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Mr. JOHNSTON. I subscribe to these things now, in the light of events, but at the time it seemed to me they were a little too alarmed.

Mr. PECORA. Did you recognize then, that is, during the period when these letters were being written, that there was a direct relationship between brokers' loans and the trend of stock-market prices!

Mr. JOHNSTON. Yes, sir,

Mr. PECORA. And has it been your experience that that relationship is manifest at all times, generally speaking ?

Mr. JOHNSTON. I have only the charts that are published by various services to guide me, but I think the trend shown in those charts is that there is such relationship.

Mr. PECORA. Now, during the year 1929, to your knowledge, did the Cities Service Co. make any loans on call ?

Mr. JOHNSTON. Yes, sir. Henry L. Doherty & Co., acting as fiscal agents for the Cities Service Co., made the loans.

Mr. PECORA. And do you know the number and amounts of such loans made during the year 1929 by Henry L. Doherty & Co. as fiscal agents for the Cities Service Co.?

Mr. JOHNSTON. The total number of Street loans made in the callmoney market of New York City was 912.

Mr. PECORA. And what was the total amount of the Street loans made in that year in the call-money market in New York City ?

Mr. JOHNSTON. By adding up all the individual loans as they were made, even though some of them were made for only 1 day, we get a total of $285,325,092.21. But, of course, not all this money was outstanding at any one time. The largest amount outstanding at any one time was $41,900,000.

Mr. PECORA. And on what date, if you know, was that peak in the amount of loans outstanding?

Mr. JOHNSTON. September 25, 1929.

Mr. PECORA. That was about a month before the big break in the stock market

Mr. JOHNSTON. Yes, sir.

Mr. PECORA. Had the number and the aggregate amount of callmoney loans made by or on behalf of the Cities Service Co. steadily increased during the year 1929, from the beginning up to and including September of that year?

Mr. JOHNSTON. They did not steadily increase. There were times when the amount would increase, and other days when they would decrease.

Mr. PECORA. But the general trend was rather toward an increase, wasn't it?

Mr. JOHNSTON. Yes, sir. Mr. PECORA. From the beginning of the year up to September. Mr. JOHNSTON. Yes, sir. Mr. PECORA. Now, Mr. Johnston, following the break in the stock market, which, as you undoubtedly recall, took place in the latter part of October of 1929, can you tell this committee whether or not there was a perceptible drop in the number and amount of call loans made by or on behalf of the Cities Service Co. for the balance of the year 1929 ?

Mr. JOHNSTON. Yes, sir. We had no bank loans, or I mean
Mr. PECORA (interposing). I beg pardon?

Mr. JOHNSTON. I say, we had no call loans by the end of the year.

Mr. PECORA. Now, had it been the policy of the Cities Service Co. prior to the year 1929 to make call loans in the Street ?

Mr. JOHNSTON. Yes, sir.

Mr. PECORA. How many years had that policy been continued prior to 1929?

Mr JOHNSTON. I do not recall the exact date, but there were callmoney loans placed in 1919, and possibly in 1926, and the beginning of 1928, and

Mr. Pecora (interposing). This was a time of considerable activity in the stock market as compared with the years immediately preceding, wasn't it?

Mr. JOHNSTON. I couldn't tell you about that.

Mr. PECORA. Had you completed your answer! I did not mean to interrupt you, Mr. Johnston, when you referred to 1919 and 1926, and were you beginning to mention some other period ?

Mr. JOHNSTON. And the beginning of 1928 and 1929.

Mr. PECORA. Well, you do recall that in 1928 and throughout that year, and throughout the year 1929 and up to the latter part of October there was increased activity in stock-market trading?

Mr. JOHNSTON. Yes, sir.

Mr. PECORA. Now, who had charge of the making of these call loans in behalf of the Cities Service Co. during the years 1928 and 1929 ?

Mr. JOHNSTON. The call loans were made under my supervision.

Mr. PECORA. Will you describe to the committee, briefly but concisely, the mechanism by which those loans were made? Just describe the general operation of the making of those call loans.

Mr. JOHNSTON. During the day we would call a money broker on the telephone and tell him how much money we wished to loan on call that day.

Mr. PECORA. By “money broker” do you mean a member of the New York Stock Exchange?

