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CABLE
H E A D
S A N
O F F I C E
F R A N C I S C O .
1
CALIF.
March 18, 19X2.
Moaorf.fele ?restea Del&ao,
Comptroller of the Currency,
B*ar B i n
/Cry /s
fhs Controller's leit&r of Tm'brmm r ^ s l m J , fc4dresss4
to the 'Board at Directors eae
t» the
at i t i »»ct1lt HI
hi-rah H i H$Jt* fhefcfoardw&s |gU»gtj
recogaitlon m the fact that the Itt&lr la ©o^.plySfega^l the requlreiMftts
of h i t office.
. .
l a analysis >f the iteas cos^-o^X/t^ so-called "ltrge
11a© to
£or: or^tloa, ltasubfr^Jsries
do. ^ related
eoa.aaiea* sad •fixed assets
cr^S^isjsd 1 oeas*# aggregafcisff
^1^,3^8,16$, f a i l s to disclose
why these * rt!cul*.r
zsmt* si ouM hare been selected ia^asetj/ence to suy otfctr ^roup of
items of the Bank's assets of h M m ^ T
""00,000,000 as criteria
in th« detersdaatiois of tfoe sufH^^KO* of capital structure. the
following t&buXatioa of items iaclu&ejr ia the figure of the so-e&llac
fraassaerioa large line and the relative coisweats, should illustrate
m * i oistt
A s ^
Imm to liK&Ykhi^i Growers
Trsmaaaerica Cor
l§r stock of
these are it^^fco&ss to Traasa^srica Cer,-0rstlor<,
a
or a «t«wely rel*t«d company, tat
t
to Jatopendeat individual berreeer*.
Livestock IoSnwt discounted with m ty %mkaaerica
Credit Co^oHkMua
• •..« 57,153,770 ^
CORRES - l 2 0 > 5 7 4 - 3 7
readily re-di scouatable loeas to
im^A-nAmt iadivMual borrowers, disceuated
m witfeia specific provisions of las, and
ia connectism with which the Examine r states
ia his reportt *&ot subject to adverse crlticisa
m& listed oalj for record urposes.*
A D D R E S S
BAMER1CAL
CABLE
..
.
H E A D
O F F I C E
1
gonir&l&i Frfeatoa Belfcao,
- 2-
A D D R E S S
B A M E R I C A L
Starch 18, 194?.
Direct sfeort-tena lota to B&akeaerica Credit
Corsoration
*»•-••#•#*»*»•«•»*••#!*••»•• % £00,00© t
fhis loan, ehisfe i s not criticised ia the report,
has be©a p&J4 ia f a l l .
Direct losa to M t t t r U f t Company . . . . . . . I
244,3^4 *
Indirect l i a M l l l y of Baakaaerlca Con*
m
eatst&adiag drafts accosrpaaied hy secut ivies ••
115,310 ^
Baaltaaerltn vosrany i s not a sm^s^^^S of
aor is i t closely related to f i ^ ^ i ^ f / c s
fiPjfi*ll<Mhr The*© it®®® arermot classified
and the
la the re-pop^st *fully
seeored,*
V ^ ^ S
.
Heal Estate loaas to Capital J&mz^my . . . . . § 630,000 *
Indirect l i a b i l i t y of la t e s t ^ M ^ f i w t f ; -or* Ilea
as endorser on iiisur*ace preaiua^oatWfeia . . . . $ 507,369
A
Thefeeloeas to ( ^ w ^ t W are coaviatioaal
conforming M l estatK4$*&*f ami the l i a b i l i t y
of Ict^r~ijS»c;riet^b«^orati m i s o& coatracts of
re&^jaeible i M l ^ b i ^ b s . Tfe# lies® are act
classified ia ^ e
Loan to f&eiiic ^Jifcl^^tgafe {teaj.eiiy . . . 1^,90.1,496 *
this iatke*n>daes> i s aot properly included
ia the m ^ s s ^ r i c a Cor oratiaa line, Hone
of tbis w^&tssified as doubtful or loss.
the
included ia fha figure of the so-called
fraasaaerlea largq^HjjKafcs cohered by the •fiecaire««its of the Comptroller11,
aad oa February
"U ey had been reduced to a balance of f2$,600,261,
a r&ductioa of
ai.-<ce the last eacaaia&tioa. Hose of these iteas
is festertmkj
a^rersaly ep^sH^sd*
usfedM
m as**<m/the
4s
Controller »e letter, the figure of 1 v, 8£,165
teaus
tea^s to sislead
sasiean w
asanas
b i s i i t Iaclades
iaciaaes a li l of
ai tfee
the iteas appearing ia the forelore*
going tabulation sad the reaaiaiaf items above r*ferr%-d to, amounting to —$46,697,^2. To safe* up 'the larger fig are there i s added to this latter
a oxsat the imre.tsient ia bmk premises aad furniture and fixture s maoimtin§
to #49,159,90?, which i s aot classified. fhts# hanking pre»ise« are necessary
DigitizedCfor
FRASER
ORR
ES,-( 20) 57
4-37
CABLE
HEAD
SAN
OFFICE
FRANCISCO.
