First National Bank in Pontiac had hopelessly involved the First National Bank of Detroit in this situation through its publicity, and so forth, which took place at the time these stocks were bought, and that was the principal reason for the recommendation of the Comptroller's office.

Senator COUZENS. At that time what percentage of the First National Bank & Trust Co. of Pontiac did the First National Co. of Detroit own?

Mr. VERHELLE. They owned $97,300, or $93,700, one or the other, par value of the stock of this Pontiac bank. The total outstanding stock I am not certain of at this particular time.

Senator COUZENS. What was it, substantially? What percentage of that $93,000 or $97,000 was that of the whole outstanding capital stock?

Mr. VERHELLE. I do not know, sir.

Senator COUZENS. So, because of the ownership of that———
Mr. VERHELLE. Approximately 16 percent, roughly.

Senator COUZENS. So, because of the ownership of 16 percent of the stock, you felt obligated to go up and save the First National Bank in Pontiac?

Mr. VERHELLE. Oh, no.

Senator CoUZENS. What was the reason?

Mr. BALLANTYNE. There were a number of reasons.

Senator CoUZENS. Was the First National Bank of Pontiac indebted to the First National Bank of Detroit?

Mr. BALLANTYNE. As Mr. Verhelle stated, the First National Bank, unknown to us, had in some way implicated us in their advertising.

Senator COUZENS. How?

Mr. BALLANTYNE. They indicated that they were under the big umbrella and were the progeny of the First National Bank.

Senator COUZENS. Were they indebted to the First National Bank of Detroit?

Mr. BALLANTYNE. I do not believe so, at that time.

Senator COUZENS. Do you know, Mr. Verhelle?

Mr. VERHELLE. I doubt very much if they were; I don't believe they were indebted to the First National Bank. It was simply a case of close proximity to Detroit; the fact that they had linked up the names very closely in their advertising; and not to do it might very well have resulted in a general conflagration, and in order to save all of the depositors and prevent this conflagration the banking department recommended and urged the use of this money for that purpose under the emergency then existing.

Mr. PECORA. When was the First National Bank of Pontiac organized?

Mr. VERHELLE. Originally?

Mr. BALLANTYNE. Originally, before this time?

Mr. PECORA. When was the bank called the First National Bank of Pontiac organized?

Senator COUZENS. The First National Bank & Trust Co. was the proper name, was it not?

Mr. VERHELLE. No, sir.

Mr. PECORA. You are still puzzled about what was done with the $2.000.000 that the Detroit Bankers Co. got for those 20,000 shares of stock!

Mr. VERHELLE. I am puzzled about the commingling, if any took place. I am not sure that there did. Whether that is the $2.000 or whether it is the million and a half or which moneys it was that were used for that purpose.

Mr. PECORA. Mr. Verhelle. I am surprised that you say you are puzzled as to whether or not the $1.500.000 was used to pay back the Chase National Bank part of this indebtedness, in view of what you have told us here as to the use of at least $750,000 of that million and a half to go to the relief of the bank at Pontiac.

Mr. VERHELLE. That $750.000 was not necessarily out of that million and a half. It was out of that 31 millions.

Mr. PECORA, Mr. Ballantyne has been testifying here this afternoon, and within the last few minutes, that $750,000 of that special dividend of 111⁄2 million went to the bank at Pontiac. Have you not heard his testimony?

Mr. VERHELLE. You may have him confused on that. Mr. Ballantyne did not put through those entries.

Mr. PECORA. I do not want anybody to be confused, nor do I want to be confused as to the facts. Will you brush up your recollection overnight on these things?

Mr. VERHELLE. I will try to do that.

Senator COUZENS. I am confused also, because this letter to Mr. McCain of the Chase National Bank is dated December 26, 1931, and at the time this dividend was declared, a million dollars of it was in the Detroit Trust Co., and the other half million was put back in the First National, and that was done in February. So how could any of that be used to pay off a debt on December 26, 1931?

Mr. VERHELLE. The entire 32 million dollars, to my way of thinking just at the present time and I do not believe that you want me to state anything except that which I know-I am not clear as to the disposition of the actual dollars as they resulted from the $2,000,000 and the million and a half dividends, as to their application. I can account for the reception of 31⁄2 millions; I can account for the disbursement of 32 millions, but which dollars were which I am not certain of at this particular moment.

