1930, you offered the resolutions which committed the Detroit Bankers Co. to borrow, first, $7,000,000. Mr. BALLANTYNE. Yes. Mr. PECORA. And then loan the proceeds of those borrowing to the First National Co. Mr. BALLANTYNE. Yes. Mr. PECORA. On its, the latter's, note. Mr. BALLANTYNE. Yes. Mr. PECORA. Do you know from what sources the Detroit Bankers Co., in pursuance of this resolution, borrowed the moneys in question? Mr. BALLANTYNE. No; I do not remember. You probably have it there. Mr. PECORA. Now, from the minutes of a special directors meeting of the board of the Detroit Bankers Co. held on May 16, 1930, it appears that the treasurer of the company made a report as follows [reading]: The treasurer reported that the company had two obligations with the Guaranty Trust Co. of New York as follows: May 20, 1930, $4,000,000; June 2, 1930, $3,000.000; together, $7,000,000. The chairman appointed Messrs. Douglas and Seyburn to negotiate for renewals of these loans either at the same institutions or elsewhere. Does not that refresh your recollection that the $7,000,000 was borrowed from the Guaranty Trust Co. of New York by the Detroit Bankers Co.? Mr. BALLANTYNE. Yes. Mr. PECORA. And that money was borrowed in order to enable the First National Co. to take care of its obligations, the obligations it had incurred, amounting to around 7 million dollars, in connection with its acquisition of the minority holdings of these 10 State banks? Mr. BALLANTYNE. Yes. Mr. PECORA. What actually happened was that the Detroit Bankers Co. went out and borrowed the money, which it loaned to the First National Co. Mr. BALLANTYNE. Precisely. Mr. PECORA. And took back the note of the First National Co.? Mr. BALLANTYNE. Yes. Mr. PECORA. And with that loan which the First National Co. obtained from the Detroit Bankers Co. it paid off its indebtedness, the indebtedness which it had incurred previously in connection with its acquisition of the minority holdings of the stock of those 10 State banks? Mr. BALLANTYNE. Yes. Mr. PECORA. So that in substance, if not in form, the indebtedness was transferred from the First National Co. to the Detroit Bankers Co., was it not? Mr. BALLANTYNE. I believe so. Mr. PECORA, Why was it necessary to do that at that time, Mr. Ballantyne? Mr. BALLANTYNE. To borrow the money for them? Mr. PECORA. Yes. Mr. BALLANTYNE. I think the record of the status of the company will show that. I do not have it in my mind. These purchases were away above their heads. They could not handle them at all. Mr. PECORA, Was this transaction had in order to enable the First National Co., or rather in order to prevent the First National Co. from going into bankruptcy on account of those obligations? Mr. BALLANTYNE. Oh, yes. Mr. PECORA. The Detroit Bankers Co. at that time had no invested capital of its own, did it? Mr. BALLANTYNE. No. Mr. PECORA. In order to raise any money it had to go out and borrow it? Mr. BALLANTYNE. Yes. Mr. PECORA. So that within the first 4 or 5 months of its corporate existence the Detroit Bankers Co. virtually assumed an indebtedness of $7,000,000 for one of its wholly owned subsidiaries? Mr. BALLANTYNE. Yes. Mr. PECORA. And in order to relieve that wholly owned subsidiary of that indebtedness and of being forced into bankruptcy? Mr. BALLANTYNE. Yes. Mr. PECORA. Do you know whether or not, since that time, the First National Co., as the owner of the stock which it had acquired in those 10 State banks, has been required to pay a statutory assessment because some of those banks failed? Mr. BALLANTYNE. No; I think maybe there is, but I have no knowledge of it. Mr. PECORA. Are you familiar with that, Mr. Verhelle? Mr. VERHELLE. The answer is “yes.” Mr. PECORA. Which of those banks failed? Mr. VERHELLE. The Monroe State Bank; the bank up at Lansing Mr. PECORA. Suppose you look at the chart and get the names from that chart. Mr. VERHELLE. The American State, of Lansing; the Pontiac Bank Senator COUZENS. Give the names of the banks, please. Mr. VERHELLE. The First National Bank & Trust Co. of Pontiac; the American State, of Lansing, and the Monroe State Savings. Mr. PECORA. When did those banks close, or fail? Mr. VERHELLE. The Pontiac was in May, I would say, of 1932. The Monroe State Savings was about May of 1932. The American State of Lansing-I am a little hazy on it. It was approximately at the same time. Mr. PECORA. How about the others? Mr. VERHELLE. You asked a question as to which were called upon to