loans and discounts as between January 1, 1932, and December 13, 1932 [reading]:

$915,479.88 represented charge-offs, and $362,764.17 liquidation.

So that nearly two thirds of the reduction was brought about by charge-offs.

Mr. LONGLEY. That was one particular item, was it not?

Mr. PECORA. What is that?

Mr. LONGLEY. That was one particular item.

Mr. PECORA. What was that one particular item?

Mr. LONGLEY. I do not know. You read it-loans and discounts, wasn't it?

Mr. PECORA. Yes.

Mr. LONGLEY. For the whole Trust Co. during that year, we got approximate liquidation of around $5,000,000.

Senator COUZENS. What was that particular item of $915,000 charge-off under loans and discounts?

Mr. LONGLEY. I do not know without checking up.

Mr. PECORA. Let me read to you the following from page 8 of the examining committee's report of December 13, 1932, under the caption of "Charge-off losses column":

In view of what has been reported in the foregoing, your committee recommends either charging off the items under net loss, totaling $4,789,689.89, or setting up an appropriate special reserve to which these items of loss, when taken, may be charged.

Senator COUZENS. Is there any indication what those items are? Do you know what they are, Mr. Longley?

Mr. LONGLEY. No; not without checking the report. That was the report, you see, that came after the holiday, and I never had much of an opportunity to study out what should be done with it.

Mr. PECORA. On page 20 of this examining committee's report, under the caption "Summary of Charge-offs, Etc.", I read as follows: Capital structure, December 13, 1932: Capital surplus and undivided profits. $7,394,891.87; reserves for balance sheet, $1,034,187.45; less rent reserve, not allowed, $87,864.63; total, $946,322.82.

Of the above reserves, there were used for write-off purposes, prior to the date of this report, $90,372.72, of which $7,000 was for items not covered by the committee's recommendations.

Charges as recommended: Losses, $4,789,689.89. Doubtful, one half of $2,924,131.97, amounting to $1,462,065.98. For loans of less than $5,000, $79.184. For trust account advances of less than $2,000, $17,691.94. Reserves for American State bank guarantees. $420,442.53. Reserves for items in litigation, $155,428.50. C. W. Harrah. $61.750. Childrens' fund, $60,000, making a total of charge-offs of $7.046,252.84.

Mr. LONGLEY. Charge-offs and reserves.

Mr. PECORA. Charge-offs and reserves, leaving a resulting capital of $1,287.961.85.

Senator COUZENS. Have you a copy of this report, Mr. Longley? Mr. LONGLEY. No, sir.

Senator COUZENS. You will notice on the bottom of that report that Mr. Pecora just read, the item "Childrens' fund." That does not mean the childrens' fund of Michigan, does it? There could not be any charge-offs for that?

Mr. LONGLEY. Yes; I think it does, as I remember. Let us see if I can find it here.

Senator COUZENS. They never had any loans. How could there be charge-offs?

Mr. LONGLEY. It was not that. It was liability of the Trust Co. Shall I read it?

Mr. PECORA, Please.

Mr. LONGLEY (reading):

In December of 1929 the Guardian Trust Co. had sold the childrens' fund of Michigan $1,560,000 in mortgages. The Trust Co. agreed that if payments on the principal of the same should in any year be less than $150,000 it would repurchase from the fund sufficient mortgages to bring the principal payments received during the year up to that amount.

It also agreed to substitute new mortgages in good standing for any on which interest payments were 3 months or more in arrears, or principal 6 months or more in arrears.

At the present time the principal balance due under the mortgages held by the fund is approximately $1,200,000.

A working agreement was effected in August 1932 to the effect that the Trust Co. pay, and continue to pay all delinquent interest and taxes, and repurchase from time to time mortgages in default, it being expressly stipulated by the childrens' fund that this forbearance waives none of their rights under the original agreement.

In the year 1934 something like $800,000 of mortgages mature. Under the arrangement last mentioned, however, and for so long as it continues, the Trust Co. is relieved of finding the amounts in cash required under the original guarantee. However, we are obliged to take up defaulted mortgages and pay delinquent interest and taxes, so that there is the question of some shrinkage in the fund.

That is the loss, possibly, on that guarantee.

Senator COUZENS. That is an estimated loss.

Mr. LONGLEY. It goes on, Senator. [Continuing reading:]

It is reported to your committee that the particular mortgages which were put into that account were the very best at the time. Therefore, the shrinkage should, perhaps, be less than in the general average of mortgages. Your committee recommends a reserve of 5 percent of the present face value, or $60,000, to be set up in the reserve.

That is how they came to figure it up.

Mr. PECORA. Mr. Longley, do you recall a conference that you had with the Commissioner of the State Banking Department of Michigan shortly prior to March 15, 1933?

Mr. LONGLEY. Yes.

Mr. PECORA. What took place at that conference?

