Mr. PECORA. You have given us the principal item?

Mr. VERHELLE. The item directly above, of $1,967,788.50, is a similar item but pertains particularly to banks that were in liquidation, taken over by some of the other Detroit banks or banks in the immediate vicinity of Detroit.

Mr. PECORA. Are you able to give the committee the break-down of the items that produce this net operating income after customary reserves of $7,475,293.47, set forth in the annual report to the stockholders of the holding company, the Detroit Bankers Co., for the year 1931?

Mr. VERHELLE. I can give those to you approximately.

Mr. PECORA. Well, do it that way, then, please.

Mr. VERHELLE. On the income side there is a gross income of approximately $34,192,000. There are profits on investments totaling approximately $1,151,000; profits on real estate totaling approximately $38,000; recoveries on charge-off items of approximately $208,000, making a total of $35,589,000.

From that should be deducted expense of interest totaling $12,645,000; general expense of $11,525,000; depreciation of $385,000; furniture and fixtures, $117,000; building company, $340,000. All these figures are approximate. The contingent reserves were credited with $3,100,000. That makes a grand total of expense to be deducted from the $35,000,000 of $28,112,000, which, when deducted, results in net operating income of $7,477,000.

As I have indicated, these figures are approximate, and I appear to be off a couple of thousand dollars, not having the books of these units here.

Out of that income of $7,477,000 was paid $6,051,000 in dividends, resulting in a net earning over dividends of $1,425,000, approximately. We had an invested capital at the beginning of the year of $91,828,579.01. We will have to drop the end figures, because I am dealing in thousands. To that was added income over dividends of $1,425,000, resulting in a new invested capital figure of $93,253,000. Through the declaration of the special dividend by the Detroit Trust Co. this figure was reduced by $4,000,000 and was further reduced by a million and a half in connection with the special dividend of the First National Bank, and there were charged off, as nearly as I can figure, or charge down, assets totaling $19,292,000. So that we have reductions in the invested capital totaling $24,792,000 which, when deducted from $93,253,000, leaves us with $68,461,000. I was $2,000 off at the beginning

Mr. PECORA. As what?

Mr. VERHELLE. Representing an invested capital after these changes were made.

Mr. PECORA. The amount of that invested capital, as you call it, represents capital stock, surplus, and undivided profits, does it not? Mr. VERHELLE. Yes, sir.

Mr. PECORA. In the annual report for 1931 the aggregate amount of invested capital, as you call it, is given as $68,459,912.03. That is a fairly accurate figure, is it not?

Mr. VERHELLE. Yes. Pardon me, sir. The figures of course in this report are correct.

Mr. PECORA. Those that you have given us here this afternoon are approximates?

Mr. VERHELLE. Yes, sir.

Mr. PECORA. The amount of the invested capital, as you call it, for the Detroit Bankers Co. and of its units as of December 31, 1930, was $91,828,579.01, was it not?

Mr. VERHELLE. Yes, sir.

Mr. PECORA. Resulting in a reduction of invested capital or a reduction of the combined capital, surplus, and undivided profits, of over $23,000,000 between December 31, 1930, and December 31, 1931? Mr. VERHELLE. Correct.

Mr. PECORA. That reduction was due to the various transactions that you have set forth here this afternoon?

Mr. VERHELLE. Yes, sir.

Mr. PECORA. And the principal item that contributed to that reduction of over $23,000,000 in the capital assets of the company in 1 year's time was a charge-down of assets amounting to $19,292,000, approximately?

Mr. VERHELLE. Yes, sir.

Mr. PECORA. As a matter of fact, at the end of 1931 the financial condition of the company and its combined banking units was $23,000,000 worse off than its condition at the end of the preceding year?

Mr. VERHELLE. No, sir.

Mr. PECORA. Is not that the condition reflected by the capital assets of the company and its units as of the close of business in 1930 as compared with the close of business in 1931?

Mr. VERHELLE. That is the condition as reflected by those particular figures, sir, but it does not reflect the actual condition of the assets behind them.

Mr. PECORA. Well, at the end of 1931 was the Detroit Bankers Co. better off financially than it was at the end of the preceding year? Mr. VERHELLE. It was not.

Mr. PECORA. Is there anything in the annual report given to the stockholders for the year 1931 that sets that forth?

Mr. VERHELLE. Not in the annual report, sir, but in another letter written to the stockholders concerning this particular matter.

