Evening star., 1933-02-24
BANKS FINANCING
METHODS EXPOSED
Hearing Gets Evidence of
Loans for Stocks Delivered
to Affiliate.
BY the Associated Press.

its own stock affiliate, the National
City Co., was presented today to the
Senate Banking Committee.
After Ferdinand Pecora, the commit
tee counsel, had placed in the record a
series of letters recording loans to a
brokerage house for bank stock to be
delivered to the National City Co.,
Senator Brookhart, Republican, Of Iowa,
observed:
Its quite plain from this the bank
was directly financing the sale of its
own stock"
Brookhart estimated that the letters
showed S21 100000 had been so used
during the month of october, 1929, and
that 46,747 shares were involved.
Bonus Payments Scanned.
Hugh B. Baker, president of the
National City Co., said he did not know
what proportion of all the business
| that was.
securities" he said.
TT was more than that" Pecora shot
back.
Taking up the cross-examination OF
Baker. Pecora asked about his partici-
patton in the company's management
| fund under which officers got bonus
payments from profits.
Baker said he got bonus OF $685.
| $50 for 1927 in, addition to his salary
of s25, 900: S266,000 in 1928 and $225.-
900 for the first six months OF 1929,
after which the fund was suspended.
Members of the committee have
| criticized the fund as tending to en-
| L, VIZ NJ nf Sarllr1fi ioc
Pecora pointed out that the total sales
| of the National City Co. in 1929 were
about $2,OOO,0O0.0o0 and asked If it
| dealt in any one security to greater
extent than the bank stock.
Baker said he could not recall any.
Did the company make the market?"
| Pecora asked.
NO" the witness replied.
isn't it easier 10 control an over-the-
counter market than stock exchange
market?" Pecora asked.
There might be cases where that Is
true" Baker agreed.
Unable to Recall Letter.
I'm month of october, 1929, do you
know the volume of your transactions
with Schmeltzer & Coz"
mo, I don't" Baker said.
Have you correspondence between
Schneider and the bank?"
NO"
Pecora then read a letter to the bank
from Schneider, agreeing to deliver
2,100 shares of the bank stock for q
loan of $1000,000.
Il have never heard of that" Baker
said
Baker, questioned closely by Pecora,
| said the loan was apparently to finance
| the acquisition of 2,lO0 shares and de-
| livery of it to the National City Co.
"You don't think the bank was ex-
| tending credit to the brokerage firm
| for picking up stock for the National
City Coz"
Eyes, it would seem to be that" the
| witness agreed.
Pecora read another letter, In Oc-
tober, borrowing 100000 for 1900
shares of the bank stock.
Baker agreed that seemed to be q
similar transaction for delivery of stock
to the National City Co.
Another letter the next day asked
for a loan of 100000 to deliver 1,547
| shares. -
Baker said it was "all news" to him.
Pecora read other letters during the
same month asking for additional loans
for delivery of bank stock to the Ma
tional City Co. One of them asked
for IAN generalization Of $9,000,-
600 for delivery Of 10000 shares to the
National City Co." but said only $2,-
000, 900 was needed Immediately"
Later an additional certification of
$4,000, 900 under this arrangement was
asked
Its quite plain from this the bank
was directly financing the sale of its
own stock" Brookhart commented.
Couzens Charges Evasion.
From your banking experience,
Senator Couzens, Republican, Michigan,
asked, do you justify this practice?"
Baker said he knew nothing about
daily banking accommodations.
You are too evasive," CouZens re-
piled. please answer my question"
II assume it is in accordance with
ordinary bank practice" Baker said.
IF so I would indorse it."
Couzens asked how many such
transactions there were, when Baker
said he could not tell, Pecora pointed
out the company dealt through Is or
20 houses.
"That means" Brookhart interjected,
"that those deals were promoted and
financed almost entirely by the
National City Bank"
II don't know what proportion Of all
the business that was" Baker said. IT
facilitated the delivery OF the securl-
ties"
isn't this the spectacle of bank
trading in its own stOck?" Pecora asked
sharply
Baker hesitated, but finally said:
1T doesn't seem SO to me-.
How about it from the moral and
OF tbica1 StapdDoint9 ."
II don't see that the bank was TAX
ing any risk" Baker said.
Didn't the bank ever call you and
ask about this credit amounting to mil
lions within few dayS?" Pecora asked.
as Baker continued to express lgnor-
ance of the letters.
"They didn't call me. but may have
called some one else" Baker said.
Mitchell Asked to Explain.
The committee then recalled Charles
E. Mitchell, chairman Of the bank, and
asked him for an explanation.
Mitchell testified that since the ma
tional bank act was enacted 1t had been
practice among all banks to extend
day loans"
Have you any security?" Couzens
asked
mo- Mitchell replied, adding they
were based on contracts. He said the
loans ran some days as much as
$500 900 by a bank, and that interest
was l per cent per annum.
But these loans are in effect con-
tinuouS?" CouZens asked.
mo, they are closed out each day,
Mitchell said.
But they are renewed next day."
Couzens said.
THE bank never actually possesses
the securities?" Couzens asked.
mo, SIR
Couzens observed that it contributed
to the conversion of capital from in
dustry to the stock market.
Mitchell disagreed saying day loans
were really a matter Of "a few mo-
ments."