Senator COUZENS. I asked you, if you placed a million dollars, out of that million and a half dividend, in the Detroit Trust Co., and a half million in the First National Bank, which was apparently there in February when you came to the relief of the First National Bank in Pontiac, how could you have used any of that to pay off the loans of the Chase National Bank in December 1931?

Mr. VERHELLE. We could not have done precisely that.

Senator COUZENS. We will adjourn until 10 o'clock tomorrow morning.

(Whereupon, at 4:24 p.m., the subcommittee adjourned until tomorrow, Thursday, Jan. 25, 1934, at 10 a.m.)

Mr. VERHELLE. The Chase National Bank was paid up, according to the records.

Mr. PECORA. And that completed the remainder of the $4,000,000 indebtedness which the Detroit Bankers Co. owed to the Chase National Bank?

Mr. VERHELLE. If the records so indicate I would take it for granted that that is so, sir.

Mr. PECORA. Would it refresh your recollection if I read to you a letter addressed to Mr. Charles S. McCain, chairman of the board of the Chase National Bank, New York City, dated December 26, 1931, in reference to this loan?

Mr. VERHELLE. Very likely it would, sir.
Mr. PECORA. I will read it [reading]:

DEAR CHARLIE: Enclosed you will find a letter of authority from the First National Bank in Detroit signed by F. Howard Rust, vice president, authorizing you to charge the account of the First National Bank with $4,011,277.78 in payment in full of the loan of the Detroit Bankers Co. with you, due December 29. This pays up this loan as I have advised you was being arranged.

Many thanks for your courtesies, which we all appreciate.

Sincerely yours.

Senator COUZENS. By whom is it signed?

Mr. PECORA. It is signed by one of the vice presidents.

Mr. VERHELLE. That closed it up. Quite naturally I have not seen that letter, and quite naturally I would not know the specific amount outstanding.

Mr. PECORA. With regard to the borrowing of the $2,000,000 from the Continental Illinois Bank & Trust Co., see if this will refresh your recollection. It is on the letterhead of the Continental Illinois Bank & Trust Co. of Chicago, dated December 24, 1931, addressed to Mr. Mark A. Wilson, vice president, Detroit Bankers Co., Detroit, Mich. [reading]:

DEAR MARK: I have your letter of December 22, enclosing resolution of your board of directors authorizing borrowing of $2,000,000 which we propose to loan you. As requested I am enclosing herewith some blank note forms for your use in borrowing this money. You ask as to what the rate will be. I want to meet your views in this connection and would like to have an expression from you as to what you think you should pay, giving consideration to the changed conditions since the time you renewed the note.

Very truly yours.

It is signed by Stirling V. Cramer, vice president.
Do you recall that now?

Mr. VERHELLE. I recall that loan being made, not the specific letter, of course.

Mr. PECORA. Does the reading of these two letters refresh your recollection concerning the fact that the $4,000,000 indebtedness which the Detroit Bankers Co. owed the Chase National Bank in December 1931 was entirely paid off?

Mr. VERHELLE. I would say it does; yes.

Mr. PECORA. Does it refresh your recollection to the effect that the $4,000,000 was obtained by the Detroit Bankers Co. in the following fashion: $2,000,000 of it by a loan of that amount from the Continental Illinois Trust Co. of Chicago; $2,000,000 of it through the surrender and cancelation of 20,000 of the 30,000 shares of the capital stock of the First Detroit Co.?

Mr. VERHELLE. No, sir.

Mr. PECORA. You are still puzzled about what was done with the $2,000,000 that the Detroit Bankers Co. got for those 20,000 shares of stock?

Mr. VERHELLE. I am puzzled about the commingling, if any took place. I am not sure that there did. Whether that is the $2,000,000 or whether it is the million and a half or which moneys it was that were used for that purpose.

Mr. PECORA. Mr. Verhelle, I am surprised that you say you are puzzled as to whether or not the $1,500,000 was used to pay back the Chase National Bank part of this indebtedness, in view of what you have told us here as to the use of at least $750,000 of that million and a half to go to the relief of the bank at Pontiac.

