Damnation of Mitchell

"Mitchell is the ideal modern bank executive."--Carlton A. Shively, Financial Editor of the New York Sun, May 1929.* "Mitchell more than any 50 men is responsible for this stock crash."--U. S. Senator Carter Glass, November 1929.

Last week, Charles Edwin Mitchell (hair whiter but neck, biceps and calves as toughly muscular as ever) was brought to trial. He could not see his judges--they were that inchoate multitude, the U. S. people. Verdict (uttered in a vast mumble of expletives as evening headlines followed morning): that Charles Edwin Mitchell, as chairman of the largest bank in the U. S.,/- had been a thoroughly wicked banker.

The trial was not the kind which is explained in any handbook of civics. It took place in the headlines and in Room 304 in the U. S. Senate office building where sits the Senate Committee on Banking & Currency. Defendant Mitchell had been charged with no crime. But had he failed to appear, he would have been clapped promptly into jail ("contempt of the Senate"). There was no attorney for the defense. There was, however, a prosecution. It consisted of 1) six to a dozen Senators and 2) a man quite as remarkable as any of the Senators, Ferdinand Pecora.

One of the Senators was Smith Wildman Brookhart than whom no banker-hater ever roared louder. But Iowa had not re-elected him to the Senate. This was his last chance.

Another was burly Peter Norbeck, the Committee's chairman, who still insists that his occupation is water-well digging in his dry South Dakota.

Another was Virginia's patrician little Carter Glass, but, bored by Senatorial exhibitionism, he never attended.

Happiest to attend was rich-radical James Couzens. Like his old partner, Henry Ford, he has no use for banks & bankers or much of anything else in the present social system. Famed for his ability to step on every protruding toe, he got into politics as a rambunctious Mayor of Detroit. He had almost feared that the Committee would not get around to his hobby before its inquisitorial commission expired March 4. But time had not been wasted. It never is by Ferdinand Pecora whom the Senators had employed with funds enough to keep 12 accountants busy 12 nights and 12 days stalking through the ledgers of National City.

Ferdinand Pecora, most brilliant lawyer of Italian extraction in the U. S., finished public schools at 12. At 18, after loping through his brother's law books, he was managing clerk of a law firm. Even on the most complex cases (which he, tireless, likes best) he never needs notes, never forgets a word of testimony once it is on the record. One of his most famed convictions was that of former New York State Superintendent of Banks Frank H. Warder for his part in the failure of Manhattan's City Trust Co. in 1929. At 47, his black eyes flash, his black hair bristles.

Last week, sitting always at Chairman Norbeck's right, Mr. Pecora put on the show. His the right to question; Mr. Mitchell's the duty to answer no more no less than suited Mr. Pecora--and Senator Brookhart darkly hinted that a jail cell was ready if the banker balked. Banker Mitchell proceeded to say enough to damn himself to the satisfaction of the Committee, Mr. Pecora and a large part of the U. S. people by the following admissions :

1) That his remuneration from National City bank and its affiliates for the year 1927 was $1,081,230; for the year 1928, $1,341,634; for the year 1929, $1,133,868--a grand total for three years service of $3,556,732.

2) That in 1929 National City through its security affiliate National City Co. had put on the most flamboyant high-pressure bank stock selling campaign in all history. By all manner of devices, National City salesmen had sold 1,900,000 shares of National City stock to the public for some $650,000,000.

3) That National City loaned $2,400,000 to a score of its own officers to help them carry their stock (largely National City) after the crash, that only 5% of these loans have since been repaid.

4) That National City employes on the other hand are still paying (from their salaries) for 60,000 shares of National City stock purchased at $200 a share and that these employes still owe more than the present market price ($30).

5) That National City Bank financed its affiliate's pool operations in copper stocks. That National City Co. put on a whirlwind selling campaign in Anaconda copper in 1929, got the public to buy 1,300,000 shares at about $120 a share. Present price: $5 1/2.

6) That through an issue of its own new stock in 1927 National City Co. bought $25,000,000 of stock in General Sugar Corp., boneyard of National City's Cuban sugar properties. With this cash General Sugar "bailed out" National City Bank's bad sugar loans. The Company has since written this investment down to $1.

7) That to avoid payment of a 1929 Federal income tax he sold 18,000 shares of his National City stock to a member of his family at a $2,800,000 loss.*

Senator Couzens, serving one day as temporary chairman, made Mr. Mitchell squirm when he asked him whether he considered himself a better salesman than a financier. "I understand you have quite a reputation as a salesman and a financier both." Mr. Mitchell did not think the question fair, but replied: "I have rarely seen an executive who has to do with the public and the management of a great corporation who might not be called a good salesman." Senator Couzens: "I would judge you a better salesman . . . and that is no disparagement of your financial ability." Snapped Mr. Mitchell: "Thank you for the compliment."

Senator Couzens: Doesn't it [the bonus system] inspire a lack of care in the sale of securities to the public?

Chairman Mitchell: I can readily see . . . that it would seem so. ... At the same time I don't recall seeing it operate that way.

Senator Couzens: You wouldn't. Only the public would see it after they got the securities. How many of the securities you sold are now in default?

Chairman Mitchell: During a ten-year period our sales were about $20,000,000,000 and I think there has been difficulty . . . in something under $1,000,000,000.

It was easy and natural to wonder why, if all these things were true, the directors of National City had permitted Charles Edwin Mitchell to continue as their chief executive for the past three years. Colyumist Heywood Broun sounded more than usual like a popular spokesman when he wrote: "In addition to reform we should have resignations."

