any on individuals, and the few statements are in most cases obsolete, No attempt appears to be made to have adequate credit information on short collateral lines.

Mr. LONGLEY. We were making every effort to correct that at that time.

Mr. PECORA. How had the credit files on loans and discounts been permitted to lapse into a condition where the examiner, as of August 1932, reports them as being very unsatisfactory and “the few statements in the files are mostly on corporations, hardly any on individuals, and the few statements are in most cases obsolete"?

Mr. LONGLEY. Well, I do not know how it happened in the past, but I do know that these new men that we put to work on that liquidation were making every effort to get those credit files as they should be. They were very strenuously attacking that job.

Senator COUZENS. Did they get into that condition under Mr. Stalker's administration?

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