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ZAOO SIXTEENTH STREET W A S H I N G T O N , D. C. My dear Marriner:Negotiations with the Bank of America have reached the stage indicated i n the attached memorandum. I am anxious both for you to be informed and to have your advice and counsel i n the matter. The attached is not agreed to and I am not sure that I myself am entirely i n accord with i t . W i l l you please treat i t as highly confidential and give me personally the benefit of your c r i t i c ! As ever, Preston Delano. December 13 th MEMORANDUM Rej Bank of America Reference is made to the various communications i n recent weeks between the Comptroller's Office and the Bank of America N*T*& S*A* dealing with departmental criticism of the bank's management, including dividend policies and certain specified items, and with particular reference to the department's letters to the bank of September 23 and November 23* After several conferences between L* M* Giannini, President, ¥f* E. Blauer, Vice Chairman, and Russell Smith, Cashier, of the bank, Chief National Bank Examiner Folger, Assistant Chief National Bank Examiner Clarence Smith, and Examiner Sedlacek, some of which conferences were attended by Comptroller Preston Delano, Deputy Comptroller Upham, Under-Secretary of the Treasury Hanes, Leo Crowley, Chairman of the Federal Deposit Insurance Corporation, Chairman Jones and Sam Husbands of the RFC, the following would seem to constitute an acceptable program for adjustment of differences between the Comptroller of the Currency and the bank* 1» Due to the widespread operations of the bank, i t s great number of branches, and close a f f i l i a t i o n with Transamerica Corporation and i t s a l l i e d interests, the bank should effect and reasonably maintain a sound capital structure having a ratio to i t s entire deposits of, say, one to ten. The amount of any additional capital required f o r this ratio to be determined after the result of the examination now i n progress, including a review of the items classed as slow* The increased capital should be i n the bank as early as practicable after the amount shall have been determined, but i n no event later than June 30, 1939# 2. Real estate i n the amount of fl,578,005*49 now carried under the heading of "banking houses11 should be adjusted satisfactory to the Comptroller* 3* The real estate item of #4^700,000 acquired through purchase from the Merchants National Realty Corporation should be completely liquidated by July 15, 1942, such liquidation to be d i l i g e n t l y pursued* I t i s noted that this item has been reduced from $5,875,000 since the last examination. 4* The $4*700,000 balance due upon the item of ftguaranteed loans11 should be liquidated at the rate of not less than #1*300,000 per year and completely eliminated by July 15, 1942* This item has been reduced from $5,524,000 since the last examination* - 2 - 5. The bank should obtain a definite agreement from Transamerica to purchase the 45,200 shares of National City Bank stock at its cost to the Bank of America H.T.&S.A., #2,200,000, i n annual installments of not less than 11,300 shares, with provision for complete elimination by July 15, 1942. This item has been reduced from $2,716,800 since the last examination, Transamerica having purchased 11,300 shares at the option price of #48.00 per share* The bank should also obtain a general pledge agreement from Transamerica adding as security the collateral ^ now pledged to secure the Mguaranteed loans. n 6» Stocks and bonds to the amount of #87§,358.04 especially c r i t i cized should be disposed of as soon as possible, and not later than June 30, 1939. 7. The remaining balance of approximately #1,500,000 of unrealized bond write-up should be eliminated by June 30, 1939. * . 8. Depreciation of banking houses, furniture and fixtures should be continued so that the entire item., exclusive of the cost of the land, w i l l be eliminated i n not more than 18 years. / 9. The 16 loans made on 1277 shares of the bank's own stock should be immediately collected or corrected to the satisfaction of the Comptroller. 10. The A. 0. Stewart line listed at approximately #11,000,000, of which #4,500,000 is classified as slow, should be made satisfactory to the Comptroller. ^ 11. The bank should agree that i t w i l l not acquire from unit banks, which have been converted into branches, assets which national banks are not authorized to own. ^ 12. Any dividends declared should at the time of the declaration be deducted from the undivided p r o f i t account and carried as a reserve for dividends• / 13* The statute which prohibits a national bank from lending upon i t s own stock should be s t r i c t l y enforced, and the same principle should be applied to loans on Transamerica stock. I n justice to the bank and i t s clientele, the bank should be allowed to extend accommodations to stock- ^ holders of Transamerica i n small amounts for their business purposes, accepting Transamerica stock as supporting security, when they can demonstrate their a b i l i t y to repay the loan without relying upon the sale of the stock to pay i t . 14» Any loans t6 Transamerica Corporation and its a l l i e d interests should have the prior approm! of the Board of Directors of the bank and the approval recorded i n the minutes of the board meeting. ^ - 3 - 15. Loans to Transamerica, its subsidiaries, and a l l i e d interests should be brought within the legal limit allowed to one interest as soon i / " as possible, and not later than July 15, 1942. 16. The bank should not be permitted to write up on its books the value of any asset which i t retains, and no p r o f i t should be taken by the bank on any assets sold to a related company, unless such sale is a bona fide sale and without recourse oh the bank. I f any such sale is made other than for cash, the note or notes taken i n payment or part payment therefor should be properly secured. 17» The bank should eliminate flother real estate11 and the real . estate contracts of Capital C0mpany and California Lands, Inc., such r elimination to be diligently pursued, and completed by December 15, 1943. 18• The bank should agree that any criticized items not covered herein w i l l have prompt and effective attention, and that i t w i l l cooperate with the Comptroller of the Currency i n an effort to bring a l l matters pertaining to the bank i n line with his requirements. r X 19. Because of i t s size and dominant position in the t e r r i t o r y i t occupies, the bank should keep i t s capital structure extraordinarily strong through a conservation of earnings by a conservative dividend policy. After the bank's capital structure 1ms been adjusted as provided in item ( l ) herein, i n determining the amount of dividends to be paid consideration should be given to increasing the net sound capital by additions of a reasonable amount of net profits, and no dividends declared that w i l l be inconsistent with reasonably maintaing a one to ten r a t i o of capital to deposits. Upon the bank's agreement to the program outlined herein, approved by its Board of Directors, i t should be free to declare i t s regular semi-annual dividend March 1939 i f i t s Directors elect to do so.
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