Mr. LONGLEY. We are looking for instructions from the banking department, really. There were several of us-counsel for the Trust Co. and the treasurer and one or two of the more influential directors, called upon Mr. Reichert and discussed the situation with him. We tried to explain our problems, which he said he was very familiar with. He stated that as far as he was concerned, until that banking holiday was ended there was not anything that he could do. The Trust Co. felt that it had been very badly hurt over the publicity in connection with the holiday and in connection with our general position, but we met with Mr. Reichert, the banking commissioner. I think there is something in the minutes that will give you that more in detail. That is my general recollection.

Mr. PECORA. I have before me an extract of the minutes of the meeting of the executive committee of the board of directors of the Union Guardian Trust Co., held on March 15, 1933, from which it appears that at that meeting you made a report to the executive

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committee of your conference with the banking commissioner. I will read the following excerpt from the minute book of that meeting of the executive committee:

Mr. Longley stated that the report of the examining committee of our board was presented to the commissioner of the State banking department. That there were also present his deputy, Mr. Taylor, and Mr. Gorman, an assistant attorney general.

Mr. Longley stated that he was accompanied by Mr. Haberkorn, Jr., Mr. Maurice, Mr. Harris, and Mr. Bulkley. That the commissioner and his deputy examined the report briefly and asked what the representatives of the company wanted to discuss with him.

Mr. LONGLEY. I was thinking of another meeting.
Mr. PECORA. Let me finish.

Mr. LONGLEY. All right.

Mr. PECORA (Continuing reading):

Then Mr. Longley, Mr. Maurice, and Mr. Bulkley presented the problems confronting the Trust Co. under the present conditions, and the lack of cash for operations, with which situation the commissioner said he was familiar. The representatives of the company told him that they would like to go into the whole situation in detail, and had come out for that purpose. That Mr Harris had prepared the figures showing the cash deficit resulting from operations in February, which figures showed a cash deficit of approximately $56,789. The commissioner then made a statement that his position was that he would do nothing to interfere with the operation of the banks or trust companies during the Governor's holiday, nor would he consider, in any event, the appointment of a receiver for any such institutions, giving as his reason that he was advised by counsel that he had no power to do so. He then stated that he would receive our report, and in the usual course would examine it and have his staff make an examination of the Trust Co., but not during the holiday. He stated that he was familiar with the Trust Co.'s operations as they had been carried on under the restrictons of the holiday, and that the company should continue to function in this way for the present, stating the he was assured the Governor would not permit the holiday to end until remedial legislation was enacted by the legislature, under which the banking commissioner could take some definite action.

This closed the conference.

Mr. LONGLEY. That is right.

Mr. PECORA. What was the other conference you had in mind? Mr. LONGLEY. A conference later in connection with the conservatorship, after the law was passed.

Mr. PECORA. What was the substance of that conference?

Mr. LONGLEY. A general discussion, and finally a discussion as to the appointment of a conservator for the Trust Co. under the new legislation which had been finally passed by the Michigan Legislature.

Mr. PECORA. At that time you and the other officers and directors of the Trust Co. were interested in the enactment of remedial legis lation by the Michigan State Legislature, were you not?

Mr. LONGLEY. You mean at the time of the first meeting you spoke of?

Mr. PECORA. About this general period, in the early part of 1933! Mr. LONGLEY. Yes, indeed. That is exactly what we were interested in, very much.

Mr. PECORA. What particular legislation were you desirous of having enacted?

Mr. LONGLEY. It finally culminated in that Payne-McNitt bill. which permitted opening under restrictions and operating under restrictions. It permitted a conservator.

Mr. PECORA. Did you trust company, for the purpose of furthering its interest in legislation, employ anybody to represent it at the State capitol?

Mr. LONGLEY. No; not that I know of. Judge Lacy, who was one of the directors of the bank-I do not think he was a director of the group. I think he was a director of the Group Co.-spent a great deal of time in Lansing, and I believe had a great deal to do with writing that bill, and getting it through. That is the general understanding around Detroit, that he did.

Mr. PECORA. I have before me what purports to be a photostatic copy of a memorandum transmitted to you by Mr. John N. Stalker under date of February 1, 1933, which reads as follows [reading]:

Our executive committee, as you know, is of the opinion that some arrangement should be made to keep this company posted on pending legislative matters, and it seems to us that other units of the group would desire to be similarly informed. There is also at least one piece of legislation relating to the taxability of life insurance, which we would like to see put through at the present session.. The attached memorandum indicates comments from Mr. Henry Bulkley, Mr. Hal H. Smith, and Mr. George H. Klein.