Mr. PECORA. Can you produce such other letter or a copy of it? Mr. VERHELLE. I meant to bring that. [After referring to files:] I would like to explain that a letter was written during the month of November to the stockholders of these various units

Mr. PECORA. November of what year?

Mr. VERHELLE. Of 1931-which was written in the offices of the Detroit Bankers Co. after consultation with various individuals. Mr. PECORA. After consultation with whom?

Mr. VERHELLE. Various officers and directors.

Mr. PECORA. Well, who were they?

Mr. VERHELLE. Among them would be Mr. Mark Wilson, who is an officer of the Detroit Bankers Co.; and I do not specifically recall just at this particular moment-it may come to me in a momentwhat directors. This letter was drafted

Mr. PECORA. Did you have a conference with those gentlemon?

Mr. VERHELLE. Well, I had a number of discussions with them over the type of letter, which letter was sent out to Mr. Ballantyne that evening for his review; and I have here a letter which was sent out to him, together with a letter that was actually sent out to the stockholders containing the changes recommended by him in that particular letter. There was also that day

Mr. PECORA. Before you go any further, will you produce the letter that you say was sent out to the stockholders?

Senator COUZENS. First, produce the one, if you can, that was sent to Mr. Ballentyne, and then the one that was corrected by him and sent to the stockholders.

Mr. VERHELLE (handing two papers to Mr. Pecora). In addition to those letters there were other methods by which the public was informed, of which I can get you copies.

Mr. PECORA. You have produced here in response to a question a photostatic copy of what purports to be a letter on the letterhead of Detroit Bankers Co. addressed "To our stockholders ", dated November 21, 1931; but I see a legend or inscription in the upper right-hand corner of this photostatic copy reading as follows:

"This letter was not sent out."

Was this letter sent out?

Mr. VERHELLE. As I have attempted to explain, that was the first draft of the letter, and the next letter was the actual one.

Mr. PECORA. Suppose we put in evidence the photostatic copy of the letter that the witness has now referred to as the first draft of the letter to the stockholders but which was not sent out to the stockholders.

Senator COUZENS. That may be entered.

(Photostatic copy of draft of letter dated Nov. 21, 1931, addressed, on the letterhead of the Detroit Bankers Co., "To our stockholders", was received in evidence, marked "Committee Exhibit No. 12, Jan. 25, 1934.")

Mr. PECORA. You also have given me, in response to a request that you produce the letter or copy thereof that was sent to the stockholders, what appears to be a mimeograph copy of a letter on the letterhead of the Detroit Bankers Co., dated November 21, 1931, addressed "To our stockholders" and bearing a facsimile of the signature of John Ballantyne, president. I offer that in evidence. Senator COUZENS. That may be entered.

(Mimeograph copy of letter on letterhead of the Detroit Bankers Co., dated Nov. 21, 1931, addressed "To our stockholders" and bearing facsimile signature of John Ballantyne, president, was received in evidence, marked "Committee Exhibit No. 13, Jan. 25, 1934.")

Mr. PECORA. The letter last offered in evidence, or the copy of the letter last offered in evidence, marked "Exhibit 13" of this date, is a copy, you say, of the letter that was actually sent out to all stockholders of the Detroit Bankers Co.?

Mr. VERHELLE. I would say so; yes, sir.

Mr. PECORA. Do you know who prepared the first letter, that is, the draft which was not sent out and which has been marked as "Exhibit no. 12" of this date?

Mr. VERHELLE. I believe I did, sir.

Mr. PECORA. Who prepared the letter marked "Exhibit no. 13" which was sent out to the stockholders?

Mr. VERHELLE. The letter, no. 13, is substantially a copy of letter no. 12, with the addition of one paragraph.

Mr. PECORA. Who prepared it in the form in which it was sent out and in which it has been received in evidence?

Mr. VERHELLE. The change was made by Mr. Ballantyne, but I do not know who did the actual wording of it, who is responsible for the actual wording of the paragraph itself.

Mr. PECORA. The only change or difference between exhibit 12 and exhibit 13 is the inclusion in exhibit 13, which is a copy of the letter that was sent out, of what appears therein as the second paragraph; is that right?

Mr. VERHELLE. I believe that is correct, sir.

Mr. PECORA. And you believe that in all other respects exhibit 13 is the same as exhibit 12 in form?

