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Senator COUZENS. In that connection, I invite your attention to the language in the circular, which says (reading):

In order that each customer of these allied institutions may continue to enjoy all existing connections and facilities, it is planned to carry on each institution as at present organized.

How did you contemplate bringing around these economies, in the elimination of competition, if you contemplated carrying on these institutions as organized ?

Mr. BALLANTYNE. Senator, it is a well-known fact that it was not an uncommon thing in the city of Detroit for four competing banks in that very group to have four branches, on four corners of an intersection. That was one thing. There was no more use for four banks in that block, four competing banks in that block, than there was for the man in the moon.

Senator COUZENS. I will agree with that. You could not have carried on as at present organized ” if you were to eliminate branches, could you?

Mr. BALLANTYNE. I think in a general way; yes. Each was going to retain its character and individuality. I understood that.

Mr. PECORA. Mr. Ballantyne, prior to the acquisition of the capital stock of these five banks by the Detroit Bankers Co., the stockholders of each one of those banks, as such stockholders, had the power to elect the boards of directors of their respective banks, did they not?

Mr. BALLANTYNE. Yes, I believe so.

Mr. PECORA. And that is an important power and right attaching to a stockholder of any corporation, and particularly a banking corporation, is it not?

Mr. BALLANTYNE. Yes.

Mr. PECORA. By the scheme or plan upon which the Detroit Bankers Co. was created, these stockholders of the constituent banks that became the units of this holding company were deprived, at least for the first 5 years, of the right to elect directors of their own banks, were they not?

Mr. BALLANTYNE. I think not. They were electing them when I left the Bankers Co.

Mr. PECORA. Elected by whom?

Mr. BALLANTYNE. Of course, they were elected by the Detroit Bankers Co.

Mr. PECORA. And the Detroit Bankers Co, elected these directors through the control vested in the 12 trustees?

Mr. BALLANTYNE. Yes.
Mr. PECORA. Who had all the voting power of the first 5 years.
Mr. BALLANTYNE. I fancy that is true, Mr. Pecora.

Mr. PECORA. So that the stockholders of these banks that became units of the holding company were given no voice either in the election of the directors of the holding company or in the election of the directors of the unit banks, at least for the first 5 years.

Mr. BALLANTYNE. I fancy that is true.

Mr. PECORA. That was a radical departure from the scheme of operation of those unit banks prior to the merger, was it not?

Mr. BALLANTYNE. Well, in the law it would be.
Mr. PECORA. Wasn't it' in fact as well as in law?

Mr. BALLANTYNE. I think not, Mr. Pecora. I think the directors that were operating those banks when I left the Bankers Co. were practically the same people.

Mr. PECORA. But whenever changes were made they were made upon the judgment and decision of the holders of the 120 shares of trustee stock, worth $1,200, issued by the holding company; isn't that so?

Mr. BALLANTYNE. To some extent I think maybe that is true.
Mr. PECORA. Is there any doubt that it is true?

Mr. BALLANTYNE. I cannot recall right at this moment any changes.

Mr. PECORA. I will show you later that there were changes.
Mr. BALLANTYNE. There were changes!
Mr. PECORA. Yes.
Mr. BALLANTYNE. There probably were. I do not recall them.

Mr. PECORA. I want to show you what purports to be a photostatic reproduction of a certificate issued by the Detroit Bankers Co. for its trustee shares. Will you look at it and tell me if you recognize it to be a true and correct copy of such certificate?

Mr. BALLANTYNE (after conferring with an associate). I believe that is all right, Mr. Pecora.

Mr. PECORA. Í offer it in evidence.
Senator COUZENS. Let it be entered.

(Copy of certificate for trustee shares, Detroit Bankers Co., was received in evidence, marked " Committee Exhibit No. 4, Jan. 24, 1934 ", and the same will be found at the conclusion of today's proceedings.)

Mr. PECORA. It will be noted that on the back of the certificate just received in evidence as exhibit no. 4 of this date are printed the provisions of articles 5 and 9 of the articles of association of the Detroit Bankers Co., respecting the powers of the holders of the trustee shares.

I show you what purports to be a specimen copy of certificate of shares of the common stock issued by the Detroit Bankers Co. Will you look at it and tell me if you recognize it to be a true and correct copy of those certificates of common stock?

Mr. BALLANTYNE (after conferring with an associate). Yes, sir.
Mr. PECORA. I offer that in evidence.
Senator COUZENS. The same will be entered.

