Mr. LONGLEY. Why, I do not know that you can say that. Of course, the requirements of the group had something to do with it. Mr. PECORA. Did it not have everything to do with it, as a matter of fact? Mr. LONGLEY. I do not know that I can say that it had everything to do with it. Mr. PECORA. What sound business consideration, apart from the desire of the group to increase its income, justified the declaration of this dividend by the Union Guardian Trust Co. in 1932? Mr. LONGLEY. I do not know that there was any. They just injected $4,000,000 into the trust company. It was thought that the $4,000,000 would go a long way toward putting the assets in better condition; and $50,000 was such a small part of what they had just put in that they felt entitled to that amount, and the directors of the trust company agreed with them, some of them. Mr. PECORA. There has been testimony given to this committee in the course of these hearings that during the years 1929, 1930, 1931, and 1932 the group received in cash dividends from various unit banks an aggregate of over $9,000,000, and that in the same period of time the group put back into various unit banks an aggregate sum of about $8,400,000. Are you familiar with those facts? Mr. LONGLEY. No, not very. I know something, of course, about the amounts the group put back, some of the items that the group put back, because a large part of that came to the trust company. Mr. PECORA. That is just what I was coming to. Is it not a fact that approximately seven and a half millions of dollars of that eight million four hundred thousand and odd dollars that the group put back into unit banks went to the Union Guardian Trust Co. alone? Mr. LONGLEY. Four millions at the close of 1931 and three and a half millions at the close of 1932. Seven and a half millions; that is correct. Mr. PECORA. Which is an indication of the distress then being suffered by the Union Guardian Trust Co as compared with the distress being felt by all the other unit banks of the group; is that right? Mr. LONGLEY. That is right. Mr. PECORA. And notwithstanding that distress, the trust company in 1932 declared this $50,000 cash dividend which was received by the group? Mr. LONGLEY. That is right. Mr. PECORA. Were you a director of the group from its inception, Mr. Longley? Mr. LONGLEY. No. Mr. PECORA. When did you first become a director of the group! Mr. LONGLEY. Late in 1931-no; wait a minute. Of the group? I think that was early in 1932. I can give you that accurately. (After referring to memoranda) December 14, 1931, I was elected to the board of directors of the Guardian Detroit Union Group. Mr. PECORA. Was that your first affiliation in any way, shape or form with the group? Mr. LONGLEY. Yes; I think so. Mr. PECORA. Had you been connected with it in any professional capacity, as an attorney, prior to that time? Mr. LONGLEY. No. Senator COUZENS. Were you a substantial stockholder at that time. Mr. LONGLEY. I would not call myself a substantial stockholder. I had, I think, 120 shares, perhaps a little more. I think my holdings finally ran up to 320 shares. Senator COUZENS. You heard Mr. Stalker's testimony, did you not, as to how he came to be relieved of the presidency of the Union Guardian Trust Co.? Mr. LONGLEY. Yes; I think so. Senator COUZENS. He testified, as I remember it-perhaps at the suggestion of Mr. Pecora―that a lawyer would make a better banker than he would. Mr. LONGLEY. I do not know just how he put it. I think perhaps he said that a good lawyer would do a better job than a poor banker. But John Stalker was a good banker. He has worked with me very closely. Senator COUZENS. Why was he removed, if he was a good banker? Mr. LONGLEY. He was not removed from the organization. Senator COUZENS. No; but he was removed from the presidency of it and you were put in his place. Mr. LONGLEY. Yes. Senator COUZENS. Why did that happen? Mr. LONGLEY. His services were not lost to the slightest degree. Senator COUZENS. He was demoted, was he not? Mr. LONGLEY. Would you call the vice chairmanship of the board a demotion? I would say it was a promotion. Senator COUZENS. Not if I understand the general processes of the operation of the minds of those directors, I would not call it a promotion. Mr. LONGLEY. Well, I cannot follow those fellows. Senator COUZENS. What is your interpretation? Is that really a demotion or a promotion? Mr. LONGLEY. I do not think it was regarded as a demotion. Mr. Stalker went right on with his work as he had. I do not know whether he thought it was a demotion or not. Senator COUZENS. His testimony so