Mr. JOHNSTON. They are usually members of the New York Stock Exchange; yes, sir.

The CHAIRMAN. Does a money broker differ from other brokers, or bankers, or investment people, or is he a specialist of some kind !

Mr. JOHNSTON. I think in the case of certain firms that would be the firm's specialty. In the case of other firms it would be just one department.

Mr. PECORA. Now, Mr. Johnston, will you continue with your explanation of the method or the machinery by which those call loans were made by you?

Mr. JOHNSTON. A little later on the money broker, or the office of the broker, would call up and give us the list of the loans which had been made. And then later on in the afternoon the brokers' messengers would bring in to us envelops in which there was the collateral for the loans. Our clerks would take the envelops and the collateral, check it, and hand the messenger our check for the amount.

The CHAIRMÁN. What would the collateral consist of!

Mr. JOHNSTON. A variety of stocks listed on the New York Stock Exchange.

Senator TOWNSEND. Were all of your loans made through brokers in the manner you have indicated ?

Mr. JOHNSTON. I believe the majority of them were. Occasionally some broker would call us direct and ask if he could send around a loan that day.

Mr. PECORA. Those loans were invariably made to brokers themselves, weren't they?

Mr. JOHNSTON. Yes; to members of the New York Stock Exchange.

Mr. PECORA. Were they made by the Cities Service Co. without the interposition of any bank?

Mr. JOHNSTON. Yes, sir.

Mr. PECORA. That is, the loans were made directly by the Cities Service Co. to the various brokers who received them?

Mr. JOHNSTON. Yes, sir.

Mr. PECORA. And who determined the interest rates at which those loans were made?

Mr. JOHNSTON. The interest rates were determined on the floor of the stock exchange and published.

Mr. PECORA. And they varied from day to day, did they?
Mr. JOHNSTON. Yes, sir.
Mr. PECORA. And sometimes they varied during the day?
Mr. JOHNSTON. Yes, sir.

Mr. PECORA. What was the general range, Mr. Johnston, of the interest rates, we will say, during the year 1929, beginning with January and ending with October ?

Mr. JOHNSTON. Well, roughly speaking, I should say from about 5 percent to about 15 percent. The CHAIRMAN. The rate went as high as 20 percent, didn't it?

Mr. JOHNSTON. I recall a 20-percent rate during a prior period. I don't recall whether it was during 1928 and 1929 that they reached 20 percent or not.

Ńr. PECORA. Do you recall that in March, I think it was of 1929, the National City Bank sent in $25,000,000 to the money posts of the New York Stock Exchange, which was loaned at rates ranging from 16 to 20 percent? Mr. JOHNSTON. I remember the incident; yes, sir. Mr. PECORA. What was the incident? Mr. JOHNSTON. Just as you have stated, only I do not recall definitely the rate.

Mr. PECORA. That money was loaned at the time when the Fed. eral Reserve bank sought to put a check on speculation through raising of the rediscount rates, and that action was nullified by this action of the National City Bank. Do you recall that? Mr. JOHNSTON. I think that is my recollection; yes, sir.

Mr. PECORA. Can you give this committee the amounts received by the Cities Service Co. during the year 1929 by way of interest on these street loans?

Mr. JOHNSTON. I am sorry, sir; I did not prepare myself with that figure.

Mr. PECORA. Can you give us an approximation of the amount, it being understood that it is only an approximation and subject of course to correction?

Mr. JOHNSTON. The average daily amount of call loans outstanding was a little over $10,000,000.

Mr. PECORA. $10,375,000 approximately, wasn't it?

Mr. JOHNSTON. Yes, sir. So to take a percentage of 5 percent of that

Mr. PECORA (interposing). Now you are taking the lowest rate, aren't you?

Mr. JOHNSTON. I was going to say, if you took 5 percent that would be $500,000.

Mr. PECORA. At 5 percent?
Mr. JOHNSTON. Five percent.

Mr. PECORA. But the range of the interest rates ran from 5 to 15 percent?

Mr. Johnston. It was higher than 5; yes, sir. Those higher rates were few and far between.

Mr. PECORA. Would it be possible for you to get, for the benefit of this committee, after today from your office records the figure that I have asked for?

Mr. JOHNSTON. Yes, sir.