(Copy of certificate of shares of common stock, Detroit Bankers Co., was received in evidence, marked " Committee Exhibit No. 5, Jan. 24, 1934,” and the same will be found at the conclusion of today's proceedings.)

Mr. PECORA. I want to call attention on the record to the fact that on the back of this exhibit marked " Committee's Exhibit No. 5 " of this date there are printed the provisions of article IX of the articles of association of the Detroit Bankers Co. relating to the statutory liability.

Senator COUZENS. Is there any reference to the trusteeship there?

Mr. PECORA. And also article V relating to the trusteeship-articles V and IX, defining the rights, powers, and duties of the trustees.

It has already been shown that the authorized capital structure of this Detroit Bankers Co. was $50,000,000, exclusive of the 120

trustee shares represented by 2,500,000 shares of common stock, each with a par value of $20.

Mr. BALLANTYNE. Yes.

Mr. PECORA. Of that amount it was contemplated to issue $35,000,000 worth in exchange for the shares of capital stock of banks to be acquired by the holding, is that right!

Mr, BALLANTYNE. Yes.

Mr. PECORA. And the remaining $15,000,000 worth of common capital stock was to remain in the treasury of the Detroit Bankers Co.?

Mr. BALLANTYNE. Yes, sir.

Mr. PECORA. Was any part of the $15,000,000 worth of that treasury stock ever issued ?

Mr. BALLANTYNE. I do not believe so, Mr. Pecora. (After conferring with an associate.) Yes; I believe there were, in the acquisition of some metropolitan banks. Some shares were exchanged there. I cannot give you the amounts nor the occasions.

Mr. PECORA. What is, at the present time, the status of the Detroit Bankers Co.?

Mr. BALLANTYNE. I do not know.
Mr. PECORA. It is in receivership, is it not?
Mr. BALLANTYNE. Oh, yes. It is in receivership.

Mr. PECORA. A receiver was appointed for it on or about March 17, 1933.

Mr. BALLANTYNE. Yes, sir.

Mr. PECORA. At that time how many shares of the common capital stock were outstanding?

Mr. BALLANTYNE. From my memory, Mr. Pecora, I cannot tell you.

Mr. PECORA. Perhaps you can ascertain from some of your associates, or refresh your recollection by the records.

Mr. BALLANTYNE. Approximately 1,775,000 shares.
Mr. PECORA. And the rest remained in the treasury?
Mr. BALLANTYNE. Yes.

Mr. PECORA. It is the fact, is it not, that very shortly after the incorporation of the Detroit Bankers Co. on January 8, 1930, that company acquired, by exchange for its own shares, all of thé outstanding capital stock of the five banks that are named in the circular marked " Committee's Exhibit No. 3"?

Mr. BALLANTYNE. Substantially all.

Mr. PECORA. Is it the fact that at the time of the acquisition of these 5 banks by the Detroit Bankers Co, the Detroit Bankers Co. acquired control or ownership through acquisition of the capital stock thereof, of 5 banks which had a combined capital surplus and undivided profits of approximately $90,000,000 and resources of about $725,000,000 ?

Mr. BALLANTYNE. That is the Peoples Wayne, is it?
Mr. PECORA. That is all the five banks.

Senator COUZENS. That is what is contained in the circular and record.

Mr. BALLANTYNE. Yes.

Mr. PECORA. Was it the fact that at that time these five banks served approximately 900,000 depositors and clients ?

Mr. BALLANTYNE. Yes.
Mr. PECORA. Principally in the city of Detroit ?
Mr. BALLANTYNE. Yes.

Mr. PECORA. By such acquisition of the capital stock of these banks, this holding company came into control of banking resources approximately 60 percent of the total banking resources of the city of Detroit ?

Mr. BALLANTYNE. I believe that is so, Mr. Pecora.

Senator COUZENS. In that connection, Mr. Ballantyne, I would like to ask you if you think it was a well-considered policy to put $725,000,000 in resources and $90,000,000 of capital in the hands of 12 men for a period of 5 years on an investment of $1,200?

Mr. BALLANTYNE. I thinkSenator COUZENS. I am asking him as a policy. I am not asking him for facts, and I do not care to have anybody else's views about that.

Mr. BALLANTYNE. Do I think it was wise ?
Senator COUZENS. Yes.

Mr. BALLANTYNE. I thought at the time it was. I do not know whether I do today or not.