indicated; and I remember that Mr. Harriman of the Harriman National was made chairman as a demotion to take him out of the active management of the Harriman National Bank. Mr. LONGLEY. I do not think I would call it a demotion in Mr. Stalker's case. Senator COUZENS. He felt it was, because he said he thought a good lawyer would make a better banker than a poor banker would. Mr. LONGLEY. I do not think it made very much difference in the services that he rendered and continued to render to the trust company. Mr. PECORA. Mr. Longley, I show you what purports to be a photostatic copy of another statement or report obtained from the files and archives of the Union Guardian Trust Co., entitled "Certificate of deposit withdrawals (Feb. 1 to Feb. 11, inclusive, 1933)." Will you look at it and tell me if you recognize it to be an authentic or true and correct copy of such a report or statement from the files and records of the Trust Co.? Mr. LONGLEY. Yes; I think that is. Mr. PECORA. I offer it in evidence. Senator CouZENS. The same will be admitted. (Photostatic copy of sheet entitled "Certificate of deposit withdrawals (Feb. 1 to Feb. 11, inclusive, 1933)" was received in evidence, marked "Committee Exhibit No. 91, Jan. 17, 1934.") (See p. 5056.) Mr. LONGLEY. I am assuming it is correct, if you got it from the records. Mr. PECORA. Yes. Will you look at this exhibit which has just been marked "Committee Exhibit No. 91" as of this date, and see if you recognize any of the names of the depositors withdrawing their certificate of deposit accounts between February 1 and February 11, 1933-the names of any directors or officers either of the Union Guardian Trust Co. or of the group? Mr. LONGLEY. George W. Trendle is the only director on this list. I might say in that connection that Mr. Trendle had placed large sums on deposit in the A funds for investment, and I take it that these are withdrawals for the purpose of investing. Then above, on February 2, in the name of the Murray W. Sales Co. Of course that is a corporation of which Murray W. Sales was a director at that time. I do not see any others on here directly or indirectly connected with those withdrawals. Mr. Sales' withdrawal is apparently a normal one, $25,000. Mr. Trendle's seems to be quite a normal one. Mr. PECORA. As I recall it, you became president of this trust company in the early part of the year 1932, at the annual meeting of the stockholders and directors? Mr. LONGLEY. That is right. Mr. PECORA. Are you familiar with the condition, reported by the State bank examiner, of the trust company, as result of his examination made as of August 8, 1932? Mr. LONGLEY. In a general way, I think so. Mr. PECORA. Do you know that at that time Mr. R. I. Hudson, who was the gentleman who made the examination for the Banking Commission of the State of Michigan, among other things reported as follows concerning the condition of the bank as of August 8, 1932 [Reading:] It is practically impossible to determine the liquidity of this company. They have an authorized loan of $15,000,000 with the R.F.C. and, at the time of examination, had already obtained $7,426,685.44. Mr. LONGLEY. I do not remember that, but if it was found in his report it is probably true. I have no question about it. Mr. PECORA. That comment was based on the facts, you think? Mr. LONGLEY. Let me take it just a minute and see. (After referring to paper:) Well, I think that is a fair comment. It was a most difficult thing. Mr. PECORA. Did you know that the State bank examiner, in his report of examination of the bank made as of August 8, 1932, showed a net deficiency in the bank's condition of $2,915,889.34? Mr. LONGLEY. That is not quite the way I would put it. Mr. PECORA. That is the way he put it. Mr. LONGLEY. No. Is it not stated-have you a photostat of it? Mr. PECORA. Yes. Mr. LONGLEY. I think it is stated as estimated, is it not-the losses he suggests there? Mr. PECORA. Under the caption of "Examiner's Estimate of Bank's Condition." Mr. LONGLEY. So that was his estimate of the deficiency? Mr. PECORA. Yes. Don't you think the estimate was accurate? Mr. LONGLEY. No; I do not. Mr. PECORA. What do you think it was? Mr. LONGLEY. We finally worked it out on a different basis. Mr. PECORA. You know that he said, in reviewing the assets he found in the bank at that time, as follows: Summary of assets just includes doubtful and loss, as practically all assets are slow and undesirable. Mr. LONGLEY. I do not remember that note, but it may have been in there. Mr. PECORA. Do you know that he stated as follows in that report: The figures