My own idea and recommendation would be as follows:

1. That the arrangement should be a group arrangement.

2. That Mr. Klein's recommendation as to the manner of handling the problem should be adopted in principal.

I believe that a man of the type Mr. Klein suggests would be far more effective than a young lawyer, who might be sent to Lansing to live during the continuance of the session. The latter arrangement, it seems to me, would cost a good deal-a lawyer of the experience and force necessary to accomplish what we have in mind being necessarily quite expensive. A less-expensive man would perhaps not be able to accomplish a great deal. It may be questioned as to whether it would be desirable to have our employee a lawyer at all. The man selected would be retained primarily as a fact finder, which would leave us entirely free to deal with any specific problems in the manner suggested by Mr. Smith or in any other way that seemed wise. At the same time a man of the type proposed would, by special arrangement with us, be able to exert no small degree of influence in the molding of prospective legislation and in obtaining the passage of the same, or perhaps the contrary. It seems to me that the group, if it should approve the general idea, might advantageously inquire through Mr. Gorman or other channels as to Dr. Webber or any other available material.

As you know, it is the view of the committee that a conclusion ought to be reached at the very earliest possible date.

Do you recall that memorandum?

Mr. LONGLEY. I remember the letter; yes.

Mr. PECORA. Who is the Mr. Gorman referred to here?
Mr. LONGLEY. I suppose it was Mr. Gorman in Lansing.
Mr. PECORA. An assistant attorney general?

Mr. LONGLEY. No.

Mr. PECORA. Who?

Mr. LONGLEY. I don't know. It might have been Mr. Gorman. Whether it was he or his brother I do not know.

Mr. PECORA. Who is Mr. Gorman that you refer to?

Mr. LONGLEY. There is a Mr. Gorman in Lansing in connection. with the Lansing bank.

Mr. PECORA, Who is his brother?

Mr. LONGLEY. That is a unit of the Guardian Group. His brother was he is since dead-in the attorney general's office.

Mr. PECORA. Was he the assistant attorney general referred to in your report to the executive committee of March 15 last of your conference with the State banking commissioner?

Mr. LONGLEY. Yes; that is right; he was.

Mr. PECORA. I have before me what purports to be a photostatic copy of another memorandum addressed to you by Mr. John N. Stalker under date of February 6, 1933, reading as follows

Mr. LONGLEY (interposing). Pardon me. What was the date of the other one?

Mr. PECORA. February 1, 1933. This one of February 6, 1933, reads as follows [reading]:

Referring further to my memorandum of February 1 with respect to the proposed arrangements to be made by the Group at Lansing, Dr. Louis Webber referred to therein was in town today discussing with Mr. Klein certain matters relating to the real estate mortgage bond commission, of which both he and Mr. Klein are members. I met Dr. Webber in Mr. Klein's office. and without any implied commitment of any sort, discussed with him the possibility of getting him to represent the Group. As previously stated, Dr. Webber is secretary of the Real Estate Association, is a small-town man and is so regarded, and is a resident in Lansing, and though other activities already has or is getting the various contacts necessary to do a good job.

Dr. Webber's idea of compensation would be a retainer of $500 and payment of $160 a month luring the period that the legislature is in session, plus out-of-pocket disbursements for telephone calls, traveling expenses, etc. Any entertainment which he might see fit to do (and he said that there would be some) would be taken care of out of the retainer or monthly payment.

Should we desire Dr. Webber's active assistance either in getting proper legislation passed or in preventing improper legislation from being passed, he suggested $500 per bill-that matter could, of course, be left entirely open and would be subject to negotiation should his assistance be desired.

I would suggest that it might be desirable and helpful to get in touch with Mr. Klein both as to the wisdom or necessity of some such arrangement as that proposed and as to Dr. Webber's qualifications. While I have known Dr. Webber slightly and have seen something of his work through the Michigan Association, Mr. Klein knows him a good deal better than I do.

(Signed) JOHN N. STALKER,
Vice Chairman.

Do you recall that memorandum, Mr. Longley?
Mr. LONGLEY. Yes; I recall it.

Mr. PECORA. Was any arrangement made with Dr. Webber to represent either the trust company or the Guardian Detroit Union Group?

Mr. LONGLEY. No, sir; as far as I know.

Mr. PECORA. In securing legislation that was desired or preventing the enactment of legislation that was regarded as improper? Mr. LONGLEY. Not as far as I know, Mr. Pecora.

Mr. PECORA. Did you have any contact with Dr. Webber for the purpose of arriving at a judgment as to whether or not he should be retained by either the trust company or the Group as per Mr. Stalker's suggestion?

Mr. LONGLEY. I was not even interested. died right there.

As far as I know, it

Mr. PECORA. You mean upon receipt of Mr. Stalker's memorandums to you which I have just read the matter went no further? Mr. LONGLEY. Yes; as far as I am concerned.

Mr. PECORA. Well, so far as anyone else in the Group was concerned, what, if anything, was done about it?

Mr. LONGLEY. I don't think anything, or I would have known about it. But I never heard anything more about it after that second communication.