Banks

Emerging from a "purely social" call on President Roosevelt one day last week, Radio Priest Charles Edward Coughlin announced to White House newshawks that he was preparing a test suit challenging the constitutionality of the Federal Reserve Act. Though the Act has survived several Supreme Court reviews in the 21 years it has been on the books, the banker-baiting Detroit priest proposed to attack it this time on the ground that Congress had illegally delegated its power over currency to private bankers.

Last week, however, U. S. bankers had other things to worry about than the latest blast from the founder of the National Union For Social Justice. Opened each December by Manhattan's ancient Bank of the Manhattan Co., the season for annual bank stockholders' meetings was in full bloom. From hundreds of meetings shareholders learned that deposits were around record highs, that loans were around record lows. The trend of earnings was currently upward, though full year profits were often less than in 1934. Recoveries from assets previously written down or charged off contributed substantially to profits in many a case. From nearly all bankers present, low interest rates drew a good anti-New Deal grumble.

Big Ones. With the exception of a handful of giant institutions, the 15,994 U. S. banks now open are largely locally owned. Unless an investor happens to be a stockholder, his only interest in these banks is their periodic and anonymous appearance in composite banking figures. However, Chase National Bank, biggest in the U. S., is owned by 92,000 stockholders including John Davison Rockefeller Jr., whose interest is less than 5%. National City has 90,000 shareholders, Guaranty Trust, 24,400. These three biggest U. S. banks have yet to hold their meetings, but most of the other supersolvent Manhattan institutions held their sessions last week.*

New York Trust's Chairman Mortimer N. Buckner reported profits of $4,060,000 available for dividends, reserves and surplus, compared with $5,146,000 in 1934. President S. (for Samuel) Sloan Colt of Bankers Trust announced operating earnings of $8,136,000, down from $11,452,000 the year before. Central Hanover Bank & Trust's Chairman George W. Davison briefly announced that profits (exclusive of "substantial" recoveries) amounted to $6.03 on each of its 1,050,000 shares, as against $10.68 per share in 1934. Corn Exchange showed net operating income of $2,666,000 in addition to $2,391,000 profit on real estate and securities sold during the year. Year before Corn Exchange reported net operating income of $2,564,000. But most interesting meetings of the week were held by two banks that made considerable news during the depth of Depression:

Manufacturers Trust Co. is the only big Manhattan bank tracing its ancestry to Brooklyn, where it was founded 30 years ago. A $500,000,000 institution at Depression's start, it was in hot water two years later, largely because its clientele and territory resembled those of defunct Bank of United States. In the last three months of 1930 Manufacturers Trust lost 33% of its deposits in silent runs. When Bank of United States finally collapsed, Manufacturers passed the strict clearing house examination, was promptly admitted to that body to restore public confidence.

Few weeks later management passed into the hands of Harvey Dow Gibson, who with some friends bought working control from old Goldman Sachs Trading Corp. for $7,300,000. When President Gibson decided to inspect his new offices in Manufacturers Trust, he started from New York Trust Co., where he was executive committee chairman, walked briskly a few blocks, hesitated, finally had to ask a policeman to direct him to the bank he had just bought.

Within the year a consortium of New York banks & bankers gave President Gibson the job of liquidating a batch of neighborhood banks that had closed. In the same year President Gibson headed the New York Emergency Unemployment Relief Committee, which involved a certain amount of eating out of tinware (see cut, col. 1). And to him went Manhattan's old Chatham Phenix National Bank & Trust, which was merged with Manufacturers after rumors threatened its existence. At that time Mr. Gibson swept out the portfolios of both banks, transferring assets with a dubious value of $30,000,000 to Huron Holding Corp.. a liquidating concern. Manufacturers took in exchange notes with a face value of $4,000,000 but entered on its books at $1, and Huron Stock was pro-rated among Manufacturers' own stockholders.