Mr. PECORA. Can you tell us this, Mr. Johnston: What was the average period of time for which those call loans were made in 1928 and 1929 ?

Mr. JOHNSTON. I should judge the average loan would stay out 4 or 5 days.

Senator TOWNSEND. Mr. Johnston, how was this surplus of money which Cities Service was loaning in the Street obtained? Was it a profit on their business or how was it obtained ?

Mr. JOHNSTON. Partly from the earnings of the operating companies, and partly from the sale of securities.

Senator TOWNSEND. Sale of securities—what do you mean by that!
Mr. JOHNSTON. Cities Service Co. and its subsidiaries.
The CHAIRMAN. Issuing stock and selling stock?

Mr. JOHNSTON. Different kinds of securities were issued. There was stock issued; yes, sir.

Senator TOWNSEND. What portion of this money was received by the sale of Cities Service stock itself!

Mr. JOHNSTON. Well, it is hard to tell just where any portion of certain sums of money comes from. Sources of income are varied, and the disbursements are also varied.

Senator TowNSEND. Do you recall the amount of Cities Service stock sold, we will say, in the year 1929, and the prices obtained for it?

Mr. JOHNSTON. I do not recall at the moment those figures; no, sir.

Mr. PECORA, Could you give the figure with some degree of approximation ? Mr. JOHNSTON. It is too far back.

Mr. PECORA. What would be your best estimate at this time of that figure? Mr. JOHNSTON. The number of shares of stock? Mr. PECORA. No; the amount realized from the sale of stock. in (There was a pause without response.)

Senator TOWNSEND. It would suffice if you would get that for the record, the amount of stock sold in 1929 and the prices obtained and the amount of money received.

that year.

Mr. JOHNSTON. It is quite a large amount, and it would be just a guess in any one year.

Mr. PECORA. Will you get that figure also, Mr. Johnston, and send it to me at the New York office and I will submit it to the committee?

Mr. JOHNSTON. Yes, sir. Mr. PECORA. You might give us that figure for both the years 1928 and 1929 separately stated for each of those years. Mr. JOHNSTON. Yes, sir.

Mr. PECORA. Now I show you, Mr. Johnston, a letter addressed to me as counsel to this committee by some gentleman connected with the Cities Service Co. whose signature I cannot read, dated November 1, 1933, which refers to accompanying date. Will you look at it and tell me if you recognize it to be a letter caused to be sent to me as counsel for this committee by the Cities Service Co. on or about November 1, 1933, with the accompanying data which I also show you?

Mr. JOHNSTON (after examining document). Yes, sir; the first letter is signed by Mr. W. Alton Jones, and the second by Mr. W.B. S. Winans.

Mr. PECORA. Yes. I offer the letters and accompanying data in evidence. The CHAIRMAN. Let them be admitted.

(Letter dated Nov. 1, 1933, from W. A. Jones to Ferdinand Pecora, together with accompanying data, was designated “ Committee Exhibit No. 86, February 23, 1934". The letter appears in the record in full, immediately following, where read by Mr. Pecora, and the exhibit appears in full at the close of the day's proceedings.)

Mr. PECORA. The exhibit has been marked no. 86 in evidence, and the forwarding letter reads as follows (reading]:

CITIES SERVICE COMPANY,

November 1, '1933. Mr. FERDINAND PECORA, Counsel

Et cetera-
MY DEAR MR. PECORA :

With further reference to your inquiry of October 26, you will find enclosed berewith complete questionnaire, which we trust you will find in order. Sincerely yours,

W. A. JONES. Is thatMr. JOHNSON. Yes, sir. Mr. PECORA. W. Alton Jones. The enclosures consist of the socalled questionnaire ”, entitled "Questions and answers regarding call loans of year 1929”, and gives the figures that have already been testified to by the witness, namely, total number of loans in the call

money market in New York City that were made during the year 1929 was 912; that the total amount of those loans in that year was $285,325,092.21; that the maximum amount of call money on any one day was $41,900,000; that the average daily amount of call loans outstanding during the year made by the company was $10,375,778.23, and that the average amount of each call loan made was $312,856.46, and that such loans were not made through any commercial bank, private bank, or any other agency, but made directly to the borrower.

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