The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
A naeetinp, of the Board of Governors of the Federal leserve waS held in Washington on Wednesday, February 7, 1940, at 11:45 a..ra. PRESENT: Mr. Mr. Mr. Mr. Mr. Mr. Eccles, Chairman Ransom, Vice Chairman Szymczak McKee Davis Draper Mr. Morrill, Secretary Mr. Clayton, Assistant to the Chairman Mr. PaulFer, Chief of the Division of Examinations Mr. Cagle, Assistant Chief of the Division of Examinations Mr. Drei belbi s, Assistant General Counsel Mr. Clerk, First Vice President of the Federal Reserve Bank of San Francisco This was an executive session at which there was a discussion (11' Cil'art of "Comment s and Suggestions concerning 'Comptroller's Re- 11th respect to Bank ofAmerica N. T. & S. A.' which were tilscbil6ed at the Treasury on February 2, 1940". ISI'S' It was stated by Eccles and McKee that they proposed to submit this memorandum 1 tli') e°11ference which Under Secretary Bell had invited them to ath4c1 tIlis af ternoon at 2:30 P.m. at the Treasury, with representatives "1;149 Tl'easilrY and the Comptroller's Office and the suggestions and 'Ilti i 8 e'r the other members of the Board were invited. the cit. The draft was read, paragraph by paragraph, in the liptht of 11"-t of the n Comptroller's Proposed requirements, of which each 114itabelt lied Previously been flirnished a copy. livith some minor changes 209 2/7/40 T3hraseoloRy, the draft was accepted by the members of the Board itthe 'ai hereinafter set forth, with the understanding that Messrs. -8 and McKee, together with Messrs. Dreibelbis and Morrill, would 11;telid the conference and would submit this memorandum at that time: be i "1. Ca ital. A requirement that the capital must ,ncreased immediately by not less than 35,000,000 ';h111-1-t not appear to be unreasonable. Since it is believed ofat such capital can be obtained only through the purchase a Preferred stock by the Reconstruction Finance Corporation tllid since the capital of the bank can be reduced only with t e consent and upon such terms and conditions as the Comptheler of the Currency may prescribe in the amendments to it articles of association of the bank providi ng for such a crease in capital, we would eliminate from the program fly reference to a subseauent increase in coon stock mm Upon the retirement of preferred stock, which would be in th,neet an attempt to determine in advance what should be a -CBPitel requirements with respect to this bank over slacstantial period of time. "2. Dividends. We would prefer to attack this probmore directly by imposing requirements which would tZe the Bank to rectify its condition and practices, or!leaving to the existing limitation of law the payment im ui vidends out of any earning s not used in meeting the otPa°sed requirements. Consistently with this approach, requirement might be that bond orofits must be placed de4 sPecial reserve account to take care of losses and i tLile eci in the bond account, and the excess, if any, retained as long as any preferred stock is outstandthat° until the Comptroller of the Currency is satisfied it to 1,1 is no longer necessary to maintain such reserves ! et such losses or depreciation and consents to its ' 2r other purposes. obje 3. Accounting practices. There is, of course, no tellecti°n to the first sentence. As to the other two senotheee it is believed that their intent will be covered by %suggestion s. ex ra. 4. Losses. A large part of the losses set up by the ) 1 118 in the last report of examination is represented ing houses and other real estate which are also a i(al -e Part of the amount classified in column III. 210 "Concerninc the Bank's banking premises, we would stIggast giving consideration to requiring that additional reserves be set LID to the extent necessary so that the ?rrYing',' values of banking premises, as Shown on the Bank's s and in the investments in Merchants National 'Realty rporation, shall not include any 'write-ups' (i.e., any ncreeses in book value not due to actual increase in 8t due to acquisition of properties or to improvements ( e(1 , a Permanent nature) and that the carrying value shall include any depreciation which should have been taken accordance with established banking practices during the Period that the Bank has been operating under its present chart er. "Concerning the Bank's other real estate we would :.4gee6t giving consideration to requiring that additional tr"ves shall be set up to the extent of 25 per cent of 6 axistinF, carrying values of all 'other real estate' 0 ; Bank, whether carried on its books as such or as re'ing Premises or transferred to and now held by CaliIlite Lands, Inc., Capital Company, and Merchants National iaaaltY Corporation; that no real estate acquired by the tellk shell be transferred to California Lands, Inc., Capito Cumpany or Merchants National Realty Corporation, or 40 anY other party under similar arrangements, and that ' 1 6a1 estate shall be disposed of except for cash or 1,14, co"ar bona fide sales contracts with purchasers under ! i i°ns justifying the expectation that such sales or - pe final. As soon as possible after the acquisition al,IY additional real estate it shall be placed on the s books as 'other real estate' and shall be aptoned by competent appraisers, and thereafter shall vell 'a carried at an amount exceedinc: such appraised 46 or the book value, whichever is the lower. al...9jialLy held bank stock. We suggest that ; ' A111 5 In Xr consideration be given to the question whether, st,r, 611 of the terms of the option agreement, sale of the at this time would be advantageous to the Bank. In 1,ens connection, it mirzht be well to consider imposing a 00;1,1,1-relent