Meantime Mr. Gibson gave Manufacturers a reputation for aggressive banking that few other institutions can duplicate. It jumped into the personal loan business. It stressed little commercial loans to little businessmen. It played ball with the Administration, was the first big Manhattan bank to accept RFC money. Its $230,000,000 of Governments consist almost entirely of long-term issues. Other banks fight for low-yield, short maturities every time an issue is offered, but for five years Manufacturers has preferred the higher returns to be had on Governments due in ten years or more. And in explaining his unorthodox policy to stockholders last week President Gibson declared:

"We consider the credit of the U. S. Government unsurpassed by that of any other nation of the world; and so we consider the bonds of our Government the safest investment that can be made. . . . They are more certain than any other bond to be paid in full at maturity. They have a past record of greater salability in times of emergency than any other security. ... A marked strengthening of money rates might tend to affect unfavorably the market price of securities of all kinds, but I anticipate no great trend in this direction in the near future."

For last year Mr. Gibson reported net operating income of $6,645,000, up from $5,163,000 in 1934. Another $6,000,000 was chalked up last year for recoveries and profits from securities. Total resources at the year end stood 100% above the figure five years ago. Harvey Dow Gibson placed his money on Recovery in 1931, has won in a big way.

Continental Illinois National Bank & Trust Co-- is the prepossessing name of the biggest bank between Manhattan and San Francisco, and the only billion-dollar institution controlled through preferred stock ownership by Jesse Holman Jones's RFC. Few days before Continental's meeting, Mr. Jones turned up in Chicago with Continental's Chairman Walter Joseph Cummings in tow. Mr. Cummings had been vacationing in Los Angeles, where Jesse Jones had just helped hole through the East Coachella Tunnel. Aboard the same train was Herbert Hoover, Manhattan-bound for a directors meeting of New York Life Insurance Co. When friends started joshing him about his traveling companion, Mr. Jones drawled: "You can't kid me about Hoover. Isn't he the guy who gave me my job?"--

Seating himself comfortably at the desk of Mr. Cummings, who was installed as chairman two years ago at Mr. Jones's persuasive suggestion, the pink-cheeked Texan leaned back to proclaim: "The country is in good shape. People are cheerful. . . . Business is good. The banks are crabbing but most of them had the best year in many years."

Mr. Jones was then asked a question which gives most U. S. bankers the jitters: What would happen to the banks if Government bonds suddenly slumped? More than 51% of the national debt rests in bank portfolios. But the question was an easy one for Mr. Jones. Said he: "The banks hold too many Government securities to permit a slump." The Jones theory apparently was that it is up to the creditors to maintain the debtor's fair name.

Mr. Jones did not remain for Continental's meeting, dispatching the head of RFC's Chicago office to vote his $50,000,000 worth of stock. When RFC bought this huge block of preferred in 1933, Continental agreed to retire it at the rate of $2,500,000 annually, starting next August. The bank also agreed to keep its capitalization up to $75,000,000. Result will probably be that each time Continental makes a repayment to RFC it will simultaneously declare a common stock dividend in the same amount. Presumably the first stock dividend will be paid next August, and if equal to the RFC repayment will be 10%.

Continental has been making more than enough money to justify stock dividends, had it not appropriated most of its earnings for write-offs and reserves. Net income last year was $19,900,000, some $9,000,000 of which went on. write-offs. Another $7,500,000 was transferred to a contingency reserve. Nevertheless, Continental's recoveries are expected to be large, and its common stock has nearly quadrupled from last year's low of $36 per share.

Stockholders went to the meeting last week feeling pretty sure that they would get cash as well as stock dividends in the near future. Roly-poly Chairman Cummings chatted with shareholders, incessantly putting on and taking off his horn-rimmed spectacles. After adjournment Continental's directors went up two nights to their boardroom, voted two $1 payments on the common stock, first dividend in three years.

* Fourth largest U. S. bank is San Francisco's branching Bank of America, which made $16,276,000 last year as against $10,530,000 in 1934. Bank of America's annual meeting is duller than average because its stock is 99.64% owned by Amadeo Peter Giannini's Transamerica Corp.

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