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COMMENTS UPON BANK'S RESPONSE TO COMPTROLLER'S PROPOSED REQUIREMENTS. O f f e r of c a p i t a l increase, e i t h e r common or p r e f e r r e d , i n the t o t a l amount of $50,000,000 c a p i t a l funds. Amount seems inadequate i n consideration of e n t i r e program o f f e r e d . ( a ) Would suggest preferred stock f o r any increaae i n c a p i t a l , whether sold to shareholders, the p u b l i c , or the Government, because ( l ) i t should be cheaper c a p i t a l end would provide more cushion from earnings f o r other c o r r e c t i o n s , and ( 2 ) the sale of p r e f e r r e d / stock.would creste less problems w i t h respect to representations than would the sale of common stock, end ( 5 ) p r e f e r r e d stock c a r r i e s w i t h i t certain r i g h t s or p r i v i l e g e s of retirement end conversion OLAJ w e d i e a t e d em f u t u r e eii LUJieUiiHOaei which ahrwrtJfrtie 4 Z?u & erf advantage -te the management and the common stockholders. Interpose no o b j e c t i o n to unallocated reserve of $5,000,000 tt peatsaiiiin/1 m a l u i b write-ups and inadequate depreciation aa determined J&siTa complete survey^ and analysis of the 1 U e M t s p g t r t t g the-1 spur I uf w h m H w of Avgawt k-nrunE 1— banking premises, including f u t u r e and former premises, with the understanding t h a t i n case the f a c t s ss subsequently developed i n d i c a t e t h a t $5,000,000 i s inadequate, the d e f i c i e n c y weaaW- have t o be met out of current earning a. -25. Regular amortization* to be charged against current earnings. U n t i l otherwise advised by the Comptroller's O f f i c e , one-half of net bond p r o f i t s to be set aside i n reserves as an accelerat i o n against the elimination of the premium account. 4. See No. 2 . 5. No comment. 6. Immediate steps sb<all be taken^by the bank t o obtain from C a l i f o r n i a Lands and C a p i t a l Company the pledge .-of additional c o l l a t e r a l consisting of f r e e assets of those companies equal i n value to a t l e a s t 25% of the unpaid balance of t h e i r respective contracts with the bank. 7. AgjgOe, provided costs are defined and understood by committee. w i * *' Prefer book value of loan i n preference to cost. 8. No comment. 9. No comment, provided the language includes a f f i l i a t e s and associated companies. 10. No comment. 11. No comment. 12. No comment. The bank's response, to which the foregoing comments have been d i r e c t e d , does not cover the following points, which should be included: 1. The bank should take immediate stjgps through Merchants National Realty cui ^ijrfki Ai £0 ( Company to obtain the pledge^of c o l l a t e r a l adoqmtlj i n value to p i u - ) .^teet-the-Realty Oumpemyageiasi ,m jsertMfOtloso of 25% i n the amount if • * of the contracts between.the Realty Companyml fiajrttifc.-ftwf anyr Umu o f such* pledge of additional collateral, the bank shall set up a reserve from i t s undivided profits 4>o cover-e-'poeeibjbe lose in an equivalent amount«ir»4rie-i«veetMent in Merchants National Realty Coa^aaay. 2. Other real estate carried as such on the books of the bank. There should be set up an additional reserve from undivided profits equivalent to 25% of the carrying value of such other real estate. 5. Large lines. 1?e s t i l l recommend the treatment of large lines i n substantially frh a . e a a e e h i o n as suggested in the Comptroller's original requirements, with proper safeguarding language.
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