'
A D D R E S S
BAMERICAL"
CALIF.
Honorable Prestos Deiai
i&erch 18, 194 -
to the pro, er couduct of the- fesa^'s business sad are be lag carried at
s&ynd values sad are being depreciated as agreed- t^oa with the
Controller 1 a office,
Also included ia the l&rg#r figure is
aao-uat of |35»569,290
ia losas cJUasifled as I I , i&icfe l e n s hare be^a so classified by the
ffimmixmr largely, i t mppmt*, because he MMdder* that they hare slow
t tffldeaclsa aad aot because. of inherent loss feasibilities, sad aa saeuat
of 16,009,271 representing; other real estate o u t l e t at depreciated
coaservative values, aad against which aubsi&aiial reserves hsire been
provided.
la the f i n a l analysis, the ia^resuiveySlgure of 3 1 3 $ , 1 6 5
includes adversely classified assets f^oiattaj^^/salg^ 12,994,991, a
relatively saall sum, and of this aaouat
^ v l & a a s i f i e i as I ? , has
beer, charged o f f , and ttee r*^aiader, aaou»tift| to^feifc >11,752,784, i s
cl«s i f i e d as I I I or doubtful.
/
I t has never been evident to us tfeatNfel4>re was a "neaeeaitj* I'or
adding to the capital structure of thiyi^^a^aa repaired by the- C o n t r o l l e r ' e
office. I t s cerital, exclusive of
i s now and has been at
a l l tiaas throughout the discussions wfeick Receded ti*e promulgation of the
*Iaq*§irei»enfca# of the C o n t r o l l e r ' s y s ^ i c e v i r y such ia axons* of the statutory requirement. I t w i l l be recsp^^lteat ia the auasrous conferences that
lorecedod the *IUfcquir-asata* I sad
present representing the
®aak consistently aalateinad that aoN^y^ioasl capital of any *iad was '
needed, and that i t a i iaecuit^&t to require our institution to r.rovi e
additional capital ehea the saae^^^kreaeats »s>re aot laposed upon other
i&stitutioa* which had a far lower
of capital to da. ."Sits than had
the Baii>:. of ijserica. I t
b^ohrious that the position taken at that
time w&s fu_iy justified, m ^ ^ j i ^ h m period of spprojdusately eighteen '
^snaths between January 31, iv^SwwU date of the exaalustlaa which preceded
the Jp roirulgation of the y^^^ulresaeaisfe11, sac Auga&t
1941, the date of the
nasi reseat exaniin&tiasfr ^ v * ^ * * ® 8 ^
^ ^ ta the aet sound capital
structure, oa the
giving no consideration to the aet
increases i a capita^T-'adsV^ultiag froa the issuance of preferred ytoca
akich, an the l & t t e / ^ s ^ , amounted to 1-27,000,000. This increase in net
soaaa capital stru^fe^va^s alisost equal to tb« xm% increase in capital
funds resulting frofeN^&lr^ssuaace of preferred stocJc* Between th*- date of
the last examination &a*r1f#braary
1 9 4 2 , ss coaputed oa the ixaniaar**
formula, thereyfc^^rtteer substantial inprovaasat, so that oa that dat#
the total i a c i ^ l ^ m A aore thaa the retirable value of the outstanding
preferred stack>v^y
Curiaf the conferences none of us eoatsaplatat that the preferred
stack should reaaia utst&ading f o r tmolgr years. As a satter o f f ? c t the
losa o f the ^ c o n s t r u c t i o n Finance Corporation aade to finance the p r e f e r r e d
stock issue k i aade oa a basis t h a t i t would be p a i d i a f a l l i a not t o exceed
years*
A mrmf&l vet-ding of the p e r t i a e e t p r o v i s i o n s o f paragraphs 5 and
CORRES-I20>57
«-37
HEAD
SAN
C A B L E
A D D R E S S
• BAMERTCAL"
OFFICE
FRANCISCO.
CALIF.
_
,
_
_
NATIONAL
Honorable Preston Delano.
ASSOCIATION
- £-
March 18, 1942.
8 of Article FIFTH of the Amendments to the Articles of Association
w i l l reveal the inaccuracy of the conclusion reached by the Comptroller* s
office in regard to the question of retirement.