Senator Couzens. To put in the hands of 12 men the handling of over $800,000,000 for an investment of $1,200 ?

Mr. BALLANTYNE. Better 12 than 100, Senator.
Senator COUZENS. Better 12 than 100 ?
Mr. BALLANTYNE. Yes.
Senator COUZENS. And for an investment of $1,200 ?
Mr. BALLANTYNE. Of course, that does not
Senator COUZENS. That is all these trustee stocks amounted to.

Mr. BALLANTYNE. I am not defending this thing. I was not the author of it at all. I do not know that it was wise.

Mr. Pecora. You thought it was wise at the time you lent yourself to it.

Mr. BALLANTYNE. I thought it was wise at the time to have those banks form a mutuality of interest and eliminate unnecessary costs and unnecessary wildcat competition, of which there was a lot in the city of Detroit. But we are always wise afterward, you know.

Mr. PECORA. At the present time you have some doubts as to the wisdom of the plan?

Mr. BALLANTYNE. Mr. Pecora, if I were asked my viewpoint at the present time,

I would say to you that I do not think anything has been proven in Detroit.

Mr. PECORA. You do not think anything has been what?

Mr. BALLANTYNE. Proven. I do not think the wisdom or unwisdom of group banking, or of branch banking, or of unit banking has been demonstrated in Detroit.

Mr. PECORA. You think the events since January 8, 1930, have shed no light upon the wisdom or lack of wisdom of this plan?

Mr. BALLANTYNE. Not in Detroit.
Mr. Pecora. This plan was operative in Detroit.

Mr. BALLANTYNE. Yes; but it was conceived rather hastily, and there were unknown factors at the time it was consummated. One has to experience such an operation to learn.

Mr. PECORA. Now, I want to refer again to that statement in this circular marked - Committee's Exhibit No. 3", which reads as follows (reading]:

It is proposed that dividends be paid upon the common stock of the new company in the aggregate amount of 17 percent per annum payable quarterly.

Mr. BALLANTYNE. Yes.

Mr. PECORA. How was the dividend rate fixed at 17 percent, as far back as October 1929, or 3 months prior to the actual creation of this holding company!

Mr. BALLANTYNE. Mr. Pecora, I could say something, but I do not want to.

Mr. PECORA. I would like to have you answer my question.

Mr. BALLANTYXE. Mr. Haass and Mr. Mark Wilson virtually decided that matter, and I think it was determined

Mr. PECORA. Mr. Haass and who else?
Mr. BALLANTYNE. Mr. Mark Wilson.
Mr. PECORA. Mr. Mark Wilson?
Mr. BALLANTYNE. Yes.

Mr. PECORA. Mr. Mark Wilson was not one of the organizers of this company, was he?

Mr. BALLANTYNE. No; but he was a very, very close adviser of Mr. Haass at the time, and an examiner, and he knew what the banks were, or thought he did.

Mr. PECORA. What position did Mr. Mark Wilson have in the Detroit Bankers Co. at the outset-any at all!

Mr. BALLANTYNE. I do not know. He was made a vice president, I believe.

Mr. Pecora. He was not one of the 12 founders of the company? Mr. BALLANTYNE. No.

Mr. PECORA. It is fair to regard these 12 trustees as the founders of this company, is it not?

Mr. BALLANTYNE. Yes.
Mr. PECORA. You were one of those 12?
Mr. BALLANTYNE. I was one of them.
Mr. PECORA. Mr. Mark Wilson was not.
Mr. BALLANTYNE. No.

Mr. PECORA. Then why do you say that this dividend of 17 percent per annum

Mr. BALLANTYNE. I will tell you why. Mr. PECORA. Wait a minute. Why do you say, then, that this dividend of 17 percent per annum was fixed within 3 months before the creation of the company itself, by two men; namely, Mr. Haass and Mr. Wilson, Mr. Wilson not being one of the trustees?

Mr. BALLANTYNE. I am just thinking that they had something to do with it.

Mr. PECORA. What is that?

Mr. BALLANTYNE. I will cite my own experience with this. I was chairman of the board of the Bank of Michigan. The executive control was in Mr. Palmer Livingstone's hands. Mr. Clark called me in one day and wanted to discuss this matter with me, about this bank coming in.

Mr. PECORA. By Mr. Clark, you mean Mr. Emory W. Clark, one of these trustees ?

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