pay an assessment. Mr. PECORA. NO. The question I asked you immediately preceding was when these various banks you have mentioned failed or closed. Mr. VERHELLE. Those are the three, and that is all I have mentioned. Mr. PECORA. All three at about the same time? Mr. VERHELLE. Roughly speaking. Mr. PECORA. During the first half of 1932, approximately? Mr. BALLANTYNE. The Pontiac was later than May 1932. Mr. PECORA. Now, I will ask you, Mr. Ballantyne, if you know how the Detroit Bankers Co. handled these obligations aggregating $7,000,000, which it assumed in May and June 1930, in order to raise the money to lend to the First National Co.? If you do not know, just say so and I will question Mr. Verhelle about it. Mr. BALLANTYNE. It is quite an involved question you are asking and I think perhaps Mr. Verhelle had better answer it. Mr. PECORA. All right. Are you able to tell the committee how those loans were serviced by the Detroit Bankers Co.? Mr. VERHELLE. In part by interest received from Messrs. Clark and Douglas. In part by dividends received from those State bank stocks themselves; further in part by income received from other assets of the First National Co.; further in part-and I should say the balance-from other cash derived from the First National Co. Mr. PECORA. Mr. Verhelle, the Detroit Bankers Co. from time to time renewed the original loans it had obtained from the Guaranty Trust Co. in May and June 1930 for the $7,000,000, did it not? Mr. VERHELLE. Yes, sir. Mr. PECORA. Do you know the course of those renewals and whatever payments were made on account from time to time? Mr. VERHELLE. Not from memory. Mr. PECORA. Have you any records before you that will enable you to tell us? Mr. VERHELLE. The transaction starts in February of 1930, at which time the obligation was taken over by the Detroit Bankers Co., and I wonder if you have not a copy of the journal sheet there of the Bankers Co. books, or their ledger. That shows it in detail. Mr. PECORA. We do not have them. Mr. VERHELLE. In substance it amounted to a series of renewals of this note with payments one after another, until, if my recollection serves me correctly, the note was paid down to approximately 22 million dollars. It was paid through various amounts realized from dividends, and so forth, which moneys were applied; also from the sale of securities of the First National Co. They had one substantial amount of money there in the form of some stock for which, my recollection is, they received approximately $1,800,000. Senator COUZENS. What stock was that? Mr. VERHELLE. The First Detroit Co. As a result of that series of operations there must be at least 30 to 50 transactions involved, renewals of notes, with partial payments applying on them. The balance that was left, I think, was approximately $2,500,000 at the time the bank was closed in February. Mr. PECORA. As a matter of fact, the Detroit Bankers Co. never got rid entirely of that indebtedness, did it? Mr. VERHELLE. No, sir. Mr. PECORA. You were comptroller at one time of the Detroit Bankers Co., were you not? Mr. VERHELLE. Yes, sir. Mr. PECORA. When did that happen? Mr. VERHELLE. February 27, 1930. Mr. PECORA. For how long thereafter did you continue to serve as comptroller of the Detroit Bankers Co.? Mr. VERHELLE. Until the beginning of November of 1932. Mr. PECORA. That was up to about 3 or 4 months of the time when the company went into receivership? Mr.VERHELLE. Yes, sir. Mr. PECORA. See if you can recall, from the data which I will embody in my questions to you, the course of these obligations of 7 million dollars which the Detroit Bankers Co. assumed within a month and a half of its corporate birth. It has already been developed that the 7 million dollars in question was borrowed by the Detroit Bankers Co. from the Guaranty Trust Co. originally in the following amounts: 4 million dollars on May 20, 1930; 3 million dollars on June 2, 1930. You are familiar with that, are you not? Mr. VERHELLE. Yes, sir. Mr. PECORA. Now, it appears that on May 20, 1930, the Detroit Bankers Co. borrowed $3,000,000 from the Detroit Trust Co., which it paid over to the Guaranty Trust Co. of New York. Do you recall that? Mr. VERHELLE. Yes, sir. Mr. PECORA. And thereafter, on August 18, 1930, the Detroit Bankers Co. borrowed another $1,000,000 from the Detroit Trust Co., which it paid over to the Guaranty Trust Co. Is that right? Mr. VERHELLE. What was the status of the other note at that time, sir? I