that if and to the extent that Transamerica stL, °ration shall fail to repurchase the National City tiol;'' from the Bank, in accordance with the existing op- agreement between Transamerica and the Bank, the shall make adequate provision for the removal of stock without prejudice to any rights that it might r Z 211 -4"have against Transamerica Corporation under the option c°11tract. "6. Large lines. We agree that the progress that has been made in the past year in liquidatinF indebtedness Transamerica and its subsidiary corporations should be ITit inued, that the aggregate amount of these lines should , 4 - urour;ht within the statutory limitations, and that such 4tindebtedness should be adequately and properly secured in ice°rdance with sound banking practices and applicable 0:gal requirements. We believe also that the concentration ciL credit in the Bank, depending upon the shares of other t, ' c ealY related banking institutions should be discontinued; 4,n.at the credit facilities of the Bank should not be used ' ec'r the expansion of Transamerica; and that, with respect to : sting loans representing credit used for that purpose, t,?re should be a program for reduction and retirement. To 2is withend we suggest that there be a definite understanding the Bank as to what associated and affiliated companies !. e covered by the restriction and that the aggregate of loans be brought within the legal limit of the Bank's lendi Dower by July 15, 1942; that the stock of any bank sla nich Transamerica is substantially interested securing sic"' loans be eliminated by July 15, 1945; and, that no ez!ii!ler Pledges be accepted. We believe also that conside,:64°n should be given to the discontinuance of further ci'l'aanaions of credit by the Bank for the purpose of purtha or carrying Transamerica stock and to a provision : wh no collateral value shall be assigned to such stock ' 11 Pledged to secure other loans. : the Concerning the A. 0. Stewart Line we suggest that be required to continue its orderly liquidation it ' L ank be or with the agreement referred to in the report tlieexamination of August 31, 1939, as having been made by dEttj ank and A. 0. Stewart and which contemplated the liquior :Of .1,000,000 of such indebtedness before the end ' That 4° in addition to any liquidation from the sale of ti ed States Treasury bonds and other Government obligecert 4 7. Real estate concentration. We have already made ' a- 11 suggestions with respect to other real estate in forl1°111111ents and suggestions under '4. Losses.' Non-cone 1 11c7 reel estate loans and real estate acquired or slacXd in violation of section 5l77 of the Pevised Statutes it receive necessary attention. We have had in mind the-r.ing our suggestion as to reserves for real estate " sirability of avoiding statements which might be 212 2/7/4o f itint erPreted as placing upon the Government responsibility „,(31% forced, immediate liquidation vhich might undermine ' l airket values. 8, "8. Self-insurance reserve. We believe that such ' l ePs should be taken as may be necessary to detennine the ! Ge alitY of the transaction between the Bank and Transamerica 1'neral Corporation relating, to insurance against certain 68 of the Bank. In the event that it be found that ,7en. transaction was invalid the balance of the fiinds in the hands of Transamerica General Corporation, after de, eting therefrom all losses Paid by it, should be restored to the Benk.„ IL 0 hollowing this the Chairmen referred to the fact that Mr. had been in to to nittke an the last few days and had been trying appointment with either Mr. McKee or himself and that neither mezee nor h.e had talked to T,d'Ir. Giannini but that Mr. Giannini had tklic" t° Mr. Clayton and that Mr. Clayton had told Mr. Giannini that other 11.617 Pressing matters, including the fact that a conference of -4Aliere was bein,--• held, made it impossible for either Mr. Eccles or to set a time for a conference. h Mr. Clayton had reported e had mentioned to Mr. Giannini in a telephone conversation that there h rtot e'd been some conferences with the Treasury but Mr. Clayton had cated the character of the conferences. It had tilS also been reported that Mr. 0. K. Cushing had called C°111Ptr0ller of the Currency and had had a conference with him • thitney Seymour, Special Counsel for the Comptroller, as to 1$1.eh, h c3we'ver) the Chairman had been advised by Mr. Delano that no had been made of a possible program, the discussion being ,;o4rited e"irelY to the legal aspects of the hearing on the order to 213 2/7/40 -6bow cause. It was, however, understood that Mr. Cushing had desired to helve an appointment made for an interview with Chairman Eccles or , mclCee and no commitment had been made as to such an appointment. Both Chairman Eccles and Mr. McKee reiterated the view that it wo 11“ 1 be preferable for the Comptroller, the Federal Deposit Insur11114 f,„ -vrPoration, and the Board, to present a common front upon a Dropos ed -roP7rern but that if the Comptroller did not choose to partiei _ ''vate there was reason to believe that the Federal Deposit Insurehee °1"Poration would join with the Board and that, in any event, the to "d would have to be in position to confer with the representstile Bank of America, as they were of opinion that we could ot prn -PerlY refuse to meet them. at some convenient time and that we 13111d be be corr by the Prepared to discuss the condition of the bank frankly with esentatives in the liht of what the Board would consider to ective measures that should be taken. There was no dissent °ther members of the Board from this view of the situation. Thereupon the meetinp: adjourned. Chairman.
@FedFRASER