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March 6, 19kO No, REQUIREMENTS OF THE COMPTROLLER OF THE CURRENCY 1. As soon as possible, and i n any event not l a t e r than June 30, 191+0, Bank of America, National Trust & Savings Association w i l l add 130,000,000 o f a d d i t i o n a l c a p i t a l funds by the issuance of common or p r e f e r r e d stock, or both, and the Bank w i l l , p r i o r to A p r i l 1, 191+0, apply f o r the approval of the Comptroller o f the Currency to such increase. The Bank w i l l endeavor t o obtain a commitment from the Reconstruction Finance Corporation to purchase or lend upon p r e f e r r e d stock i n the amount o f #30,000,000 p r i o r to A p r i l 1, 19l+0# and i f p r e f e r r e d stock i s to be sold, w i l l endeavor to obtain an agreement w i t h the Comptroller of the Currency upon the terms of the amendments to the a r t i c l e s o f association by A p r i l 1, 2* 19^0. Immediately upon obtaining the new c a p i t a l the Bank s h a l l set up an unallocated reserve of $6,900*000. 3» The Bank s h a l l obtain a d d i t i o n a l s e c u r i t y s a t i s f a c t o r y to the Comptroller of the Currency to secure the contracts of California Lands, I n c . and Capital Company with the Bank, and the contracts of Capital Company with Merchants National Realty Corporation. Such a d d i t i o n a l s e c u r i t y s h a l l be i n an amount equal i n value to the d i f f e r e n c e between the unpaid purchase price upon such contracts and the value of the property thereunder, as such value appears i n the schedule contained i n the report o f exami n a t i o n begun August 31$ 1939« A l l of such contracts s h a l l be - 2 - eliminated from the assets of the Bank and Merchants National Realty Corporation by December 15* 19-U3* I40 A l l premiums on bonds i n the Bank's investment p o r t f o l i o shall be amortized out of current earnings (other than bond p r o f i t s ) maturity, or to c a l l date, i f any, and amortization to previously reserved on bonds s o l d at book value or higher may be returned to the undivided p r o f i t s account. Current bond p r o f i t s s h a l l be used to take care of current losses, and any bond p r o f i t s not so used s h a l l be passed to a reserve f o r losses of any character u n t i l in the opinion of the Comptroller of the Currency such reserve i s adequate. However, t h i s reserve f o r losses, plus the amortiza- t i o n reserve need not exceed the t o t a l premium account® 5® The Bank s h a l l , as soon as p o s s i b l e , f u r n i s h to a committee composed o f the Vice President i n Charge o f Examinations o f the Federal Reserve Bank o f San Francisco, or some o f f i c e r o f the Bank designated by him, the Supervising Examiner o f the Federal Deposit Insurance Corporation for the Twelfth D i s t r i c t , and the Chief National Bank Examiner f o r the Twelfth Federal Reserve D i s t r i c t , a l l obtainable records and information with respect to the a c q u i s i t i o n of each banking premise c r i t i c i s e d i n the report of examination o f August 31, 1939* i n c l u d i n g those shown on the Bank f s books and i n i t s investment i n Merchants National Realty Corporation, dating back to the time such premise was acquired e i t h e r by the Bank or any member ( e i t h e r bank or company) of the group p r e s e n t l y or then comprising the Transamerica organization* - 3 - The committee shall consider the f a i r value of each premise at the time of such acquisition, and the special conditions which had to be met in fixing the price paid. From these considerations, the committee shall determine the amount which shall be used by the committee as the estimated cost amount of each premise to the Bank® The value of each premise shall then be established at such estimated cost amount, plus the amount of any expenditures subsequent to acquisition found by the committee to have been appropriately capitalized, less the appropriate amount of depreciation at the depreciation rate allowed by the Bureau of Internal Revenue for each year of ownership® The unallocated reserve set up by the Bank shall be reduced by the difference between the present carrying value of each such premise and the value of such promise as determined by the committee in the manner hereinabove stated® The decision of a majority of the members of the committee shall be binding® The remainder of such reserve, i f any, may be returned to the undivided profits account® A partial release of the reserve, or a decrease in the amount of the reserve to be set up, may be made as soon as that procedure is j u s t i f i e d , i n the opinion of the committee® 6® The aggregate amount of obligations, as defined i n Section 5200 United States Revised Statutes, of Transamerica Corporation and a l l subsidiaries in which i t owns or controls a majority interest, to the Batik, w i l l be brought within the limitations and exceptions - h - of Section 5200, United States Revised Statutes, for any one borrower by July 15, 19h2$ and thereafter the aggregate amount of such obligations w i l l not be permitted to exceed such limitations and exceptions. The existing obligations of Transamerica or its subsidiaries now held by the Bank w i l l be eliminated by July 15, 1914-5, and no new loans w i l l be made to Transamerica or its subsidiaries secured by the stock of subsidiaries of Transamerica. This paragraph shall not apply to obligations of Capital Company and California Lands, Inc. arising out of real estate sales contracts, which contracts are covered i n numbered paragraph (3) hereof• The Bank may accept Transamerica shares as security for small loans for business purposes where the borrower demonstrates a capacity to liquidate the loan otherwise than through the sale of such shares. No loans for speculative purposes w i l l be made on the security of such shares. 7* The Bank shall eliminate the amount of investment in stock under option on the basis of the program now in effect. 8. The Bank shall give vigorous attention to the elimination or correction of any real estate holdings or real estate loans that may not conform to statutory requirements. 9m The Bank shall i n i t i a t e steps to ascertain whether i t is entitled to recover any part of the sums paid by i t to Transamerica General - 5 - Corporation i n connection with f i d e l i t y losses, and i f i t is concluded the Bank is entitled to recover, i t shall take steps to recover the same. 10. The Board of Directors of the Bank w i l l approve the foregoing by April 1, 19U0. This memorandum i s submitted without prejudice to the right to require f u l l and complete compliance with the Comptroller's criticisms and suggestions, to resort to sanotions provided by law, or to continue to l i s t in reports of examination assets that are subject to criticism u n t i l such criticisms have been corrected or eliminated. Neither this memorandum nor its contents shall be used by the Bank or anyone else on its behalf without the consent of the Comptroller of the Currency for any purpose except for i t s information, unless and u n t i l the provisions hereof are accepted and complied with by the Bank.
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