am questioning the word "another" in there. You may be right. Mr. PECORA. You mean the status when the $1,000,000 was borrowed on August 18? Mr. VERHELLE. Yes. Mr. PECORA. Prior to that borrowing of $1,000,000 the Detroit Bankers Co. apparently owed the Guaranty Trust Co. $4,000,000, and owed the Detroit Trust. Co. $3,000,000, which it had borrowed on May 20, 1930. Mr. VERHELLE. That is right. Mr. PECORA. Do you recall that on August 18, 1930, the Detroit Bankers Co. borrowed $1,000,000 from the Detroit Trust Co., which it paid to the Guaranty Trust Co.? Mr. VERHELLE. I would neither be sure of that date nor be certain as to the actual status of the $3,000,000 which was then purported to be on its books. Mr. PECORA. The what? Mr. VERHELLE. I would not be certain as to that date, of course. I would not know for certain. Mr. PECORA. You recall the borrowing of $1,000,000? Mr. VERHELLE. I recall the borrowing back and forth there of approximately $1,000,000 around that time, to relieve the Guaranty Trust Co. note. Mr. PECORA. That, then, left the Detroit Bankers Co. owing the Detroit Trust Co. $4,000,000, and the Guaranty Trust Co. of New York $3,000,000? Mr. VERHELLE. I would assume so. Mr. PECORA. Now, thereafter, on December 30, 1930, do you recall that the Detroit Bankers Co. borrowed another $1,000,000, this time from the Chase National Bank, which it paid to the Detroit Trust Co., and also at the same time borrowed the further sum of $3,000,000 from the Chase National Bank, which it paid to the Guaranty Trust Co.? Mr. VERHELLE. I assume that to be correct. Mr. PECORA. That left the Detroit Bankers Co. owing nothing to the Guaranty Trust Co. and owing $4,000,000 to the Chase National Bank and $3,000,000 to the Detroit Trust Co.? Mr. VERHELLE. In the way you had put it there, sir, that would have left $3,000,000 with the Chase and $4,000,000 with the Detroit Trust Co., the way you reported your figures. Mr. PECORA. On December 30, 1930, the Detroit Bankers Co. borrowed $1,000,000 from the Chase, which it paid to the Detroit Trust Co., reducing its indebtedness to the Detroit Trust Co. from $4,000,000 to $3,000,000; and on that same day, December 30, 1930, borrowed the further sum of $3,000,000 from the Chase National Bank, with which it extinguished its obligation to the Guaranty Trust Co. in that amount. That would leave the Detroit Bankers Co. owing the Chase National Bank at the end of 1930 the sum of $4,000,000 and the Detroit Trust Co. the sum of $3,000,000. Mr. VERHELLE. That is correct. Senator COUZENS. Why was that done, Mr. Verhelle? Mr. VERHELLE. As a general rule a committee was appointed to negotiate for these loans. Where they located these loans was dependent, first, on cost. If they could get their money cheaper in one place than another, quite naturally they placed the loan there. On the other hand, it may have been to the interest of some of the units if they had excess funds and felt that they could move this note easily, to take the benefit of the interest to be received from that note, so that the earnings would accrue to the units of the group rather than to some strange institution. Senator COUZENS. What collateral did you put up for these loans? Mr. VERHELLE. The original collateral consisted of the note of the-I am just a trifle off on this. This is my recollection of it. The original collateral on the note when it started out consisted of the note of the First National Co. secured by the actual stocks of these State banks themselves. The note of the Detroit Bankers Co., my recollection is, was unsecured. That is, these banks loaned their money on an unsecured basis. Senator COUZENS. Is that true of the loan which you got from the Detroit Trust Co.? Mr. VERHELLE. No. I believe it was not. I think that was the exception to that rule. Senator COUZENS. You mean that they did have collateral, or that they did not? Mr. VERHELLE. I think the collateral went on one note or the other there. I would have to check back the records on that to be certain. Senator COUZENS. All of this time the Detroit Trust Co. was owned by the Detroit Bankers Co.? Mr. VERHELLE. Yes, sir. Mr. PECORA. Perhaps this will serve to refresh your recollection about the item that Senator Couzens has just asked you about. I am referring to the minutes of the meeting of the board of directors of the Detroit Bankers Co. held on November 11, 1930, at which a report was made by the treasurer, which is entered in the minutes |