Evening star., 1934-09-02
BANKING IN BOOM
RAPED IN REPORT
Senate Probers Issue Final
Section of Analysis of Ex-
haustive Hearings.
Continued From First Page.)

to the investing public and the bank
ing institutions.
Possessed with this instrumentality
that enabled these banking instuti-
tions to conduct a business and indulge
in practices which governmental au-
thority through legislative enactment
had forbidden to commercial banks,
these banking institutions, infected
with speculative fervor, INDUCED in
practices and transactions which had
the direst consequences.
Depositors Led Astray.
Commercial banks found a fertile
field among their depositors for pur-
chasers of security issues which their
investment afiliates were sponsoring.
These banks, violating fduciary duty
to depositors seeking disinterested in
vestment counsel from their bankers,
referred these depositors to the affili-
ates for advice. These depositors were
sold securities in which the afiliates
had a pecuniary interest"
The National City Co., affiliate OF
the National City Bank, and the Chase
Securities Corp, affiliate Of the Chase
National Bank, were cited frequently
in excerpts from testimony quoted to
bring out the practices followed, OF
the former, the report said:
"A spectacle was presented where
an investment -afflliate Of one Of the
largest commercial banks in the coun-
try, which had sponsored or had ac-
cumulated or had option on sub
stantial block of securities was vigor-
ously engaged, through highly
geared selling organization in selling
securities to the investing public with
out any adequate. disclosure of the
interest of the investment affiliate in
these securities.
"The investing public, relying upon
the close afiliation of the investment
company to the commercial bank, had
a right to expect disinterested counsel.
Instead, the investment affiliate, avail
ing itself Of the good will attendant
to similarity to the name Of the
bank, was disposing Of securities in
which it had a substantial pecuniary
interest in selling"
Stock Trading Condemned.
In vigorous fashion the report con-
demned trading in the stock of the
parent company by the investment
affiliate and the activities Of officers
and directors in connection with such
procedure. It was brought out that
that National City Co. sold National
City Bank stock short in repeated in
stances, assigning as the reason a
desire to stabilize the market while
blocks of the stock were distributed.
The testimony of Albert H. Wiggin,
former president of Chase National,
was recited at length to show his
activities in forming several invest
ment corporations, the stock all held
by members of his family, for pur-
poses Of dealing in stocks, including
that of the bank itself.
The report also cited Virgins pen
sion of 100000 year, giving at the
same time a court precedent under
which it was contended that such a
pension was illegal. After this dis
closure on the committee, the Chase
board of directors discontinued the
pension at Virgins request.
Turning to activities and practices
of officers and directors of commercial
banks and investment afiliates," the
report said:
"These custodians of funds, gambled
and speculated for their own account
in the stock of the banking inStitu-
tionS which they dominated, partici-
pated in speculative transactions in
the capital stock Of their banking in
stitutions that directly conf1icted with
the interest of these institutions which
they were paid to serve, participated
in and we're the beneficiarieS Of pool
operations, bestowed special favors
upon officers and directors of their
banking institutions and investment
affiliateS to insure domination and
control for their own personal ag-
| grandiZement, received the benefits of
| preferred lists with resultant i'm
pairment of their usefulness and ef-
44OnNN 90 EAON0b4FC O444NVAo'
Bankers Are Condemned.
"The record is a severe indictment
| of many bankers who have earned the
| condemnation of reputable members
of the banking fraternity and the Ma
ton. The hearings before the Sen
ate subcommittee have served the
Salutary purposes of wedding out bank
| officers who were oblivious of their
vital duty, and reawakening the con-
sciouSneSS of reputable bankers to the
sacredness of the trust imposed upon
them by virtue of their guardianship
Of other peoples money"
The report noted that officers and
directors of banks borrowed large
sums" from their banks either with
inadequate collateral or with no COL
lateral at all to finance their specula-
tive transactions, adding:
1T has been estimated that ap-
proximately SO per cent of the bank
failures were caused by loans to off,
GERS and employees of banks
At another point 1t said that "a
series of practices and transactions
which banking officials either engaged
| AAA Va CdSI d SOIllDCT re-
Election upon the ethical standards of
the banking fraternity" and went. on
to cite loan of $4,000 by National
City Co. to John Ramsey, general
manager of the port of New York au-
| thority, at a time that the bank was
floating $56,O00,OOO issue of bonds
of that agency.
Latin Loans Up.
In this connection it went in detail
| into National City loans to former
President Machado and other Latin
American officials when the bank was
engaged in floating bonds of their
countries. many of which are now in
default.
Turning to private banks and bank
ers, the report went eXhaustively into
the financial Set-ups, as revealed in
the hearings, of such houses as ]. P.
Morgan & Co., Dillon, Reed g. Co,
Knhn Tnah Qy IN and afbarc