Immediately after 1929's crash, Mr. Mitchell's resignation was discussed. Owen Young and Seymour Parker Gilbert were mentioned as successors. Months passed; nothing happened. Why? Directors had their reasons:

First, some of them were devoted to Charlie Mitchell and all of them had reason to be grateful to him. He had taken charge of the bank after two presidents had been scrapped in quick succession: Frank A. Vanderlip who backed Russia's Kerensky and James Alexander Stillman, who had inherited a large share of the bank's stock but who was overwhelmed by personal scandal soon after assuming the presidency. Charlie Mitchell almost immediately restored the bank's morale and soon made it the best in Wall Street. A man's man, strong and courageous, his record was clear ever since that day when, a junior at Amherst, he learned that his father's business had failed and he must make his own way. And with all this, the directors (most famed of whom were Percy Avery Rockefeller, James A. Stillman, the late John D. Ryan) knew that Banker Mitchell had not acted without their consent. Thus they permitted considerations of sportsmanship to prevail over the consideration of public responsibility.

Second, while directors were heartily sorry for his and their mistakes (especially stock-selling) they did not admit that his or their acts were culpable. For every evil-looking act listed above they had an explanation which gave the lie to the headlines. Example: all loans made to officers were secured by collateral which was ample at the time. None of the officers have been forgiven their debts. They still owe the money and their collateral is still pledged to the National City Company. The "write-off" consisted merely in getting these frozen loans off the books of the bank and on to the books of the security company. And this was done in the interest of depositors in accordance with a vigorous and highly successful attempt to make the bank safe for depositors. If the loans are never paid back, the bank's stockholders will suffer, not the depositors. Example: whether to "close out" a frozen loan at a loss or to attempt to quicken it back to life is a banker's daily problem. On Cuban Sugar, the bank decided wrongly. But again, no depositor suffered, for the very reason that the risk was transferred from the bank to security affiliate. And as for stockholders: the bank stock they secured in 1927 in exchange for $25,000,000 was selling higher than the price they paid.*

But thirdly, the chief reason advanced for not jettisoning "Billion Dollar Charlie" was that neither the directors nor any other Manhattan banker knew anyone who, they believed, could do an equally good job of carrying the bank safely through storm & strife. That he has done the job, Ferdinand Pecora would be the last to deny. The statement of National City Bank was, on Dec. 31, 1932, the envy of nearly every bank in the U. S.

There rested, over the weekend, the issue of banking morality and responsibility. With one other angle: bankers high & low throughout the land, while not condoning the acts of 1929, loudly proclaimed that last week the greater villains were U. S. Senators who would risk the credit of the U. S. by putting scandal into the headlines when Confidence had already received body-blows at St. Louis (TIME, Jan. 23), New Orleans (TIME, Feb. 13), Michigan (TIME, Feb. 20) and in many another state.

But the Senate Committee had succeeded in getting its man. On Monday morning at 9 a. m. Charles Edwin Mitchell, 66, resigned, and James Handasyd Perkins, 57, was promptly elected chairman of the nation's second biggest bank. Few hours later the directors of National City Co. accepted the resignation of President Hugh Baker. Mr. Mitchell and Mr. Baker returned to Washington for further grilling.

A tall, dignified, 200-lb. Bostonian with a cropped mustache, Banker Perkins graduated from Harvard when Harvard had a "Sound Money Campaign Club" and a "Total Abstinence League." He was a member of neither. Captain of the 1898 crew, First Marshal of his class (and president the three previous years), he went to work for Walter Baker & Co. (chocolate), quit in 1905 to become a vice president of a Boston bank.

He entered Manhattan banking in 1914 as a vice president of National City bank. But after directing Red Cross activities in France during the War (after a brief interlude as an investment banker), he became head of Manhattan's old ultra-conservative Farmers Loan & Trust Co. Not until 1929 when his bank was absorbed by expansive Mr. Mitchell did he again work for National City.

Continuing to direct National City's trust division (City Bank Farmers Trust Co.) after the merger, he never became embroiled in any of Mr. Mitchell's stock selling schemes. He is known as a banker of the old type--which is precisely what National City needed to regain public approval. Manhattan knows little of him socially. He spends all his time at his big estate in swank Greenwich, Conn., rides horseback daily before breakfast. He is a trustee of Smith College, the Berkshire School, Sarah Lawrence College and an Overseer of Harvard College.

On his election this week he announced: "The primary business of the bank is to serve the domestic and foreign commerce and industry of the U. S. in the field of commercial banking. . . ."

*Editor Shively's point: "As everyone knows, the modern banker is not the mere money lender and interest snatcher of days gone by. The Wall Street bank, in particular, is as much an industrial institution as it is a bank ... a vast social enterprise as well. . . . National City must have at its head a man who thoroughly understands industrial problems."

/-National City was biggest U. S. bank long before its resources reached $1,000,000,000 in 1919. The sobriquet, "Billion Dollar Charlie," became current when its deposits reached that figure in 1926. Though its assets increased to more than two billion, it was surpassed by Albert Henry Wiggin's Chase in 1930. Last December assets of Chase were $1,856,290,000; of National City $1,615,260,000.

*Such losses for tax purposes were legal but in the hue & cry last week retiring U. S. Attorney General William De Witt Mitchell (no kin) promptly launched a probe into this and other Mitchellisms.

*See footnote, col 3.

*The bank's reasoning: for six years following the 1921 collapse the price of sugar had averaged 5-c- a pound. Even at 2 1/2-c- General Sugar Corp. would show a profit. There seemed not the faintest possibility that the price would slump to 1/2-c- in 1932. Though National City Co. has written down its investment to $1, it still owns the stock, still has a chance to recoup.

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