Mr. VERHELLE. I could read them back and determine definitely. Mr. PECORA. I will read Exhibit No. 12, the draft of the letter which was not sent out

Senator COUZENS. And which was sent to Mr. Ballantyne for revision?

Mr. PECORA. Yes. [Reading:]

"To our Stockholders:

"The board of directors of the Detroit Bankers Company believe that greater progress in attaining the purposes of this company can be made by the consolidation of the Peoples Wayne County Bank and the First National Bank in Detroit, and accordingly have recommended the consolidation of these two institutions under the name of the First Wayne National Bank. To you as stockholders the results will be reflected in increased earnings for your company, and to you as customers in an improved and more convenient type of service. It is contemplated that this consolidation shall be effective on or about December 31, 1931. This will give Detroit, which is the fourth largest city in the United States, a bank commensurate with its importance. "According to the latest published statements the resultant consolidated institution will be among the first ten in the country in resources and deposits. "We trust that you will share the management's pride not in the size of the First Wayne National Bank, but in its usefulness to the community. The usual quarterly dividend has been declared to holders of record on December 21, 1931."

The letter marked as "Exhibit no. 13 " in evidence reads as follows [reading]:

"To our Stockholders:

'The board of directors of the Detroit Bankers Company believe that greater progress in attaining the purposes of this company can be made by the consolidation of the Peoples Wayne County Bank and the First National Bank in Detroit, and accordingly have recommended the consolidation of these two institutions under the name of the First Wayne National Bank.

"The new bank will have a capital of $25,000,000, surplus of $25,000,000, and undivided profits in excess of $7,000,000. It will have total deposits of approximately $500,000,000 and total resources of approximately $600,000,000. "We have taken this occasion to make the needed charge-offs and to set up ample reserves. To you as stockholders the results will be reflected in economy of operation, and to you as customers in an improved and more convenient type of service.

"It is contemplated that this consolidation shall be effective on or about December 31, 1931. This will give Detroit, which is the fourth largest city in the United States, a bank commensurate with its importance.

"According to the latest published statements the resultant consolidated institution will be among the first ten in the country in resources and deposits. "We trust that you will share the management's pride, not in the size of the First Wayne National Bank, but in its usefulness to the community. "The usual quarterly dividend has been declared to holders of record on December 21, 1931.”

It is signed "John Ballantyne, president ", and dated November 21, 1931.

The only differences that have been noted between these two letters, Mr. Verhelle, is the inclusion as entirely new matter in exhibit no. 13 of the second paragraph thereof, which gives the capital set-up of the new bank, and the following change in the phraseology of the third paragraph of the letter that was sent out, Exhibit No. 13, which corresponds in substance to the second paragraph of the draft of the letter, Exhibit No. 12, which was not sent out. That paragraph in the proposed, or draft letter, reads as follows:

"To you as Stockholders the results will be reflected in increased earnings to your company, and to you as customers in an improved and more convenient type of service."

In exhibit 13, which is the letter sent out, that reads as follows: To you as sockholders the results will be reflected in economy of operationinstead of increased earnings to your company

and to you as customers in an improved and more convenient type of service. Which corresponds to the balance of the paragraph in exhibit 12. Now, Mr. Verhelle, you produced these two exhibits in answer to my question as to whether or not there was given to the stockholders of the Detroit Bankers Co. any information showing that at the end of the year 1931 the financial condition of the company was not as good as it was at the end of the preceding year. Wherein do you seen anything in either of these two exhibits, 12 and 13-or let us confine it to exhibit no. 13, which is the one that was sent to the stockholders, according to your testimony-which gives that information to the stockholders of the Detroit Bankers Co.?

Mr. VERHELLE. I am not quite sure that those letters were given to you in answer to that specific question.

Mr. PECORA. For what purpose, then, or in answer to what question, did you produce these letters?

Mr. VERHELLE. As an indication-at the time I produced them I thought I was producing them as an indication of some specific notice to the stockholders that changes were taking place. As to the actual condition of the Detroit Bankers Co. at the end of 1931 and 1930, it is my very definite opinion at the present time, which, of course, takes into consideration events that have since occurred-but as far as the statement to the effect that the Detroit Bankers Co. was not in as good shape at the end of 1931 as it was at the end of 1930 appearing in a letter sent the stockholders, of course, no such statement appears there and it would have been completely out of order in any statement at that particular time.

Mr. PECORA. Why would it have been out of order if it was the fact?

Mr. VERHELLE. Well, there are a great many and varied reasons.