i
|
I
I
I
{
I t w i l l be noted that paragraph 5 of the Articles of Association
approved by the stockholders and by the Comptroller*s office provides that
the only restriction against the retirement of the preferred stock i s that
the aggregate amount of capital, surplus, end reserve f o r increase in
common capital shall not be reduced below the aggregate amount of capital
and surplus existing immediately after the issuance of convertible preferred stock, Any funds "lawfully available" may be transferred to the
preferred stock retirement fund in the discretion of the Board of Directors,
provided teat not more than |1,000,000 of the i ^ f t r i d t f profits accounts
existing at the time of the issuance o fteep r ^ e * r © / i t o c k might be so
transferred i n e&eh of the years ending on Zme j ^ ^ A X and 1942 • Thus
i t i s apparent teat a l l of the.net profits
those amounts are avail a l l s
for the retirement of preferred stock. T h ^ ^ i a s no other restriction,
express or i n l i e d , nor was there any agrefcraseiV4^ a y of our conferences
that was or was intended to be inconsistent withteeabove provisions of
the Articles of Association. On December
there was available i n
the capital structure of the Bank for tfafe^^ixessnt of preferred stock,
pursuant to the provisions of the Articles^)? Association, approximately
$14,500,000, of which only $3,500 9QK$X)t^ used i n connection with tee
retirement which took place on January
1942, an saount somewhat less
than 2% of the amount available. ^ s / T /
Un er the circumstancW^wsee no justification forteeComptroller
to question the conservatism, wisdoJfKjJr prudence of those who are responsible
for the conduct of the affairs of this bank, and who have established a record
of outstanding achievement
the past. In view of the fact teat
assets advsrsely cl&ssifiedis. ^ e / l a s t examination amounted to only
$3,309,201, now reduced te-41,2§3y468 principally by the elimination of
tee I? classification,
p e further fact teat the Bank1 s capital funds
approximate |16Q,G00,QCS&L i t i s considered that the statements inteethird
paragraph of the ComptroDW^ letter are particularly unfair and unjust.
In the f i a # l 4^alysis, when consldsration is given to the fact
that the ComptroUbiQ»fet^k bedteeBank1 s adjusted capital structure at
about #93,000,000, aat&sfrn i n the sxaaination report of March 31, 1939,
and toteefurtheK^act thatteecapital structure of the Bank as shown
i n i t s annual rd^fen^nn December 31, 1941, was approximately #160,000,000,
exclusive of i & b ^ s ^ i a l bond appreciation, i t is obvious teat there was
aa increase o f approximately $40,000,000 without giving effect to preferred
stock, or aa over-ell increase i a the period of approximately 167,000,000 mere than 70% * a phenomenal increase la so short a period of time, apart
from the question of whether or not classifications at the time were proper.
http://fraser.stlouisfed.org/
CORRES-57 4-4!
Federal Reserve Bank of St. Louis
HEAD
CABLE
OFFICE
FRANCISCO
ADDRESS
"BAMERICAL"
CALIF.
KonarnlatLe ?r.-stoe Belaao.
-
larch IS, 1942*
$ -
Set only feaa tee Bank provided a reserve for war contingencies of
o»e~half of tfes set additions to profits for the year l\*4l, tat i t he*
gen* beyond this end has included in M s account unallocated reserve to
t h e
extent of a ^ p r o a r i n n t e l j r
000,000*
earnings of t h i s bank f o r a
aunber o i ye&rs here greatly ej«ie«l#d tho^e wfelcfe n i g h t normally have
bv s exj>e«ted of i t in comparison vith Institution* of c:.- - r isle S^ wtaace.
In tfee i L ' t e t of- t h i s and of s i r accoa, lishnent*, alan* t h e l s s u & a c e of the
preferred stock and of our eo«a.iie»ca with the •&aqisiren*Bt % t k r t a,.near*
to he no Xogical basis for the Comptroller1 a criticism. Be cteaot consistent*
ly subscribe to a requirement which violatesteeagreement" with the C n a p t r o l l e
office and the previsions of the irticiee of Association heretofore specifi% his
e would
be be
acting
in1b
c a l l y
r o v e d
cally
a;- pirorad
hisoffice.
off ids.fce
fcedo
donot
notheliev«yte«i
believeAfeaiwmm
would
acting
a t e r e we to abdicate
good faith toamrd those interested iin
n this inst^tyd nwere
end responsibilities ape^&As^y
s p e ^ ^ a ^ g ^ imposed
impostd ur^on
ur?<m US
us fcy
ly
the satbority, powers and
i r t i d e s of Association,
Association,'1 nor would m
ikitfe. with ourselves
oursnlve*
the Article*
we be^eeJSs^
be
w*
so.
if w
e did so.
/ /
*e sincerely desire to act at a i r M ^ i ^ r i t h the utmost, courtesy
ant; consideration towardteeOffice of tfe*Comptroller of the Currency, anc
m hope teat the continuous harassment
m have been subjected in
r m m t years may soon be i&minated m W ^ ^ / e m work ia eloae? h a r m ^
ia fartheraaea of the war effort which la
tally Inpertsttt at this tins
fher« i s no objection to fcbp^gA tee Comptroller*& office prnngrt
wfesn transfers are
to the Conv^H^Jjr Preferred stock Retirement Fund
and when convertible pr#ferr« fte^k is retired within the provision* o < tt
/•rticles of aspoci-Aticn, and we i n ^ N ^ c assure the Comptroller that ao such
actiaa w i l l
taken outside of
televisions
of the articles ©f Associ&ti
without securingteeprevious approval of i s office.
CORSES.- T20) 5 7 -4-37
Aeapeetfully yours,
( V
President.
r ' s
@FedFRASER