Mr. VERHELLE. That $750,000 was not necessarily out of that million and a half. It was out of that 32 millions.

Mr. PECORA. Mr. Ballantyne has been testifying here this afternoon, and within the last few minutes, that $750,000 of that special dividend of 12 million went to the bank at Pontiac. Have you not heard his testimony?

Mr. VERHELLE. You may have him confused on that. Mr. Ballantyne did not put through those entries.

Mr. PECORA. I do not want anybody to be confused, nor do I want to be confused as to the facts. Will you brush up your recollection overnight on these things?

Mr. VERHELLE. I will try to do that.

Senator COUZENS. I am confused also, because this letter to Mr. McCain of the Chase National Bank is dated December 26, 1931, and at the time this dividend was declared, a million dollars of it was in the Detroit Trust Co., and the other half million was put back in the First National, and that was done in February. So how could any of that be used to pay off a debt on December 26, 1931?

Mr. VERHELLE. The entire 312 million dollars, to my way of thinking just at the present time-and I do not believe that you want me to state anything except that which I know-I am not clear as to the disposition of the actual dollars as they resulted from the $2,000,000 and the million and a half dividends, as to their application. I can account for the reception of 32 millions; I can account for the disbursement of 32 millions, but which dollars were which I am not certain of at this particular moment.

Senator COUZENS. I asked you, if you placed a million dollars, out of that million and a half dividend, in the Detroit Trust Co., and a half million in the First National Bank, which was apparently there in February when you came to the relief of the First National Bank in Pontiac, how could you have used any of that to pay off the loans of the Chase National Bank in December 1931?

Mr. VERHELLE. We could not have done precisely that.

Senator COUZENS. We will adjourn until 10 o'clock tomorrow morning.

(Whereupon, at 4:24 p.m., the subcommittee adjourned until tomorrow, Thursday, Jan. 25, 1934, at 10 a.m.)

COMMITTEE EXHIBIT NO. 1, JANUARY 24, 1934.

(Corporation for Pecuniary Profit)

ARTICLES OF ASSOCIATION

OF

DETROIT BANKERS COMPANY

We, the undersigned, desiring to become incorporated under the provisions of Act No. 84 of the Public Acts of 1921, entitled "An act to provide for the organization, regulation and classification of domestic corporations; to prescribe their rights, powers, privileges and immunities; to prescribe the conditions upon which corporations may exercise their franchises," etc., do hereby make, execute and adopt the following articles of association, to wit:

ARTICLE I.

The name assumed by this association, and by which it shall be known in law is

Detroit Bankers Company.

ARTICLE II.

This corporation intends to proceed under Sec. I, Chapter I, part I, of the above act.

ARTICLE III.

The purpose or purposes of this corporation are as follows:

To acquire, own, hold, vote and exercise all rights of ownership of and to sell and dispose of shares of the capital stock of banks and trust companies and of other corporations or associations engaged in purchasing, selling on their own account or as agents of others, underwriting or dealing in corporate and other securities, or of any other corporation engaged in any business or activity incidental to or related to or of assistance in the conduct of any such business aforesaid.

ARTICLE IV.

Principal place where company will operate is City of Detroit, in the County of Wayne, State of Michigan.

Address of main office in Michigan is Detroit, Michigan, at northeast corner of Michigan Avenue and Griswold Street.

Address of main office outside of Michigan is none.

ARTICLE V.

The total capital stock authorized is Fifty Million ($50,000,000.00) Dollars and one hundred and twenty (120) shares of no par value.

The amount subscribed is one hundred and twenty (120) shares of no par value.

The amount paid in is One thousand two hundred ($1,200.00) Dollars. The number of shares of Common Stock is two million five hundred thousand (2,500,000) of the par value of Twenty ($20.00) Dollars each.

The number of shares of Non-Par Value Stock is one hundred and twenty (120); the price of each and at which they have been or it is proposed they shall be sold is Ten ($10.00) Dollars.

The classification of the capital stock and the privileges, rights, voting powers and restrictions thereof are as follows:

The par value shares shall be known as Common Stock.