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.teaponse t o «ao t resented by the Ca& i t t e e w i t h agard t o ia*&k of toe r i c e 3* T» t A» C o u n t s upon a n k ' t -esponse t o CeraptrollerU iropoted e q u i r e kta* T Jp«l acceptance of the f o i l owing as a . rc r a & , auk: w i t h t h e c x r e a s understand Jj./ t h a t the m i t e r * pending before tne <* * - * w i l l be disposed of a t the same tis«c, the r * « i d o n t of tfae imik w i l l recessaend t o t t t ^oard of i r e e t o r a t h a t the* fiamkt ..ncresse i t s c a p i t a l s t r u c t u r e by t o U3 t lie w i t h i n frO d a y t f if p o s s i b l e , but i n no event l a t e r than •June 8 0 , 1*40* This w i l l be done by the i t a u arice a cameo* or r e f e r r e d ttook or p a r t ccocoa and part . r e f « r r e d a* a * y be decided upon by the sank* tepa t o t h i s end w i l l Le i n i t i a t e d promptly* itarfMOiii t o the £ank*s a r t i e l e t of a s s o c i a t i o n f o r t h i s purpose a . . a l l be agreed upon by the ;«ak and the \ cm i t t e e , and also by t h e K*? # C* i f any part of the funda are t o be made i l l a b i e turo the * - * * e i t h e r by way m purcLase of amy suoh etoek or by Baking loacis on the security t h e r e o f * l * C f f e r of c a p i t a l increase, e i t i t e r ooraj&oa or p r e f e r r e d , i n the t o t a l amount of 430,000,000 c a p i t a l funds* Amount teeaa i n adequate i n cons Ida r a t i o n of est i r e program offered* i.a; aoulu s u r e s t r e f e r r e d stooK f o r any increase i n c a p i t a l , whether t o l d to shareholders, the p u b l i c , or the government, because ( 1 ) i t should be cheaper c a p i t a l and would provide acre cushion frora earnings f o r other o o r r e e t l o n s , and (2J the sale o f preferred stock would create l e t s problem w i t h respect t o representations than would the t a l t of e o t M * stock $ and ( 3 ) p r e f e r r e d stock c a r r i e s w i t h i t c e r t a i n r i g h t s or p r i v i l e g e s of retir-?©eot and conv e r t ion whioh arc t o tae aovantage of t h e Management anc tits cotton stookholdert* 2* Immediately upon obtaining the new c a p i t a l , set up an unallocated reserve of «5,£M>,0Q©* 2* Interpose no o b j e c t i o n to unallocated reserve of «§,000,000 f o r a c o r r e c t i o n of write-ups and inadequate depreciation a t determined by a complete survey ana a n a l y s i s of the banking practises, inoluuing f u t u r e and former p r e n i a e t , w i t h the understanding t h a t I n oaee the f a c t a as subsequently developed i n d i o a t e t h a t M * 0 0 0 , 0 0 0 l a ina<ti|tmto, t h e deficiency w i l l have t o bo 'mot out of current earninga* 1, S* assort ise bond p r e n l v M I n accordance w i t h s t a t u t o r y provisions and requisit i o n s o f the Comptroller a p p l l o a b l e t o a l l n a t i o n a l banks* 3* Lo eoRtaexrt i f i t l a understood t h a t amortisation applies to e n t i r e p o r t f o l i o * I n a d d i t i o n one-half of net bond * r e f i t s t o be eet aside as a d i i i t i u n a l reserves t o a c c e l e r a t e the e l i m i n a t i o n of the premium account u n t i l tueh reserve i t ace%uato a t ' determined by the Comptroller*s o f f i c e * - 2 4* frurnish to the Comptroller coraf lete Information w i t h r*lp*Ot to tho a c t u a l cost to i t of each honkl r>g prertiee. 4* >ee feo* 2* 5* Charge off a l l itcne classified as loss i n the last revert of examination act otherwise cisoussad herein whieh have not heretofore been sharped off* (For your information, this has already been acne*) 6. *o o. I n s i s t t h a t California Lands and i t a l Co* furnish property' to additiona l l y occurs t h e i r contracts* ucb ropcrty w i l l be i n an amount equal to the a i f ference between the unpaid purchase r r l c e under the contracts and the valuation of the property thereunder as sueh valuation ap^<ears la the schedule contained in the report of eaani a t Ion begun uf,ust 31,1939* (For year information, sale* of real estate to California -*nds and Capital Co* under utmot vara discontinued as of June 1, e* proposed additional collateral ooosisting of free assets of those companies should bo i n an amount equal l a value to at leaat of the unpalc balance of their respective contracts with the bank* 7* uontinuc to treat real estate currently acquired by foreclosure or la satisfaction cf debt as wthar Heal -etate and carry the sane at east or o^ptmleod value, whichever la lowar* 7* Bo oosment, provided "ooctc" are defined and understood by c a v i t t e e , Prefer "book value of loon* to "coot'** 8* :.l iminatc the amount af investment i n steak under option en the basis of the program new in affect, the annuo1 reduction amountin$ t o $543,860* V* require continuation af the pro* &ran of liquidation now i s affect with r a gerd to the eoarltnsBta of Transarnrloa end its subsidiaries* 8. *e notmmiU 9* V#o s t i l l roeccsMrno the treatment of large linee tm substantially as suggested i n the Comptroller' s original roqulronento, with proper cafe guarding lan^ua^e* 10* limineto, within a reasonable period, any loans carried in excess of legal limits i f any sueh exist* ( I t la the bank's policy oat to permit leans to —oood legal limits*} 10* uo coct cnt* 11* tflwo v i g o r o u s a t t e n t i o n t o any a aetata holding* or r o n l estate loans waat any n o t o n f e m t o o t a t u t a r y r e q u i r e ments* 11* So oconont* - 12* Initiate steps tc ancertain whet tier the i*ank is entitled to recover any part of Tranaaaarioa General corpora* tlcn'a reserve f o r f i d e l i t y losses and to recover any part thereof to wfcloh the Bonk may bo entitled* 3 - 12* iio cessment* Xhe bank's reep« se, to ahioh the the foregoing response lo preforego in^ eemfeonts have been directed, does sented as an expression of the 3aqk's sinnot cover the f o l l o w i n g points, whioh cere desire t c cooperate eenetruotijoly i n a r r i r i n . at an undo re tend lug* I t shall not should be includedi be deeded or construed as adnitting any 1* The bank should take isaseuiato otatenent or implication in the Coenittee'e steps torougri. lor chants liaticoal Realty rrewo or assenting to anything therein exCompany to obtain the pledge by Cfcpltal Co, cept ae heroin oxprooood, or as adalttlng of collateral equal In value to at least that tr.cre is any le^al requireraont or fac- 2&> of the amount of the contracts between tual necessity for any change ou^ostod i t and tne ealty Company* To cover any therein or herein* rhieaono is not t c bo deficiency in additional collateral, the used for any other purpose or by any other bank shall set up a reserve from ito undiviasen^y* ded profits in an equivalent amount* 2* ether real estate carried as sueh on the books oi tho bank* There shculc be set up an additional reserve from undivided prof ito equivalent to 15, of the carrying value of sueh other real aetata*
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