set up in this summary give a fairly complete picture of this company. An effort has been made to set out in a fair manner the losses and doubtful items of the various departments. At the present time a complete analysis of the mortgage department is impossible, and many losses are apt to show up in the future. The company is in a very serious position, and final disposition is left to the office. Meaning the office of the banking commission. Mr. PECORA. Are you familiar with that? Mr. LONGLEY. I remember it, generally. I have not seen it for some time, but I think it is probably just as he turned it in. Mr. PECORA. That is, that is a fair report-a fair characterization? Mr. LONGLEY. I think that is his opinion, all right. We had some differences on our final work-out of the thing; it was so difficult at that time to fix values, so difficult to determine what man could and what man could not take care of his future payments, and employment was very, very poor in Detroit, and the curve on mortgage collections follows the curve of employment almost exactly. Mr. PECORA, Do you know that he made the following comment in his report of that examination: Credit files on loans and discounts very unsatisfactory. The few statements in files are mostly on corporations, hardly any on individuals, and the few statements are in most cases obsolete. No attempt appears to be made to have adequate credit information on short collateral lines. Mr. LONGLEY. We were making every effort to correct that at that time. Mr. PECORA. How had the credit files on loans and discounts been permitted to lapse into a condition where the examiner, as of August 1932, reports them as being very unsatisfactory and "the few statements in the files are mostly on corporations, hardly any on individuals, and the few statements are in most cases obsolete "? Mr. LONGLEY. Well, I do not know how it happened in the past, but I do know that these new men that we put to work on that liquidation were making every effort to get those credit files as they should be. They were very strenuously attacking that job. Senator COUZENS. Did they get into that condition under Mr. Stalker's administration? Mr. LONGLEY. They were in that condition when I took hold of it, as that report, of course, indicates. Mr. PECORA. Do you recall that shortly after Mr. Hudson, the State examiner, completed this examination, he and Mr. M. C. Taylor, deputy commissioner of banking for the State of Michigan, attended a conference with a number of the directors of the trust company with regard to the condition of the trust company and the losses to be written off? Mr. LONGLEY. What date was that? Mr. PECORA. Well, it was some time shortly after the completion of this examination. Mr. LONGLEY. Oh. This same examination? Mr. PECORA. Yes. Mr. LONGLEY. Yes; I remember. Mr. PECORA. Were you one of the directors with whom that conference was held by Mr. Hudson, the examiner, and Mr. Taylor, deputy_banking commissioner? Mr. LONGLEY. Yes. Mr. PECORA. What was the substance of the discussion in that conference? Mr. LONGLEY. These write-offs and estimated losses. Mr. PECORA. What write-offs were agreed upon should be made? Do you remember the aggregate amount? Mr. LONGLEY. It was finally determined by the Department that we should write off somewhere around 32 million dollars. Mr. PECORA. How was that accomplished? Mr. LONGLEY. The officers wrote off those items, picking out what they considered, with the banking department, were the losses that should be written down and out of the books. Mr. PECORA. Was it in order to enable the trust company to make these write-offs of about 32 million dollars that the trust company about that time obtained a loan of 32 million dollars from the Board? Mr. LONGLEY. Yes-well, no; the loan was made to the group. Mr. PECORA. The loan was made to the group? Mr. LONGLEY. That is right. Mr. PECORA. And the group then made it to the Trust Co.? Senator COUZENS. Was that the only State bank examination that was made while you were president of the Trust Co.? Mr. LONGLEY. I think there was one-let me see [After referring to data.] Yes; I guess that is right; that was the only one. Senator COUZENS. The only examination made while you were president? Mr. LONGLEY. Yes; that is the only one. Mr. PECORA. Do you know a corporation called the Congress Corporation? Mr. LONGLEY. I know of it. Mr. PECORA. And is that a subsidiary or affiliate of the group? Mr. LONGLEY. Yes. Mr. PECORA. It was organized by the group, was it not? Mr. LONGLEY. I think so. Mr. PECORA. For what purpose? 175541-34-PT 10-18 |